Document:

ex10_1.htm

EXHIBIT 10.1

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of February 3, 2012 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and PROCERA NETWORKS, INC., a Nevada corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank.  The parties agree as follows:

 

RECITALS

 

A.            Bank and Borrower have entered into that certain Loan and Security Agreement dated as of December 10, 2009 (as the same as been amended, modified, supplemented, renewed, or otherwise modified, from to time, the “Prior Loan Agreement”).  Pursuant to the Prior Loan Agreement, Bank made certain loans and other credit accommodations, as described therein, available to Borrower.

B.            Borrower has requested, and Bank has agreed to replace, extend, amend and restate the Prior Loan Agreement in its entirety.  The parties hereby agree that the Prior Loan Agreement is hereby amended, restated and replaced in its entirety as follows:

 

1              ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following GAAP.  Calculations and determinations must be made following GAAP.  Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

 

2              LOAN AND TERMS OF PAYMENT

 

2.1           Promise to Pay.

 

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

 

2.1.1       Revolving Advances.

 

(a)           Availability.  Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount.  Amounts borrowed hereunder may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

 

(b)           Termination; Repayment.  The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

 

  

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2.2          Overadvances.

 

If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.

 

2.3          Payment of Interest on the Credit Extensions.

 

(a)           Interest Rate.  Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the greater of (i) four and one quarter of one percent (4.25%) or (ii) the Prime Rate plus one percent (1%), which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

(b)           Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase.  Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations.  Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

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

 

(d)           Computation; 360-Day Year.  In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.  Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

 

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

 

(f)            Interest Payment Date.  Unless otherwise provided, interest is payable monthly on the first (1st) calendar day of each month.

 

2.4          Fees.

 

Borrower shall pay to Bank:

 

(a)           Commitment Fee.  A fully earned, non refundable commitment fee of Seventy Thousand Dollars ($70,000) payable as follows: (i) the first installment of Thirty-Five Thousand Dollars ($35,000), on the Effective Date and which has been paid to Bank as a good faith deposit, and the second installment of Thirty-Five Thousand Dollars ($35,000), on the first (1st) anniversary of the Effective Date;

 

  

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(b)           Termination Fee.  Subject to the terms of Section 12.16, the Termination Fee; and

 

(c)           Bank Expenses.  All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

 

2.5          Payments; Application of Payments.

 

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

 

(b)           Bank shall apply the whole or any part of collected funds against the Revolving Line or credit such collected funds to a depository account of Borrower with Bank (or an account maintained by an Affiliate of Bank), the order and method of such application to be in the sole discretion of Bank.  Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

 

3             CONDITIONS OF LOANS

 

3.1          Conditions Precedent to Initial Credit Extension.

 

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

 

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

 

(b)           Borrower’s Operating Documents and good standing certificates of Borrower certified by the Secretary of State of the State of Nevada and the Secretary of State of the State of California as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(c)           duly executed original signatures to the completed Borrowing Resolutions for Borrower;

 

(d)           certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

 

  

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

 

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

 

(g)           payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

 

3.2          Conditions Precedent to all Credit Extensions.

 

Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

 

(a)           timely receipt of an executed Payment/Advance Form;

 

(b)           the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension.  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

 

(c)           in Bank’s sole but reasonable discretion, there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or any material adverse deviation by Borrower from the most recent business plan of Borrower presented to Bank.

 

3.3          Covenant to Deliver.

 

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

 

  

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3.4          Procedures for Borrowing.

 

Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance.  Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee.  Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.  Bank shall credit Advances to the Designated Deposit Account.  Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.

 

4             CREATION OF SECURITY INTEREST

 

4.1          Grant of Security Interest.

 

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

 

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

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and at such time, Bank shall, at Borrower’s sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower.  In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any.  In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to 105% of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.

 

  

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4.2          Priority of Security Interest.

 

Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

 

4.3          Authorization to File Financing Statements.

 

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

 

5             REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1          Due Organization, Authorization; Power and Authority.

 

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

 

  

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The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or (v) constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

5.2          Collateral.

 

Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.  Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein.  The Accounts are bona fide, existing obligations of the Account Debtors.

 

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

 

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

 

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

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

 

5.3          Accounts Receivable.

 

For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be.  Whether or not an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security interest in such funds and verify the amount of such Eligible Account.  All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

 

  

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5.4          Litigation.

 

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

 

5.5          Financial Statements; Financial Condition.

 

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

 

5.6          Solvency.

 

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

 

5.7          Regulatory Compliance.

 

Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005.  Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted.

 

  

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5.8          Subsidiaries; Investments.

 

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

 

5.9          Tax Returns and Payments; Pension Contributions.

 

Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower.  Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, and (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.”  Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.10        Use of Proceeds.

 

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

 

5.11        Full Disclosure.

 

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

 

  

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5.12        Definition of “Knowledge.”

 

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

 

6             AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1          Government Compliance.

 

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

 

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

 

6.2          Financial Statements, Reports, Certificates.

 

Deliver to Bank:

 

(a)           Borrowing Base Reports.  Within thirty (30) days after the last day of each month, aged listings of domestic accounts receivable and domestic accounts payable (by invoice date) (the “Borrowing Base Reports”);

 

(b)           Borrowing Base Certificate.  Within thirty (30) days after the last day of each month and together with the Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a Responsible Officer;

 

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

 

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

 

  

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(e)           Annual Audited Financial Statements.  As soon as available, but no later than one hundred eighty (180) days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion;

 

(f)           Annual Projections.  As soon as available, but no later than thirty (30) days after the last day of Borrower’s fiscal year, annual financial projections for the following fiscal year commensurate in form and substance with those provided to Borrower’s Board of Directors;

 

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

 

(h)           SEC Filings.  Copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any governmental authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be.  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;

 

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

 

(j)           Intellectual Property Notice.  Prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any copyright, including any subsequent ownership right of Borrower in or to any copyright, patent or trademark not shown in the IP Agreement, and (iii) Borrower’s knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property; and

 

(k)           Other Financial Information.  Budgets, sales projections, operating plans and other financial information reasonably requested by Bank.

 

6.3          Inventory; Returns.

 

Keep all Inventory in good and marketable condition, free from material defects.  Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date.  Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than One Hundred Thousand Dollars ($100,000).

 

  

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6.4          Taxes; Pensions.

 

Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.5          Insurance.

 

Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank.  All property policies shall have a lender’s loss payable endorsement showing Bank as a lender loss payee and waive subrogation against Bank.  All liability policies shall show, or have endorsements showing, Bank as an additional insured.  All policies (or their respective endorsements) shall provide that the insurer shall give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy.  At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations.  If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

 

6.6          Operating Accounts.

 

(a)           Maintain with Bank and Bank’s Affiliates (i) its primary operating and other deposit accounts and securities accounts and (ii) all foreign exchange services, letters of credit and cash management services.

 

(b)           Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates.  For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

 

  

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6.7          Financial Covenants.

 

Maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries:

 

(a)           Adjusted Quick Ratio.  A ratio of Quick Assets to Current Liabilities of at least 1.75 to 1.0.

 

6.8          Protection and Registration of Intellectual Property Rights.

 

(a)           (i) Protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise Bank in writing of material infringements of its Intellectual Property of which Borrower has actual knowledge; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

 

(b)           If Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any Patent or the registration of any Trademark, then Borrower shall promptly provide written notice thereof to Bank and shall execute such intellectual property security agreements and other documents and take such other actions as Bank shall request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in such property.  If Borrower decides to register any Copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior written notice of Borrower’s intent to register such Copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Bank may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in the Copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the Copyright or mask work application(s) with the United States Copyright Office.  Borrower shall promptly provide to Bank copies of all applications that it files for Patents or for the registration of Trademarks, Copyrights or mask works, together with evidence of the recording of the intellectual property security agreement necessary for Bank to perfect and maintain a first priority perfected security interest in such property.

 

(c)           Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public).  Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

 

  

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6.9          Litigation Cooperation.

 

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

 

6.10        Access to Collateral; Books and Records.

 

Allow Bank, or its agents, on one (1) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books.  Such inspections or audits shall be conducted no more often than once every twelve (12) months (or more frequently as conditions may warrant) unless an Event of Default has occurred and is continuing.  The next audit shall occur on or around May 2012 unless an Event of Default occurs prior to such date.  The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses.  In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

 

6.11        Further Assurances.

 

Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.  Deliver to Bank, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.

 

7             NEGATIVE COVENANTS

 

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

 

7.1          Dispositions.

 

Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn out or obsolete Equipment; and (c) in connection with Permitted Liens and Permitted Investments.

 

  

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7.2          Changes in Business, Management, Ownership, or Business Locations.

 

(a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) have a change in management; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as Borrower identifies to Bank the venture capital investors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).

 

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Ten Thousand Dollars ($10,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Ten Thousand Dollars ($10,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.  If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Ten Thousand Dollars ($10,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

 

7.3          Mergers or Acquisitions.

 

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.  A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

7.4          Indebtedness.

 

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

 

7.5          Encumbrance.

 

Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein.

 

  

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7.6          Maintenance of Collateral Accounts.

 

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

 

7.7          Distributions; Investments.

 

(a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

7.8          Transactions with Affiliates.

 

Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

 

7.9          Subordinated Debt.

 

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

 

7.10        Compliance.

 

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

 

8             EVENTS OF DEFAULT

 

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

 

  

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8.1          Payment Default.

 

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

 

8.2          Covenant Default.

 

(a)           Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.8(c), 6.10 or violates any covenant in Section 7; or

 

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

 

8.3          Material Adverse Change.

 

A Material Adverse Change occurs;

 

8.4          Attachment; Levy; Restraint on Business.

 

(a)           (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

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

 

  

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8.5          Insolvency

 

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

 

8.6          Other Agreements.

 

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

 

8.7          Judgments.

 

One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower 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);

 

8.8          Misrepresentations.

 

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

 

8.9          Subordinated Debt.

 

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

 

8.10        Governmental Approvals.

 

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

 

  

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9             BANK’S RIGHTS AND REMEDIES

 

9.1          Rights and Remedies.

 

While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

 

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

 

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

 

(c)           for any Letters of Credit, demand that Borrower (i) deposit cash with Bank in an amount equal to 105% of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

(d)           terminate any FX Contract;

 

(e)           settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

 

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

 

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

 

  

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(h)           ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

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

 

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

 

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

 

9.2          Power of Attorney.

 

Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

 

9.3          Protective Payments.

 

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

 

  

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9.4          Application of Payments and Proceeds Upon Default.

 

If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion.  Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.  If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

9.5          Bank’s Liability for Collateral.

 

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

 

9.6          No Waiver; Remedies Cumulative.

 

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

 

9.7          Demand Waiver.

 

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

 

  

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10           NOTICES

 

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

 

	 	
If to Borrower:

	
Procera Networks, Inc.

	 	  	
4121 Clipper Court

	 	  	
Fremont, California 94538

	 	  	
Attn:  Charles Constanti, VP and CFO

	 	  	
Fax: (408) 354-7279

	 	  	
email: cconstanti@proceranetworks.com

	 	  	  
	 	
If to Bank:

	
Silicon Valley Bank

	 	  	
2400 Hanover Street

	 	  	
Palo Alto, California 94304

	 	  	
Attn: Megan Willard

	 	  	
Fax: (650) 320-0016

	 	  	
email: mwillard@svb.com

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

 

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

 

  

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

 

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

 

12           GENERAL PROVISIONS

 

12.1        Successors and Assigns.

 

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

 

  

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12.2        Indemnification.

 

Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against:  (46) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (47) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower contemplated by the Loan Documents (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

 

12.3       Time of Essence.

 

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

 

12.4        Severability of Provisions.

 

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

 

12.5        Correction of Loan Documents.

 

Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties.

 

12.6        Amendments in Writing; Waiver; Integration.

 

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

 

  

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

 

12.8        Survival.

 

All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied.  Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of security interest by Borrower in Section 4.1 shall survive until the termination of all Bank Services Agreements. The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

 

12.9        Confidentiality.

 

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

 

Bank Entities may use the confidential information for reporting purposes and the development and distribution of databases and market analyses so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly prohibited by Borrower.  The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

 

12.10      Attorneys’ Fees, Costs and Expenses.

 

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

 

  

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12.11      Electronic Execution of Documents.

 

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

 

12.12      Captions.

 

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

 

12.13      Construction of Agreement.

 

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

 

12.14      Relationship.

 

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

 

12.15      Third Parties.

 

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

 

12.16      Termination Prior to Revolving Line Maturity Date.

 

This Agreement may be terminated prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank.  Notwithstanding any such termination, Bank’s lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations.  If such termination is at Borrower’s election or at Bank’s election due to the occurrence and continuance of an Event of Default, Borrower shall pay to Bank, in addition to the payment of any other expenses or fees then-owing, a termination fee in an amount equal to Fifty Thousand Dollars ($50,000) (the “Termination Fee”), provided, that no Termination Fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Bank.

 

  

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12.17      Transitional Arrangements; Termination of Pledge Agreement.

 

On the Effective Date, this Agreement shall amend, restate and supersede the Prior Loan Agreement in its entirety, except as provided in this Section.  On the Effective Date, the rights and obligations of the parties evidenced by the Prior Loan Agreement shall be evidenced by this Agreement and the other Loan Documents and the grant of security interest in the Collateral by the Borrower under the Prior Loan Agreement and the other “Loan Documents” (as defined in the Prior Loan Agreement) shall continue under this Agreement and the other Loan Documents, and shall not in any event be terminated, extinguished or annulled but shall hereafter be governed by this Agreement and the other Loan Documents.  All references to the Prior Loan Agreement in any Loan Document or other document or instrument delivered in connection therewith shall be deemed to refer to this Agreement and the provisions hereof.  Without limiting the generality of the foregoing and to the extent necessary, the Bank reserves all of its rights under the Prior Loan Agreement.

 

The Prior Loan Agreement is secured by, among other things, a pledge of 100,000 shares of the stock of Netintact AB (the “Pledged Stock”) pursuant to that certain Stock Pledge Agreement dated December 10, 2009, from Borrower in favor of Bank (the “Pledge Agreement”). The Pledge Agreement is hereby terminated, and Bank hereby releases Borrower from all of its obligations thereunder.

 

13           DEFINITIONS

 

13.1        Definitions.

 

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

 

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

 

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

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

 

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

 

“Agreement” is defined in the preamble hereof.

 

  

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“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b ) the outstanding principal balance of any Advances.

 

“Bank” is defined in the preamble hereof.

 

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

 

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

 

“Borrower” is defined in the preamble hereof.

 

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

 

“Borrowing Base” is eighty percent (80%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing amount in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

 

“Borrowing Base Certificate” is that certain certificate in the form attached hereto as Exhibit C.

 

“Borrowing Base Report” is defined in Section 6.2(a).

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions substantially in the form attached hereto as Exhibit E.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.

 

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; and (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue.

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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“Copyrights” are 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.

 

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

 

“Current Liabilities” are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year.

 

“Default Rate” is defined in Section 2.3(b).

 

“Deferred Revenue” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

 

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

 

“Designated Deposit Account” is Borrower’s deposit account, account number _____________, maintained with Bank.

 

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

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.3.  Bank reserves the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment.  Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:

 

(a)           Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or agent;

 

(b)           Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;

 

(c)           Accounts with credit balances over ninety (90) days from invoice date;

 

(d)           Accounts owing from an Account Debtor, in which fifty percent (50%) or more of the Accounts have not been paid within ninety (90) days of invoice date;

 

(e)           Accounts owing from an Account Debtor (other than Shaw Cablesystems GP) which does not have its principal place of business in the United States unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;

 

  

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(f)           Accounts billed and/or payable outside of the United States unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion (sometimes called foreign invoiced accounts);

 

(g)           Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);

 

(h)           Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

 

(i)            Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account Debtor’s payment may be conditional;

 

(j)            Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);

 

(k)           Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);

 

(l)            Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

 

(m)          Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

 

(n)           Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts);

 

(o)           Accounts for which the Account Debtor has not been invoiced;

 

(p)           Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’s business;

 

(q)           Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond ninety (90) days;

 

  

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(r)           Accounts arising from chargebacks, debit memos or others payment deductions taken by an Account Debtor;

 

(s)           Accounts arising from product returns and/or exchanges (sometimes called “warranty” or “RMA” accounts);

 

(t)           Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

 

(u)          Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);

 

(v)          Accounts owing from an Account Debtor, whose total obligations to Borrower exceed thirty-five percent (35%) of all Accounts (except for (i) Cox Communications and Shaw Cablesystems GP, for which such percentage is eighty percent (80%) and (ii) such other Accounts approved by Bank in writing on a case-by-case basis in its sole discretion, for which such percentage shall be determined by Bank in its sole discretion), for the amounts that exceed that percentage, unless Bank approves in writing; and

 

(w)          Accounts for which Bank in its good faith business judgment determines collection to be doubtful, including, without limitation, accounts represented by “refreshed” or “recycled” invoices.

 

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

 

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

 

“Event of Default” is defined in Section 8.

 

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

 

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

 

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

 

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

 

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

  

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

 

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

 

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

 

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

 

“Indemnified Person” is defined in Section 12.2.

 

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

 

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

 

(a)           its Copyrights, Trademarks and Patents;

 

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

 

(c)           any and all source code;

 

(d)           any and all design rights which may be available to a Borrower;

 

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

 

  

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

 

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

 

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

 

“IP Agreement” is that certain Intellectual Property Security Agreement executed and delivered by Borrower to Bank dated December 10, 2009, as amended, modified, supplemented, renewed, or otherwise modified, from to time.

 

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

 

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

 

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

 

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (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 one or more of the financial covenants in Section 6 during the next succeeding financial reporting period.

 

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

 

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

 

  

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“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

 

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

 

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

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)           Subordinated Debt;

 

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

 

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

 

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

 

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

 

“Permitted Investments” are:

 

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

 

  

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(b)           Investments consisting of Cash Equivalents;

 

(c)           Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;

 

(d)           Investments consisting of deposit accounts in which Bank has a perfected security interest;

 

(e)           Investments accepted in connection with Transfers permitted by Section 7.1;

 

(f)            Investments (i) by Borrower in Subsidiaries not to exceed Fifty Thousand Dollars ($50,000) in the aggregate in any fiscal year and (ii) by Subsidiaries in other Subsidiaries not to exceed Fifty Thousand Dollars ($50,000) in the aggregate in any fiscal year or in Borrower;

 

(g)           Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;

 

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

 

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

 

“Permitted Liens” are:

 

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

 

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

 

(c)           purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than Fifty Thousand Dollars ($50,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

  

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(d)           Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed Fifty Thousand Dollars ($50,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(e)           Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

 

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

 

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

 

(h)           non-exclusive license of Intellectual Property granted to third parties in the ordinary course of business;

 

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

 

(j)            Liens in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts.

 

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

 

“Prime Rate” is the “prime rate” of interest, as published from time to time by The Wall Street Journal in the “Money Rates” section of its Western Edition newspaper.  In the event The Wall Street Journal or such rate is no longer published or available, Bank shall select a reasonably comparable rate and provide notice thereof to Borrower.

 

“Quick Assets” is, on any date, (i) Borrower’s unrestricted cash at Bank, (ii) net billed accounts receivable billed and collected in the United States, and (iii) investments with Bank or Bank’s Affiliates with maturities of fewer than 12 months determined according to GAAP.

 

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

 

  

- 37 -

  

 

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

 

“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.

 

“Restricted License” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.

 

“Revolving Line” is an Advance or Advances in an amount equal to Ten Million Dollars ($10,000,000).

 

“Revolving Line Maturity Date” is February 2, 2014.

 

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

 

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

 

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

 

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

 

“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, but excluding all Subordinated Debt.

 

“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.

 

“Transfer” is defined in Section 7.1.

 

  

- 38 -

  

 

“Warrant” means that certain Warrant to Purchase Stock from Borrower to Bank dated December 10, 2009, as amended, modified, supplemented, renewed, or otherwise modified, from to time.

[Signature page follows.]

 

  

- 39 -

  

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.

 

BORROWER:

	PROCERA NETWORKS, INC.	 
	 	  	 
	 	  	 
	By	
/s/ Charles Constanti

	 
	Name:	
Charles Constanti 

	 
	Title:	
Chief Financial Officer

	 
	 	  	 
	BANK:	 
	 	  	 
	SILICON VALLEY BANK	 
	 	  	 
	By	
/s/ Megan Willard

	 
	Name:	
Megan Willard

	 
	Title:	
VP

	 

[Signature Page to Amended and Restated Loan and Security Agreement]

 

  

  

  

 

EXHIBIT A

 

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

 

All goods, equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, general intangibles (including payment intangibles) accounts (including health-care receivables), documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, now owned or later acquired; any patents, trademarks, service marks and applications therefor; trade styles, trade names, any trade secret rights, including any rights to unpatented inventions, know how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damages by way of any past, present and future infringement of any of the foregoing; and

 

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

 

  

  

  

EXHIBIT B – LOAN PAYMENT/ADVANCE REQUEST FORM

Deadline for same day processing is Noon Pacific Time

 

	Fax to:	 	Date:________________________________

 

	
Loan Payment:

	  	  
	
PROCERA NETWORKS, INC.

	  	  	  
	
From Account #________________________________

	
To Account #__________________________________________________

	  
	
(Deposit Account #)

	(Loan Account #) 	 
	
Principal $____________________________________

	
and/or Interest $________________________________________________

	  
	  	  	  
	
Authorized Signature:__________________________________

	 	
Phone Number:__________________________________________

	  
	
Print Name/Title:______________________________________

	  	  
	 	 	 

 

	
Loan Advance:

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

	  	  	  
	
From Account #________________________________

	
To Account # __________________________________________________

	 
	
(Loan Account #)

	
(Deposit Account #)

	  
	  	  	  
	
Amount of Advance $___________________________

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

	  	  	  
	

Authorized Signature:__________________________________

	 	

Phone Number:______________________________________

	 
	

Print Name/Title:______________________________________

	  	  
	 	 	 

 

	
Outgoing Wire Request:

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

	  
	
Deadline for same day processing is noon, Pacific Time

	  	  
	  	  	  
	
Beneficiary Name: _____________________________________

	
Amount of Wire: $______________________________________________

	  
	
Beneficiary Bank: _____________________________________

	
Account Number:_______________________________________________

	 
	
City and State:_______________________________________

	 	 
	 	 	 
	
Beneficiary Bank Transit (ABA) #:________________________

	
Beneficiary Bank Code (Swift, Sort, Chip, etc.):_________________________

	 
	 	
(For International Wire Only)

	 
	 	 	 
	
Intermediary Bank:____________________________________

	
Transit (ABA) #:________________________________________________

	 
	
For Further Credit to:__________________________________________________________________________________________________

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

	 	 	 
	
Authorized Signature:__________________________________

	
2ndSignature(if required):__________________________________

	 
	
Print Name/Title:______________________________________

	
Print Name/Title:________________________________________

	 
	
Telephone #:_________________________________________

	
Telephone #:___________________________________________

	 
	 	 	 

 

 

 

 

EXHIBIT C - BORROWING BASE CERTIFICATE

	
Borrower:  Procera Networks, Inc.

	Lender: Silicon Valley Bank
	Commitment Amount: $10,000,000

 

	ACCOUNTS RECEIVABLE	  
	1.	
Accounts Receivable (invoiced) Book Value as of ____________________

	
$_______________

	2.	
Additions (Please explain on next page)

	
$_______________

	3.	
3.Less:  Intercompany / Employee / Non-Trade Accounts

	
$_______________

	4.	
4.NET TRADE ACCOUNTS RECEIVABLE

	
$_______________

	 	  	  
	ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	  
	5.	
90 Days Past Invoice Date

	
$_______________

	6.	
Credit Balances over 90 Days

	
$_______________

	7.	
Balance of 50% over 90 Day Accounts (Cross-Age or Current Affected)

	
$_______________

	8.	
Foreign Account Debtor Accounts (other than Shaw Cablesystems GP)

	
$_______________

	9.	
Foreign Invoiced and/or Collected Accounts

	
$_______________

	10.	
Contra / Customer Deposit Accounts

	
$_______________

	11.	
U.S. Government Accounts

	
$_______________

	12.	
Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts

	
$_______________

	13.	
Accounts with Memo or Pre-Billings

	
$_______________

	14.	
Contract Accounts; Accounts with Progress / Milestone Billings

	
$_______________

	15.	
Accounts for Retainage Billings

	
$_______________

	16.	
Trust / Bonded Accounts

	
$_______________

	17.	
Bill and Hold Accounts

	
$_______________

	18.	
Unbilled Accounts

	
$_______________

	19.	
Non-Trade Accounts (If not already deducted above)

	
$_______________

	20.	
Accounts with Extended Term Invoices (Net 90+)

	
$_______________

	21.	
Chargebacks Accounts / Debit Memos

	
$_______________

	22.	
Product Returns / Exchanges

	
$_______________

	23.	
Disputed Accounts; Insolvent Account Debtor Accounts

	
$_______________

	24.	
Deferred Revenue, if applicable / Other (Please explain on next page)

	
$_______________

	25.	
Concentration Limits (35% of all Accounts (80% for Cox Communications and Shaw Cablesystems GP)

	
$_______________

	26.	
TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

	
$_______________

	 	  	  
	27.	
Eligible Accounts (#4 minus #26)

	
$_______________

	28.	
ELIGIBLE AMOUNT OF ACCOUNTS (80% of #27)

	
$_______________

	 	  	  
	BALANCES	  
	29.	
Maximum Loan Amount

	
$10,000,000

	30.	
Total Funds Available [Lesser of #29 or #28]

	
$_______________

	31.	
Present balance owing on Line of Credit

	
$_______________

	32.	
RESERVE POSITION (#30 minus #31)

	
$_______________

 

[Continued on following page.]

 

  

  

  

 

Explanatory comments from previous page:

	 
	 
	 

 

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Amended and Restated Loan and Security Agreement between the undersigned and Silicon Valley Bank.

 

	
COMMENTS:

 

 

By: ___________________________

Authorized Signer

Date: __________________________  

	
BANK USE ONLY

Received by: ______________________________

authorized signer

Date:   ___________________________________

Verified: __________________________________

authorized signer

Date: ____________________________________

Compliance Status:                                Yes           No

 

  

  

  

 

EXHIBIT D

COMPLIANCE CERTIFICATE

 

	
TO:

	
SILICON VALLEY BANK

	  	
Date:

	  	 
	
FROM:  PROCERA NETWORKS, INC.

	  	  	  	 

The undersigned authorized officer of Procera Networks, Inc. (“Borrower”) certifies that under the terms and conditions of the Amended and Restated Loan and Security Agreement between Borrower and Bank (the “Agreement”):

 

(1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

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

 

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

 

	
Reporting Covenant

	
Required

	
Complies

	  	  	  
	
Monthly financial statements (consolidated and consolidating) with Compliance Certificate

	
Monthly within 30 days

	
Yes   No

	
Annual financial statement (CPA Audited) + CC

	
FYE within 180 days

	
Yes   No

	
Annual financial projections

	
FYE within 30 days

	
Yes   No

	
10-Q, 10-K and 8-K

	
Within 5 days after filing with SEC

	
Yes   No

	
Borrowing Base Certificate, A/R & A/P Agings

	
Monthly within 30 days

	
Yes   No

	  
	
The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”)

____________________________________________________________________________________________________________

____________________________________________________________________________________________________________

 

	
Financial Covenant

	
Required

	
Actual

	
Complies

	  	  	  	  
	
Maintain on a Monthly Basis:

	  	  	  
	
Minimum Adjusted Quick Ratio

	
1.75:1.00

	
_____:1.00

	
Yes   No

 

The following financial covenant analysis and information set forth in Schedule 1 attached hereto is true and accurate as of the date of this Certificate.

 

  

  

  

 

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

	 
	 
	 

 

	
PROCERA NETWORKS, INC.

 

 

By:____________________________                                                  

Name:__________________________                                                    

Title:___________________________                                                   

 

	
BANK USE ONLY

 

Received by: _____________________

authorized signer

Date:   __________________________

 

Verified: _________________________

authorized signer

Date:    __________________________

 

Compliance Status:           Yes     No

  

  

  

 

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Dated:           ____________________

I.             Adjusted Quick Ratio (Section 6.7(a))

 

Required:               1.75:1.00

Actual:

	
A.

	
Aggregate value of the unrestricted cash and Investments with maturities of fewer than 12 months at Bank

	

$_______

	 	 	 
	
B.

	
Aggregate value of the net billed accounts receivable of Borrower billed and collected in the United States

	

$_______

	 	 	 
	
C.

	
Quick Assets (the sum of lines A and B)

	

$_______

	 	 	 
	
D.

	
Aggregate value of Obligations to Bank

	

$_______

	 	 	 
	
E.

	
Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line D above that matures within one (1) year

	

$_______

	 	 	 
	
F.

	
Current Liabilities (the sum of lines D and E)

	

$_______

	 	 	 
	
G.

	
Adjusted Quick Ratio (line C divided by line F)

	

________

Is line G equal to or greater than 1.75:1:00?

 

                 _______No, not in compliance                                                                                     _______Yes, in compliance

 

  

  

  

EXHIBIT E

BORROWING RESOLUTIONS

 

Silicon Valley Bank

CORPORATE BORROWING CERTIFICATE

	
Borrower:

	
Procera Networks, Inc.

	
Date: __________, 2012

	
Bank:

	
Silicon Valley Bank

	  

 

I hereby certify as follows, as of the date set forth above:

 

	
1.

	
I am the Secretary, Assistant Secretary or other officer of the Borrower. My title is as set forth below.

 

	
2.

	
Borrower's exact legal name is set forth above.  Borrower is a corporation existing under the laws of the State of Nevada.

 

	
3.

	
Attached hereto are true, correct and complete copies of Borrower's Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above.  Such Articles/Certificate  of  Incorporation have not been amended,  annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

	
4.

	
The following resolutions were duly and validly adopted by Borrower's Board of Directors at a duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized corporate action).  Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded, amended or revoked, and Bank may rely on them until Bank receives written notice of revocation from Borrower.

 

Resolved, that any one of the following officers or employees of Borrower, whose names, titles and signatures are below, may act on behalf of Borrower:

 

	
Name

	
Title

	
Signature

	
Authorized to

Add or Remove 

Signatories

	  	  	  	
o

	  	  	  	
o

	  	  	  	
o

	  	  	  	
o

 

Resolved Further, that any one of the persons designated above with a checked box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized to act on behalf of Borrower.

Resolved Further, that such individuals may, on behalf of Borrower:

  

  

  

 

Borrow Money. Borrow money from Silicon Valley Bank (“Bank”).

Execute Loan Documents. Execute any loan documents Bank requires.

Grant Security. Grant Bank a security interest in any of Borrower's assets.

Negotiate Items.  Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash  or otherwise use the proceeds.

Letters of Credit. Apply for letters of credit from Bank.

Foreign  Exchange  Contracts.  Execute spot or forward foreign exchange contracts.

Issue Warrants. Issue warrants for Borrower's capital stock.

Further Acts.  Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement  that  waive Borrowers right to a jury trial) they believe to be necessary to effectuate such resolutions.

 

Resolved Further, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified.

 

	
5.

	
The  persons listed above are Borrower's officers or employees  with their  titles  and signatures shown next to their names.

 

	  	By:	
 

	  	Name:	
 

	  	Title:	
  

 

*** lf the Secretary, Assistant Secretary or other certifying officer executing above is designated by the resolutions set forth in paragraph 4 as one of the authorized signing officers, this Certificate must also be signed by a second authorized officer or director of Borrower.

 I, the __________________________of Borrower, hereby certify as to paragraphs 1 through  5 above, as of the date set forth above.

 

	  	By:	
 

	  	Name:	
 

	  	Title:	
  

 

2Draft Dated October 4, 2005

Confidential

 

CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN
OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST. OMITTED INFORMATION IS
INDICATED BY AN ASTERIK MARKING (***) AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

EXCLUSIVE LICENSE AGREEMENT

 

dated October 5, 2005

 

between

 

Q Therapeutics, Inc.

 

and

 

UNIVERSITY OF UTAH RESEARCH FOUNDATION

 

    	 

    	 

    

 

Draft Dated October 4, 2005

Confidential

 

TABLE OF CONTENTS

 

	ARTICLE l.  DEFINITIONS	2
	ARTICLE 2.  LICENSE GRANT	3
	ARTICLE 3.  TERM AND SCOPE OF AGREEMENT	4
	ARTICLE 4.  SUBLICENSES	4
	ARTICLE 5.  LICENSE ISSUE FEES	6
	ARTICLE 6.  ROYALTIES	7
	ARTICLE 7.  DUE DILIGENCE	9
	ARTICLE 8.  CONFIDENTIALITY	11
	ARTICLE 9.  QUARTERLY & ANNUAL REPORTS	11
	ARTICLE 10.  PATENT PROSECUTION AND MAINTENANCE	12
	ARTICLE 11.  PATENT MARKING	13
	ARTICLE 12.  BOOKS AND RECORDS	13
	ARTICLE 13.  TERMINATION BY LICENSOR	13
	ARTICLE 14.  TERMINATION BY LICENSEE	14
	ARTICLE 15.  DISPOSITION OF LICENSED PRODUCTS ON HAND	14
	ARTICLE 16.  WARRANTY BY LICENSOR	14
	ARTICLE 17.  INFRINGEMENT	15
	ARTICLE 18.  WAIVER	16
	ARTICLE 19.  ASSIGNABILITY	16
	ARTICLE 20.  INDEMNIFICATION BY LICENSEE	16
	ARTICLE 21.  INDEMNIFICATION BY LICENSOR	16
	ARTICLE 22.  LATE PAYMENTS	17
	ARTICLE 23.  NOTICES	17
	ARTICLE 24.  REGULATORY COMPLIANCE	18
	ARTICLE 25.  GOVERNING LAW	18
	ARTICLE 26.  RELATIONSHIP OF PARTIES	18
	ARTICLE 27.  NON-USE OF NAMES	18
	ARTICLE 28.  DISPUTE RESOLUTION	19
	ARTICLE 29.  GENERAL PROVISIONS	19
	EXHIBIT “A” - PATENT RIGHTS	21
	EXHIBIT “B” - -LICENSE TO THE UNITED STATES GOVERNMENT	23
	EXHIBIT “C” - Quarterly Report	24
	EXHIBIT “D – Due Diligence	25

  

    	 

    	 

    

 

EXCLUSIVE LICENSE AGREEMENT

 

THIS EXCLUSIVE LICENSE
AGREEMENT (“agreement”) is entered into this 5TH day of October, 2005
by and between the UNIVERSITY OF UTAH RESEARCH FOUNDATION, a Utah nonprofit corporation, having its principal place of business
at 615 Arapeen Drive, Suite 310, Salt Lake City, UT 84108, hereinafter referred to as “LICENSOR,” and Q Therapeutics,
Inc., a Delaware corporation having its principal place of business at 615 Arapeen Drive, Suite 102, Salt Lake City, UT 84108,
hereinafter referred to as “LICENSEE.” This AGREEMENT replaces and consolidates a previous set of three license agreements
entered into the 9th day of August, 2002 by and between LICENSOR and LICENSEE (then formerly known as Cue Therapeutics),
identified by LICENSOR as Exclusive License #0837 for APCs, Exclusive License #0838 for GRPs, NCSCs and NEPs, and Non-Exclusive
License #0840 for NEPs.

 

WITNESSETH

 

WHEREAS, certain
inventions, generally characterized as GENERATION, CHARACTERIZATION AND ISOLATION OF NEUROEPITHELIAL STEM CELLS (NEPs) AND LINEAGE
RESTRICTED INTERMEDIATE PRECURSOR; A COMMON NEURAL PROGENITOR FOR THE CENTRAL NERVOUS SYSTEM AND PERIPHERAL NERVOUS SYSTEM (Neural
Crest Stem Cells or NCSCs); LINEAGE RESTRICTED GLIAL PRECURSORS (GRPs) FROM THE CENTRAL NERVOUS SYSTEM; METHOD OF ISOLATING HUMAN
NEUROEPITHELIAL PRECURSOR CELLS FROM HUMAN FETAL TISSUE; AND PURE POPULATIONS OF ASTROCYTE RESTRICTED PRECURSOR CELLS (APCs); AND
METHODS FOR ISOLATION AND USES THEREOF and assigned University of Utah identification numbers U-2383, U-2536, U-3184, and U-3275
(which is equivalent to work developed in continuation with research at the NIH and referred to by Public Health Service (PHS)
identification number E-187-02/0), hereinafter collectively referred to as “the INVENTION”, have been made in the course
of research at the University of Utah conducted by Drs. Mahendra Rao, Margot Mayer-Proschel, Tahmina Mujtaba, Patrick Tresco, Darrin
Messina, Ying Liu, Yuan Yuan Wu, and Mark Noble and are COVERED BY PATENT RIGHTS (as defined below);

WHEREAS, LICENSOR
desires that the PATENT RIGHTS be developed and utilized to the fullest extent so that their benefits can be enjoyed by the general
public;

WHEREAS, LICENSEE
wishes to obtain from LICENSOR an exclusive license for the commercial development, production, manufacture, use and sale of the
PATENT RIGHTS, and LICENSOR is willing to grant such a license upon the terms and conditions hereinafter set forth;

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

    	1

    	 

    

 

WHEREAS, the PATENT
RIGHTS were developed in the course of research sponsored in part by the U.S. Government, and as a consequence are subject to overriding
obligations of LICENSOR to the U.S. Government;

NOW THEREFORE, for
and in consideration of the covenants, conditions and undertakings hereinafter set forth, the parties hereby agree as follows:

ARTICLE
l. DEFINITIONS

Section 1.1           “PATENT
RIGHTS” shall mean and include all of the following LICENSOR intellectual property:

The United States
patents and/or patent applications listed in Exhibit “A”; United States patents issued from the applications listed
in Exhibit “A” and from divisionals and continuations (other than continuations-in-part) of these applications and
any reissues of such United States patents; claims of continuation-in-part applications and patents directed to subject matter
specifically described in the applications listed in Exhibit “A”; and claims of all foreign applications and patents
which are directed to subject matter specifically described in the United States patents and/or patent applications listed in Exhibit
“A”.

Section 1.2           “LICENSED
PRODUCT” shall mean any product, apparatus, kit or component part thereof, or any other subject matter the manufacture, use
or sale of which is COVERED BY any claim or claims included within PATENT RIGHTS.

Section 1.3           “LICENSED
METHOD” shall mean any method, procedure, process or other subject matter, the manufacture, use or sale of which is COVERED
BY any claim or claims included within PATENT RIGHTS.

Section 1.4           “...COVERED
BY...” shall mean a product, apparatus, kit or component part thereof or other item that when made, used, or sold, or
a method, procedure, process or other item, that, when practiced, would constitute, but for the license granted to LICENSEE pursuant
to this AGREEMENT, an infringement of any claim or claims included within PATENT RIGHTS.

Section 1.5           “NET
SALES” shall mean sales and/or billings and/or transfer for any consideration, including revenue neutral remuneration by
LICENSEE, or in the case of a sublicense by SUBLICENSEE (as defined below), for (a) any LICENSED PRODUCT sold or leased, and (b)
services performed using any LICENSED PRODUCT or LICENSED METHOD, in all cases, net of the sum of the following items (where applicable):
(1) cash, trade or quantity discounts actually allowed; (2) sales, use, tariff, customs duties or other excise taxes directly imposed
upon particular sales; (3) outbound transportation charges prepaid or allowed; and (4) allowances or credits to third parties for
rejections or returns. A LICENSED PRODUCT and services performed using a LICENSED PRODUCT or LICENSED METHOD shall be considered
sold when billed out or invoiced or, if not invoiced, when delivered or performed. There shall be no deductions from NET SALES
for costs of commissions or collections. NET SALES shall not include billings for LICENSED PRODUCTS sold or services performed
by LICENSEE to any AFFILIATE unless such AFFILIATE is an end-user of any LICENSED PRODUCT or service performed using any LICENSED
PRODUCT or LICENSED METHOD.

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

    	2

    	 

    

 

Section 1.6           “AFFILIATE”
means any person or entity that controls, is controlled by, or is under common control with LICENSEE, directly or indirectly. For
purposes of this definition, “control” and its various inflected forms means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of such person or entity, whether through ownership
of voting securities, by contract or otherwise.

Section 1.7           “FIELD
OF USE” shall mean (1) use of GRPs, NCSCs, APCs and NEPs for drug screening, drug discovery, diagnostics, drug target discovery,
genomics, and human therapeutics; and (2) the sale of GRPs, NCSCs, APCs and NEPs to third parties.

Section 1.8           “TERRITORY”
shall mean world wide.

Section 1.9           “RESEARCH
LICENSE” shall mean a nontransferable, nonexclusive license to make and use the PATENT RIGHTS for purposes of research and
not for purposes of commercial manufacture or distribution or in lieu of purchase.

 

ARTICLE
2. LICENSE GRANT

Section 2.1           Subject
to the terms and conditions set forth herein, LICENSOR hereby grants to LICENSEE an exclusive license to make, have made, use and
sell any LICENSED PRODUCT and to practice any LICENSED METHOD in the FIELD OF USE under LICENSOR’S PATENT RIGHTS throughout
the TERRITORY.

Section 2.2           The
license granted in Section 2.1 hereof is expressly made subject to LICENSOR’S reservation of the right to practice under
LICENSOR’S PATENT RIGHTS for academic purposes.

Section 2.3           The
license granted in Section 2.1 hereof is expressly made subject to a non-exclusive, irrevocable, royalty-free license heretofore
granted to the U.S. Government and in the general form as attached hereto as Exhibit “B” and incorporated herein by
reference.

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

    	3

    	 

    

 

ARTICLE
3. TERM AND SCOPE OF AGREEMENT

Section 3.1           This
AGREEMENT shall be in full force and effect from the date of full payment of any License Issue Fee required by Section 5 of this
AGREEMENT, payment for patent costs required by Section 10 (and covered by invoices delivered by LICENSOR to LICENSEE prior to
the execution of this AGREEMENT), and any and all other fees and payments due hereunder upon the date of execution of this AGREEMENT
(hereinafter “EFFECTIVE DATE”). This AGREEMENT shall be in full force and effect from the EFFECTIVE DATE until the
end of the term of the last-to-expire of LICENSOR’S PATENT RIGHTS licensed under this AGREEMENT unless otherwise terminated
by operation of law or by acts of the parties pursuant to the terms of this AGREEMENT.

Section 3.2           The
license granted under Section 2.1 shall be exclusive (subject only to the reservations set forth in Sections 2.2 and 2.3 above
and Section 4.5 below) and LICENSOR hereby agrees that it shall not grant any other license to make, have made, use, or sell LICENSED
PRODUCT or to practice LICENSED METHOD throughout the TERRITORY and in the FIELD OF USE during the term of this AGREEMENT.

 

ARTICLE
4. SUBLICENSES

Section 4.1           LICENSOR
hereby grants to LICENSEE the right to enter into sublicensing agreements with third parties (hereinafter referred to as “SUBLICENSEES”)
to the extent of LICENSEE’S rights under the grant provided in Section 2.1 and provided that LICENSEE has current exclusive
license rights, pursuant to Section 3.2, to the PATENT RIGHTS to which the sublicense applies, with respect to the portion of the
Field of Use and TERRITORY to which the sublicense relates. Upon any termination of this AGREEMENT, each SUBLICENSEE’s sublicensed
rights with respect to PATENT RIGHTS shall also terminate, unless: (a) the sublicense is subject to all of the terms and conditions
of this AGREEMENT and incorporates all of the terms and conditions hereof which are protective of and beneficial to LICENSOR, which
incorporation can be made by reference, (b) LICENSOR has received a copy of the sublicense and related information as provided
under Section 4.4 below; (c) SUBLICENSEE is in good standing with all the terms and conditions of the sublicense and LICENSEE is
not in current breach of the sublicense; (d) all of the rights and benefits due LICENSEE under the sublicense are directed to LICENSOR;
(e) LICENSOR shall not be liable, financially or otherwise, for any existing or potential breach or liability of LICENSEE under
the sublicense; (f) LICENSOR shall assume no obligations or liabilities of LICENSEE to SUBLICENSEE other than LICENSOR’S
obligations to LICENSEE as defined by this Agreement; and (g) the payments due to LICENSOR from SUBLICENSEE under the sublicense
shall be no less than the payments LICENSEE is obligated under this Agreement to pay to LICENSOR with respect to the sublicense.
If each of these qualifications is met, and the SUBLICENSEE desires for the sublicense to survive, the SUBLICENSEE and LICENSOR
shall enter a letter of understanding, acknowledging the survival of the sublicense and placing the LICENSOR and SUBLICENSEE in
a direct contract relationship for the sublicense. In addition, LICENSOR shall negotiate in good faith with any other SUBLICENSEE
in good standing at the time of termination for a license.

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

    	4

    	 

    

 

Section 4.2           Any
sublicense granted by LICENSEE to a SUBLICENSEE shall be subject to all of the terms and conditions of this AGREEMENT, and shall
include an express provision to this effect. LICENSEE shall use commercially reasonable efforts to collect all payments due LICENSOR
from SUBLICENSEES.

Section
4.3           LICENSEE shall pay to LICENSOR *** of any lump-sum fee
or advance payment received by LICENSEE from any SUBLICENSEE pursuant to a sublicense under this AGREEMENT, regardless of
how the LICENSEE and SUBLICENSEE characterize such payments, including but not limited to license fees, minimum annual royalties,
milestone payments, etc. (except for amounts paid to LICENSEE for the purpose of conducting research and development activities).
LICENSEE shall not receive from SUBLICENSEES anything of value in lieu of cash payments in consideration for any sublicense under
this AGREEMENT without the express prior written permission of LICENSOR. In addition, LICENSEE shall pay
to LICENSOR a royalty on NET SALES made under any sublicense which royalty shall be *** NET SALES of services. In the event
a sublicense grant from LICENSEE also incorporates technology licensed in by LICENSEE from one or more third parties, then LICENSEE
shall make a good faith allocation of the lump-sum or advanced payments received by the LICENSEE for the sublicense, as well as
all royalties payable pursuant to such sublicense, as between the LICENSOR’S PATENT RIGHTS and third party technology also
included in the sublicense, based on the relative values of the licensed technologies to the products or services generating the
SUBLICENSEE’S NET SALES. The payments due LICENSOR under this Section 4.3 shall only apply to that portion of the amounts
received by LICENSEE attributable to the LICENSOR’S PATENT RIGHTS, in accordance with LICENSEE’s good faith determination,
so that the percentage of lump sums or advance payments due to LICENSOR will be determined by multiplying the percentage payment
obligation referenced above by the portion of such lump sums or advanced payments attributable to the PATENT RIGHTS, and the royalty
payable to LICENSOR with respect to royalties received by LICENSEE on NET SALES by the SUBLICENSEE will be based on the portion
of such NET SALES attributable to the PATENT RIGHTS. LICENSOR may contest whether any determination by LICENSEE hereunder was made
in good faith, pursuant to the dispute resolution procedure set forth in Article 28 of this Agreement.

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

    	5

    	 

    

 

Section 4.4           LICENSEE
shall within thirty (30) days of: (a) execution, provide LICENSOR with a copy of each sublicense granted by LICENSEE hereunder
and any amendments thereto or terminations thereof; and (b) receipt, summarize and deliver copies of all reports due to LICENSEE
from SUBLICENSEES with respect to license rights granted hereunder or NET SALES by SUBLICENSEE or royalties payable by SUBLICENSEE
to LICENSEE.

Section 4.5           In
the event that LICENSOR receives a written request from Public Health Services to grant a RESEARCH LICENSE to a third party non-profit
entity to use the PATENT RIGHTS, LICENSOR shall so notify LICENSEE, and LICENSEE agrees to negotiate in good faith to grant a RESEARCH
LICENSE (in the form of a sublicense of the PATENT RIGHTS licensed by LICENSEE hereunder) to said third party non-profit entity
on reasonable terms. If such negotiation has not been successfully completed within six (6) months from the date LICENSEE first
receives such request, LICENSOR shall have the right to grant a RESEARCH LICENSE to the third party non-profit entity.

Section 4.6           The
provisions of this AGREEMENT shall be construed so as to avoid any double counting on NET SALES (whether by LICENSEE or SUBLICENSEES)
and royalty payments; that is, any NET SALES shall not be subject to two different royalty payment obligations. In furtherance
of the foregoing, LICENSOR and LICENSEE agree that any NET SALES by SUBLICENSEE or attributed to or received by LICENSEE that are
subject to the royalty payment provisions of Section 4.3 shall not also be subject to the royalty payment provisions of Section
6.1. In addition, to the extent that any lump sum fees or advanced payments received by LICENSEE from any SUBLICENSEE (of which
LICENSEE is obligated to *** LICENSOR pursuant to the first sentence of Section 4.3) represent
an advance payment of, or are credited against, royalties charged by LICENSEE on NET SALES by such SUBLICENSEE, then the
maximum royalties on NET SALES payable pursuant to the third sentence of Section 4.3 shall be calculated net of the amount paid
to LICENSOR pursuant to the first sentence of Section 4.3. Similarly, the provisions of Sections 6.1 and 6.5 of this Agreement
regarding allocation of value between intellectual property subject to this Agreement and intellectual property not covered by
this Agreement, and the allocation of value between products, services or components covered by this Agreement and products, services
or components not covered by this Agreement, shall be construed so as to avoid all improper doubling-up of reductions from payments
otherwise payable by LICENSEE to LICENSOR pursuant to the terms of this Agreement.

 

ARTICLE
5. LICENSE ISSUE FEES

In consideration
of full payment for the obligations of the previous set of three license agreements, which
shall be replaced by this AGREEMENT, LICENSEE shall pay to LICENSOR ***. Such consideration is already deemed earned and
immediately payable.

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

    	6

    	 

    

 

ARTICLE
6. ROYALTIES

Section
6.1           As consideration for the license under this AGREEMENT,
LICENSEE shall pay to LICENSOR *** of any services, including but not limited to drug screening,
drug discovery, drug target discovery, diagnostics, and genomics services. LICENSEE shall also pay to LICENSOR an earned
royalty on the LICENSEE’s NET SALES of human therapeutics ***.

 

Earned royalties
shall accrue in each country with respect to NET SALES in that country for the duration of PATENT RIGHTS in that country. LICENSEE
shall pay all royalties accruing to LICENSOR in U.S. Dollars within forty-five (45) days following the calendar quarter in which
NET SALES occur.

The parties recognize
and agree that, in order to develop and commercialize LICENSED PRODUCTS and LICENSED METHODS, or services utilizing LICENSED PRODUCTS
or LICENSED METHODS in the FIELD OF USE, it may be necessary or desirable for LICENSEE and/or its LICENSEES to make use of and/or
incorporate multiple elements of intellectual property from multiple sources. LICENSEE and/or its SUBLICENSEES shall determine,
in their sole judgment, which elements of intellectual property are necessary and/or desirable for the development and/or commercialization
of the licensed PATENT RIGHTS. In the event that any LICENSED PRODUCTS or LICENSED METHODS, or services provided utilizing LICENSED
PRODUCTS or LICENSED METHODS, which are marketed by or through LICENSEE, incorporate or utilize technology licensed from one or
more third parties, then LICENSEE shall make a good faith determination of the relative values (as percentages adding up to 100%)
of the various licensed technologies to the resulting LICENSED PRODUCTS, LICENSED METHODS or services, as applicable, and shall
promptly notify LICENSOR of such determination. Upon such determination, the royalty payable to LICENSOR pursuant to this Section
6.1 shall be based on the portion of LICENSEE’S NET SALES that corresponds to the percentage value assigned to the LICENSOR’S
PATENT RIGHTS, multiplied by the applicable royalty rate as set forth in this Section 6.1. For example, if the applicable
royalty rate for a specified period were ***, and LICENSEE achieved NET SALES of $1,000,000 with respect to such period,
and LICENSEE had determined in good faith that the relative value to the LICENSED PRODUCTS sold to generate such NET SALES of various
technologies licensed by LICENSEE were as follows:

 

(a) value of PATENT RIGHTS licensed from LICENSOR:
60%

(b) value of technologies licensed from other parties:
40%,

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

    	7

    	 

    

 

then the royalty payable to LICENSOR pursuant to this Section
6.1 would be determined by multiplying the NET SALES for the period in question ($1,000,000) by the percentage value to the LICENSED
PRODUCT of the licensed PATENT RIGHTS (60%), and then multiplying the resulting product
by the applicable ***. As a result, the royalty payable to LICENSOR with respect to LICENSOR’S NET SALES with respect
to such period would be: ($1,000,000 x .60) x *** = $***. In the event that LICENSOR believes
that LICENSEE’S determination of the relative values of various licensed technologies to the LICENSED PRODUCTS or
LICENSED METHODS in question was not made in good faith, then it may dispute such determination, and such dispute will be resolved
in accordance with the dispute resolution procedure set forth in Article 28 below.

Section 6.2           Commencing
with the first calendar quarter to occur following the date of first occurrence of NET SALES pertaining to NEPs, GRPs, NCSCs, or
APCs (U-2383, U-2536, U-3184, or U-3275), LICENSEE shall pay to LICENSOR within forty-five (45) days of the end of said quarter
a minimum annual royalty ***

LICENSEE shall continue
to pay such minimum annual royalty until the end of the term of the last to expire of LICENSOR’S PATENT RIGHTS. LICENSOR
shall fully credit each payment of minimum annual royalties against any earned royalties payable by LICENSEE with respect to the
year for which the minimum annual royalty is made (being the year commencing with the calendar quarter ending prior to the calendar
quarter in which the minimum annual royalty is payable).

Section 6.3           If
any patent or any claim thereof included within LICENSOR’S PATENT RIGHTS shall be found invalid by a court of competent jurisdiction
and last resort, from which decision no appeal may be taken, LICENSEE’S obligation to pay LICENSOR royalties based on such
patent or claim or any claim patentably indistinct there from shall cease as of the date of such decision. LICENSEE shall not,
however, be relieved from paying LICENSOR any royalties, fees, expenses, or other liabilities that accrued prior to the date of
such decision or that are based on any of LICENSOR’S PATENT RIGHTS not the subject of such decision.

Section 6.4           By
way of clarification, no royalties shall be payable with respect to, and the definitions of LICENSED PRODUCT and LICENSED METHOD
shall not apply to, products or methods that LICENSEE may manufacture, use, sell or practice, as applicable, in any jurisdiction,
without the grant of the license set forth in Article 2 above, and without constituting an illegal infringement of any valid and
enforceable Patent Rights. No royalty shall accrue with respect to any LICENSED PRODUCTS sold, or any services with respect to
LICENSED PRODUCTS or LICENSED METHODS provided, after they no longer fall within the definition of LICENSED PRODUCTS or LICENSED
METHODS, as applicable, as a result of expiration or termination of applicable PATENT RIGHTS.

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

    	8

    	 

    

 

Section 6.5           If
a LICENSED PRODUCT or LICENSED METHOD is sold in combination by LICENSEE or applicable SUBLICENSEE, as a single product, service,
or in a kit, with another product, service or components for which no royalty would be due hereunder if sold separately, NET SALES
from such combination sales for purposes of calculating the amounts due under this Article 6 shall be calculated by multiplying
the NET SALES price of the combination by the fraction A/(A+B), where A is the NET SALES price, during the royalty period in question,
of the LICENSED PRODUCT or LICENSED METHOD sold separately, and B is the total market price, during the royalty period in question,
of the other products, services or components sold separately. If the LICENSED PRODUCT, LICENSED METHOD, or other products, services
or components are not sold separately by LICENSEE, or as applicable SUBLICENSEE, during that royalty period, then the NET SALES
price of the combination will be as reasonably allocated by LICENSEE between such LICENSED PRODUCT or LICENSED METHOD on the one
hand, and such other product, service or component on the other hand, based upon their relative importance and proprietary protection.
LICENSOR reserves the right to assert the dispute resolution process if it disputes whether allocations
set by LICENSEE and SUBLICENSEE as described above are commercially reasonable. The allocation contemplated by this Section is
to be made in a manner consistent with the allocation contemplated by Section 6.1 above.

 

ARTICLE
7. DUE DILIGENCE

Section 7.1           Upon
execution of this AGREEMENT, LICENSEE shall diligently proceed with the development, manufacture, sale and use of LICENSED PRODUCTS
and/or LICENSED METHODS in order to make them readily available to the general public as soon as possible on commercially reasonable
terms. LICENSEE shall continue active, diligent marketing efforts for one or more LICENSED PRODUCT(S) and/or LICENSED METHOD(S)
throughout the term of this AGREEMENT.

Section 7.2           In
addition, LICENSEE shall perform the following obligations as part of its due diligence activities hereunder;

		(a)	LICENSEE shall deliver to LICENSOR, within two months of the EFFECTIVE DATE, a comprehensive executive
summary including, but not limited to, a discussion of the technology, product, funding proposals, market, competition, intellectual
property, business model, and management team; and within twelve months of the EFFECTIVE DATE, a more detailed, comprehensive business
plan including, but not limited to, a discussion of the same topics. Within six (6) months of the EFFECTIVE DATE, LICENSEE shall
deliver to LICENSOR a specific research and commercialization plan showing the amount of money, number and kind of personnel and
time budgeted and planned for each phase of development of the initial LICENSED PRODUCT(S) and/or LICENSED METHOD(S) targeted for
development by LICENSEE;

 

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

    	9

    	 

    

  

		(b)	LICENSEE shall pay LICENSOR a due diligence payment of *** until the first occurrence
of NET SALES in this AGREEMENT;
	 	 	 

		(c)	LICENSEE shall spend at *** on research, development and commercialization of LICENSED
PRODUCTS and/or LICENSED METHODS during the four year period ending on August 9, 2006;
	 	 	 

		(d)	LICENSEE shall file an IND or BLA during the eight-year period following the EFFECTIVE DATE. In the instance that LICENSEE
does not meet this requirement within the specified time period, at LICENSOR’s discretion, additional 18 month periods may
be granted to LICENSEE upon payment *** providing that LICENSEE can demonstrate commercially
reasonable efforts to advancing LICENSED PRODUCTS and/or LICENSED METHODS to a marketable product. Examples of such efforts
may include but are not limited to, annual funding commitments comparable to Section 7.2 (c) above.
	 	 	 

		(e)	LICENSEE shall pay LICENSOR *** for each IND or BLA filed for a cell based human
therapeutic developed using LICENSED PRODUCTS and/or LICENSED METHODS; and
	 	 	 

		(f)	LICENSEE shall pay LICENSOR *** upon NDA approval of each IND or BLA referenced in
(e) above.

 

Section 7.3           Commencing
on January 1, 2006, and on each July 1 and January 1 thereafter, until the first occurrence of NET SALES and annually thereafter
each January 1, LICENSEE shall submit to LICENSOR a written report covering LICENSEE’S progress in (a) development and testing
of all LICENSED PRODUCTS and LICENSED METHODS; (b) achieving the due diligence milestones specified herein; and (c) preparing,
filing, and obtaining of any approvals necessary for marketing the LICENSED PRODUCTS and LICENSED METHODS. Each report shall be
in substantially similar form and contain at least the information required by Exhibit “D” attached hereto and incorporated
herein.

Section 7.4
         Upon a written request made by LICENSOR with respect to attendance at any meeting of LICENSEE’s Board of Directors, LICENSEE
shall permit a representative of LICENSOR to attend such meeting (provided that LICENSEE shall not be required to permit a LICENSOR
representative to attend more than two meetings of LICENSEE’s Board of Directors meetings in any calendar year. LICENSOR’S
representative shall not be compensated and will have no voting rights and may be excluded from specific discussions of a confidential
nature as determined to be appropriate by a vote of the Board of Directors. LICENSEE shall provide LICENSOR with at least 30 days
notice of such meetings, and any information discussed in such meetings will be subject to Article 8 herein.

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

    	10

    	 

    

 

ARTICLE
8. CONFIDENTIALITY

Section 8.1           LICENSEE
and LICENSOR acknowledge that either party may provide certain information to the other about the other party’s business
plans, technology, relationships, research, developments and proprietary information that is considered to be confidential. LICENSEE
and LICENSOR shall take reasonable precautions to protect such confidential information. Such precautions shall involve at least
the same degree of care and precaution that the recipient customarily uses to protect its own confidential information.

Section 8.2           LICENSEE
acknowledges that LICENSOR is subject to the Utah Governmental Records Access and Managemment Act (“GRAMA”), as amended.
LICENSOR shall keep confidential any information provided to LICENSOR by LICENSEE that LICENSEE considers confidential, as well
as information originated or maintained by or relating to the technology transferred or sponsored research record as referenced
therein, to the extent allowable under GRAMA and as provided in Section 53B-16-301 et seq., Utah Code Ann. In order
to be eligible for such protection under GRAMA, confidential information of LICENSEE disclosed to LICENSOR must be in written or
other tangible form, marked as proprietary, and accompanied by a written claim by LICENSEE stating the reasons that such information
must be kept confidential.

 

ARTICLE
9. QUARTERLY & ANNUAL REPORTS

Section 9.1           Within
forty-five (45) days after the calendar year in which NET SALES first occur, and within 45 days after each calendar quarter thereafter,
LICENSEE shall provide LICENSOR with a written report detailing all sales and uses, if any, made of LICENSED PRODUCTS and LICENSED
METHODS during the preceding calendar quarter, and detailing the amount of NET SALES made during such quarter and calculating the
royalties due pursuant to Sections 6.1 and 4.3 hereof. Each report shall include at least the following:

	 	a.	number of LICENSED PRODUCTS manufactured, leased and sold by and/or for LICENSEE and all SUBLICENSEES;
	 	 	 
	 	b.	accounting for all LICENSED METHODS used or sold by and/or for LICENSEE and all SUBLICENSEES;
	 	 	 
	 	c.	accounting for NET SALES, noting the deductions applicable as provided in Section 1.5;
	 	 	 
	 	d.	royalties due under Section 6.2;
	 	 	 
	 	e.	running royalties due under Section 6.1;

CERTAIN
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

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	 	f.	royalties due on other payments from SUBLICENSEES and assignees under Section 4.3;
	 	 	 
	 	g.	total royalties due;
	 	 	 
	 	h.	names and addresses of all SUBLICENSEES of LICENSEE;
	 	 	 
	 	i.	the amount spent on development of LICENSED PRODUCTS or LICENSED METHODS; and
	 	 	 
	 	j.	the number of full-time equivalent employees working on the LICENSED PRODUCTS and/or LICENSED METHODS.

 

Section 9.2           Each
report shall be in substantially similar form as Exhibit “C” attached hereto. Each such report shall be signed by an
officer of LICENSEE (or the officer’s designee). With each such report submitted, LICENSEE shall pay to LICENSOR the royalties
and fees due and payable under this AGREEMENT. If no royalties shall be due, LICENSEE shall so report.

Section 9.3           In
addition to the regular reports required by Section 9.1, LICENSEE shall provide a written report to LICENSOR of the date of first
occurrence of NET SALES in each country within sixty (60) days of its occurrence.

 

ARTICLE
10. PATENT PROSECUTION AND MAINTENANCE

Section 10.1         LICENSOR,
at its sole discretion, may diligently prosecute and maintain PATENT RIGHTS with legal counsel of its choice, after consultation
with LICENSEE. LICENSOR shall incorporate reasonable comments from LICENSEE in such prosecution and maintenance of PATENT RIGHTS.
LICENSOR shall provide LICENSEE with copies of all relevant documentation and keep LICENSEE informed and apprised of the continuing
prosecution. LICENSEE shall keep any such documentation and information confidential.

Section 10.2         LICENSEE
shall pay all costs and legal fees incurred by LICENSOR in the preparation, prosecution and maintenance of PATENT RIGHTS, including
without limitation, any taxes on such patent rights, within thirty (30) days of receipt of invoice by LICENSEE.

Section
10.3         LICENSOR may exclude by written notice any patent or patent application
from this AGREEMENT if LICENSEE declines or fails to pay the costs and legal fees for the preparation, prosecution and maintenance
of said patent or application within the time period provided for herein, or the thirty day cure period as referenced in Article
13 below.

Section 10.4         LICENSEE
may pursue the prosecution of a patent or patent claims or foreign applications, with legal counsel of its choice, with respect
to any intellectual property included within the PATENT RIGHTS if LICENSOR declines to do so, provided that LICENSEE shall be responsible
for all fees and costs related thereto.

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

 

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ARTICLE
11. PATENT MARKING

 

LICENSEE shall mark all LICENSED PRODUCTS made,
used or sold under the terms of this AGREEMENT, or their containers, in accordance with all applicable patent-marking laws.

 

ARTICLE
12. BOOKS AND RECORDS

 

LICENSEE shall keep complete,
true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable
to LICENSOR hereunder. Said books of account shall be kept at LICENSEE’S principal place of business or the principal place
of business of the appropriate division of LICENSEE to which this AGREEMENT relates. Said books and the supporting data shall be
open at all reasonable terms for five (5) years following the end of the calendar year to which they pertain, to inspection by
LICENSOR or its agents, upon notice to LICENSEE, for the purpose of verifying LICENSEE’S royalty statement or compliance
in other respects with this AGREEMENT. Should such inspection lead to the discovery of a greater than five percent (5%) discrepancy
in reporting to LICENSOR’S detriment, LICENSEE agrees to pay the full cost of such inspection. LICENSEE shall permit an in-facilities
inspection by LICENSOR on or before January 1, 2006, and thereafter permit in-facilities inspections by LICENSOR at regular intervals
with at least twelve (12) months between each such inspection.

 

ARTICLE
13. TERMINATION BY LICENSOR

 

Section 13.1         If
LICENSEE should: (a) fail to deliver to LICENSOR any statement or report required hereunder when due; (b) fail to make any payment
at the time that the same should be due; (c) violate or fail to perform any covenant, condition, or undertaking of this AGREEMENT
to be performed by it hereunder; (d) file a bankruptcy action, or have a bankruptcy action against it, or become insolvent, enter
into an agreement or be involved in a proceeding with creditors, or have a receiver appointed for it; or (e) cease to carry on
its business with respect to the rights granted in this Agreement; then LICENSOR may give written notice of such default to LICENSEE.
If LICENSEE should fail to cure such default within thirty (30) days of such notice, the rights, privileges, and license granted
hereunder shall automatically terminate.

 

Section 13.2         No
termination of this AGREEMENT by LICENSOR shall relieve LICENSEE of its obligation to pay any monetary obligation due or owing
at the time of such termination and shall not impair any accrued right of LICENSOR. LICENSEE shall pay all attorneys’ fees
and costs incurred by LICENSOR in enforcing any obligation of LICENSEE or accrued right of LICENSOR. Articles
8, 12, 13.2, 15, 16.2, 16.3, 20, 22, 25, 27, 28 and 29.7 shall survive any termination of this AGREEMENT.

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
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ARTICLE
14. TERMINATION BY LICENSEE

Section 14.1         LICENSEE
may terminate this AGREEMENT, in whole or as to any specified PATENT RIGHTS, at any time and from time to time without cause, by
giving written notice thereof to LICENSOR. Such termination shall be effective ninety (90) days after such notice and all LICENSEE’S
rights associated therewith shall cease as of that date.

Section 14.2         Any
termination pursuant to Section 14.1 shall not relieve LICENSEE of any obligation or liability accrued hereunder prior to such
termination, or rescind or give rise to any right to rescind any payments made or other consideration given to LICENSOR hereunder
prior to the time such termination becomes effective. Such termination shall not affect in any manner any rights of LICENSOR arising
under this AGREEMENT prior to the date of such termination.

 

ARTICLE
15. DISPOSITION OF LICENSED PRODUCTS ON HAND

Upon expiration or termination of this
AGREEMENT by either party, LICENSEE shall provide LICENSOR with a written inventory of all LICENSED PRODUCTS in process of manufacture,
in use or in stock. LICENSEE may dispose of any such LICENSED PRODUCTS within the ninety (90) day period following such expiration
or termination, provided, however, that LICENSEE shall pay royalties and render reports to LICENSOR thereon in the manner specified
herein.

 

ARTICLE
16. WARRANTY BY LICENSOR

Section 16.1         LICENSOR
warrants that it has the lawful right to grant the license set forth in this AGREEMENT.

Section 16.2           EXCEPT
AS EXPRESSLY PROVIDED IN SECTION 16.1, THE PARTIES ACKNOWLEDGE AND AGREE THAT LICENSOR HAS MADE NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT
SHALL LICENSOR BE HELD RESPONSIBLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF PATENT RIGHTS,
EVEN IF LICENSOR IS ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.

Section 16.3         Nothing
in this AGREEMENT shall be construed as:

	 	a.	a warranty or representation by LICENSOR as to the validity of scope of any PATENT RIGHTS.

 

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	 	b.	a warranty or representation by LICENSOR that anything made, used, sold or otherwise disposed of pursuant to any license granted under this AGREEMENT is or will be free from infringement of intellectual property rights of third parties.
	 	 	 
	 	c.	an obligation by LICENSOR to bring or prosecute actions or suits against third parties for patent infringement, except as expressly provided in Article 17 hereof.
	 	 	 
	 	d.	conferring by implication, estoppel or otherwise any license or rights under any patents of LICENSOR other than PATENT RIGHTS.

 

Section 16.4         Any
breach of the representations or warranties made in this Article 16 shall entitle LICENSEE to a refund of all payments made to
LICENSOR as consideration for the rights granted under this AGREEMENT, and said refund shall be the sole remedy available to LICENSEE
for breach or violation of any provisions contained in this Article 16.

 

ARTICLE
17. INFRINGEMENT

Section 17.1         If
either party learns of a claim of infringement of or by any of LICENSOR’S PATENT RIGHTS licensed under this AGREEMENT, that
party shall give written notice of such claim to the other party. LICENSOR shall then use reasonable efforts to terminate such
infringement. In the event LICENSOR fails to abate the infringing activity within ninety (90) days after such written notice or
to bring legal action against the third party, LICENSEE may bring suit for patent infringement, naming LICENSOR as nominal party
plaintiff. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the consent
of LICENSOR, which consent shall not be unreasonably withheld.

Section 17.2         Any
such legal action shall be at the expense of the party by whom suit is filed, hereinafter referred to as the “Litigating
Party”. Any damages or costs recovered by the Litigating Party in connection with a legal action filed by it hereunder, and
remaining after the Litigating Party is reimbursed for its costs and expenses reasonably incurred in the lawsuit, and after any
royalties or other payments due to LICENSOR under Articles 4, 5 and 6 are paid, shall be equally divided between LICENSEE and LICENSOR.

Section 17.3         LICENSEE
and LICENSOR shall cooperate with each other in litigation proceedings instituted hereunder, provided that such cooperation shall
be at the expense of the Litigating Party, and such litigation shall be controlled by the Litigating Party.

 

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ARTICLE
18. WAIVER

No waiver by either
party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any
subsequent and/or similar breach or default.

 

ARTICLE
19. ASSIGNABILITY

Subject to the
limitations set forth below, this AGREEMENT is binding upon and shall inure to the benefit of the parties, their successors and
assigns. Subject to LICENSEE’s rights to sublicense, as set forth in Article 4 hereof, LICENSEE may assign this AGREEMENT
only with the written consent of LICENSOR, which consent shall not be reasonably withheld, provided that LICENSEE, without consent,
may assign this AGREEMENT in connection with the transfer or sale of all or substantially all of its assets, or in the event of
merger or consolidation, in either case to or with another company having assets and stockholder equity exceeding that of LICENSEE. 

ARTICLE
20. INDEMNIFICATION BY LICENSEE

LICENSEE shall
indemnify, hold harmless and defend LICENSOR, the University of Utah, and their respective officers, employees and agents, against
any and all claims, suits, losses, damages, costs, liabilities, fees and expenses (including reasonable fees of attorneys) resulting
from or arising out of exercise of: (a) any license granted under this AGREEMENT; or (b) any act, error, or omission of LICENSEE,
its agents, employees or SUBLICENSEES, except where such claims, suits, losses, damages, costs, fees, or expenses result solely
from the negligent acts or omissions, or willful misconduct of the LICENSOR, its officers, employees or agents. LICENSEE shall
give LICENSOR timely notice of any claim or suit instituted of which LICENSEE has knowledge that in any way, directly or indirectly,
affects or might affect LICENSOR, and LICENSOR shall have the right at its own expense to participate in the defense of the same. 

ARTICLE
21. INDEMNIFICATION BY LICENSOR

The LICENSOR is
a governmental entity and is subject to the Utah Governmental Immunity Act, Section 63-30(d)-101 et seq., Utah Code
Ann. (as amended) (the “Act”). The Act limits judgments for certain kinds of claims as specified. Subject to the provisions
of the Act, LICENSOR shall indemnify, defend and hold harmless LICENSEE, its officers, agents and employees against any and all
claims, suits, losses, damages, costs, liabilities, fees, and expenses (including reasonable fees of attorneys) resulting solely
from the negligent acts or omissions or willful misconduct of LICENSOR, its officers, agents or employees in connection with this
AGREEMENT. Nothing in this AGREEMENT shall be construed as a waiver of any rights or defenses applicable to LICENSOR under the
Act, including without limitation, the provisions of the Act regarding limitation of judgments. LICENSOR shall give LICENSEE timely
notice of any claim or suit instituted of which LICENSOR has knowledge that in any way, directly or indirectly, affects or might
affect LICENSEE, and LICENSEE shall have the right at its own expense to participate in the defense of the same. 

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ARTICLE
22. LATE PAYMENTS

 

In the event royalty payments
or other fees are not received by LICENSOR when due hereunder, LICENSEE shall pay to LICENSOR interest charges at the rate of ten
percent (10%) per annum on the amount of due but unpaid royalties, from the due date until paid.

 

ARTICLE
23. NOTICES

 

Any payment, notice or
other communication required or permitted to be given to either party hereto shall be in writing and shall be deemed to have been
properly given and effective: (a) on the date of delivery if delivered in person during recipient’s normal business hours;
or (b) on the date of attempted delivery if delivered by courier, express mail service or first-class mail, registered or certified.
Such notice shall be sent or delivered to the respective addresses given below, or to such other address as either party shall
designate by written notice given to the other party as follows:

 

In the case of LICENSEE:

Q THERAPEUTICS, INC.

615 Arapeen Drive, Suite 102

Salt Lake City, UT 84108

Attn: CEO

 

With a copy to:

Snell & Wilmer, LLP

15 West South Temple, Suite 1200

Salt Lake City, Utah 84101

Attn: Chris Anderson

 

In the case of LICENSOR:

UNIVERSITY OF UTAH RESEARCH FOUNDATION

Technology Transfer Office

615 Arapeen Drive, Suite 310

Salt Lake City, UT 84108 

 

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With a copy to: 

 

OFFICE OF GENERAL COUNSEL

University of Utah

309 Park Building

Salt Lake City, Utah 84112

 

ARTICLE
24. REGULATORY COMPLIANCE

Section 24.1         When
required by local/national law, LICENSEE shall register this AGREEMENT, pay all costs and legal fees connected therewith, and otherwise
insure that the local/national laws affecting this AGREEMENT are fully satisfied.

Section 24.2         LICENSEE
shall comply with all applicable U.S. laws dealing with the export and/or management of technology or information.

Section 24.3         LICENSEE
agrees that products used or sold in the United States embodying LICENSED PRODUCTS or produced through use of the LICENSED METHOD
shall be manufactured in compliance with all applicable U.S. laws.

 

ARTICLE
25. GOVERNING LAW

 

This AGREEMENT shall be
interpreted and construed in accordance with the laws of the State of Utah, without application of any principles of choice of
laws.

 

ARTICLE
26. RELATIONSHIP OF PARTIES

 

In assuming and performing
the obligations of this AGREEMENT, LICENSEE and LICENSOR are each acting as independent parties and neither shall be considered
or represent itself as a joint venturer, partner, agent or employee of the other.

 

ARTICLE
27. NON-USE OF NAMES

 

LICENSEE shall not use
the names or trademarks of LICENSOR, the University of Utah, or its employees, nor any adaptation thereof, nor the names of any
of their employees, in any advertising, promotional or sales literature without prior written consent obtained from LICENSOR, or
said employee, in each case, except that LICENSEE may state that it is licensed by LICENSOR under one or more of the patents and/or
applications comprising the PATENT RIGHTS.

 

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ARTICLE
28. DISPUTE RESOLUTION

 

Except for the right of
either party to apply to a court of competent jurisdiction for a temporary restraining order, a preliminary injunction, or other
equitable relief to preserve the status quo or prevent irreparable harm, any and all claims, disputes or controversies arising
under, out of, or in connection with the AGREEMENT, including but not limited to any dispute relating to patent validity or infringement
or the existence of a breach or default hereunder, which the parties shall be unable to resolve within sixty (60) days shall be
mediated in good faith. The party raising such dispute shall promptly advise the other party of such dispute. By not later than
five (5) business days after the recipient has received such notice of dispute, each party shall have selected for itself a representative
who shall have the authority to bind such party, and shall additionally have advised the other party in writing of the name and
title of such representative. By not later than ten (10) days after the date of such notice of dispute, the party against whom
the dispute shall be raised shall select a mediator in the Salt Lake City area and such representatives shall schedule a date with
such mediator for a hearing. The parties shall enter into good faith mediation and shall share the costs equally. If the representatives
of the parties have not been able to resolve the dispute within fifteen (15) business days after such mediation hearing, then any
and all claims, disputes or controversies arising under, out of, or in connection with this AGREEMENT, including any dispute relating
to patent validity or infringement, shall be resolved through arbitration if the parties mutually consent, or through any judicial
proceeding either in the courts of the State of Utah or in the United States District Court for the District of Utah, to whose
jurisdiction for such purposes LICENSEE and LICENSOR each hereby irrevocably consents and submits. All costs and expenses, including
reasonable attorneys’ fees, of the prevailing party in connection with resolution of a dispute by arbitration or litigation
of such controversy or claim shall be borne by the other party.

 

ARTICLE
29. GENERAL PROVISIONS

  

Section 29.1     The
headings of the several sections are inserted for convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this AGREEMENT.

 

Section 29.2      This
AGREEMENT shall not be binding upon the parties until it has been signed herein below by or on behalf of each party, and as of
the EFFECTIVE DATE.

 

Section 29.3      No
amendment or modification of this AGREEMENT shall be valid or binding upon the parties unless made in writing and signed by both
parties.

 

Section 29.4      This
AGREEMENT embodies the entire understanding of the parties and supersedes all previous communications, representations or understandings,
either oral or written, between the parties relating to the subject matter hereof, including without limitation the three license
agreements referenced in the preamble of this AGREEMENT.

 

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Section 29.5     The
provisions of this AGREEMENT are severable, and in the event that any provision of this AGREEMENT shall be determined to be invalid
or unenforceable under any controlling body of the law, such invalidity or unenforceability shall not in any way affect the validity
or enforceability of the remaining provisions hereof.

 

Section 29.6     This
AGREEMENT may be signed in counterparts, each of which when taken together shall constitute one fully executed document. Each individual
executing this AGREEMENT on behalf of a legal entity does hereby represent and warrant to each other person so signing that he
or she has been duly authorized to execute this AGREEMENT on behalf of such entity.

 

Section 29.7      In
the event of any litigation, arbitration, judicial reference or other legal proceeding involving the parties to this AGREEMENT
to enforce any provision of this AGREEMENT, to enforce any remedy available upon default under this AGREEMENT, or seeking a declaration
of the rights of either party under this AGREEMENT, the prevailing party shall be entitled to recover from the other such attorneys’
fees and costs as may be reasonably incurred, including the costs of reasonable investigation, preparation and professional or
expert consultation incurred by reason of such litigation, arbitration, judicial reference, or other legal proceeding.

 

IN WITNESS WHEREOF, LICENSOR
and LICENSEE have executed this AGREEMENT by their respective officers hereunto duly authorized, on the day and year hereinafter
written.

 

	“LICENSEE”	“LICENSOR”
	 	 
	Q THERAPEUTICS, INC.	UNIVERSITY OF UTAH
	 	RESEARCH FOUNDATION
		

 

	By	/s/ DEBORAH A. EPPSTEIN PhD 	 	By 	/s/ RAYMOND F. GESTELAND
	 	(Signature)	 	 	(Signature)
	 	 	 	 	 
	Name	Deborah A. Eppstein PhD. 	 	Name	Raymond F. Gesteland
	 	(Please Print)	 	 	 
	 	 	 	 	 
	Title	Chief Executive Officer 	 	Title	Vice President, Research
	 	 	 	 	 
	Date	10/05/2005 	 	Date	10/05/2005 

 

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FIRST AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT

BETWEEN

Q THERAPEUTICS, INC.

AND

UNIVERSITY OF UTAH RESEARCH FOUNDATION

 

This First Amendment to
Exclusive License Agreement (the “Amendment”) is made and entered into effective as of April 24, 2006, by and between
Q Therapeutics, Inc., a Delaware corporation (“Licensee”) and the University of Utah Research Foundation, a Utah nonprofit
corporation (“Licensor”).

 

Recitals

 

A.           Licensor and Licensee
are parties to an Exclusive License Agreement dated October 5, 2005 (the “Agreement”), pursuant to which Licensor has
granted certain rights and licenses to Licensee. For purposes of this Amendment, any capitalized terms used herein but not otherwise
defined will have the meanings given to them in the Agreement.

 

B.           Licensor and Licensee
desire to amend and modify the terms of the Agreement in order to expand the definition of “Patent Rights” to include
certain intellectual property relating to neuronal restricted precursor cells, developed or acquired by Licensor (the “Additional
Intellectual Property”).

 

C.          Licensor and Licensee
desire that Licensee have the right to utilize the Additional Intellectual Property on the same terms and subject to the same restrictions
and obligations as apply to the Patent Rights generally, as currently provided in the Agreement, subject to the terms and conditions
of this Amendment.

 

Agreement

 

NOW THEREFORE, the parties
hereto hereby agree as follows:

 

1.           Modification
of Definition of Patent Rights. Section 1.1 of the Agreement is hereby amended to add the Additional Intellectual Property
to the definition of Patent Rights as currently set forth therein, so that the Patent Rights include, in addition to those items
previously referenced in the Agreement, all of the following Licensor intellectual property:

   

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The United States patent(s)
and/or patent application(s) relating to neuronal restricted precursor cells (“NRPs”) which are listed on Exhibit A
attached hereto, and United States patents issued from such applications, and from divisionals and continuations (other than continuations-in-part)
of such applications and any reissuances of such United States patents; claims of continuation-in-part applications and patents
directed to subject matter specifically described in the application(s) referenced above; and claims of all foreign applications
and patents which are directed to subject matter specifically described in the United States patent(s) and/or patent application(s)
listed above.

 

2.            Expansion
of Field of Use. The definition of the term “Field of Use” as used in the Agreement is hereby expanded to include
(i) the use of NRPs for drug screening, drug discovery, diagnostics, drug target discovery, genomics and human therapeutics; and
(2) the sale of NRPs to third parties.

 

3.            Grant
of Warrant in Lieu of Certain Reimbursements. In lieu of Licensee’s obligation to reimburse Licensor for $40,000 of expenses
incurred by Licensor in the preparation, prosecution and maintenance of Patent Rights with respect to the Additional Intellectual
Property (the “Patent Expense Amount”), the Patent Expense Amount shall be treated as an advancement to Licensee pursuant
to the terms of a Convertible Loan Agreement in the form attached hereto as Exhibit B (the “Loan Agreement”), and upon
Licensor’s execution of a counterpart of the Loan Agreement with respect to the Patent Expense Amount, Licensee will issue
to Licensor a Convertible Note (as defined in the Loan Agreement) in a principal amount equal to the Patent Expense Amount, and
will also undertake to issue to Licensor a Warrant (as defined in the Loan Agreement) in accordance with the terms of the Loan
Agreement.

 

4.            Grant
of Additional Warrant. In consideration for Licensor’s agreement to modify the Agreement as provided in this Amendment,
and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Licensee, Licensee will
grant to Licensor an additional Warrant, concurrently with the issuance of the Warrant referenced in Section 3 above, on substantially
the same terms, but providing for the purchase of an aggregate of 41,071 shares of Licensee’s Series B Preferred Stock, at
a price of $2.24 per share.

 

5.            Additional
Information for Royalty Calculation. Paragraph 3 of Section 6.1 of the Agreement sets forth a mechanism for determining royalties
with respect to Licensed Products and Licensed Methods incorporating multiple elements for intellectual property from multiple
sources. In order to ensure that appropriate information is provided to Licensor in connection with each such calculation, a new
sentence is hereby added to such paragraph 3, to follow the fourth sentence currently set forth n such paragraph, and to read as
follows:

 

“For any payment
affected by such a determination Licensee shall specifically identify and justify to Licensor in writing: how Licensee weighted
the relative values of the technologies and the formula used to arrive at a final good faith determination of value, which shall
be included and detailed in the quarterly reports required under Section 9.2 of the Agreement, to be in the form referenced in
Exhibit C to the Agreement.”

 

6.            Modification
of Due Diligence Obligations. Section 7.2(b) of the Agreement, which currently sets forth various due diligence obligations
of the Licensee, is hereby amended to replace such obligations with a new payment obligation, and to read in its entirety as follows:

   

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Licensee shall pay Licensor
a due diligence payment of *** on or before October 5, 2008, and on each anniversary of such date, provided that such payment
obligations shall cease upon the first occurrence of Net Sales, as defined in this Agreement.

  

7.            Patent
Prosecution. Article 10 of the Agreement, relating to patent prosecution and maintenance, is hereby amended to add the following
new Section 10.5 to the end of such Article:

“10.5 Alternatively,
Licensee may select the patent attorney who will prosecute the patent applications for said Patent Rights, so long as Licensor
consents to the selected attorney, which consent will not be unreasonably withheld. Licensee will pay all costs and fees for said
selected patent attorney. If there are any transition costs or fees incurred from transferring responsibilities from the patent
attorney who was used previously by Licensor to the selected patent attorney, Licensee will pay said costs and fees. All such patent
applications and patents shall be in the name of Licensor, and owned by Licensor, and included as part of the Patent Rights licensed
pursuant to this Agreement. If Licensee notifies Licensor that it does not intend to pay the cost of an application, or if Licensee
does not respond or make an effort to agree with Licensor on the disposition of rights in the subject application, then Licensor
may file an application at its own expense and Licensee will have no rights to the invention. If Licensee selects a patent attorney
as provided above, Licensee will require such attorney to agree to keep both Licensee and Licensor, as co-clients, equally informed
and involved as to all material information, material communications with governmental patent offices, material issues and decisions,
and related matters applicable to prosecuting the patent applications for the Patent Rights and for maintaining the Patent Rights
in good standing. Decisions for prosecuting the patent applications will be made so as to obtain as broad of patent protection
as is reasonable and practical under the circumstances. Licensor will request that copies of all documents prepared by the selected
patent attorney be provided to Licensee for review and comment prior to filing to the extent practicable under the circumstances.
Licensee will be billed and will pay all documented costs and fees and other charges incident to the preparation, prosecution,
and maintenance of the Licensed Patents within thirty (30) days of receipt of invoice from the selected patent attorney. Licensee
will promptly notify Licensor of its plans to file, revise or drop any patent application or claim which may adversely affect the
Patent Rights or the rights or royalties of Licensor in the Licensed Product(s) under this Agreement. Licensee and the selected
patent attorney shall not change any inventorship designations and shall not drop or reduce any claim in a pending patent application
which may adversely affect the Patent Rights or royalties of Licensor in the Licensed Product(s).

 

8.            Continuation
of Agreement. Except as otherwise specifically modified by this Amendment, the Agreement shall continue in full force and effect.

IN WITNESS WHEREOF, the parties
hereto have executed this Amendment effective as of the date first above written.

 

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	 	LICENSEE:
	 	 
	 	Q Therapeutics, Inc.
	 	 
	 	/s/ DEBORAH A. EPPSTEIN PHD
	 	By:	Deborah A. Eppstein PhD
	 	 	Chief Executive Officer

 

	 	LICENSOR:
	 	 
	 	University of Utah Research Foundation
	 	 
	 	By:	/s/ RAYMOND F. GESTLAND 
	 	 	Raymond F. Gestland, Vice President, Research

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

  

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CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

SECOND AMENDMENT TO LICENSE AGREEMENT

BETWEEN

Q THERAPEUTICS, INC.

AND

THE UNIVERSITY OF UTAH RESEARCH FOUNDATION

 

This Amendment is made
and entered into effective as of October 13, 2011, by and between Q Therapeutics, Inc., a Delaware corporation, having offices
at 615 Arapeen Drive, Suite 102, Salt Lake City, UT 84108 (“Licensee”), and the University of Utah Research Foundation,
having offices at the Technology Commercialization Office, 615 Arapeen Drive, Suite 310, Salt Lake City, UT 84108 (“Licensor”).
For purposes of this Amendment, capitalized terms used herein but not otherwise defined will have the meanings given to them in
the Agreement (defined below). Licensor and Licensee may be referred to herein separately as “Party” and jointly as
“Parties”.

 

RECITAL

 

WHEREAS, Licensor and Licensee
are parties to an Exclusive License Agreement dated October 5, 2005 (the “Agreement”), pursuant to which Licensor has
granted certain rights and licenses to Licensee; and

 

WHEREAS, Licensor and Licensee
desire to amend and modify the terms of the Agreement excepting from the rights granted to Licensee certain rights previously granted
to ***., under a *** Agreement (as defined below), and consistent with that certain Settlement Agreement entered into by
the Parties dated October 13, 2011.

 

NOW THEREFORE, for and
in consideration of the covenants, conditions and undertakings hereinafter set forth, the Parties hereby agree as follows:

 

AMENDMENT

 

	1.	License Grant.  Section 2.1 of the Agreement is hereby deleted and
    replaced in its entirety with the following:

 

Section 2.1 LICENSEE hereby takes and accepts
the rights granted to it under this AGREEMENT subject to that certain *** Agreement entered
into by and between LICENSOR and ***., dated on or about *** (the “*** Agreement”).
LICENSEE’s grant under this AGREEMENT is therefore co-exclusive with those rights
granted under the *** Agreement.

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

  

    	31

    	 

    

 

Subject to the
*** Agreement, and subject to the terms and conditions set forth herein, LICENSOR hereby grants to LICENSEE an otherwise
exclusive license to make, have made, use and sell any LICENSED PRODUCT(S) and to practice any LICENSED METHOD(S) in the FIELD
OF USE under LICENSOR’S PATENT RIGHTS throughout the TERRITORY.

 

	2.	Ratification of Agreement.  Except as provided
    herein or as may be required to effectuate the intent of the Parties with respect to the amendments described in paragraph
    1 hereof, the Parties hereby reaffirm and ratify the terms of the Agreement in their entirety.
	 	 
	3.	Further Assurances.  Each of Licensee and Licensor hereby
    agrees to execute, deliver, verify, acknowledge, and file any and all documents, instruments, or agreements as shall be necessary
    or appropriate to reflect the intent of the Parties with respect to the amendments of the Agreement described herein.
	 	 
	4.	Entire Understanding.  This Amendment constitutes the entire
    understanding between the Parties hereto with respect to the subject matter hereof, and any modification of this Amendment
    shall be in writing and shall be signed by a duly authorized representative of each Party.

 

IN WITNESS WHEREOF, Licensor
and Licensee have executed this Agreement by their respective duly authorized officers, on the day and year written above.

 

	“LICENSEE”	 	“LICENSOR”
	Q Therapeutics, Inc.	 	University of Utah Research Foundation

 

	By:	/s/ DEBORAH A. EPPSTEIN PHD	 	By: 	/s/ THOMAS N. PARKS

	(Signature)	 	(Signature)

	Name:	Deborah A. Eppstein, PhD	 	Name: Thomas N. Parks

	(Please Print)	 	(Please Print)

	Title:	Chief Executive Officer 	 	Title: President

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

  

    	32

    	 

    

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

THIRD AMENDMENT TO LICENSE AGREEMENT

BETWEEN

Q THERAPEUTICS, INC.

AND

THE UNIVERSITY OF UTAH RESEARCH FOUNDATION

 

This Amendment is made
and entered into effective as of October 22, 2011, by and between Q Therapeutics, Inc., a Delaware corporation, having offices
at 615 Arapeen Drive, Suite 102, Salt Lake City, UT 84108 (“Licensee”), and the University of Utah Research Foundation,
having offices at the Technology Commercialization Office, 615 Arapeen Drive, Suite 310, Salt Lake City, UT 84108 (“Licensor”).
For purposes of this Amendment, capitalized terms used herein but not otherwise defined will have the meanings given to them in
the Agreement (defined below). Licensor and Licensee may be referred to herein separately as “Party” and jointly as
“Parties”.

 

RECITAL

 

WHEREAS, Licensor and Licensee
are parties to an Exclusive License Agreement dated October 5, 2005 (the “Agreement”), pursuant to which Licensor has
granted certain rights and licenses to Licensee; and

 

WHEREAS, Licensor and Licensee
desire to amend and modify the terms of the Agreement regarding minimum annual royalty payments;

 

NOW THEREFORE, for and
in consideration of the covenants, conditions and undertakings hereinafter set forth, the Parties hereby agree as follows:

 

AMENDMENT

 

	2.	Royalties.  Section 6.2 of the Agreement is hereby deleted and replaced
    in its entirety with the following:

 

Section 6.2        Commencing with the first
calendar quarter to occur following the date of first occurrence of NET SALES pertaining to NEPs, GRPs, NCSCs, or APCs (U-2383,
U-2536, U-3184, or U-3275) for human therapeutic use, LICENSEE shall pay to LICENSOR within forty-five (45) days of the end of
said quarter a minimum annual royalty as provided below:

 

	YEAR 1	$ ***
	YEAR 2	$ ***
	YEAR 3	$ ***
	YEAR 4	$ ***

(and Beyond)

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

  

    	33

    	 

    

 

LICENSEE shall continue
to pay such minimum annual royalty until the end of the term of the last to expire of LICENSOR’S PATENT RIGHTS. LICENSOR
shall fully credit each payment of minimum annual royalties against any earned royalties payable by LICENSEE with respect to the
year for which the minimum annual royalty is made (being the year commencing with the calendar quarter ending prior to the calendar
quarter in which the minimum annual royalty is payable).

 

	2.	Ratification of Agreement.  Except as provided
    herein or as may be required to effectuate the intent of the Parties with respect to the amendments described in paragraph
    1 hereof, the Parties hereby reaffirm and ratify the terms of the Agreement in their entirety.
	 	 
	3.	Further Assurances.  Each of Licensee and Licensor hereby
    agrees to execute, deliver, verify, acknowledge, and file any and all documents, instruments, or agreements as shall be necessary
    or appropriate to reflect the intent of the Parties with respect to the amendments of the Agreement described herein.
	 	 
	4.	Entire Understanding.  This Amendment constitutes the entire
    understanding between the Parties hereto with respect to the subject matter hereof, and any modification of this Amendment
    shall be in writing and shall be signed by a duly authorized representative of each Party.

 

5. Counterparts. This Amendment may
be executed in counterparts, each of which will be deemed an original and together constitute the same Amendment.

 

IN WITNESS WHEREOF, Licensor
and Licensee have executed this Agreement by their respective duly authorized officers, on the day and year written above.

 

	“LICENSEE”	 	“LICENSOR”
	Q Therapeutics, Inc.	 	University of Utah Research Foundation

 

	By:	/s/ DEBORAH A. EPPSTEIN PHD	 	By: 	/s/ THOMAS N. PARKS

	(Signature)	 	(Signature)

	Name:	Deborah A. Eppstein PhD	 	Name: Thomas N. Parks

	(Please Print)	 	(Please Print)

	Title:	Chief Executive Officer 	 	Title: President

 

CERTAIN PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL 

TREATMENT REQUEST.
OMITTED INFORMATION IS INDICATED BY AN ASTERIK MARKING (***) AND HAS 

BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION 

 

    	34

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