LOAN AND SECURITY AGREEMENT
Exhibit 10.1
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 21, 2008 (the “Effective Date”)
between SILICON VALLEY BANK, a California corporation and with a loan production office located at
0000 Xx Xxxxx Xxxxxxx Xxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000 (“SVB”), as collateral agent
(the “Collateral Agent”), and the Lenders listed on Schedule 1.1 thereof and party hereto,
including without limitation, SVB and OXFORD FINANCE CORPORATION, (“OXFORD”) and SOMAXON
PHARMACEUTICALS, INC., a Delaware corporation (“Borrower”), provides the terms on which Lenders
shall lend to Borrower and Borrower shall repay Lenders. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and
determinations must be made following GAAP. Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth in Section 13. All other terms contained in this
Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent
such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Lenders the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.
2.1.1 Term Loan.
(a) Availability. Subject to the terms and conditions of this Agreement, during the
Draw Period, Lenders agree, severally and not jointly, to make one (1) loan available to Borrower
in an amount up to the Term Loan, according to each Lender’s pro-rata share of the Term Loan based
upon the respective Commitment Percentage of each Lender. After repayment, the Term Loan may not
be re-borrowed.
(b) Interest Payments. Commencing on the first Payment Date of the month following
the month in which the Funding Date occurs, Borrower shall make monthly payments of interest, in
arrears, at the rate set forth in Section 2.2(a).
(c) Repayment. Commencing on the Amortization Date, and continuing on the Payment
Date of each month thereafter, Borrower shall make consecutive equal monthly payments of principal
and interest, in arrears, to each Lender, as calculated by the Collateral Agent based upon: (1) the
amount of the Term Loan multiplied by each Lender’s Commitment Percentage, (2) the effective rate
of interest, as determined in Section 2.2(a), and (3) a repayment schedule equal to thirty (30)
months. All unpaid principal and accrued interest with respect to the Term Loan is due and payable
in full on the Term Loan Maturity Date. Payments received after 12:00 p.m. Pacific time are
considered received at the opening of business on the next Business Day. The Term Loan may only be
prepaid in accordance with Sections 2.1.1(d) and 2.1.1(e).
(d) Mandatory Prepayment Upon an Acceleration. If the Term Loan is accelerated
following the occurrence of an Event of Default or otherwise, Borrower shall immediately pay to
Lenders an amount equal to the sum of: (i) all outstanding principal plus accrued interest, (ii)
the Prepayment Fee, (iii) the Final Payment, plus (iv) all other sums, that shall have become due
and payable, including interest at the Default Rate with respect to any past due amounts.
(e) Permitted Prepayment of Loans. Borrower shall have the option to prepay all,
but not less than all, of the Term Loan advanced by Lenders under this Agreement, provided Borrower
(i) provides written notice to Collateral Agent of its election to prepay the Term Loan at least
thirty (30) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all
outstanding principal plus accrued interest, (B) the Prepayment
Fee, (C) the Final Payment, plus
(D) all other sums, that shall have become due and payable, including interest at the Default Rate
with respect to any past due amounts.
2.2 Payment of Interest on the Credit Extensions.
(a) Interest Rate. Subject to Section 2.2(b), the principal amount outstanding under
the Term Loan shall accrue interest at a fixed per annum rate equal
to 9.57%, which interest shall
be payable monthly in accordance with Section 2.2.(e).
(b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, the Credit Extensions shall bear interest at a rate per annum which is five
percentage points above the rate that is otherwise applicable thereto (the “Default Rate”).
Payment or acceptance of the increased interest rate provided in this Section 2.2(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of any Event of Default
or otherwise prejudice or limit any rights or remedies of Collateral Agent.
(c) 360-Day Year. Interest shall be computed on the basis of a 360-day year
comprising twelve (12) months consisting of thirty (30) days.
(d) Debit of Accounts. Collateral Agent may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or any other amounts
Borrower owes Lenders under the Loan Documents when due unless other arrangements are made for
Borrower to make certain principal and interest payments to any Lender, as provided in Section
2.1.1(c). These debits shall not constitute a set-off.
(e) Payments. Unless otherwise provided, interest is payable monthly on the Payment
Date of each month. Payments of principal and/or interest received after 12:00 p.m. Pacific time
are considered received at the opening of business on the next Business Day. When a payment is due
on a day that is not a Business Day, the payment is due the next Business Day and additional fees
or interest, as applicable, shall continue to accrue.
2.3 Secured Promissory Notes. Each Term Loan shall be evidenced by a Secured Promissory Note
in the form attached as Exhibit D hereto (each a “Secured Promissory Note”), and shall be
repayable as set forth herein. The Borrower irrevocably authorizes each Lender to make or cause to
be made, on or about the Funding Date of any Term Loan or at the time of receipt of any payment of
principal on such Lender’s Secured Promissory Note, an appropriate notation on such Lender’s
Secured Promissory Note Record reflecting the making of such Term Loan or (as the case may be) the
receipt of such payment. The outstanding amount of each Term Loan set forth on such Lender’s
Secured Promissory Note Record shall be prima facie evidence of the principal amount thereof owing
and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount
on such Lender’s Secured Promissory Note Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Secured Promissory Note to make payments of principal of or
interest on any Secured Promissory Note when due. Upon receipt of an affidavit of an officer of a
Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, which
affidavit shall include customary indemnification obligations of such Lender, the Borrower shall
issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof
and of like tenor.
2.4 Fees. Borrower shall pay to Collateral Agent:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of Seventy-Five
Thousand Dollars ($75,000) to be shared between the Lenders pursuant to their respective Commitment
Percentages;
(b) Prepayment Fee. The Prepayment Fee, as and when due hereunder;
(c) Final Payment. The Final Payment, as and when due hereunder; and
(d) Lenders’ Expenses. All Lenders’ Expenses (including reasonable attorneys’ fees
and expenses, plus expenses, for documentation and negotiation of this Agreement) incurred through
and after the Effective Date, when due.
3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. Each Lender’s obligation to make the
initial Credit Extension is subject to the condition precedent that Borrower shall consent to or
shall have delivered, in form and substance satisfactory to Lenders, such documents, and completion
of such other matters, as Lenders may reasonably deem necessary or appropriate, including, without
limitation:
(a) duly executed original signatures to the Loan Documents to which Borrower is a party;
(b) duly executed original signatures to the Control Agreement[s];
(c) duly executed original Secured Promissory Notes in favor of each Lender according to its
Commitment Percentage in amounts not to exceed the Term Loans;
(d) Operating Documents and a good standing certificate of Borrower certified by the Secretary
of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the
Effective Date;
(e) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(f) Collateral Agent shall have received certified copies, dated as of a recent date, of
financing statement searches, as Collateral Agent shall request, accompanied by written evidence
(including any UCC termination statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in connection with the initial Credit
Extension, will be terminated or released;
(g) intentionally
deleted;
(h) a legal opinion of Borrower’s counsel dated as of the Effective Date together with the
duly executed original signatures thereto;
(i) evidence satisfactory to Collateral Agent that the insurance policies required by Section
6.5 hereof are in full force and effect, together with appropriate evidence showing loss payable
and/or additional insured clauses or endorsements in favor of Collateral Agent, for the ratable
benefit of the Lenders; and
(j) payment of the fees and Lenders’ Expenses then due as specified in Section 2.4 hereof.
3.2 Conditions Precedent to all Credit Extensions. The obligation of each Lender to make each
Credit Extension, including the initial Credit Extension, is subject to the following:
(a) except as otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance
Form;
(b) the representations and warranties in Section 5 shall be true in all material respects on
the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided,
however, that such materiality qualifier shall not be applicable to any portions of the
representations and warranties that already are qualified or modified by materiality; and provided,
further that those representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no Event of Default shall
have occurred and be continuing or result from the Credit Extension. Each Credit Extension is
Borrower’s representation and warranty on that date that the representations and warranties in
Section 5 remain true in all material respects; provided, however, that such materiality qualifier
shall not be applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those representations and
warranties expressly referring to a specific date shall be true, accurate and complete in all
material respects as of such date; and
(c) there has not been any Material Adverse Change.
3.3 Covenant to Deliver. Borrower agrees to deliver to Collateral Agent each item required to
be delivered to Collateral Agent under this Agreement as a condition to any Credit Extension.
Borrower expressly agrees that a Credit Extension made prior to the receipt by Collateral Agent of
any such item shall not constitute a
waiver by Lenders of Borrower’s obligation to deliver such item, and any such Credit Extension
in the absence of a required item shall be in Collateral Agent’s sole discretion.
3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable
conditions to the making of the Term Loan set forth in this Agreement, to obtain the Term Loan,
Borrower shall notify Collateral Agent (which notice shall be irrevocable) by electronic mail,
facsimile, or telephone by 12:00 noon Eastern time five (5) Business Days prior to the date the
Term Loan is to be made. Together with any such electronic or facsimile notification, Borrower
shall deliver to Collateral Agent by electronic mail or facsimile a completed Payment/Advance Form
executed by a Responsible Officer or his or her designee. Upon receipt of a Payment/Advance Form,
Collateral Agent shall promptly provide a copy of the same to each Lender. Collateral Agent may
rely on any telephone notice given by a person whom Collateral Agent reasonably believes is a
Responsible Officer or designee. On the Funding Date, each Lender shall credit and/or transfer (as
applicable) to Borrower’s Designated Deposit Account, an amount equal to its Commitment Percentage
multiplied by the amount of the Term Loan.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants Collateral Agent, for the ratable
benefit of the Lenders, and to each Lender, to secure the payment and performance in full of all of
the Obligations, a continuing security interest in, and pledges to Collateral Agent, for the
ratable benefit of the Lenders, and to each Lender, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower
represents, warrants, and covenants that the security interest granted herein is and shall at all
times continue to be a first priority perfected security interest in the Collateral (subject only
to Permitted Liens that may have superior priority under this Agreement). If Borrower shall
acquire a commercial tort claim, Borrower shall promptly notify Collateral Agent in a writing
signed by Borrower of the general details thereof (and further details as may be required by
Collateral Agent) and grant to Collateral Agent, for the ratable benefit of the Lenders, and to
each Lender in such writing a security interest therein and in the proceeds thereof to secure the
payment and performance in full of all of the Obligations, all upon the terms of this Agreement,
with such writing to be in form and substance reasonably satisfactory to Collateral Agent.
Notwithstanding the foregoing, in the event that Borrower closes a Qualified Financing, the
Collateral Agent, and each Lender shall, at Borrower’s sole cost and expense, release its Liens in
the Collateral and all rights therein shall revert to Borrower; provided that in connection with,
and from and after, the consummation of such Qualified Financing, Borrower shall grant to
Collateral Agent, for the ratable benefit of the Lenders, and to each Lender, to secure the payment
and performance in full of all of the Obligations, a continuing security interest in, and pledge to
Collateral Agent, for the ratable benefit of the Lenders, and to each Lender a first perfected
security interest in favor of the Lenders, not avoidable under applicable solvency or bankruptcy
laws, in a certificate of deposit maintained at SVB in otherwise unrestricted and unencumbered
funds in the minimum amount of the aggregate outstanding Obligations from time to time (the “CD”).
The release of Lenders’ Lien hereunder may be delayed to take into consideration any applicable
preference periods under bankruptcy laws.
If this Agreement is terminated, Collateral Agent’s and each Lender’s Lien in the Collateral
shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full
in cash. Upon payment in full in cash of the Obligations (other than inchoate indemnity
obligations) and at such time as the Lenders’ obligation to make Credit Extensions has terminated,
the Collateral Agent, and each Lender shall, at Borrower’s sole cost and expense, release its Liens
in the Collateral and all rights therein shall revert to Borrower.
4.2 Authorization to File Financing Statements. Borrower hereby authorizes Collateral Agent
to file financing statements, without notice to Borrower, with all appropriate jurisdictions to
perfect or protect Collateral Agent’s and each Lender’s interest or rights hereunder, including a
notice that any disposition of the Collateral, by either Borrower or any other Person, shall be
deemed to violate the rights of the Collateral Agent and the Lenders under the Code.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization, Authorization: Power and Authority. Borrower and each of its
Subsidiaries, if any, are duly existing and in good standing, as Registered Organizations in their
respective jurisdictions of formation and are qualified and licensed to do business and are in good
standing in any jurisdiction in which the conduct of their business or their ownership of property
requires that they be qualified except where the failure to do so could not reasonably be expected
to have a material adverse effect on Borrower’s business. In connection with this Agreement,
Borrower has delivered to Collateral Agent a completed perfection certificate signed by Borrower
(the “Perfection Certificate”). Borrower represents and warrants that as of the date of the
Perfection Certificate, (a) Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection
Certificate accurately sets forth Borrower’s organizational identification number or accurately
states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s
place of business, or, if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and each of its predecessors)
has not, in the past five (5) years, changed its jurisdiction of formation, organizational
structure or type, or any organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and each of its
Subsidiaries is accurate and complete. If Borrower is not now a Registered Organization but later
becomes one, Borrower shall promptly notify Collateral Agent of such occurrence and provide
Collateral Agent with Borrower’s organizational identification number.
The execution, delivery and performance by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational
documents, (ii) contravene, conflict with, constitute a default under or violate any Requirement of
Law, except where such violation would not have a material adverse effect on Borrower’s business,
(iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries
or any of their property or assets may be bound or affected, (iv) require any action by, filing,
registration, or qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in full force and
effect) or are being obtained pursuant to Section 6.1(b), except where the failure to so obtain a
Governmental Approval would not have a material adverse effect on Borrower’s business, or (v)
constitute a material breach under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which it is a party or by which it is bound in which the
default could reasonably be expected to have a material adverse effect on Borrower’s business.
5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each
item of the Collateral upon which it purports to xxxxx x Xxxx hereunder, free and clear of any and
all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts
with Collateral Agent, the deposit accounts, if any, described in the Perfection Certificate
delivered to Collateral Agent in connection herewith, or of which Borrower has given Collateral
Agent notice and taken such actions as are necessary to give Collateral Agent a perfected security
interest therein.
The Collateral is not in the possession of any third party bailee (such as a warehouse) except
as otherwise provided in the Perfection Certificate or as otherwise permitted herein. No portion
of the components of the Collateral, except for Finished Inventory, in excess of One Hundred
Thousand Dollars ($100,000), shall be maintained at locations other than as provided in the
Perfection Certificate or as permitted pursuant to Section 7.2. In the event that Borrower, after
the date hereof, intends to store or otherwise deliver any portion of the Collateral in excess of
One Hundred Thousand Dollars ($100,000), except for Finished Inventory to a bailee other than those
listed in the Perfection Certificate, then Borrower will first receive the written consent of
Collateral Agent and at the election of Collateral Agent, such bailee shall execute and deliver a
bailee agreement in form and substance satisfactory to Collateral Agent in its sole discretion.
All Commercial Inventory is in all material respects of good and marketable quality, free from
material defects.
Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by,
any material license or other material agreement with respect to which Borrower is the licensee
that (a) prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s
interest in such material license or material agreement or any other property, or (b) for which a
default under or termination of could interfere with Collateral Agent’s right to sell any
Collateral. Borrower shall provide written notice to Collateral Agent within thirty (30) days
of entering or becoming bound by any such license or agreement (other than over-the-counter
software that is commercially available to the public). Borrower shall take such steps as
Collateral Agent reasonably requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for (x) all such material licenses or material agreements to be
deemed “Collateral” and for Collateral Agent and each Lender to have a security interest in it that
might otherwise be restricted or prohibited by law or by the terms of any such license or, whether
now existing or entered into in the future, and (y) Collateral Agent shall have the ability in the
event of a liquidation of any Collateral to dispose of such Collateral in accordance with
Collateral Agent’s rights and remedies under this Agreement and the other Loan Documents.
Notwithstanding the foregoing, the terms of the previous sentence shall not apply to and the
Collateral shall not include license agreements solely for the use of Intellectual Property of a
third party with respect to which Borrower is the licensee.
5.3 Litigation. There are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than One Hundred Thousand Dollars ($100,000).
5.4 No Material Deviation in Financial Statements. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Collateral Agent fairly present, in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated results of
operations, in each case as of the respective dates hereof. Except with respect to spending of
cash in the ordinary course of business, provided that Borrower is not in violation of any other
provision hereof, there has not been any material deterioration in Borrower’s consolidated
financial condition since the date of the most recent financial statements submitted to Collateral
Agent.
5.5 Solvency. The fair salable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; Borrower is able to pay its debts
(including trade debts) as they mature.
5.6 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not
engaged in extending credit for margin stock (under Regulations T and U of the Federal Reserve
Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor
Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an
“affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is
defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any
laws, ordinances or rules, the violation of which could reasonably be expected to have a material
adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by
previous Persons, in disposing, producing, storing, treating, or transporting any hazardous
substance other than in material compliance with all applicable laws. Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all Government Authorities that are necessary to continue
their respective businesses as currently conducted, except where the failure to do so would not
have a material adverse effect on Borrower’s business.
5.7 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.
5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower, except where the failure to do so would
not have a material adverse effect on Borrower’s business or as permitted in the next sentence.
Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies Collateral Agent in writing of the commencement of, and any
material development in, the proceedings, (c) posts bonds or takes any other steps required to
prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of
the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to, any such plan which
could reasonably
be expected to result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.
5.9 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as
working capital and to fund its general business requirements and not for personal, family,
household or agricultural purposes.
5.10 Full Disclosure. No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Collateral Agent or any Lender, as of the date such
representation, warranty, or other statement was made, taken together with all such written
certificates and written statements given to Collateral Agent or any Lender, contains any untrue
statement of a material fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading (it being recognized that the
projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions
are not viewed as facts and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected or forecasted results).
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 Government Compliance.
(a) Maintain its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s
business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws,
ordinances and regulations to which it is subject, noncompliance with which could have a material
adverse effect on Borrower’s business.
(b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its
obligations under the Loan Documents to which it is a party and the grant of a security interest to
Collateral Agent for the ratable benefit of the Lenders, in the Collateral. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Collateral Agent.
6.2 Financial Statements, Reports, Certificates.
(a) Deliver to Collateral Agent: (i) as soon as available, but no later than sixty (60) days
after the last day of Borrower’s fiscal year end, Borrower’s budget for the following fiscal year
as approved by Borrower’s Board of Directors; (ii) within ten (10) days of delivery, copies of all
statements, reports and notices made available to all of Borrower’s security holders or to any
holders of Subordinated Debt; except to the extent otherwise filed with the Securities and Exchange
Commission on its XXXXX web site; (iii) within five (5) days of filing, all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission, except to the extent otherwise
filed with the Securities and Exchange Commission on its XXXXX web site; (iv) a prompt report of
any legal actions pending or threatened against Borrower or any of its Subsidiaries that could
result in damages or costs to Borrower or any of its Subsidiaries of One Hundred Thousand Dollars
($100,000) or more; and (v) other financial information reasonably requested by Collateral Agent.
(b) Within thirty (30) days after the last day of each month, deliver to Collateral Agent, a
duly completed Compliance Certificate signed by a Responsible Officer.
6.3 Inventory; Returns. Keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between Borrower and its Account Debtors shall follow
Borrower’s customary practices. Borrower must promptly notify Collateral Agent of all returns,
recoveries, disputes and claims by Account Debtors that involve more than Two Hundred Fifty
Thousand Dollars ($250,000).
6.4 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all
required tax returns and reports and timely pay, and require each of its Subsidiaries to timely
file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for
deferred payment of any taxes contested pursuant to the terms of Section 5.8 hereof and except
where any delay in doing so would not have a material adverse effect on Borrower’s business, and
shall deliver to Collateral Agent, on demand, appropriate certificates attesting to such payments,
and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.
6.5 Insurance. Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Collateral Agent may reasonably request.
Insurance policies shall be in a form, with companies, and in amounts that are reasonably
satisfactory to Collateral Agent. All property policies shall have a lender’s loss payable
endorsement showing Collateral Agent as lender loss payee and waive subrogation against Collateral
Agent, and all liability policies shall show, or have endorsements showing, the Collateral Agent,
as an additional insured. All policies (or the loss payable and additional insured endorsements)
shall provide that the insurer must give Collateral Agent at least twenty (20) days notice before
canceling, amending, or declining to renew its policy. At Collateral Agent’s request, Borrower
shall deliver certificates of insurance and evidence of all premium payments. Proceeds payable
under any policy shall, at Collateral Agent’s option, be payable to Collateral Agent on behalf of
the Lenders on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event
of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds
of any casualty policy up to $500,000 with respect to any loss, but not exceeding $500,000, in the
aggregate for all losses under all casualty policies in any one year, toward the replacement or
repair of destroyed or damaged property; provided that any such replaced or repaired property (i)
shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed
Collateral in which Collateral Agent and Lenders have been granted a first priority security
interest, and (b) after the occurrence and during the continuance of an Event of Default, all
proceeds payable under such casualty policy shall, at the option of Collateral Agent, be payable to
Collateral Agent, for the ratable benefit of the Lenders, on account of the Obligations. If
Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or
furnish any required proof of payment to third persons and Collateral Agent, Collateral Agent may
make all or part of such payment or obtain such insurance policies required in this Section 6.5,
and take any action under the policies Collateral Agent deems prudent.
6.6 Operating Accounts.
(a) Maintain an operating account with Collateral Agent. At least fifty percent (50%) of the
dollar value of Borrower’s and its Subsidiaries’ cash and securities accounts at all financial
institutions shall be maintained with Collateral Agent or an Affiliate of Collateral Agent.
(b) Provide Collateral Agent five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution other than Collateral Agent or its
Affiliates. In addition, for each Collateral Account that Borrower at any time maintains, Borrower
shall cause the applicable bank or financial institution (other than Collateral Agent) at or with
which any Collateral Account is maintained to execute and deliver a Control Agreement or other
appropriate instrument with respect to such Collateral Account to perfect Collateral Agent’s Lien
in such Collateral Account in accordance with the terms hereunder, which Control Agreement may not
be terminated without prior written consent of Collateral Agent. The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to
Collateral Agent by Borrower as such.
6.7 Qualified Financing.
(a) Minimum Cash at SVB. As of the Effective Date and at all times thereafter, Borrower shall
maintain unrestricted and unencumbered cash, Cash Equivalents and Investments permitted by the
Borrower’s investment policy, as amended from time to time (provided that such investment policy
and any such amendment thereto has been approved by the board of directors of Borrower or the audit
committee of the board of directors of Borrower) in accounts with SVB or an Affiliate of SVB: (i)
prior to the occurrence of the Qualified Financing, in an amount of at least fifty percent (50.0%)
of the aggregate outstanding principal amount of all Credit Extensions hereunder, and (ii) after
the occurrence of the Qualified Financing, in the minimum amount of the aggregate outstanding
Obligations from time to time, in the CD.
6.8 Protection of Intellectual Property Rights. Borrower shall use commercially reasonably
efforts to protect, defend and maintain the validity and enforceability of its Intellectual
Property.
6.9 Litigation Cooperation. From the date hereof and continuing through the termination of
this Agreement, make available to Collateral Agent, without expense to Collateral Agent, Borrower
and its officers, employees and agents and Borrower’s books and records, to the extent that
Collateral Agent may deem them reasonably necessary to prosecute or defend any third-party suit or
proceeding instituted by or against Collateral Agent with respect to any Collateral or relating to
Borrower.
6.10 Further Assurances. Execute any further instruments and take further action as
Collateral Agent reasonably requests to perfect or continue Collateral Agent’s and Lenders’ Lien in
the Collateral or to effect the purposes of this Agreement.
6.11 Notices of Litigation and Default. Borrower will give prompt written notice to
Collateral Agent of any litigation or governmental proceedings pending or threatened (in writing)
against Borrower which, if finally decided against Borrower, would have a material adverse effect
on Borrower’s business. Without limiting or contradicting any other more specific provision of
this Agreement, promptly (and in any event within five (5) Business Days) upon Borrower becoming
aware of the existence of any Event of Default or event which, with the giving of notice or passage
of time, or both, would constitute an Event of Default, Borrower shall give written notice to
Collateral Agent of such occurrence, which such notice shall include a reasonably detailed
description of such Event of Default or event which, with the giving of notice or passage of time,
or both, would constitute an Event of Default.
6.12 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary creates or
acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Collateral Agent of the
creation or acquisition of such new Subsidiary and take all such action as may be reasonably
required by Collateral Agent to cause each such domestic Subsidiary to guarantee the Obligations of
Borrower under the Loan Documents and grant a continuing pledge and security interest in and to the
assets of such Subsidiary (substantially as described on Exhibit A hereto); and Borrower shall
grant and pledge to Collateral Agent, for the ratable benefit of Lenders a perfected security
interest in the stock, units or other evidence of ownership of each Subsidiary (in the case of a
foreign Subsidiary, such pledge shall not exceed 65% of such stock units or other evidence of
ownership); provided, however, that the obligations contained in this Section 6.12 shall not apply
to any Subsidiary created in connection with any Qualified Financing, provided Borrower is in
compliance with all of the terms hereunder.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Collateral Agent’s prior written consent:
7.1 Dispositions. Without the prior written consent of the Collateral Agent, which consent
shall not be unreasonably withheld or delayed, convey, sell, lease, transfer, or otherwise dispose
of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (a) of Inventory in the ordinary course of business;
(b) of worn-out or obsolete Equipment; and (c) in connection with Permitted Liens and Permitted
Investments; (d) of non-exclusive licenses for the use of the Intellectual Property of Borrower or
its Subsidiaries, in connection with joint ventures and corporate collaborations in the ordinary
course of business, such as agreements with contract sales organizations, pharmaceutical companies
or specialty pharmaceutical companies to co-promote or otherwise further the commercialization of
Borrower’s product candidate SILENOR™ (doxepin HCl); and (e) in the ordinary course of business for
reasonably equivalent consideration.
7.2 Changes in Business, Ownership, or Business Locations. Without the prior written consent
of the Collateral Agent, which consent shall not be unreasonably withheld or delayed: (a) engage
in or permit any of its Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b)
liquidate or dissolve; or (c) enter into any transaction or series of related transactions in
which the stockholders of Borrower who were not stockholders immediately prior to the first such
transaction own more than 40% of the voting stock of Borrower immediately after giving effect to
such transaction or related series of such transactions (other than by the sale of Borrower’s
equity securities in a public offering or to venture capital investors or any PIPE transaction).
Borrower shall not, without at least fifteen (15) days prior written notice to Collateral Agent:
(1) add any new offices or business locations, including warehouses (unless such new offices or
business locations contain less than Twenty-Five Thousand Dollars ($25,000) in Borrower’s assets or
property), (2) change its jurisdiction of organization, (3) change its organizational structure or
type, (4) change its legal name, or (5) change any organizational number (if any) assigned by
its jurisdiction of organization.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person; provided, however,
that if Lenders do not consent to any such transaction, then Borrower shall be entitled to prepay
all of the Obligations. A Subsidiary may merge or consolidate into another Subsidiary or into
Borrower. Notwithstanding the foregoing, Borrower may merge or consolidate so long as: (A) the
entity tor entities that result from such merger or consolidation (collectively, the “Surviving
Entity”) shall have executed and delivered to Lenders an agreement in form and substance reasonably
satisfactory to Lenders, containing an assumption by the Surviving Entity of the due and punctual
payment and performance of all Obligations and performance and observance of each covenant and
condition of Borrower in the Loan Documents: (B) all such obligations of the Surviving Entity to
Lenders shall be guaranteed by any entity, if any, that directly or indirectly owns or controls
more than 50% of the voting stock of the Surviving Entity (which guaranty shall be secured in the
discretion of the Lenders); (C) immediately after giving effect to such merger or consolidation, no
Default or Event of Default shall have occurred and be continuing; and (D) the credit risk to
Lenders, in their sole discretion, of the Surviving Entity shall not be increased. In determining
whether the proposed merger or consolidation would result in any increased credit risk, Lenders may
consider, among other things, changes in Borrower’s management team, employee base, access to
equity markets, investor support, financial position, business plan, and/or disposition of
Intellectual Property rights which may reasonably be anticipated as a result of the transaction.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign
or convey any right to receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, and non-exclusive licenses permitted under
Section 7.1, or permit any Collateral not to be subject to the first priority security interest
granted herein, (which Collateral may be subject to Permitted Liens), or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Collateral Agent) with any
Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any
Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or
encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, in each case except as is
otherwise permitted in Sections 4.1 or 7.1 hereof and the definition of “Permitted Liens” herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.6(b) hereof.
7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its
convertible securities into other securities pursuant to the terms of such convertible securities
or otherwise in exchange thereof, (ii) Borrower may pay dividends or distributions solely in
capital stock; (iii) Borrower may repurchase the stock of employees or consultants pursuant to
stock repurchase agreements so long as an Event of Default does not exist at the time of such
repurchase and would not exist after giving effect to such repurchase, provided such repurchase
does not exceed in the aggregate of Seven Hundred Fifty Thousand Dollars ($750,000) per fiscal year
and provided further, that the foregoing limitations do not apply to the repurchase of the unvested
restricted stock (one hundred thirty-five thousand shares (135,000) issued to Borrower’s current
executive officers on October 8, 2007, pursuant to the terms and conditions of the restricted stock
purchase agreements currently in effect between Borrower and each of such executive officers; (iv)
purchases for value of any rights distributed in connection with any stockholder rights plan; (v)
purchases of capital stock or options to acquire such capital stock with the proceeds received from
a substantially concurrent issuance of capital stock or convertible securities; (vi) purchases of
capital stock in connection with the exercise of stock options or stock appreciation by way of a
cashless exercise; and (vii) purchases of fractional shares of capital stock arising out of stock
dividends, splits or combinations or business combinations; or (b) directly or indirectly make any
Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower, except as permitted in Section 7.2, and except
for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable
terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction
with a non-affiliated Person.
7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under
the terms of the subordination, intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof or adversely affect the subordination
thereof to Obligations owed to the Lenders.
7.10 Compliance. Become an “investment company” or a company controlled by an “investment
company”, under the Investment Company Act of 1940, as amended or undertake as one of its important
activities extending credit to purchase or carry margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for
that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, if the violation could reasonably be expected
to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any present pension,
profit sharing and deferred compensation plan which could reasonably be expected to result in any
liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:
8.1 Payment Default. Borrower fails to make any payment of principal or interest, or pay any
other Obligations within three (3) Business Days after such Obligations are due and payable (which
three (3) Business Day grace period shall not apply to payments due on the Term Loan Maturity
Date). During the cure period, the failure to cure the payment default is not an Event of Default
(but no Credit Extension will be made during the cure period);
8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7,
or violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within ten (10) days after
the occurrence thereof; provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10)
day period, and such default is likely to be cured within a reasonable time, then Borrower shall
have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to cure the default shall not be
deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace
periods provided under this Section shall not apply, among other things, to financial covenants or
any other covenants set forth in subsection (a) above;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment; Levy; Restraint on Business.
(a) (i) The service of process seeking to attach, by trustee or similar process, any
funds of Borrower or of any entity under control of Borrower (including a Subsidiary) on
deposit with Collateral Agent or any Affiliate of Collateral Agent, or (ii) a notice of
lien, levy, or assessment is filed against any of
Borrower’s assets by any government agency, and the same under subclauses (i) and (ii)
hereof are not, within twenty (20) days after the occurrence thereof, discharged or stayed
(whether through the posting of a bond or otherwise); provided, however, no Credit
Extensions shall be made during any twenty (20) day cure period; and
(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains,
or prevents Borrower from conducting any part of its business;
8.5 Insolvency (a) Borrower is unable to pay its debts (including trade debts) as they become
due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45)
days (but no Credit Extensions shall be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. There is a default in any agreement to which Borrower is a party with a
third party or parties resulting in the acceleration of the maturity of any Indebtedness in an
amount in excess of Three Hundred Fifty Thousand Dollars ($350,000) or that could have a material
adverse effect on Borrower’s business;
8.7 Judgments. One or more judgments, orders, or decrees for the payment of money in an
amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000)
(not covered by independent third-party insurance as to which liability has been accepted by such
insurance carrier) shall be rendered against Borrower and shall remain unsatisfied, unvacated,
unappealable, or unstayed for a period of thirty (30) days after the entry thereof (provided that
no Credit Extensions will be made prior to the satisfaction, vacation, or stay of such judgment,
order, or decree);
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation,
warranty, or other statement now or later in this Agreement, any Loan Document or in any writing
delivered to Collateral Agent and/or Lenders or to induce Collateral Agent and/or Lenders to enter
this Agreement or any Loan Document, and such representation, warranty, or other statement is
incorrect in any material respect when made;
8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and
any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement
with Collateral Agent or Lenders, or any creditor that has signed such an agreement with Collateral
Agent or Lenders breaches any terms of such agreement; or
8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked,
rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a
full term and could reasonably be expected to cause a Material Adverse Change or (b) subject to any
decision by a Governmental Authority that designates a hearing with respect to any applications for
renewal of any of such Governmental Approval or that could result in the Governmental Authority
taking any of the actions described in clause (a) above, and such decision or such revocation,
rescission, suspension, modification or non-renewal has, or could reasonably be expected to have,
a Material Adverse Change.
9 RIGHTS AND REMEDIES
9.1 Rights and Remedies. While an Event of Default occurs and continues Collateral Agent may,
without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of Default described
in Section 8.5 occurs all Obligations are immediately due and payable without any action by
Collateral Agent or Lenders);
(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or
under any other agreement between Borrower and Collateral Agent and/or Lenders;
(c) settle or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Collateral Agent considers advisable, notify any Person owing Borrower money
of Collateral Agent’s and Lenders’ security interest in such funds, and verify the amount of such
account;
(d) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral
if Collateral Agent requests and make it available as Collateral Agent designates. Collateral
Agent may enter premises where the Collateral is located, take and maintain possession of any part
of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or
superior to its security interest and pay all expenses incurred. Borrower grants Collateral Agent a
license to enter and occupy any of its premises, without charge, to exercise any of Collateral
Agent’s rights or remedies;
(e) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Collateral Agent or Lenders owing to or for the credit or the account of Borrower;
(f) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Subject to any non-exclusive license permitted under Section 7.1,
Collateral Agent is hereby granted a non-exclusive, royalty-free license or other right to use,
without charge, Borrower’s labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar
property as it pertains to the Collateral, solely and to the extent necessary for completing
production of, advertising for sale, and selling any Collateral and, in connection with Collateral
Agent’s exercise of its rights under this Section, Borrower’s rights under all licenses and all
franchise agreements inure to Collateral Agent for the benefit of the Lenders;
(g) place a “hold” on any account maintained with Collateral Agent or Lenders and/or deliver a
notice of exclusive control, any entitlement order, or other directions or instructions pursuant to
any Control Agreement or similar agreements providing control of any Collateral;
(h) demand and receive possession of Borrower’s Books, provided that upon taking
possession of such Books, Collateral Agent acknowledges that Borrower may not be able to comply
with the obligations under the Securities Act of 1933, as amended and the Securities Exchange Act
of 1934, as amended, with respect to reporting of the Borrower’s financial results and condition,
provided further, if Collateral Agent does receive possession of Borrower’s Books, Collateral Agent
shall provide Borrower with true and complete copies of such Books promptly upon the request of
Borrower (at Borrower’s sole cost and expense), with such prompt updates as requested to keep the
Books true and complete, and provided further that any approvals, certificates, certifications or
disclosure by Borrower relating to the financial statements, internal controls and procedures
regarding financial reporting and/or disclosure controls and procedures of Borrower shall include
disclosures reflecting all circumstances then existing, including, but not limited to, the fact
that such Books are outside the control of Borrower and its directors and officers, with such
disclosure to be determined in the sole discretion of Borrower and its directors and officers; and
(i) exercise all rights and remedies available to Collateral Agent under the Loan Documents or
at law or equity, including all remedies provided under the Code (including disposal of the
Collateral pursuant to the terms thereof).
9.2 Power of Attorney. Borrower hereby irrevocably appoints Collateral Agent as its lawful
attorney-in-fact, exercisable only upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b)
sign Borrower’s name on any invoice or xxxx of lading for any Account or drafts against Account
Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Collateral Agent determines reasonable; (d) make, settle, and
adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the
Collateral into the name of Collateral Agent or a third party as the Code permits. Borrower
hereby appoints Collateral Agent as its lawful attorney in fact to sign Borrower’s name on any
documents necessary to perfect or continue the perfection of Collateral Agent’s and Lenders’
security interest in the Collateral regardless of whether an Event of Default has occurred until
all Obligations have been satisfied in full and Collateral Agent and Lenders are under no further
obligation to make Credit Extensions hereunder. Collateral Agent’s foregoing appointment as
Borrower’s attorney in fact, and all of Collateral Agent’s rights and powers, coupled with an
interest, are irrevocable until all Obligations have been fully repaid and performed and Collateral
Agent’s and Lenders’ obligation to provide Credit Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5
or fails to pay any premium thereon or fails to pay any other amount to a third party which
Borrower is obligated to pay under this Agreement or any other Loan Document, Collateral Agent may
obtain such insurance or make such payment, and all amounts so paid by Collateral Agent are
Lenders’ Expenses and immediately due and payable, bearing interest at the then highest applicable
rate, and secured by the Collateral. Collateral Agent will make reasonable efforts to provide
Borrower with notice of Collateral Agent obtaining such insurance at the time it is obtained or
within a reasonable time thereafter. No such payments by Collateral Agent are deemed an agreement
to make similar payments in the future or Collateral Agent’s waiver of any Event of Default.
9.4 Application of Payments and Proceeds. Borrower shall have no right to specify the order
or the accounts to which Collateral Agent shall allocate or apply any payments required to be made
by Borrower to Collateral Agent or otherwise received by Collateral Agent under this Agreement when
any such allocation or application is not specified elsewhere in this Agreement. If an Event of
Default has occurred and is continuing, Collateral Agent and/or each Lender may apply any funds in
its possession, whether from Borrower account balances, payments, proceeds realized as the result
of any collection of Accounts or other disposition of the Collateral, or otherwise, to the
Obligations in such order as the Lenders shall determine in their sole discretion. Any surplus
shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable
to Lenders for any deficiency. If Collateral Agent, in its good faith business judgment, directly
or indirectly enters into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Collateral Agent shall have the option, exercisable at any time, of either
reducing the Obligations by the principal amount of the purchase price or deferring the reduction
of the Obligations until the actual receipt by Collateral Agent of cash therefor.
9.5 Liability for Collateral. So long as the Collateral Agent and Lenders comply with
reasonable banking practices regarding the safekeeping of the Collateral in the possession or under
the control of the Collateral Agent and Lenders, the Collateral Agent and Lenders shall not be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or
destruction of the Collateral.
9.6 No Waiver; Remedies Cumulative. Collateral Agent’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any other Loan
Document shall not waive, affect, or diminish any right of Collateral Agent thereafter to demand
strict performance and compliance herewith or therewith. No waiver hereunder shall be effective
unless signed by Collateral Agent and then is only effective for the specific instance and purpose
for which it is given. Collateral Agent’s rights and remedies under this Agreement and the other
Loan Documents are cumulative. Collateral Agent has all rights and remedies provided under the
Code, by law, or in equity. Collateral Agent’s exercise of one right or remedy is not an election,
and Collateral Agent’s waiver of any Event of Default is not a continuing waiver. Collateral
Agent’s delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by
Collateral Agent on which Borrower is liable.
10 NOTICES
All notices, consents, requests, approvals, demands, or other communication (collectively,
“Communication”) by any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when
sent by electronic mail (if an email address is specified herein) or facsimile transmission; (c)
one (1) Business Day after deposit with a reputable overnight courier with all charges
prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address, facsimile number, or email address
indicated below. Either Collateral Agent, Lender or Borrower may change its mailing or email
address or facsimile number by giving the other party written notice thereof in accordance with the
terms of this Section 10.
| If to Borrower: | Somaxon Pharmaceuticals, Inc. 0000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000 Xxx Xxxxx, Xxxxxxxxxx 00000 Attn: Xxx X. XxXxxxxx, Chief Financial Officer Fax: (000)000-0000 Email: xxxxxxxxx@xxxxxxx.xxx |
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| with copies to: | Somaxon Pharmaceuticals, Inc. 0000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000 Xxx Xxxxx, Xxxxxxxxxx 00000 Attn: Xxxxxxx X. Xxxxxxx, General Counsel Fax: (000) 000-0000 Email: xxxxxxxx@xxxxxxx.xxx, and |
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| Xxxxxx & Xxxxxxx LLP 00000 Xxxx Xxxxx Xxxxx, Xxxxx 000 Xxx Xxxxx, Xxxxxxxxxx 00000 Attn: Xxxxxxx X. Xxxxxx, Esquire Fax: (000) 000-0000 Email: xxxxxxx.xxxxxx@xx.xxx |
||||
| If to Collateral Agent: | Silicon Valley Bank 0000 Xx Xxxxx Xxxxxxx Xxxxx, Xxxxx 000 Xxx Xxxxx, Xxxxxxxxxx 00000 Attention: Mr. Xxxxxxx Xxxxx Fax: (000) 000-0000 Email: XXxxxx@xxx.xxx |
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| with a copy to: | Xxxxxx & Xxxxxxxxxx LLP Xxxxx Xxxxxx Xxxxx Xxxxxx, Xxxxxxxxxxxxx 00000 Attn: Xxxxx X. Xxxxxxx, Esquire Fax: (000) 000-0000 Email: XXxxxxxx@xxxxxxxxx.xxx |
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| If to Oxford: | Oxford Finance Corporation 000 Xxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx, Xxxxxxxx 00000 Attention: General Counsel Fax: (000) 000-0000 |
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL REFERENCE
California law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Lenders, and Collateral Agent each submit to the exclusive jurisdiction of the State
and Federal courts in California. Notwithstanding the foregoing, nothing in this Agreement shall
be deemed to operate to preclude Collateral Agent from bringing suit or taking other legal action
in any other jurisdiction to realize on the Collateral or any other security for the Obligations,
or to enforce a judgment or other court order in favor of Collateral Agent and Lenders. Borrower
expressly submits and consents in advance to such jurisdiction in any action or suit commenced in
any such court, and Borrower hereby waives any objection that it may have based upon lack of
personal jurisdiction,
improper venue, or forum non conveniens and hereby consents to the granting of such legal or
equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and agrees that service
of such summons, complaints, and other process may be made by registered or certified mail
addressed to Borrower at the address set forth in Section 10 of this Agreement and that service so
made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, LENDER AND COLLATERAL AGENT EACH
WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF
DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the
parties hereto agree that any and all disputes or controversies of any nature between them arising
at any time shall be decided by a reference to a private judge, mutually selected by the parties
(or, if they cannot agree, by the Presiding Judge of the Santa Xxxxx County, California Superior
Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the
federal courts), sitting without a jury, in Santa Xxxxx County, California; and the parties hereby
submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to
and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1,
inclusive. The private judge shall have the power, among others, to grant provisional relief,
including without limitation, entering temporary restraining orders, issuing preliminary and
permanent injunctions and appointing receivers. All such proceedings shall be closed to the public
and confidential and all records relating thereto shall be permanently sealed. If during the
course of any dispute, a party desires to seek provisional relief, but a judge has not been
appointed at that point pursuant to the judicial reference procedures, then such party may apply to
the Santa Xxxxx County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a court under the rules
of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which
shall be conducted in the same manner as it would be before a court under the rules of discovery
applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all
discovery rules and order applicable to judicial proceedings in the same manner as a trial court
judge. The parties agree that the selected or appointed private judge shall have the power to
decide all issues in the action or proceeding, whether of fact or of law, and shall report a
statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing
in this paragraph shall limit the right of any party at any time to exercise self-help remedies,
foreclose against collateral, or obtain provisional remedies. The private judge shall also
determine all issues relating to the applicability, interpretation, and enforceability of this
paragraph.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors
and permitted assigns of each party. Borrower may not assign this Agreement or any rights or
obligations under it without Collateral Agent’s prior written consent (which may be granted or
withheld in Collateral Agent’s discretion). Lenders have the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or
any interest in, Lenders’ obligations, rights, and benefits under this Agreement and the other Loan
Documents.
12.2 Indemnification/Expenses. Borrower agrees to indemnify, defend and hold Collateral Agent
and the Lenders and their respective directors, officers, employees, agents, attorneys, or any
other Person affiliated with or representing Collateral Agent or the Lenders (each an “Indemnified
Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively,
“Claims”) asserted by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Lenders’ Expenses incurred, or paid by such Indemnified Person
from, following, or arising from transactions between Collateral Agent, and/or Lenders and Borrower
(including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly
caused by such Indemnified Person’s gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all Obligations in this
Agreement.
12.4 Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.
12.5 Amendments in Writing; Integration. All amendments to this Agreement must be in writing
signed by Collateral Agent, Lenders and Borrower. This Agreement and the Loan Documents represent
the entire agreement about this subject matter and supersede prior negotiations or agreements. All
prior agreements, understandings, representations, warranties, and negotiations between the parties
about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the
Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.
12.7 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2
to indemnify each Lender and Collateral Agent shall survive until the statute of limitations with
respect to such claim or cause of action shall have run.
12.8 Confidentiality. In handling any confidential information, Lenders and Collateral Agent
shall exercise the same degree of care that it exercises for its own proprietary information, but
disclosure of information may be made: (a) subject to the terms and conditions of this Agreement,
to Lenders’ and Collateral Agent’s Subsidiaries or Affiliates, excluding warrant holders other than
the existing Lenders, (b) subject to the terms and conditions of this Agreement, the Lenders’
assignees in connection with the Loan Documents, and their Affiliates; (c) to prospective
transferees or purchasers of any interest in the Credit Extensions (provided, however, Lenders and
Collateral Agent shall use commercially reasonable efforts to obtain such prospective transferee’s
or purchaser’s agreement to the terms of this provision); (d) as required by law, regulation,
subpoena, or other order; (e) to regulators or as otherwise required in connection with an
examination or audit; (f) as Collateral Agent and Lenders consider appropriate in exercising
remedies under this Agreement; and (g) to third-party service providers of Collateral Agent and
Lenders so long as such service providers have executed a confidentiality agreement with Lenders
and Collateral Agent with terms no less restrictive than those contained herein. Confidential
information does not include information that either: (i) is in the public domain or in Lenders’
and/or Collateral Agent’s possession when disclosed to Lenders and/or Collateral Agent, or becomes
part of the public domain after disclosure to Lenders and/or Collateral Agent; or (ii) is disclosed
to Lenders and/or Collateral Agent by a third party, if Lenders and/or Collateral Agent does not
know that the third party is prohibited from disclosing the information.
Collateral Agent may use confidential information for any purpose, including, without
limitation, for the development of client databases, reporting purposes, and market analysis, so
long as Collateral Agent and Lenders do not disclose Borrower’s identity or the identity of any
person associated with Borrower unless otherwise expressly permitted by this Agreement. The
provisions of the immediately preceding sentence shall survive the termination of this Agreement.
12.9 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower and
Lenders arising out of or relating to the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any
other relief to which it may be entitled.
12.10 Right of Set Off. Borrower hereby grants to Collateral Agent and to each Lender, a
lien, security interest and right of set off as security for all Obligations to Collateral Agent
and each Lender hereunder, whether now existing or hereafter arising upon and against all deposits,
credits, collateral and property, now or hereafter in the possession, custody, safekeeping or
control of Collateral Agent or Lenders or any entity under the control of Collateral Agent or
Lenders (including a Collateral Agent affiliate) or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand or notice,
Collateral Agent or Lenders may set off the same or any part thereof and apply the same to any
liability or obligation of Borrower even
though unmatured and regardless of the adequacy of any other collateral securing the
Obligations. ANY AND ALL RIGHTS TO REQUIRE COLLATERAL AGENT TO EXERCISE ITS RIGHTS OR REMEDIES
WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT
OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
13 DEFINITIONS
13.1 Definitions. As used in this Agreement, the following terms have the following meanings:
“Account” is any “account” as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable and other sums owing
to Borrower.
“Account Debtor” is any “account debtor” as defined in the Code with such additions to such
term as may hereafter be made.
“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person,
any Person that controls or is controlled by or is under common control with the Person, and each
of that Person’s senior executive officers, directors, partners and, for any Person that is a
limited liability company, that Person’s managers and members.
“Agreement” is defined in the preamble hereof.
“Amortization Date” is January 1, 2009.
“Borrower” is defined in the preamble hereof.
“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state
tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any equipment containing
such information.
“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such
Person’s board of directors and delivered by such Person to Collateral Agent approving the Loan
Documents to which such Person is a party and the transactions contemplated thereby, together with
a certificate executed by its secretary on behalf of such Person certifying that (a) such Person
has the authority to execute, deliver, and perform its obligations under each of the Loan Documents
to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and
complete copy of the resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to which it is a party,
(c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person,
together with a sample of the true signature(s) of such Person(s), and (d) that Collateral Agent
may conclusively rely on such certificate unless and until such Person shall have delivered to
Collateral Agent a further certificate canceling or amending such prior certificate.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Collateral Agent is
closed.
“Cash Equivalents” means cash equivalents as defined by GAAP, except for certificates of
deposit held for the benefit of third parties. For the avoidance of doubt, the direct purchase by
the borrower, co-borrower, or any subsidiary of the borrower of any Auction Rate Securities, or
purchasing participations in, or entering into any type of swap or other derivative transaction, or
otherwise holding or engaging in any ownership interest in any type of Auction Rate Security by the
borrower, co-borrower, or any subsidiary of the borrower shall be conclusively determined by the
Lenders as an ineligible Cash Equivalent, and any such transaction shall expressly violate each
other provision of this agreement governing Permitted Investments. Notwithstanding the foregoing,
Cash Equivalents does not include and each Borrower and Subsidiary is prohibited from purchasing,
purchasing participations in, entering into any type of swap or other equivalent derivative
transaction, or otherwise holding or engaging in any ownership interest in any type of debt
instrument, including, without limitation, any corporate or municipal bonds with a long-term
nominal maturity for which the interest rate is reset through a dutch auction and more commonly
referred to as an auction rate security.
“Claims” are defined in Section 12.2.
“CD” is defined in Section 4.1.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California provided, that, to the extent that the Code is used to define any
term herein or in any Loan Document and such term is defined differently in different Articles or
Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of law, any or all of
the attachment, perfection, or priority of, or remedies with respect to, Collateral Agent’s and
Lenders’ Lien on any Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than the California, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof
relating to such attachment, perfection, priority, or remedies and for purposes of definitions
relating to such provisions.
“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit
A, as may be modified by the Lenders and Borrower in writing.
“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.
“Collateral Agent” means, SVB, not in its individual capacity, but solely in its capacity as
agent on behalf of and for the benefit of the Lenders.
“Commercial Inventory” means any Inventory which has been approved for marketing in the United
States by the United States Food and Drug Administration.
“Commitment Percentage” is set forth in Schedule 1.1, as amended from time to time.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made.
“Communication” is defined in Section 10.
“Compliance Certificate” is that certain certificate in the form attached hereto as
Exhibit C.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted
or sold with recourse by that Person, or for which that Person is directly or indirectly liable;
(b) any obligations for undrawn letters of credit for the account of that Person; and (c) all
obligations from any interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability
for it determined by the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.
“Control Agreement” is any control agreement entered into among the depository institution at
which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary
at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Collateral
Agent pursuant to which Collateral Agent obtains control (within the meaning of the Code) for the
benefit of the Lenders over such Deposit Account, Securities Account, or Commodity Account.
“Credit Extension” is the Term Loan or any other extension of credit by Collateral Agent or
Lenders for Borrower’s benefit.
“Default Rate” is defined in Section 2.2.(b).
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.
“Designated Deposit Account” is Borrower’s deposit account, account number ,
maintained with SVB.
“Dollars,” “dollars” and “$” each mean lawful money of the United States.
“Draw Period” is the period of time from the Effective Date through the earliest to occur of
(a) May 21, 2008 , and (b) an Event of Default.
“Effective Date” is defined in the preamble of this Agreement.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined in Section 8.
“Final Payment” is a payment (in addition to and not a substitution for the regular monthly
payments of principal plus accrued interest) due on the earlier to occur of (a) the Term Loan
Maturity Date (b) the acceleration of the Term Loan, or (c) the prepayment of Term Loan, equal to
the amount of the Term Loan multiplied by the Final Payment Percentage.
“Final Payment Percentage” is, for the Term Loan, four percent (4.00%).
“Finished Inventory” means Inventory that is fully assembled and ready for sale.
“Funding Date” is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.
“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of the
accounting profession in the United States, which are applicable to the circumstances as of the
date of determination.
“General Intangibles” is all “general intangibles” as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims,
income and other tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of any kind.
“Governmental Approval” is any consent, authorization, approval, order, license, franchise,
permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or
other act by or in respect of, any Governmental Authority.
“Governmental Authority” is any nation or government, any state or other political subdivision
thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or pertaining to
government, any securities exchange and any self-regulatory organization.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations, and (d) Contingent Obligations.
“Insolvency Proceeding” is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“Intellectual Property” is defined in Exhibit A.
“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, samples, including without limitation such inventory as is temporarily out of Borrower’s
custody or possession or in transit and including any returned goods and any documents of title
representing any of the above.
“Investment” is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to any Person.
“Lender” is any one of the Lenders.
“Lenders” shall mean the Persons identified on Schedule 1.1 hereto and each assignee that
becomes a party to this Agreement pursuant to Section 12.1.
“Lenders’ Expenses” are all audit fees and expenses, costs, and expenses (including reasonable
attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) in connection with this Agreement.
“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other
encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise
against any property.
“Loan Documents” are, collectively, this Agreement, the Warrant, the Perfection Certificate,
any note, or notes or guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Lenders and Collateral Agent in connection with this
Agreement, all as amended, restated, or otherwise modified.
“Material Adverse Change” is (a) a material impairment in the perfection or priority of
Lenders’ Lien in the Collateral or in the aggregate value of such Collateral; (b) a material
adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or
(c) a material impairment of the prospect of repayment of any portion of the Obligations. For the
avoidance of doubt, under no circumstances shall the consummation by Borrower of a Qualified
Financing by itself constitute a Material Adverse Change.
“Obligations” are Borrower’s obligation to pay when due any debts, principal, interest,
Lenders’ Expenses, Prepayment Fee, Final Payment, and other amounts Borrower owes Lenders now or
later, whether under this Agreement or the Loan Documents, and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Lenders
and/or Collateral Agent, and the performance of Borrower’s duties under the Loan Documents.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and (a) if such Person is a corporation, its bylaws in current
form, (b) if such Person is a limited liability company, its limited liability company agreement
(or similar agreement), and (c) if such Person is a partnership, its
partnership agreement (or similar agreement), each of the foregoing with all current
amendments or modifications thereto.
“Payment/Advance Form” is that certain form attached hereto as Exhibit B.
“Payment Date” is the first day of each calendar month.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Lenders and Collateral Agent under this Agreement and the other
Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness secured by Permitted Liens; and
(f) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(g) other unsecured Indebtedness not otherwise permitted by Section 7.4 not exceeding Fifty
Thousand Dollars ($50,000) in the aggregate outstanding at any time; and
(h) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (g) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
“Permitted Investments” are:
(a) Investments shown on the Perfection Certificate and existing on the Effective Date; and
(b) Cash Equivalents, and (ii) any Investments permitted by Borrower’s investment policy, as
amended from time to time, provided that such investment policy (and any such amendment thereto)
has been approved by the board of directors of borrower or the audit committee of the board of
directors of Borrower:
(c) Investments consisting of the endorsement of negotiable instruments for deposit of
collection or similar transactions in the ordinary course of Borrower;
(d) Investments consisting of deposit accounts in which Collateral Agent has a first perfected
security interest;
(e) Investments accepted in connection with Transfers permitted by Section 7.1;
(f) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by
Borrower in Subsidiaries (except for Subsidiaries formed in connection with a Qualified Financing)
not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year;
(g) Investments by Borrower in Subsidiaries formed in connection with a Qualified Financing ;
(h) Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of business; and
(i) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary.
“Permitted Liens” are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains adequate reserves on
its Books, provided that no notice of any such Lien has been filed or recorded under the Internal
Revenue Code of 1986, as amended , and the Treasury Regulations adopted thereunder;
(c) purchase money Liens and capital leases (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment securing no more than Five Hundred Thousand
Dollars ($500,000) in the aggregate amount outstanding (exclusive of amounts under (d) below), or
(ii) existing on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;
(d) purchase money Liens or leases associated with providing automobiles to employees or
consultants with the written consent of the Collateral Agent;
(e) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (d), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase;
(f) leases or subleases of real property granted in the ordinary course of business, and
leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or
intellectual property) granted in the ordinary course of Borrower’s business, if the
leases, subleases, licenses and sublicenses do not prohibit granting Collateral Agent a security
interest; and
(g) joint ventures or strategic alliances in the ordinary course of Borrower’s business
consisting of the non-exclusive licensing of Intellectual Property, the development of technology
or the providing of technical support, provided that any cash investments by Borrower do not exceed
Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year; and
(h) Liens in the Collateral provided to lenders in any Qualified Financing, subject to
Borrower’s compliance with the terms and conditions hereunder, including Section 4.1;
(i) statutory Liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other Persons imposed without action of such parties, provided they
have no priority over any of Collateral Agent’s Lien and the aggregate amount of such Liens does
not any time exceed Two Hundred Fifty Thousand Dollars ($250,000);
(j) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,
social security and other like obligations incurred in the ordinary course of business, provided,
they have no priority over any of Collateral Agent’s Liens and the aggregate amount of the
Indebtedness secured by such Liens does not at any time exceed Two Hundred Fifty Thousand
($250,000);
(k) Liens arising from judgment, decrees or attachments in circumstances not constituting an
Event of Default;
(l) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Collateral Agent has a
first perfected security interest in the amounts held in such deposit and/or securities accounts;
(m) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (l), but any extension, renewal or replacement lien must be limited
to the property encumbered by the existing Lien and principal amount of the indebtedness may not
increase; and
(n) Liens securing security deposits and letters of credit for the benefit of Avnet, Inc. in
the ordinary course of business, in an amount not to exceed Six Hundred Thousand Dollars ($600,000)
at any time outstanding.
“Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.
“PIPE” means a private investment in a public equity transaction and/or registered direct
offering.
“Prepayment Fee” shall be an additional fee payable to the Collateral Agent in an amount equal
to :
| (i) | for a prepayment made on or prior to twelve (12) months following the Funding Date, six percent (6.0%) of the principal amount of the Term Loan prepaid; or | ||
| (ii) | for a prepayment made after twelve (12) months but on or prior to twenty-four (24) months following the Funding Date, four percent (4.0%) of the principal amount of the Term Loan prepaid; and | ||
| (iii) | for a prepayment made after twenty-four (24) months following the Funding Date, two percent (2.0%) of the principal amount of the Term Loan prepaid. |
“Qualified Financing” is any financing conducted by Borrower after the Effective Date in which
Borrower receives at least Twenty-Five Million Dollars ($25,000,000) in funds in exchange for at
least Twenty-Five Million Dollars ($25,000,000) in Indebtedness and as a condition to such
financing, the lenders therein obtain a first priority security interest in some or all of the
Collateral (excluding the CD). A Qualified Financing may include, but is not limited to, a
financing in which a royalty interest in any of Borrower’s product is provided to one or more third
parties.
“Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made
“Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its property is subject.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.
“Secured Promissory Note” is defined in Section 2.3.
“Secured Promissory Note Record” is a record maintained by each Lender with respect to the
outstanding Obligations and credits made thereto.
“Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.
“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now
or hereafter indebtedness to Lenders (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Collateral Agent and Lenders entered into between
Collateral Agent, the Borrower and the other creditor), on terms acceptable to Collateral Agent and
Lenders.
“Subsidiary” means, with respect to any Person, any Person of which more than 50.0% of the
voting stock or other equity interests (in the case of Persons other than corporations) is owned or
controlled, directly or indirectly, by such Person or one or more of Affiliates of such Person.
“Term Loan” is a loan made by Lenders pursuant to the terms of Section 2.1.1(a) hereof, in an
amount equal to Fifteen Million Dollars ($15,000,000).
“Term Loan Maturity Date” is, June 1, 2011.
“Transfer” is defined in Section 7.1.
“Warrant” is that certain Warrants to Purchase Stock dated as of the Effective Date executed
by Borrower in favor of each Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
SOMAXON
|
PHARMACEUTICALS, INC. | |||
By Name: |
/s/ Xxx X. XxXxxxxx
|
|||
Title:
|
Vice President and Chief Financial Officer |
LENDERS: |
||||
| SILICON VALLEY BANK, as Collateral Agent and as a Lender | ||||
By Name: |
/s/ R. Xxxxxxx Xxxxx
|
|||
Title:
|
Deal Team Leader | |||
OXFORD
|
FINANCE CORPORATION, as a Lender | |||
By Name: |
/s/ T.A. Lex
|
|||
Title:
|
Chief Operating Officer |
SCHEDULE 1.1
LENDERS AND COMMITMENTS
| Lender | Commitment | Commitment Percentage | ||||||
Oxford Finance Corporation |
$ | 10,000,000 | 66.66 | % | ||||
Silicon Valley Bank |
$ | 5,000,000 | 33.34 | % | ||||
TOTAL |
$ | 15,000,000 | 100.00 | % | ||||
1
EXHIBIT A
The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, (but excluding license agreements solely
for the use of Intellectual Property of a third party, with respect to which license Borrower is
the licensee), franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, all certificates of deposit, fixtures, letters of
credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all
other investment property, supporting obligations, and financial assets, whether now owned or
hereafter acquired, wherever located; and
all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests
in any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
Notwithstanding the foregoing, the Collateral does not include any of the following, whether
now owned or hereafter acquired: (i) any copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative work, whether
published or unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part
of the same, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, and the goodwill of the business of Borrower
connected with and symbolized thereby, know-how, operating manuals, trade secret rights, clinical
and non-clinical data, rights to unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing; (collectively “Intellectual
Property”); provided, however, the Collateral shall include all Accounts, license and royalty fees
and other revenues, proceeds, or income arising out of or relating to any of the foregoing; and
(ii) any ownership interest in foreign subsidiary to the extent such ownership interest exceeds
sixty-five percent (65.0%) of the total outstanding ownership interests of such foreign subsidiary.
2
EXHIBIT B
Loan Payment/Advance Request Form
Deadline is Noon P.S.T.*
Fax To:
|
Date: | |||||
| LOAN PAYMENT: | ||||||||||
From Account #
|
To Account # |
|||||||||
Principal $
|
and/or Interest
$ |
|||||||||
| Authorized
Signature: |
Phone
Number: |
|||||||||
Print Name/Title:
|
||||||||||
Loan Advance:
Complete Outgoing Wire Request section below if all or a portion of the funds from this loan
advance are for an outgoing wire.
From Account #
|
To Account
# |
|||||||||
Amount
of Advance $
|
||||||||||
All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct
and complete in all material respects on the date of the request for an advance; provided, however,
that such materiality qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date shall be true, accurate
and complete in all material respects as of such date:
Authorized Signature:
|
Phone
Number: |
|||||||||
Print
Name/Title: |
||||||||||
Outgoing Wire Request:
Complete only if all or a portion of funds from the loan advance above is to be wired.
Deadline for same day processing is noon, P.S.T.
Complete only if all or a portion of funds from the loan advance above is to be wired.
Deadline for same day processing is noon, P.S.T.
Beneficiary Name:
|
Amount of Wire:
$ |
|||||||||
Beneficiary Lender:
|
Account Number:
|
|||||||||
City and State:
|
||||||||||
Beneficiary Lender Transit (ABA) #:
|
Beneficiary Lender Code
(Swift, Sort, Chip,
etc.): |
||||||||||
| (For International Wire Only) | |||||||||||
Intermediary Lender:
|
Transit (ABA) #: | |||||||||
For Further Credit to:
|
||||||||||
Special
Instruction: |
||||||||||
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be
processed in accordance with and subject to the terms and conditions set forth in the agreements(s)
covering funds transfer service(s), which agreements(s) were previously received and executed by me
(us).
Authorized Signature:
|
2nd
Signature (if required): |
|||||||||
Print
Name/Title: |
Print
Name/Title: |
|||||||||
Telephone
#: |
Telephone
#: |
|||||||||
| * | Unless otherwise provided for an Advance bearing interest at LIBOR. |
3
EXHIBIT C
COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
TO:
|
SILICON VALLEY BANK, as Collateral Agent | Date: | ||||||
FROM:
|
SOMAXON PHARMACEUTICALS, INC. |
The undersigned authorized officer of Somaxon Pharmaceuticals, Inc. (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between Borrower, Collateral
Agent and the Lenders (the “Agreement”), (1) Borrower is in complete compliance for the period
ending with all required covenants except as noted below, (2) there are no Events
of Default, (3) all representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof; and provided, further that those representations
and warranties expressly referring to a specific date shall be true, accurate and complete in all
material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all
required tax returns and reports, and Borrower has timely paid all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted
pursuant to the terms of Section 5.8 of the Agreement, and (5) no Liens have been levied or claims
made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Collateral Agent. Attached are
the required documents supporting the certification. The undersigned certifies, in the capacity as
an officer of the Borrower, that these are prepared in accordance with GAAP consistently applied
from one period to the next except as explained in an accompanying letter or footnotes. The
undersigned acknowledges, in the capacity as an officer of the Borrower, that no borrowings may be
requested at any time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given
them in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant | Required | Complies | ||
10-Q, 10-K and 8-K
|
Within 5 days after filing with SEC | Yes No | ||
Board Approved Budget
|
Annually within 60 days after FYE | Yes No |
| Financial Covenant | Required | Actual | Complies | |||||
Maintain at all times prior to the Qualified Financing |
||||||||
Minimum Cash at SVB
|
$ | Yes No | ||||||
The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)
| COLLATERAL AGENT USE ONLY | |||||||||||
| SOMAXON PHARMACEUTICALS, INC. | |||||||||||
| Received by: | |||||||||||
By:
|
|||||||||||
Name:
|
Date: | ||||||||||
Title: |
|||||||||||
| Verified: | |||||||||||
| authorized signer | |||||||||||
| Date: | |||||||||||
| Compliance Status: Yes No | |||||||||||
1
EXHIBIT D
SECURED PROMISSORY NOTE
$
|
Dated: , 2008 |
FOR VALUE RECEIVED, the undersigned, SOMAXON PHARMACEUTICALS, INC., a corporation
(“Borrower”), HEREBY PROMISES TO PAY to the order of [SVB / OXFORD] (“Lender”) the
principal amount of Dollars ($ ) or such lesser amount as shall equal the
outstanding principal balance of the Term Loan made to Borrower by Lender, plus interest on the
aggregate unpaid principal amount of Term Loan, at the rates and in accordance with the terms of
the Loan and Security Agreement by and between Borrower and Silicon Valley Bank, as Collateral
Agent, and the Lenders, including without limitation, Oxford Finance Corporation, and SVB (as
amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”).
If not sooner paid, the entire principal amount and all accrued interest hereunder and under the
Loan Agreement shall be due and payable on Term Loan Maturity Date as set forth in the Loan
Agreement.
Borrower agrees to pay any initial partial month interest payment from the date of this Note to the
first Payment Date (“Interim Interest”) on the first Payment Date.
Principal, interest and all other amounts due with respect to the Term Loan, are payable in lawful
money of the United States of America to Lender as set forth in the Loan Agreement and this Secured
Promissory Note. The principal amount of this Note and the interest rate applicable thereto, and
all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer
hereof, endorsed on the grid attached hereto which is part of this Note.
The Loan Agreement, among other things, (a) provides for the making of a secured Term Loan to
Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of
certain stated events.
This Note may not be prepaid except as set forth in Section 2.1.1(d) and Section 2.1.1(e)
of the Loan Agreement.
This Note and the obligation of Borrower to repay the unpaid principal amount of the Term Loan,
interest on the Term Loan and all other amounts due Lender under the Loan Agreement is secured
under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands and notices of any kind in
connection with the execution, delivery, performance and enforcement of this Note are hereby
waived.
Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable
attorneys’ fees and costs, incurred by Lender in the enforcement or attempt to enforce any of
Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and
construed and interpreted in accordance with, the laws of the State of California.
Note Register; Ownership of Note. The ownership of an interest in this Note shall be
registered on a record of ownership maintained by Lender or its agent. Notwithstanding anything
else in this Note to the contrary, the right to the principal of, and stated interest on, this Note
may be transferred only if the transfer is registered on such record of ownership and the
transferee is identified as the owner of an interest in the obligation. Borrower shall be entitled
to treat the registered holder of this Note (as recorded on such record of ownership) as the owner
in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim
to or interest in this Note on the part of any other person or entity.
2
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers
thereunto duly authorized on the date hereof.
| BORROWER: | ||||
| SOMAXON PHARMACEUTICALS, INC. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
3
