Exhibit 10.4

 

LOAN AGREEMENT

 

Dated as of May 13, 2016

 

by and between

 

AGILITY CAPITAL II, LLC

as “Agility” or “Lender”

 

and

 

EMMAUS LIFE SCIENCES, INC.

as “Borrower”

 

TOTAL CREDIT AMOUNT:  Up to $260,000

 

Maturity Date:

May 1, 2017, subject to Section I (f)

Formula:

None

Facility Origination Fee:

$10,000

Interest:

10% per annum; fixed

Warrants:

See Warrant for coverage

 

The information set forth above is subject to the terms and conditions set forth
in the balance of this Loan Agreement (this “Agreement”). The parties agree as
follows:

 

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1.            Advances and Payments.

 

(a)           Advance. Borrower may request one advance in the aggregate
principal amount of $260,000 which shall be loaned on or around the date of this
Agreement (the “Advance”). Agility’ s obligation to make any portion of the
Advance under this Agreement is subject to (i) Agility’s determination , in its
sole discretion, that there has not occurred (A) a Material Adverse Effect,
(B) a material impairment of Borrower’ s ability to perform its Obligations or
of Agility’s ability to enforce the Obligations or realize upon the Collateral,
or (C) a material adverse change in the value of the Collateral; and (ii) the
execution, delivery and filing of such certificates, instruments and agreements,
as Agility deems appropriate, in form and substance satisfactory to Agility,
including but not limited to (A) a warrant to purchase stock; (B) an
unconditional guarantee by Yutaka Niihara and Soomi Niihara (the “Individual
Guarantors”); and (C) a deed of trust (“Deed of Trust”) with respect to the
property located at 24 Covered Wagon Lane, Rolling Hills Estates, CA 90274 (the
“Real Property”).

 

(b)           Interest. Borrower shall pay interest on the outstanding principal
balance of the Advance at a fixed rate per annum equal to ten percent (10.0%).
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed, shall accrue from the date of an Advance and continue
until such Advance has been repaid, and shall be payable in arrears on the first
day of each month until such Advance has been repaid.

 

(c)           Payments. Borrower shall make interest-only payments on the first
day of each month as set forth in Section 1(b) above. Any partial month shall be
prorated on the basis of a 30-day month based on the actual number of days
outstanding. All payments made to Agility shall be made via wire transfer per
wire transfer instructions separately provided by Agility to Borrower or by
automated clearing house (ACH) transfer. All payment s received by Agility shall
be applied first to outstanding fees and expenses owing to Agility, then to
accrued and unpaid interest, then to principal. Any fees or interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
fees or interest shall thereafter accrue interest at the applicable interest
rate.

 

(d)           Prepayment. Borrower may prepay all but not less than all of the
Advance, provided Borrower (i) provides written notice to Lender of its election
to prepay the Advance at least ten (10) days prior to such prepayment , and (ii)
pays to the Lender on the date of such prepayment an amount equal to the sum of
(A) all outstanding principal of the Advance plus accrued and unpaid interest
thereon through the prepayment date, (B) a fee equal to $5,000 minus the
aggregate amount of interest paid by Borrower prior to the prepayment date (if
such amount of interest already paid by Borrower is less than $5,000), plus
(C) any other amounts due to Lender under this Agreement all of Lender’s fees
and expenses incurred in connection with this Agreement).

 

(e)           Fees. On the date hereof, Borrower shall pay to Agility an
origination fee of $10,000, which is fully earned and nonrefundable, and shall
be deducted from the initial proceeds of the initial Advance. Borrower shall pay
Agility a loan management fee of $200 per month, payable in arrears on the first
day of each month, each of which are fully earned and nonrefundable on each such
date.

 

(f)            Maturity Date. All amounts outstanding hereunder are due and
payable on the earlier of (i) the closing of any new debt financing of Borrower
(other than financings or refinancings of Permitted Debt) occurring after the
date hereof or (ii) May 1, 2017 (the “Maturity Date”).

 

(g)           Late Payments; Default Interest; Default Fees. After the
occurrence of an Event of Default under Section 5(a) of this Agreement, the
Obligations shall bear interest at a rate equal to 15%. In addition, upon the
occurrence of such Event of Default, Borrower shall pay Agility a default fee of
$1,250. For each 30 day period in which the Event of Default remains outstanding
and uncured to Agility’s satisfaction, Borrower shall pay Agility an additional
default fee of $1,250 for the first 30 day period, and an additional $1,250 for
each 30 day period thereafter, until such Event of Default is cured or waived in
writing by Agility. The terms of this paragraph shall not be construed as
Agility’s consent to Borrower’s failure to pay any amounts in strict accordance
with this Agreement, and Agility’s charging any fees and/or acceptance of any
payments shall not restrict Agility’s exercise of any remedies arising out of
any such failure.

 

(h)           Use of Proceeds. The proceeds from the Advance shall be used for
Borrower’s general corporate purposes.

 

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2.             Security Interest. As security for all present and future
indebtedness, guarantees, liabilities, and other obligations of Borrower to
Agility under this Agreement and any other present or future agreement,
document, or instrument entered into in connection herewith (collectively, the
“Transaction Documents”), including all fees specified in Section 1
(collectively, the “Obligations”), Borrower grants Agility a security interest
in all of Borrower’ s personal property, whether now owned or hereafter
acquired, including without limitation the property described on Exhibit A
attached hereto, and all products, proceeds and insurance proceeds of the
foregoing (collectively, the “Collateral”). Borrower authorizes Agility to
execute such documents and take such actions as Agility reasonably deems
appropriate from time to time to perfect or continue the security interest
granted hereunder. Agility agrees to take such action as may be reasonably
requested by the Borrower, at Borrower’s expense, to evidence termination of
Agility’s security interests upon the payment and performance of the Obligations
in full, including the filing of UCC termination statements upon the payment and
performance of the Obligations in full.

 

3.             Representations, Warranties and Covenants. Borrower represents to
Agility as follows (which shall be deemed continuing throughout the term of this
Agreement , including the dates each portion of the Advance is made):

 

(a)           Authorization. The execution, delivery and performance by Borrower
of the Transaction Document s, and all other documents contemplated hereby have
been duly and validly authorized by all necessary corporate action, and do not
violate Borrower’s Articles of 1ncorporation or by-laws, or any law or any
material agreement or instrument which is binding upon Borrower or its property.

 

(b)           State of Incorporation; Places of Business; Locations of
Collateral. Borrower is and will continue to be, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Borrower is and will continue to be qualified and licensed to do
business in all jurisdictions in which it is required to do so. The address set
forth in this Agreement under Borrower’s signature is Borrower’s chief executive
office. Other than the chief executive office, as of the date of this Agreement
the tangible Collateral is located at the address(es) set forth on Exhibit B,
and the Borrower shall promptly provide Agility with written notice of any other
location where tangible Collateral may be located from time to time.

 

(c)           Title to Collateral; Permitted Liens. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral. The Collateral
now is and will remain free and clear of any and all liens, security interests,
encumbrances and adverse claims, except for (i) purchase money security
interests in specific items of equipment; (ii) leases of specific items of
equipment; (iii) liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings , provided the same have no priority over any of
Lender’s security interests; (iv) liens of materialmen , mechanics, warehousemen
, carriers, or other similar liens arising in the ordinary course of business
and securing obligations that are not delinquent; and

(v) licenses pursuant to which Borrower or any of its subsidiaries licenses any
intellectual property which Borrower or such subsidiary has the right to use;
(vi) the liens under this Agreement and the other loan documents evidencing the
Obligations; and (vii) the liens set forth on Exhibit B, if any.

 

(d)           Financial Condition, Statements and Reports. The financial
statements provided to Agility by Borrower have been prepared in all material
respects in accordance with generally accepted accounting principles,
consistently applied (“GAAP”). Except as set forth on Exhibit B, all financial
statements now or in the future delivered to Agility will fairly reflect in all
material respects the financial condition of Borrower, at the times and for the
periods therein stated. Between the last date covered by any such statement
provided to Agility and the date hereof, there has been no circumstance or event
that would reasonably be expected to have a material adverse change in the
business, operations, results of operations, assets, liabilities or financial or
other condition of Borrower taken as a whole (a “Material Adverse Effect”).
Borrower has timely filed, and will timely file, all material tax returns and
reports required by applicable law, and Borrower has timely paid, and will
timely pay, all material applicable taxes, assessments, deposits and
contributions now or in the future owed by Borrower except for any such taxes
that are being contested in good faith.

 

(e)           Compliance with Law. Borrower has complied, and will comply, with
all provisions of all material applicable laws and regulations, except in each
case where the failure to comply could not reasonably be expected to constitute
or give rise to a Material Adverse Effect.

 

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(f)            Information. Except as set forth on Exhibit B, all written
information provided to Agility by or on behalf of Borrower on or prior to the
date of this Agreement is true and correct in all material respects when
considered as a whole, and no representation or other statement made by Borrower
to Agility contains any untrue statement of a material fact or omits to state a
material fact necessary to make any statements made to Agility not misleading at
the time made.

 

(g)           Litigation. Except as disclosed on Exhibit B, there is no claim or
litigation pending or (to best of Borrower’s knowledge) threatened against
Borrower. Borrower will promptly inform Agility in writing of any claim or
litigation in the future.

 

(h)           Subsidiaries; Investments. Except as disclosed on Exhibit B,
Borrower has no wholly-owned or partially owned subsidiaries, and Exhibit B sets
forth all loans by Borrower to, and all investments by Borrower in, any person,
entity, corporation partnership or joint venture.

 

(i)            Deposit and Investment Accounts. Borrower maintains only the
operating, savings, deposit, securities and investment accounts listed on
Exhibit B. Within 90 days after the date hereof, Borrower shall deliver to
Lender an account control agreement with Union Bank in form and substance
satisfactory to Lender; and if requested by Lender, Borrower shall cause each
Subsidiary Guarantor to execute and deliver account control agreement(s) with
respect to its accounts, in form and substance satisfactory to Lender.
Notwithstanding , the foregoing, Borrower and its subsidiaries may maintain
accounts that are not subject to any account control agreement as long as the
balances in all such accounts do not exceed $50,000 individually or $150,000 in
the aggregate at any time.

 

(j)            Real Property. The maximum principal amount of indebtedness owing
by Individual Guarantors on the first mortgage on the Real Property as of the
date hereof is no more than $1,330,000.

 

4.             Other Covenants.

 

(a)           Reports. Borrower will provide to Agility in form and substance
acceptable to Agility (i) within forty five (45) days after the last day of each
calendar quarter after the date hereof, quarterly financial statements, prepared
in all material respects in accordance with GAAP, consistently applied;
(ii) within fifteen (15) days after the last day of each month, copies of all
reports and statements received by Borrower from any of its banks or other
financial institutions (in lieu of such requirement, Borrower may grant Agility
on-line “view only” access to all of its accounts on terms acceptable to
Agility); (iii) annual financial statements prepared in all material respects in
accordance with GAAP, consistently applied, by an independent certified public
accountant acceptable to Agility, and copies of Borrower’s tax returns for such
year, within one hundred twenty (120) days of the last day of such year; and

(iv) upon request, such other information relating to Borrower’s operations and
condition, as Agility may reasonably request from time to time. Agility
acknowledges that Borrower does not presently have complete financial statements
for the quarters ended June 30, 2015, September 30, 2015 or December 31, 2015 or
for the year ended December 31, 2015. Agility shall have the right to review and
copy Borrower’s books and records and audit and inspect the Collateral, from
time to time, upon reasonable notice to Borrower. Agility or its officers,
employees, or agents shall have a right to visit Borrower’s premises and
interview Borrower’s officers at Borrower’s expense.

 

(b)           Insurance. Borrower will maintain insurance on the Collateral and
Borrower’s business, in amounts and of a type equivalent to insurance maintained
by Borrower on the date of this Agreement, and promptly (and in any event within
5 days following the execution of this Agreement) Agility will be named in a
lender’s loss payable endorsement in favor of Agility, in form reasonably
acceptable to Agility.

 

(c)           Other Negative Covenants. Without Agility’s prior written consent,
Borrower shall not do any of the following : (i) acquire any material assets
outside the ordinary course of business; (ii) sell, lease, license, encumber,
transfer or otherwise dispose of any Collateral except for sales of inventory in
the ordinary course of business; (iii) pay or declare any dividends on
Borrower’s stock; (iv) redeem, repurchase or otherwise acquire, any of
Borrower’s stock;(v) except as provided on Exhibit B, make any investments in,
or loans or advances to, any person, including without limitation any
investments in, or downstreaming of funds to, any subsidiary or affiliate of
Borrower; (vi) incur any indebtedness, including any guaranties or other
contingent liabilities, other than (I) trade debt and equipment purchase money
financing and/or capital lease obligations, each incurred in the ordinary course
of

 

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business; and (2) unsecured convertible indebtedness on substantially similar
terms as that which is existing as of the date hereof under which no interest or
principal payments are due prior to the Maturity Date (collectively set forth on
Exhibit B, “Permitted Debt”); (vii) make any deposits or investments into any
investment or depository accounts unless they are subject to an account control
agreement acceptable to Agility; (viii) make any payment on any of Borrower’s
indebtedness that is subordinate to the Obligations (for the avoidance of doubt,
the Borrower shall be permitted to make payments when due on the Permitted Debt
that is outstanding as of the date hereof);(ix) permit or suffer a merger,
change of control, or acquisition of all or any substantial part of Borrower’s
assets; (x) use any part of the Advance to repay loans or pay deferred salaries
or other amounts owing to any officers, directors, shareholders or affiliates of
Borrower, other than repayments of the Permitted Debt that is outstanding as of
the date hereof to debtors that may also be shareholders of Borrower; or
(xi) agree to do any of the foregoing.

 

5.             Events of Default. Any one or more of the following shall
constitute an Event of Default under this Agreement:

 

(a)           Borrower shall fail to pay any principal or interest due hereunder
within ten days after the date due, provided that any amounts due on the
Maturity Date shall be paid on that date, with no grace period; or

 

(b)           Borrower shall fail to comply with any other provision of this
Agreement or any other Transaction Document; or

 

(c)           Any warranty or representation , report or certificate made or
delivered to Agility by Borrower or on Borrower’s behalf pursuant to this
Agreement or any of the Transaction Documents is or shall be untrue or
misleading in a material respect as of the date given or made; or

 

(d)           A default or event of default occurs in any other agreement to
which Borrower is subject or by which Borrower is bound (including Borrower’s
loan agreement with Lender dated as of April 18, 2016) (i) resulting in a right
by the other party or parties, whether or not exercised, to accelerate the
maturity of any indebtedness of Borrower in an amount of more than $100,000 or
(ii) that could have a Material Adverse Effect, as defined below; or

 

(e)           Any portion of Borrower’s assets is attached, seized or levied
upon, or a judgment for more than $100,000 is awarded against Borrower and is
not stayed within ten days; or

 

(f)            Dissolution or termination of existence of Borrower; or
appointment of a receiver, trustee or custodian, for all or any material part of
the property of, assignment for the benefit of creditors by, or the commencement
of any proceeding by or against Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction , now or in the future in effect (except that, in
the case of a proceeding commenced against Borrower, Borrower shall have 60 days
after the date such proceeding was commenced to have it dismissed, provided
Agility shall have no obligation to make any Advance during such period); or

 

(g)           If the approvals from any governmental agency (including the FDA)
is revoked, rescinded , suspended or modified in an adverse manner or if any
litigation is commenced against Borrower, and such actions or litigation could
reasonably be expected to have a Material Adverse Effect, or cause a material
impairment of Borrower’s ability to perform its Obligations or of Agility’s
ability to enforce the Obligations or realize upon the Collateral, or material
adverse change in the value of the Collateral; or

 

(h)           If any guaranty of all or a portion of the Obligations (a
“Guaranty”), if any, ceases for any reason to be in full force and effect or if
any Guarantor fails to satisfy any payment obligations under the Guaranty; or

 

(i)            If any Guarantor fails to perform any obligation (other than any
payment obligations), or any event of default occurs, under any Guaranty and the
Guarantor shall not cure such failure or event of default within thirty days
after notice of such failure or event of default from the Lender or Guarantor
becomes aware of such failure or event of default, or if any of the
circumstances described in clauses (c) through (f) above occur with respect to
any Guarantor or any Individual Guarantor dies or becomes subject to any
criminal prosecution; or

 

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(i)            If the Deed of Trust ceases for any reason to be in full force
and effect, or any event of default occurs under the Deed of Trust, or the
amount owing under the existing mortgage on the Real Property exceeds
$1,330,000.

 

6.             Remedies.

 

(a)           Remedies. Following the occurrence and during the continuance of
any Event of Default, Agility, at its option, may do any one or more of the
following: (i) Accelerate and declare the Obligations to be immediately due,
payable, and performable; (ii) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Borrower hereby authorizes
Agility to enter Borrower’s premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge by Borrower for so long as Agility reasonably deems it
necessary in order to complete the enforcement of its rights under this
Agreement or any other Transaction Document ; provided , however, that should
Agility seek to take possession of any of the Collateral by Court process,
Borrower hereby waives: (A) any bond and any surety or security relating
thereto; (B) any demand for possession prior to the commencement of any suit or
action to recover possession thereof; and (C) any requirement that Agility
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (iii) Require Borrower to assemble any or all of the
Collateral and make it available to Agility at places designated by Agility;
(iv) Complete the processing of any Collateral prior to a disposition thereof
and, for such purpose and for the purpose of removal, Agility shall have the
right to use Borrower’s premises, equipment and all other property without
charge by Borrower; (v) Collect and dispose of and realize upon any investment
property, including withdrawal of any and all funds from any deposit or
securities accounts; (vi) Dispose of any of the Collateral, at one or more
public or private sales, in lots or in bulk, for cash, exchange or other
property, or on credit, and to adjourn any such sale from time to time without
notice other than oral announcement at the time scheduled for sale; and
(vii) Demand payment of, and collect any accounts, general intangibles or other
Collateral and, in connection therewith, Borrower irrevocably authorizes Agility
to endorse or sign Borrower’s name on all collections, receipts, instruments and
other documents, and, in Agility’s good faith business judgment , to grant
extensions of time to pay, compromise claims and settle accounts, general
intangibles and the like for less than face value; Borrower grants Agility a
license, exercisable from and after an Event of Default has occurred, to use and
copy any trademarks, service marks and other intellectual property in which
Borrower has an interest to effect any of the foregoing remedies . All
reasonable attorneys’ fees, expenses, costs, liabilities and obligations
incurred by Agility with respect to the foregoing shall be added to and become
part of the Obligations, and shall be due on demand.

 

(b)           Application of Proceeds. All proceeds realized as the result of
any sale or other disposition of the Collateral shall be applied by Agility
first to the reasonable costs, expenses, liabilities, obligations and attorneys’
fees incurred by Agility in the exercise of its rights under this Agreement or
any other Transaction Document, second to any fees and Obligations other than
interest and principal, third to the interest due upon any of the Obligations,
and fourth to the principal of the Obligations, in such order as Agility shall
determine in its sole discretion. Any surplus shall be paid to Borrower or other
persons legally entitled thereto; Borrower shall remain liable to Agility for
any deficiency.

 

(c)           Remedies Cumulative. In addition to the rights and remedies set
forth in this Agreement, Agility shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between Agility and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Agility of one or more of its rights or remedies shall not be deemed an
election, nor bar Agility from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Agility to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.

 

(d)           Power of Attorney. After the occurrence and during the continuance
of an Event of Default, Borrower irrevocably appoints Agility (and any of
Agility’s designated employees or agents) as Borrower’s true and lawful attorney
in fact to: endorse Borrower’s name on any checks or other forms of payment ;
make, settle and adjust all claims under and decisions with respect to
Borrower’s policies of insurance; settle and adjust disputes and claims
respecting accounts, general intangibles and other Collateral; execute and
deliver all notices, instruments and agreements in connection with the
perfection of the security interest granted in this Agreement; sell, lease or

 

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otherwise dispose of all or any part of the Collateral; and take any other
action or sign any other documents required to be taken or signed by Borrower,
or reasonably necessary to enforce Agility’s rights or remedies or otherwise
carry out the purposes of this Agreement and the other Transaction Documents.
The appointment of Agility as Borrower’s attorney in fact, and each of Agility’s
rights and powers, being coupled with an interest, are irrevocable until all
Obligations owing to Agility have been paid and performed in full.

 

7.             Waivers. The failure of Agility at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Transaction Document between Borrower and Agility shall not waive or
diminish any right of Agility later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement shall be deemed to have been
waived except by a specific written waiver signed by an authorized officer of
Agility. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
general intangible, document or guaranty at any time held by Agility on which
Borrower is or may in any way be liable, and notice of any action taken by
Agility, unless expressly required by this Agreement.

 

8.             Indemnity. Borrower shall indemnify Agility for all out-of-pocket
costs or liabilities, including reasonable attorneys’ fees, incurred by Agility
in connection with this Agreement or any other Transaction Document.

 

9.             Confidentiality. In handling any confidential non-public
information provided to Agility by Borrower, Agility agrees not to disclose such
information to any other person, and Agility shall exercise the same degree of
care that it exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of the same, except that disclosure
of such information may be made (i) to subsidiaries or affiliates of Agility in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the
Obligations, provided that they have entered into a comparable confidentiality
agreement with respect thereto, (iii) as required by law, regulations, rule or
order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Agility, and
(v) as Agility may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information shall not include information that
either: (a) is in the public domain, or becomes part of the public domain, after
disclosure to Agility through no fault of Agility; or (b) is disclosed to
Agility by a third party, provided Agility does not have knowledge , after
reasonable inquiry, that such third party is prohibited from disclosing such
information.

 

10.          Governing Law; Jurisdiction; Venue. The Transaction Documents, all
acts and transactions under the Transaction Documents, and all rights and
obligations of Agility and Borrower shall be governed by the internal laws (and
not the conflict of laws rule) of the State of California. As a material part of
the consideration to Agility to enter into this Agreement, each of Borrower and
Lender (i) agrees that all actions and proceedings relating directly or
indirectly to the Transaction Documents shall be litigated in courts located
within California, and the venue therefor shall be Santa Barbara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and

(iii) waives any and all rights to object to the jurisdiction of any such court,
or to transfer or change the venue of any such action or proceeding.

 

11.          MUTUAL WAIVER OF JURY TRIAL. BORROWER AND AGILITY EACH WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN AGILITY AND BORROWER INCLUDING ALL OTHER
TRANSACTION DOCUMENTS, OR ANY CONDUCT, ACTS OR OMISSIONS OF AGILITY OR BORROWER
OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH AGILITY OR BORROWER, IN ALL OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. IF THIS JURY WAIYER IS FOR ANY
REASON UNENFORCEABLE, THE PARTIES AGREE TO RESOLVE ALL CLAIMS, CAUSES AND
DISPUTES THROUGH JUDICIAL REFERENCE PURSUANT TO CODE OF CIVIL PROCEDURE
SECTION 638 ET SEQ BEFORE A MUTUALLY ACCEPT ABLE REFEREE SITTING WITHOUT A JURY
OR, IF NO AGREEMENT ON THE REFEREE IS REACHED, BEFORE A REFEREE SELECTED BY THE
PRESIDING JUDGE OF THE CALIFORNIA SUPERIOR COURT FOR

 

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SANTA BARBARA COUNTY.                    THIS PROVISION SHALL NOTRESTRICT A
PARTY FROM EXERCISING NONJUDICIAL REMEDIES UNDER THE CODE.

 

12.          Representations of Lender. Lender represents and warrants, as of
the date hereof and as of any exercise of the Warrant, that: (i) it is acquiring
the Warrant and any Shares (as defined therein) upon the exercise thereof solely
for its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws, and (ii) Lender is an “accredited investor” as such term is
defined in Regulation D promulgated under the Securities Act of 1933, as
amended. The representations and warranties contained in this Section 12 shall
survive the termination of this Agreement and the repayment of the Obligations
until the Warrant has been fully exercised or has fully expired.

 

13.          General. This Agreement and the other Transaction Documents are the
final, entire and complete agreement between Borrower and Agility and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement and the
other Transaction Documents. There are no oral understanding s, representations
or agreements between the parties which are not set forth in the Transaction
Documents. The terms and provisions of this Agreement or any other Transaction
Document may not be waived or amended, except in a writing executed by Borrower
and a duly authorized officer of Agility. Agility may assign all or any part of
its interest in this Agreement or any other Transaction Document and the
Obligations to any person or entity, or grant a participation in, or security
interest in, any interest in this or any other Transaction Document, without
notice to or consent of Borrower. Borrower may not assign any rights under or
interest in this Agreement or any other Transaction Document without Agility’s
prior written consent.

 

13.          Publicity. At any time after Borrower’s next filing with the
Securities and Exchange Commission in which this Agreement is disclosed, Agility
may use Borrower’s tradenames and logos in Agility’s marketing materials in
respect of the transactions evidenced by this Agreement.

 

14.          Lender’s License. This loan is made pursuant to the California
Finance Lenders Law, Division 9 (commencing with Section 22000) of the Financial
Code. Agility Capital II, LLC, 812 Anacapa Street, Suite A, Santa Barbara, CA
93101, License Number 603 H822. FOR INFORMATION CONTACT THE DEPARTMENT OF
CORPORATIONS, STATE OF CALIFORNIA.

 

AGILITY CAPITAL II, LLC

 

EMMAUS LIFE SCIENCES, INC.

 

 

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Title:

 

 

Title:

 

 

 

 

 

 

 

Address for notices:

 

Address for notices:

 

 

 

Agility Capital II, LLC

 

Emmaus Life Sciences, Inc.

812 Anacapa Street, Suite A

 

20725 S. Western Avenue, Suite 136

Santa Barbara, CA 93101

 

Torrance, California 90501

Attn:

 

Attn:

Fax:

 

Fax:

 

8

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

 

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

 

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

 

(a)           all accounts (including health-care-insurance receivables),
chattel paper (including tangible and electronic chattel paper), commercial tort
claims, deposit accounts, documents (including negotiable documents), equipment
(including all accessions and additions thereto), general intangibles (including
copyrights, patents, trademarks, goodwill and all intellectual property, payment
intangibles and software), goods (including fixtures), instrument s (including
promissory notes), inventory (including all goods held for sale or lease or to
be furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor’s books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records; and

 

(b)           any and all cash proceeds and/or noncash proceeds of any of the
foregoing, including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All terms
above have the meanings given to them in the California Uniform Commercial Code,
as amended or supplemented from time to time.

 

9

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

 

EXHIBIT B

 

Places of Business and Locations of Collateral (Section 3(b)):

 

Headquarters - 21250 Hawthorne Boulevard, Suite 800, Torrance, California 90503

3870 Del Amo Blvd., Suite 506, Torrance, California 90503

 

Magellean Storage at 4320 W. 190th Street, Torrance, California 90504

 

In addition, EM Japan leases 1,322 total square feet of office space in Tokyo,
Japan and 1,313 square feet of office space in Osaka, Japan.

 

Permitted Liens (Section 3(c))

 

Mitsubishi UFJ Capital III Limited Partnership (Mitsubishi) has a $500,000
convertible note issued with the Company. The Mitsubishi note is secured by
39,250 shares of CellSeed, Inc. which is held by Mitsubishi as collateral.

 

Financial Statements (Section 3(d))

 

Financial statements for the period ending June 30, 2015 and September 30, 2015
have not yet been filed in part due to legal proceedings and changes in the
composition of the Board of Directors. In December 2015 an independent Board of
Directors was re-established and in January 2016 a new audit firm was engaged.
The Company is proceeding to file the financial reports for the period ending
June 30, 2015 and September 30, 2015 when the audit of the year ending
December 31, 2015 is complete.

 

Information (Section 3(f))

 

See Section 3(d) above.

 

Litigation (Section 3(g)):

 

None

 

Subsidiaries and partnerships and joint ventures (Section 3(h)):

 

Subsidiaries: Emmaus Medical, Inc., Newfield Nutrition Corporation, Emmaus
Medical Japan, Inc. and Emmaus Medical Europe Ltd. The Borrower is also in the
process of forming or otherwise acquiring a subsidiary in Korea, and the
formation or acquisition of said subsidiary shall not be a violation of this
representation or a default under the Loan Agreement. Joint ventures: On
December 28, 2015, the Borrower entered into a collaboration agreement with
Korea Bio Medical Science Institute (“KBMSI”) pursuant to which, among other
things, the Borrower agreed to form a joint steering committee to assess
potential joint research, development and commercialization opportunities and to
potentially jointly develop intellectual property pursuant to further written
agreements to be determined. In addition, the collaboration agreement provides
that Borrower and KBMSI will enter into a stock swap agreement pursuant to which
the Borrower would exchange Four Billion Korean Won of Borrower’s common stock
for Four Billion Korean Won of KBMSI stock.

 

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

 

Year
Issued

 

Interest
Rate
Range

 

Term of
Notes

 

Conversion
Price

 

Principal
Outstanding
December 31,
2015

 

Discount
Amount
December 31,
2015

 

Carrying
Amount
December 31
2015

 

 

 

 

 

 

 

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

2010

 

6%

 

5 years

 

$3.05

 

$

2,000

 

$

—

 

$

2,000

 

2011

 

10%

 

5 years

 

$3.05

 

500,000

 

—

 

500,000

 

2013

 

10%

 

2 years

 

$3.60

 

525,257

 

—

 

525,257

 

2014

 

10%

 

Due on demand ~ 2 years

 

$3.05 ~ $7.00

 

4,378,563

 

353,700

 

4,024,863

 

2015

 

10%

 

Due on demand ~ 2 years

 

$3.50 ~ $7.00

 

5,681,166

 

526,066

 

5,155,100

 

 

 

 

 

 

 

 

 

$

11,086,986

 

$

879,766

 

$

10,207,220

 

 

 

 

 

Current

 

 

 

$

6,358,698

 

$

358,351

 

$

6,000,347

 

 

 

 

 

Long-term

 

 

 

$

4,728,288

 

$

521,415

 

$

4,206,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

2012

 

10%

 

Due on demand

 

$3.30

 

$

298,000

 

$

—

 

$

298,000

 

2014

 

10%

 

2 years

 

$7.00

 

—

 

—

 

—

 

2015

 

10%

 

2 years

 

$4.50

 

320,000

 

—

 

320,000

 

 

 

 

 

 

 

 

 

$

618,000

 

$

—

 

$

618,000

 

 

 

 

 

Current

 

 

 

$

298,000

 

$

—

 

$

298,000

 

 

 

 

 

Long-term

 

 

 

$

320,000

 

$

—

 

$

320,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable

 

 

 

 

 

 

 

 

 

2013

 

10%

 

Due on demand

 

—

 

$

830,000

 

$

—

 

$

830,000

 

2014

 

11%

 

Due on demand ~ 2 years

 

—

 

1,446,950

 

—

 

1,446,950

 

2015

 

11%

 

Due on demand ~ 2 years

 

—

 

2,379,799

 

—

 

2,379,799

 

 

 

 

 

 

 

 

 

$

4,656,749

 

—

 

$

4,656,749

 

 

 

 

 

Current

 

 

 

$

4,656,749

 

$

—

 

$

4,656,749

 

 

 

 

 

Long-term

 

 

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible notes payable—related party

 

 

 

 

 

 

 

 

 

2012

 

8% ~ 10%

 

Due on demand

 

—

 

$

626,730

 

$

—

 

$

626,730

 

2013

 

8%

 

Due on demand

 

—

 

50,000

 

—

 

50,000

 

2014

 

11%

 

Due on demand ~ 2 years

 

—

 

240,308

 

—

 

240,308

 

2015

 

10% ~ 11%

 

Due on demand ~ 2 years

 

—

 

1,849,266

 

—

 

1,849,266

 

 

 

 

 

 

 

 

 

$

2,766,304

 

$

—

 

$

2,766,304

 

 

 

 

 

Current

 

 

 

$

2,766,304

 

$

—

 

$

2,766,304

 

 

 

 

 

Long-term

 

 

 

$

—

 

$

—

 

$

—

 

 

 

 

 

Grand Total

 

 

 

$

19,128,039

 

$

879,766

 

$

18,248,273

 

 

Subsequent to the year ended December 31, 2015, the Company issued the
following:

 

 

 

 

 

Annual

 

 

 

 

 

 

 

Principal

 

Interest

 

 

 

Conversion

 

Notes issued after December 31, 2015

 

Amounts

 

Rate

 

Term of Notes

 

Price

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible notes (1)

 

$

489,950

 

10%

 

2 Years

 

$

4.50

 

Promissory note-related party

 

700,000

 

10%-11%

 

Due on Demand

 

 

 

Total

 

$

1,189,950

 

 

 

 

 

 

 

 

Investments of Borrower (Section 4(c)(v)):

 

Borrower owns 39,250 shares of CellSeed, Inc.

 

Accounts (Section 3(i))

 

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

 

ELSI & EMI:

ELSI - Union Bank - MM 0214

ELSI - Union Bank - Chk 7150

Union Bank MM - 9562

Union Bank Priority Chk 1200

Checking at CommerceWest Bank 0025

Short-Term Investments: Merrill Lynch MM 7742

NNC:

CommerceWest CHK 0017

Checking at Union Bank 7659

 

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

 

CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATE

 

Borrower:  EMMAUS LIFE SCIENCES, INC.

 

I, the undersigned Secretary or Assistant Secretary of EMMAUS LIFE
SCIENCES, INC. (the “Company”), HEREBY CERTIFY that the Corporation is organized
and existing under and by virtue of the laws of the State of Delaware.

 

I FURTHER CERTIFY that attached hereto as Attachments l and 2 are true and
complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.

 

I FURTHER CERTIFY that by unanimous consent of the Directors of the Company (or
by other duly authorized corporate action in lieu of a meeting), the following
resolutions were adopted.

 

“BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Company (the “Authorized Officers”), whose actual signatures are
shown below:

 

Names

 

Position

 

Actual Signatures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acting for and on behalf of this Company and as its act and deed be, and they
hereby are, authorized and empowered:

 

Borrow Money. To borrow from time to time from Agility, on the terms set forth
in that Loan Agreement between the Company and Agility containing the terms set
forth in the Term Sheet (the “Loan Agreement “), with such changes therein as
may be approved by any Authorized Officer, his or her execution thereof to
represent the conclusive approval and authorization of this Board, such sum or
sums of money as in their judgment should be borrowed pursuant to the Loan
Agreement.

 

Execute Agreement. To execute and deliver to Agility the Loan Agreement, and any
other agreement, document or instrument entered into in connection with the
Agreement, and also one or more renewals, extensions, modifications ,
refinancings , consolidations, or substitutions for one or more of the loans, or
any portion of the loans.

 

Grant Security. To grant a security interest to Agility in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Company’s obligations, as described in the Loan Agreement.

 

Issue Warrants. To issue one or more warrants to purchase the capital stock of
the Company to Agility.

 

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

 

Further Acts. To designate additional or alternate individuals as being
authorized to request advances thereunder, and in all cases, to do and perform
such other acts and things, to pay any and all fees and costs, and to execute
and deliver such other documents and agreements as they may in their discretion
deem reasonably necessary or proper in order to carry into effect the provisions
of these Resolutions.

 

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Agility may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Agility. Any such notice
shall not affect any of the Corporation’s agreements or commitments in effect at
the time notice is given.

 

IFURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.

 

IN WITNESS WHEREOF, I have hereunto set my hand as of May 13, 2016 and attest
that the signatures set opposite the names listed above are their genuine
signatures.

 

CERTIFIED AND ATTESTED BY:

 

 

 

 

 

 

By

 

 

Name:

 

Title:

 

 

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