Exhibit 10.3

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of January 24, 2011
(the “Effective Date”) among OXFORD FINANCE CORPORATION, a Delaware corporation
with an office located at 133 North Fairfax Street, Alexandria, Virginia 22314
(“Oxford”), as collateral agent (in such capacity, the “Collateral Agent”),
Lenders listed on Schedule 1.1 hereof or otherwise a party hereto from time to
time including Oxford in its capacity as a Lender (each a “Lender” and
collectively, the “Lenders”), and LIGAND PHARMACEUTICALS INCORPORATED, a
Delaware corporation with offices located at 11085 N. Torrey Pines Road, Suite
300, La Jolla, CA 92037 and the additional Persons signing this Agreement as
Borrowers (individually, a “Borrower, and collectively, the “Borrowers”)
provides the terms on which Lenders shall lend to Borrowers and Borrowers shall
repay Lenders. The parties agree as follows:

 

  1.

ACCOUNTING AND OTHER TERMS

1.1 Accounting terms not defined in this Agreement shall be construed in
accordance with GAAP. Calculations and determinations must be made in accordance
with GAAP. Capitalized terms not otherwise defined in this Agreement shall have
the meanings set forth in Section 14. All other terms contained in this
Agreement, unless otherwise indicated, shall have the meaning provided by the
Code to the extent such terms are defined therein. All references to “Dollars”
or “$” are United States Dollars, unless otherwise noted.

 

  2.

LOANS AND TERMS OF PAYMENT

2.1 Promise to Pay. Borrowers jointly and severally unconditionally promise to
pay each Lender, the outstanding principal amount of the Term Loan advanced to
Borrowers by such Lender and accrued and unpaid interest thereon and any other
amounts due hereunder as and when due in accordance with this Agreement.

2.2 Term Loan.

(a) Availability. Subject to the terms and conditions of this Agreement, Lenders
agree, severally and not jointly, to make a term loan to Borrowers in an
aggregate amount up to Twenty Million Dollars ($20,000,000) (the “Term Loan”)
according to each Lender’s Term Loan Commitment as set forth on Schedule 1.1
hereto, on or before January 31, 2011, simultaneously with the closing of the
CyDex Acquisition, and shall be used solely to fund a portion of the costs of
the CyDex Acquisition. After repayment, the Term Loan may not be re-borrowed.

(b) Repayment. Borrowers shall make monthly payments of interest only commencing
on the first (1st) Payment Date following the Funding Date of the Term Loan, and
continuing on the Payment Date of each successive month thereafter through and
including the Payment Date immediately preceding the Amortization Date. The
Amortization Date initially is March 1, 2012, provided that, at the written
election of a Borrower made on or before January 24, 2012, as long as an Event
of Default is not then continuing, the Amortization Date shall be March 1, 2013.
Commencing on the Amortization Date, and continuing on the Payment Date of each
month thereafter, Borrowers shall make consecutive equal monthly payments of
principal and interest, in arrears, to each Lender, as calculated by Collateral
Agent (which calculations shall be deemed correct absent manifest error) based
upon: (1) the amount of such Lender’s Term Loan, (2) the effective rate of
interest, as determined in Section 2.3(a), and (3) a repayment schedule equal to
thirty (30) months from the Amortization Date (if the Amortization Date is
March 1, 2012) or equal to eighteen (18) months from the Amortization Date (if
the Amortization Date is March 1, 2013). All unpaid principal and accrued and
unpaid interest with respect to the Term Loan is due and payable in full on the
Maturity Date. The Term Loan may only be prepaid in accordance with Sections
2.2(c) and 2.2(d).

(c) Mandatory Prepayments. If the Term Loan is accelerated following the
occurrence of an Event of Default, Borrowers shall immediately pay to Lenders,
payable to each Lender in accordance with its respective Pro Rata Share, an
amount equal to the sum of: (i) all outstanding principal of the Term Loan plus
accrued interest thereon through the prepayment date, (ii) the Final Payment,
(iii) the Prepayment

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Fee, plus (iv) all other sums, that shall have become due and payable, including
Lenders’ Expenses and interest at the Default Rate with respect to any past due
amounts. Notwithstanding (but without duplication with) the foregoing, on the
Maturity Date, if the Final Payment had not previously been paid in full in
connection with the prepayment of the Term Loan in full, Borrowers shall pay to
Collateral Agent, for payment to each Lender in accordance with its respective
Pro Rata Share, the Final Payment in respect of the Term Loan. If the CyDex
Acquisition does not close on or prior to February 15, 2011, Collateral Agent
may, in its sole discretion, demand the immediate repayment of all outstanding
principal, accrued interest, and any other amounts then outstanding under this
Agreement and the Notes, and Borrower shall make such payment to Lenders within
15 days of such demand, provided in such case that Borrower shall not be
required to pay the Prepayment Fee or the Final Payment.

(d) Permitted Prepayment of Term Loan. Borrowers shall have the option to prepay
all, but not less than all, of the Term Loan advanced by Lenders under this
Agreement, provided Borrowers (i) provide written notice to Collateral Agent of
its election to prepay the Term Loan at least fourteen (14) days prior to such
prepayment, and (ii) pay to Lenders on the date of such prepayment, payable to
each Lender in accordance with its respective Pro Rata Share, an amount equal to
the sum of (A) all outstanding principal of the Term Loan plus accrued interest
thereon through the prepayment date, (B) the Final Payment, (C) the Prepayment
Fee, plus (D) all other sums, that shall have become due and payable, including
Lenders’ Expenses, if any, and interest at the Default Rate with respect to any
past due amounts.

2.3 Payment of Interest on the Credit Extensions.

(a) Interest Rate. Subject to Section 2.3(b), the principal amount outstanding
under the Term Loan shall accrue interest at a fixed per annum rate (which rate
shall be fixed for the duration of the Term Loan) equal to the Basic Rate,
determined by Collateral Agent on the Funding Date of the Term Loan, which
interest shall be payable monthly in accordance with Sections 2.2(b) and 2.3(e).
Interest shall accrue on the Term Loan commencing on, and including, the day on
which the Term Loan is made, and shall accrue, or any portion thereof, for the
day on which the Term Loan or such portion is paid.

(b) Default Rate. Immediately upon the occurrence and during the continuance of
an Event of Default, Obligations shall bear interest at a rate per annum which
is five percentage points (5.00%) above the rate that is otherwise applicable
thereto (the “Default Rate”). Payment or acceptance of the increased interest
rate provided in this Section 2.3(b) is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Collateral Agent.

(c) 360-Day Year. Interest shall be computed on the basis of a 360-day year
consisting of twelve (12) months of thirty (30) days.

(d) Debit of Accounts. Collateral Agent and each Lender may debit any of a
Borrower’s deposit accounts, including the Designated Deposit Account, for
principal and interest payments or any other amounts a Borrower owes Lenders
under the Loan Documents when due. These debits shall not constitute a set-off.

(e) Payments. Except as otherwise expressly provided herein, all loan payments
by a Borrower hereunder shall be made to the respective Lender to which such
payments are owed, at such Lender’s office in immediately available funds on the
date specified herein. Unless otherwise provided, interest is payable monthly on
the Payment Date of each month. Payments of principal and/or interest received
after 3:00 p.m. Eastern time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest,
as applicable, shall continue to accrue until paid. All payments to be made by a
Borrower hereunder or under any other Loan Document, including payments of
principal and interest made hereunder and pursuant to any other Loan Document,
and all fees, expenses, indemnities and reimbursements, shall be made without
set-off, recoupment or counterclaim, in lawful money of the United States and in
immediately available funds.

2.4 Secured Promissory Notes. The Term Loan shall be evidenced by a Secured
Promissory Note in the form attached as Exhibit D hereto (the “Secured
Promissory Note”), and shall be repayable as set forth herein. Each Borrower
irrevocably authorizes each Lender to make or cause to be made, on or about the

 

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Funding Date of the Term Loan or at the time of receipt of any payment of
principal on such Lender’s Secured Promissory Note, an appropriate notation on
such Lender’s Secured Promissory Note Record reflecting the making of the Term
Loan or (as the case may be) the receipt of such payment. The outstanding amount
of the Term Loan set forth on such Lender’s Secured Promissory Note Record shall
be prima facie evidence of the principal amount thereof owing and unpaid to such
Lender, but the failure to record, or any error in so recording, any such amount
on such Lender’s Secured Promissory Note Record shall not limit or otherwise
affect the obligations of a Borrower hereunder or under any Secured Promissory
Note to make payments of principal of or interest on any Secured Promissory Note
when due. Upon receipt of an affidavit/indemnification agreement of an officer
of a Lender as to the loss, theft, destruction, or mutilation of its Secured
Promissory Note, Borrowers shall issue, in lieu thereof, a replacement Secured
Promissory Note in the same principal amount thereof and of like tenor.

2.5 Fees. Borrowers shall pay to Collateral Agent:

(a) Facility Fee. A fully earned, non-refundable facility fee of $100,000, which
fee has already been fully paid before the date of this Agreement;

(b) Final Payment. The Final Payment, when due hereunder, to be shared among
Lenders in accordance with their respective Pro Rata Shares;

(c) Prepayment Fee. The Prepayment Fee, when due hereunder, to be shared among
Lenders in accordance with their respective Pro Rata Shares;

(d) Lenders’ Expenses. All Lenders’ Expenses (including reasonable attorneys’
fees and expenses for documentation and negotiation of this Agreement) incurred
through and after the Effective Date, when due.

2.6 Withholding. Payments received by Lenders from a Borrower hereunder will be
made free and clear of any withholding taxes. If at any time any Governmental
Authority, applicable law, regulation or international agreement requires a
Borrower to make any such withholding or deduction from any such payment or
other sum payable hereunder to Lenders, such the amount due from Borrower with
respect to such payment or other sum payable hereunder will be increased to the
extent necessary to ensure that, after the making of such required withholding
or deduction, each Lender receives a net sum equal to the sum which it would
have received had no withholding or deduction been required and such Borrower
shall pay the full amount withheld or deducted to the relevant Governmental
Authority. Each Borrower will, upon request, furnish Lenders with proof
reasonably satisfactory to Lenders indicating that such Borrower has made such
withholding payment provided, however, that Borrower need not make any
withholding payment if the amount or validity of such withholding payment is
contested in good faith by appropriate and timely proceedings and as to which
payment in full is bonded or reserved against by such Borrower. The agreements
and obligations of each Borrower contained in this Section 2.6 shall survive the
termination of this Agreement.

 

  3.

CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension. Each Lender’s obligation
to make the Term Loan is subject to the condition precedent that Collateral
Agent shall consent to or shall have received, in form and substance
satisfactory to Collateral Agent, such documents, and completion of such other
matters, as Collateral Agent may reasonably deem necessary or appropriate,
including, without limitation:

(a) duly executed original signatures to the Loan Documents to which a Borrower
is a party;

(b) duly executed original signatures to Control Agreements with any Persons
with whom a Borrower maintains a depository or securities account;

(c) duly executed original Secured Promissory Notes in favor of each Lender
according to its Term Loan Commitment Percentage;

 

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(d) the Operating Documents of each Borrower and good standing certificates of
each Borrower certified by the Secretary of State of the State of its
incorporation and each state in which Borrower is qualified to conduct business,
each as of a date no earlier than thirty (30) days prior to the Effective Date;

(e) the Perfection Certificate;

(f) duly executed original signatures to an officer’s certificate for each
Borrower;

(g) Collateral Agent shall have received certified copies, dated as of a recent
date, of financing statement searches, as Collateral Agent shall request,
accompanied by written evidence (including any UCC termination statements) that
the Liens indicated in any such financing statements either constitute Permitted
Liens or have been or, in connection with the initial Credit Extension, will be
terminated or released;

(h) a landlord’s consent executed in favor of Collateral Agent;

(i) a legal opinion of Borrowers’ counsel dated as of the Effective Date
together with the duly executed original signatures thereto;

(j) evidence satisfactory to Collateral Agent that the insurance policies
required by Section 6.5 are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements
in favor of Collateral Agent, for the ratable benefit of Lenders;

(k) the agreements executed in connection with the CyDex Acquisition; and

(l) payment of the fees and Lenders’ Expenses then due as specified in
Section 2.5 hereof.

3.2 Conditions Precedent to all Credit Extensions. The obligation of each Lender
to make each Credit Extension, including the initial Credit Extension, is
subject to the following conditions precedent:

(a) receipt by Collateral Agent of an executed Payment/Advance Form in the form
of Exhibit B attached hereto;

(b) the representations and warranties in Section 5 hereof shall be true, in all
material respects on the date of the Payment/Advance Form and on the Funding
Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Event of Default shall have occurred and be continuing
or result from the Credit Extension. Each Credit Extension is each Borrower’s
representation and warranty on that date that the representations and warranties
in Section 5 hereof are true, accurate and complete in all material respects;
provided, however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date;

(c) in such Lender’s sole discretion, there has not been any Material Adverse
Change or any material adverse deviation by any Borrower from the most recent
business plan of Borrowers presented to and accepted by Collateral Agent; and

(d) payment of the fees and Lenders’ Expenses then due as specified in
Section 2.5 hereof.

3.3 Covenant to Deliver. Each Borrower shall deliver to Collateral Agent each
item required to be delivered to Collateral Agent under this Agreement as a
condition precedent to any Credit Extension. Borrowers acknowledge that a Credit
Extension made prior to the receipt by Collateral Agent of any such item shall
not constitute a waiver by Lenders of Borrowers’ obligation to deliver such
item, and any such Credit Extension in the absence of a required item shall be
made in each Lender’s sole discretion.

 

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3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other
applicable conditions to the making of the Term Loan set forth in this
Agreement, to obtain the Term Loan, a Borrower shall notify Collateral Agent
(which notice shall be irrevocable) by electronic mail, facsimile, or telephone
by 12:00 noon Eastern time two (2) Business Days prior to the date the Term Loan
is to be made. Together with any such electronic or facsimile notification, such
Borrower shall deliver to Collateral Agent by electronic mail or facsimile a
completed Payment/Advance Form executed by a Responsible Officer or his or her
designee. Upon receipt of a Payment/Advance Form, Collateral Agent shall
promptly provide a copy of that Payment/Advance Form to each Lender. Collateral
Agent may rely on any telephone notice given by a person whom Collateral Agent
reasonably believes is a Responsible Officer or designee. On the Funding Date,
each Lender shall credit and/or transfer (as applicable) to Borrower’s
Designated Deposit Account, an amount equal to its Term Loan Commitment.

 

  4.

CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Each Borrower grants Collateral Agent, for the
ratable benefit of Lenders, to secure the payment and performance in full of all
of the Obligations, a continuing security interest in, and pledges to Collateral
Agent, for the ratable benefit of Lenders, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Each Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral, subject only to
Permitted Liens that are permitted by the terms of this agreement to have
priority to Collateral Agent’s Lien. If a Borrower shall acquire a commercial
tort claim (as defined in the Code), such Borrower shall promptly notify
Collateral Agent in a writing signed by such Borrower of the general details
thereof (and further details as may be required by Collateral Agent) and grant
to Collateral Agent, for the ratable benefit of Lenders, in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance reasonably
satisfactory to Collateral Agent. If this Agreement is terminated, Collateral
Agent’s Lien in the Collateral shall continue until the Obligations (other than
inchoate indemnity obligations) are repaid in full in cash. Upon payment in full
in cash of the Obligations and at such time as Lenders’ obligation to make
Credit Extensions has terminated, Collateral Agent shall, at Borrower’s sole
cost and expense, release its Liens in the Collateral and all rights therein
shall revert to Borrower or Guarantor, as applicable.

4.2 Authorization to File Financing Statements. Each Borrower authorizes
Collateral Agent to file financing statements or take any other action required
to prefect Collateral Agent’s security interests in the Collateral with all
jurisdictions to perfect or protect Collateral Agent’s and each Lender’s
interest or rights hereunder, including a notice that any disposition of the
Collateral, except to the extent permitted by the terms of this Agreement, shall
be deemed to violate the rights of Collateral Agent and Lenders under the Code.
Such financing statements may indicate the Collateral as “all assets of the
Debtor or words of similar effect, or as being of an equal or lesser scope, or
with greater detail, all in Collateral Agent’s discretion.

 

  5.

REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants to Collateral Agent and Lenders as follows
at all times:

5.1 Due Organization, Authorization: Power and Authority. Each Borrower and each
of its Subsidiaries is duly existing and in good standing as Registered
Organizations in its jurisdiction of organization. Each Borrower and each of its
Subsidiaries is qualified and licensed to do business and is in good standing in
any jurisdiction in which the conduct of its business or its ownership of
property requires that it be qualified except where the failure to do so could
not reasonably be expected to have a material adverse effect on Borrower’s
business. In connection with this Agreement, Ligand Pharmaceuticals Incorporated
(“Ligand”) has delivered to Collateral Agent a perfection certificate (the
“Perfection Certificate”). Ligand warrants that (a) Ligand’s exact legal name is
that indicated on the Perfection Certificate and on the signature page hereof;
(b) Ligand is an organization of the type and is organized in the jurisdiction
set forth in the Perfection Certificate; (c) the Perfection Certificate
accurately sets forth Ligand’s organizational identification number or
accurately states that Ligand has none; (d) the Perfection Certificate
accurately sets forth Ligand’s place of business, or, if more than one, its
chief

 

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executive office as well as Ligand’s mailing address (if different than its
chief executive office); (e) subject to exceptions disclosed in writing by
Ligand to Collateral Agent before the Effective Date, no Borrower (and each of
their respective predecessors) has, in the past five (5) years, changed its
jurisdiction of organization, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Ligand and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Ligand may from time to time update certain information in the
Perfection Certificate (including the information set forth in clause (d) above)
after the Effective Date to the extent permitted by one or more specific
provisions in this Agreement). If a Borrower or any Subsidiary is not now a
Registered Organization but later becomes one, such Borrower shall notify
Collateral Agent of such occurrence and provide Collateral Agent with such
Person’s organizational identification number within five (5) Business Days of
receiving such organizational identification number.

The execution, delivery and performance by a Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of such Borrower’s organizational documents, including the Operating Documents,
(ii) contravene, conflict with, constitute a default under or violate any
material Requirement of Law, (iii) contravene, conflict or violate any
applicable order, writ, judgment, injunction, decree, determination or award of
any Governmental Authority by which such Borrower or any of its Subsidiaries or
any of their assets may be bound or affected, (iv) require any action by,
filing, registration, or qualification with, or Governmental Approval from, any
Governmental Authority (except such Governmental Approvals that have already
been obtained and are in full force and effect) or are being obtained pursuant
to Section 6.1(b), or (v) constitute an event of default under any material
agreement by which a Borrower or any of its Subsidiaries or their respective
properties is bound. No Borrower is in default under any agreement to which it
is a party or by which it or any of its assets is bound in which such default
could reasonably be expected to have a material adverse effect on Borrower’s
business.

5.2 Collateral.

(a) Each Borrower has good title to, has rights in, and the power to transfer
each item of the Collateral upon which it purports to grant a Lien under the
Loan Documents, free and clear of any and all Liens except Permitted Liens, and
no Borrower has any Deposit Accounts, Securities Accounts, Commodity Accounts or
other investment accounts other than the Collateral Accounts or the other
investment accounts, if any, described in the Perfection Certificate delivered
to Collateral Agent in connection herewith with respect of which a Borrower has
given Collateral Agent notice and taken such actions as are necessary to give
Collateral Agent a perfected security interest therein. The Accounts are bona
fide, existing obligations of the Account Debtors.

(b) On the Effective Date, the Collateral is not in the possession of any third
party bailee (such as a warehouse) except as disclosed in the Perfection
Certificate, and, as of the Effective Date, no such third party bailee possesses
components of the Collateral in excess of Fifty Thousand Dollars ($50,000). None
of the components of the Collateral shall be maintained at locations other than
as disclosed in the Perfection Certificate on the Effective Date or as permitted
pursuant to Section 7.2. In the event that a Borrower intends to store or
otherwise deliver any portion of the Collateral to a bailee in excess of Fifty
Thousand Dollars ($50,000), then such Borrower will first receive the written
consent of Collateral Agent and such bailee must execute and deliver a bailee
agreement in form and substance reasonably satisfactory to Collateral Agent.

(c) All Inventory is in all material respects of good and marketable quality,
free from material defects.

(d) Subject to contested matters disclosed in the SEC Filings, each Borrower is
the sole owner of the material items of Intellectual Property it purports to
own, except for non-exclusive licenses granted to its customers in the ordinary
course of business and licenses to strategic partners. Except as noted on the
Perfection Certificate, as supplemented from time to time (but subject to
Section 6.7 at all times, and further subject to the expiration of Patents at
the conclusion of their statutory term), each Borrower’s Patents are valid and
enforceable and no part of a Borrower’s Intellectual Property has been judged
invalid or unenforceable, in whole or in part, and (ii) to the best of each
Borrower’s knowledge, no claim has been made that any part of the Intellectual
Property or any practice by a Borrower violates the rights of any third party
except to the extent such claim could not reasonably be expected to have a
material adverse effect on such Borrower’s business. Except as noted on the
Perfection Certificate, no Borrower is a party to, nor is bound by, any material
license or other agreement with

 

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respect to which such Borrower is the licensee that (i) prohibits or otherwise
restricts such Borrower from granting a security interest in its interest in
such license or agreement or any other property, or (ii) for which a default
under or termination of could interfere with Collateral Agent’s right to sell
any Collateral. A Borrower shall provide written notice to Collateral Agent
within ten (10) days of entering into or becoming bound by any such license or
agreement (other than over-the-counter software that is commercially available
to the public). Each Borrower shall take such commercially reasonable steps as
Collateral Agent requests to obtain the consent of, or waiver by, any Person
whose consent or waiver is necessary for (i) all such licenses or agreements to
be deemed “Collateral” and for Collateral Agent to have a security interest in
it that might otherwise be restricted or prohibited by law or by the terms of
any such license or agreement, whether now existing or entered into in the
future, and (ii) Collateral Agent shall have the ability in the event of a
liquidation of any Collateral to dispose of such Collateral in accordance with
Collateral Agent’s rights and remedies under this Agreement and the other Loan
Documents.

5.3 Litigation. Except as disclosed on the Perfection Certificate, there are as
of the date of this Agreement no actions, suits, investigations, or proceedings
pending or, to the knowledge of the Responsible Officers, threatened in writing
by or against any Borrower, or any of its Subsidiaries involving more than One
Hundred Thousand Dollars ($100,000).

5.4 No Material Deterioration in Financial Condition; Financial Statements. All
consolidated financial statements for each Borrower and its Subsidiaries
delivered to Collateral Agent fairly present, in all material respects the
consolidated financial condition of such Borrower and its Subsidiaries and the
consolidated results of operations of Borrowers and their Subsidiaries. There
has not been any material deterioration in the consolidated financial condition
of a Borrower or its Subsidiaries since the date of the most recent financial
statements submitted to Collateral Agent.

5.5 Solvency. The fair salable value of each Borrower’s assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
Borrower is not left with unreasonably small capital after the transactions in
this Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.

5.6 Regulatory Compliance. No Borrower is an “investment company” or a company
“controlled” by an “investment company” under the Investment Company Act of
1940, as amended. No Borrower is engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of the Federal
Reserve Board of Governors). No Borrower or any of its Subsidiaries is a
“holding company” or an “affiliate” of a “holding company” or a “subsidiary
company” of a “holding company” as each term is defined and used in the Public
Utility Holding Company Act of 2005. No Borrower has violated any laws,
ordinances or rules, the violation of which could reasonably be expected to have
a material adverse effect on its business. None of a Borrower’s or any of its
Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary
or, to Borrower’s knowledge, by previous Persons, in disposing, producing,
storing, treating, or transporting any hazardous substance other than in
material compliance with applicable laws. Each Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all Governmental
Authorities that are necessary to continue their respective businesses as
currently conducted. None of Borrower or its Affiliates or any of their
respective agents acting or benefiting in any capacity in connection with the
transactions contemplated by this Agreement is (i) in violation of any
Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction
that evades or avoids, or has the purpose of evading or avoiding or attempts to
violate, any of the prohibitions set forth in any Anti-Terrorism Law, or
(iii) is a Blocked Person. Neither Borrower, nor, to the knowledge of Borrower,
any of its Affiliates or agents acting or benefiting in any capacity in
connection with the transactions contemplated by this Agreement, (x) conducts
any business or engages in making or receiving any contribution of funds, goods
or services to or for the benefit of any Blocked Person, or (y) deals in, or
otherwise engages in any transaction relating to, any property or interest in
property blocked pursuant to Executive Order No. 13224, any similar executive
order or other Anti-Terrorism Law.

5.7 Subsidiaries; Investments. No Borrower owns any stock, shares, partnership
interests or other equity securities except for Permitted Investments.

5.8 Tax Returns and Payments; Pension Contributions. Each Borrower and its
Subsidiaries have timely filed all required tax returns and reports, and
Borrower and its Subsidiaries have timely paid all foreign, federal, state, and
local taxes, assessments, deposits and contributions owed by Borrower and its

 

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Subsidiaries in all jurisdictions in which such Borrower or its Subsidiaries are
subject to taxes, including the United States, unless such taxes are being
contested in accordance with the following sentence. Each Borrower and its
Subsidiaries may defer payment of any contested taxes, provided that a Borrower
or such Subsidiary (a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(b) notifies Collateral Agent in writing of the commencement of, and any
material development in, the proceedings, and (c) posts bonds or takes any other
steps required to prevent the governmental authority levying such contested
taxes from obtaining a Lien upon any of the Collateral that is other than a
“Permitted Lien”. No Borrower is aware of any claims or adjustments proposed for
any of Borrower or its Subsidiaries prior tax years that could result in
material additional taxes becoming due and payable by such Borrower or its
Subsidiaries. Each Borrower and its Subsidiaries have paid all amounts necessary
to fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms, and such Borrower and its Subsidiaries have not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower or its Subsidiaries, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.

5.9 Use of Proceeds. Borrowers shall use the proceeds of the Credit Extensions
solely as working capital and to fund its general business requirements in
accordance with the provisions of this Agreement, and not for personal, family,
household or agricultural purposes.

5.10 Full Disclosure. No written representation, warranty or other statement of
a Borrower in any certificate or written statement given to Collateral Agent or
any Lender, as of the date such representation, warranty, or other statement was
made, taken together with all such written certificates and written statements
given to Collateral Agent or any Lender, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading (it being recognized
that the projections and forecasts provided by a Borrower in good faith and
based upon reasonable assumptions are not viewed as facts and that actual
results during the period or periods covered by such projections and forecasts
may differ from the projected or forecasted results).

 

  6.

AFFIRMATIVE COVENANTS

Each Borrower shall, and shall cause each of its Subsidiaries to, do all of the
following:

6.1 Government Compliance.

(a) Maintain its and all its Subsidiaries’ legal existence and good standing in
their respective jurisdictions of organization and maintain qualification in
each jurisdiction in which the failure to so qualify could reasonably be
expected to have a material adverse effect on Borrower’s business or operations.
Borrower shall comply, and have each Subsidiary comply, with all laws,
ordinances and regulations to which it is subject, the noncompliance with which
could reasonably be expected to have a material adverse effect on Borrower’s
business.

(b) Obtain and keep in full force and effect, all of the Governmental Approvals
necessary for the performance by Borrower of its obligations under the Loan
Documents and the grant of a security interest to Collateral Agent for the
ratable benefit of Lenders, in all of the Collateral. Each Borrower shall
promptly provide copies to Collateral Agent of any material Governmental
Approvals obtained by Borrower.

6.2 Financial Statements, Reports, Certificates.

(a) Deliver to Collateral Agent: (i) as soon as available, but no later than
thirty (30) days after the last day of each month, a company prepared
consolidated and consolidating balance sheet and income statement covering the
consolidated operations of Borrower and its Subsidiaries for such month
certified by a Responsible Officer and in a form reasonably acceptable to
Collateral Agent; (ii) as soon as available, but no later than one hundred
twenty (120) days after the last day of Borrower’s fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial

 

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statements from an independent certified public accounting firm acceptable to
Collateral Agent in its reasonable discretion; (iii) as soon as available after
approval thereof by Borrower’s Board of Directors, but no later than January 31
of each of Borrower’s fiscal years, Borrower’s financial projections for the
entire current fiscal year as approved by Borrower’s Board of Directors, which
such annual projections shall be set forth in a month-by-month format (such
annual financial projections as originally delivered to Collateral Agent and
Lenders are referred to herein as the “Annual Projections”); (iv) within five
(5) days of delivery, copies of all statements, reports and notices made
available to Borrower’s security holders or holders of Subordinated Debt; (v) in
the event that Borrower becomes subject to the reporting requirements under the
Securities Exchange Act of 1934, as amended, within five (5) days of filing, all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission, (vi) prompt notice of (A) any material change in the composition of
the Intellectual Property, (B) notice of the registration of any copyright,
including any subsequent ownership right of Borrower in or to any copyright,
patent or trademark, and (C) prompt notice of Borrower’s knowledge of any event
that could reasonably be expected to materially and adversely affect the value
of the Intellectual Property; (vii) as soon as available, but no later than
thirty (30) days after the last day of each month, copies of the month-end bank
statements for each deposit account or securities account maintained by Borrower
or any Subsidiary, which bank statements may be provided to Collateral Agent by
Borrower or directly from the applicable bank(s), and (viii) other financial
information as reasonably requested by Collateral Agent.

(b) Concurrently with the delivery of the financial statements specified in
Section 6.2(a)(i) above but no later than thirty (30) days after the last day of
each month, deliver to Collateral Agent, a duly completed Compliance Certificate
signed by a Responsible Officer.

(c) Keep proper books of record and account in accordance with GAAP in all
material respects, in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities. At the
sole cost of Borrower, Borrower shall allow Collateral Agent and Lenders to
visit and inspect any of its properties, to examine and make abstracts or copies
from any of its books and records, and to conduct a collateral audit and
analysis of its operations and the Collateral.

6.3 Inventory; Returns. Keep substantially all Inventory in good and marketable
condition, free from material defects. Returns and allowances between Borrower
and its Account Debtors shall follow Borrower’s customary practices as they
exist at the Effective Date. Borrower shall promptly notify Collateral Agent of
all returns, recoveries, disputes and claims that involve more than One Hundred
Thousand Dollars ($100,000) individually or in the aggregate in any calendar
year.

6.4 Taxes; Pensions. Timely file and require each of its Subsidiaries to timely
file, all required tax returns and reports and timely pay, and require each of
its Subsidiaries to timely file, all foreign, federal, state, and local taxes,
assessments, deposits and contributions owed by Borrower and each of its
Subsidiaries, except for deferred payment of any taxes contested pursuant to the
terms of Section 5.8 hereof, and shall deliver to Collateral Agent, on demand,
appropriate certificates attesting to such payments, and pay all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.

6.5 Insurance. Keep its business and the Collateral insured for risks and in
amounts standard for similarly situated companies in Borrower’s industry and
location and as Collateral Agent may reasonably request. Insurance policies
shall be in a form, with companies, and in amounts that are reasonably
satisfactory to Collateral Agent. All property policies shall have a lender’s
loss payable endorsement showing Collateral Agent as lender loss payee and waive
subrogation against Collateral Agent, and all liability policies shall show, or
have endorsements showing, Collateral Agent, as an additional insured. All
policies (or the loss payable and additional insured endorsements) shall provide
that the insurer shall endeavor to give Collateral Agent at least thirty
(30) days notice before canceling, amending, or declining to renew its policy.
At Collateral Agent’s request, a Borrower shall deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
shall, at Collateral Agent’s option, be payable to Collateral Agent on behalf of
Lenders on account of the Obligations. Notwithstanding the foregoing, (a) so
long as no Event of Default has occurred and is continuing, a Borrower shall
have the option of applying the proceeds of any casualty policy up to $50,000
with respect to any loss, but not exceeding $100,000, in the aggregate for all
losses under all casualty policies in any one year, toward the replacement or
repair of destroyed or damaged property; provided that any such replaced or
repaired property (i) shall be of equal or like value as the replaced or
repaired Collateral and (ii) shall be deemed Collateral in which

 

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Collateral Agent has been granted a first priority security interest, and
(b) after the occurrence and during the continuance of an Event of Default, all
proceeds payable under such casualty policy shall, at the option of Collateral
Agent, be payable to Collateral Agent, for the ratable benefit of Lenders, on
account of the Obligations. If a Borrower fails to obtain insurance as required
under this Section 6.5 or to pay any amount or furnish any required proof of
payment to third persons and Collateral Agent, Collateral Agent may make all or
part of such payment or obtain such insurance policies required in this
Section 6.5, and take any action under the policies Collateral Agent deems
prudent.

6.6 Operating Accounts.

(a) Maintain all of such Borrower’s and all of their Subsidiaries’ operating and
other deposit accounts and securities accounts in accounts that are subject to a
Control Agreement in favor of Collateral Agent, other than Certificate of
Deposit account No. 60100378 maintained with Square 1 Bank (the “Cash Collateral
Account”), which shall be subject to a Control Agreement only (i) until Borrower
enters into a Loan and Security Agreement between Borrower and Square 1 Bank, as
amended from time to time (the “Square 1 Agreement”) and (ii) after Borrower has
repaid any amounts that remain owing thereunder or Square 1 Bank no longer has
any obligation to make any credit extensions to Borrower under the Square 1
Agreement. Borrower shall cause the Cash Collateral Account to be closed or made
subject to a Control Agreement at all other times. Borrower shall not permit the
balance in the Cash Collateral Account to exceed $5,000,000, nor permit the
Collateral Account to secure any obligations other than those arising under the
Square 1 Agreement.

(b) Such Borrower shall, and shall cause its Subsidiaries to, provide Collateral
Agent five (5) days’ prior written notice before establishing any Collateral
Account. In addition, for each Collateral Account that Borrower or Guarantor or
any of their Subsidiaries any time maintains, such Borrower shall cause the
applicable bank or financial institution at or with which such Collateral
Account is maintained to execute and deliver a Control Agreement or other
appropriate instrument with respect to such Collateral Account to perfect
Collateral Agent’s Lien in such Collateral Account in accordance with the terms
hereunder, which Control Agreement may not be terminated without prior written
consent of Collateral Agent.

(c) No Borrower or its Subsidiaries shall maintain any Collateral Accounts
except Collateral Accounts located in the United States in accordance with
Sections 6.6(a) and (b).

6.7 Protection of Intellectual Property Rights. Such Borrower shall:
(a) protect, defend and maintain the validity and enforceability of its
Intellectual Property that is material to its business; (b) promptly advise
Collateral Agent in writing of material infringement by a third party of its
Intellectual Property; and (c) not allow any Intellectual Property material to
its business to be abandoned, forfeited or dedicated to the public without
Collateral Agent’s written consent. If a Borrower (i) obtains any patent,
registered trademark or servicemark, registered copyright, registered mask work,
or any pending application for any of the foregoing, whether as owner, licensee
or otherwise, or (ii) applies for any patent or the registration of any
trademark or servicemark, then Borrower or Guarantor shall provide written
notice thereof to Collateral Agent and each Lender.

6.8 Evidence of Recording. Each Borrower shall promptly provide to Collateral
Agent evidence of the recording of any agreement necessary for Collateral Agent
to perfect and maintain a first priority perfected security interest in the
Collateral.

6.9 Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Collateral Agent, without
expense to Collateral Agent or Lenders, such Borrower and its officers,
employees and agents and Borrower’s Books, to the extent that Collateral Agent
may reasonably deem them necessary to prosecute or defend any third-party suit
or proceeding instituted by or against Collateral Agent or Lenders with respect
to any Collateral or relating to such Borrower.

6.10 Notices of Litigation and Default. Such Borrower will give prompt written
notice to Collateral Agent of any litigation or governmental proceedings pending
or threatened (in writing) against such Borrower or any of its Subsidiaries that
could reasonably be expected to result in damages or costs to Borrower or any of
its Subsidiaries of One Hundred Thousand Dollars ($100,000) or more or which
could reasonably be expected to have a material adverse effect with respect to
Borrower’s business. Without limiting or contradicting

 

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any other more specific provision of this Agreement, promptly (and in any event
within three (3) Business Days) upon Borrower becoming aware of the existence of
any Event of Default or event which, with the giving of notice or passage of
time, or both, would constitute an Event of Default, Borrower shall give written
notice to Collateral Agent of such occurrence, which such notice shall include a
reasonably detailed description of such Event of Default or event which, with
the giving of notice or passage of time, or both, would constitute an Event of
Default.

6.11 Creation/Acquisition of Subsidiaries. In the event such Borrower or any
Subsidiary creates or acquires any Subsidiary, such Borrower and such Subsidiary
shall promptly notify Collateral Agent of the creation or acquisition of such
new Subsidiary and take all such action as may be reasonably required by
Collateral Agent to cause each such Subsidiary to become a Borrower hereunder
and, in each case, grant a continuing pledge and security interest in and to the
assets of such Subsidiary (substantially as described on Exhibit A hereto); and
such Borrower, as applicable, shall grant and pledge to Collateral Agent, for
the ratable benefit of Lenders, a perfected security interest in the stock,
units or other evidence of ownership of each Subsidiary.

6.12 Further Assurances.

(a) Execute any further instruments and take further action as Collateral Agent
reasonably requests to perfect or continue Collateral Agent’s Lien in the
Collateral or to effect the purposes of this Agreement.

(b) Deliver to Collateral Agent, within five (5) days after the same are sent or
received, copies of all material correspondence, reports, documents and other
filings with any Governmental Authority that could reasonably be expected to
have a material adverse effect on any of the Governmental Approvals material to
Borrower’s business or otherwise on the operations of Borrower or any of its
Subsidiaries.

6.13 Post Closing Requirements. Such Borrower shall complete each of the
post-closing obligations and/or provide to Collateral Agent each of the
documents, instruments, agreements and information listed on a Post-Closing
Letter signed by Borrowers and Collateral Agent on or before the date set forth
for each such item thereon, each of which shall be completed or provided in form
and substance reasonably satisfactory to Collateral Agent. Failure of a Borrower
to deliver the post-closing items within the time periods set forth in the
Post-Closing Letter shall constitute an Event of Default.

 

  7.

NEGATIVE COVENANTS

No Borrower shall, nor permit any of its Subsidiaries to, do any of the
following:

7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of
(collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, except for Transfers (a) of Inventory
in the ordinary course of business; (b) of worn-out or obsolete Equipment;
(c) in connection with Permitted Liens and Permitted Investments; (d) of
non-exclusive licenses (or exclusive field-of-use licenses) for the use of the
Intellectual Property in the ordinary course of business in connection with
joint ventures and corporate collaborations which could not result in a legal
transfer of title of the licensed property and with respect to which Borrower
expressly retains the first right to prosecute any patents and patent
applications as well as the first right to enforce any potential infringement of
any such exclusively licensed patents and patent applications but that may be
exclusive in respects other than territory and that may be exclusive as to
territory only as to discreet geographical areas outside of the United States;
or (e) of Intellectual Property that is both (i) nonmaterial and
(ii) nonstrategic.

7.2 Changes in Business, Management, Ownership, or Business Locations.
(a) Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses engaged in as of the Effective Date or reasonably related
thereto; (b) liquidate or dissolve; or (c) (i) any Key Person shall cease to be
actively engaged in the management of such Borrower unless a replacement for
such Key Person, reasonably satisfactory to Lenders holding at least a majority
of the aggregate outstanding principal balance of the Term Loan, is approved by
such Borrower’s Board of Directors and engaged by such Borrower within ninety
(90) days, or (ii) enter into any transaction or series of related transactions
in which the stockholders of such Borrower who were not stockholders

 

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immediately prior to the first such transaction own more than 40% of the voting
stock of such Borrower immediately after giving effect to such transaction or
related series of such transactions. No Borrower shall, without at least thirty
(30) days prior written notice to Collateral Agent: (A) add any new offices or
business locations, including warehouses (unless such new offices or business
locations contain less than Fifty Thousand Dollars ($50,000) in such Borrower’s
assets or property), (B) change its jurisdiction of organization, (C) change its
organizational structure or type, (D) change its legal name, or (E) change any
organizational number (if any) assigned by its jurisdiction of organization.

7.3 Mergers or Acquisitions. Except for the CyDex Acquisition, merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with any
other Person, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock, shares or property of another Person. A
Subsidiary may merge or consolidate into another Subsidiary as long as the
surviving Subsidiary is a Borrower hereunder or into Borrower as long as
Borrower is the surviving legal entity, and as long as no Event of Default is
occurring prior thereto or arises as a result therefrom. Borrower and its
Subsidiaries may enter into any of the foregoing transactions provided (i) the
aggregate net cash consideration given (cash paid and mandatory funding
obligations undertaken, less Cash Equivalents acquired) in such transactions
does not exceed $5,000,000 in any calendar year and the aggregate Indebtedness
assumed in connection with such transactions is (a) unsecured and (b) does not
exceed $5,000,000 in any calendar year, (ii) such Borrower is the surviving
entity or the surviving entity becomes a Borrower hereunder, and (iii) no Event
of Default is occurring prior thereto or exists after giving effect thereto.
Collateral Agent shall respond within ten (10) days to the request by a Borrower
to waive this Section 7.3 or permit a transaction to occur that, without such
permission, would violate this Section 7.3.

7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein (except for Permitted Liens that are permitted by the
terms of this agreement to have priority to Collateral Agent’s Lien), or enter
into any agreement, document, instrument or other arrangement (except with or in
favor of Collateral Agent) with any Person that directly or indirectly prohibits
or has the effect of prohibiting Borrower or any Subsidiary from assigning or
encumbering its or any Subsidiary’s property, except as is otherwise permitted
in Section 7.1 and the definition of “Permitted Liens”.

7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except
pursuant to the terms of Section 6.6.

7.7 Distributions; Investments. (a) Pay any dividends (other than dividends
payable solely in capital stock) or make any distribution or payment or redeem,
retire or purchase any capital stock (other (i) than repurchases pursuant to the
terms of employee stock purchase plans, employee restricted stock agreements,
stockholder rights plans, director or consultant stock option plans, or similar
plans, provided such repurchases do not exceed Fifty Thousand Dollars ($50,000)
in the aggregate per fiscal year and (ii) repurchases of its common stock from
time to time in privately negotiated and open market transactions in an
aggregate repurchase amount not to exceed Seven Hundred Fifty Thousand Dollars
($750,000) in any fiscal year, provided such repurchases are on commercially
reasonable terms and not executed at a premium to fair market value) or
(b) directly or indirectly make any Investment other than Permitted Investments,
or permit any of its Subsidiaries to do so.

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower or Guarantor,
except for transactions that are in the ordinary course of Borrower’s business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm’s length transaction with a non-affiliated Person.

7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Lenders.

 

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7.10 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended, or
undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with any law or regulation, if the violation could reasonably be
expected to have a material adverse effect on Borrower’s business, or permit any
of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

7.11 Compliance with Anti-Terrorism Laws. Collateral Agent notifies each
Borrower that pursuant to the requirements of Anti-Terrorism Laws, and
Collateral Agent’s policies and practices, Collateral Agent is required to
obtain, verify and record certain information and documentation that identifies
Borrower and Guarantor and their principals, which information includes the name
and address of such Borrower and its principals and such other information that
will allow Collateral Agent to identify such party in accordance with
Anti-Terrorism Laws. No Borrower will, nor will such Borrower permit any
Subsidiary or Affiliate to, directly or indirectly, knowingly enter into any
documents, instruments, agreements or contracts with any Person listed on the
OFAC Lists. A Borrower shall immediately notify Collateral Agent if such
Borrower has knowledge that a Borrower or any Subsidiary or Affiliate is listed
on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to, (c) is
indicted on, or (d) is arraigned and held over on charges involving money
laundering or predicate crimes to money laundering. No Borrower will, nor will
any Borrower permit, any Subsidiary or Affiliate to, directly or indirectly,
(i) conduct any business or engage in any transaction or dealing with any
Blocked Person, including, without limitation, the making or receiving of any
contribution of funds, goods or services to or for the benefit of any Blocked
Person, (ii) deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to Executive Order No. 13224,
any similar executive order or other Anti-Terrorism Law, or (iii) engage in or
conspire to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in Executive Order No. 13224 or other Anti-Terrorism Law.

 

  8.

EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

8.1 Payment Default. A Borrower fails to (a) make any payment of principal or
interest on any Credit Extension on its due date, or (b) pay any other
Obligations within three (3) Business Days after such Obligations are due and
payable (which three (3) Business Day grace period shall not apply to payments
due on the Maturity Date or the date of acceleration pursuant to Section 9.1
(a) hereof). During the cure period, the failure to cure the payment default is
not an Event of Default (but no Credit Extension will be made during the cure
period);

8.2 Covenant Default.

(a) A Borrower fails or neglects to perform any obligation in Sections 6 or
Borrower or violates any covenant in Section 7; or

(b) A Borrower or any of its Subsidiaries fails or neglects to perform, keep, or
observe any other term, provision, condition, covenant or agreement contained in
this Agreement or any Loan Documents, and as to any default (other than those
specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within
ten (10) days after the date that Borrower knew, or reasonably should have
known, of the occurrence of such default; provided, however, that if the default
cannot by its nature be cured within the ten (10) day period or cannot after
diligent attempts by such Borrower be cured within such ten (10) day period, and
such default is likely to be cured within a reasonable time, then Borrower shall
have an additional period (which shall not in any case exceed thirty (30) days)
to attempt to cure such default, and within such reasonable time period the
failure to cure the default shall not be deemed an Event of Default (but no
Credit Extensions shall be made during such cure period);

 

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8.3 Material Adverse Change. A Material Adverse Change occurs;

8.4 Attachment; Levy; Restraint on Business.

(a) (i) The service of process seeking to attach, by trustee or similar process,
any funds of a Borrower or of any entity under control of a Borrower (including
a Subsidiary) on deposit with any Lender or any Lender’s Affiliate or any bank
or other institution at which a Borrower maintains a Collateral Account, or
(ii) a notice of lien, levy, or assessment is filed against any of a Borrower’s
assets by any government agency, and the same under subclauses (i) and
(ii) hereof are not, within ten (10) days after the occurrence thereof,
discharged or stayed (whether through the posting of a bond or otherwise);
provided, however, no Credit Extensions shall be made during any ten (10) day
cure period; and

(b) (i) any of a Borrower’s assets is attached, seized, levied on, or comes into
possession of a trustee or receiver, or (ii) any court order enjoins, restrains,
or prevents a Borrower from conducting any substantial part of its business;

8.5 Insolvency. (a) A Borrower is unable generally to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (b) a Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against a Borrower and not dismissed or stayed within thirty (30) days (but no
Credit Extensions shall be made while any of the conditions described in clause
(a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements. There is a default in any agreement to which a Borrower is
a party with a third party or parties resulting in a right by such third party
or parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)
or that could have a material adverse effect on such Borrower’s business.

8.7 Judgments. One or more judgments, orders, or decrees for the payment of
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
a Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of
ten (10) days after the entry thereof (provided that no Credit Extensions will
be made prior to the satisfaction, vacation, or stay of such judgment, order or
decree);

8.8 Subordinated Debt. A default or breach occurs under any agreement between a
Borrower and any creditor that signed a subordination, intercreditor, or other
similar agreement with Collateral Agent or Lenders, or any creditor that has
signed such an agreement with Collateral Agent or Lenders breaches any terms of
such agreement;

8.9 Governmental Approvals. Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not renewed
in the ordinary course for a full term or (b) subject to any decision by a
Governmental Authority that designates a hearing with respect to any
applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) has, or could reasonably be expected to have, a
Material Adverse Change, or (ii) adversely affects the legal qualifications of a
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of a Borrower or any of its Subsidiaries to hold any
Governmental Approval in any other jurisdiction that could reasonably be
expected to have a material adverse effect on such Borrower’s business.

 

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8.10 Lien Priority. Any Lien created hereunder or by any other Loan Document
shall at any time fail to constitute a valid and perfected Lien on any of the
Collateral purported to be secured thereby, subject to no prior or equal Lien,
other than Permitted Liens; or

8.11 Misrepresentations. A Borrower or any Person acting for such Borrower makes
any representation, warranty, or other statement now or later in this Agreement,
any Loan Document or in any writing delivered to Collateral Agent and/or Lenders
or to induce Collateral Agent and/or Lenders to enter this Agreement or any Loan
Document, and such representation, warranty, or other statement is incorrect in
any material respect when made.

 

  9.

RIGHTS AND REMEDIES

9.1 Rights and Remedies.

(a) Upon the occurrence and during the continuance of an Event of Default,
Collateral Agent may, and at the written direction of any Lender shall, without
notice or demand, do any or all of the following: (i) deliver notice of the
Event of Default to a Borrower, (ii) by notice to a Borrower declare all
Obligations immediately due and payable (but if an Event of Default described in
Section 8.5 occurs all Obligations shall be immediately due and payable without
any action by Collateral Agent or Lenders) or (iii) by notice to a Borrower
suspend or terminate the obligations, if any, of Lenders to advance money or
extend credit for any Borrower’s benefit under this Agreement or under any other
agreement between a Borrower and Collateral Agent and/or Lenders (but if an
Event of Default described in Section 8.5 occurs all obligations, if any, of
Lenders to advance money or extend credit for any Borrower’s benefit under this
Agreement or under any other agreement between a Borrower and Collateral Agent
and/or Lenders shall be immediately terminated without any action by Collateral
Agent or Lenders).

(b) Without limiting the rights of the Collateral Agent and Lenders set forth in
Section 9.1(a) above, upon the occurrence and during the continuance of an Event
of Default Collateral Agent shall have the right, at the written direction of
the Required Lenders, without notice or demand, to do any or all of the
following:

(i) foreclose upon and/or sell or otherwise liquidate, the Collateral;

(ii) apply to the Obligations any (a) balances and deposits of any Borrower that
Collateral Agent or any Lender holds or controls, or (b) any amount held or
controlled by Collateral Agent or any Lender owing to or for the credit or the
account of any Borrower; and/or

(iii) commence and prosecute an Insolvency Proceeding or consent to a Borrower
commencing any Insolvency Proceeding.

(c) Without limiting the rights of the Collateral Agent and Lenders set forth in
Sections 9.1(a) and (b) above, upon the occurrence and during the continuance of
an Event of Default Collateral Agent shall have the right, without notice or
demand, to do any or all of the following:

(i) settle or adjust disputes and claims directly with Account Debtors for
amounts on terms and in any order that Collateral Agent considers advisable,
notify any Person owing a Borrower money of Collateral Agent’s security interest
in such funds, and verify the amount of such account;

(ii) make any payments and do any acts it considers necessary or reasonable to
protect the Collateral and/or its security interest in the Collateral. Each
Borrower shall assemble the Collateral if Collateral Agent requests and make it
available in a location as Collateral Agent reasonably designates. Collateral
Agent may enter premises where the Collateral is located, take and maintain
possession of any part of the Collateral, and pay, purchase, contest, or
compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Each Borrower grants Collateral Agent a
license to enter and occupy any of its premises, without charge, to exercise any
of Collateral Agent’s rights or remedies;

 

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(iii) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
and/or advertise for sale, the Collateral. Collateral Agent is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge, a
Borrower’s labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Collateral Agent’s exercise of its rights under this
Section 9.1, such Borrower’s rights under all licenses and all franchise
agreements inure to Collateral Agent for the benefit of Lenders;

(iv) place a “hold” on any account maintained with Collateral Agent or Lenders
and/or deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any Control Agreement or similar
agreements providing control of any Collateral;

(v) demand and receive possession of all of a Borrower’s Books;

(vi) appoint a receiver to cease, manage and realize any of the Collateral, and
such receiver shall have any right and authority as any competent court will
grant or authorize in accordance with any applicable law, including any power or
authority to manage the business of a Borrower; and

(vii) Subject to clauses 9.1(a) and (b), exercise all rights and remedies
available to Collateral Agent under the Loan Documents or at law or equity,
including all remedies provided under the Code (including disposal of the
Collateral pursuant to the terms thereof).

Notwithstanding any provision of this Section 9.1 to the contrary, upon the
occurrence of any Event of Default, Collateral Agent shall have the right to
exercise any and all remedies referenced in this Section 9.1 without the written
consent of Required Lenders following the occurrence of an Exigent Circumstance.
As used in the immediately preceding sentence, “Exigent Circumstance” means any
event or circumstance that, in the reasonable judgment of Collateral Agent,
imminently threatens the ability of Collateral Agent to realize upon all or any
material portion of the Collateral, such as, without limitation, fraudulent
removal, concealment, or abscondment thereof, destruction or material waste
thereof, or failure of Borrower after reasonable demand to maintain or reinstate
adequate casualty insurance coverage, or which, in the judgment of Collateral
Agent, could reasonably be expected to result in a material diminution in value
of the Collateral.

9.2 Power of Attorney. Each Borrower irrevocably appoints Collateral Agent as
its lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse such Borrower’s name on any
checks or other forms of payment or security; (b) sign such Borrower’s name on
any invoice or bill of lading for any Account or drafts against Account Debtors;
(c) settle and adjust disputes and claims about the Accounts directly with
Account Debtors, for amounts and on terms Collateral Agent determines
reasonable; (d) make, settle, and adjust all claims under such Borrower’s
insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance,
security interest, and adverse claim in or to the Collateral, or any judgment
based thereon, or otherwise take any action to terminate or discharge the same;
and (f) transfer the Collateral into the name of Collateral Agent or a third
party as the Code or any applicable law permits. Such Borrower appoints
Collateral Agent as its lawful attorney-in-fact to sign such Borrower’s name on
any documents necessary to perfect or continue the perfection of Collateral
Agent’s security interest in the Collateral regardless of whether an Event of
Default has occurred until all Obligations have been satisfied in full and
Collateral Agent and Lenders are under no further obligation to make Credit
Extensions hereunder. Collateral Agent’s foregoing appointment as such
Borrower’s attorney in fact, and all of Collateral Agent’s rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Collateral Agent’s and Lenders’ obligation to provide
Credit Extensions terminates.

9.3 Protective Payments. If a Borrower fails to obtain the insurance called for
by Section 6.5 or fails to pay any premium thereon or fails to pay any other
amount that such Borrower is obligated to pay under this Agreement or any other
Loan Document, Collateral Agent may obtain such insurance or make such payment,
and all amounts so paid by Collateral Agent are Lenders’ Expenses and
immediately due and payable, bearing interest at the Default Rate, and secured
by the Collateral. Collateral Agent will make reasonable efforts to provide a
Borrower with notice of Collateral Agent obtaining such insurance or making such
payment at the time it is obtained or paid or within a reasonable time
thereafter. No such payments by Collateral Agent are deemed an agreement to make
similar payments in the future or Collateral Agent’s waiver of any Event of
Default.

 

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9.4 Application of Payments and Proceeds. Notwithstanding anything to the
contrary contained in this Agreement, upon the occurrence and during the
continuance of an Event of Default, (a) each Borrower irrevocably waives the
right to direct the application of any and all payments at any time or times
thereafter received by Collateral Agent from or on behalf of such Borrower of
all or any part of the Obligations, and, as between such Borrower on the one
hand and Collateral Agent and Lenders on the other, Collateral Agent shall have
the continuing and exclusive right to apply and to reapply any and all payments
received against the Obligations in such manner as Collateral Agent may deem
advisable notwithstanding any previous application by Collateral Agent, and
(b) the proceeds of any sale of, or other realization upon all or any part of
the Collateral shall be applied: first, to Lenders’ Expenses; second, to accrued
and unpaid interest on the Obligations (including any interest which, but for
the provisions of the United States Bankruptcy Code, would have accrued on such
amounts); third, to the principal amount of the Obligations outstanding; and
fourth, to any other indebtedness or obligations of a Borrower owing to
Collateral Agent or any Lender under the Loan Documents. Any balance remaining
shall be delivered to such Borrower or to whoever may be lawfully entitled to
receive such balance or as a court of competent jurisdiction may direct. In
carrying out the foregoing, (x) amounts received shall be applied in the
numerical order provided until exhausted prior to the application to the next
succeeding category, and (y) each of the Persons entitled to receive a payment
in any particular category shall receive an amount equal to its pro rata share
of amounts available to be applied pursuant thereto for such category. Any
reference in this Agreement to an allocation between or sharing by Lenders of
any right, interest or obligation “ratably,” “proportionally” or in similar
terms shall refer to Pro Rata Share unless expressly provided otherwise.
Collateral Agent, or if applicable, each Lender, shall promptly remit to the
other Lenders such sums as may be necessary to ensure the ratable repayment of
each Lender’s portion of the Term Loan and the ratable distribution of interest,
fees and reimbursements paid or made by a Borrower. Notwithstanding the
foregoing, a Lender receiving a scheduled payment shall not be responsible for
determining whether the other Lenders also received their scheduled payment on
such date; provided, however, if it is later determined that a Lender received
more than its ratable share of scheduled payments made on any date or dates,
then such Lender shall remit to Collateral Agent or other Lenders such sums as
may be necessary to ensure the ratable payment of such scheduled payments, as
instructed by Collateral Agent. If any payment or distribution of any kind or
character, whether in cash, properties or securities, shall be received by a
Lender in excess of its ratable share, then the portion of such payment or
distribution in excess of such Lender’s ratable share shall be received by such
Lender in trust for and shall be promptly paid over to the other Lender for
application to the payments of amounts due on the other Lenders’ claims. To the
extent any payment for the account of a Borrower is required to be returned as a
voidable transfer or otherwise, Lenders shall contribute to one another as is
necessary to ensure that such return of payment is on a pro rata basis. If any
Lender shall obtain possession of any Collateral, it shall hold such Collateral
for itself and as agent and bailee for Collateral Agent and other Lenders for
purposes of perfecting Collateral Agent’s security interest therein.

9.5 Liability for Collateral. So long as Collateral Agent and Lenders comply
with reasonable banking practices regarding the safekeeping of the Collateral in
the possession or under the control of Collateral Agent and Lenders, Collateral
Agent and Lenders shall not be liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in
the value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other Person. Borrowers bear all risk of loss, damage
or destruction of the Collateral.

9.6 No Waiver; Remedies Cumulative. Collateral Agent’s failure, at any time or
times, to require strict performance by a Borrower of any provision of this
Agreement or any other Loan Document shall not waive, affect, or diminish any
right of Collateral Agent thereafter to demand strict performance and compliance
herewith or therewith. No waiver hereunder shall be effective unless signed by
Collateral Agent and then is only effective for the specific instance and
purpose for which it is given. Collateral Agent’s rights and remedies under this
Agreement and the other Loan Documents are cumulative. Collateral Agent has all
rights and remedies provided under the Code, any applicable law, by law, or in
equity. Collateral Agent’s exercise of one right or remedy is not an election,
and Collateral Agent’s waiver of any Event of Default is not a continuing
waiver. Collateral Agent’s delay in exercising any remedy is not a waiver,
election, or acquiescence.

 

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9.7 Waiver. Each Borrower waives, to the fullest extent permitted by law,
demand, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees held by Collateral Agent on which a Borrower is liable.

 

  10.

NOTICES

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”) by any party to this Agreement or any other Loan
Document must be in writing and shall be deemed to have been validly served,
given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by electronic mail (if an email address is specified
herein) or facsimile transmission; (c) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below. Any of Collateral Agent, Lender or Borrower may change its mailing or
electronic mail address or facsimile number by giving the other party written
notice thereof in accordance with the terms of this Section 10.

 

If to Borrower:

  

LIGAND PHARMACEUTICALS INCORPORATED

11085 N. Torrey Pines Road, Suite 300

La Jolla, CA 92037

Attn: John P. Sharp, Vice President and Chief Financial Officer

Fax: (858) 550-5608

Email:jsharp@ligand.com

If to Collateral Agent:

  

Oxford Finance Corporation

133 North Fairfax Street

Alexandria, Virginia 22314

Attention: General Counsel

Fax: (703) 519-5225

 

  11.

CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

California law governs the Loan Documents without regard to principles of
conflicts of law. Each Borrower, Lenders and Collateral Agent each submit to the
exclusive jurisdiction of the State and Federal courts in San Diego County,
California. NOTWITHSTANDING THE FOREGOING, COLLATERAL AGENT AND LENDERS SHALL
HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST A BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH COLLATERAL AGENT AND
LENDERS (IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9.1) DEEM NECESSARY OR
APPROPRIATE TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE COLLATERAL
AGENT’S AND LENDERS’ RIGHTS AGAINST A BORROWER OR ITS PROPERTY. Each Borrower
expressly submits and consents in advance to such jurisdiction in any action or
suit commenced in any such court, and such Borrower hereby waives any objection
that it may have based upon lack of personal jurisdiction, improper venue, or
forum non conveniens and hereby consents to the granting of such legal or
equitable relief as is deemed appropriate by such court. Each Borrower waives
personal service of the summons, complaints, and other process issued in such
action or suit and agrees that service of such summons, complaints, and other
process may be made by registered or certified mail addressed to a Borrower at
the address set forth in Section 10 of this Agreement and that service so made
shall be deemed completed upon the earlier to occur of Borrower’s actual receipt
thereof or three (3) days after deposit in the U.S. mails, first class,
registered or certified mail return receipt requested, proper postage prepaid.

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER, COLLATERAL
AGENT, AND LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

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WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the San Diego County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in San Diego County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the San Diego
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and orders applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this
paragraph shall limit the right of any party at any time to exercise self-help
remedies, foreclose against collateral, or obtain provisional remedies. The
private judge shall also determine all issues relating to the applicability,
interpretation, and enforceability of this paragraph.

 

  12.

GENERAL PROVISIONS

12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. No Borrower may assign this
Agreement or any rights or obligations under it without Collateral Agent’s prior
written consent (which may be granted or withheld in Collateral Agent’s
discretion, subject to Section 12.6). Lenders have the right, without the
consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant
participation in (any such sale, transfer, assignment, negotiation, or grant of
a participation, a “Lender Transfer”) all or any part of, or any interest in,
Lenders’ obligations, rights, and benefits under this Agreement and the other
Loan Documents provided, however, that any such Lender Transfer (other than a
sale or assignment to an Eligible Assignee) of its obligations, rights, and
benefits under this Agreement and the other Loan Documents shall require the
prior written consent of the Required Lenders (such approved assignee, an
“Approved Lender”). Borrower and Collateral Agent shall be entitled to continue
to deal solely and directly with such Lender in connection with the interests so
assigned until Collateral Agent shall have received and accepted an effective
assignment agreement in form satisfactory to Collateral Agent executed,
delivered and fully completed by the applicable parties thereto, and shall have
received such other information regarding such Eligible Assignee or Approved
Lender as Collateral Agent reasonably shall require.

12.2 Indemnification. Each Borrower shall indemnify, defend and hold Collateral
Agent and Lenders and their respective directors, officers, employees, agents,
attorneys, or any other Person affiliated with or representing Collateral Agent
or Lenders (each, an “Indemnified Person”) harmless against: (a) all
obligations, demands, claims, and liabilities (collectively, “Claims”) asserted
by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Lenders’ Expenses incurred, or paid by
Indemnified Person from, following, or arising from transactions between
Collateral Agent, and/or Lenders and any Borrower (including reasonable
attorneys’ fees and expenses), except for Claims and/or losses directly caused
by such Indemnified Person’s gross negligence or willful misconduct. Each
Borrower hereby further indemnifies, defends and holds each Indemnified Person
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature

 

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whatsoever (including the fees and disbursements of counsel for such Indemnified
Person) in connection with any investigative, response, remedial, administrative
or judicial matter or proceeding, whether or not such Indemnified Person shall
be designated a party thereto and including any such proceeding initiated by or
on behalf of such Borrower, and the reasonable expenses of investigation by
engineers, environmental consultants and similar technical personnel and any
commission, fee or compensation claimed by any broker (other than any broker
retained by Collateral Agent or Lenders) asserting any right to payment for the
transactions contemplated hereby which may be imposed on, incurred by or
asserted against such Indemnified Person as a result of or in connection with
the transactions contemplated hereby and the use or intended use of the proceeds
of the loan proceeds.

12.3 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.

12.4 Severability of Provisions. Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision.

12.5 Correction of Loan Documents. Collateral Agent and Lenders may correct
patent errors and fill in any blanks in this Agreement and the other Loan
Documents consistent with the agreement of the parties.

12.6 Amendments in Writing; Integration. (a) No amendment, modification,
termination or waiver of any provision of this Agreement or any other Loan
Document, no approval or consent thereunder, or any consent to any departure by
a Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by such Borrower, Collateral Agent and the Required
Lenders provided that

(i) no such amendment, waiver or other modification that would have the effect
of increasing or reducing a Lender’s Term Loan Commitment or Commitment
Percentage shall be effective as to such Lender without such Lender’s written
consent;

(ii) no such amendment, waiver or modification that would affect the rights and
duties of Collateral Agent shall be effective without Collateral Agent’s written
consent or signature;

(iii) no such amendment, waiver or other modification shall, unless signed by
all Lenders directly affected thereby, (A) reduce the principal of, rate of
interest on or any fees with respect to the Term Loan or forgive any principal,
interest (other than default interest) or fees (other than late charges) with
respect to the Term Loan (B) postpone the date fixed for, or waive, any payment
of principal of the Term Loan or of interest on the Term Loan (other than
default interest) or any fees provided for hereunder (other than late charges or
for any termination of any commitment); (C) change the definition of the term
“Required Lenders” or the percentage of Lenders which shall be required for
Lenders to take any action hereunder; (D) release all or substantially all or
any material portion of the Collateral, authorize a Borrower to sell or
otherwise dispose of all or substantially all or any material portion of the
Collateral or release any Guarantor of all or any portion of the Obligations or
its guaranty obligations with respect thereto, except, in each case with respect
to this clause (D), as otherwise may be expressly permitted under this Agreement
or the other Loan Documents (including in connection with any disposition
permitted hereunder); (E) amend, waive or otherwise modify this Section 12.6 or
the definitions of the terms used in this Section 12.6 insofar as the
definitions affect the substance of this Section 12.6; (F) consent to the
assignment, delegation or other transfer by a Borrower of any of its rights and
obligations under any Loan Document or release a Borrower of its payment
obligations under any Loan Document, except, in each case with respect to this
clause (F), pursuant to a merger or consolidation permitted pursuant to this
Agreement; (G) amend any of the provisions of Section 9.4 or amend any of the
definitions Pro Rata Share, Term Loan Commitment, Commitment Percentage or that
provide for Lenders to receive their Pro Rata Shares of any fees, payments,
setoffs or proceeds of Collateral hereunder; (H) subordinate the Liens granted
in favor of Collateral Agent securing the Obligations; or (I) amend any of the
provisions of Section 12.10. It is hereby understood and agreed that all Lenders
shall be deemed directly affected by an amendment, waiver or other modification
of the type described in the preceding clauses (C), (D), (E), (F), (G) and
(H) of the preceding sentence;

 

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(iv) the provisions of the foregoing clauses (i), (ii) and (iii) are subject to
the provisions of any interlender or agency agreement among Lenders and
Collateral Agent pursuant to which any Lender may agree to give its consent in
connection with any amendment, waiver or modification of the Loan Documents only
in the event of the unanimous agreement of all Lenders.

(b) Other than as expressly provided for in Section 12.6(a)(i)-(iii), Collateral
Agent may, if requested by the Required Lenders, from time to time designate
covenants in this Agreement less restrictive by notification to a representative
of a Borrower.

(c) This Agreement and the Loan Documents represent the entire agreement about
this subject matter and supersede prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement and the Loan
Documents merge into this Agreement and the Loan Documents.

12.7 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, is an original, and all taken together, constitute one Agreement.

12.8 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of Borrowers in Section 12.2 to
indemnify each Lender and Collateral Agent, as well as the confidentiality
provisions in Section 12.9 below, shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.

12.9 Confidentiality. In handling any confidential information of a Borrower,
Lenders and Collateral Agent shall exercise the same degree of care that it
exercises for their own proprietary information, but disclosure of information
may be made: (a) confidentially to Lenders’ and Collateral Agent’s Subsidiaries
or Affiliates; (b) confidentially to prospective transferees or purchasers of
any interest in the Credit Extensions; (c) as required by law, regulation,
subpoena, or other order; (d) in connection with the securitization of certain
of Lenders’ assets or a loan by a senior lender to any of Lenders; (e) to
Lenders’ or Collateral Agent’s regulators or as otherwise required in connection
with an examination or audit; (f) as Collateral Agent considers appropriate in
exercising remedies under the Loan Documents; and (g) to third party service
providers of Lenders and/or Collateral Agent so long as such service providers
have executed a confidentiality agreement with Lenders and Collateral Agent with
terms no less restrictive than those contained herein. Confidential information
does not include information that either: (i) is in the public domain or in
Lenders’ and/or Collateral Agent’s possession when disclosed to Lenders and/or
Collateral Agent, or becomes part of the public domain after disclosure to
Lenders and/or Collateral Agent; or (ii) is disclosed to Lenders and/or
Collateral Agent by a third party, if Lenders and/or Collateral Agent does not
know that the third party is prohibited from disclosing the information.
Collateral Agent and Lenders may use non-scientific confidential information for
any purpose, including, without limitation, for the development of client
databases, reporting purposes, and market analysis, so long as neither
Collateral Agent nor any Lender discloses a Borrower’s identity or the identity
of any person associated with Borrower unless otherwise expressly permitted by
this Agreement. The provisions of the immediately preceding sentence shall
survive the termination of this Agreement.

12.10 Right of Set Off. Each Borrower grants to Collateral Agent and to each
Lender, a lien, security interest and right of set off as security for all
Obligations to Collateral Agent and each Lender hereunder, whether now existing
or hereafter arising upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Collateral Agent or Lenders or any entity under the control of Collateral Agent
or Lenders (including a Collateral Agent affiliate) or in transit to any of
them. At any time after the occurrence and during the continuance of an Event of
Default, without demand or notice, Collateral Agent or Lenders may set off the
same or any part thereof and apply the same to any liability or obligation of a
Borrower even though unmatured and regardless of the adequacy of any other
collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE COLLATERAL
AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

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12.11 Coborrowers. Only Ligand Pharmaceuticals Incorporated may request Advances
hereunder. Each Borrower appoints the other as agent for the other for all
purposes hereunder, including with respect to requesting Advances hereunder.
Each Borrower shall be jointly and severally obligated to repay all Advances
made hereunder, regardless of which Borrower actually receives said Advance, as
if each Borrower hereunder directly received all Advances. Each Borrower waives
(a) any suretyship defenses available to it under the Code or any other
applicable law, including, without limitation, the benefit of California Civil
Code Section 2815 permitting revocation as to future transactions and the
benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845,
2847, 2848, 2849, 2850, and 2899 and 3433, and (b) any right to require Bank to:
(i) proceed against any Borrower or any other person; (ii) proceed against or
exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not
exercise any right or remedy it has against any Borrower or any security it
holds (including the right to foreclose by judicial or non-judicial sale)
without affecting any Borrower’s liability. Notwithstanding any other provision
of this Agreement or other related document, each Borrower irrevocably waives
all rights that it may have at law or in equity (including, without limitation,
any law subrogating Borrower to the rights of Bank under this Agreement) to seek
contribution, indemnification or any other form of reimbursement from any other
Borrower, or any other Person now or hereafter primarily or secondarily liable
for any of the Obligations, for any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise and all rights that
it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise. Any agreement
providing for indemnification, reimbursement or any other arrangement prohibited
under this Section shall be null and void. If any payment is made to a Borrower
in contravention of this Section, such Borrower shall hold such payment in trust
for Bank and such payment shall be promptly delivered to Bank for application to
the Obligations, whether matured or unmatured.

 

  13.

COLLATERAL AGENT

13.1 Appointment and Authorization of Collateral Agent. Each Lender irrevocably
appoints, designates and authorizes Collateral Agent to take such action on its
behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated to it
by the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere herein or in any other Loan Document,
Collateral Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall Collateral Agent have or be deemed to have
any fiduciary relationship with any Lender or participant, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against Collateral Agent. Without limiting the generality of the foregoing
sentence, the use of the term “agent” herein and in the other Loan Documents
with reference to Collateral Agent is not intended to connote any fiduciary or
other implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market custom,
and is intended to create or reflect only an administrative relationship between
independent contracting parties.

13.2 Delegation of Duties. Collateral Agent may execute any of its duties under
this Agreement or any other Loan Document by or through its, or its Affiliates’,
agents, employees or attorneys-in-fact and shall be entitled to obtain and rely
upon the advice of counsel and other consultants or experts concerning all
matters pertaining to such duties. Collateral Agent shall not be responsible for
the negligence or misconduct of any agent or attorney-in-fact that it selects in
the absence of gross negligence or willful misconduct.

13.3 Liability of Collateral Agent. Except as otherwise provided herein, no
Collateral Agent-Related Person shall (a) be liable for any action taken or
omitted to be taken by any of them under or in connection with this Agreement or
any other Loan Document or the transactions contemplated hereby (except for its
own gross negligence or willful misconduct in connection with its duties
expressly set forth herein), or (b) be responsible in any manner to any Lender
or participant for any recital, statement, representation or warranty made by
Borrower or any officer thereof, contained herein or in any other Loan Document,
or in any certificate, report, statement or other document referred to or
provided for in, or received by Collateral Agent under or in connection with,
this Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of Borrower or any other party to any Loan Document
to perform its obligations hereunder or thereunder. No Collateral Agent-Related
Person shall be under any obligation to any Lender or participant to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of Borrower or any Affiliate thereof.

 

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13.4 Reliance by Collateral Agent. Collateral Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, communication,
signature, resolution, representation, notice, consent, certificate, affidavit,
letter, facsimile, or telephone message, electronic mail message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to a Borrower), independent
accountants and other experts selected by Collateral Agent. Collateral Agent
shall be fully justified in failing or refusing to take any action under any
Loan Document unless it shall first receive such advice or concurrence of all
Lenders as it deems appropriate and, if it so requests, it shall first be
indemnified to its satisfaction by Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. Collateral Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of all Lenders and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all Lenders.

13.5 Notice of Default. Collateral Agent shall not be deemed to have knowledge
or notice of the occurrence of any default and/or Event of Default, unless
Collateral Agent shall have received written notice from a Lender or a Borrower,
describing such default or Event of Default. Collateral Agent will notify
Lenders of its receipt of any such notice. Collateral Agent shall take such
action with respect to an Event of Default as may be directed in writing by the
Required Lenders in accordance with Article 9(a); provided, however, that while
an Event of Default has occurred and is continuing, Collateral Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Event of Default as Collateral Agent shall deem advisable
or in the best interest of Lenders, including without limitation, satisfaction
of other security interests, liens or encumbrances on the Collateral not
permitted under the Loan Documents, payment of taxes on behalf of a Borrower,
payments to landlords, warehouseman, bailees and other persons in possession of
the Collateral and other actions to protect and safeguard the Collateral, and
actions with respect to insurance claims for casualty events affecting a
Borrower and/or the Collateral.

13.6 Credit Decision; Disclosure of Information by Collateral Agent. Each Lender
acknowledges that no Collateral Agent-Related Person has made any representation
or warranty to it, and that no act by Collateral Agent hereafter taken,
including any consent to and acceptance of any assignment or review of the
affairs of Borrower or any Affiliate thereof, shall be deemed to constitute any
representation or warranty by any Collateral Agent-Related Person to any Lender
as to any matter, including whether Collateral Agent-Related Persons have
disclosed material information in their possession. Each Lender represents to
Collateral Agent that it has, independently and without reliance upon any
Collateral Agent-Related Person 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 a Borrower and its Subsidiaries, and all applicable bank or
other regulatory laws relating to the transactions contemplated hereby, and made
its own decision to enter into this Agreement and to extend credit to Borrower
hereunder. Each Lender also represents that it will, independently and without
reliance upon any Collateral Agent-Related Person 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 a Borrower. Except for notices, reports and other documents
expressly required to be furnished to Lenders by Collateral Agent herein,
Collateral Agent shall not have any duty or responsibility to provide any Lender
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of a
Borrower or any of its Affiliates which may come into the possession of any
Collateral Agent-Related Person.

13.7 Indemnification of Collateral Agent. Whether or not the transactions
contemplated hereby are consummated, each Lender shall, severally and pro rata
based on its respective Pro Rata Share, indemnify upon demand each Collateral
Agent-Related Person (to the extent not reimbursed by or on behalf of a Borrower
and without limiting the obligation of Borrower to do so), and hold harmless
each Collateral Agent-Related Person from and against any and all Claims (which
shall not include legal expenses of Collateral Agent incurred in connection with
the closing of the transactions contemplated by this Agreement) incurred by it;
provided,

 

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however, that no Lender shall be liable for the payment to any Collateral
Agent-Related Person of any portion of such Indemnified Liabilities to the
extent determined in a judgment by a court of competent jurisdiction to have
resulted from such Collateral Agent-Related Person’s own gross negligence or
willful misconduct; provided, however, that no action taken in accordance with
the directions of the Required Lenders shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section 13.7. Without
limitation of the foregoing, each Lender shall, severally and pro rata based on
its respective Pro Rata Share, reimburse Collateral Agent upon demand for its
ratable share of any costs or out-of-pocket expenses (including Lenders’
Expenses incurred after the closing of the transactions contemplated by this
Agreement) incurred by Collateral Agent (in its capacity as Collateral Agent,
and not as a Lender) in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that
Collateral Agent is not reimbursed for such expenses by or on behalf of a
Borrower. The undertaking in this Section 13.7 shall survive the payment in full
of the Obligations, the termination of this Agreement and the resignation of
Collateral Agent.

13.8 Collateral Agent in its Individual Capacity. With respect to its Credit
Extensions, Oxford shall have the same rights and powers under this Agreement as
any other Lender and may exercise such rights and powers as though it were not
Collateral Agent, and the terms “Lender” and “Lenders” include Oxford in its
individual capacity.

13.9 Successor Collateral Agent. Collateral Agent may resign as Collateral Agent
upon ten (10) days’ notice to Lenders. If Collateral Agent resigns under this
Agreement, all Lenders shall appoint from among Lenders (or the affiliates
thereof) a successor Collateral Agent for Lenders, which successor Collateral
Agent shall (unless an Event of Default has occurred and is continuing) be
subject to the approval of Borrower (which approval shall not be unreasonably
withheld or delayed). If no successor Collateral Agent is appointed prior to the
effective date of the resignation of Collateral Agent, Collateral Agent may
appoint, after consulting with Lenders, a successor Collateral Agent from among
Lenders (or the affiliates thereof). Upon the acceptance of its appointment as
successor Collateral Agent hereunder, the Person acting as such successor
Collateral Agent shall succeed to all the rights, powers and duties of the
retiring Collateral Agent and the respective term “Collateral Agent” means such
successor Collateral Agent and the retiring Collateral Agent’s appointment,
powers and duties in such capacities shall be terminated without any other
further act or deed on its behalf. After any retiring Collateral Agent’s
resignation hereunder as Collateral Agent, the provisions of this Article 13 and
Sections 2.3(d) and 12.2 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Collateral Agent under this Agreement. If
no successor Collateral Agent has accepted appointment as Collateral Agent by
the date ten (10) days following a retiring Collateral Agent’s notice of
resignation, the retiring Collateral Agent’s resignation shall nevertheless
thereupon become effective and Lenders shall perform all of the duties of
Collateral Agent hereunder until such time, if any, as Lenders appoint a
successor agent as provided for above.

13.10 Collateral Agent May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to a Borrower,
Collateral Agent (irrespective of whether the principal of any Loan, shall then
be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether Collateral Agent shall have made any demand on a
Borrower) shall be entitled and empowered, by intervention in such proceeding or
otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Credit Extensions and all other Obligations
that are owing and unpaid and to file such other documents as may be necessary
or advisable in order to have the claims of Lenders and Collateral Agent
(including any claim for the reasonable compensation, expenses, disbursements
and advances of Lenders and Collateral Agent and their respective agents and
counsel and all other amounts due Lenders and Collateral Agent allowed in such
judicial proceeding); and

(b) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;

 

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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to Collateral Agent and, in the event that
Collateral Agent shall consent to the making of such payments directly to
Lenders, to pay to Collateral Agent any amount due for the reasonable
compensation, expenses, disbursements and advances of Collateral Agent and its
agents and counsel, and any other amounts due Collateral Agent under
Section 2.3(d). To the extent that Collateral Agent fails timely to do so, each
Lender may file a claim relating to such Lender’s claim.

13.11 Collateral and Guaranty Matters. Lenders irrevocably authorize Collateral
Agent, at its option and in its discretion, to release any Guarantor and any
Lien on any Collateral granted to or held by Collateral Agent under any Loan
Document (i) upon the date that all Obligations due hereunder (other than
inchoate indemnity obligations and any other obligations which, by their terms,
are to survive the termination of this Agreement) have been fully and
indefeasibly paid in full and no Term Loan Commitments or other obligations of
any Lender to provide funds to a Borrower under this Agreement remain
outstanding, (ii) that is transferred or to be transferred as part of or in
connection with any Transfer permitted hereunder or under any other Loan
Document, or (iii) as approved in accordance with Section 12.6. Upon request by
Collateral Agent at any time, all Lenders will confirm in writing Collateral
Agent’s authority to release its interest in particular types or items of
Property, pursuant to this Section 13.11.

13.12 Cooperation of Borrower. At the request of Collateral Agent, each Borrower
shall (i) execute any documents (including new Secured Promissory Notes)
reasonably required to effectuate and acknowledge each assignment of a Term Loan
Commitment or Loan to an assignee in accordance with Section 12.1, (ii) make
such Borrower’s management available to meet with Collateral Agent and
prospective participants and assignees of Term Loan Commitments or Credit
Extensions (which meetings shall be conducted no more often than twice every
twelve months unless an Event of Default has occurred and is continuing) and
(iii) assist Collateral Agent or Lenders in the preparation of information
relating to the financial affairs of such Borrower as any prospective
participant or assignee of a Term Loan Commitment or Term Loan reasonably may
request. Subject to the provisions of Section 12.9 such Borrower authorizes each
Lender to disclose confidentially to any prospective participant or assignee of
a Term Loan Commitment, any and all information in such Lender’s possession
concerning such Borrower and its financial affairs which has been delivered to
such Lender by or on behalf of such Borrower pursuant to this Agreement, or
which has been delivered to such Lender by or on behalf of Borrower in
connection with such Lender’s credit evaluation of Borrower prior to entering
into this Agreement.

 

  14.

DEFINITIONS

14.1 Definitions. As used in this Agreement, the following terms have the
following meanings:

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

“Affiliate” of any Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person’s managers and members.

“Agreement” is defined in the preamble hereof.

“Amortization Date” is specified in Section 2.2(b).

“Anti-Terrorism Laws” means any laws relating to terrorism or money laundering,
including Executive Order No. 13224 (effective September 24, 2001), the USA
PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the
laws administered by OFAC.

 

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“Approved Fund” means any (i) investment company, fund, trust, securitization
vehicle or conduit that is (or will be) engaged in making, purchasing, holding
or otherwise investing in commercial loans and similar extensions of credit in
the ordinary course of its business or (ii) any Person (other than a natural
person) which temporarily warehouses loans for any Lender or any entity
described in the preceding clause (i) and that, with respect to each of the
preceding clauses (i) and (ii), is administered or managed by (a) a Lender,
(b) an Affiliate of a Lender or (c) a Person (other than a natural person) or an
Affiliate of a Person (other than a natural person) that administers or manages
a Lender.

“Approved Lender” has the meaning given it in Section 12.1.

“Basic Rate” means with respect to the Term Loan, the per annum rate of interest
(based on a year of 360 days) equal to the greater of (a) 8.63% per annum and
(b) the sum of (i) 8.34% plus (ii) the 3-month LIBOR rate reported in The Wall
Street Journal three (3) Business Days prior to the Funding Date of the Term
Loan.

“Blocked Person” means any Person: (a) listed in the annex to, or is otherwise
subject to the provisions of, Executive Order No. 13224, (b) a Person owned or
controlled by, or acting for or on behalf of, any Person that is listed in the
annex to, or is otherwise subject to the provisions of, Executive Order
No. 13224, (c) a Person with which any Lender is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person
that commits, threatens or conspires to commit or supports “terrorism” as
defined in Executive Order No. 13224, or (e) a Person that is named a “specially
designated national” or “blocked person” on the most current list published by
OFAC or other similar list.

“Borrower” is defined in the preamble hereof.

“Borrower’s Books” are all a Borrower’s books and records including ledgers,
federal, and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.

“Business Day” is any day that is not a Saturday, Sunday or a day on which
Collateral Agent is closed.

“Cash Equivalents” are (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than two (2) years from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., and (c) certificates of deposit
maturing no more than two (2) years after issue provided that the account in
which any such certificate of deposit is maintained is subject to a Control
Agreement in favor of Collateral Agent. For the avoidance of doubt, the direct
purchase by Borrower, Guarantor, co-borrower, or any subsidiary of a Borrower of
any Auction Rate Securities, or purchasing participations in, or entering into
any type of swap or other derivative transaction, or otherwise holding or
engaging in any ownership interest in any type of Auction Rate Security by
Borrower, Guarantor, co-borrower, or any subsidiary of a Borrower shall be
conclusively determined by Lenders as an ineligible Cash Equivalent, and any
such transaction shall expressly violate each other provision of this agreement
governing Permitted Investments. Notwithstanding the foregoing, Cash Equivalents
does not include and each Borrower and its Subsidiaries are prohibited from
purchasing, purchasing participations in, entering into any type of swap or
other equivalent derivative transaction, or otherwise holding or engaging in any
ownership interest in any type of debt instrument, including, without
limitation, any corporate or municipal bonds with a long-term nominal maturity
for which the interest rate is reset through a dutch auction and more commonly
referred to as an auction rate security.

“Claims” are defined in Section 12.2.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of California; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Collateral Agent’s Lien on any Collateral is governed by the Uniform
Commercial Code in effect in a jurisdiction other than

 

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the State of California, the term “Code” 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 relating to such provisions.

“Collateral” is any and all properties, rights and assets of a Borrower
described on Exhibit A and any and all other properties, rights and assets of
such Borrower granted by such Borrower to Collateral Agent for the ratable
benefit of Lenders or arising under the Code or other applicable law, now, or in
the future.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

“Collateral Agent” means, Oxford, not in its individual capacity, but solely in
its capacity as agent on behalf of and for the benefit of Lenders.

“Collateral Agent-Related Person” means the Collateral Agent, together with its
Affiliates, and the officers, directors, employees, agents, advisors, auditors
and attorneys-in-fact of such Persons; provided, however, that no Collateral
Agent-Related Person shall be an Affiliate of Borrower or Guarantor .

“Commitment Percentage” is set forth in Schedule 1.1, as amended from time to
time.

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

“Communication” is defined in Section 10.

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit C.

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation directly
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by
that Person, or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; but “Contingent Obligation”
does not include endorsements in the ordinary course of business. The amount of
a Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement.

“Control Agreement” is any control agreement entered into among the depository
institution at which a Borrower or Guarantor maintains a Deposit Account or the
securities intermediary or commodity intermediary at which Borrower or Guarantor
maintains a Securities Account or a Commodity Account, Borrower or Guarantor,
and Collateral Agent pursuant to which Collateral Agent obtains control (within
the meaning of the Code) for the benefit of Lenders over such Deposit Account,
Securities Account, or Commodity Account.

“Credit Extension” is the Term Loan or any other extension of credit by
Collateral Agent or Lenders for Borrower’s benefit.

“CyDex Acquisition” is the acquisition by Borrower of the capital stock and/or
assets of CyDex Pharmaceuticals, Inc.

“Default Rate” is defined in Section 2.3(b).

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

 

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“Designated Deposit Account” is Borrower’s deposit account, account number
            , maintained with             .

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

“Effective Date” is defined in the preamble of this Agreement.

“Eligible Assignee” means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an
Approved Fund and (iv) any commercial bank, savings and loan association or
savings bank or any other entity which is an “accredited investor” (as defined
in Regulation D under the Securities Act of 1933, as amended) and which extends
credit or buys loans as one of its businesses, including insurance companies,
mutual funds, lease financing companies and commercial finance companies, in
each case, which either (A) has a rating of BBB or higher from Standard & Poor’s
Rating Group and a rating of Baa2 or higher from Moody’s Investors Service, Inc.
at the date that it becomes a Lender or (B) has total assets in excess of
$5,000,000,000, and in each case of clauses (i) through (iv), which, through its
applicable lending office, is capable of lending to Borrower without the
imposition of any withholding or similar taxes; provided that notwithstanding
the foregoing, “Eligible Assignee” shall not include (i) Borrower or any of
Borrower’s Affiliates or Subsidiaries or (ii) unless Collateral Agent has
declared all amounts outstanding under this Agreement immediately due and
payable, a direct competitor of Borrower or Guarantor or a vulture hedge fund,
each as determined by Collateral Agent. Notwithstanding the foregoing, in
connection with assignments by a Lender due to a forced divestiture at the
request of any regulatory agency, the restrictions set forth herein shall not
apply and Eligible Assignee shall mean any Person or party.

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

“ERISA” is the Employee Retirement Income Security Act of 1974, as amended, and
its regulations.

“Event of Default” is defined in Section 8.

“Final Payment” is a payment (in addition to and not a substitution for the
regular monthly payments of principal plus accrued interest) due on the earliest
to occur of (a) the Maturity Date, or (b) the acceleration of the Term Loan, or
(c) the prepayment of the Term Loan pursuant to Section 2.2(c) or 2.2(d), equal
to the original principal amount of the Term Loan multiplied by the Final
Payment Percentage, payable to Lenders in accordance with their respective Pro
Rata Shares.

“Final Payment Percentage” is six percent (6.0%).

“Funding Date” is any date on which a Credit Extension is made to or on account
of a Borrower which shall be a Business Day.

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession in the
United States, which are applicable to the circumstances as of the date of
determination.

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.

 

28

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“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

“Guarantor” is each Person who guarantees satisfaction of the Obligations.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and
(d) Contingent Obligations.

“Indemnified Person” is defined in Section 12.2.

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

“Intellectual Property” consists of the copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, trade names, service marks, mask works, rights of use of any
name, domain names, or any other similar rights, any applications therefor,
whether registered or not, and the goodwill of the business of any Person
connected with and symbolized thereby, know-how, operating manuals, trade secret
rights, clinical and non-clinical data, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing.

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of any Person’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.

“Key Person” means each of Borrower’s (i) Chief Executive Officer, who is John
L. Higgins as of the Effective Date, and (ii) Chief Financial Officer, who is
John P. Sharp as of the Effective Date.

“Lender” is any one of Lenders.

“Lenders” shall mean the Persons identified on Schedule 1.1 hereto and each
assignee that becomes a party to this Agreement pursuant to Section 12.1.

“Lenders’ Expenses” are all audit fees and expenses, costs, and expenses
(including reasonable attorneys’ fees and expenses, as well as appraisal fees,
fees incurred on account of lien searches, inspection fees, and filing fees) for
preparing, amending, negotiating, administering, defending and enforcing the
Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) or otherwise incurred by Collateral Agent
and/or Lenders in connection with the Loan Documents.

 

29

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“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest, or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
each Compliance Certificate, any subordination agreements, any note, or notes or
guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or Guarantor for the benefit of Lenders and Collateral
Agent in connection with this Agreement, all as amended, restated, or otherwise
modified.

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Collateral Agent’s Lien in the Collateral or in the value of such
Collateral; (b) a material adverse change in the business, operations, or
condition (financial or otherwise) or prospects of Borrower or Guarantor; or
(c) a material impairment of the prospect of repayment of any portion of the
Obligations.

“Maturity Date” is August 1, 2014.

“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Lenders’ Expenses, the Prepayment Fee, the Final Payment, and other
amounts Borrower owes Lenders now or later, whether under this Agreement, the
Loan Documents, or otherwise, including, without limitation, all obligations
relating to letters of credit (including reimbursement obligations for drawn and
undrawn letters of credit), cash management services, and foreign exchange
contracts, if any, and including interest accruing after Insolvency Proceedings
begin (whether or not allowed) and debts, liabilities, or obligations of
Borrower assigned to Lenders and/or Collateral Agent, and the performance of
Borrower’s duties under the Loan Documents.

“OFAC” is the U.S. Department of Treasury Office of Foreign Assets Control.

“OFAC Lists” are, collectively, the Specially Designated Nationals and Blocked
Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed.
Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other
restricted Persons maintained pursuant to any of the rules and regulations of
OFAC or pursuant to any other applicable Executive Orders.

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified by the Secretary of State of such Person’s jurisdiction of
organization on a date that is no earlier than 30 days prior to the Effective
Date, and, (a) if such Person is a corporation, its bylaws in current form,
(b) if such Person is a limited liability company, its limited liability company
agreement (or similar agreement), and (c) if such Person is a partnership, its
partnership agreement (or similar agreement), each of the foregoing with all
current amendments or modifications thereto.

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.

“Payment Date” is the first (1st) calendar day of each calendar month.

“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

(a) Borrower’s and Guarantor’s Indebtedness to Lenders and Collateral Agent
under this Agreement and the other Loan Documents;

(b) Indebtedness existing on the Effective Date and shown on the Perfection
Certificate;

(c) Subordinated Debt;

(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of
business;

 

30

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(e) Indebtedness secured by liens specified in clause (c) of the definition of
“Permitted Liens” provided such Indebtedness shall not exceed One Hundred
Thousand Dollars ($100,000) in the aggregate principal amount outstanding at any
one time;

(f) Indebtedness of up to Five Million Dollars ($5,000,000) secured exclusively
by a security interest in a Deposit Account held with, or Certificate of Deposit
issued by, the holder of such Indebtedness, and on terms reasonably acceptable
to Agent;

(g) Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of Borrower’s business; and

(h) extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness (a) through (f) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose materially more burdensome terms upon Borrower, Guarantor or its
Subsidiary, as the case may be.

“Permitted Investments” are:

(a) Investments shown on the Perfection Certificate and existing on the
Effective Date;

(b) Investments in cash and Cash Equivalents; and

(c) Investments in the stock of CyDex Pharmaceuticals, Inc. and any stock or
equity in any company acquired in a future permitted acquisition pursuant to
Section 7.3.

“Permitted Liens” are:

(a) Liens existing on the Effective Date and shown on the Perfection Certificate
or arising under this Agreement and the other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which Borrower or
Guarantor maintains adequate reserves on its Books, provided that no notice of
any such Lien has been filed or recorded under the Internal Revenue Code of
1986, as amended , and the Treasury Regulations adopted thereunder;

(c) purchase money Liens (i) on Equipment or other assets subject to capital
leases acquired or held by Borrower or Guarantor incurred for financing the
acquisition of the Equipment or such assets subject to capital leases, or
(ii) on existing Equipment or such assets subject to capital leases when
acquired, in each case if the Lien is confined to the property and improvements
and the proceeds of the Equipment or other assets subject to capital leases;
provided that such Liens under this clause (c) (A) may have priority over liens
granted to Collateral Agent hereunder to the extent provided under the Code so
long as the Indebtedness secured by the Liens remain outstanding and (B) may
secure Indebtedness of no more than One Hundred Thousand Dollars ($100,000) in
the aggregate principal amount outstanding at any one time;

(d) statutory Liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other Persons imposed without action of
such parties, provided they have no priority over any of Collateral Agent’s Lien
and the aggregate amount of the obligations secured by such Liens does not any
time exceed Twenty-Five Thousand Dollars ($25,000);

(e) leases or subleases of real property granted in the ordinary course of
business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or Intellectual Property) granted in the
ordinary course of Borrower’s or Guarantor’s business, if the leases, subleases,
licenses and sublicenses do not prohibit granting Collateral Agent a security
interest; and

 

31

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(f) banker’s liens, rights of setoff and Liens in favor of financial
institutions incurred made in the ordinary course of business arising in
connection with Borrower’s or Guarantor’s deposit accounts or securities
accounts held at such institutions to secure solely payment of fees and similar
costs and expenses and provided such accounts are maintained in compliance with
Section 6.6(b) hereof;

(g) Liens to secure payment of workers’ compensation, employment insurance,
social security and other like obligations incurred in the ordinary course of
business (other than Liens imposed by ERISA);

(h) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 8.4 or 8.7;

(i) licenses of Intellectual Property permitted by Section 7.1 hereof;

(j) Lien on the Deposit Account and/or Certificate of Deposit securing the
Indebtedness described in clause (f) of the defined term “Permitted
Indebtedness”, but only to the extent of such Permitted Indebtedness; and

(k) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a), (c) and (j) above, but any extension, renewal
or replacement Lien must be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness may not increase.

“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

“Prepayment Fee” means with respect to the Term Loan subject to prepayment prior
to the Maturity Date, whether by mandatory or voluntary prepayment, acceleration
or otherwise, an additional fee payable to Lenders in amount equal to:

(a) for a prepayment made on or after the Funding Date of the Term Loan through
and including the first anniversary of the Funding Date of the Term Loan, two
percent (2.0%) of the principal amount of the Term Loan prepaid; and

(b) for a prepayment made after the date which is after the first anniversary of
the Funding Date of the Term Loan, one percent (1.0%) of the principal amount of
the Term Loan prepaid.

“Pro Rata Share” means, as of any date of determination, with respect to each
Lender, a percentage (expressed as a decimal, rounded to the ninth decimal
place) determined by dividing the outstanding principal amount of the Term Loan
held by such Lender by the aggregate outstanding principal amount of the Term
Loan.

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made

“Required Lenders” means (i) for so long as all of the Persons that are Lenders
on the Effective Date (each an “Original Lender”) have not assigned or
transferred any of their interests in their respective Term Loan, Lenders
holding one hundred percent (100%) of the aggregate outstanding principal
balance of the Term Loan, or (ii) at any time from and after any Original Lender
has assigned or transferred any interest in its Term Loan, Lenders holding,
sixty-six percent (66%) or more of the aggregate outstanding principal balance
of the Term Loan, plus, in respect of this clause (ii), (A) each Original Lender
that has not assigned or transferred any portion of its respective Term Loan and
(B) each assignee of an Original Lender provided such assignee was assigned or
transferred and continues to hold 100% of the assigning Original Lender’s
interest in the Term Loan (in each case in respect of clauses (A) and (B) of
this clause (ii), whether or not such Lender is included within Lenders holding
sixty-six percent (66%) of the Terms Loan); provided, however, that
notwithstanding the foregoing, for purposes of Section 9.1(b) hereof, “Required
Lenders” means (i) for so long as all Original Lenders retain 100% of their
interests in their respective Term Loan, Lenders holding one hundred percent
(100%) of the aggregate outstanding principal balance of the Term Loan, or
(ii) at any time from and after any Original Lender has assigned or transferred
any interest in

 

32

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its Term Loan, Lenders holding, sixty-six percent (66%) or more of the aggregate
outstanding principal balance of the Term Loan, plus, in respect of this clause
(ii), each Original Lender that has not assigned or transferred any portion of
its respective Term Loan (in each case in respect of this clause (ii), whether
or not such Original Lender is included within Lenders holding sixty-six percent
(66%) of the Term Loan). For purposes of this definition only, a Lender shall be
deemed to include itself, and any Lender that is an Affiliate or Approved Fund
of such Lender.

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

“Responsible Officer” is any of the President, Chief Executive Officer, or Chief
Financial Officer of a Borrower.

“SEC Filing” is a report filed by Ligand Pharmaceuticals Incorporated with the
Securities and Exchange Commission on any of Forms 8-K, 10-Q or 10-K.

“Secured Promissory Note” is defined in Section 2.4.

“Secured Promissory Note Record” is a record maintained by each Lender with
respect to the outstanding Obligations owed by Borrower to Lender and credits
made thereto.

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

“Subordinated Debt” is indebtedness incurred by a Borrower subordinated to all
of Borrower’s now or hereafter incurred Indebtedness to Lenders (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Collateral Agent and Lenders executed among Collateral Agent,
Borrower, and the other creditor), on terms acceptable to Collateral Agent and
Lenders.

“Subsidiary” means, with respect to any Person, any Person of which more than
50.0% of the voting stock or other equity interests (in the case of Persons
other than corporations) is owned or controlled, directly or indirectly, by such
Person or one or more of Affiliates of such Person.

“Term Loan” is the cash advance made pursuant to Section 2.2(a) hereof.

“Term Loan Commitment” means, for any Lender, the obligation of such Lender to
make Term Loan, up to the principal amount shown on Schedule 1.1. “Term Loan
Commitments” means the aggregate amount of such commitments of all Lenders.

[Signature Page to Follow]

 

33

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWERS LIGAND PHARMACEUTICALS INCORPORATED

By

 

/s/ John L.Higgins

Name:

 

John L.Higgins

Title:

 

President and Chief Executive Officer

SERAGEN, INC.

By

 

/s/ John L.Higgins

Name:

 

John L.Higgins

Title:

 

Chief Executive Officer

METABASIS THERAPEUTICS, INC.

By

 

/s/ John L.Higgins

Name:

 

John L.Higgins

Title:

 

President and Chief Executive Officer

PHARMACOPEIA, LLC By: Ligand Pharmaceuticals Incorporated, Its Sole and Managing
Member

By

 

/s/ John L.Higgins

Name:

 

John L.Higgins

Title:

 

President and Chief Executive Officer

NEUROGEN CORPORATION

By

 

/s/ John L.Higgins

Name:

 

John L.Higgins

Title:

 

President and Chief Executive Officer

ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.

By

 

/s/ John L.Higgins

Name:

 

John L.Higgins

Title:

 

Chief Executive Officer

 

[Signature Page to Loan and Security Agreement]

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

LIGAND JVR, INC.

By

 

/s/ John L.Higgins

Name:

 

John L.Higgins

Title:

 

Chief Executive Officer

COLLATERAL AGENT AND LENDER: OXFORD FINANCE CORPORATION, as Collateral Agent and
as a Lender

By

 

/s/ John G. Henderson

Name:

 

John G. Henderson

Title:

 

Vice President and General Counsel

 

[Signature Page to Loan and Security Agreement]

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SCHEDULE 1.1

LENDERS AND COMMITMENTS

Term Loan

 

Lender

   Term Loan Commitment      Commitment Percentage  

Oxford Finance Corporation

   $ 20,000,000         100.00 % 

TOTAL

   $ 20,000,000         100.00 % 

 

1.

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

EXHIBIT A

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, all certificates
of deposit, fixtures, letters of credit rights (whether or not the letter of
credit is evidenced by a writing), securities, and all other investment
property, supporting obligations, and financial assets, whether now owned or
hereafter acquired, wherever located; and

All Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

The Collateral does not include Certificate of Deposit, account No. 60100378
maintained with Square 1 Bank (the “Cash Collateral Account”) at any time that
(i) obligations of Borrower owing to Square 1 Bank in connection with the loan
facility secured by the Cash Collateral Account are outstanding or (ii) Square 1
Bank has any obligation to make any credit extensions to Borrower under such
loan facility. The Collateral includes the Cash Collateral Account at all other
times.

Notwithstanding the foregoing, the Collateral does not include any of the
following, whether now owned or hereafter acquired except to the extent that it
is necessary under applicable law to have a security interest in any of the
following in order to have a perfected lien and security interest in and to the
“IP Proceeds” defined below: any copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work, whether published or unpublished; any patents, patent
applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same; trademarks, trade names, service marks, mask works, rights of use of any
name or domain names and, to the extent permitted under applicable law, any
applications therefor, whether registered or not; and the goodwill of the
business of Borrower connected with and symbolized by such trademarks and
service marks, know-how, operating manuals, trade secret rights, clinical and
non-clinical data, rights to unpatented inventions; provided, however, the
Collateral shall include all Accounts, license and royalty fees and other
revenues, proceeds, or income arising out of or relating to any of the foregoing
and any claims for damage by way of any past, present, or future infringement of
any of the foregoing (collectively, the “IP Proceeds”).

Pursuant to the terms of a certain negative pledge arrangement with Lender,
Borrower has agreed not to encumber any of its copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, without Lender’s prior written consent. For avoidance of doubt:
the foregoing sentence is subject to certain exceptions set forth in such
negative pledge arrangement with Lender, including without limitation the
granting of non-exclusive licenses (or exclusive field-of-use licenses) for the
use of the Intellectual Property in the ordinary course of business in
connection with joint ventures and corporate collaborations to the extent
permitted, and subject to the terms of, such arrangement.

 

2.

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

EXHIBIT B

Loan Payment/Advance Request Form

DISBURSEMENT LETTER

The undersigned, being the duly elected and acting of LIGAND PHARMACEUTICALS
INCORPORATED (“Borrower”), certifies on behalf of all Borrowers to OXFORD
FINANCE CORPORATION, (“Oxford” and “Lender”), as collateral agent (the
“Collateral Agent”) in connection with that certain Loan and Security Agreement
dated on or about the date hereof by and between Borrowers and Collateral Agent
(the “Loan Agreement”; with other capitalized terms used below having the
meanings ascribed thereto in the Loan Agreement) that:

1. The representations and warranties made by each Borrower in Section 5 of the
Loan Agreement and in the other Loan Documents are true and correct in all
material respects as of the date hereof.

2. No event or condition has occurred that would constitute an Event of Default
under the Loan Agreement or any other Loan Document.

3. Borrowers are in compliance with the covenants and requirements contained in
Sections 4, 6 and 7 of the Loan Agreement.

4. All conditions referred to in Section 3 of the Loan Agreement to the making
of the Loan to be made on or about the date hereof have been satisfied or waived
by Collateral Agent.

5. No Material Adverse Change has occurred.

6. The undersigned is a Responsible Officer.

7. The proceeds for the Term Loan shall be disbursed as follows:

 

Disbursement from Collateral Agent:   

Loan Amount

   $        

Plus:

  

—Deposit Received

   ($      )  Less:   

—Existing Debt Payoff to be remitted to            

  

per the Payoff Letter dated             

   ($      ) 

—Lender’s Legal Fees

   ($      ) 

— Facility Fee

   ($      ) 

Net Proceeds due from Collateral Agent:

   $        

 

3.

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

The aggregate net proceeds of the Term Loan in the amount of $            shall
be transferred to Borrower’s account as follows:

 

   

Account Name:

          

Bank Name:

          

Bank Address:

          

Account Number:

          

ABA Number:

        

Dated:

        

 

BORROWER: LIGAND PHARMACEUTICALS INCORPORATED

By

   

Name:

   

Title:

    AS COLLATERAL AGENT AND AS A LENDER: OXFORD FINANCE CORPORATION

By

   

Name:

   

Title:

   

 

4.

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

EXHIBIT C - COMPLIANCE CERTIFICATE

TO: Oxford Finance Corporation, as Collateral Agent

FROM: LIGAND PHARMACEUTICALS INCORPORATED

The undersigned authorized officer of Ligand Pharmaceuticals Incorporated
(“Borrower”) on behalf of itself and all Borrowers, certifies that in accordance
with the terms and conditions of the Loan and Security Agreement among
Borrowers, Collateral Agent, and Lenders (the “Loan Agreement”),

(i) Borrowers are in compliance for the period ending             with all
provisions of the Loan Agreement except as noted below;

(ii) There are no Events of Default, except as noted below;

(iii) Except as noted below, all representations and warranties contained in the
Loan Agreement are true and correct in all material respects on this date except
as noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date.

(iv) Each Borrower, and each of its Subsidiaries, has timely filed all required
tax returns and reports, and each Borrower has timely paid all foreign, federal,
state, and local taxes, assessments, deposits and contributions owed by such
Borrower except as otherwise permitted pursuant to the terms of Section 5.8 of
the Agreement;

(v) No Liens have been levied or claims made against a Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which a Borrower
has not previously provided written notification to Collateral Agent

Attached are the required documents, if any, supporting our certification(s).
The Officer on behalf of Borrower further certifies that the attached financial
statements are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes and except, in the
case of unaudited financial statements, for the absence of footnotes and subject
to year-end audit adjustments as to the interim financial statements.
Capitalized terms used but not otherwise defined herein shall have the meanings
given them in the Agreement.

 

 

5.

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

Please indicate compliance status since the last Compliance Certificate by
circling Yes, No, or N/A under “Complies” column.

 

Reporting Covenant

  

Requirement

          Complies  

Financial statements

  

Monthly within 30 days

        Yes         No         N/A   

Annual (CPA Audited) statements

  

Within 120 days after Fiscal Year End

        Yes         No         N/A   

Annual Financial Projections/Budget

(prepared on a monthly basis)

  

Annually (1/31) and when Board

approves revisions

        Yes         No         N/A   

8-K, 10-K and 10-Q Filings

  

If applicable

        Yes         No         N/A   

Total amount of Borrower’s cash and cash

equivalents at the last day of the

measurement period

       

$                        

              

Month

     QTD         YTD                 

$                        

         Deposit and Securities Accounts    (Please list all accounts; attach
separate sheet if additional space needed)   

Bank

  

Account Number

   New Account?      Acct Control Agmt
in place?           Yes         No         Yes         No            Yes        
No         Yes         No            Yes         No         Yes         No      
     Yes         No         Yes         No            Yes         No         Yes
        No            Yes         No         Yes         No    Financial
Covenants    Requirement      Actual            Compliance      

None

               Other Matters               

Have there been any changes in management since the last Compliance Certificate?

        Yes         No      

Have there been any transfers/sales/disposals/retirement of Collateral or IP
prohibited by the Agreement?

   

     Yes         No      

Have there been any new or pending claims or causes of action against Borrower
that involve more than $100,000?

   

     Yes         No       Exceptions            

Please explain any exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions.” Attach separate sheet if additional
space needed.)

               

 

6.

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LIGAND PHARMACEUTICALS INCORPORATED

    LENDERS USE ONLY

By:

       

Received by:                 Verified by:                

Name:

        Date:                              Date:                             

Title:

             

Compliance Status                        Yes    No    

 

7.

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EXHIBIT D

SECURED PROMISSORY NOTE

 

$20,000,000    January 24, 2011

FOR VALUE RECEIVED, LIGAND PHARMACEUTICALS INCORPORATED , a Delaware
corporation, and each of the other Persons signing below as a Borrower
(individually, a “Borrower” and, collectively, the “Borrowers”) jointly and
severally PROMISE TO PAY to the order of OXFORD FINANCE CORPORATION (“Lender”)
the principal amount of TWENTY MILLION DOLLARS ($20,000,000) or such lesser
amount as shall equal the outstanding principal balance of the Term Loan made to
Borrowers by Lender, plus interest on the aggregate unpaid principal amount of
Term Loan, at the rates and in accordance with the terms of the Loan and
Security Agreement dated as of January 24, 2011 by and among Borrowers, Oxford
Finance Corporation, as Collateral Agent and as a Lender, and Lenders from time
to time party thereto (as amended, restated, supplemented or otherwise modified
from time to time, the “Loan Agreement”). If not sooner paid, the entire
principal amount and all accrued and unpaid interest hereunder shall be due and
payable on the Maturity Date as set forth in the Loan Agreement. Any capitalized
term not otherwise defined herein shall have the meaning attributed to such term
in the Loan Agreement.

Borrowers agree to pay any initial partial monthly interest payment from the
date the Term Loan is made to Borrower under this Secured Promissory Note (this
“Note”) to the first Payment Date (“Interim Interest”) on the first Payment
Date.

Principal, interest and all other amounts due with respect to the Term Loan, are
payable in lawful money of the United States of America to Lender as set forth
in the Loan Agreement and this Note. The principal amount of this Note and the
interest rate applicable thereto, and all payments made with respect thereto,
shall be recorded by Lender and, prior to any transfer hereof, endorsed on the
grid attached hereto which is part of this Note.

The Loan Agreement, among other things, (a) provides for the making of a secured
Term Loan by Lender to Borrowers, and (b) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events.

This Note may not be prepaid except as set forth in Section 2.2 (c) and
Section 2.2(d) of the Loan Agreement.

This Note and the obligation of Borrowers to repay the unpaid principal amount
of the Term Loan, interest on the Term Loan and all other amounts due Lender
under the Loan Agreement is secured under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and
notices of any kind in connection with the execution, delivery, performance and
enforcement of this Note are hereby waived.

Borrowers shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys’ fees and costs, incurred by Lender in the
enforcement or attempt to enforce any of a Borrower’s obligations hereunder not
performed when due.

This Note shall be governed by, and construed and interpreted in accordance
with, the internal laws of the State of California.

The ownership of an interest in this Note shall be registered on a record of
ownership maintained by Lender or its agent. Notwithstanding anything else in
this Note to the contrary, the right to the principal of, and stated interest
on, this Note may be transferred only if the transfer is registered on such
record of ownership and the transferee is identified as the owner of an interest
in the obligation. Borrowers shall be entitled to treat the registered holder of
this Note (as recorded on such record of ownership) as the owner in fact thereof
for all purposes and shall not be bound to recognize any equitable or other
claim to or interest in this Note on the part of any other person or entity.
Unless and until Lender notifies Borrowers in writing that such a registered
transfer has occurred and that it is so recorded on the record of ownership,
Borrowers shall be entitled to act as if there has been no such transfer and no
such recordation on the record of ownership.

 

8.

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IN WITNESS WHEREOF, Borrowers have caused this Note to be duly executed by one
of its officers thereunto duly authorized on the date hereof.

 

LIGAND PHARMACEUTICALS INCORPORATED By     Name:     Title:    

 

SERAGEN, INC. By     Name:     Title:     METABASIS THERAPEUTICS, INC. By    
Name:     Title:     PHARMACOPEIA, LLC

By: Ligand Pharmaceuticals Incorporated,

Its Sole and Managing Member

By     Name:     Title:     NEUROGEN CORPORATION By     Name:     Title:    
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC. By     Name:     Title:     LIGAND
JVR, INC. By     Name:     Title:    

 

1.

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FORM OF

CORPORATE BORROWING CERTIFICATE

 

BORROWER: [Borrower]    DATE: COLLATERAL AGENT: OXFORD FINANCIAL CORPORATION   

I hereby certify as follows, as of the date set forth above:

1. I am the Secretary, Assistant Secretary or other officer of the Borrower. My
title is as set forth below.

2. Borrower’s legal name is set forth above. Borrower is a corporation existing
under the laws of the State of                     .

3. Attached hereto are true, correct and complete copies of Borrower’s
Articles/Certificate of Incorporation (including amendments), as filed with the
Secretary of State of the state in which Borrower is incorporated as set forth
in paragraph 1 above. Except for such attached amendments, such
Articles/Certificate of Incorporation have not been amended, annulled,
rescinded, revoked or supplemented, and remain in full force and effect as of
the date hereof.

4. The following resolutions were duly and validly adopted by Borrower’s Board
of Directors at a duly held meeting of such directors (or pursuant to a
unanimous written consent or other authorized corporate action). Such
resolutions are in full force and effect as of the date hereof and have not been
in any way modified, repealed, rescinded, amended or revoked, and Bank may rely
on them until Bank receives written notice of revocation from Borrower.

RESOLVED, that any one of the following officers or employees of Borrower, whose
names, titles and signatures are below, may act on behalf of Borrower:

 

Name

         

Title

         

Signature

  

Authorized to
Add or Remove
Signatories

                     ¨                      ¨                      ¨          
           ¨

RESOLVED FURTHER, that any one of the persons designated above with a checked
box beside his or her name may, from time to time, add or remove any individuals
to and from the above list of persons authorized to act on behalf of Borrower.

RESOLVED FURTHER, that such individuals may, on behalf of Borrower:

Borrow Money. Borrow money from Oxford Financial Corporation (“Lender”).

Execute Loan Documents. Execute any loan documents Bank requires.

Grant Security. Grant Lender a security interest in any of Borrower’s assets.

Further Acts. Designate other individuals to request advances, pay fees and
costs and execute other documents or agreements they believe to be necessary to
effectuate such resolutions.

 

1.

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RESOLVED FURTHER, that all acts authorized by the above resolutions and any
prior acts relating thereto are ratified.

5. The persons listed above are Borrower’s officers or employees with their
titles and signatures shown next to their names.

 

By:     Name:     Title:    

*** If the Secretary, Assistant Secretary or other certifying officer executing
above is designated by the resolutions set forth in paragraph 4 as one of the
authorized signing officers, this Certificate must also be signed by a second
authorized officer or director of Borrower.

I, the                      of Borrower, hereby certify as to paragraphs 1
through 5 above, as                      [print title]                      of
the date set forth above.

 

By:     Name:     Title:    

 

2.