EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
Dated as of November 2, 2004
among
ATHERSYS, INC.,
a Delaware corporation
and
ADVANCED BIOTHERAPEUTICS, INC.,
a Delaware corporation
each sometimes individually as a “Borrower”, and sometimes collectively as
“Borrowers”,
and
VENTURE LENDING & LEASING IV, INC. (“VLL”),
a Maryland corporation,
as “Agent” and “Lender”,
and
COSTELLA KIRSCH IV, L.P.
as “Lender”,
each individually a “Lender” and collectively, “Lenders”

 

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LOAN AND SECURITY AGREEMENT
     The Borrowers, Agent and Lenders identified on the cover page of this
document have entered or anticipate entering into one or more transactions
pursuant to which each Lender severally, but not jointly, agrees to make
available to Borrowers a loan facility governed by the terms and conditions set
forth in this document and one or more Supplements executed by Borrowers, Agent
and Lenders which incorporate this document by reference. Each Supplement
constitutes a supplement to and forms part of this document, and will be read
and construed as one with this document, so that this document and the
Supplement constitute a single agreement among the parties (collectively
referred to as this “Agreement”).
     Accordingly, the parties agree as follows:
ARTICLE 1 — INTERPRETATION
     1.1 Definitions. The terms defined in Article 11 and in the Supplement will
have the meanings therein specified for purposes of this Agreement.
     1.2 Inconsistency. In the event of any inconsistency between the provisions
of any Supplement and this document, the provisions of the Supplement will be
controlling for the purpose of all relevant transactions.
     1.3 Each reference herein to “Borrower” shall mean and refer to each
Borrower individually, and to all Borrowers collectively, except as the context
or meaning may otherwise require; and all Obligations of the Borrowers shall be
joint and several.
ARTICLE 2 — THE COMMITMENT AND LOANS
     2.1 The Commitment. Subject to the terms and conditions of this Agreement,
each of the Lenders agrees severally, but not jointly, to make term loans to
Borrowers from time to time from the Closing Date and to, but not including, the
Termination Date in an aggregate principal amount not exceeding such Lender’s
Commitment Percentage of the Commitment. Each Lender’s Commitment under this
Agreement is not a revolving credit commitment, and Borrower does not have the
right to repay and reborrow hereunder. Each Loan requested by Borrower to be
made on a single Business Day shall be for a minimum principal amount set forth
in the Supplement, except to the extent the remaining Commitment is a lesser
amount.
     2.2 Notes Evidencing Loans; Repayment. Each Loan shall be evidenced by a
separate Note executed jointly and severally by Borrowers payable to the order
of each Lender, in the total principal amount of the Loan. Principal and
interest of each Loan shall be payable at the times set forth in the Note and,
at the election of any Lender, regularly scheduled payments thereof and each
Terminal Payment shall be effected by automatic debit of the appropriate funds
from Borrower’s Primary Operating Account as specified in the Supplement hereto
or by wire transfer to such Lender’s account according to the instructions shown
on such Supplement opposite such Lender’s name. Any payment received by the
Agent or any Lender hereunder for the account of any other Lender shall be paid
promptly to such Lender, in like funds, for the Loan in respect of which such
payment is made.
     2.3 Procedures for Borrowing.
     (a) Whenever the Borrowers desire to borrow under this Agreement, the
Borrowers shall give the Agent written notice of such proposal, stating the
total amount requested, in substantially the form of the Borrowing Request
attached to the Supplement as Exhibit “B”. The total amount of the borrowing
shall be allocated among the Lenders in accordance with the provisions of the
Supplement, to be advanced as separate Loans in the aggregate amount requested.
Each Borrowing Request shall be irrevocable and shall be effective only if
received by the Agent not later than 10:00 a.m. Pacific time on the date that is
at least five (5) Business Days prior to a proposed Borrowing Date. If any such
Borrowing Request is by facsimile transmission, it shall be confirmed in a
writing sent by the Borrowers to the Agent on the next Business Day.
     (b) Promptly upon receipt of a Borrowing Request, but not later than one
(1) Business Day after receipt of the Borrowing Request and the related
documentation, the Agent shall calculate each Lender’s Funding Amount, and
notify each Lender telephonically of the Borrowing Request and such Lender’s
Funding Amount, and shall transmit copies of the Borrowing Request and the
Funding Amounts by facsimile to each Lender.

 

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     2.4 Required Borrowing Documentation. The Borrower, on or prior to the
Borrowing Date stated in a Borrowing Request, which shall be a date that is not
less than five (5) Business Days after receipt by Agent of the Borrowing
Request, and as of the date of the making of any related Loan, shall have
satisfied all applicable conditions precedent to such borrowing contained in
this Agreement, including delivery to each Lender of executed original Notes
evidencing such Loan. Without limiting the generality of the foregoing, not
later than 1:00 p.m. Pacific time on the Business Day that is two (2) Business
Days prior to the Borrowing Date, Borrowers shall have executed and delivered to
Agent an original Note for each Lender for its Loan to be advanced, and shall
have authorized Agent to file any UCC-1 financing statements, amendments,
releases or termination statements that may be required by Agent. Such
promissory notes and UCC statements, if any, shall have been prepared by Agent
and delivered to Borrowers promptly following receipt of the related Borrowing
Request, but in no event less than twenty-four hours prior to the deadline
referenced in the immediately preceding sentence unless otherwise agreed to by
the parties. Agent shall cause each Lender’s original executed promissory note
and copies of any such UCC statements relating to the Loan to be delivered to
such Lender prior to the Borrowing Date to facilitate the funding of its Loan.
     2.5 Disbursement of Loan Proceeds. Subject to the satisfaction of all of
the conditions precedent to borrowing specified herein and in the Supplement and
so long as no Event of Default or Default has occurred and is continuing, not
later than 1:00 p.m., Pacific time, on the Borrowing Date specified in the
Borrowing Request, for each borrowing, each Lender shall transfer its respective
Funding Amount, allocated in accordance with the provisions of the Supplement,
to the Parent’s Primary Operating Account set forth in the Supplement, as the
same may be amended from time to time in accordance with the terms of
Section 5.10 of this Agreement, by wire transfer according to the instructions
shown therein, or by other method but in any event in immediately available
funds.
     2.6 Time and Method of Payments.
     (a) Not later than one Business Day after receipt of the Borrowing Request,
the Agent shall prepare and distribute to each of the Lenders and the Borrower
an amortization schedule showing the principal amount of each Lender’s Loan that
is to be advanced to the Parent’s Primary Operating Account on the Borrowing
Date and the regularly scheduled, monthly installment amount to be paid by the
Borrower in respect of each Lender’s Loan made on such Borrowing Date. Each
Lender shall be responsible for verifying such amounts; however, the Agent’s
calculation shall be presumed correct absent manifest error unless rebutted by
such Lender or the Borrower. Agent shall not be liable for any error in
calculating a Lender’s Loan installment amount. If at any time or from time to
time a Lender desires to collect late charges and/or interest at the Default
Rate, it shall promptly notify Parent and Agent, and appropriate adjustment
shall be made to the loan schedule to reflect any changes in the monthly
installment payable by Borrower in respect of such Lender’s Loan(s).
     (b) All payments of principal, interest, fees and other amounts (including
indemnities) payable by the Borrower hereunder shall be made, in immediately
available funds not later than 1:00 p.m., Pacific time, on the date on which
such payment shall become due (the “Payment Date”), by disbursement to each
Lender of its respective share of such payment on each Payment Date to the
address of such Lender for payments shown on the Supplement and, if indicated on
such Schedule, by wiretransfer to such Lender’s account according to the
instructions shown on such Schedule opposite such Lender’s name; provided,
however, that Parent hereby (i) authorizes each Lender to initiate debit entries
to Parent’s “Primary Operating Account” as specified in the Supplement, through
Automated Clearinghouse (“ACH”) or other transfers, in order to satisfy
regularly scheduled payments of principal, interest or fees; (ii) agrees to
provide each Lender at least ten (10) days’ written notice in advance of any
change in Parent’s Primary Operating Account; and (iii) grants each Lender any
additional authorizations necessary to begin ACH debits from a new account which
becomes the Primary Operating Account. Any payment received by the Agent or any
Lender hereunder for the account of any other Lender shall be paid promptly by
Agent or Lender, as applicable, to such Lender, in like funds, for the Loan in
respect of which such payment is made.
     2.7 Several Obligations. The failure of any Lender to make any Loan to be
made by it on the date specified therefor shall not relieve the other Lenders of
their respective obligations to make their Loans on such date; but in no event
shall any Lender be responsible for the failure of the other Lenders to make
Loans to be made by such other Lenders.

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     2.8 Pro Rata Treatment Among Lenders. Except as otherwise provided herein:
(i) each scheduled payment of principal and Basic Interest on the Loans, if
timely paid by Borrower, and any voluntary prepayments of principal, shall be
paid to the Lenders according to the amortization schedule provided for in each
Lender’s Note evidencing such Loans (in the event such scheduled payment is less
than the aggregate amount due to be paid to all Lenders under their Notes, but
prior to any acceleration of the Notes, such payment shall be allocated Pro Rata
among the Lenders in proportion to the regular installment amounts provided in
the Notes); and (ii) all Terminal Payments shall be allocated Pro Rata among the
Lenders. If any payment under clause (i) or (ii) of this Section 2.8 is not paid
Pro Rata among the Lenders, whether as a result of the Borrower’s failure to
make a particular payment to one or more Lenders while paying other Lenders, or
otherwise, then each Lender that has actually received a payment in excess of
its Pro Rata share shall promptly remit to the other Lender who received no
payment or payment less than its Pro Rata share such amount as is necessary to
ensure the Pro Rata treatment of such payment and make such other adjustments
from time to time as shall be equitable, to the end that all Lenders shall share
in such payments Pro Rata in the aforesaid manner (however, no such adjustments
shall affect the calculation of Pro Rata items or the determination of Majority
Lenders). If prior to all Obligations of Borrower to the Lenders having been
paid in full, any action to realize upon the Collateral is taken following an
Event of Default, then proceeds of Collateral and any other payments or
distributions received on account of the Loans shall be distributed in
accordance with the terms of this Agreement.
     2.9 Sharing of Payments and Set-Off Among Lenders. Borrower hereby agrees
that, in addition to (and without limitation of) any right of set-off, banker’s
lien or counterclaim a Lender may otherwise have, each Lender shall be entitled,
at its option, to offset balances held by it at any of its offices against any
principal of or interest on any of its Loans hereunder, or any fee payable to
it, that is not paid when due in which case it shall promptly notify the
Borrower and the other Lenders thereof, provided that its failure to give such
notice shall not affect the validity thereof. If a Lender shall effect payment
of any principal of or interest on Loans held by it under this Agreement through
the exercise of any right of set-off, banker’s lien, counterclaim or similar
right, it shall promptly remit to the other Lender such amounts and make such
other adjustments from time to time as shall be equitable, to the end that all
the Lenders shall share the benefit of such payment pro rata in accordance with
the unpaid principal and interest on the Loans held by each of them (however, no
such adjustments shall affect the calculation of Pro Rata items or the
determination of Majority Lenders). To such end, all the Lenders shall make
appropriate adjustments among themselves if such payment is rescinded or must
otherwise be restored. Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower.
     2.10 Interest. Except as otherwise specified in the applicable Note, Basic
Interest on the outstanding principal balance of each Loan shall accrue daily at
the Designated Rate from the Borrowing Date until the Maturity Date. If the
outstanding principal balance of such Loan is not paid on the Maturity Date,
interest shall accrue at the Default Rate until paid in full, as further set
forth herein.
     2.11 Terminal Payment. Except as otherwise specified in the applicable
Note, Borrower shall pay the Terminal Payment with respect to each Loan on the
Maturity Date of such Loan.
     2.12 Interest Rate Calculation. Basic Interest, along with charges and fees
under this Agreement and any Loan Document, shall be calculated for actual days
elapsed on the basis of a 360-day year, which results in higher interest, charge
or fee payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay any Lender interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect.
     2.13 Default Interest. Any unpaid payments of principal or interest or the
Terminal Payment, or any portion thereof, with respect to any Loan shall bear
interest from their respective maturities, whether scheduled or accelerated, at
the Designated Rate for such Loan plus five percent (5.00%) per annum, until
paid in full, whether before or after judgment (the “Default Rate”). Borrower
shall pay such interest on demand.
     2.14 Late Charges. If Borrower is late in making any payment of principal
or interest or

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Terminal Payment under this Agreement by more than five (5) Business Days,
Borrower agrees to pay a late charge of five percent (5%) of the unpaid amount
due, but not less than fifty dollars ($50.00) for any one such delinquent
payment. This late charge may be charged by the Lenders for the purpose of
defraying the expenses incidental to the handling of such delinquent amounts.
Borrower acknowledges that such late charge represents a reasonable sum
considering all of the circumstances existing on the date of this Agreement and
represents a fair and reasonable estimate of the costs that will be sustained by
Lenders due to the failure of Borrower to make timely payments. Borrower further
agrees that proof of actual damages would be costly and inconvenient. Such late
charge shall be paid without prejudice to the rights of Lenders to collect any
other amounts provided to be paid or to declare a default under this Agreement
or any of the other Loan Documents or from exercising any other rights and
remedies of Lenders.
     2.15 Lender’s Records. Principal, Basic Interest, Terminal Payments and all
other sums owed under any Loan Document shall be evidenced by entries in records
maintained by each Lender for such purpose. Each payment on and any other
credits with respect to principal, Basic Interest, Terminal Payments and all
other sums outstanding under any Loan Document shall be evidenced by entries in
such records. Absent manifest error, a Lender’s records shall be conclusive
evidence thereof.
     2.16 Grant of Security Interests; Filing of Financing Statements.
          (a) To secure the timely payment and performance of all of Borrower’s
Obligations to Lenders, Borrower hereby grants to Agent for the benefit of the
Lenders continuing security interests in all of the Collateral. In connection
with the foregoing, Borrower authorizes Agent to prepare and file any financing
statements describing the Collateral without otherwise obtaining the Borrower’s
signature or consent with respect to the filing of such financing statements.
          (b) Borrower is and shall remain absolutely and unconditionally liable
for the performance of its obligations under the Loan Documents, including,
without limitation, any deficiency by reason of the failure of the Collateral to
satisfy all amounts due Lenders under any of the Loan Documents.
          (c) All Collateral pledged by Borrower under this Agreement and any
Supplement shall secure the timely payment and performance of all Obligations
under this Agreement, the Notes and the other Loan Documents. Except as
expressly provided in this Agreement, no Collateral pledged under this Agreement
or any Supplement shall be released until such time as all Obligations under
this Agreement and the other Loan Documents have been satisfied and paid in
full.
ARTICLE 3 — REPRESENTATIONS AND WARRANTIES
     Borrower represents and warrants to Agent and each Lender that, except as
set forth in either the Supplement or the Schedule of Exceptions hereto, as of
the Closing Date and each Borrowing Date:
     3.1 Due Organization. Borrower is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good standing
in each other jurisdiction in which its business is conducted or its properties
are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.
     3.2 Authorization, Validity and Enforceability. The execution, delivery and
performance of all Loan Documents executed by Borrower are within Borrower’s
powers, have been duly authorized, and are not in conflict with Borrower’s
certificate of incorporation or by laws, or the terms of any charter or other
organizational document of Borrower, as amended from time to time; and all such
Loan Documents constitute valid and binding obligations of Borrower, enforceable
in accordance with their terms (except as may be limited by bankruptcy,
insolvency and similar laws affecting the enforcement of creditors’ rights in
general, and subject to general principles of equity).
     3.3 Compliance with Applicable Laws. Borrower has complied with all
material licensing, permit and fictitious name requirements necessary to
lawfully conduct the business in which it is engaged, and to any sales, leases
or the furnishing of services by Borrower, including without limitation those
requiring consumer or other disclosures, the noncompliance with which would have
a Material Adverse Effect.
     3.4 No Conflict. The execution, delivery, and performance by Borrower of
all Loan Documents and Warrants are not in conflict with any law, rule,

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regulation, order or directive applicable to Borrower, or any indenture,
agreement, or undertaking to which Borrower is a party or by which Borrower may
be bound or affected, except where such conflict would not have a Material
Adverse Effect. Without limiting the generality of the foregoing, the issuance
of the Warrants to Lenders (or their designees) will not violate any agreement
or instrument by which Borrower is bound or require the consent of any holders
of Borrower’s securities other than consents which have been obtained prior to
the Closing Date or prior to the issuance of Warrants, as applicable.
     3.5 No Litigation, Claims or Proceedings. There is no litigation, tax
claim, proceeding or dispute pending, or, to the knowledge of Borrower,
threatened against or affecting Borrower, or its property or the conduct of
business, which is reasonably likely to be determined adversely to Borrower and
, if so adversely determined, would result in a Material Adverse Effect.
     3.6 Correctness of Financial Statements. Parent’s financial statements
which have been delivered to each Lender fairly and accurately reflect in all
material respects Borrowers’ consolidated financial condition in accordance with
GAAP (except for the absence of footnote disclosures and subject to normal year
end adjustments) as of the latest date of such financial statements; and, since
that date there has been no Material Adverse Change.
     3.7 No Subsidiaries. As of the Closing Date, Borrower is not a majority
owner of or in a control relationship with any other business entity. Borrower
may from time to time amend or update the Schedule of Exceptions to reflect
additions and/or deletions of subsidiaries and control relationships with other
entities. Each such update shall be effective immediately upon delivery to
Agent.
     3.8 Environmental Matters. To its knowledge, Borrower is in compliance with
Environmental Laws applicable to its business, except to the extent a failure to
be in such compliance would not have a Material Adverse Effect.
     3.9 No Event of Default. No Default or Event of Default has occurred and is
continuing.
     3.10 Full Disclosure. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the factual statements contained
in any exhibit, report, statement or certificate furnished by or on behalf of
Borrower in connection with the Loan Documents (including disclosure materials
delivered by or on behalf of Borrower to any Lender prior to the Closing Date or
pursuant to Section 5.2 hereof), contains any untrue statement of a material
fact or omits any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
are made, not misleading as of the time when made or delivered; it being
understood and agreed that Borrower gives no representation or warranty with
respect to projections, forecasts or other forward-looking statements prepared
in good faith.
     3.11 Specific Representations Regarding Collateral.
     (a) Title. Except for the security interests created by this Agreement and
Permitted Liens, (i) Borrower is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is genuine and
subject to no Liens, rights or defenses of others. Except for any applicable
Permitted Liens, there exist no assignments or encumbrances properly recorded
with the U.S. Patent and Trademark Office or the U.S. Copyright Office currently
affecting any Collateral in favor of any third party.
     (b) Rights to Payment. The names of the obligors, amount owing to Borrower,
due dates and all other information with respect to the Rights to Payment are
and will be correctly stated in all material respects in all Records relating to
the Rights to Payment. Borrower further represents and warrants, to its
knowledge, that each Person appearing to be obligated on a Right to Payment has
authority and capacity to contract and is bound as it appears to be.
     (c) Location of Collateral. Borrower’s chief executive office, Inventory,
Records, Equipment, and any other offices or places of business are located at
the address(es) shown on the Supplement. Any notice of a change of location
provided pursuant to section 5.1(a) shall amend the Supplement automatically on
the thirtieth day after receipt thereof.
     (d) Business Names. Other than its full corporate name, Borrower has not
conducted business using any trade names or fictitious business names except as
shown on the Supplement.
     3.12 Copyrights, Patents, Trademarks and Licenses.

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     (a) Borrower owns or is licensed or otherwise has the right to use or has
in its possession all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other similar rights that
are reasonably necessary for the operation of its business as currently
conducted, to Borrower’s knowledge, without conflict with the rights of any
other Person.
     (b) To Borrower’s knowledge, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by Borrower infringes upon any rights held by any
other Person.
     (c) No claim or litigation involving Borrower regarding any of the subject
matter of Section 3.12(a) and (b) is pending or, to Borrower’s knowledge,
threatened, and, to Borrower’s knowledge, no statute, law, rule, regulation,
standard or code applicable to Borrower is pending or proposed which, if became
effective, could reasonably be expected to have a Material Adverse Effect.
     3.13 Debt Obligations Current. Borrower is solvent and able to pay its
debts (including trade debts) as they mature.
     3.14 Regulatory Compliance. Borrower has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. No event has occurred resulting from Borrower’s failure to comply with
ERISA that will have a Material Adverse Effect. Borrower is not required to
register as an “investment company” or a company “controlled” by an entity
required to register as an “investment company” within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations T and
U of the Board of Governors of the Federal Reserve System). Borrower has
complied in all material respects with all the provisions of the Federal Fair
Labor Standards Act.
     3.15 Survival. The representations and warranties of Borrower as set forth
in this Agreement survive the execution and delivery of this Agreement.
ARTICLE 4 — CONDITIONS PRECEDENT
     4.1 Conditions to First Loan. The obligation of each Lender to make its
first Loan hereunder is, in addition to the conditions precedent specified in
Section 4.2 and in the Supplement, subject to the fulfillment of the following
conditions and to the receipt by Agent of the documents described below, duly
executed and in form and substance satisfactory to Agent and Lenders:
     (a) Resolutions. A certified copy of the resolutions of the Board of
Directors of each Borrower authorizing the execution, delivery and performance
by Borrower of the Loan Documents.
     (b) Incumbency and Signatures. A certificate of an authorized officer of
Borrower certifying the names of the officer or officers of Borrower authorized
to sign the Loan Documents, together with a sample of the true signature of each
such officer.
     (c) Legal Opinion. The opinion of legal counsel for each Borrower as to
such matters as Agent or any Lender may reasonably request, in substantially the
form of Exhibit “E” to the Supplement.
     (d) Charter and By Laws. Certified copies of the Certificate of
Incorporation and By Laws of each Borrower, as amended through the Closing Date.
     (e) This Agreement. Original counterparts of this Agreement and an initial
Supplement, with all schedules completed and attached thereto, and disclosing
such information as is acceptable to Agent and Lenders exercising reasonable
discretion.
     (f) Financing Statements; Lien Perfection Documents. Filing copies (or
other evidence of filing satisfactory to Agent, Lenders and their respective
counsel) of such UCC financing statements, collateral assignments, account
control agreements, and termination statements, with respect to the Collateral
as Agent or Lenders shall reasonably request.
     (g) Lien Searches. Uniform Commercial Code lien, judgment, bankruptcy and
tax lien searches of Borrower from such jurisdictions or offices as Agent or any
Lender may reasonably request, all as of a date reasonably satisfactory to
Agent, Lenders and their counsel.
     (h) Good Standing Certificate. A Certificate of status or good standing of
each Borrower as of a date acceptable to Agent from the jurisdiction of such
Borrower’s organization and any material foreign jurisdictions where Borrower is
qualified to do business.

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     (i) Other Documents. Such other documents and instruments as Agent or
Lenders may reasonably request to effectuate the intents and purposes of this
Agreement.
     4.2 Conditions to All Loans. The obligation of each Lender to make its
initial Loan and each subsequent Loan is subject to the following further
conditions precedent that:
     (a) No Default. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement and Part 3 of the Supplement are true and correct (i) in all respects,
with respect to those representations and warranties qualified by materiality,
and (ii) in all material respects, with respect to those representations and
warranties not so qualified as of the Borrowing Date of such Loan.
     (b) No Material Adverse Change. No Material Adverse Effect has occurred
since the date of the Parent’s last annual audited financial statements.
     (c) Borrowing Request. Borrowers shall have delivered to Agent a Borrowing
Request for such Loan.
     (d) Note. Borrowers shall have delivered to Agent an original executed Note
for each Lender evidencing such Lender’s Loan, substantially in the form of
Exhibit “A” attached to the Supplement.
     (e) Supplemental Lien Filings. Borrowers shall have executed and delivered
such amendments or supplements to this Agreement and additional Security
Documents, financing statements and third party waivers as Agent may reasonably
request in connection with the proposed Loan, in order to create, protect or
perfect or to maintain the perfection of Agent’s Liens on the Collateral for the
benefit of the Lenders.
     (f) VCOC Limitation. Absent the failure of VLL to exercise commercially
reasonable efforts and to act in good faith to qualify and remain so qualified,
VLL shall not be obligated to make any Loan under its Commitment if at the time
of or after giving effect to the proposed Loan VLL would no longer qualify as:
(A) a “venture capital operating company” under U.S. Department of Labor
Regulations Section 2510.3-101(d), Title 29 of the Code of Federal Regulations,
as amended; and (B) a “business development company” under the provisions of
federal Investment Company Act of 1940, as amended; and (C) a “regulated
investment company” under the provisions of the Internal Revenue Code of 1986,
as amended. VLL does not know, and has no reason to know of any facts or
circumstances that could reasonably be expected to cause VLL to no longer
qualify as (A) a “venture capital operating company”, (B) a “business
development company”, or (C) a “regulated investment company” as those terms are
defined above.
     (g) Financial Projections. Borrower shall have delivered to each Lender
Borrower’s financial projections or business plan as prepared by or at the
direction of Borrower’s management.
ARTICLE 5 — AFFIRMATIVE COVENANTS
     During the term of this Agreement so long as any Obligations to Agent and
Lenders remain outstanding, Borrower will:
     5.1 Notice to Lender. Promptly give written notice to Lenders of:
     (a) Any litigation or administrative or regulatory proceeding affecting
Borrower where the amount claimed against Borrower is at the Threshold Amount or
more, or where the granting of the relief requested would reasonably be expected
to have a Material Adverse Effect.
     (b) Any substantial dispute which may exist between Borrower or any
governmental or regulatory authority.
     (c) The occurrence of any Default or any Event of Default.
     (d) Any change in the location of any of Borrower’s places of business or
Collateral within thirty (30) days of such change, or of the establishment of
any new, or the discontinuance of any existing, place of business.
     (e) Any dispute or default by Borrower or any other party under any joint
venture, partnering, distribution, cross-licensing, strategic alliance,
collaborative research or manufacturing, license or similar agreement which
would reasonably be expected to have a Material Adverse Effect.
     (f) Any other matter which has resulted in a Material Adverse Change since
December 31, 2003.

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     5.2 Financial Statements. Deliver to each Lender or cause to be delivered
to each Lender, in form and detail satisfactory to Lenders the following
financial information, which Parent warrants shall be accurate and complete in
all material respects:
     (a) Monthly Financial Statements. As soon as available but no later than
thirty (30) days after the end of each month, Parent’s consolidated unaudited
balance sheet as of the end of such period, and its consolidated unaudited
income statement and consolidated unaudited cash flow statement for such period
and for that portion of its financial reporting year ending with such period,
prepared in accordance with GAAP (except for the absence of footnotes and
subject to normal year end adjustments), and attested by a responsible financial
officer of Parent as being complete and correct and fairly presenting in all
material respects Borrowers’ financial condition on a consolidated basis and the
results of Borrowers’ operations. After an Initial Public Offering, the
foregoing interim financial statements may be provided on a quarter-annual basis
and shall be deemed delivered upon timely filing by Parent of its quarterly and
annual reports with the Securities and Exchange Commission (“SEC”).
     (b) Year-End Financial Statements. As soon as available but no later than
one hundred twenty (120) days after and as of the end of each financial
reporting year, a complete copy of Parent’s audit report, which shall include
consolidated balance sheet, income statement, statement of changes in equity and
statement of cash flows for such year, prepared in accordance with GAAP, and
certified by an independent certified public accountant selected by Parent (the
“Accountant”). The Accountant’s certification shall not be qualified or limited
without the prior written consent of each Lender.
     (c) Compliance Certificates. Simultaneously with the delivery of each set
of financial statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer or other executive officer of Parent
substantially in the form of Exhibit “C” to the Supplement stating whether any
Default or Event of Default exists on the date of such certificate, and if so,
setting forth in reasonable detail thereof and the action which Borrower is
taking or proposes to take with respect thereto.
     (d) Government Required Reports; Press Releases. Promptly after sending,
issuing, making available, or filing, copies of all statements released to any
news media for publication, all annual and quarterly reports, proxy statements,
and financial statements that Parent sends or makes available to its
stockholders, and, not later than five (5) Business Days after actual filing or
the date such filing was first due, all registration statements and reports that
Parent files or is required to file with the Securities and Exchange Commission,
or any other governmental or regulatory authority.
     (e) Other Information. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as Agent or any
Lender may from time to time reasonably request.
     5.3 Managerial Assistance from VLL. Permit VLL to substantially participate
in, and substantially influence the conduct of management of Borrower through
the exercise of “management rights,” as that term is defined in 29 C.F.R. §
2510.3-101(d), including without limitation the following rights:
     (a) Borrower agrees that (i) it will make its officers, directors,
employees and affiliates available at such times as VLL may reasonably request
for VLL to consult with and advise as to the conduct of Borrower’s business, its
equipment and financing plans, and its financial condition and prospects,
(ii) VLL shall have the right to inspect Borrower’s books, records, facilities
and properties at reasonable times during normal business hours on reasonable
advance notice at its own expense, and (iii) VLL shall be entitled to recommend
prospective candidates for election or nomination for election to Borrower’s
Board of Directors, and Borrower shall give due consideration to (but shall not
be bound by) such recommendations, it being the intention of the parties that
VLL shall be entitled through such rights, inter alia, to furnish “significant
managerial assistance”, as defined in Section 2(a)(47) of the Investment Company
Act of 1940, to Borrower.
     (b) Without limiting the generality of (a) above, if VLL reasonably
believes that financial or other developments affecting Borrower have impaired
or are likely to impair Borrower’s ability to perform its obligations under this
Agreement, permit VLL reasonable access to Borrower’s management and/or Board of
Directors and opportunity to present VLL’s views with respect to such
developments.
VLL shall cooperate with Borrower to ensure that the exercise of VLL’s rights
shall not disrupt the business of Borrower. The rights enumerated above shall
not be construed as giving VLL control over Borrower’s management or policies.
Borrower

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agrees that this Section 5.3 does not apply to any Lender hereunder other than
VLL. VLL agrees that it will indemnify, defend and hold harmless each other
Lender for any claims arising as a result of VLL’s exercise of its rights under
this Section 5.3.
     5.4 Existence. Maintain and preserve Borrower’s existence, present form of
business, and all material rights and privileges necessary or desirable in the
normal course of its business; and keep all Borrower’s property in good working
order and condition, ordinary wear and tear excepted.
     5.5 Insurance. Obtain and keep in force insurance in such amounts and types
as is usual in the type of business conducted by Borrower with insurance
carriers having a policyholder rating of not less than “A-” and financial
category rating of Class VII in “Best’s Insurance Guide,” unless otherwise
approved by Agent. Such insurance policies must be in form and substance
satisfactory to Agent. All property policies will have a lender’s loss payable
endorsement showing Agent, for the benefit of Lenders, as a loss payee and all
liability policies will show the Agent, for the benefit of Lenders, as an
additional insured. At Agent’s request, Borrower will deliver to Agent certified
copies of policies, endorsements or a certificate of insurance evidencing the
same, and evidence of all premium payments. If no Event of Default has occurred
and is continuing, proceeds payable under any casualty policy will, at
Borrower’s option, be payable to Borrower to replace the property subject to the
claim, provided that any such replacement property shall be deemed Collateral in
which Agent, for the benefit of Lenders, has been granted a first priority
security interest. If an Event of Default has occurred and is continuing, then
proceeds payable under any policy will be payable to Agent, for the benefit of
Lenders, toward the satisfaction of the Obligations in accordance with the terms
of this Agreement.
     5.6 Accounting Records. Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP (except for the absence
of footnotes and subject to normal year end adjustments with respect to
unaudited financial statements), and in compliance with the regulations of any
governmental or regulatory authority having jurisdiction over Borrower or
Borrower’s business; and permit employees or agents of Agent and any Lender at
such reasonable times and upon reasonable notice as they may request, at
Borrower’s expense after the occurrence of an Event of Default, to inspect
Borrower’s properties, and to examine, and make copies and memoranda of
Borrower’s books, accounts and records.
     5.7 Compliance With Laws. Comply with all laws (including, without
limitation, Environmental Laws) rules, regulations applicable to, and all orders
and directives of any governmental or regulatory authority having jurisdiction
over, Borrower or Borrower’s business, and with all material agreements to which
Borrower is a party, except where the failure to so comply would not have a
Material Adverse Effect.
     5.8 Taxes and Other Liabilities. Pay all Borrower’s Indebtedness when due;
and pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, in each case, except as may
be contested in good faith by the appropriate procedures and for which Borrower
shall maintain appropriate reserves in accordance with GAAP; and timely file all
required tax returns.
     5.9 Special Collateral Covenants.
     (a) Maintenance of Collateral; Inspection. Do all things reasonably
necessary to maintain, preserve, protect and keep all tangible Collateral in
good working order and salable condition, ordinary wear and tear excepted,
utilize the Collateral for its intended use or as otherwise may be used in the
ordinary course of Borrower’s business, and use the Collateral lawfully and, to
the extent applicable, only as permitted by Borrower’s insurance policies.
Maintain, or cause to be maintained, complete and accurate Records relating to
the Collateral. Upon reasonable prior notice at reasonable times during normal
business hours, Borrower hereby authorizes Agent and each Lender’s officers,
employees, representatives and agents to inspect the Collateral and to discuss
the Collateral and the Records relating thereto with Borrower’s officers and
employees, and, in the case of any Right to Payment, with any Person which is or
may be obligated thereon.
     (b) Financing Statements and Other Actions. Execute and deliver to Agent
all financing statements, account control agreements, notices and other
documents from time to time reasonably requested by Agent to maintain a first
perfected security interest in the Collateral in favor of Agent, for the benefit
of Lenders subject only to Permitted Liens; perform such other acts, and execute
and deliver to Agent such additional conveyances, assignments, agreements and
instruments, as Agent may at any time reasonably

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request in connection with the administration and enforcement of this Agreement
or Agent’s or Lender’s rights, powers and remedies hereunder.
     (c) Liens. Not create, incur, assume or permit to exist any Lien or grant
any other Person a negative pledge on any Collateral, except Permitted Liens.
     (d) Documents of Title. Other than as required in connection with Permitted
Liens or as set forth in Section 6.1, not sign or authorize the signing of any
financing statement or other document naming Borrower as debtor or obligor, or
acquiesce or cooperate in the issuance of any bill of lading, warehouse receipt
or other document or instrument of title with respect to any Collateral, except
those negotiated to Agent, or those naming Agent as secured party.
     (e) Change in Location or Name. Without at least 30 days’ prior written
notice to Lenders: (a) not relocate any Collateral or Records, its chief
executive office, or establish a place of business at a location other than as
specified in the Supplement; and (b) not change its name, mailing address,
location of Collateral, jurisdiction of incorporation or its legal structure.
     (f) Decals, Markings. At the request of Agent, firmly affix a decal,
stencil or other marking to designated items of Equipment, indicating thereon
the security interest of Agent.
     (g) [Intentionally omitted]
     (h) Certain Agreements on Rights to Payment. Other than in the ordinary
course of business, not make any material discount, credit, rebate or other
reduction in the original amount owing on a Right to Payment or accept in
satisfaction of a Right to Payment an amount materially less than the original
amount thereof.
     5.10 Authorization for Automated Clearinghouse Funds Transfer.
(i) Authorize each Lender to initiate debit entries to Borrower’s Primary
Operating Account, specified in the Supplement hereto, through Automated
Clearinghouse (“ACH”) transfers, in order to satisfy regularly scheduled
payments of principal, interest and Terminal Payments; (ii) provide Lenders at
least thirty (30) days notice of any change in Borrower’s Primary Operating
Account; and (iii) grant Lenders any additional authorizations necessary to
begin ACH debits from a new account which becomes the Primary Operating Account.
ARTICLE 6 — NEGATIVE COVENANTS
     During the term of this Agreement so long as any Obligations remain
outstanding, Borrower will not (without Majority Lenders’ prior written
consent):
     6.1 Indebtedness. Be indebted for borrowed money, the deferred purchase
price of property, or leases which would be capitalized in accordance with GAAP;
or become liable as a surety, guarantor, accommodation party or otherwise for or
upon the obligation of any other Person, except:
     (a) Indebtedness existing on the date hereof;
     (b) Indebtedness incurred for the acquisition of supplies or inventory on
normal trade credit;
     (c) Indebtedness incurred pursuant to one or more transactions permitted
under Section 6.4;
     (d) Indebtedness of Borrower under this Agreement;
     (e) any Subordinated Debt;
     (f) Indebtedness arising out of earnout and similar contingent payment
obligations of Borrower in existence as of the Closing Date;
     (g) bridge loan financing, whether or not convertible into Borrower’s
equity securities; and
     (h) and, in addition to the foregoing, up to Three Million Dollars
($3,000,000) in aggregate principal amount of Indebtedness outstanding at any
time.
     6.2 Liens. Create, incur, assume or permit to exist any Lien, or grant any
other Person a negative pledge, on any of Borrower’s property, except Permitted
Liens. Borrower and Lender agree that this covenant is not intended to
constitute a lien, deed of trust, equitable mortgage, or security interest of
any kind on any of Borrower’s real property, and this Agreement shall not be
recorded or recordable. Without limiting the generality of the foregoing, and as
a material inducement to the Lenders’ making of the Commitment and entering into
the Loan Documents, Borrower agrees that it shall not assign, mortgage, pledge,
grant a security interest in, or encumber any of Borrower’s Intellectual
Property, or enter into any agreement, document, instrument or other arrangement
(except with or in favor of Agent and Lenders) with any Person which directly or

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indirectly prohibits or has the effect of prohibiting Borrower from assigning,
mortgaging, pledging, granting a security interest in or upon, or encumbering
any of Borrower’s Intellectual Property, except as is otherwise permitted in
Section 6.5 of this Agreement and the definition of “Permitted Lien” herein.
     6.3 Dividends. Except after an Initial Public Offering, pay any dividends
or purchase, redeem or otherwise acquire or make any other distribution with
respect to any of Parent’s capital stock, except (a) dividends or other
distributions solely of capital stock of Parent, (b) cash payments for
fractional shares of Parent’s capital stock, including, without limitation, upon
the exercise or conversion of options, warrants, rights and other similar
instruments exercisable or convertible into Parent’s capital stock,
(c) dividends by Advanced Biotheropeutics, Inc. to its Parent, and (d) so long
as no Event of Default has occurred and is continuing, (i) repurchases of stock
from employees, directors or consultants upon termination of employment under
reverse vesting or similar repurchase plans not to exceed $100,000 in aggregate
in any calendar year and (ii) dividends and distributions in respect of
Financing Shares equating to periodic, unaccelerated cash payments of
non-default rate accrued interest on comparable Subordinated Debt financing.
     6.4 Changes/Mergers. Liquidate or dissolve; or enter into any
consolidation, merger or other combination in which the stockholders of the
Borrower immediately prior to the first such transaction own less than 50% of
the voting stock of the Borrower or the entity that results from such merger or
consolidation (the “Surviving Entity”) immediately after giving effect to such
transaction or related series of such transactions, except that Borrower may
consolidate or merge so long as: (A) the Surviving Entity shall have executed
and delivered to Agent 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 that directly or indirectly owns or controls more than 50% of the
voting stock of the Surviving Entity; (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 an increased credit risk,
Lenders may consider, among other things, changes in Borrower’s management team,
employee base, access to equity markets, venture capital support, financial
position and/or disposition of intellectual property rights which may reasonably
be anticipated as a result of the transaction.
     6.5 Sales of Assets. Sell, transfer, lease, license or otherwise dispose of
(a “Transfer”) any of Borrower’s assets except (i) exclusive and non-exclusive
licenses of Intellectual Property consistent with industry practice, including,
without limitation, research and product development collaborations (so long as
no one exclusive license or series of exclusive licenses to any one licensee
covers all or substantially all of Borrower’s Intellectual Property assets and
rights); (ii) Transfers of worn-out, obsolete or surplus property (each as
determined by the Borrower in its reasonable judgment) not constituting
Equipment as to which a Loan was made hereunder; (iii) Transfers of Inventory
not constituting Equipment as to which a Loan was made hereunder; (iv) Transfers
constituting Permitted Liens; (v) Transfers permitted in Section 6.6 hereunder;
(vi) Transfers in connection with research and product development
collaborations involving a joint venture or Delayed Joint Venture,
(vii) Transfers of equity interests to a Collaborator pursuant to a Delayed
Joint Venture, and (viii) Transfers of Collateral for fair consideration and in
the ordinary course of its business.
     6.6 Loans/Investments. Make or suffer to exist any loans, guaranties,
advances, or investments, except:
     (a) Accounts receivable in the ordinary course of Borrower’s business;
     (b) Investments other than in accordance with the investment policy
approved by the Parent’s Board of Directors, a copy of which has been made
available to the Agent.
     (c) Temporary advances to cover incidental expenses to be incurred in the
ordinary course of business;
     (d) Investments in and loans to joint ventures, strategic alliances,
licensing and similar arrangements customary in Borrower’s industry;

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     (e) other than as provided in Section 6.5, investments and loans which do
not require Borrower to assume or otherwise become liable for the obligations of
any third party not directly related to or arising out of such arrangement or,
without the prior written consent of Lender, require Borrower to transfer
ownership of non-cash assets to a joint venture or other similar entity;
     (f) Investments and loans by Parent to direct and indirect in its
wholly-owned subsidiaries, including re-advance of Loan proceeds by Parent to
its wholly-owned subsidiaries;
     (g) Investments and loans outstanding on the date hereof; and
     (h) Other loans, investments and advances in any amount not to exceed the
Threshold Amount at anytime outstanding.
     6.7 Transactions With Related Persons. Except as permitted under
Section 6.6(f), or except in connection with a strategic collaboration and as
approved by Parent’s Board of Directors, directly or indirectly enter into any
transaction with or for the benefit of a Related Person on terms more favorable
to the Related Person than would have been obtainable in an “arms’ length”
dealing except agreements and transactions with and payments to Related Persons
that are entered into outside the ordinary course of business, not otherwise
prohibited by this Loan Agreement and affirmatively approved by a majority of
the disinterested directors and of the stockholders of Borrower.
     6.8 Other Business. Engage in any material line of business other than the
business Borrower conducts as of the Closing Date or any business reasonably
related or incidental thereto.
     6.9 Compliance. Become required to register as an “investment company” or
controlled by an entity required to register as an “investment company,” within
the meaning of the Investment Company Act of 1940, or become principally engaged
in, or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of any Loan for such 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 in all material respects with the
Federal Fair Labor Standards Act or violate any law or regulation, but only to
the extent any such violation results in a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Agent’s Lien on the
Collateral, or permit any of its subsidiaries to do any of the foregoing.
     6.11 Other Deposit and Securities Accounts. Maintain any deposit accounts
or accounts holding securities owned by Borrower except (i) Deposit Accounts and
investment/securities accounts as set forth in the Supplement, and (ii) other
Deposit Accounts and securities/investment accounts, in each case, Agent shall
have taken such action as Lenders reasonably deem necessary to obtain a
perfected first security interest therein.
     6.12 Prepayment of Indebtedness. Prepay, redeem or otherwise satisfy in any
manner prior to the scheduled repayment thereof any Indebtedness (other than the
Loans).
     6.13 Relationship of Borrowers. Parent ceases to own all of the issued and
outstanding capital stock of Advanced Biotherapeutics, Inc.
ARTICLE 7 — EVENTS OF DEFAULT
     7.1 Events of Default; Acceleration. Upon the occurrence and during the
continuation of any Default, the obligation of each Lender to make any
additional Loan shall be suspended. The occurrence of any of the following
(each, an “Event of Default”) shall terminate any obligation of Lenders to make
any additional Loan; and shall, at the option of Majority Lenders (1) make all
sums of Basic Interest and principal, all Terminal Payments, and any Obligations
and other amounts owing under any Loan Documents immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor or any other notices or demands, and (2) give Agent
and Lenders the right to exercise any other right or remedy provided by contract
or applicable law:
     (a) Borrower shall fail to pay any principal or interest or Terminal
Payment under this Agreement or any Note when due; or shall fail to pay any fees
or other charges when due under any Loan Document and such failure continues for
five (5) Business Days or more after the same first becomes due; or an Event of
Default as defined in any other Loan Document shall have occurred.
     (b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower under any Loan Document

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shall prove to have been false or misleading in any material respect when made
or deemed made herein.
     (c) Borrower shall fail to pay its debts generally as they become due or
shall commence any Insolvency Proceeding with respect to itself; an involuntary
Insolvency Proceeding shall be filed against Borrower, or a custodian, receiver,
trustee, assignee for the benefit of creditors, or other similar official, shall
be appointed to take possession, custody or control of the properties of
Borrower, and such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by Borrower or is not dismissed within forty five (45) days; or
results in the dissolution or termination of the business of Borrower.
     (d) Borrower shall be in default beyond any applicable period of grace or
cure under any other agreement involving the borrowing of money, the purchase of
property, the advance of credit or any other monetary liability of any kind to
Lenders or to any Person which results in the acceleration of payment of such
obligation in an amount in excess of the Threshold Amount.
     (e) Any governmental or regulatory authority shall take any judicial or
administrative action, or any defined benefit pension plan maintained by
Borrower shall have any unfunded liabilities, any of which, in the reasonable
judgment of Agent, would result in a Material Adverse Effect.
     (f) Any sale, transfer or other disposition of all or substantially all of
the assets of Borrower, including without limitation to any trust or similar
entity, shall occur except as permitted under Sections 6.4 or 6.5.
     (g) Any judgment(s) singly or in the aggregate in excess of the Threshold
Amount shall be entered against Borrower which is not fully covered by insurance
and which remain unsatisfied, unvacated or unstayed pending appeal for thirty
(30) or more days after entry thereof.
     (h) Any Person or two or more Persons who are not stockholders of Parent as
of the Closing Date acting in concert shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission) of
the voting stock of Parent representing fifty percent (50%) or more of the
outstanding voting power of Parent.
     (i) Borrower shall fail to perform or observe any covenant contained in
Article 6 of this Agreement.
     (j) Borrower shall fail to perform or observe any covenant contained in
Section 5.9 of this Agreement.
     (k) Borrower shall fail to perform or observe any covenant contained in
this Agreement or any other Loan Document (other than a covenant which is dealt
with specifically elsewhere in this Article 7) and, if capable of being cured,
the breach of such covenant is not cured within 30 days after the sooner to
occur of Borrower’s receipt of notice of such breach from Agent or any Lender or
the date on which such breach first becomes known to any officer of Borrower;
provided, however that if such breach is not capable of being cured within such
30-day period and Borrower timely notifies Agent of such fact and Borrower
diligently pursues such cure, then the cure period shall be extended to the date
requested in Borrower’s notice but in no event more than 90 days from the
initial breach; provided, further, that such additional 60-day opportunity to
cure shall not apply in the case of any failure to perform or observe any
covenant which has been the subject of a prior failure within the preceding
180 days or which is a willful and knowing breach by Borrower.
     7.2 Remedies Upon Default. Upon the occurrence and during the continuance
of an Event of Default, Agent shall be entitled to, at the direction of the
Majority Lenders, exercise any or all of the rights and remedies available to a
secured party under the UCC or any other applicable law, and exercise any or all
of its rights and remedies provided for in this Agreement and in any other Loan
Document, including, without limitation, delivering a notice of exclusive
control (or similar document) under a deposit account control agreement and/or
securities account control agreement, as applicable; provided, however, that
Agent agrees and acknowledges that neither it nor any Lender shall deliver any
such notice of exclusive control (or similar document) until an Event of Default
occurs and continues thereafter without cure before such notice has been given.
The obligations of Borrower under this Agreement shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of any
Obligations is rescinded or must otherwise be returned by Agent or any Lender
upon, on account of, or in connection with, the insolvency, bankruptcy or
reorganization of Borrower or otherwise, all as though such payment had not been
made.
     7.3 Sale of Collateral. Subject only to all rights of redemption and rights
of stay or appeal afforded to Borrower under applicable law, upon the occurrence
and during the continuance of an Event of Default,

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Agent shall, at the direction of the Majority Lenders, sell all or any part of
the Collateral, at public or private sales, to a wholesaler, retailer or
investor, for cash, upon credit or for future delivery, and at such price or
prices as Agent may deem commercially reasonable. The Agent and/or any Lender
may bid and purchase at any public sale of the Collateral. Any such public or
private sales shall be held at such times and at such place(s) as Agent may
determine. In case of the sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by Agent until the
selling price is paid by the purchaser, but Agent shall not incur any liability
in case of the failure of such purchaser to pay for the Collateral and, in case
of any such failure, such Collateral may be resold. Agent shall, at the
direction of the Majority Lenders instead of exercising its power of sale,
proceed to enforce the Lenders’ security interest in the Collateral by seeking a
judgment or decree of a court of competent jurisdiction.
     7.4 Borrower’s Obligations Upon Default. Upon the request of Agent after
the occurrence and during the continuance of an Event of Default, Borrower will:
     (a) Assemble and make available to Agent the Collateral at such place(s) as
Agent shall reasonably designate, segregating all Collateral so that each item
is capable of identification; and
     (b) Subject to the rights of any lessor, permit Agent, by Agent’s officers,
employees, agents and representatives, to enter any premises where any
Collateral is located, to take possession of the Collateral, to complete the
processing, manufacture or repair of any Collateral, and to remove the
Collateral, or to conduct any public or private sale of the Collateral, all
without any liability of Agent or any Lender for rent or other compensation for
the use of Borrower’s premises.
ARTICLE 8 — SPECIAL COLLATERAL PROVISIONS
     8.1 Compromise and Collection. Borrower, Agent and Lenders recognize that
setoffs, counterclaims, defenses and other claims may be asserted by obligors
with respect to certain of the Rights to Payment; that certain of the Rights to
Payment may be or become uncollectible in whole or in part; and that the expense
and probability of success of litigating a disputed Right to Payment may exceed
the amount that reasonably may be expected to be recovered with respect to such
Right to Payment. Borrower hereby authorizes Agent, after and during the
continuance of an Event of Default, to compromise with the obligor, accept in
full payment of any Right to Payment such amount as Agent shall negotiate with
the obligor, or abandon any Right to Payment. Any such action by Agent shall be
considered commercially reasonable so long as Agent acts in good faith based on
information known to it at the time it takes any such action.
     8.2 Performance of Borrower’s Obligations. Without having any obligation to
do so, upon reasonable prior notice to Borrower, Agent may perform or pay any
obligation which Borrower has agreed to perform or pay under this Agreement,
including, without limitation, the payment or discharge of taxes or Liens levied
or placed on or threatened against the Collateral. In so performing or paying,
Agent shall determine the action to be taken and the amount necessary to
discharge such obligations. Borrower shall reimburse Agent on demand for any
amounts paid by Agent pursuant to this Section, which amounts shall constitute
Obligations secured by the Collateral and shall bear interest from the date of
demand at the Default Rate.
     8.3 Power of Attorney. For the purpose of protecting and preserving the
Collateral and Agent’s and each Lender’s rights under this Agreement, Borrower
hereby irrevocably appoints Agent for the benefit of Lenders, with full power of
substitution, as its attorney-in-fact with full power and authority, after the
occurrence and during the continuance of an Event of Default, to do any act
which Borrower is obligated to do hereunder; to exercise such rights with
respect to the Collateral as Borrower might exercise; to use such Inventory,
Equipment, Fixtures or other property as Borrower might use; to enter Borrower’s
premises; to give notice of Agent’s security interest in, and to collect the
Collateral; and before or after Default, to execute and file in Borrower’s name
any financing statements, amendments and continuation statements necessary or
desirable to perfect or continue the perfection of Agent’s security interests in
the Collateral. Borrower hereby ratifies all that Agent shall lawfully do or
cause to be done by virtue of this appointment.
     8.4 Authorization for Agent to Take Certain Action. The power of attorney
created in Section 8.3 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Agent hereunder are solely to protect
Lenders’ interests in the Collateral and shall not impose any duty upon Agent or
any Lender to exercise such powers. Agent shall be

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accountable only for amounts that it actually receives as a result of the
exercise of such powers and in no event shall Agent or any of its directors,
officers, employees, agents or representatives be responsible to Borrower for
any act or failure to act, except for gross negligence or willful misconduct.
After the occurrence and during the continuance of an Event of Default, Agent
may exercise this power of attorney without notice to or assent of Borrower, in
the name of Borrower, or in Agent’s or any Lender’s own name, from time to time
in Agent’s sole discretion and at Borrower’s expense. To further carry out the
terms of this Agreement, after the occurrence and during the continuance of an
Event of Default, Agent may:
     (a) Execute any statements or documents or take possession of, and endorse
and collect and receive delivery or payment of, any checks, drafts, notes,
acceptances or other instruments and documents constituting Collateral, or
constituting the payment of amounts due and to become due or any performance to
be rendered with respect to the Collateral.
     (b) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements under
any commercial or standby letter of credit relating to Collateral; assignments,
verifications and notices in connection with Accounts; or any other documents
relating to the Collateral, including without limitation the Records.
     (c) Use or operate Collateral or any other property of Borrower for the
purpose of preserving or liquidating Collateral.
     (d) File any claim or take any other action or proceeding in any court of
law or equity or as otherwise deemed appropriate by Agent in its reasonable
discretion for the purpose of collecting any and all monies due or securing any
performance to be rendered with respect to the Collateral.
     (e) Commence, prosecute or defend any suits, actions or proceedings or as
otherwise deemed appropriate by Agent for the purpose of protecting or
collecting the Collateral. In furtherance of this right, upon the occurrence and
during the continuance of an Event of Default, Agent may apply for the
appointment of a receiver or similar official to operate Borrower’s business.
     (f) Prepare, adjust, execute, deliver and receive payment under insurance
claims, and collect and receive payment of and endorse any instrument in payment
of loss or returned premiums or any other insurance refund or return, and apply
such amounts at Agent’s sole discretion, toward repayment of the Obligations or
replacement of the Collateral.
     8.5 Application of Proceeds. Any Proceeds and other monies or property
received by Agent or any Lender pursuant to the terms of this Agreement or any
Loan Document shall be applied in accordance with the terms of this Agreement.
     8.6 Deficiency. If the Proceeds of any disposition of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Obligations, plus all other sums required to be expended or
distributed by Agent or any Lender, then Borrower shall be liable for any such
deficiency.
     8.7 Lender Transfer. Upon the transfer of all or any part of the
Obligations, any Lender may transfer all or part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such Collateral so transferred, and the
transferee shall be vested with all the rights and powers of such Lender
hereunder with respect to such Collateral so transferred, but with respect to
any Collateral not so transferred, such Lender shall retain all rights and
powers hereby given.
8.8 Agent’s Duties.
     (a) Agent shall use reasonable care in the custody and preservation of any
Collateral in its possession. Without limitation on other conduct which may be
considered the exercise of reasonable care, Agent shall be deemed to have
exercised reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which Agent
accords its own property, it being understood that Agent and Lenders shall not
have any responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, declining value, tenders or other matters
relative to any Collateral, regardless of whether Agent or any Lender has or is
deemed to have knowledge of such matters; or taking any necessary steps to
preserve any rights against any Person with respect to any Collateral. Under no
circumstances shall Agent or any Lender be responsible for any injury or loss to
the Collateral, or any part thereof, arising from any cause beyond the
reasonable control of Agent.
     (b) Agent may at any time deliver the Collateral or any part thereof to
Borrower and the receipt of Borrower shall be a complete and full acquittance
for

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the Collateral so delivered, and Agent and Lenders shall thereafter be
discharged from any liability or responsibility therefor.
     (c) Neither Agent, any Lender, nor any of their respective directors,
officers, employees, agents, attorneys or any other person affiliated with or
representing Agent or any Lender shall be liable for any claims, demands, losses
or damages, of any kind whatsoever, made, claimed, incurred or suffered by
Borrower or any other party other than by the gross negligence and/or willful
misconduct of Agent or any Lender, or any of their respective directors,
officers, employees, agents, attorneys or any other person affiliated with or
representing Agent or any Lender.
     8.9 Termination of Security Interests. Upon the indefeasible payment in
full of the Obligations (other than contingent indemnification obligations) and
satisfaction of all Borrower’s obligations under this Agreement and the other
Loan Documents, and if Lenders have no further obligations under their
respective Commitments, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to Borrower. Upon any such
termination, the Agent shall, at Borrower’s expense, execute and deliver to
Borrower such documents as Borrower shall reasonably request to evidence such
termination.
ARTICLE 9 — THE AGENT
     9.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes Agent to act as its agent hereunder, under the Security
Documents and the other Loan Documents with such powers as are specifically
delegated to the Agent by the terms of this Agreement, the Security Documents
and the other Loan Documents together with such other powers as are reasonably
incidental thereto. The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement, the Security Documents and the
other Loan Documents and shall not be a trustee for any Lender. The Agent shall
not be responsible to the Lenders for any recitals, statements, representations
or warranties contained in this Agreement, the Security Documents, or the other
Loan Documents, or in any certificate or other document referred to or provided
for in, or received by any of them under, this Agreement, the Security Documents
or the other Loan Documents, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, the Security
Documents, the other Loan Documents, or any other document referred to or
provided for herein or therein, or for the collectibility of the Loans or for
the validity, effectiveness or value of any interest or security covered by the
Security Documents or for the value of any Collateral or for the validity or
effectiveness of any assignment, mortgage, pledge, security agreement, financing
statement, document or instrument, or for any failure by the Borrower to perform
any of its obligations here-under or under the other Loan Documents. Agent may
employ agents and attorneys-in-fact and shall only be answerable, including as
to money or securities received by it or its authorized agents, for the gross
negligence and/or willful misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. Neither Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder, under the Security
Documents or the other Loan Documents or in connection herewith or therewith,
except for its or their own gross negligence, willful misconduct, or breach of
this Agreement.
     9.2 Reliance by Agent. Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, facsimile transmission, or email) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper person or
persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent. As to any matters not expressly
provided for by this Agreement, the Security Documents or the other Loan
Documents, Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder, under the Security Documents or the other
Loan Documents in accordance with instructions signed by the Majority Lenders,
and such instructions of the Majority Lenders and any action taken or failure to
act pursuant thereto shall be binding on all of the Lenders.
     9.3 Knowledge of Default; Cross Defaults. Agent shall not be deemed to have
knowledge of the occurrence of a default or event of default, however defined in
any Loan Document, unless Agent has received notice from a Lender or the
Borrower specifying such default or event of default and stating that such
notice is a “Notice of Default”. In the event that Agent receives such a notice
of the occurrence of a default or event of default, Agent shall give notice
thereof to the Lenders. The occurrence of an Event of Default under this
Agreement shall constitute an Event of Default under each other Loan Document.
Upon becoming aware of the occurrence of an Event

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of Default under this Agreement, a Lender shall give notice thereof to all
Lenders.
     9.4 Rights as a Lender. With respect to its Commitment and the Loans made
by it, Agent in its capacity as a Lender hereunder shall have the same rights
and powers hereunder as any other Lender and may exercise the same as though it
were not acting as an Agent, and the term “Lender” or “Lenders” shall, unless
the context other-wise indicates, include Agent in its individual capacity.
     9.5 Indemnification. The Lenders shall indemnify Agent ratably in
accordance with the aggregate principal amount of the Loans made by the Lenders
(or, if no Loans are at the time outstanding, ratably in accordance with their
respective Commitments), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, the Security Documents or any of the other Loan Documents or any
other documents contemplated by or referred to herein or therein or the
transactions contemplated by or referred to herein or therein or the
transactions contemplated hereby and thereby (but excluding, unless a default or
event of default has occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties hereunder or under the
Security Documents) or the enforcement of any of the terms hereof or of the
Security Documents, or of any such other documents, provided that no Lender
shall be liable for any of the foregoing to the extent they arise from the gross
negligence, breach of this Agreement, or willful misconduct of the party to be
indemnified.
     9.6 Failure to Act. Except for action expressly required of an Agent
hereunder or under the Security Documents, Agent shall in all cases be fully
justified in failing or refusing to act hereunder or thereunder unless it shall
be indemnified to its satisfaction by the Lenders against any and all liability,
cost and expense that may be incurred by it by reason of taking or continuing to
take any such action.
     9.7 Resignation or Removal of Agent. If at any time Agent deems it
advisable, in its sole discretion, it may submit to each of the Lenders a
written notification of its resignation as Agent under this Agreement and the
Security Documents, such resignation to be effective on the thirtieth (30th) day
after the date of such notice. Agent may be removed at any time, with or without
cause, by vote of the Majority Lenders, provided, that if Agent is also one of
the Lenders its vote shall not be counted and the decision of the remaining
Lenders must be unanimous. Upon any such resignation or removal, the Majority
Lenders shall have the right to appoint a successor Agent from among the
Lenders. If no successor Agent shall have been so appointed by the Majority
Lenders and accepted such appointment within 30 days after the retiring Agent’s
giving of notice of resignation, then the retiring Agent may, on behalf of
Lenders, appoint a successor Agent, which successor Agent shall be either an
existing Lender or a commercial bank organized under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $100,000,000, and which successor Agent (if not also a
Lender), if no event of default on the part of Borrower shall have occurred and
be continuing, shall be reasonably satisfactory to Borrower. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. Borrower and
the Lenders shall execute such documents as shall be necessary to effect such
appointment. After any retiring Agent’s resignation hereunder as Agent, the
provisions of this Section 9.7 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
     9.8 Credit Decision. Each Lender acknowledges that none of Agent or the
other Lenders has made any representation or warranty to it, and that no act by
Agent or one Lender hereinafter taken, including any review of the affairs of
Borrower, shall be deemed to constitute any representation or warranty by the
Agent or such Lender to any other Lender. Each Lender represents to the other
Lenders that it has, independently and without reliance upon any other Lender
and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower, and
all applicable bank, lending, interest rate and securities regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrower thereunder. Each
Lender also represents that it will, independently and without reliance upon any
other

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Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of Borrower. Except for any notices, reports and
other documents expressly herein required to be furnished to other Lenders by a
Lender, such Lender shall not have any duty or responsibility to provide such
other Lenders with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of Borrower which may come into the possession of any of such
Lender.
     9.9 Lenders’ Representations Regarding IRS Withholding; Delivery of Tax
Forms. To the extent Agent may hold from time to time payments for the account
of the Lenders, each Lender represents and agrees as follows:
     (a) Lender represents and warrants that it is entitled to receive any
payments under the Loan Documents to which it is a party without the withholding
of any tax, and will furnish to the Agent such forms, certifications, statements
and other documents as Agent may request from time to time to evidence such
Lender’s exemption from the withholding of any tax imposed by any jurisdiction
or to enable Agent to comply with any applicable laws or regulations relating
thereto.
     (b) Without limiting the effect of the foregoing, if Lender is not created
or organized under the laws of the United States or any state thereof, Lender
further represents and warrants (i) that it is engaged in the conduct of a
business within the United States and that the payments made hereunder are or
are reasonably expected to be effectively connected with the conduct of that
trade or business and are or will be includible in its gross income; or (ii) if
Lender is not engaged in a U.S. trade or business with which such payments are
effectively connected, that Lender is entitled to the benefits of a tax
convention which exempts the income from U.S. withholding tax and that it has
satisfied all requirements to qualify for the exemption from tax.
     (c) Lender agrees that it will, immediately upon the request of Agent,
furnish to Agent Form 4224 or Form 1001 of the Internal Revenue Service, or such
other forms, certifications, statements or documents, duly executed and
completed by Lender as evidence of Lender’s exemption from the withholding of
U.S. tax with respect thereto. If Lender determines that, as a result of any
change in applicable law, regulation, or treaty or in any official application
or interpretation thereof, it ceases to qualify for exemption from any tax
imposed by any jurisdiction with respect to payments made hereunder, Lender
shall promptly notify Agent of such fact and Agent may, but shall not be
required to withhold the amount of any such applicable tax from amounts paid to
Lender hereunder. Agent shall not be obligated to make any payments hereunder to
Lender in respect of Lender’s Loan until Lender shall have furnished to Agent
the requested form, certification, statement or document and may withhold the
amount of such applicable tax from amounts paid to Lender hereunder.
     (d) Lender shall reimburse, indemnify and hold Agent harmless for any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed upon, incurred by or asserted against Agent due to its reliance
upon the representation hereby made that Lender is exempt from withholding of
tax. Unless Agent receives written notice to the contrary, Lender shall be
deemed to have made the representations contained in this Section 9.9 and in
each subsequent tax year of Lender.
ARTICLE 10 — GENERAL PROVISIONS
     10.1 Notices. Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or United
States mail, postage prepaid, or sent by facsimile, or other authenticated
message, charges prepaid, to the other party’s or parties’ addresses shown on
the Supplement. Each party may change the address or facsimile number to which
notices, requests and other communications are to be sent by giving written
notice of such change to each other party. Notice given by hand delivery shall
be deemed received on the date delivered; if sent by overnight courier, on the
next Business Day after delivery to the courier service; if by first class mail,
on the third Business Day after deposit in the U.S. Mail; and if by facsimile,
on the date of transmission.
     10.2 Binding Effect. The Loan Documents shall be binding upon and inure to
the benefit of Borrower, Agent and Lenders and their respective

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successors and permitted assigns; provided, however, that Borrower may not
assign or transfer Borrower’s rights or obligations under any Loan Document
(except as otherwise provided herein). Each Lender reserves the right to sell,
assign, transfer, negotiate or grant participations in all or any part of, or
any interest in, such Lender’s rights and obligations under the Loan Documents.
In connection with any of the foregoing, any Lender may disclose all documents
and information which Agent or such Lender now or hereafter may have relating to
the Loans, Borrower, or its business; provided that any person who receives such
information shall have agreed in writing in advance to maintain the
confidentiality of such information on terms reasonably acceptable to Borrower.
It is the intention of the parties that, as a “venture capital operating
company,” Venture Lending & Leasing IV, LLC (“LLC”), the parent and sole owner
of VLL, shall have the benefit of, and the power to exercise independent of any
other Lender, those “management rights” provided in Section 5.3. To that end,
the references to Lender and VLL in Sections 4.2(f), 5.1, 5.2, 5.3 and 5.9(a)
hereof shall include LLC, and LLC shall have the right to exercise the advisory,
inspection, information and other rights given to Lender under those Sections
independently of any Lender. No amendment or modification of this Agreement
shall alter or diminish LLC’s rights under the preceding sentence without the
consent of LLC.
     10.3 No Waiver. Without the written consent of each Lender affected thereby
(and the Agent if expressly required in this Agreement or any of the Loan
Documents), no amendment, modification or waiver of any provision of this
Agreement or any of the other Loan Documents shall be effective if the result of
which would be to (i) extend the Termination Date, (ii) extend the Maturity Date
of, or otherwise forgive or waive default in payment of, or postpone any date
fixed for any payment of principal or interest due from the Borrower under the
Notes, (iii) change the rate of interest applicable to any Loan, (iv) release
the Lien on any portion of the Collateral granted under any of the Security
Documents except as and to the extent expressly contemplated under the Security
Documents or this Agreement, (v) change any provision of this Agreement, or any
of the Security Documents which, by its terms, requires the consent of all
Lenders, (vi) change the percentage specified in the definition of Majority
Lenders, or (vii) change the Commitment set forth on the Supplement with respect
to any Lender. Each Lender agrees that if the assignee of any Lender is a
creditor of such Lender to whom such Lender has granted a security interest in
this Agreement, then following the occurrence of an event of default (however
defined) under or with respect to the indebtedness held by such assignee or the
occurrence of an event which with the giving of notice or the passage of time or
both would constitute such an event of default, the written consent of such
assignee, rather than of such assignor Lender, shall be required for any
modification or amendment to this Agreement. Any waiver, consent or approval by
Agent or any Lender of any Event of Default or breach of any provision,
condition, or covenant of any Loan Document must be in writing and shall be
effective only to the extent set forth in writing. No waiver of any breach or
default shall be deemed a waiver of any later breach or default of the same or
any other provision of any Loan Document. No failure or delay on the part of
Agent or any Lender in exercising any power, right, or privilege under any Loan
Document shall operate as a waiver thereof, and no single or partial exercise of
any such power, right, or privilege shall preclude any further exercise thereof
or the exercise of any other power, right or privilege. Agent or any Lender has
the right at its sole option to continue to accept interest and/or principal
payments due under the Loan Documents after default, and such acceptance shall
not constitute a waiver of said default or an extension of the Maturity Date
unless Agent or such Lender agrees otherwise in writing.
     10.4 Rights Cumulative. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
     10.5 Unenforceable Provisions. Any provision of any Loan Document executed
by Borrower which is prohibited or unenforceable in any jurisdiction, shall be
so only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.
     10.6 Accounting Terms. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP.
     10.7 Indemnification; Exculpation. Borrower shall pay and protect, defend
and indemnify Agent and all Lenders and Agent and each Lender’s employees,
officers, directors, shareholders, affiliates, agents and representatives
(collectively, the

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“Indemnitees”) against, and hold Indemnitees harmless from, all claims, actions,
proceedings, liabilities, damages, losses, expenses (including, without
limitation, reasonable attorneys’ fees and costs) and other amounts actually
incurred by such Indemnitee arising from (i) the matters contemplated by this
Agreement or any other Loan Documents (ii) any dispute between Borrower and a
third party or (iii) any contention that Borrower has failed to comply with any
law, rule, regulation, order or directive applicable to Borrower’s business;
provided, however, that this indemnification shall not apply to any of the
foregoing incurred solely as the result of any Indemnitee’s gross negligence or
willful misconduct. This indemnification shall survive the payment and
satisfaction of all of Borrower’s Obligations to Agent and Lenders.
     10.8 Reimbursement. Borrower shall reimburse Agent and each Lender for all
costs and expenses, including without limitation reasonable attorneys’ fees and
disbursements expended or incurred by Agent or any Lender in any arbitration,
mediation, judicial reference, legal action or otherwise in connection with
(a) the preparation and negotiation of the Loan Documents, (b) the amendment and
enforcement of the Loan Documents, including without limitation during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to Agent’s or any Lender’s rights, remedies and obligations under the
Loan Documents, (c) collecting any sum which becomes due Lenders under any Loan
Document, (d) any proceeding for declaratory relief, any counterclaim to any
proceeding, or any appeal, or (e) the protection, preservation or enforcement of
any rights of Agent or Lenders. For the purposes of this section, attorneys’
fees shall include, without limitation, reasonable and actual documented fees
incurred in connection with the following: (1) contempt proceedings;
(2) discovery; (3) any motion, proceeding or other activity of any kind in
connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and
third party examinations; and (5) postjudgment motions and proceedings of any
kind, including without limitation any activity taken to collect or enforce any
judgment. All of the foregoing costs and expenses shall be payable upon demand
by Lender, and if not paid within forty-five (45) days of presentation of
invoices shall bear interest at the highest applicable Default Rate.
     10.9 Execution in Counterparts. This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.
     10.10 Entire Agreement. The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by each Borrower, Agent and Lenders.
     10.11 Governing Law and Jurisdiction.
     (a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
     (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH BORROWER, AGENT AND EACH LENDER CONSENTS,
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH BORROWER, AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. BORROWER, AGENT AND EACH LENDER EACH
WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE
MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
     10.12 Waiver of Jury Trial. EACH BORROWER, AGENT AND LENDER WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN

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ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER, AGENT AND
LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
ARTICLE 11 — DEFINITIONS
     The definitions appearing in this Agreement or any Supplement shall be
applicable to both the singular and plural forms of the defined terms:
“Account” means any “account,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and, in any event, shall include, without limitation, all
accounts receivable, book debts and other forms of obligations (other than forms
of obligations evidenced by Chattel Paper, Documents or Instruments) now owned
or hereafter received or acquired by or belonging or owing to Borrower
(including, without limitation, under any trade name, style or division thereof)
whether arising out of goods sold or services rendered by Borrower or from any
other transaction, whether or not the same involves the sale of goods or
services by Borrower (including, without limitation, any such obligation that
may be characterized as an account or contract right under the UCC) and all of
Borrower’s rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by it for goods or services, and all of Borrower’s rights to
any goods represented by any of the foregoing (including, without limitation,
unpaid seller’s rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies
due or to become due to Borrower under all purchase orders and contracts for the
sale of goods or the performance of services or both by Borrower or in
connection with any other transaction (whether or not yet earned by performance
on the part of Borrower), now in existence or hereafter occurring, including,
without limitation, the right to receive the proceeds of said purchase orders
and contracts, and all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.
“Affiliate” means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. “Control,” “controlled
by” and “under common control with” mean direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise); provided,
that control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns ten percent (10%) or more of the securities having
ordinary voting power for the election of directors of a corporation.
“Agreement” means this Loan and Security Agreement and each Supplement thereto,
as each may be amended or supplemented from time to time.
“Agent” means Venture Lending & Leasing IV, Inc., not in its individual
capacity, but solely in its capacity as agent on behalf of and for the benefit
of Lenders and any permitted successor agent appointed hereunder.
“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
§101, et seq.), as amended.
“Basic Interest” means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.
“Borrowing Date” means the Business Day on which the proceeds of a Loan are
disbursed by Lender.
“Borrowing Request” means a written request from Borrower in substantially the
form of Exhibit “B” to the Supplement, requesting the funding of one or more
Loans on a particular Borrowing Date.
“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City or San Francisco are authorized or required by
law to close.

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“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC,
now owned or hereafter acquired by Borrower or in which Borrower now holds or
hereafter acquires any interest.
“Closing Date” means the date of this Agreement.
“Collateral” means, with respect to a Borrower, all of such Borrower’s right,
title and interest in and to the following property, whether now owned or
hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment;
(c) all Fixtures; (d) all General Intangibles; (e) all Inventory; (f) all
Investment Property; (g) all Deposit Accounts; (h) all other Goods and personal
property of Borrower, whether tangible or intangible and whether now or
hereafter owned or existing, leased, consigned by or to, or acquired by,
Borrower and wherever located; (i) all Records; and (j) all Proceeds of each of
the foregoing and all accessions to, substitutions and replacements for, and
rents, profits and products of each of the foregoing; provided, however, that
except as otherwise provided in the Supplement upon the happening of certain
events, “Collateral” shall not include Intellectual Property.
“Commitment” means the obligation of each Lender to make Loans to Borrower up to
the aggregate principal amount set forth in the Supplement opposite the name of
such Lender.
“Commitment Percentage” is defined in the Supplement.
“Copyright License” means any written agreement granting any right to use any
Copyright or Copyright registration now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.
“Copyrights” means all of the following now owned or hereafter acquired by
Borrower or in which Borrower now hold or hereafter acquires any interest:
(i) all copyrights, whether registered or unregistered, held pursuant to the
laws of the United States, any State thereof or of any other country; (ii) all
registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof or
any other country; (iii) all renewals or extensions thereof; and (iv) any
registrations to be issued under any pending copyright applications.
“Default” means an event which with the giving of notice, or passage of time, or
both would constitute an Event of Default.
“Default Rate” is defined in Section 2.13.
“Deposit Accounts” means any “deposit accounts,” as such term is defined in the
UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest.
“Designated Rate” means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.
“Documents” means any “documents,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
“Environmental Laws” means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.
“Equipment” means any “equipment,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and any and all additions, substitutions and replacements
of any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto.
“Event of Default” means any event described in Section 7.1.
“Financing Shares” means shares of Parent’s preferred stock issued to investors
in connection with a financing round occurring after the Closing Date in lieu of
comparable debt securities of Parent.
“Fixtures” means any “fixtures,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
“Funding Amount” means the amount of the Loan to be made by each respective
Lender on the Borrowing Date (net of any payments of interest and/or principal
required to be paid by the Borrower

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on the Borrowing Date under the terms of this Agreement).
“GAAP” means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.
“General Intangibles” means any “general intangibles,” as such term is defined
in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all right, title and interest that Borrower may now or
hereafter have in or under any contract, all customer lists, Intellectual
Property, claims in or under insurance policies, including unearned premiums,
uncertificated securities, money, cash or cash equivalents, deposit, checking
and other bank accounts, right to sue for past, present and future infringement
of Copyrights, Trademarks and Patents, rights to receive tax refunds and other
payments and rights of indemnification.
“Goods” means any “goods,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
“Indebtedness” of any Person means at any date, without duplication and without
regard to whether matured or unmatured, absolute or contingent: (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker’s
acceptance, or similar instrument, whether drawn or undrawn; (vi) other than
obligations related to any subsidiary of Parent, all obligations of such Person
to purchase, redeem, exchange, convert or otherwise acquire for cash any capital
stock of such Person or any warrants, rights or options to acquire such capital
stock, now or hereafter outstanding, except to the extent that such obligations
remain performable solely at the option of such Person; (vii) all obligations to
repurchase assets previously sold (including any obligation to repurchase any
accounts or chattel paper under any factoring, receivables purchase, or similar
arrangement); (viii) obligations of such Person under interest rate swap, cap,
collar or similar hedging arrangements; and (ix) all obligations of others of
any type described in clause (i) through clause (viii) above guaranteed by such
Person.
“Insolvency Proceeding” means (a) any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar arrangement
in respect of its creditors generally or any substantial portion of its
creditors, undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.
“Instruments” means any “instrument,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrower or in which Borrower now holds or
hereafter acquires any interest.
“Intellectual Property” means all Copyrights, Trademarks, Patents, Licenses,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, designs, knowledge, know-how, software, databases, processes,
models, drawings, materials, records and goodwill associated
with the foregoing.
“Inventory” means any “inventory,” as such term is defined in the UCC, wherever
located, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest, and, in any event, shall include,
without limitation, all inventory, goods and other personal property that are
held by or on behalf of Borrower for sale or lease or are furnished or are to be
furnished under a contract of service or that constitute raw materials, work in
process or materials used or consumed or to be used or consumed in Borrower’s
business, or the processing, packaging, promotion, delivery or shipping of the
same, and all finished goods, whether or not the same is in transit or in the
constructive, actual or exclusive possession of Borrower or is held by others
for Borrower’s account, including, without limitation, all goods covered by
purchase orders and contracts with suppliers and all goods billed and held by
suppliers and all such property first may be in the possession or custody of any
carriers, forwarding

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agents, truckers, warehousemen, vendors, selling agents or other Persons.
“Investment Property” means any “investment property,” as such term is defined
in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest.
“Letter of Credit Rights” means any “letter of credit rights,” as such term is
defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest, including any right to
payment under any letter of credit.
“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest and any
renewals or extensions thereof.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
against any property, any conditional sale or other title retention agreement,
any lease in the nature of a security interest, and the filing of any financing
statement (other than a precautionary financing statement with respect to a
lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
“Loan” means an extension of credit by a Lender under this Agreement.
“Loan Documents” means, individually and collectively, this Loan and Security
Agreement, each Supplement, each Note, and any other security or pledge
agreement(s) (including any account control agreements), and all other
contracts, instruments, addenda and documents executed in connection with this
Agreement or the extensions of credit which are the subject of this Agreement.
“Majority Lenders” means, at any time while no Loans are outstanding hereunder,
Lenders having Commitment Percentages totaling at least 51% of the aggregate
Commitments, and at any time while Loans are outstanding, Lenders holding at
least 51% of the outstanding aggregate principal amount of the Loans.
“Material Adverse Effect” or “Material Adverse Change” means (a) on a
consolidated basis for all Borrowers and their respective subsidiaries, a
material adverse change in, or a material adverse effect upon, the operations,
business, properties, or condition (financial or otherwise) of any Borrower;
(b) a material impairment of the ability of Borrower to materially perform under
any Loan Document; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against Borrower of any Loan Document.
“Maturity Date” means, with regard to a Loan, the earlier of (i) its maturity by
reason of acceleration, or (ii) its stated maturity date; and is the date on
which payment of all outstanding principal, accrued interest, and the Terminal
Payment with respect to such Loan is due.
“Note” means a promissory note substantially in the form of Exhibit “A-1” or
Exhibit “A-2” attached to the Supplement, executed by Borrowers evidencing each
Loan.
“Obligations” means all debts, obligations and liabilities of Borrower to Agent
or any Lender currently existing or now or hereafter made, incurred or created
under, pursuant to or in connection with this Agreement or any other Loan
Document, whether voluntary or involuntary and however arising or evidenced,
whether direct or acquired by Agent or such Lender by assignment or succession,
whether due or not due, absolute or contingent (except as otherwise described
below), liquidated or unliquidated, determined or undetermined, and whether
Borrower may be liable individually or jointly, or whether recovery upon such
debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all
attorneys’ fees and costs incurred by Agent or any Lender in connection with the
collection and enforcement thereof as provided for in any Loan Document
excluding for all purposes (i) contingent obligations for indemnity for which no
claim has been asserted and (ii) upon issuance thereof, all obligations in
connection with or arising under the Warrants prior to exercise.
“Parent” means Borrower Athersys, Inc.
“Patent License” means any written agreement granting any right with respect to
any Patent now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest.

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“Patents” means all of the following property now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) all patents, or rights corresponding thereto granted in, the United States
or any other country, all applications for patents or rights corresponding
thereto existing in, the United States or any other country, including, without
limitation, applications in the United States Patent and Trademark Office or in
any similar office or agency of the United States, any State thereof or any
other country; (b) all reissues, continuations, continuations-in-part or
extensions thereof; (c) all petty patents, divisionals, and patents of addition;
and (d) all patents to be issued under any such applications.
“Permitted Lien” means
     (a) involuntary Liens which, in the aggregate, would not have a Material
Adverse Effect and which in any event would not exceed, in the aggregate, the
Threshold Amount;
     (b) Liens for current taxes or other governmental or regulatory assessments
which are not delinquent, or which are contested in good faith by the
appropriate procedures and for which appropriate reserves are maintained;
     (c) security interests on any property held or acquired by Borrower in the
ordinary course of business securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such property;
provided, that such Lien attaches solely to the property acquired with such
Indebtedness and that the principal amount of such Indebtedness does not exceed
one hundred percent (100%) of the cost of such property; and further provided,
that such property is not Eligible Equipment or other property with respect to
which a Loan has been made hereunder to finance the acquisition thereof;
     (d) Liens in favor of Agent for the benefit of Lenders hereunder;
     (e) bankers’ liens, rights of setoff and similar Liens incurred on deposits
made in the ordinary course of business;
     (f) materialmen’s, mechanics’, repairmen’s, employees’ or other like Liens
arising in the ordinary course of business and which are not delinquent for more
than 45 days or are being contested in good faith by appropriate proceedings;
     (g) any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof;
     (h) to the extent permitted under Section 6.5, non-exclusive and exclusive
licenses or sublicenses of Patents, Patent Licenses, Trademarks or Trademark
Licenses;
     (i) Liens existing on the Closing Date and which are set forth on the
schedule of exceptions attached hereto;
     (j) any interest or title of a lessor under any lease entered into by
Borrower in the ordinary course of its business and covering the assets so
leased; and
     (k) purchase money Liens in favor of a Collaborator or an affiliate for
assets purchased using Eligible Funding, including, without limitation, any
license agreement between the Collaborator and Borrower.
“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).
“Proceeds” means “proceeds,” as such term is defined in the UCC and, in any
event, shall include, without limitation, (a) any and all Accounts, Chattel
Paper, Instruments, cash or other forms of money or currency or other proceeds
payable to Borrower from time to time in respect of the Collateral, (b) any and
all proceeds of any insurance, indemnity, warranty or guaranty payable to
Borrower from time to time with respect to any of the Collateral, (c) any and
all payments (in any form whatsoever) made or due and payable to Borrower from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
authority (or any Person acting under color of governmental authority), (d) any
claim of Borrower against third parties (i) for past, present or future
infringement of any Copyright, Patent or Patent License or (ii) for past,
present or future infringement or dilution of any Trademark or Trademark License
or for injury to the goodwill associated with any Trademark, Trademark

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registration or Trademark licensed under any Trademark License and (e) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.
“Pro Rata” means, as to any Lender at any time, (a) with respect to the Loans,
the percentage equivalent at such time of (i) such Lender’s aggregate unpaid
principal amount of Loans, divided by (ii) the combined aggregate unpaid
principal amount of all Loans of all Lenders, and (b) with respect to the
Commitments, the percentage equivalent at such time of (i) such Lender’s
Commitment, divided by (ii) the amount of the Total Commitment of all Lenders.
“Receivables” means all of Borrower’s Accounts, Instruments, Documents, Chattel
Paper, Supporting Obligations, and letters of credit and Letter of Credit
Rights.
“Records” means all Borrower’s computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Borrower’s business.
“Related Person” means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.
“Rights to Payment” means all Borrower’s accounts, instruments, contract rights,
documents, chattel paper and all other rights to payment, including, without
limitation, the Accounts, all negotiable certificates of deposit and all rights
to payment under any Patent License, any Trademark License, or any commercial or
standby letter of credit.
“Security Documents” means this Loan and Security Agreement, the Supplement
hereto, and any and all account control agreements, collateral assignments,
chattel mortgages, financing statements, amendments to any of the foregoing and
other documents from time to time executed or filed to create, perfect or
maintain the perfection of the Agent’s and Lender’s Liens on the Collateral.
“Subordinated Debt” means Indebtedness subordinated to the Obligations,
including without limiting the generality of the foregoing, subordination of
such Indebtedness in right of payment to the prior payment in full of the
Obligations, the subordination of the priority of any Lien (other than Permitted
Liens) at any time securing such Indebtedness to the Lien of Agent for the
benefit of Lenders in the collateral covered thereby, and the subordination of
the rights of the holder of such Indebtedness to enforce its junior Lien
following the occurrence and continuation of an Event of Default hereunder
pursuant to a written subordination agreement approved by Agent in its sole and
good faith discretion, which agreement may provide that regularly scheduled
payments of accrued interest on such subordinated Indebtedness may be paid by
Borrower and retained by the holder so long as no Event of Default has occurred
and is continuing.
“Supplement” means that certain supplement to the Loan and Security Agreement,
as the same may be amended or restated from time to time, and any other
supplements entered into between Borrower and Lenders, as the same may be
amended or restated from time to time.
“Supporting Obligations” means any “supporting obligations,” as such term is
defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
“Terminal Payment” means, with respect to each Loan, an amount payable on the
Maturity Date of such Loan in an amount equal to that percentage of the original
principal amount of such Loan as is specified in the Supplement.
“Termination Date” has the meaning specified in the Supplement.
“Threshold Amount” has the meaning specified in the Supplement.
“Total Commitment” means the aggregate Commitments of the Lenders to make Loans
hereunder.
“Trademark License” means any written agreement granting any right to use any
Trademark or Trademark registration now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.
“Trademarks” means all of the following property now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) all trademarks, tradenames, corporate names, business names, service marks,
logos, other source or business identifiers, designs of like nature, all
registrations and recordings thereof, and any

26

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applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof and
(b) extensions or renewals thereof.
“UCC” means the Uniform Commercial Code as the same may, from time to time, be
in effect in the State of California; provided, 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, Agent’s or any Lender’s Lien on any
Collateral is governed by the Uniform Commercial Code as enacted and in effect
in a jurisdiction other than the State of California, the term “UCC” shall mean
the Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to such
provisions. Unless otherwise defined herein, terms that are defined in the UCC
and used herein shall have the meanings given to them in the UCC.

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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

          BORROWER:

ATHERSYS, INC.
      By:           Name:           Title:             LENDERS:

VENTURE LENDING & LEASING IV, INC., as
a Lender and in its capacity as Agent
      By:           Name:           Title:             COSTELLA KIRSCH IV, L.P.,
as a Lender
      By:           Name:           Title:        

 

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Signature Page to Loan and Security Agreement

          BORROWER (together with Athersys, Inc.):

ADVANCED BIOTHERAPEUTICES, INC.
      By:           Name:           Title:        

 

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SUPPLEMENT
to the
Loan and Security Agreement
Dated as of November 2, 2004,
among
Athersys, Inc. and Advanced Biotherapeutics, Inc.
(each individually a “Borrower” and collectively, “Borrowers”),
and
Venture Lending & Leasing IV, Inc. (in its capacity as Agent, “Agent”,
and individually as a lender, “Lender” or “VLL”),
and
Costella Kirsch IV, L.P. (a “Lender” or “Costella”)
sometimes VLL and Costella are referred to herein collectively as “Lenders”
     This is a Supplement identified in the document entitled Loan and Security
Agreement dated as of November 2, 2004, by and among Borrowers, Agent and
Lenders (the “Loan and Security Agreement”). All capitalized terms used in this
Supplement and not otherwise defined in this Supplement have the meanings
ascribed to them in Article 10 of the Loan and Security Agreement, which is
incorporated in its entirety into this Supplement. In the event of any
inconsistency between the provisions of that document and this Supplement, this
Supplement is controlling.
     In addition to the provisions of the Loan and Security Agreement, the
parties agree as follows:
Part 1. — Additional Definitions:
     “Additional Growth Capital Loan” means any Loan requested by Borrowers and
funded by Lender under the Additional Growth Capital Loan Commitment.
     “Cash Equivalents” means, as of any date of determination, the following
assets or rights of Borrower: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government having maturities of
not more than 12 months from the date of acquisition; and (ii) domestic
certificates of deposit and time deposits having maturities of not more than 12
months from the date of acquisition, and overnight bank deposits, in each case
issued by a commercial bank organized under the laws of the United States or any
state thereof which at the time of acquisition are rated A-1 or better by
Standard & Poor’s Corporation (or equivalent), and not subject to any offset
rights in favor of such bank arising from any banking relationship with such
bank.
     “Collaborator” is defined in Section 2 of Part 2 of this Supplement.
     “Commitment”: Subject to the terms and conditions set forth in the Loan and
Security Agreement and this Supplement:
          (i) each Lender commits to make Growth Capital Loans to Borrowers up
to the aggregate original principal amount equal to the product of its
Commitment Percentage and Seven Million Five Hundred Thousand Dollars
($7,500,000) (the “Growth Capital Loan Commitment”). The Growth Capital Loan
Commitment shall be divided into two tranches, one in the amount of $4,500,000,
and one in the amount of $3,000,000, which shall be referred to herein as the
“First Tranche” and the “Second Tranche”, respectively, of the Growth Capital
Loan Commitment; and
          (ii) Subject to Section 2 of Part 2 hereof, each Lender commits to
make Additional Growth Capital Loans to Borrowers up to the aggregate original
principal amount equal to the product of its Commitment Percentage and Five
Million Dollars ($5,000,000) (the “Additional Growth Capital Loan Commitment”).
As used herein, the term “Commitment” shall mean the Growth Capital Loan
Commitment, the Additional Growth Capital Loan Commitment or any combination of
them, as the context requires. Growth Capital Loans and Additional Growth
Capital Loans are sometimes referred to herein individually as a “Loan” or
collectively as

 

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“Loans”. The Commitment shall be allocated among the Lenders based on their
Commitment Percentage, and their respective Commitments shall be several and not
joint.
     “Commitment Percentage”: The Commitment Percentage applicable to each
Lender is identified below such Lender’s signature on this Supplement.
     “Delayed Joint Venture” means an arrangement in connection with a Strategic
Collaborator and receipt of Eligible Funding, pursuant to which Parent would
form a wholly-owned Subsidiary and agree to transfer equity rights in such
Subsidiary to a Collaborator at a future date.
     “Designated Rate”: The Designated Rate for each Loan shall be a fixed rate
of interest per annum equal to the Prime Rate as published on the Business Day
on which Lender prepares the Note for such Loan following Borrower’s submission
of the Borrowing Request therefor, plus four and 7/1000 percent (4.007%);
provided, however, that in no event shall the Designated Rate for a Loan be less
than eight and 507/1000 percent (8.507%).
     “Eligible Funding” means contributions to Parent’s equity capital, non-debt
advances of cash and/or Subordinated Debt from a Collaborator pursuant to the
terms of a Strategic Collaboration.
     “Four Months’ Expenses” means, as of any date of determination, the
aggregate dollar amount of (net of normal recurring revenues) operating and
other expenses paid and accrued (excluding amortization, depreciation, non-cash
stock option expense, and deferred rent) and cash expended (without duplication)
by Borrowers (excluding any (i) amounts expended consisting of proceeds from any
sale of assets permitted under the Loan Agreement, and any related expenses
resulting therefrom, and (ii) amounts expended consisting of any insurance
proceeds used to replace or repair assets or properties) during the four
calendar months most recently ended.
     “Interim Rate”: The Interim Rate for each Loan shall be a fixed rate of
interest per month equal to the quotient of (i) twelve (12), and (ii) the sum of
8.26% and the Prime Rate as published on the Business Day on which Lender
prepares the Note for such Loan following Borrower’s submission of the Borrowing
Request therefor; provided, however, that in no event shall the Interim Rate for
a Loan be less than one and 63/1000 percent (1.063%).
     “Initial Public Offering” or “IPO” means the closing of a firmly
underwritten initial public offering of Parent’s common stock.
     “Milestone Event” means the first to occur of Parent’s (i) consummation of
an IPO, (ii) merger with or into any other company (unless pursuant to such
merger the securities of Parent outstanding immediately prior to such
transaction and that represent 100% of the voting power of the voting stock of
Parent are changed into, exchanged for, or represent at least a majority of the
voting power of the voting stock of the surviving corporation), (iii) sale of
Parent or all or substantially all of its assets, or (iv) liquidation or
dissolution of Borrowers.
     “Milestone Event Price” means (i) in the case of an IPO, the price per
share of Parent’s common stock offered to the public in the IPO, or (ii) in the
case of a Milestone Event of the type described in clause (ii) or (iii) of the
definition thereof, the value or price per share attributed to Parent’s common
stock in the merger or sale transaction.
     “Milestone Payment” is defined in Section 10 of Part 2 of this Supplement.
     “Next Financing Event” means the next bona fide sale of equity securities
(including convertible debt securities upon the conversion thereof into equity
securities) after the Closing Date resulting in net aggregate proceeds to Parent
of at least $5,000,000.00 from one or more financial (as opposed to strategic)
investors, excluding Next Financing Event Securities (if any).
     “Next Financing Event Price” means the price per share paid by the lead
investor for Parent’s equity securities (including convertible debt securities
upon the conversion thereof into equity securities) issued in the Next Financing
Event.

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     “Next Financing Event Securities” means any options, warrants or rights on
the terms issued and delivered by Parent to investors in connection with the
shares of its common stock or preferred stock, as applicable, issued in the Next
Financing Event.
     “Parent” means Athersys, Inc.
     “Prime Rate” means the “prime rate” of interest, as published from time to
time by The Wall Street Journal in the “Money Rates” section of its Western
Edition newspaper.
     “Strategic Collaboration” is defined in Section 2 of Part 2 of this
Supplement
     “Strategic Collaboration Funding Date” means the earliest date by which
Borrowers have received Eligible Funding of at least $10,000,000 in aggregate.
     “Terminal Payment”: Each Loan shall have a Terminal Payment equal to six
and one-half percent (6.50%) of the original principal amount of such Loan.
     “Termination Date” means:
          (i) for the First Tranche of the Growth Capital Loan Commitment, the
earlier of (i) the date Lender may terminate making Loans or extending other
credit pursuant to the rights of Lender under Article 7 of the Loan and Security
Agreement, or (ii) November 12, 2004;
          (ii) for the Second Tranche of the Growth Capital Loan Commitment, the
earlier of (i) the date Lender may terminate making Loans or extending other
credit pursuant to the rights of Lender under Article 7 of the Loan and Security
Agreement, or (ii) December 31, 2004; and
          (iii) for the Additional Growth Capital Loan Commitment, the earlier
of (i) the date Lender may terminate making Loans or extending other credit
pursuant to the rights of Lender under Article 7 of the Loan and Security
Agreement, or (ii) the earlier of June 30, 2005, or 120 days after the Strategic
Collaboration Funding Date.
     “Threshold Amount” means Two Hundred Fifty Thousand Dollars ($250,000.00).
     “Unrestricted Cash” means, as of any date of determination, Borrower’s cash
on hand and Cash Equivalents and liquid cash investments which are not subject
to a Lien of any Person other than Lender.
Part 2. — Additional Covenants and Conditions:
     1. Growth Capital Loan Commitment; Use of Proceeds; Limitations on Growth
Capital Loans. Subject to the terms and conditions of the Loan and Security
Agreement and this Supplement, each Lender agrees to make Growth Capital Loans
to Borrowers from time to time from the Closing Date up to and including the
Termination Date in an aggregate original principal amount up to but not
exceeding the then unfunded portion of such Lender’s Growth Capital Loan
Commitment. The proceeds of each Growth Capital Loan shall be used by Borrower
for general corporate purposes; provided that the initial Borrowing Request for
Growth Capital Loans shall be in an amount sufficient to repay Borrower’s
approximately $1,200,000 of outstanding long term debt, and any Liens against
assets of Borrower securing such debt shall have been released at or before the
funding of the initial Growth Capital Loan.
     2. Additional Growth Capital Loan Commitment; Additional Condition
Precedent; Use of Proceeds; Limitations on Additional Growth Capital Loans.
Notwithstanding anything to the contrary in the Loan and Security Agreement and
this Supplement, the Additional Growth Capital Loan Commitment shall not be
effective unless and until Parent and Lenders mutually agree as to its
effectiveness. Subject to the foregoing and the terms and conditions of the Loan
and Security Agreement and this Supplement, each Lender agrees to make
Additional Growth Capital Loans to Borrowers from time to time from the Closing
Date up to and including the

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applicable Termination Date in an aggregate original principal amount up to but
not exceeding the then unfunded portion of the Additional Growth Capital Loan
Commitment. The proceeds of each Additional Growth Capital Loan shall be used by
Borrowers for general corporate purposes. Without limiting the generality of the
foregoing, the Lenders’ Additional Growth Capital Commitments are subject to
(i) Parent having entered into a binding written agreement (a “Strategic
Collaboration”) with a recognized medical device or pharmaceutical company (a
“Collaborator”) no later than March 31, 2005, pursuant to which the Collaborator
has advanced Eligible Funding to Borrowers of at least $10,000,000 by May 31,
2005, and (ii) Parent having formally selected (as evidenced in a certificate of
its chief executive officer to Lenders) at least one small molecule clinical
candidate. The Strategic Collaboration may take the form of an exclusive license
agreement, the formation of a joint venture or the formation of a Delayed Joint
Venture, or any other form as Parent may determine in its reasonable business
judgment. The amount of the Additional Growth Capital Commitment available shall
also be dependent on the amount of Eligible Funding that has been received by
Borrowers, as shown in the following table:

      Amount of Additional Growth Capital   Amount of Eligible Funding Received
by Commitment Available   Borrower (cumulative) $2,500,000   $10,000,000
$3,750,000   $12,500,000 $5,000,000   $15,000,000

     3. Minimum Funding Amount; Maximum Number of Borrowing Requests. Except to
the extent the remaining Commitment is a lesser amount, each Loan requested by
Borrowers to be made on a single Business Day shall be for a minimum aggregate
principal amount of Five Hundred Thousand Dollars ($500,000.00). Borrower shall
not submit a Borrowing Request more frequently than once each calendar month.
     4. Repayment of Loans.
          (a) Growth Capital Loans. Principal of and interest on each Growth
Capital Loan shall be payable as set forth in the Note (substantially in the
form as Exhibit “A-1”) evidencing such Growth Capital Loan, which Note, shall
provide substantially as follows. Principal and interest at the Designated Rate
shall be fully amortized over a period of thirty (30) months in equal, monthly
installments, commencing after an initial period of interest-only, monthly
payments ending on December 1, 2005. In particular, on the Borrowing Date
applicable to the Growth Capital Loan(s) evidenced by such Note, Borrowers shall
pay to Lender (i) interest only at the Interim Rate, in advance, on the
outstanding principal balance of the Growth Capital Loans evidenced by such
Note, for the period from such Borrowing Date through the last day of the
calendar month in which such Borrowing Date occurs, and (ii) a first (1st)
interest only installment at the Interim Rate, in advance, on the outstanding
principal balance of the Note for the ensuing month. Commencing on the first day
of the second full month after the Borrowing Date, and continuing on the first
day of each consecutive calendar month after the Borrowing Date up to and
including November 1, 2005, Borrowers shall pay interest only at the Interim
Rate, in advance, on the outstanding principal balance of the Note for the
ensuing month. Commencing on December 1, 2005, and continuing on the first day
of each consecutive calendar month thereafter, principal and interest at the
Designated Rate shall be payable, in advance, in thirty (30) equal consecutive
monthly installments in an amount sufficient to fully amortize the Growth
Capital Loan evidenced by such Note. The Terminal Payment shall be due and
payable one month later.
          (b) Additional Growth Capital Loans. Principal of and interest on each
Additional Growth Capital Loan shall be payable as set forth in the Note
(substantially in the form as Exhibit “A-2”) evidencing such Additional Growth
Capital Loan, which Note, shall provide substantially as follows. Principal and
interest at the Designated Rate shall be fully amortized over a period of thirty
(30) months in equal, monthly installments, commencing after an initial
four-month period of interest-only, monthly payments. In particular, on the
Borrowing Date applicable to the Additional Growth Capital Loan(s) evidenced by
such Note, Borrowers shall pay to Lender (i) interest only at the Interim Rate,
in advance, on the outstanding principal balance of the Growth Capital Loans
evidenced by such Note, for the period from such Borrowing Date through the last
day of the calendar month in which such Borrowing Date occurs, and (ii) a first
(1st) interest only installment at the Interim Rate, in advance, on the
outstanding principal balance of the Note for the ensuing month. Commencing on
the first day of the second full month after the Borrowing Date, and continuing
on the first day of next two succeeding calendar months, Borrowers

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shall pay interest only at the Interim Rate, in advance, on the outstanding
principal balance of the Note for the ensuing month. Commencing on fifth (5th)
full calendar month after the Borrowing Date, and continuing on the first day of
each consecutive calendar month thereafter, principal and interest at the
Designated Rate shall be payable, in advance, in thirty (30) equal consecutive
monthly installments in an amount sufficient to fully amortize the Additional
Growth Capital Loan evidenced by such Note. The Terminal Payment shall be due
and payable one month later.
     5. Voluntary Prepayment of Loans. No Loan may be voluntarily prepaid except
as provided in this Section 5. Borrower may voluntarily prepay all, but not less
than all, Loans in whole, but not in part, at any time by tendering to Lender
cash payment in respect of such Loans in an amount equal to the sum of :
(i) accrued Basic Interest on such Loan to the date of such prepayment; (ii) the
outstanding principal amount of the Loan being prepaid; and (iii) a premium in
an amount equal to the product of (A) the percentage shown in the table below
for the corresponding period after the Borrowing Date applicable to such Loan in
which such prepayment occurs, and (B) the outstanding principal amount of the
Loan being prepaid (taking into account the Terminal Payment applicable
thereto):

      Month after the applicable Borrowing Date     in which Prepayment Occurs  
Applicable Premium Percentage First   15.00 Second   14.50 Third   14.00 Fourth
  13.50 Fifth   13.00 Sixth   12.50 Seventh   12.00 Eighth   11.50 Ninth   11.00
Tenth   10.50 Eleventh   10.00 Twelfth   9.50 Thirteenth   9.00 Fourteenth  
8.50 Fifteenth   8.00 Sixteenth   7.50 Seventeenth   7.00 Eighteenth   6.50
Nineteenth   6.00 Twentieth   5.50 Twenty-first   5.00 Twenty-second   4.50
Twenty-third   4.00 Twenty-fourth   3.50 Twenty-fifth and thereafter   3.00

By way of illustration only, and for the avoidance of doubt as to the manner in
which any such prepayment amounts shall be calculated, the parties have set
forth on Exhibit “G” to this Supplement an example of the application of the
foregoing prepayment provision, assuming a single Growth Capital Loan in the
full amount of the Growth Capital commitment were advanced on December 1, 2004.
     6. Subordination of Debt. During the term of the Loan and Security
Agreement and until performance of all Obligations to Lenders, Borrower shall
not incur any Indebtedness for new borrowed money (except for Indebtedness
permitted under Section 6.1 and Liens permitted under Section 6.2 of the Loan
and Security Agreement) after the date hereof unless the holder’s right to
repayment of such Indebtedness, the priority of any Lien securing the same, and
the rights of the holder thereof to enforce remedies against Borrower following
default have been made subordinate to the Liens of Agent and Lenders and the
prior payment of the Obligations to

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Lenders under the Loan Documents pursuant to a written subordination agreement
approved by the Majority Lenders in their sole discretion in writing, which
agreement may provide that regularly scheduled payments of accrued interest on
such subordinated Indebtedness may be paid by Borrower and retained by the
holder so long as no Event of Default has occurred.
     7. Lien on Intellectual Property. In reliance on Borrower’s covenant in
Section 6.2 of the Loan and Security Agreement to keep all of its Intellectual
Property assets free and clear of Liens other than as set forth in Section 6.2,
each Lender has agreed initially to exclude Intellectual Property from the
Collateral over which Borrower has granted to Lender (through the Agent) a Lien
to secure the Obligations. Borrowers agree that if at any time the ratio of its
Unrestricted Cash to Four Months’ Expenses (determined on a consolidated basis
for both Borrowers) is less than one-to-one (1:1), then the definition of
Collateral in Article 10 of the Loan and Security Agreement shall be
automatically and immediately, without any further action or writing required by
the parties, amended to delete the final proviso thereof, such that all of
Borrower’s Intellectual Property then owned and thereafter arising or acquired
becomes part of the Collateral for all purposes of the Loan and Security
Agreement, subject to any Permitted Liens. In the event the definition of
Collateral has been amended as set forth in this Section 7 and no Event of
Default has occurred and is then continuing, Parent shall be able to continue to
license, exclusively and non-exclusively, its Intellectual Property to other
Persons consistent with industry practice without the consent of Majority
Lenders. If thereafter Parent closes a round of equity financing resulting in
net aggregate proceeds to Borrower of an amount in excess of 300% of Four
Months’ Expenses, then, provided that no Default or Event of Default has
occurred and is then continuing, upon written request of the Borrower to Agent,
Agent agrees that it shall promptly release its Lien as to all Intellectual
Property assets. Borrower and Agent agree to execute and deliver, at Borrower’s
sole cost and expense, all documents and instruments necessary to perfect such
Lien when it is created, including an Intellectual Property Security Agreement,
substantially the form attached hereto as Exhibit “F”, and to effectuate such
later release of Lien, including, without limitation, by filing all UCC-3
termination statements and other similar filings in each applicable location and
taking all other reasonable action reasonably requested by Borrower to evidence
such lien releases.
     8. Issuance of Warrants to Lenders. As additional consideration for the
making of its Growth Capital Loan Commitment, each Lender has earned and is
entitled to receive immediately prior to (or, in the case of a Milestone Event
that is an IPO, concurrently with) the first to occur of a Next Financing Event
or a Milestone Event (other than as is defined in clause (iv) of the definition
thereof), (A) in the case of a Next Financing Event, a warrant instrument (a
“Next Financing Event Warrant”) issued by Parent to purchase, at the Next
Financing Event Price, the number of shares of Parent’s equity securities of the
type issued in the Next Financing Event that has an aggregate initial exercise
price equal to such Lender’s Participation Value, and (B) in the case of a
Milestone Event (other than as is defined in clause (iv) of the definition
thereof), a warrant instrument (a “Milestone Event Warrant”; Next Financing
Event Warrants and Milestone Event Warrants being referred to herein
individually and/or collectively upon issuance as “Lender Warrants”) issued by
Parent to purchase, at the Milestone Event Price, the number of shares of
Parent’s common stock that has an aggregate initial exercise price equal to such
Lender’s Participation Value. Upon a Lender’s exercise of a Next Financing Event
Warrant, whether in whole or in part, at any time prior to expiration thereof,
that Lender shall receive (in addition to the underlying equity securities for
which such Next Financing Event Warrant is so exercised) such number of Next
Financing Event Securities (in like form, substance and proportion as those
issued to investors in connection with the Next Financing Event), if any, as
Lender would have received had Lender purchased underlying equity securities in
such Next Financing Event, but, in the event of a partial exercise, only to the
extent of Lender’s exercise of the Next Financing Event Warrant. Each Lender
Warrant shall be in substantially the form attached hereto as Exhibit “D-1” or
“D-2”, as applicable, depending on whether the equity securities for which such
Lender Warrants are exercisable are Common Stock or a series of Preferred Stock
of Parent, and, upon issuance, shall be immediately vested and exercisable at
any time and from time to time for a period of seven years from date of
issuance. As used in this section 8, a Lender’s “Participation Value” means
seven percent (7.00%) of the aggregate original dollar amount of all Loans
advanced by such Lender under its Growth Capital Loan Commitment and Additional
Growth Capital Loan Commitment
     As a condition precedent to the issuance of any Lender Warrant and any Next
Financing Event Securities to any Lender, such Lender must execute an instrument
of joinder agreeing to be bound by the terms and conditions of Parent’s Amended
and Restated Stockholders’ Agreement, dated as of April 28, 2000 among Parent
and certain of its stockholders, namely, Biotech 3 Investment, LLC, Elan
International Services, Inc., and the Class C Investors

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and the Class F Investors (as defined therein) and any transferee and/or
assignees thereof (as amended, the “Stockholders’ Agreement”) or any other
stockholders’ agreement of Parent in existence immediately prior to such
issuance.
     Parent acknowledges that VLL has assigned its rights to receive its Lender
Warrant and Next Financing Event Securities, if any, to its parent, Venture
Lending & Leasing IV, LLC; in connection therewith, Parent shall issue such
Lender Warrant and Next Financing Event Securities, if any, directly to Venture
Lending & Leasing IV, LLC. VLL shall furnish to Parent a copy of the agreement
in which VLL assigned such Lender Warrant and Next Financing Event Securities,
if any, to Venture Lending & Leasing IV, LLC.
     9. Accommodation of Investors’ ROFR. Lenders acknowledge that the Lender
Warrants and Next Financing Event Securities, if any, to be issued to Lenders
under Section 8 hereof may constitute “New Securities” of Parent, as that term
is defined in the Stockholders’ Agreement, and that such stockholders may have a
right of first refusal under Section 8 of the Stockholders’ Agreement to
purchase warrant instruments similar to Lender Warrants, and options, warrants
and other rights similar to the Next Financing Event Securities to enable such
stockholders to maintain their respective percentage ownership of equity in
Parent on a fully diluted basis. Lenders acknowledge that Parent intends to give
a New Issue Notice (as defined in the Stockholder Agreement) to such
stockholders, describing the terms and conditions on which Lenders have agreed
to make Loans hereunder as consideration for the issuance of the Lender Warrants
and Next Financing Event Securities, if any; and Lenders agree to use
commercially reasonable efforts to allow any such stockholder who timely elects
to make loans to Borrowers on the same terms and conditions as Lenders to become
an additional “Lender” party to this Loan and Security Agreement and Supplement,
and to allocate to such stockholder a portion of the Commitment. Parent shall
give the New Issue Notice, if at all, promptly upon execution of this Supplement
in order to start the running of the 30-day exercise period under Section 8(a)
of the Stockholders Agreement. To the extent a Lender has already funded Loans
hereunder, and a stockholder timely elects to become a Lender party, VLL and
Costella will endeavor to amend the Loan Documents as appropriate to add such
stockholder as a Lender, to re-allocate a Commitment Percentage to such
stockholder, and such stockholders shall purchase from VLL and Costella a
ratable portion of such outstanding Loans, and the Notes evidencing the same
shall cancelled by replacement with new Notes payable to each of the Lenders.
Such cooperation by VLL and Costella shall not require that they agree to any
terms less favorable to them than set forth in the Loan Documents as of the
Closing Date, or that they incur any costs or expenses unless Borrowers shall
have agreed to reimburse the same promptly. Furthermore, any stockholder
becoming a Lender party shall have agreed to all of the provisions of the Loan
Documents, including Article 9 of the Loan and Security Agreement.
     10. Milestone Payments. Upon the occurrence and simultaneous with the
closing of the Milestone Event, Borrowers shall be obligated to pay and shall
tender to each Lender it Pro Rata Share of payments (each, a “Milestone
Payment”) determined with reference to when the Milestone Event occurs and to
the portion of the Commitment that has been drawn or utilized by Borrowers, as
shown in the following two tables, the first of which relates to the Growth
Capital Loan Commitment, and the second of which relates to the Additional
Growth Capital Loan Commitment. Each Milestone Payment shall be tendered to
Lenders in cash, except that if the Milestone Event is an IPO, then Parent may
(subject to the 25% limitation in the proviso below) elect, by written notice to
Lenders at least 10 days prior to the closing of the IPO, to tender to each
Lender in lieu of cash that number of shares of common stock having an aggregate
value based on the per share offering price of Parent’s common stock to the
public equal to the amount of the applicable Milestone Payment (in which event
such shares shall be tendered no later than five days after the effective date
of the IPO, and such shares shall be subject to no transfer restrictions(other
than those imposed by federal and state securities laws, except for any
customary lock-up agreement that has also been executed by executive officers of
Borrower and holders of 1% or more of Parent’s common stock, not to exceed
180 days after the effective date of the IPO (unless such period is extended to
enable the underwriters to comply with NASD Rule 2711(f)); provided, however,
that notwithstanding such election by Parent, at least twenty-five percent (25%)
of each Milestone Payment shall be paid by Borrowers in the form of cash. Table
1 assumes that Borrowers have drawn upon the entire $7,500,000 of the Growth
Capital Loan Commitment; the Milestone Payment amounts set forth in Table 1
shall be reduced pro rata if less than $7,500,000 has been drawn as of the
closing of the Milestone Event.

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Table 1

      Months From Closing     Date Until Milestone Event   Milestone Payment
Amount 0 - 24   $1,500,000 25 or more   $2,250,000

Table 2 assumes that Lenders have made available and that Borrowers have drawn
upon the entire $5,000,000 of the Additional Growth Capital Loan Commitment; the
Milestone Payment amounts set forth in Table 2 shall be reduced pro rata if less
than $5,000,000 has been drawn as of the closing of the Milestone Event.
Table 2

      Months From Closing Date     Until Milestone Event   Milestone Payment
Amount 0 - 24   $800,000 25 or more   $1,000,000

     11. Payment and Disposition of Commitment Fee. As of the execution of this
Agreement, Parent has paid to Agent $22,500 of a total commitment fee of $45,000
for the Growth Capital Loan Commitments of the Lenders. Borrowers agree to pay
the remaining $22,500 portion of the Commitment Fee upon execution of this
Supplement, as a condition precedent to Lenders’ obligations to make the initial
Growth Capital Loan hereunder, and in any event if Lenders are willing and
prepared to close the transactions contemplated hereunder and Borrowers decline
to do so. Each Lender agrees that with respect to each Growth Capital Loan
advanced, on the Borrowing Date applicable to such Grown Capital Loan, such
Lender shall credit against the first payments due from Borrowers on such date
in respect of such Growth Capital Loan an amount equal to the product of (i) of
such Lender’s Commitment Percentage times $45,000, and (ii) a fraction the
numerator of which is the principal amount of such Growth Capital Loan and the
denominator of which is $4,500,000, until the aggregate amount of such credits
equals but does not exceed the amount in clause (i).
     12. Documentation Fee Payment. As an additional condition precedent under
Section 4.1 of the Loan and Security Agreement and pursuant to Section 9.8(a)
thereof, on or prior to the initial Borrowing Date, Borrowers shall pay to Agent
its and each Lender’s reasonable and actual attorneys’ fees, costs and expenses
incurred and expended in connection with the preparation and negotiation of the
Loan Documents, including out-of-pocket costs of perfecting Agent’s Liens
against Collateral, not to exceed $15,000.00 in aggregate.
     13. Debits to Account for ACH Transfers. For purposes of Section 2.2 and
5.10 of the Loan and Security Agreement, Parent’s Primary Operating Account is:
Bank Name: National City Bank
Bank Address: 23711 Chagrin Boulevard
Locator 01-8485
Beachwood, OH 44122
ABA No.: 041000124
Account No.: 394901353
Attn: Joseph McMullen (216) 222-9621
For credit of: Athersys, Inc.
Loans will be advanced to the account specified above and payments will be
automatically debited from the same account.

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Part 3. — Additional Representations:
Borrower represents and warrants that as of the Closing Date and each Borrowing
Date:

  a)   Its chief executive office (“Chief Executive Office”) is located at: 3201
Carnegie Avenue, Cleveland, OH 44115-2634     b)   Its Equipment is located at:
the Chief Executive Office and the Minnesota facility (as defined below).     c)
  Its Inventory is located at: the Chief Executive Office and the Minnesota
facility.     d)   Its Records are located at: the Chief Executive Office and
the Minnesota facility.     e)   In addition to its chief executive office,
Borrower maintains offices or operates its business at the following locations:
University of Minnesota, Stem Cell Institute, 515 Delaware Street, Floor 2,
Room 164, Minnesota, MN 55455 and University of Minnesota, MMCT Facility, 1900
Fitch Avenue, St. Paul, MN 55108 (collectively, the “Minnesota Facility”).    
f)   Other than its full corporate name, Borrower has conducted business using
the following legal names, trade names or fictitious business names: Advanced
Biotherapeutics, Inc.     g)   Parent’s Delaware state corporation I.D. number
is 2554801; Advanced Biotherapeutics, Inc. Delaware state corporation I.D.
number is 3466560.     h)   Parent’s federal tax identification number is:
34-1830213; Advanced Biotherapeutics, Inc. federal tax identification number is
34-1915237.     i)   In addition to the Primary Operating Account identified in
Section 13 of Part 2 hereof, Borrowers maintain the following other deposit
accounts and investment/securities accounts:

  1.   Institution: National City Bank
Address: Contact Joseph McMullen,
joseph.mcmullen@nationalcity.com, Fax: 216-292-7123; Phone: 216-222-9621
Account Type: Athersys Checking
Account No.: 2045333     2.   Institution: National City Bank
Address: 23711 Chagrin Boulevard
Locator 01-8485
Beachwood, OH 44122
Account Type: Advanced Biotherapeutics, Inc. checking
Account No.: 657150003     3.   Institution: National City Bank
Address: 23711 Chagrin Boulevard
Locator 01-8485
Beachwood, OH 44122
Account Type: Advanced Biotherapeutics, Inc. CD
Account No.: 8561114097     4.   Institution: NatCity Investments
Address: 1965 East Sixth Street

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LOC #3015
Cleveland, OH 44114
Account Type: Y016-1221-1913
Account No.: Athersys Money Market and T-bills
Part 4. — Additional Loan Documents:

     
Form of Note (Growth Capital Loans)
  Exhibit “A-1”
Form of Note (Additional Growth Capital Loans)
  Exhibit “A-2”
Form of Borrowing Request
  Exhibit “B”
Form of Compliance Certificate
  Exhibit “C”
Form of Warrant
  Exhibit “D”
Form of Legal Opinion
  Exhibit “E”
Form of Intellectual Property Security Agreement
  Exhibit “F”
Example of Prepayment Calculation Under Section 5 of Part 2 of Supplement
  Exhibit “G”

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          IN WITNESS WHEREOF, the parties have executed this Supplement as of
the date first above written.

                      BORROWER:    
 
                    ATHERSYS, INC.    
 
               
 
  By:                          
 
  Name:                          
 
  Title:                          
 
                Address for Notices:   3201 Carnegie Avenue
Cleveland, OH 44115-2634
Attn: Chief Financial Officer
Fax # 215-432-2461
Phone # 216-431-9900    
 
                    AGENT AND LENDER:    
 
                    VENTURE LENDING & LEASING IV, INC.    
 
               
 
  By:                          
 
  Name:                          
 
  Title:                          
 
                    Commitment Percentage: 75.00%    
 
                Address for Notices:   2010 North First Street, Suite 310
San Jose, California 95131
Attn: Chief Financial Officer
Fax # 408-436-8625
Phone # 408-436-8577
   
 
                    LENDER:    
 
                    COSTELLA KIRSCH IV, L.P.    
 
                    By                                         , its General
Partner    
 
               
 
      By:        
 
               
 
      Name:        
 
               
 
      Title:        
 
               
 
                    Commitment Percentage: 25.00%    
 
                Address for Notices:   873 Santa Cruz Avenue, Suite 207
Menlo Park, CA 94025
Attn: William Kirsch
Fax # (650) 462-1891
Phone # (650) 462-5790    

11

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Signature Page to Supplement to Loan and Security Agreement

                  BORROWER:    
 
                ADVANCED BIOTHERAPEUTICS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   
 
            Address for Notices:   3201 Carnegie Avenue
Cleveland, OH 44115-2634
Attn: Chief Financial Officer
Fax # 215-432-2461
Phone # 216-431-9900    

12

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EXHIBIT “A-1”
FORM OF PROMISSORY NOTE
[for Growth Capital Loans]
[Note No. X-XXX]

     
$                                        
                                          , 200_
San Jose, California

     Each of the undersigned (“Borrowers”) jointly and severally promises to pay
to the order of [VENTURE LENDING & LEASING IV, INC., a Maryland corporation
(“Lender”) at its office at 2010 North First Street, Suite 310, San Jose,
California 95131] [COSTELLA KIRSCH IV, L.P., a                      limited
partnership, at its office at 873 Santa Cruz Avenue, Suite 207, Menlo Park, CA
94025] , or at such other place as Lender may designate in writing, in lawful
money of the United States of America, the principal sum of
                                         Dollars ($                    ), with
Basic Interest thereon from the date hereof until maturity, whether scheduled or
accelerated, at a fixed rate per annum equal to [the Prime Rate as published on
the Business Day on which Agent prepares this Note plus 4.007%, but in no event
less than 8.507%] (the “Designated Rate”), except as otherwise provided herein,
according to the payment schedule described herein, and a Terminal Payment in
the sum of [6.5% of face amount of Loan] Dollars ($                    ) payable
on the Maturity Date.
This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan and Security Agreement dated as of November 2, 2004, by and
among Borrowers, Costella Kirsch IV, L.P. and Venture Lending & Leasing IV, Inc.
as “Agent” for itself and the other Lenders party thereto (the “Loan
Agreement”). Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Loan Agreement. The Loan Agreement contains provisions
for the acceleration of the maturity of this Note upon the happening of certain
stated events.
     Principal of and interest on this Note shall be payable as follows:
     On the Borrowing Date, Borrowers shall pay (i) interest on the outstanding
principal balance of this Note at the Interim Rate in the amount of
$                    , in advance for the period from the Borrowing Date through
[the last day of the same month]___; and (ii) a first (1st) installment of
interest only on the outstanding principal balance of this Note at the Interim
Rate in the amount of $                    , in advance for the month of [date
of first regular interest only installment].
     Commencing on the first day of the second full month after the Borrowing
Date and continuing on the first day of each consecutive calendar month after
the Borrowing Date up to and including November 1, 2005, Borrowers shall pay
interest only at the Interim Rate, in advance, on the outstanding principal
balance of this Note.
     Commencing on December 1, 2005, and continuing on the first day of each
consecutive month thereafter, principal and Basic Interest at the Designated
Rate shall be payable, in advance, in thirty (30) equal consecutive installments
of                                          Dollars ($                    )
each. The Terminal Payment and unpaid expenses, fees, interest and principal
amount shall be due and payable on [one month later] , 200___.]
     This Note may be voluntarily prepaid only as permitted under to Section 5
of Part 2 of the Supplement to the Loan Agreement.

 

--------------------------------------------------------------------------------

 

     Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate until such amounts are paid in full,
or in the case of acceleration, until the Event of Default that gave rise to the
acceleration is cured or waived. Borrowers shall pay such interest on demand.
     Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrowers be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
     If Borrowers are late in making any payment under this Note by more than
five (5) Business Days, Borrowers agree to pay a “late charge” of five percent
(5%) of the installment due, but not less than fifty dollars ($50.00) for any
such delinquent payment. This late charge may be charged by Lender for the
purpose of defraying the expenses incidental to the handling of such delinquent
amounts. Each Borrower acknowledges that such late charge represents a
reasonable sum considering all of the circumstances existing on the date of this
Note and represents a fair and reasonable estimate of the costs that will be
sustained by Lender due to the failure of Borrower to make timely payments. Each
Borrower further agrees that proof of actual damages would be costly and
inconvenient. Such late charge shall be paid without prejudice to the right of
Lender to collect any other amounts provided to be paid or to declare a default
under this Note or any of the other Loan Documents or from exercising any other
rights and remedies of Lender.
     This Note shall be governed by, and construed in accordance with, the
internal laws of the State of California.

                  ATHERSYS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Its:  
 
   
 
     
 
   
 
                ADVANCED BIOTHERAPEUTICS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Its:  
 
   
 
     
 
   

 

--------------------------------------------------------------------------------

 

EXHIBIT “A-2”
FORM OF PROMISSORY NOTE
[for Additional Growth Capital Loans]
[Note No. X-XXX]

     
$                                        
                                          , 200_
San Jose, California

     Each of the undersigned (“Borrowers”) jointly and severally promises to pay
to the order of [VENTURE LENDING & LEASING IV, INC., a Maryland corporation
(“Lender”) at its office at 2010 North First Street, Suite 310, San Jose,
California 95131] [COSTELLA KIRSCH IV, L.P., a                      limited
partnership, at its office at 873 Santa Cruz Avenue, Suite 207, Menlo Park, CA
94025] , or at such other place as Lender may designate in writing, in lawful
money of the United States of America, the principal sum of
                                         Dollars ($                    ), with
Basic Interest thereon from the date hereof until maturity, whether scheduled or
accelerated, at a fixed rate per annum equal to [the Prime Rate as published on
the Business Day on which Agent prepares this Note plus 4.007%, but in no event
less than 8.507%] (the “Designated Rate”), except as otherwise provided herein,
according to the payment schedule described herein, and a Terminal Payment in
the sum of [6.5% of face amount of Loan] Dollars ($                    ) payable
on the Maturity Date.
     This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan and Security Agreement dated as of November 2, 2004, by and
among Borrowers, Costella Kirsch IV, L.P. and Venture Lending & Leasing IV, Inc.
as “Agent” for itself and the other Lenders party thereto (the “Loan
Agreement”). Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Loan Agreement. The Loan Agreement contains provisions
for the acceleration of the maturity of this Note upon the happening of certain
stated events.
     Principal of and interest on this Note shall be payable as follows:
     On the Borrowing Date, Borrowers shall pay (i) interest on the outstanding
principal balance of this Note at the Interim Rate in the amount of
$                    , in advance for the period from the Borrowing Date through
[the last day of the same month]___; and (ii) a first (1st) installment of
interest only on the outstanding principal balance of this Note at the Interim
Rate in the amount of $                    , in advance for the month of [date
of first regular interest only installment].
     Commencing on the first day of the second (2nd) full month after the
Borrowing Date and continuing on the first day of each of the next two
consecutive calendar months thereafter, Borrowers shall pay interest only at the
Interim Rate, in advance, on the outstanding principal balance of this Note.
     Commencing on the first day of the fifth (5th) full month after the
Borrowing Date, and continuing on the first day of each consecutive month
thereafter, principal and Basic Interest at the Designated Rate shall be
payable, in advance, in thirty (30) equal consecutive installments of
                                         Dollars ($                    ) each.
The Terminal Payment and unpaid expenses, fees, interest and principal amount
shall be due and payable on [one month later] , 200___.]
     This Note may be voluntarily prepaid only as permitted under to Section 5
of Part 2 of the Supplement to the Loan Agreement.

 

--------------------------------------------------------------------------------

 

     Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate until such amounts are paid in full,
or in the case of acceleration, until the Event of Default that gave rise to the
acceleration is cured or waived. Borrowers shall pay such interest on demand.
     Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrowers be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
     If Borrowers are late in making any payment under this Note by more than
five (5) Business Days, Borrowers agree to pay a “late charge” of five percent
(5%) of the installment due, but not less than fifty dollars ($50.00) for any
such delinquent payment. This late charge may be charged by Lender for the
purpose of defraying the expenses incidental to the handling of such delinquent
amounts. Each Borrower acknowledges that such late charge represents a
reasonable sum considering all of the circumstances existing on the date of this
Note and represents a fair and reasonable estimate of the costs that will be
sustained by Lender due to the failure of Borrower to make timely payments. Each
Borrower further agrees that proof of actual damages would be costly and
inconvenient. Such late charge shall be paid without prejudice to the right of
Lender to collect any other amounts provided to be paid or to declare a default
under this Note or any of the other Loan Documents or from exercising any other
rights and remedies of Lender.
     This Note shall be governed by, and construed in accordance with, the
internal laws of the State of California.

                  ATHERSYS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Its:  
 
   
 
     
 
   
 
                ADVANCED BIOTHERAPEUTICS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Its:  
 
   
 
     
 
   

 

--------------------------------------------------------------------------------

 

EXHIBIT “B”
FORM OF BORROWING REQUEST
[Date]
Venture Lending & Leasing IV, Inc., as Agent
2010 North First Street, Suite 310
San Jose, CA 95131
          Re:       Athersys, Inc.
Gentlemen:
          Reference is made to the Loan and Security Agreement dated as of
November 2, 2004 (as amended from time to time, the “Loan Agreement”, the
capitalized terms used herein as defined therein), among Venture Lending &
Leasing IV, Inc., as “Agent” and “Lender”, Costella Kirsch IV, L.P., as
“Lender”, and Athersys, Inc. (the “Company”) and its subsidiary Advanced
Biotherapeutics, Inc., or “Borrowers”.
          The undersigned is the                                          of the
Company, and hereby requests on behalf of the Company a Loan under the Loan
Agreement, and in that connection certifies in such capacity as follows:
          1. The type(s) of the proposed Loan is/are [a Growth Capital Loan] [an
Additional Growth Capital Loan]. The amount of the proposed Loan is
                                         and ___/100 Dollars
($                    ). The Borrowing Date of the proposed Loan is
                    , 200___.
          2. [If the initial Additional Growth Capital Loan is being requested]
On or before the date hereof, the Company (i) has entered into a binding written
agreement with a recognized medical device or pharmaceutical company (a
“Collaborator”), pursuant to which the Collaborator has advanced Eligible
Funding to Borrower of at least $10,000,000, and (ii) the Company has formally
selected at least one small molecule candidate for clinical development. [For
each Additional Growth Capital Loan requested] As of the date hereof, the
Company has received not less than $                     of Eligible Funding, as
required under Section 2 of Part 2 of the Supplement to the Loan Agreement.
          3. As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loan, the
representations and warranties of the Company contained in Article 3 of the Loan
Agreement and Part 3 of the Supplement, as applicable, are true and correct in
all material respects, and the conditions precedent described in Article 4 of
the Loan Agreement have been met.
          4. No Material Adverse Change has occurred since the date of the
Company’s last audited annual financial statements.
          5. The Company’s most recent [financial projections or business plan]
dated                     , and prepared by or at the direction of its
management on                     , are enclosed herewith in the event such
[financial projections or business plan] have not been previously provided to
Agent.

 

--------------------------------------------------------------------------------

 

          The Company shall notify you promptly before the funding of the Loan
if any of the matters to which I have certified above shall not be true and
correct on the Borrowing Date.

                  Very truly yours,    
 
                ATHERSYS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:*  
 
   
 
     
 
   

 

*   Must be executed by Company’s Chief Financial Officer or other executive
officer.

 

--------------------------------------------------------------------------------

 

EXHIBIT “C”
FORM OF
COMPLIANCE CERTIFICATE
Venture Lending & Leasing IV, Inc., as Agent
2010 North First Street, Suite 310
San Jose, CA 95131
Re: Athersys, Inc.
Gentlemen:
     Reference is made to the Loan and Security Agreement dated as of
November 2, 2004 (as the same have been and may be amended from time to time,
the “Loan Agreement”, the capitalized terms used herein as defined therein),
between Venture Lending & Leasing IV, Inc., as “Agent” and “Lender,” and
Costella Kirsch IV, L.P., as “Lender”, and Athersys, Inc. (the “Company”) and
its subsidiary, Advanced Biotherapeutics, Inc., or “Borrowers”.
     The undersigned authorized representative of each Borrower hereby certifies
that in accordance with the terms and conditions of the Loan Agreement, each
Borrower is in compliance for the financial reporting period ending
                     with all financial reporting and financial tests required
under the Loan Agreement, except as noted below. Attached herewith are the
required documents supporting the foregoing certification. The undersigned
further certifies that the accompanying financial statements have been prepared
in accordance with Generally Accepted Accounting Principles, and are consistent
from one period to the next, except as explained below and subject to
modifications providing for the absence of footnote disclosures and normal
year-end adjustments.
Indicate compliance status by circling Yes/No under “Complies”

          REPORTING REQUIREMENT   REQUIRED   COMPLIES
Interim Financial Statements
  Monthly within 30 days   YES / NO
Audited Financial Statements
  FYE within 120 days   YES / NO
 
       
Date of most recent budget/plan
       
Submitted with Borrowing Request
      YES / NO
Any change in budget/plan since prior Borrowing Request
      YES / NO

ACCOUNT CONTROL AGREEMENTS
     Pursuant to Section 6.11 of the Loan Agreement, each Borrower represents
and warrants that: (i) as of the date hereof, it maintains only those deposit
and investment accounts set forth below; and (ii) a control agreement has been
executed and delivered to Lender with respect to each such account [Note: If
either Borrower has established any new account(s) since the date of the last
compliance certificate, please so indicate].
Deposit Accounts

                                  Control Agt.       New     Name of Institution
  Account Number   In place?   Complies   Account
1.)
          YES / NO   YES / NO   YES / NO                      
2.)
          YES / NO   YES / NO   YES / NO                      
3.)
          YES / NO   YES / NO   YES / NO                      

4.)
          YES / NO   YES / NO   YES / NO                      

 

--------------------------------------------------------------------------------

 

Investment Accounts

                                  Control Agt.       New     Name of Institution
  Account Number   In place?   Complies   Account
1.)
          YES / NO   YES / NO   YES / NO                      
2.)
          YES / NO   YES / NO   YES / NO                      
3.)
          YES / NO   YES / NO   YES / NO                      
4.)
          YES / NO   YES / NO   YES / NO                      

EXPLANATIONS

       
 
     
 
     
 
     

                  Very truly yours,           ATHERSYS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:*  
 
   
 
     
 
   
 
                ADVANCED BIOTHERAPEUTICS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:*  
 
   
 
     
 
   

 

*   Must be executed by Company’s Chief Financial Officer or other executive
officer.   *   Must be executed by Company’s Chief Financial Officer or other
executive officer.

 

--------------------------------------------------------------------------------

 

EXHIBIT “D”
FORM OF WARRANT

 

--------------------------------------------------------------------------------

 

EXHIBIT “E”
FORM OF LEGAL OPINION

 

--------------------------------------------------------------------------------

 

EXHIBIT “F”
FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

--------------------------------------------------------------------------------

 

EXHIBIT “G”
EXAMPLE OF PREPAYMENT CALCULATION
UNDER SECTION 5 of PART 2 of SUPPLEMENT