CONTRACT DRAFTING DEFAULTS ASSIGNMENT GROUP - I

Agenda Our client - Overview Client’s goals Our objectives assumptions Our mode of action Practice Summary

Our client - Overview Cellco is a stsrt-up. Cellco is a limited company. 55% of Cellco are owned by a group of five scientists. 45% owned by two venture capital entities. 10M$ are already invested (by the venture capital entities) in the form of long-term debt. The main asset Cellco dependent on (at the moment) is it's Intellectual property.

Client’s goals Loan of 10M$ from the bank for research and development.

Our objectives Protect and Insure our client’s best interests.

assumptions The lender (the bank) considers the loan as a high risk transaction. the bank would attempt to restrict the company using the default that will provides a clear incentives for Cellco to fulfill the contract Non the less 10 million $ loan is very profitable transaction for the bank.

Our mode of action Concentrate in stretching the boundaries of the defaults events as much as possible. Negotiating for a long gracing period in the relevant defaults. Not agreeing to any personal guarantees of either of the two investors nor to the five scientists, Not agreeing for sweeping stipulation in implement the remedies in order to avoid any uncertainty in regarding to the contract Allowing the company maximum maneuvering in the business practice.

What’s the significance of the default section ? Any one or more of the following events shall constitute an Event of Default by Cellco under this Agreement Event of default allows the bank to initiate remedies by this contract.

Practice Representations and Warranties The failure of any representation or warranty of Borrower in any of the Loan Documents and the continuation of such failure for more than ten (10) days after written notice to Borrower from Lender requesting that Borrower cure such failure;

Covenant Default Cellco's failure to perform any obligation under the affirmative or negative covenants section; or failure or negligence to perform or observe any other material term, provision and condition contained in this Agreement and after and only after a cure period has been provided, and Cellco's failure to cure such default within thirty (30) days after Cellco receives notice. Provided however, if the default cannot by its nature be cured within the thirty (30) day period and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed ninety (90 days) to attempt and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default; or

Payment Default Cellco's failure to pay its loan on the due date, and such failure continues for ten (10) business days or more after the due date, provided however that within such ten (10) business day cure period, the failure to pay shall not be deemed an Event of Default. However, only failure to pay the loans, five (5) due dates or more, shall constitute the right to demand Acceleration, as defined in the Agreement.

Insolvency If Cellco becomes insolvent, or an Insolvency Proceeding is commenced by Cellco, or if an Insolvency Proceeding is commenced against Cellco and is not dismissed or stayed within sixty (60) days; or Cross Acceleration Cellco's default in any agreement to which Cellco is a party with a third party or parties resulting in a right by such third party or parties, only if exercised, (instead of "whether or not exercised"), to accelerate the maturity of any Indebtedness having a principal amount in excess over then 10% of the remaining debt and (instead of "or") that could have a Material Adverse Effect in the same value; or

Judgments If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of One Million Dollars ($1,000,000) or more shall be rendered against Cellco and shall remain unsatisfied and unstayed for a period of fourty five (45) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the judgment); or Senior Employees Leave of any of the Senior Employees, as defined in the Covenants without a forty five (45) day notice in advance or as defined in the Employment Agreement, the higher of the two; or

Additional Loans Rise of additional capital, by way of loan or by allocation of stocks, without the prior consent of the Bank. However a loan intended for the purpose of the manufacturing of Cellco's products will not be consider as a default ; or Subordinated Debt. If Borrower makes any payment on account of Subordinated Debt, except to the extent the payment is allowed under this Agreement or any subordination agreement entered into with this Bank, for example but not limited to, payments to the Shareholders; or

Sale of Assets Sell, lease, transfer or otherwise dispose of its Assets, provided however that the assets are Material at a value of up to 100, 000 dollars (Basket Clause), without the bank permeation

Remedies In respect to the Remedies Clause, we would like to emphasize that Cellco will try, as part of the negotiations with the bank, to receive the best terms that it can, in order to protect the Company and the rights of the Shareholders. For example, a clause with respect to the Intellectual Property. Intellectual Property In any case, that one of the Events of Default shall be constituted; the Company's Shareholders (the five scientists and the venture capital entities) shall have the right of priority to purchase the Company's IP from the bank. In any case, that the Bank shall sell the Company's IP, and receives an amount that covers it's loan and due interest, the remainder of the sum shall be divided between the Shareholders, first to payoff to the two Venture Capital Entities, and then to the Scientists. Personal guaranties In any case no personal security shall be realized against any one of the owners

Summary The negotiation between the bank and company will determine the final version of the defaults.