Document:

exv10w31

 

Exhibit 10.31

THIS NOTE IS SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT ENTERED INTO AS OF
NOVEMBER 7, 2006 BY AND AMONG OCULUS INNOVATIVE SCIENCES, INC., VENTURE LENDING & LEASING IV, INC.,
VENTURE LENDING & LEASING III, LLC, AS SUCCESSOR IN INTEREST TO VENTURE LENDING & LEASING III,
INC., AND PAYMENT HEREOF IS SUBORDINATE TO THE PAYMENT OF ALL THE LENDERS OBLIGATIONS (AS DEFINED
THEREIN).

NON-NEGOTIABLE SECURED PROMISSORY NOTE

			
	Principal: $4,000,000
	 	Petaluma, California
	 
	 	November 10, 2006

          FOR VALUE RECEIVED, Oculus Innovative Sciences, Inc., a California corporation, with its
principal office at 1129 North McDowell Blvd., Petaluma, CA 94954 (“Payor”) hereby promises to pay
R.C. Burlingame, as an individual (“Holder”), in lawful money of the United States, the principal
sum of Four Million and 00/100 Cents ($4,000,000). The outstanding principal amount of this Note
shall accrue interest at the rate of seven percent (7%) per annum, or the highest rate permitted by
applicable law, if less, commencing from the date hereof, until fully satisfied.

          The principal and all accrued and unpaid interest on this Note shall be due and payable on the
earlier of twelve (12) months from the date hereof or five days after the consummation of the
initial public offering of the Payor’s shares of common stock resulting in gross proceeds to the
Payor of at least $30,000,000 (the “Due Date”), at Holder’s principal office. All payments
hereunder, if any, shall be applied first to accrued and unpaid interest hereunder and thereafter
to the unpaid principal amount hereof.

     1. Security. This Note is secured by the Security Agreement between Maker and
Payor of even date, and all of Maker’s rights and remedies hereunder and thereunder are
cumulative. All capitalized terms used herein without definition shall have the definition
ascribed thereto in the Security Agreement.

     2. Prepayment. All or any portion of the amount due under this Note may be prepaid,
without penalty, in whole or in part, at any time or from time to time; provided, that such payment
will be applied first to accrued interest due hereunder with the balance, if any, applied to reduce
the unpaid principal.

     3. No Waiver. Payor waives diligence, protest, further demand, and dishonor. Holder
may waive its right to require performance of or compliance with any term, covenant or condition of
this Note only by express written waiver.

     4. Remedies. If an Event of Default has occurred and is continuing, the Secured

 

 

Party may exercise all rights and remedies of a secured party under the California Uniform
Commercial Code, as amended from time to time.

     5. Expenses of Collection. Payor agrees to pay all costs and expenses, including
reasonable attorney’s fees, expended or incurred by the holder of this Note in connection with the
enforcement of this Note and the collection of any sums due hereunder.

     6. Construction. This Note shall be governed, construed and interpreted in accordance
with the laws of the State of California, without giving effect to principles of conflicts of law.

     7. Modification. This Note may be modified only by a written agreement executed by
Payor and Holder.

	 	 	 	 	 	 	 
	 	 	OCULUS INNOVATIVE SCIENCES, INC.,

a California corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Jim Schutz
 

Jim Schutz
	 	 
	 

	 	Title:
	 	Gen. Counselexv10w32

 

Exhibit 10.32

SUBORDINATION AGREEMENT

(“Agreement”)

      Each of the undersigned persons and any other party signatory hereto as a Creditor (singly and
collectively, “Creditor”), is interested in the financial success of OCULUS INNOVATIVE
SCIENCES, INC. (“Debtor”) and acknowledges that VENTURE LENDING & LEASING IV, INC.
and VENTURE LENDING & LEASING III, LLC, as successor in interest to VENTURE LENDING & LEASING III,
INC. (“Lenders”) have entered or are presently intending to enter into certain financing
arrangements with Debtor. Each Creditor agrees that the financing arrangements between Lenders and
each of them, and Debtor are in Debtor’s and Creditor’s best interests and, in order to induce
Lenders and each of them, to continue such financing arrangements, Creditor agrees as follows:

1. The term “Obligations” is used in this Agreement in its broadest and most comprehensive sense
and shall mean all present and future indebtedness of Debtor which may be, from time to time,
incurred by Debtor, including, but not limited to, any negotiable instruments evidencing the same,
all guaranties, debts, demands, monies, indebtedness, liabilities and obligations owed or to become
owing, including interest, principal, costs, and other charges, and all claims, rights, causes of
action, judgments, decrees, remedies, or other obligations of any kind whatsoever and howsoever
arising, whether voluntary, involuntary, absolute, contingent, direct, indirect, or by operation of
law.

2. The term “Creditor Obligations” means all Obligations owing at any time by Debtor to Creditor.

3. The term “Lenders Obligations” means any and all Obligations owed by Debtor to Lenders and each
of them, including, but not limited to, Obligations arising pursuant to any agreements between
either of the Lenders and Debtor, now or hereafter existing, whether matured or not.

4. Except as provided in section 6, below, the Creditor Obligations are hereby subordinated in
right of payment and lien priority and subject, in the manner and to the extent described below, to
any and all Lenders Obligations so long as any Lenders Obligations shall remain unpaid, in whole or
in part, or Lenders or either of them, are committed or otherwise obligated to extend credit to
Debtor.

5. So long as any of the Lenders Obligations remain unpaid, in whole or in part, or so long as
either of the Lenders are committed or otherwise obligated to extend credit to Debtor, Creditor
agrees that, except to the extent that payments under the Creditor Obligations are permitted under
Section 6 below, Creditor shall not: (a) collect, or receive payment upon, by setoff or in any
other manner, all or any portion of the Creditor Obligations now or hereafter existing; (b) sell,
assign, transfer, pledge, or give a security interest in the Creditor Obligations (except subject
expressly to this Agreement); (c) declare or in any other manner find or hold Debtor in default
under the

 

 

Creditor Obligations; (d) enforce or apply any security, now or hereafter existing for the Creditor
Obligations; (e) commence, prosecute or participate in any administrative, legal, or equitable
action against Debtor concerning the Creditor Obligations; (f) join in any petition for bankruptcy,
assignment for the benefit of creditors, or creditors’ agreement; (g) take, maintain or enforce any
lien or security, which is senior to Lenders’ interests, in any property, real or personal, to
secure the Creditor Obligations; or (h) incur any obligation to, or receive any loans, advances,
dividends, payments of any kind or gifts from, Debtor.

6. Notwithstanding the preceding section, Creditor and Debtor shall be permitted at any time
without Lenders’ consent (i) to convert or exchange any or all outstanding Creditor Obligations
into other forms of indebtedness (“New Indebtedness”) so long as such New Indebtedness would
constitute Creditor Obligations under this Agreement and would be governed by the terms of this
Agreement, or (ii) to convert or exchange any or all outstanding Creditor Obligations (including
New Indebtedness that constitutes Creditor Obligations) into equity securities, or rights to
purchase equity securities, of Debtor. New Indebtedness or equity securities of Debtor received by
Creditor pursuant to the preceding sentence shall not be considered to be a collection or receipt
of payment upon the Creditor Obligations under this Agreement, nor shall such equity securities be
subject to Section 11 hereof. Further, notwithstanding the preceding section, Debtor shall be
permitted to make and Creditor may accept and retain payment upon that portion of the Creditor
Obligations evidenced by that certain Non-Negotiable Secured Promissory Note dated November 10,
2006 in the original principal amount of $4,000,000.00, provided, however, that
prior to any such payment Debtor has consummated an initial public offering of Debtor’s shares of
common stock resulting in gross proceeds of at least $30,000,000.00.

7. All security interests and liens now or hereafter existing of the Creditor, if any, in respect
of the Creditor Obligations or in respect of any future Obligations of Debtor to Creditor shall be
subject, subordinate and junior in all respects and at all times to the security interests and
liens now or hereafter existing of Lenders and each of them, regardless of the time or order of
attachment or perfection of such Liens, the time or order of filing of financing statements or
other instruments. All of the Lenders Obligations now or hereafter existing shall be first paid by
Debtor before any payment shall be made by Debtor on the Creditor Obligations. This priority of
payment shall apply at all times until all of the Lenders Obligations have been repaid in full. In
the event of any assignment by Debtor for the benefit of Debtor’s creditors, any bankruptcy
proceedings instituted by or against Debtor, the appointment of any receiver for Debtor or Debtor’s
business or assets, or any dissolution or other winding up of the affairs of Debtor or of Debtor’s
business, and in all such cases, the officers of Debtor and any assignee, trustee in bankruptcy,
receiver or other person or persons in charge, respectively, are hereby directed to pay to Lenders
the full amount of the Lenders Obligations before making any payments to Creditor.

8. Creditor agrees that if part or all of the Creditor Obligations are evidenced, now or in the
future, by a promissory note or other instrument, Creditor shall place or cause to be placed on its
face a legend stating that the payment thereof is subject to the terms of this Agreement and is
subordinate to the payment of all the Lenders Obligations. Creditor agrees to mark all books of

 

 

account in such manner as to indicate that payment thereof is subordinated pursuant to the terms of
this Agreement.

9. Creditor agrees that Lenders and each of them, shall have absolute power and discretion, without
notice to Creditor, to deal in any manner with the Lenders Obligations, including, interest, costs
and expenses payable by Debtor to Lenders and each of them, and any security and guaranties
therefor including, but not limited to, release, surrender, extension, renewal, acceleration,
compromise, or substitution. Creditor hereby waives and agrees not to assert against Lenders and
each of them, any rights which a guarantor or surety could exercise; but nothing in this Agreement
shall constitute Creditor a guarantor or surety. Creditor hereby waives the right, if any, to
require that Lenders marshal, or otherwise proceed to dispose of or foreclose upon, collateral
Lenders may have in any manner or order.

10. If, at any time hereafter, either of the Lenders shall, in their own judgment, determine to
discontinue the extension of credit to or on behalf of Debtor, Lenders and each of them, may do so.
This Agreement and Lenders’ rights and privileges hereunder shall continue until payment in full
of all of the Lenders Obligations notwithstanding any action or non-action by either of the Lenders
with respect to the Lenders Obligations or with respect to any collateral therefor or any
guaranties thereof. All rights, powers and remedies hereunder shall apply to all past, present and
future Lenders Obligations, including under successive transactions, any of which may continue,
renew, increase, decrease or from time to time create new Lenders Obligations and notwithstanding
that from time to time any of the Lenders Obligations theretofore existing may have been paid in
full.

11. Creditor further agrees that if Creditor should, contrary to Section 5 above, take or receive
any additional security interest in, or additional lien by way of attachment, execution, or
otherwise on any property, real or personal, or should take or join in any other measure or
advantage contrary to this Agreement, at any time prior to the payment in full of all of the
Lenders Obligations, Lenders and each of them, shall be entitled to have the same vacated,
dissolved and set aside by such proceedings at law, or otherwise, as Lenders may deem proper, and
this Agreement shall be and constitute full and sufficient grounds therefor and shall entitle
Lenders and each of them, to become a party to any proceedings at law, or otherwise, initiated by
either of the Lenders or by any other party, in or by which Lenders and each of them, may deem it
proper to protect their respective interests hereunder. Creditor agrees that if Creditor violates
this Agreement, Creditor shall be liable to Lenders and each of them, for all losses and damages
sustained by either of the Lenders by reason of such breach.

12. Except as otherwise expressly agreed to herein, if Creditor shall receive any payments,
security interests, or other rights in any property of Debtor in violation of this Agreement, such
payment or property shall be received by Creditor in trust for Lenders and each of them, and shall
forthwith be delivered and transferred to Lenders.

 

 

13. For so long as any of the Lenders Obligations remain unpaid, Creditor irrevocably appoints
Lenders and each of them, as Creditor’s attorney-in-fact, and grants to Lenders and each of them, a
power of attorney with full power of substitution, in the name of Creditor or in the name of
Lenders, for the use and benefit of Lenders, without notice to Creditor, to perform at Lenders’
option the following acts in any bankruptcy, insolvency or similar proceeding involving
Debtor: To file the appropriate claim or claims in respect of the Creditor Obligations on behalf
of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file
claims in such proceeding and if Lenders and each of them, elects, in their sole discretion, to
file such claim or claims.

14. Creditor represents and warrants that Creditor has not previously subordinated the Creditor
Obligations for the benefit of any other party, and agrees that any such subordinations hereafter
executed shall be expressly made subject and subordinate to the terms of this Agreement. Creditor
further warrants having established with Debtor adequate means of obtaining, on an ongoing basis,
such information as Creditor may require which may affect the ultimate satisfaction by Debtor of
the Creditor Obligations. Lenders and each of them, shall have no duty to provide any such
information to Creditor.

15. Subject to the execution and delivery of this Agreement by Lenders, each Creditor and Debtor,
Lenders and each of them, hereby authorize, consent to, ratify and approve Debtor’s execution and
delivery of all documents pursuant to the Creditor Obligations, including any promissory notes
issued to Creditors, all actions of Debtor in connection with the Creditor Obligations and Debtor’s
entering into the transactions contemplated by the Creditor Obligations. Lenders and each of them,
hereby waive any and all provisions of the documents evidencing the Lenders Obligations for the
sole purpose of allowing Debtor to incur the Creditor Obligations and to enter into the
transactions contemplated thereby. This waiver is specific as to content and time and shall not
constitute a waiver of any other current or future default or breach of any covenant contained in
any document evidencing the Lenders Obligations.

16. This Agreement shall be binding upon the successors and assigns of Creditor, and shall inure to
the benefit of Lenders’ successors and assigns.

17. This Agreement and all rights and liabilities of the parties hereto shall be governed as to
validity, interpretation, enforcement and effect by the laws of the State of California without
regard to its conflicts of law rules. This Agreement may be executed in two or more counterparts,
including counterparts transmitted by facsimile or other means of electronic transmission, each of
which when taken together shall constitute one and the same instrument and agreement.

18. In the event of any dispute under this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and costs whether or not suit is brought.

19. This Agreement shall remain in full force and effect until each of the Lenders Obligations has
been indefeasibly repaid.

 

 

Remainder of this page intentionally left blank; signature page follows

 

 

      IN WITNESS WHEREOF, the parties hereto have caused this Subordination Agreement to be executed
and delivered by their proper and duly authorized officers as of November 7, 2006.

Lender:

	 	 	 	 	 
	Venture Lending & Leasing III, LLC	 	 
	 
	 	 	 	 
	By:

	 	/s/ Ronald W. Swenson	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:

	 	Ronald W. Swenson	 	 
	 
	 	 	 	 
	Title:

	 	Chief Executive Officer	 	 

Lender:

	 	 	 	 	 
	Venture Lending & Leasing IV, Inc.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Ronald W. Swenson	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:

	 	Ronald W. Swenson	 	 
	 
	 	 	 	 
	Title:

	 	Chief Executive Officer	 	 

 

 

Creditor:

	 	 	 
	                    /s/ R.C. Burlingame

	 	 
	 

R.C. BURLINGAME , an individual
	 	 

 

 

Acknowledgment of Debtor

The undersigned, being the Debtor named in the foregoing Agreement accepts and consents to
such Agreement, and agrees to be bound by all of the provisions thereof and to recognize all
priorities and other rights granted thereby to Venture Lending & Leasing IV, Inc. and to pay its
Obligations only in accordance therewith.

Dated: November 7, 2006

	 	 	 	 	 	 	 
	 	 	OCULUS INNOVATIVE SCIENCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jim Schutz	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Jim Schutz	 	 
	 

	 	Title:
	 	Gen. Counsel

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