Exhibit 10.1
 
CREDIT AGREEMENT
 
THIS AGREEMENT is entered into as of September 27, 2002, by and between TANOX,
INC. a Delaware corporation (“Borrower”), and WELLS FARGO BANK TEXAS, NATIONAL
ASSOCIATION (“Bank”).
 
RECITALS
 
Borrower has requested that Bank extend or continue credit to Borrower as
described below, and Bank has agreed to provide such credit to Borrower on the
terms and conditions contained herein.
 
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Bank and Borrower hereby agree as follows:
 
ARTICLE I
CREDIT TERMS
 
SECTION 1.1        LINE OF CREDIT.
 
(a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make advances to Borrower from time to time up to and including
September 27 , 2006, not to exceed at any time the aggregate principal amount of
Sixteen Million Dollars ($16,000,000.00) (“Line of Credit”), the proceeds of
which shall be used to finance Borrower’s working capital requirements including
the purchase of property, plant and equipment. Borrower’s obligation to repay
advances under the Line of Credit shall be evidenced by a promissory note
substantially in the form of Exhibit “A” attached hereto (“Line of Credit
Note”), all terms of which are incorporated herein by this reference.
 
(b) Borrowing and Repayment. Borrower may from time to time during the term of
the Line of Credit borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions contained
herein or in the Line of Credit Note; provided however, that the total
outstanding borrowings under the Line of Credit shall not at any time exceed the
maximum principal amount available thereunder, as set forth above.
 
SECTION 1.2.        STANDBY LETTER OF CREDIT.
 
(a) Standby Letter of Credit. Bank has issued or cause an affiliate to issue a
standby letter of credit for the account of Borrower and for the benefit of
Travelers Casualty and Surety Company of America, Travelers Casualty and Surety
Company, Farmington Casualty Company, Travelers Casualty and Surety Company of
Illinois, Travelers Casualty and Surety Company of Canada to finance the support
of surety bond (the “Standby Letter of Credit”) in the principal amount of Four
Million One Hundred Seventeen Thousand Dollars ($4,117,000.00). The Standby
Letter of Credit has an expiration date of July 8, 2003, and is subject to the
additional terms of the Letter of Credit Agreement, application and any related
documents required by Bank in connection with the issuance thereof (the “Letter
of Credit Agreement”). Subject to the terms and conditions of this Agreement,
Bank hereby confirms that the Standby Letter of Credit remains in full force and
effect.
 
(b) Repayment of Drafts. Each draft paid under the Standby Letter of Credit
shall be repaid by Borrower in accordance with the provisions of the Letter of
Credit Agreement.

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SECTION 1.3.        INTEREST/FEES.
 
(a) Interest. The outstanding principal balance of each credit subject hereto
shall bear interest, and the amount of each draft paid under the Standby Letter
of Credit shall bear interest from the date such draft is paid to the date such
amount is fully repaid by Borrower, at the rate of interest set forth in each
promissory note or other instrument executed in connection therewith.
 
(b) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed, unless such calculation would result in a
usurious rate, in which case interest shall be computed on the basis of a
365/366-day year, as the case may be, actual days elapsed. Interest shall be
payable at the times and place set forth in each promissory note or other
instrument required hereby.
 
(c) Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance of
each Letter of Credit, upon the payment or negotiation of each draft under any
Letter of Credit and upon the occurrence of any other activity with respect to
any Letter of Credit (including without limitation, the transfer, amendment or
cancellation of any Letter of Credit) determined in accordance with Bank’s
standard fees and charges then in effect for such activity.
 
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
principal, interest and fees due under each credit subject hereto by charging
Borrower’s deposit account number xxxxxxxxxx with Bank, or any other deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
 
SECTION 1.5.        COLLATERAL.
 
As security for all indebtedness of Borrower to Bank subject hereto, Borrower
hereby grants to Bank security interests of first priority in all Borrower’s
Wells Capital Management account number xxxxxxxx.
 
All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
incurred by Bank in connection with any of the foregoing security, including
without limitation, filing and recording fees and costs of appraisals, audits
and title insurance.
 
ARTICLE II
REPRESENTATIONS AND WARRANTIES
 
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
 
 

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SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
 
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory
note, instrument and other document required hereby or at any time hereafter
delivered to Bank in connection herewith (collectively, the “Loan Documents”)
have been duly authorized, and upon their execution and delivery in accordance
with the provisions hereof will constitute legal, valid and binding agreements
and obligations of Borrower enforceable in accordance with their respective
terms, subject as to enforcement only to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors’ rights
generally and by general principles of equity, regardless of whether in a
proceeding in equity or at law.
 
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower
of each of the Loan Documents do not violate any provision of any applicable law
or regulation, or contravene any provision of the Certificate of Incorporation
or By-Laws of Borrower, or result in any breach of or default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
 
SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower’s
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
 
SECTION 2.5. FINANCIAL STATEMENTS. The financial statements of Borrower for 2001
and for Borrower’s fiscal quarters ended March 31 and June 30, 2002, (i) have
been prepared in accordance with GAAP, applied on a basis consistent, except as
otherwise noted therein, with the Borrower’s financial statements for the
previous fiscal year, and (ii) fairly present on a consolidated basis the
financial position of the Borrower, as of the dates thereof, and the results of
operations for the periods covered thereby, subject in the case of interim
financial statements, to normal year-end adjustments and omission of certain
footnotes as permitted by the SEC. As of the Effective Date, the Borrower and
its Subsidiaries, considered as a whole, have no material contingent liabilities
or material indebtedness required under GAAP to be disclosed in a consolidated
balance sheet of the Borrower that were not disclosed in the financial
statements referred to in this Section 2.5 or in the notes thereto or otherwise
disclosed in writing to the Bank by Borrower. Since the date of such financial
statement there has been no material adverse change in the financial condition
of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in
or otherwise encumbered any of its assets or properties except in favor of Bank
or as otherwise permitted by Bank in writing.
 
SECTION 2.6. INCOME TAX RETURNS. The Borrower has filed all federal tax returns
and all other material tax returns required to be filed, and has paid all
governmental taxes, rates, assessments, fees, charges and levies reflected
thereon (collectively, “Taxes”) except such Taxes, if any, as are being
contested in good faith and for which reserves have been provided in accordance
with GAAP or except where the failure to pay such Taxes is not reasonably
expected to have a material adverse effect on Borrower. No tax liens have been
filed and no
 

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claims are being asserted for Taxes except to the extent that such liens or
claims, in the aggregate, are not reasonably expected to have a material adverse
effect on Borrower.
 
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower’s obligations
subject to this Agreement to any other obligation of Borrower.
 
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law except where the failure to so hold such permits,
consents, approvals, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names is not reasonably
expected to have a material adverse effect on Borrower.
 
SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time (“ERISA”); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a “Plan”); no Reportable Event
as defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
 
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract.
 
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower’s operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
 
ARTICLE III
CONDITIONS
 
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank
to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank’s satisfaction of all of the following conditions:
 

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(a) Approval of Bank Counsel. All legal matters incidental to the extension of
credit by Bank shall be satisfactory to Bank’s counsel.
 
(b) Documentation. Bank shall have received, in form and substance satisfactory
to Bank, each of the following, duly executed:
 
(i)         This Agreement and each promissory note or other instrument required
hereby.
(ii)        Corporate Resolution: Borrowing.
(iii)       Certificate of Incumbency.
(iv)        Such other documents as Bank may require under any other Section of
this Agreement.
 
(c) Financial Condition. There shall have been no material adverse change since
June 30, 2002, as reasonably determined by Bank, in the financial condition or
business of Borrower, nor any material decline, as determined by Bank, in the
market value of any collateral required hereunder or a substantial or material
portion of the assets of Borrower.
 
(d) Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage on all Borrower’s property, in form, substance, amounts, covering risks
and issued by companies satisfactory to Bank.
 
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to
make any subsequent extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank’s satisfaction of each of the following
conditions:
 
(a) Compliance. The representations and warranties contained herein and in each
of the other Loan Documents shall be true on and as of the date of the signing
of this Agreement and shall be true and correct in all material respects (except
where the representation is already qualified by materiality, in which case the
representation shall be true and correct) and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date, and on
each such date: (i) no Event of Default as defined herein, and no condition,
event or act which with the giving of notice or the passage of time or both
would constitute an Event of Default, shall have occurred and be continuing or
shall exist; and (ii) the condition in Section 3.1 (c) must be satisfied.
 
(b) Documentation. Bank shall have received all additional documents which may
be required in connection with such extension of credit.
 
ARTICLE IV
AFFIRMATIVE COVENANTS
 
Borrower covenants that so long as Bank remains committed to extend credit to
Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
 

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SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein.
 
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books of record, and permit
any representative of Bank, at any reasonable time, to inspect, audit and
examine such books and records, to make copies of the same, and to inspect the
properties of Borrower.
 
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following:
 
(a) not later than 120 days after the end of each fiscal year, Borrower’s Annual
Report on Form 10-Q, including financial statements of Borrower, audited by a
certified independent public accountant acceptable to Bank, which financial
statement will include a balance sheet, income statement, and statement of cash
flow in accordance with generally accepted accounting principles consistently
applied;
 
(b) not later than 60 days after and as of the end of each fiscal quarter,
Borrower’s Quarterly Report on Form 10-Q, to include balance sheet, income
statements, and statement of cash flow prepared in accordance with generally
accepted accounting principles consistently applied subject to normal year end
adjustments and omission of certain footnotes as permitted by the SEC; and
 
(c) from time to time such other information as Bank may reasonably request.
 
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business except where the failure to so hold such permits,
consents, approvals, franchises or licenses is not reasonably expected to have a
material adverse effect on Borrower; and comply with the provisions of all
documents pursuant to which Borrower is organized and/or which govern Borrower’s
continued existence and with the requirements of all laws, rules, regulations
and orders of any governmental authority applicable to Borrower and/or its
business.
 
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers’ compensation, with insurance companies reasonably
satisfactory to Bank, and deliver to Bank from time to time at Bank’s request
schedules setting forth all insurance then in effect.
 
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower’s
business in good repair and condition, ordinary wear and tear excepted.
 
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank’s satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
 
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or, to Borrower’s knowledge, threatened against Borrower.
 

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SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give written notice to Bank
in reasonable detail of: (a) the occurrence of any Event of Default, or any
condition, event or act which with the giving of notice or the passage of time
or both would constitute an Event of Default; (b) any change in the name or the
organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain and
for which alternate coverage has not been secured, or any uninsured or partially
uninsured loss through liability or property damage, or through fire, theft or
any other cause affecting Borrower’s property which exceeds $1,000,000.00 in the
aggregate.
 
ARTICLE V
NEGATIVE COVENANTS
 
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank’s prior written
consent:
 
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended
hereunder except for the purposes stated in Article I hereof.
 
ARTICLE VI
EVENTS OF DEFAULT
 
SECTION 6.1. The occurrence of any of the following shall constitute an “Event
of Default” under this Agreement:
 
(a) Borrower shall fail to pay when due any principal, interest, fees or other
amounts payable under any of the Loan Documents.
 
(b) Any financial statement or certificate furnished to Bank in connection with,
or any representation or warranty made by Borrower or any other party under this
Agreement or any other Loan Document shall prove to be incorrect, false or
misleading in any material respect when furnished or made.
 
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
 
(d) Any default in the payment or performance of any obligation, or any defined
event of default, under the terms of any contract or instrument (other than any
of the Loan Documents) pursuant to which Borrower has incurred any debt or other
liability to any person or entity, including Bank.
 

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(e) The filing of a notice of judgment lien against Borrower; or the recording
of any abstract of judgment against Borrower in any county in which Borrower has
an interest in real property; or the service of a notice of levy and/or of a
writ of attachment or execution, or other like process, against the assets of
Borrower; or the entry of a judgment against Borrower.
 
(f) Borrower shall become insolvent, or shall suffer or consent to or apply for
the appointment of a receiver, trustee, custodian or liquidator of itself or any
of its property, or shall generally fail to pay its debts as they become due, or
shall make a general assignment for the benefit of creditors; Borrower shall
file a voluntary petition in bankruptcy, or seeking reorganization, in order to
effect a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time (“Bankruptcy Code”), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower, or Borrower shall
file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against Borrower by any court
of competent jurisdiction under the Bankruptcy Code or any other applicable
state or federal law relating to bankruptcy, reorganization or other relief for
debtors.
 
(g) There shall exist or occur any event or condition which Bank in good faith
believes impairs, or is substantially likely to impair, the prospect of payment
or performance by Borrower of its obligations under any of the Loan Documents.
 
(h) The dissolution or liquidation of Borrower; or Borrower, or any of its
directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
 
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all
principal and accrued and unpaid interest outstanding under each of the Loan
Documents, any term thereof to the contrary notwithstanding, shall at Bank’s
option and without notice become immediately due and payable without
presentment, demand, or any notices of any kind, including without limitation
notice of nonperformance, notice of protest, protest, notice of dishonor, notice
of intention to accelerate or notice of acceleration, all of which are hereby
expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any
further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any credit subject
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank may be
exercised at any time by Bank and from time to time after the occurrence of an
Event of Default, are cumulative and not exclusive, and shall be in addition to
any other rights, powers or remedies provided by law or equity.
 
ARTICLE VII
MISCELLANEOUS
 
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver
 

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of such right, power or remedy; nor shall any single or partial exercise of any
such right, power or remedy preclude, waive or otherwise affect any other or
further exercise thereof or the exercise of any other right, power or remedy.
Any waiver, permission, consent or approval of any kind by Bank of any breach of
or default under any of the Loan Documents must be in writing and shall be
effective only to the extent set forth in such writing.
 
SECTION 7.2. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
 
BORROWER:     TANOX, INC.
4888 Loop Central Dr., Suite 820
Houston, TX 77081-2225
Attention: President
With copy to: General Counsel
Fax number: (713) 578-5002
 
BANK:                 WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION
MAC# T5056-012
1160 Dairy Ashford, Suite 160
Houston, TX 77079
Fax number: (281) 752-4579
 
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail,
upon the earlier of the date of receipt or three (3) days after deposit in the
U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon
confirmation of facsimile transmission.
 
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS’ FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys’ fees (to include outside
counsel fees and all allocated costs of Bank’s in-house counsel to the extent
permissible), expended or incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents,
Bank’s continued administration hereof and thereof, and the preparation of any
amendments and waivers hereto and thereto, (b) the enforcement of Bank’s rights
and/or the collection of any amounts which become due to Bank under any of the
Loan Documents, in the event of any default under any of the Loan Documents and
(c) the prosecution or defense of any action in any way related to any of the
Loan Documents in the event of any default under any Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in any other proceeding, and including any of the
foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower.
 
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank’s prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank’s rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose
 

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all documents and information which Bank now has or may hereafter acquire
relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder provided that recipient executes a confidentiality
agreement in form and substance reasonably acceptable to Borrower.
 
SECTION 7.5. AMENDMENT. This Agreement may be amended or modified only in
writing signed by each party hereto.
 
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
 
SECTION 7.7. TIME. Time is of the essence of each and every provision of this
Agreement and each other of the Loan Documents.
 
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
 
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement.
 
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
 
SECTION 7.11. SAVINGS CLAUSE. It is the intention of the parties to comply
strictly with applicable usury laws. Accordingly, notwithstanding any provision
to the contrary in the Loan Documents, in no event shall any Loan Documents
require the payment or permit the payment, taking, reserving, receiving,
collection or charging of any sums constituting interest under applicable laws
that exceed the maximum amount permitted by such laws, as the same may be
amended or modified from time to time (the “Maximum Rate”). If any such excess
interest is called for, contracted for, charged, taken, reserved or received in
connection with any Loan Documents, or in any communication by or any other
person to Borrower or any other person, or in the event that all or part of the
principal or interest hereof or thereof shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, reserved or received on the
amount of principal actually outstanding from time to time under the Loan
Documents shall exceed the Maximum Rate, then in such event it is agreed that:
(i) the provisions of this paragraph shall govern and control; (ii) neither
Borrower nor any other person or entity now or hereafter liable for the payment
of any Loan Documents shall be obligated to pay the amount of such interest to
the extent it is in excess of the Maximum Rate; (iii} any such excess interest
which is or has been received by Bank, notwithstanding this paragraph, shall be
credited against the then unpaid principal balance hereof or thereof, or if any
of the Loan Documents has been or would be paid in full by such credit, refunded
to Borrower; and (iv) the provisions of each of the Loan Documents, and any
other communication to Borrower, shall immediately be deemed reformed and such
excess interest reduced, without the necessity of executing any other document,
to the Maximum Rate. The right to accelerate the maturity of the
 

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Loan Documents does not include the right to accelerate, collect or charge
unearned interest, but only such interest that has otherwise accrued as of the
date of acceleration. Without limiting the foregoing, all calculations of the
rate of interest contracted for, charged, taken, reserved or received in
connection with any of the Loan Documents which are made for the purpose of
determining whether such rate exceeds the Maximum Rate shall be made to the
extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of such Loan Documents, including
all prior and subsequent renewals and extensions hereof or thereof, all interest
at any time contracted for, charged, taken, reserved or received by Bank. The
terms of this paragraph shall be deemed to be incorporated into each of the
other Loan Documents.
 
To the extent that either Chapter 303 or 306, or both, of the Texas Finance Code
apply in determining the Maximum Rate, Bank hereby elects to determine the
applicable rate ceiling by using the weekly ceiling from time to time in effect,
subject to Bank’s right subsequently to change such method in accordance with
applicable law, as the same may be amended or modified from time to time.
 
SECTION 7.12. RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the occurrence
of an Event of Default, (a) Borrower hereby authorizes Bank, at any time and
from time to time, without notice, which is hereby expressly waived by each
Borrower, and whether or not Bank shall have declared any credit subject hereto
to be due and payable in accordance with the terms hereof, to set off against,
and to appropriate and apply to the payment of, Borrower’s obligations and
liabilities under the Loan Documents (whether matured or unmatured, fixed or
contingent, liquidated or unliquidated), any and all amounts owing by Bank to
Borrower (whether payable in U.S. dollars or any other currency, whether matured
or unmatured, and in the case of deposits, whether general or special (except
trust and escrow accounts), time or demand and however evidenced), and (b)
pending any such action, to the extent necessary, to hold such amounts as
collateral to secure such obligations and liabilities and to return as unpaid
for insufficient funds any and all checks and other items drawn against any
deposits so held as Bank, in its sole discretion, may elect. Borrower hereby
grants to Bank a security interest in all deposits and accounts maintained with
Bank and with any other financial institution to secure the payment of all
obligations and liabilities of Borrower to Bank under the Loan Documents.
 
SECTION 7.13. BUSINESS PURPOSE. Borrower represents and warrants that each
credit subject hereto is for a business, commercial, investment, agricultural or
other similar purpose and not primarily for a personal, family or household use.
 
SECTION 7.14. ARBITRATION.
 
(a) Arbitration. The parties hereto agree, upon demand by any party, to submit
to binding arbitration all claims, disputes and controversies between them (and
their respective employees, officers, directors, attorneys, and other agents),
whether in tort, contract or otherwise arising out of or relating to in any way
(i) the loan and related Loan Documents which are the subject of this Agreement
and its negotiation, execution, collateralization, administration, repayment,
modification, extension, substitution, formation, inducement, enforcement,
default or termination; or (ii) requests for additional credit.
 
(b) Governing Rules. Any arbitration proceeding will (i) be held in Houston,
Texas in a location selected by the American Arbitration Association (“AAA”);
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting
 

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choice of law provision in any of the documents between the parties; and (iii)
be conducted by the AAA, or such other administrator as the parties shall
mutually agree upon, in accordance with the AAA’s commercial dispute resolution
procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive
of claimed interest, arbitration fees and costs in which case the arbitration
shall be conducted in accordance with the AAA’s optional procedures for large,
complex commercial disputes (the commercial dispute resolution procedures or the
optional procedures for large, complex commercial disputes to be referred to, as
applicable, as the “Rules”). If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall control.
Any party who fails or refuses to submit to arbitration following a demand by
the other party shall bear all costs and expenses incurred by such other party
in compelling arbitration of any dispute. Nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. §91 or any similar applicable state law.
 
(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.
 
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding shall be
decided by majority vote of a panel of three arbitrators; provided however, that
all three arbitrators must actively participate in all hearings and
deliberations. Each arbitrator will be a neutral attorney licensed in the State
of Texas with a minimum of ten years experience in the substantive law
applicable to the subject matter of the dispute to be arbitrated. The
arbitrators will determine whether or not an issue is arbitratable and will give
effect to the statutes of limitation in determining any claim. In any
arbitration proceeding the arbitrator will decide (by documents only or with a
hearing at the arbitrator’s discretion) any pre-hearing motions which are
similar to motions to dismiss for failure to state a claim or motions for
summary adjudication. The arbitrators shall resolve all disputes in accordance
with the substantive law of Texas and may grant any remedy or relief that a
court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The arbitrators
shall also have the power to award recovery of all costs and fees, to impose
sanctions and to take such other action as the arbitrators deems necessary to
the same extent a judge could pursuant to the Federal Rules of Civil Procedure,
the Texas Rules of Civil Procedure or other applicable law. Judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. Notwithstanding this agreement to arbitrate, either party may
request a court of competent jurisdiction to grant provisional remedies,
including a temporary restraining order or preliminary injunction (1) to
preserve the status quo pending resolution of the parties’ dispute, (2) to
prevent conduct in contravention of the terms of the parties’ Agreement, (3) to
prevent the destruction of documents and other information or things related to
the dispute, and/or (4) to prevent the transfer, dissipation, or hiding of
assets. A request for such provisional remedies to a judicial authority shall
not be incompatible with this arbitration agreement or a waiver of a party’s
right to arbitrate.
 

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(e) Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no later
than 20 days before the hearing date and within 180 days of the filing of the
dispute with the AAA. Any requests for an extension of the discovery periods, or
any discovery disputes, will be subject to final determination by the arbitrator
upon a showing that the request for discovery is essential for the party’s
presentation and that no alternative means for obtaining information is
available.
 
(f) Class Proceedinqs and Consolidations. The resolution of any dispute arising
pursuant to the terms of this Agreement shall be determined by a separate
arbitration proceeding and such dispute shall not be consolidated with other
disputes or included in any class proceeding.
 
(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs
and expenses of the arbitration proceeding.
 
(h) Miscellaneous. To the extent practicable, the AAA, the arbitrators and the
parties shall take all action required to conclude any arbitration proceeding
within 180 days of the filing of the dispute with the AAA. No arbitrator or
other party to an arbitration proceeding may disclose the existence, content or
results thereof, except for disclosures of information by a party required in
the ordinary course of its business or by applicable law or regulation. If more
than one agreement for arbitration by or between the parties potentially applies
to a dispute, the arbitration provision most directly related to the Loan
Documents or the subject matter of the dispute shall control. This arbitration
provision, as it may be amended from time to time, shall survive termination,
amendment or expiration of any of the Loan Documents or any relationship between
the parties.
 
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.
 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
 
TANOX, INC.
 
WELLS FARGO BANK TEXAS,
NATIONAL ASSOCIATION
By: /s/    Jeffrey Organ

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Jeffrey Organ
Chief Operating Officer
 
By: /s/    Tim Van Holland

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Tim Van Holland
Assistant Vice President

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