Document:

Exhibit 10.1

EXHIBIT 10.1

THE SECURITIES REPRESENTED BY THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR UNDER THE PROVISIONS OF ANY APPLICABLE
STATE SECURITIES LAWS, BUT HAVE BEEN ISSUED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACTS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND
MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED, EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES ACTS; OR (II) UPON THE ISSUANCE TO
THE ISSUER OF AN OPINION OF COUNSEL, OR THE SUBMISSION TO THE ISSUER OF SUCH OTHER EVIDENCE AS MAY
BE SATISFACTORY TO THE COMPANY, THAT SUCH PROPOSED SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION WILL
NOT BE IN VIOLATION OF THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES ACTS.

THIS CONVERTIBLE PROMISSORY NOTE (AND ALL PAYMENT AND ENFORCEMENT PROVISIONS HEREIN) IS SUBJECT TO
THE CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT BY AND AMONG AXOGEN CORPORATION AND THE
PURCHASERS LISTED ON SCHEDULE A THERETO DATED MAY 31, 2011 AND THE SUBORDINATION AGREEMENT (THE
“SUBORDINATION AGREEMENT”) BY AND AMONG LECTEC CORPORATION, AXOGEN CORPORATION, OXFORD FINANCE LLC
(AS SUCCESSOR IN INTEREST TO OXFORD FINANCE CORPORATION), IN ITS CAPACITY AS AGENT AND AS A LENDER
AND ATEL VENTURES, INC., AS A LENDER, DATED AS OF APRIL 29, 2011. IN THE EVENT OF ANY
INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION
AGREEMENT SHALL CONTROL.

SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE

(the “Note”)

			
	 	 	 
	$2,000,000
	 	Issue Date: May 31, 2011

For value received AXOGEN CORPORATION, a Delaware corporation (the “Company”) promises to pay
to LECTEC CORPORATION, a Minnesota corporation (together with its successors and assigns, the
“Holder”), at 1407 South Kings Highway, Texarkana, Texas 75501, Attn: Greg Freitag or at such other
address as the holder hereof may from time to time designate in writing, the principal sum of
$2,000,000, or such lesser amount as shall be equal to the outstanding principal amount hereof (the
“Principal Amount”), together with all accrued and unpaid interest thereon, upon the terms and
conditions specified below. This Note is one of a series of similar notes (collectively, the
“Notes”) issued pursuant to that certain Convertible Promissory Note Purchase Agreement (the
“Purchase Agreement”), dated as of May 31, 2011, by and among the Company and the parties listed on
Schedule A attached thereto (collectively, the “Lenders”). Additional rights of the Lender
are set forth in the Purchase Agreement. All capitalized terms used herein and not otherwise
defined shall have the respective meanings given to them in the Purchase Agreement.

 

 

 

So long as any portion of this Note remains outstanding and unpaid, the Company will comply
with the following provisions to which this Note is subject and by which it is governed:

1. Interest. Interest shall accrue on the principal outstanding from time to time,
commencing from the Issue Date of this Note and continuing until repayment of this Note in full, at
a rate equal to eight percent (8%) per annum. Upon an Event of Default (as defined below), this
Note will bear interest at a default rate of interest equal to the sum of the interest rate set
forth in the immediately preceding sentence plus an additional two percent (2%) per annum
(collectively, “Default Interest”). Interest shall be payable on the Conversion Date or Maturity
Date (as defined below), provided that Default Interest shall be payable on demand. Interest shall
accrue on the basis of actual days elapsed in a year consisting of 360 days. Notwithstanding
anything herein to the contrary, if during any period for which interest is computed under this
Note, the amount of interest computed on the basis provided for in this Note, together with all
fees, charges and other payments which are treated as interest under applicable law, would exceed
the amount of such interest computed on the basis of the Highest Lawful Rate (as defined below),
the Company’s obligations hereunder shall, automatically and retroactively, be deemed reduced to
the Highest Lawful Rate, and during any such period the interest payable under this Note shall be
computed on the basis of the Highest Lawful Rate. In the event the Holder receives as interest an
amount which would exceed the Highest Lawful Rate, then the amount of any excess interest shall not
be applied to the payment of interest hereunder, but shall be applied to the reduction of the
unpaid principal balance due hereunder. As used herein, “Highest Lawful Rate” means the maximum
non-usurious rate of interest, as in effect from time to time, which may be lawfully charged,
contracted for, reserved, received or collected by the Holder in connection with this Note under
applicable law.

2. Principal. All unpaid principal, together with any then unpaid and accrued
interest and any other amounts payable hereunder, shall be due and payable on the earlier of (a)
the Maturity Date (as defined below) or (b) when, upon the occurrence of an Event of Default, such
amounts are declared due and payable by the Holder or made automatically due and payable, in each
case, in accordance with the terms hereof. The “Maturity Date” shall mean the earlier of (i) June
30, 2013 or (ii) a Change in Control other than in connection with the Merger.

3. Payment Terms. Unless earlier converted, all payments of principal and interest
shall be in lawful money of the United States of America. Payments under this Note shall be
applied first to the payment of all accrued and unpaid interest and then to the payment of
principal. Prepayment of the principal amount of this Note, together with all accrued and unpaid
interest on the portion of principal so prepaid, may be made in whole or in part at any time
without penalty.

4. Conversion. If the Company at any time prior to earlier of (i) this Note being
paid in full or (ii) the effective time of the merger between LecTec Corporation, a Minnesota
corporation (“LecTec:”), and the Company pursuant to the Agreement and Plan of Merger between such
parties dated May 31, 2011 (the “Merger”) sells equity securities, or debt with equity features
other than pursuant to the Purchase Agreement, in each primarily for capital raising purposes (a
“Financing”), the Holder, at its sole option, may convert all principal and accrued interest into
common stock of the Company at a conversion price calculated based upon a valuation of the Company
at fifteen million dollars prior to the Financing (the “Conversion Price” under a conversion
pursuant to this Section 4).

 

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5. Mechanics of Conversion.

(a) Upon conversion of this Note, the Holder shall surrender this Note, duly endorsed,
at the principal offices of the Company (or a notice to the effect that the original Note
has been lost, stolen or destroyed and an agreement acceptable to the Company whereby the
Holder agrees to indemnify the Company from any loss incurred by it in connection with this
Note). The Company shall, as soon as practicable thereafter, cause to be issued and
delivered to the Holder a certificate or certificates for the number of shares to which the
Holder shall be entitled upon such conversion, including a check payable to the Holder for
any cash amounts payable as described in Section 5(b).

(b) No fractional shares shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to the Holder upon the conversion of this Note, the
Company shall pay to the Holder an amount equal to the product obtained by multiplying the
Conversion Price by the fraction of a share not issued pursuant to the previous sentence.
Upon conversion of this Note in full and the payment of the amounts specified in this
Section 5, Company shall be forever released from all its obligations and liabilities under
this Note and this Note shall be deemed of no further force or effect, whether or not the
original of this Note has been delivered to the Company for cancellation.

6. Events of Acceleration. Upon the occurrence of any Event of Default and so long as
any Event of Default is continuing, the Holder may, with the written consent of the Requisite
Investors (as defined below), declare the entire unpaid balance of this Note, together with all
accrued and unpaid interest on this Note, to be immediately due and payable prior to the Maturity
Date (in the case of any occurrence of any of the events described in paragraphs (c) and (d) below,
this Note shall become automatically due and payable, including unpaid interest accrued hereon,
without notice or demand). In the event the Company fails to make any payment of principal or
accrued interest on this Note to Holder when due after demand is made in accordance herewith,
Holder will be entitled to exercise all rights and remedies available to it without the consent or
approval of any other party and the Company will reimburse Holder for its reasonable costs and
expenses, including attorneys’ fees, incurred in connection with the enforcement of its rights
under this Note. In addition to any other rights Holder may have under applicable laws, during an
Event of Default, Holder shall have the right to set off the indebtedness evidenced by this Note
against any other indebtedness of the Holder to the Company. For purposes of this Section 6, each
of the following events will constitute an “Event of Default”:

(a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment
on the due date hereunder or (ii) any interest payment or other payment required under the
terms of this Note or the Security Agreement (as defined below) on the date due and such
payment shall not have been made within five (5) days following the date when due.

(b) Failure to Comply. The Company shall fail to comply in any material respect with
the terms, conditions and covenants of the Notes or the Security Agreement
including, without limitation, any representation or warranty provided herein or
pursuant to the Security Agreement is untrue or incorrect in any material respect as to
Company.

 

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(c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or
consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of
all or a substantial part of its property, (ii) admit in writing its inability to pay its
debts generally as they mature, (iii) make a general assignment for the benefit of its or
any of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced against it, or
(vi) take any action for the purpose of effecting any of the foregoing.

(d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment
of a receiver, trustee, liquidator or custodian of the Company, or of all or a substantial
part of the property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company, if any, or the
debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in
effect shall be commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within 90 days of commencement.

(e) Cross Default. A default (however denominated or defined) shall occur under any
other indebtedness for borrowed money (not covered hereunder) of the Company, which shall
not have been cured within applicable notice and grace periods and the holders thereof shall
have accelerated payment of such indebtedness.

(f) Judgments. A final nonappealable judgment or order for the payment of money in
excess of One Hundred Thousand dollars ($100,000) shall be rendered against the Company and
the same shall remain undischarged for a period of 30 days during which execution shall not
be effectively stayed, or any judgment, writ, assessment, warrant of attachment, or
execution or similar process shall be issued or levied against a substantial part of the
Company’s property, if any and such judgment, writ, or similar process shall not be
released, stayed, vacated or otherwise dismissed within 30 days after issue or levy.

 

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7. Change in Control; Closing Payment. For the purposes of this Note, a “Change in
Control” shall be deemed to occur upon (i) the sale, lease, license or transfer, in a single
transaction or a series of transactions, of all or substantially all of the Company’s assets; (ii)
the sale or transfer, in a single transaction or a series of transactions, of 50% or more of the
presently outstanding shares of capital stock of the Company other than pursuant to the Merger, or
(iii) the issuance by the Company of stock, whether in one or more transactions, which individually
or in the aggregate results in the ownership, following such transaction or transactions, by the
present stockholders of the Company of less than 50% of the issued and outstanding shares of voting
stock of the Company. In the event of a Change in Control prior to the consummation of the Merger,
the Company shall pay to the Holder the outstanding principal balance under the Note and all
accrued and unpaid interest hereunder, which payments shall be paid to the Holder on or
before the closing of such Change in Control. Notwithstanding the foregoing, in no event
shall a Change of Control result from a debt or equity financing where the purpose of such
transaction is raising capital for the Company.

8. Security Agreement. This Note is secured pursuant to a Security Agreement by and
between the Company, LecTec, as collateral agent for the Investors, the Holder and the other
Investors dated concurrently herewith (as the same may be amended, restated or otherwise modified
from time to time, the “Security Agreement”). The Company and the Holder acknowledge and agree
that all references in the Security Agreement to the “Notes” shall refer to this Note and the other
Notes, and that the term “Obligations” contained in the Security Agreement shall include all
obligations arising under the Notes. The Company hereby represents that on and as of the date
hereof and after giving effect to this Note all of the representations and warranties contained in
the Security Agreement are true, correct and complete in all respects as of the date hereof as
though made on and as of such date.

9. No Stockholder Rights. This Note, as such, shall not entitle the Holder to any
rights as a stockholder of the Company.

10. Pari Passu Notes. The Holder acknowledges and agrees that the payment of all or
any portion of the outstanding principal amount of this Note and all interest hereon shall be pari
passu in right of payment and in all other respects to all other Secured Convertible Promissory
Notes issued by the Company pursuant to the Purchase Agreement, as well as the Subordinated Secured
Convertible Promissory Note issued to LecTec dated May 3, 2011 in the amount of $500,000
(collectively with this Note, the “Notes” and the holders of all Notes, the “Investors”). In the
event the Holder receives payments in excess of its pro rata share of the Company’s payments to the
Investors, then the Holder shall hold in trust all such excess payments for the benefit of the
other Investors and shall pay such amounts held in trust to such other Investors upon demand by
such Investors.

11. Miscellaneous.

(a) Waivers. The Company hereby waives demand for payment, notice of dishonor,
presentment, protest and notice of protest. No failure or delay on the part of the holder
of this Note in exercising any power or right under this Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof of the exercise of any other power or right. No notice to
or demand on the Company in any case shall entitle the Company to any notice or demand in
similar or other circumstances.

(b) Amendment. This Note may not be amended or modified, nor may any of its
terms be waived, except by written instrument signed by the Company and the Requisite
Investors, and then only to the extent set forth therein. “Requisite Investors” shall mean
LecTec and Investors holding a majority of the principal indebtedness represented by the
outstanding Notes (defined in Section 10), excluding the Notes held by LecTec.

 

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(c) Binding; Successors and Assigns. If any provision of this Note is
determined to be invalid, illegal or unenforceable, in whole or in part, the validity,
legality and enforceability of any of the remaining provisions or portions of this Note
shall not in any way be affected or impaired thereby, and this Note shall nevertheless be
binding between the Company and the Holder. This Note shall be binding upon, inure to the
benefit of and be enforceable by the Company, the Holder and their respective successors and
assigns.

(d) Governing Law; Venue. The terms of this Note shall be construed and
governed in all respects by the laws of the State of Delaware, without regard to principles
of conflict of laws. Any and all disputes arising out of or related to this Note or the
Security Agreement shall be adjudicated exclusively in the state or federal courts located
in Delaware. Each of the parties hereto submits itself to the jurisdiction of the courts of
the State of Delaware and the Federal courts of the United States located in such state in
respect of all actions arising out of or in connection with the interpretation or
enforcement of the Note, waives any argument that venue in such forums is not convenient and
agrees that any actions initiated by either party hereto shall be appropriately venued in
such forums.

(e) Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified; (ii) when sent by confirmed facsimile if sent during
the normal business hours of the recipient, if not, then on the next business day; (iii) one
(1) business day after deposit with a nationally recognized overnight courier designating
next business day delivery; or (iv) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid. All notices and other
communications shall be sent to the address or facsimile number as set forth on the
signature page hereof or at such other address as such party may designate by ten (10) days’
advance written notice to the other parties.

(f) Time of the Essence; Remedies. Time is of the essence of this Note. The
rights and remedies under this Note are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to the Holder.

(g) Severability. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provision shall be excluded from this Note, the
balance of the Note shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms, and the parties shall use good faith to negotiate
a substitute, valid and enforceable provision that replaces the excluded provision and that
most nearly effects the parties’ intent in entering into this Note.

(h) Entire Note. This Note and the Security Agreement constitute the full and
entire understanding, promise and agreement between the Company and the Holder with respect
to the subject matter hereof and thereof, and supersede, merge and render void every other
prior written and/or oral understanding, promise or agreement between the Company and the
Holder with respect to the subject matter hereof and thereof.

(i) Headings. Section headings are inserted herein for convenience only and do
not form a part of this Note.

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In Witness Whereof, the parties have executed this Convertible Promissory
Note as of the date first written above.

	 	 	 	 	 
	 	AXOGEN CORPORATION

 	 
	 	By:  	/s/ Karen Zaderej
 	 
	 	 	Name:  	Karen Zaderej           	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	Address:

13859 Progress Blvd.

Suite 100

Alachua, Florida 32615

Attn: Karen Zaderej, Chief Executive Officer

Email: kzaderej@axogeninc.com

 	 

Agreed to and Accepted:

LECTEC CORPORATION

	 	 	 	 	 
	By:

	 	/s/Gregory G. Freitag
 

Name: Gregory G. Frietag
	 	 
	 

	 	Title: Chief Executive Officer	 	 

Address:

1407 South Kings Highway

Texarkana, Texas 75501

Attn: Greg Freitag

Email: ceo@lectec.com

[Signature page to Secured Convertible Promissory Note]Exhibit 10.2

EXHIBIT 10.2

SECURITY AGREEMENT

THIS SECURITY AGREEMENT, dated as of May 3, 2011, is made and given by AXOGEN CORPORATION, a
Delaware corporation (the “Grantor”), to LECTEC CORPORATION, a Minnesota corporation, as
collateral agent (in such capacity, the “Agent”) for the Investors (as defined below) and
as an Investor (the Agent and the Investors being collectively referred to as the “Secured
Parties”).

RECITALS

A. The Grantor will or may become, or is now, indebted to those parties listed on Exhibit
A hereto (each, an “Investor” and collectively, the “Investors”) under the
certain Subordinated Secured Convertible Promissory Note dated as of May 3, 2011 in the original
principal amount of $500,000 and those additional Subordinated Secured Convertible Promissory Notes
in such amounts and dated as provided in Exhibit A, as such Exhibit A may be amended from
time to time (collectively, the “Notes”).

B. The Secured Parties have required the Grantor to execute this Security Agreement and the
Grantor has agreed to do so.

C. The Grantor finds it advantageous, desirable and in its best interests to comply with the
requirement that it execute and deliver this Security Agreement to the Secured Parties.

NOW, THEREFORE, in consideration of the premises and in order to induce the Agent and the
other Secured Parties to extend credit accommodations to the Grantor, the Grantor hereby agrees
with the Agent for the Secured Parties’ benefit as follows:

Section 1. Defined Terms.

1(a) As used in this Agreement, the following terms shall have the meanings indicated:

“Account” means a right to payment of a monetary obligation, whether
or not earned by performance, (i) for property that has been or is to be sold,
leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or
to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a
secondary obligation incurred or to be incurred, (v) for energy provided or to be
provided, (vi) for the use or hire of a vessel under a charter or other contract,
(vii) arising out of the use of a credit or charge card or information contained on
or for use with the card, or (viii) as winnings in a lottery or other game of chance
operated, sponsored, licensed or authorized by a State or governmental unit of a
State, or person licensed or authorized to operate the game by a State or
governmental unit of a State. The term includes health-care insurance receivables.

“Account Debtor” shall mean a Person who is obligated on or under any
Account, Chattel Paper, Instrument or General Intangible.

 

 

 

“Chattel Paper” shall mean a record or records that evidence both a
monetary obligation and a security interest in specific goods, a security interest
in specific goods and software used in the goods, a security interest in specific
goods and license of software used in the goods, a lease of specific goods, or a
lease of specific goods and license of software used in the goods.

“Collateral” shall mean all property and rights in property now owned
or hereafter at any time acquired by the Grantor in or upon which a Security
Interest is granted to the Secured Parties by the Grantor under this Agreement.

“Current Loans” shall mean the indebtedness pursuant to (i) that certain
Convertible Promissory Note and Warrant Purchase Agreement, dated June 11, 2010, as
amended to date and (ii) the Existing Loan and Security Agreement.

“Deposit Account” shall mean any demand, time, savings, passbook or
similar account maintained with a bank.

“Document” shall mean a document of title or a warehouse receipt.

“Equipment” shall mean all machinery, equipment, motor vehicles,
furniture, furnishings and fixtures, including all accessions, accessories and
attachments thereto, and any guaranties, warranties, indemnities and other
agreements of manufacturers, vendors and others with respect to such Equipment.

“Event of Default” shall have the meaning given to such term in Section
18 hereof.

“Existing Loan and Security Agreement” shall mean collectively that
certain Loan and Security Agreement dated as of April 21, 2008, as amended, by and
among Oxford Finance LLC, a Delaware limited liability company (as successor in
interest to Oxford Finance Corporation, a Delaware corporation) (“Oxford”), as agent
and as a lender, and ATEL Ventures, Inc., as a lender and the “Loan Documents” as
defined therein.

“Financing Statement” shall have the meaning given to such term in
Section 4 hereof.

“Fixtures” shall mean goods that have become so related to particular
real property that an interest in them arises under real property law.

“General Intangibles” shall mean any personal property (other than
goods, Accounts, Chattel Paper, Deposit Accounts, Documents, Instruments, Investment
Property, Letter of Credit Rights and money) including things in action, contract
rights, payment intangibles, software, corporate and other business records,
inventions, designs, patents, patent applications, service marks, trademarks,
tradenames, trade secrets, internet domain names, engineering drawings, good will,
registrations, copyrights, licenses, franchises, customer lists, tax refund claims,
royalties, licensing and product rights, rights to the retrieval from third
parties of electronically processed and recorded data and all rights to payment
resulting from an order of any court.

 

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“Instrument” shall mean a negotiable instrument or any other writing
which evidences a right to the payment of a monetary obligation and is not itself a
security agreement or lease and is of a type which is transferred in the ordinary
course of business by delivery with any necessary endorsement or assignment.

“Inventory” shall mean goods, other than farm products, which are
leased by a person as lessor, are held by a person for sale or lease or to be
furnished under a contract of service, are furnished by a person under a contract of
service, or consist of raw materials, work in process, or materials used or consumed
in a business or incorporated or consumed in the production of any of the foregoing
and supplies, in each case wherever the same shall be located, whether in transit,
on consignment, in retail outlets, warehouses, terminals or otherwise, and all
property the sale, lease or other disposition of which has given rise to an Account
and which has been returned to the Grantor or repossessed by the Grantor or stopped
in transit.

“Investment Property” shall mean a security, whether certificated or
uncertificated, a security entitlement, a securities account and all financial
assets therein, a commodity contract or a commodity account.

“Letter of Credit Right” shall mean a right to payment or performance
under a letter of credit, whether or not the beneficiary has demanded or is at the
time entitled to demand payment or performance.

“Lien” shall mean any security interest, mortgage, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or device
(including the interest of the lessors under capitalized leases), in, of or on any
assets or properties of the Person referred to.

“Notes” shall have the meaning indicated in Recital A.

“Obligations” shall mean (a) all principal of, and interest on, the
Notes and any extension, renewal or replacement thereof, (b) all liabilities of the
Grantor under this Agreement, and (c) in all of the foregoing cases whether due or
to become due, and whether now existing or hereafter arising or incurred.

 

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“Permitted Lien” shall mean: (a) any Liens in respect of the notes
issued in connection with that certain Convertible Promissory Note and Warrant
Purchase Agreement, dated June 11, 2010, as amended to date; (b) first priority
liens in favor of Oxford , as agent pursuant to the Existing Loan and Security
Agreement; (c) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings; (d) Liens (i) upon or in any Equipment acquired or held by Grantor to
secure the purchase price of such Equipment or indebtedness incurred solely for the
purpose of financing the acquisition of such Equipment or (ii) existing on
such Equipment at the time of its acquisition, provided that the Lien is
confined solely to the Equipment so acquired, improvements thereon and the Proceeds
(as defined in the UCC) of such Equipment; (e) leases or subleases and licenses or
sublicenses granted to others in the ordinary course of Grantor’s business if such
are otherwise permitted under this Security Agreement and do not interfere in any
material respect with the business of Grantor; (f) any right, title or interest of a
licensor under a license provided that such license or sublicense does not prohibit
the grant of the security interest granted hereunder; (g) Liens arising from
judgments, decrees or attachments which do not constitute an Event of Default
hereunder; (h) easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in title and other similar Liens affecting real property not
interfering in any material respect with the ordinary conduct of the business of
Grantor; (i) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the importation of
goods; (j) Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of setoff or similar rights and remedies as to
deposit accounts or other funds maintained with a creditor depository institution;
(k) Liens on equipment leased by Grantor pursuant to an operating lease in the
ordinary course of Grantor’s business (including proceeds thereof and accessions
thereto), all incurred solely for the purpose of financing the lease of such
equipment (including Liens arising from UCC financing statements regarding such
leases); (l) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s,
landlord’s liens or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 30 days or which are being contested
in good faith by appropriate proceedings and for which appropriate reserves have
been made therefor; (m) pledges or deposits in connection with workers’
compensation, unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or self-insurance
arrangements; (n) deposits to secure the performance of tenders, bids or leases,
trade contracts (other than for borrowed money), statutory obligations, surety, stay
and appeal bonds, performance and return of money bonds, government contracts and
other obligations of a like nature; and (o) any Lien approved in advance in writing
by the Requisite Investors (as defined in the Notes).

“Person” shall mean any individual, corporation, partnership, limited
partnership, limited liability company, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or other
capacity.

“Required Investors” shall mean Investors holding the higher of (i) 66
2/3% of the aggregate outstanding principal amount of the Notes and (ii) the
percentage required in the Note Purchase Agreement to be entered into by the
Investors with the Grantor upon execution of such agreement.

 

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“Security Interest” shall have the meaning given such term in Section 2
hereof.

1(b) All other terms used in this Agreement which are not specifically defined herein
shall have the meaning assigned to such terms in Article 9 of the Uniform Commercial Code as
in effect in the State of Delaware.

1(c) Unless the context of this Agreement otherwise clearly requires, references to the
plural include the singular, the singular, the plural and “or” has the inclusive meaning
represented by the phrase “and/or.” The words “include,” “includes” and “including” shall
be deemed to be followed by the phrase “without limitation.” The words “hereof,” “herein,”
“hereunder” and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement. References to Sections are references to
Sections in this Security Agreement unless otherwise provided.

Section 2. Grant of Security Interest. As security for the payment and performance of
all of the Obligations, the Grantor hereby grants to the Agent on behalf of and for the benefit of
the Secured Parties a security interest (the “Security Interest”) in all of the Grantor’s
right, title, and interest in and to the following, whether now or hereafter owned, existing,
arising or acquired and wherever located:

2(a) All Accounts.

2(b) All Chattel Paper.

2(c) All Deposit Accounts.

2(d) All Documents.

2(e) All Equipment.

2(f) All Fixtures.

2(g) All General Intangibles.

2(h) All Instruments.

2(i) All Inventory.

2(j) All Investment Property.

2(k) All Letter of Credit Rights.

2(l) To the extent not otherwise included in the foregoing, all other rights to the
payment of money, including rents and other sums payable to the Grantor under leases, rental
agreements and other Chattel Paper; all books, correspondence, credit files, records,
invoices, bills of lading, and other documents relating to any of the foregoing,
including, without limitation, all tapes, cards, disks, computer software, computer
runs, and other papers and documents in the possession or control of the Grantor; all rights
in, to and under all policies insuring the life of any officer, director, stockholder or
employee of the Grantor, the proceeds of which are payable to the Grantor; all accessions
and additions to, parts and appurtenances of, substitutions for and replacements of any of
the foregoing; and all proceeds (including insurance proceeds) and products thereof.

 

5

 

Section 3. Grantor Remains Liable. Anything herein to the contrary notwithstanding,
(a) the Grantor shall remain liable under the Accounts, Chattel Paper, General Intangibles and
other items included in the Collateral to the extent set forth therein to perform all of its duties
and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the
exercise by the Agent of any of its rights hereunder shall not release the Grantor from any of its
duties or obligations under the Accounts or any other items included in the Collateral, and (c) the
Secured Parties and the Agent shall have no obligation or liability under Accounts, Chattel Paper,
General Intangibles and other items included in the Collateral by reason of this Agreement, nor
shall the Secured Parties or the Agent be obligated to perform any of the obligations or duties of
the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned
hereunder.

Section 4. Title to Collateral. The Grantor has (or will have at the time it acquires
rights in Collateral hereafter acquired or arising) and will maintain so long as the Security
Interest may remain outstanding, title to each item of Collateral (including the proceeds and
products thereof), free and clear of all Liens except the Security Interest and Permitted Liens.
The Grantor will defend the Collateral against all material claims or demands of all Persons (other
than the Agent) claiming the Collateral or any interest therein. Except as listed on Schedule
4, as of the date of execution of this Security Agreement, no effective financing statement or
other similar document used to perfect and preserve a security interest under the laws of any
jurisdiction (a “Financing Statement”) covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of the Agent relating to
this Agreement.

Section 5. Disposition of Collateral. The Grantor will not sell, lease or otherwise
dispose of, or discount or factor with or without recourse, any Collateral, except for sales of
items of Inventory in the ordinary course of business and will not exclusively license all or
substantially all of its intellectual property rights.

Section 6. Names, Offices, Locations, Jurisdiction of Organization. The Grantor’s
legal name (as set forth in its constituent documents filed with the appropriate governmental
official or agency) is as set forth in the opening paragraph hereof. The jurisdiction of
organization of the Grantor is the state of Delaware, and the organizational number of the Grantor
is set forth on the signature page of this Agreement. The Grantor will from time to time at the
request of the Agent provide the Secured Parties with current good standing certificates and/or
state-certified constituent documents from the appropriate governmental officials. The chief place
of business and chief executive office of Grantor are located at its address set forth on the
signature page hereof. The Grantor will not locate or relocate any item of Collateral into any
jurisdiction in which an additional Financing Statement would be required to be filed to maintain
the Agent’s perfected security interest in such Collateral. The Grantor will not change its name,
the location of its chief place of business and chief executive office or its corporate
structure (including without limitation, its jurisdiction of organization) unless the Agent has
been given at least 30 days prior written notice thereof and the Grantor has executed and delivered
to the Agent such Financing Statements and other instruments required or appropriate to continue
the perfection of the Security Interest.

 

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Section 7. Rights to Payment. Except as the Grantor may otherwise advise the Agent in
writing, each Account, Chattel Paper, Document, General Intangible and Instrument constituting or
evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued)
the valid, genuine and legally enforceable obligation of the Account Debtor or other obligor named
therein or in the Grantor’s records pertaining thereto as being obligated to pay or perform such
obligation. Without the Agent’s prior written consent, the Grantor will not agree to any
modifications or amendments increasing the amounts owed under the Current Loans. The Grantor will
perform and comply in all material respects with all its obligations under any items included in
the Collateral and exercise promptly and diligently its rights thereunder.

Section 8. Further Assurances; Attorney-in-Fact.

8(a) The Grantor agrees that from time to time, at its expense, it will promptly
execute and deliver all further instruments and documents, and take all further action, that
may be necessary or that the Agent may reasonably request, in order to perfect and protect
the Security Interest granted or purported to be granted hereby or to enable the Agent to
exercise and enforce its rights and remedies hereunder with respect to any Collateral (but
any failure to request or assure that the Grantor execute and deliver such instrument or
documents or to take such action shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of whether any such
item was or was not executed and delivered or action taken in a similar context or on a
prior occasion). Without limiting the generality of the foregoing, the Grantor will,
promptly and from time to time at the request of the Agent: (i) execute and file such
Financing Statements or continuation statements in respect thereof, or amendments thereto,
and such other instruments or notices (including fixture filings with any necessary legal
descriptions as to any goods included in the Collateral which the Agent determines might be
deemed to be fixtures, and instruments and notices with respect to vehicle titles), as may
be necessary or desirable, or as the Agent may request, in order to perfect, preserve, and
enhance the Security Interest granted or purported to be granted hereby; (ii) obtain from
any bailee holding any item of Collateral an acknowledgement, in form satisfactory to the
Agent that such bailee holds such collateral for the benefit of the Agent; (iii) obtain from
any securities intermediary, or other party holding any item of Collateral, control
agreements in form satisfactory to the Agent; (iv) and deliver and pledge to the Agent, all
Instruments and Documents, duly indorsed or accompanied by duly executed instruments of
transfer or assignment, with full recourse to the Grantor, all in form and substance
satisfactory to the Agent; and (v) obtain waivers, in form satisfactory to the Agent, of any
claim to any Collateral from any landlords or mortgagees of any property where any Inventory
or Equipment is located.

 

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8(b) The Grantor hereby authorizes the Agent to file one or more Financing Statements
or continuation statements in respect thereof, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Grantor where permitted by law. The
Grantor irrevocably waives any right to notice of any such filing. A photocopy or other
reproduction of this Agreement or any Financing Statement covering the Collateral or any
part thereof shall be sufficient as a Financing Statement where permitted by law.

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

8(d) In furtherance, and not in limitation, of the other rights, powers and remedies
granted to the Agent in this Agreement, the Grantor hereby appoints the Agent the Grantor’s
attorney-in-fact, with full authority in the place and stead of Grantor and in the name of
Grantor or otherwise, from time to time in the Agent’s good faith discretion, to take any
action (including the right to collect on any Collateral) and to execute any instrument that
the Agent may reasonably believe is necessary or advisable to accomplish the purposes of
this Agreement, in a manner consistent with the terms hereof.

Section 9. Taxes and Claims. The Grantor will promptly pay all taxes and other
governmental charges levied or assessed upon or against any Collateral or upon or against the
creation, perfection or continuance of the Security Interest, as well as all other claims of any
kind (including claims for labor, material and supplies) against or with respect to the Collateral,
except to the extent (a) such taxes, charges or claims are being contested in good faith by
appropriate proceedings, (b) such proceedings do not involve any material danger of the sale,
forfeiture or loss of any of the Collateral or any interest therein and (c) such taxes, charges or
claims are adequately reserved against on the Grantor’s books in accordance with generally accepted
accounting principles.

Section 10. Books and Records. The Grantor will keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral, including a record of all payments
received and credits granted with respect to all Accounts, Chattel Paper and other items included
in the Collateral.

Section 11. Inspection, Reports, Verifications. The Grantor will at all reasonable
times permit the Agent or its representatives to examine or inspect any Collateral, any evidence of
Collateral and the Grantor’s books and records concerning the Collateral, wherever located. The
Grantor will from time to time when requested by the Agent furnish to the Agent a report on its
Accounts, Chattel Paper, General Intangibles and Instruments, naming the Account Debtors or other
obligors thereon, the amount due and the aging thereof. The Agent or its designee is authorized to
contact Account Debtors and other Persons obligated on any such Collateral from time to time to
verify the existence, amount and/or terms of such Collateral.

Section 12. Notice of Loss. The Grantor will promptly notify the Agent of any loss of
or material damage to any material item of Collateral or of any substantial adverse change,
known to Grantor, in any material item of Collateral or the prospect of payment or performance
thereof.

 

8

 

Section 13. Insurance. The Grantor has the insurance policies described in Exhibit B
in place and shall provide that each such policy shall not be canceled or allowed to lapse unless
at least 30 days prior written notice is given to the Agent.

Section 14. Lawful Use; Fair Labor Standards Act. The Grantor will use and keep the
Collateral, and will require that others use and keep the Collateral, only for lawful purposes,
without violation of any federal, state or local law, statute or ordinance. All Inventory of the
Grantor as of the date of this Agreement that was produced by the Grantor or with respect to which
the Grantor performed any manufacturing or assembly process was produced by the Grantor (or such
manufacturing or assembly process was conducted) in compliance in all material respects with all
requirements of the Fair Labor Standards Act, and all Inventory produced, manufactured or assembled
by the Grantor after the date of this Agreement will be so produced, manufactured or assembled, as
the case may be.

Section 15. Action by the Agent. If the Grantor at any time fails to perform or
observe any of the foregoing agreements, the Agent shall have (and the Grantor hereby grants to the
Agent) the right, power and authority (but not the duty) to perform or observe such agreement on
behalf and in the name, place and stead of the Grantor (or, at the Agent’s option, in the Agent’s
name) and to take any and all other actions which the Agent may reasonably deem necessary to cure
or correct such failure (including, without limitation, the payment of taxes, the satisfaction of
Liens, the procurement and maintenance of insurance, the execution of assignments, security
agreements and Financing Statements, and the indorsement of instruments); and the Grantor shall
thereupon pay to the Agent on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys’ fees and legal expenses) incurred by the Agent in connection with
or as a result of the performance or observance of such agreements or the taking of such action by
the Agent, together with interest thereon from the date expended or incurred at the highest lawful
rate then applicable to any of the Obligations, and all such monies expended, costs and expenses
and interest thereon shall be part of the Obligations secured by the Security Interest.

Section 16. Insurance Claims. As additional security for the payment and performance
of the Obligations, the Grantor hereby assigns to the Agent any and all monies (including proceeds
of insurance and refunds of unearned premiums) due or to become due under, and all other rights of
the Grantor with respect to, any and all policies of insurance now or at any time hereafter
covering the Collateral or any evidence thereof or any business records or valuable papers
pertaining thereto. At any time, whether before or after the occurrence of any Event of Default,
the Agent may (but need not), in the Agent’s name or in Grantor’s name, execute and deliver proofs
of claim, receive all such monies, indorse checks and other instruments representing payment of
such monies, and adjust, litigate, compromise or release any claim against the issuer of any such
policy. Notwithstanding any of the foregoing, so long as no Event of Default exists the Grantor
shall be entitled to all insurance proceeds with respect to Equipment or Inventory provided that
such proceeds are applied to the cost of replacement Equipment or Inventory.

 

9

 

Section 17. The Agent’s Duties. The powers conferred on the Agent hereunder are
solely to protect its and the Secured Parties’ interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Agent shall be deemed to have exercised reasonable
care in the safekeeping of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to the safekeeping which the Agent accords its own property of like
kind. Except for the safekeeping of any Collateral in its possession and the accounting for monies
and for other properties actually received by it hereunder, the Agent shall have no duty, as to any
Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve
rights against any Persons or any other rights pertaining to any Collateral. The Agent will take
action in the nature of exchanges, conversions, redemptions, tenders and the like requested in
writing by the Grantor with respect to the Collateral in the Agent’s possession if the Agent in its
reasonable judgment determines that such action will not impair the Security Interest or the value
of the Collateral, but a failure of the Agent to comply with any such request shall not of itself
be deemed a failure to exercise reasonable care with respect to the taking of any necessary steps
to preserve rights against any Persons or any other rights pertaining to any Collateral.

Section 18. Default. Each of the following occurrences shall constitute an Event of
Default under this Agreement: (a) the failure of the Grantor to pay when due any of the
Obligations; (b) the failure of the Grantor to perform any agreement of the Grantor contained
herein, in the Notes or the Current Loans; (c) any statement, representation or warranty of the
Grantor made herein or at any time furnished to any Secured Party is untrue in any respect as of
the date made; (d) the entry of any final nonappealable judgment against the Grantor in excess of
one hundred thousand dollars ($100,000); (e) the Grantor becomes insolvent or is generally not
paying its debts as they become due; (f) the appointment of or assignment to a custodian, as that
term is defined in the United States Bankruptcy Code, for any property of the Grantor, or
encumbrance, levy, seizure or attachment of any portion of the Collateral; (g) the commencement of
any proceeding or the filing of a petition by or against the Grantor under the provisions of the
United States Bankruptcy Code for liquidation, reorganization or adjustment of debts or under any
insolvency law or other statute or law providing for the modification or adjustment of the rights
of creditors, and an order for relief is entered or such proceeding shall not be dismissed or
discharged within 90 days of commencement; or (h) dissolution or transfer of a substantial part of
the property of the Grantor.

Section 19. Remedies on Default. Upon the occurrence of an Event of Default and at
any time during the continuance thereof:

19(a) The Agent may exercise and enforce any and all rights and remedies available upon
default to a secured party under Article 9 of the Uniform Commercial Code as in effect in
the State of Delaware.

 

10

 

19(b) The Agent shall have the right to enter upon and into and take possession of all
or such part or parts of the properties of the Grantor, including lands, plants, buildings,
Equipment, Inventory and other property as may be necessary or appropriate in the judgment
of the Agent to permit or enable the Agent to manufacture, produce,
process, store or sell or complete the manufacture, production, processing, storing or
sale of all or any part of the Collateral, as the Agent may elect, and to use and operate
said properties for said purposes and for such length of time as the Agent may deem
necessary or appropriate for said purposes without the payment of any compensation to the
Grantor therefor. The Agent may require the Grantor to, and the Grantor hereby agrees that
it will, at its expense and upon request of the Agent forthwith, assemble all or part of the
Collateral as directed by the Agent and make it available to the Agent at a place or places
to be designated by the Agent.

19(c) Any disposition of Collateral may be in one or more parcels at public or private
sale, at any of the Agent’s offices or elsewhere, for cash, on credit, or for future
delivery, and upon such other terms as the Agent may reasonably believe are commercially
reasonable. The Agent shall not be obligated to dispose of Collateral regardless of notice
of sale having been given, and the Agent may adjourn any public or private sale from time to
time by announcement made at the time and place fixed therefor, and such disposition may,
without further notice, be made at the time and place to which it was so adjourned.

19(d) The Agent is hereby granted a license or other right to use, without charge, all
of the Grantor’s property, including, without limitation, all of the Grantor’s labels,
trademarks, copyrights, patents and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in completing production of, advertising for sale and
selling any Collateral, and the Grantor’s rights under all licenses and all franchise
agreements shall inure to the Agent’s benefit.

19(e) If notice to the Grantor of any intended disposition of Collateral or any other
intended action is required by law in a particular instance, such notice shall be deemed
commercially reasonable if given in the manner specified for the giving of notice in Section
24 hereof at least ten calendar days prior to the date of intended disposition or other
action, and the Agent may exercise or enforce any and all other rights or remedies available
by law or agreement against the Collateral, against the Grantor, or against any other Person
or property. The Agent (i) may dispose of the Collateral in its then present condition or
following such preparation and processing as the Agent deems commercially reasonable, (ii)
shall have no duty to prepare or process the Collateral prior to sale, (iii) may disclaim
warranties of title, possession, quiet enjoyment and the like, and (iv) may comply with any
applicable state or federal law requirements in connection with a disposition of the
Collateral and none of the foregoing actions shall be deemed to adversely affect the
commercial reasonableness of the disposition of the Collateral.

 

11

 

Section 20. Remedies as to Certain Rights to Payment. Upon the occurrence of an Event
of Default and at any time thereafter the Agent may notify any Account Debtor or other Person
obligated on any Accounts or other Collateral that the same have been assigned or transferred to
the Agent and that the same should be performed as requested by, or paid directly to, the Agent, as
the case may be. The Grantor shall join in giving such notice, if the Agent so requests. The
Agent may, in the Agent’s name or in the Grantor’s name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing, any such Collateral
or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligation of any such Account Debtor or
other Person. If any payments on any such Collateral are received by the Grantor after an Event of
Default has occurred, such payments shall be held in trust by the Grantor as the property of the
Agent and shall not be commingled with any funds or property of the Grantor and shall be forthwith
remitted to the Agent for application on the Obligations.

Section 21. Application of Proceeds. All cash proceeds received by the Agent in
respect of any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Agent, be held by the Agent as collateral for, or then or
at any time thereafter be applied in whole or in part by the Agent against, all or any part of the
Obligations (including, without limitation, any expenses of the Agent payable pursuant to Section
22 hereof).

Section 22. Costs and Expenses; Indemnity. The Grantor will pay or reimburse the
Agent on demand for all reasonable documented out-of-pocket expenses (including in each case all
filing and recording fees and taxes and all reasonable fees and expenses of counsel and of any
experts and agents) incurred by the Agent in connection with the satisfaction, foreclosure or
enforcement of the Security Interest and this Agreement, and all such costs and expenses shall be
part of the Obligations secured by the Security Interest. The Grantor shall indemnify and hold the
Agent harmless from and against any and all claims, losses and liabilities (including reasonable
attorneys’ fees) growing out of or resulting from this Agreement and the Security Interest hereby
created (including enforcement of this Agreement) or the Agent’s actions pursuant hereto, except
claims, losses or liabilities resulting from the Agent’s gross negligence or willful misconduct as
determined by a final judgment of a court of competent jurisdiction. Any liability of the Grantor
to indemnify and hold the Agent harmless pursuant to the preceding sentence shall be part of the
Obligations secured by the Security Interest. The obligations of the Grantor under this Section
shall survive any termination of this Agreement.

Section 23. Waivers; Remedies; Marshalling. This Agreement can be waived, modified,
amended, terminated or discharged, and the Security Interest can be released, only explicitly in a
writing signed by the Agent, Required Investors and the Grantor. A waiver so signed shall be
effective only in the specific instance and for the specific purpose given. Mere delay or failure
to act shall not preclude the exercise or enforcement of any rights and remedies available to the
Agent. All rights and remedies of the Agent shall be cumulative and may be exercised singly in any
order or sequence, or concurrently, at the Agent’s option, and the exercise or enforcement of any
such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any
other. The Grantor hereby waives all requirements of law, if any, relating to the marshalling of
assets which would be applicable in connection with the enforcement by the Agent of its remedies
hereunder, absent this waiver.

Section 24. Notices. Any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery, facsimile
transmission, overnight courier or United States mail (postage prepaid) addressed to such party at
the address specified on the signature page hereof, or at such other address as such party shall
have specified to the other party hereto in writing. All periods of notice shall be measured from
the date of delivery thereof if manually delivered, from the date of sending thereof if sent by
facsimile transmission, from the first business day after the date of sending if sent by overnight
courier, or from four days after the date of mailing if mailed.

 

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Section 25. Grantor Acknowledgments. The Grantor hereby acknowledges that (a) it has
been advised by counsel in the negotiation, execution and delivery of this Agreement, (b) neither
the Agent nor any Secured Party has a fiduciary relationship to the Grantor, the relationship being
solely that of debtor and creditor, and (c) no joint venture exists between the Grantor and the
Agent or any Secured Party.

Section 26. Representations and Warranties. The Grantor hereby represents and
warrants to the Agent and the Secured Parties that:

26(a) The Grantor is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the corporate power
and authority and the legal right to own and operate its properties and to conduct the
business in which it is currently engaged.

26(b) The Grantor has the power and authority and the legal right to execute and
deliver, and to perform its obligations under, this Agreement and has taken all necessary
corporate action to authorize such execution, delivery and performance.

26(c) This Agreement constitutes a legal, valid and binding obligation of the Grantor
enforceable in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

26(d) The execution, delivery and performance of this Agreement will not (i) violate
any provision of any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, governmental agency or arbitrator
presently in effect having applicability to the Grantor, (ii) violate or contravene any
provision of the Certificate of Incorporation or bylaws of the Grantor, or (iii) result in a
breach of or constitute a default under any indenture, loan or credit agreement or any other
agreement, lease or instrument to which the Grantor is a party or by which it or any of its
properties may be bound or result in the creation of any Lien thereunder. The Grantor is
not in default under or in violation of any such law, statute, rule or regulation, order,
writ, judgment, injunction, decree, determination or award or any such indenture, loan or
credit agreement or other agreement, lease or instrument in any case in which the
consequences of such default or violation could have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise) of the
Grantor.

26(e) Except for filings, recordings and registrations to perfect the Security
Interest, no order, consent, approval, license, authorization or validation of, or filing,
recording or registration with, or exemption by, any governmental or public body or
authority is required on the part of the Grantor to authorize, or is required in connection
with the execution, delivery and performance of, or the legality, validity, binding effect
or enforceability of, this Agreement.

 

13

 

26(f) There are no actions, suits or proceedings pending or, to the knowledge of the
Grantor, threatened against or affecting the Grantor or any of its properties before any
court or arbitrator, or any governmental department, board, agency or other instrumentality
which, if determined adversely to the Grantor, would have a material adverse effect on the
business, operations, property or condition (financial or otherwise) of the Grantor or on
the ability of the Grantor to perform its obligations hereunder.

Section 27. Continuing Security Interest. This Agreement shall (a) create a
continuing security interest in the Collateral and shall remain in full force and effect until
payment in full of the Obligations and the expiration of the obligations, if any, of the Agent and
the Secured Parties to extend credit accommodations to the Grantor, (b) be binding upon the
Grantor, its successors and assigns, and (c) inure to the benefit of, and be enforceable by, the
Agent and its successors, transferees, and assigns.

Section 28. Termination of Security Interest. Upon payment in full of the Obligations
and the expiration of any obligation of the Agent and the Secured Parties to extend credit
accommodations to the Grantor, the Security Interest granted hereby shall terminate. Upon any such
termination, the Agent will return to the Grantor such of the Collateral then in the possession of
the Agent as shall not have been sold or otherwise applied pursuant to the terms hereof and execute
and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such
termination. Any reversion or return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Grantor and shall be without
warranty by, or recourse on, the Agent. As used in this Section, “Grantor” includes any
assigns of Grantor, any Person holding a subordinate security interest in any of the Collateral or
whoever else may be lawfully entitled to any part of the Collateral.

Section 29. The Agent.

29(a) Each Investor hereby appoints LecTec Corporation as its contractual
representative (herein referred to as the “Agent”) hereunder, and each of the
Investors irrevocably authorizes the Agent to act as the contractual representative of such
Investor with the rights and duties expressly set forth herein. The Agent agrees to act as
such contractual representative upon the express conditions in this Section 27.
Notwithstanding the use of the defined term “Agent,” it is expressly understood and agreed
that the Agent shall not have any fiduciary responsibilities to any Investor by reason of
this Agreement and that the Agent is merely acting as the contractual representative of the
Investors with only those duties as are expressly set forth in this Agreement. In its
capacity as the Investors’ contractual representative, the Agent (i) does not hereby assume
any fiduciary duties to any of the Investors, (ii) is a “representative” of the Investors
within the meaning of the term “secured party” as defined in the Delaware Uniform Commercial
Code and (iii) is acting as an independent contractor, the rights and duties of which are
limited to those expressly set forth in this Agreement. Each of the Investors hereby agrees
to assert no claim against the Agent on any agency theory or any other theory of liability
for breach of fiduciary duty, all of which claims each Investor hereby waives.

 

14

 

29(b) The Agent shall have and may exercise such powers under this Agreement as are
specifically delegated to the Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. The Agent shall have no implied duties to the Investors and
no obligation to the Investors to take any action thereunder except any action specifically
provided by this Agreement to be taken by the Agent.

29(c) Neither the Agent nor any of its directors, officers, agents or employees shall
be liable to the Grantor or any Investor for any action taken or omitted to be taken
hereunder or in connection herewith except to the extent such action or inaction is
determined in a final non-appealable judgment by a court of competent jurisdiction to have
arisen from the gross negligence or willful misconduct of the Agent or any its directors,
officers, agents or employees, as the case may be.

29(d) Neither the Agent nor any of its directors, officers, agents or employees shall
be responsible for or have any duty to ascertain, inquire into or verify (a) any statement,
warranty or representation made in connection with any Note or any borrowing hereunder; (b)
the performance or observance of any of the covenants or agreements of under this Agreement
and the Notes; (c) the existence or possible existence of any Event of Default; (d) the
validity, enforceability, effectiveness, sufficiency or genuineness of any document or any
other instrument or writing furnished in connection therewith; (e) the value, sufficiency,
creation, perfection or priority of the Security Interest; or (f) the financial condition of
the Grantor.

29(e) The Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder in accordance with written instructions signed by the Required Investors,
and such instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Investors. The Investors hereby acknowledge that the Agent shall be
under no duty to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless the Required Investors request in writing that it take
such action. The Agent shall be fully justified in failing or refusing to take any action
hereunder unless it is first indemnified to its satisfaction by the Investors pro rata
against any and all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.

29(f) The Agent may execute any of its duties as Agent hereunder by or through
employees, agents and attorneys-in-fact and shall not be answerable to the Investors, except
as to money or securities received by it or its authorized agents, for the default or
misconduct of any employees, agents or attorneys-in-fact selected by it with reasonable
care. The Agent shall be entitled to advice of counsel concerning the contractual
arrangement between the Agent and the Investors and all matters pertaining to the Agent’s
duties hereunder.

29(g) The Agent shall be entitled to rely upon any Note, notice, consent, certificate,
affidavit, letter, telegram, facsimile, telex, electronic mail message, statement, paper or
document it believes to be genuine and correct and to have been signed or sent by the proper
person or persons, and, in respect to legal matters, upon the opinion of counsel selected by
the Agent, which counsel may be employees of the Agent.

 

15

 

29(h) The Investors agree to reimburse and indemnify the Agent ratably in proportion to
their aggregate outstanding principal amount of the Notes (i) for any amounts not reimbursed
by the Grantor for which the Agent is entitled to reimbursement by the Grantor under this
Agreement, (ii) for any other expenses incurred by the Agent on behalf of the Investors, in
connection with the preparation, execution, delivery, administration and enforcement of this
Agreement (including, without limitation, for any expenses incurred by the Agent in
connection with any dispute between the Agent and any Investor or between two or more of the
Investors) and (iii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that
may be imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of this Agreement or any other document delivered in connection therewith or the
transactions contemplated thereby (including, without limitation, for any such amounts
incurred by or asserted against the Agent in connection with any dispute between the Agent
and any Investor or between two or more of the Investors), or the enforcement of any of the
terms of this Agreement, provided that no Investor shall be liable for any of the foregoing
to the extent any of the foregoing is found in a final non-appealable judgment by a court of
competent jurisdiction to have resulted from the gross negligence or willful misconduct of
the Agent. The obligations of the Investors under this Section shall survive payment of the
Obligations and termination of this Agreement.

29(i) The Agent shall not be deemed to have knowledge or notice of the occurrence of
any Event of Default hereunder unless the Agent has received written notice from an Investor
or the Grantor referring to this Agreement describing such Event of Default and stating that
such notice is a “notice of default.” In the event that the Agent receives such a notice,
the Agent shall give prompt notice thereof to the Investors; provided that the Agent shall
have no duty to disclose, and shall not be liable for the failure to disclose, any
information relating to the Grantor that is communicated to or obtained by the bank serving
as Agent or any of its affiliates in any capacity.

29(j) In the event the Agent is a Investor, the Agent shall have the same rights and
powers hereunder with respect to its Note as any Investor and may exercise the same as
though it were not the Agent, and the term “Investor” or “Investors” shall, at any time when
the Agent is an Investor, unless the context otherwise requires, include the Agent in its
individual capacity. The Agent and its affiliates may accept deposits from, lend money to
and generally engage in any kind of trust, debt, equity or other transaction, in addition to
those contemplated by this Agreement, with the Grantor in which the Grantor is not
restricted hereby from engaging with any other Person.

29(k) Each Investor acknowledges that it has, independently and without reliance upon
the Agent or any other Investor and based on the financial statements prepared by the
Grantor and such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to extend credit accommodations to the Grantor. Each Investor
also acknowledges that it will, independently and without reliance upon the Agent or any
other Investor and based on such documents and information as it deems appropriate at the
time, continue to make its own credit decisions in taking or not taking action under this
Agreement. Except for any notice expressly
required to be furnished to the Investors by the Agent hereunder, the Agent shall have
no duty or responsibility (either initially or on a continuing basis) to provide any
Investor with any notice, report, document, credit information or other information
concerning the affairs, financial condition or business of the Grantor or any of its
affiliates that may come into the possession of the Agent (whether or not in its respective
capacity as Agent) or any of their affiliates.

 

16

 

29(l) Each Investor further acknowledges that it has had the opportunity to be
represented by legal counsel in connection with its execution of this Agreement, that it has
made its own evaluation of all applicable laws and regulations relating to the transactions
contemplated hereby and that the counsel to the Agent represents only the Agent and not the
Investors in connection with this Agreement and the transactions contemplated hereby.

29(m) The Agent may resign at any time by giving written notice thereof to the
Investors and the Grantor, such resignation to be effective upon the appointment of a
successor Agent or, if no successor Agent has been appointed, forty-five days after the
retiring Agent gives notice of its intention to resign. Upon any such resignation or
removal, the Required Investors shall have the right to appoint, on behalf of the Grantor
and the Investors, a successor Agent. If no successor Agent is so appointed by the Required
Investors within thirty days after the resigning Agent’s giving notice of its intention to
resign, then the resigning Agent may appoint, on behalf of the Grantor and the Investors, a
successor Agent. Notwithstanding the previous sentence, the Agent may at any time without
the consent of the Grantor or any Investor appoint any of its affiliates that is a
commercial bank as a successor Agent hereunder. If the Agent has resigned or been removed
and no successor Agent has been appointed, the Investors may perform all the duties of the
Agent hereunder and the Grantor shall make all payments in respect of the Obligations to the
applicable Investor and for all other purposes shall deal directly with the Investors. No
successor Agent shall be deemed to be appointed hereunder until such successor Agent has
accepted the appointment. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the resigning or removed Agent. Upon the
effectiveness of the resignation of the Agent, the resigning Agent shall be discharged from
its duties and obligations hereunder. After the effectiveness of the resignation of an
Agent, the provisions of this Section 29 shall continue in effect for the benefit of such
Agent in respect of any actions taken or omitted to be taken by it while it was acting as
the Agent hereunder.

29(n) The Investors hereby empower and authorize the Agent to execute and deliver to
the Grantor on their behalf the collateral documents, all related financing statements and
any financing statements, agreements, documents or instruments that are necessary or
appropriate to effect the purposes of the collateral documents.

29(o) The Investors hereby empower and authorize the Agent to execute and deliver to
the Grantor on their behalf any agreements, documents or instruments that are necessary or
appropriate to effect any releases of Collateral that the Required Investors have approved
in writing by the terms hereof or otherwise.

 

17

 

Section 30. Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF DELAWARE.
Whenever possible, each provision of this Agreement and any other statement, instrument or
transaction contemplated hereby or relating hereto shall be interpreted in such manner as to be
effective and valid under such applicable law, but, if any provision of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto shall be held to be
prohibited or invalid under such applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Agreement or any other statement, instrument or transaction
contemplated hereby or relating hereto.

Section 31. Consent to Jurisdiction. AT THE OPTION OF THE AGENT, THIS AGREEMENT MAY
BE ENFORCED IN ANY FEDERAL COURT OR DELAWARE STATE COURT; AND THE GRANTOR CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT.1 IN THE EVENT THE GRANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR
VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS AGREEMENT, THE AGENT AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED
UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

Section 32. Waiver of Notice and Hearing. THE GRANTOR HEREBY WAIVES ALL RIGHTS TO A
JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE AGENT OF ITS RIGHTS TO POSSESSION OF THE
COLLATERAL WITHOUT JUDICIAL PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.

Section 33. Waiver of Jury Trial. EACH OF THE GRANTOR AND THE AGENT, BY ITS
ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

18

 

Section 34. Subordination. THE SECURITY INTEREST GRANTED HEREIN (AND ALL PAYMENT AND
ENFORCEMENT PROVISIONS HEREIN) IS SUBJECT TO THE SUBORDINATION AGREEMENT (THE “SUBORDINATION
AGREEMENT”) BY AND AMONG LECTEC CORPORATION, AXOGEN CORPORATION, OXFORD FINANCE LLC (AS SUCCESSOR
IN INTEREST TO OXFORD FINANCE CORPORATION), IN ITS CAPACITY AS AGENT AND AS A LENDER AND ATEL
VENTURES, INC., AS A LENDER, DATED AS OF MAY 3, 2011. IN THE EVENT OF ANY INCONSISTENCY BETWEEN
THIS AGREEMENT AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL
CONTROL.

Section 35. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.

Section 36. General. All representations and warranties contained in this Agreement
or in any other agreement between the Grantor and the Agent shall survive the execution, delivery
and performance of this Agreement and the creation and payment of the Obligations. The Grantor
waives notice of the acceptance of this Agreement by the Agent. Captions in this Agreement are for
reference and convenience only and shall not affect the interpretation or meaning of any provision
of this Agreement.

Section 37. Additional Investors. The parties hereto agree that Exhibit A may
be amended from time to time to include additional Notes and additional Investor(s) as agreed to by
the Grantor and the Agent and as confirmed by the Grantor, the Agent and such additional
Investor(s) by the execution of a revised Exhibit A. Upon such execution, such additional
Investor(s) shall become parties to this Security Agreement as if such Investor(s) had originally
executed this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

19

 

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

	 	 	 	 	 
	 	AXOGEN CORPORATION

 	 
	 	/s/ Karen Zaderej
 	 
	 	Karen Zaderej, CEO 	 

Address for Grantor:

13859 Progress Blvd.

Suite 100

Alachu, Florida 32615

Email: kzaderej@axogeninc.com

Address for the Agent:

LecTec Corporation

1407 South Kings Highway

Texarkana, Texas 75501

Email: ceo@lectec.com

Acknowledged and Agreed:

LECTEC CORPORATION,

as Agent and an Investor

	 	 	 
	/s/ Greg Freitag
 

Greg Freitag, CEO

	 	 

[Signature Page to Security Agreement]

 

 

 

EXHIBIT A

INVESTORS AND NOTES

Exhibit A to the Security Agreement dated as of May 3, 2011 (the “Security Agreement”)
made and given by Axogen Corporation, a Delaware corporation (the “Grantor”), to LecTec
Corporation, a Minnesota corporation, as collateral agent (in such capacity, the “Agent”)
for the Investors (as defined in the Security Agreement), and as an Investor is hereby updated as
follows:

	 	 	 	 	 	 	 	 	 
	Investor Name	 	Date of Note	 	 	Amount of Note	 
	LecTec Corporation
	 	May 3, 2011	 	$	500,000	 
	 
	LecTec Corporation
	 	May 31, 2011	 	$	2,000,000	 

Agreed to and accepted by the Agent and the Grantor as of May 3, 2011.

	 	 	 	 	 
	AXOGEN CORPORATION

	 	 	 	LECTEC CORPORATION
	 
	 	 	 	 
	/s/ Karen Zaderej

	 	 	 	/s/ Greg Freitag
	 

	 	 	 	 
	Karen Zaderej, CEO

	 	 	 	Greg Freitag, CEO

The undersigned agrees to become a party to the Security Agreement as an Investor and to be bound
by each and all of the terms of the Security Agreement, in each case as if the undersigned had
originally executed the Security Agreement in such capacity.

 

 

 

EXHIBIT B

INSURANCE POLICIES

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Policy	 	Carrier	 	Policy #	 	 	Period	 	 	Amount	 	 	Deductible	 
	 
	Workers Compensation
	 	CNA Insurance	 	 	2064583115	 	 	 	6/1/10 – 6/1/11	 	 	$	1,000,000	 	 	 	0	 
	 
	Auto Liability
	 	CNA Insurance	 	 	2091148732	 	 	 	6/1/10 – 6/1/11	 	 	$	1,000,000	 	 	$	1,000	 
	 
	General Liability
	 	CNA Insurance	 	 	2064583132	 	 	 	6/1/10 – 6/1/11	 	 	$	1M/$2M	 	 	$	1,000	 
	 
	Umbrella
	 	CNA Insurance	 	 	2097171662	 	 	 	6/1/10 – 6/1/11	 	 	$	4,000,000	 	 	$	1,000	 
	 
	Property -
	 	CNA Insurance	 	 	2064583132	 	 	 	6/1/10 – 6/1/11	 	 	$	132,000	 	 	$	1,000	 
	Property -
	 	Landmark	 	 	LHD367761	 	 	 	6/1/10 – 6/1/11	 	 	$	421,000	 	 	$	1,000	 
	 
	Product Liability
	 	CNA Healthpro	 	 	2097437066	 	 	 	6/1/10 – 6/1/11	 	 	$	5,000,000	 	 	$	50,000	 
	 
	Directors & Officers
Employment Practices
	 	Carolina Casualty	 	 	6972644	 	 	 	6/1/10 – 6/1/11	 	 	$	2,000,000	 	 	$	10,000	 
	 
	Cargo
	 	Falvey / Lloyds	 	MC-2452	 	 	 	6/1/10 – 6/1/11	 	 	$	50,000	 	 	$	1,000	 
	 
	 	 	 	 	 	WC-2452	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Mechanical Breakdown
	 	Travelers	 	 	BM214317B962	 	 	 	6/1/10 – 6/1/11	 	 	$	2,281,021	 	 	$	5,000	 

 

 

 

SCHEDULE 4

EFFECTIVE FINANCING STATEMENTS

1. Grantor has granted a first priority security interest in all of its assets to Agent (as
defined below) pursuant to (i) that certain Loan and Security Agreement dated April 21, 2008, as
amended to date, by and among Oxford Finance Corporation, a Delaware corporation (“Oxford”), as
collateral agent (“Agent”), and the Lenders listed on Schedule 1.1 thereof and otherwise party
hereto, including without limitation, Oxford and ATEL Ventures, Inc. (the “Loan Agreement”) and
(ii) that certain Intellectual Property Security Agreement dated January 7, 2010 by and among
Oxford, as Agent for the Lenders listed on Schedule 1.1 to the Loan Agreement, and Grantor.

2. Grantor has granted a third lien security interest in all of its assets pursuant to the Secured
Parties (as defined below) that certain Security Agreement (the “Agreement”) dated June 11, 2010,
as amended to date, by and among Grantor and each of the signatories thereto (each a “Secured
Party” and collectively the “Secured Parties”).

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