Exhibit 10.1
 
LOAN AND SECURITY AGREEMENT
 

  

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of April 5, 2012
(the “Closing Date”) by and among MIDCAP FINANCIAL SBIC, LP, a Delaware limited
partnership (“MidCap”), as administrative agent (“Agent”), the Lenders listed on
Schedule 1 hereto and otherwise party hereto from time to time (each a “Lender”,
and collectively the “Lenders”), and POLYMEDIX, INC., a Delaware corporation
(“Parent”) and POLYMEDIX PHARMACEUTICALS, INC., a Delaware corporation (“PYMX”
and together with Parent, individually and collectively referred to herein as
“Borrower”), provides the terms on which Lenders agree to lend to Borrower and
Borrower shall repay Lenders.  The parties agree as follows:
 
 
1. ACCOUNTING AND OTHER TERMS
 
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.
 
 
2. LOAN AND TERMS OF PAYMENT
 
2.1 Promise to Pay.  Borrower hereby unconditionally promises to pay to Agent,
for payment to each Lender in accordance with its respective Pro Rata Share, the
outstanding principal amount of all Credit Extensions made by the Lenders, and
accrued and unpaid interest thereon, and any other amounts due hereunder as and
when due in accordance with this Agreement.
 
2.2 Term Loans.
 
(a) Availability.  Subject to the terms and conditions of this Agreement, during
the Draw Period, the Lenders agree, severally and not jointly, to make one or
more term loans to Borrower in an aggregate amount up to Twelve Million and
00/100 Dollars ($12,000,000.00) according to each Lender’s Term Loan Commitment
as set forth on Schedule 1 hereto (such term loans are hereinafter referred to
singly as a “Term Loan”, and collectively as the “Term Loans”).  After
repayment, no Term Loan may be re-borrowed.  The Term Loans shall be available
in two tranches.  The first tranche (“Tranche One”) shall be in an amount equal
to Eight Million and 00/100 Dollars ($8,000,000.00) and shall be advanced on the
Closing Date.  The second tranche (“Tranche Two”) shall be in an amount equal to
Four Million and 00/100 Dollars ($4,000,000.00) and shall be available to be
advanced in a single advance during the Draw Period, but only after the Tranche
Two Eligibility Date.
 
(b) Interest Payments and Repayment.  Commencing on the first (1st) Payment Date
following the Funding Date of Tranche One and of Tranche Two, respectively, and
continuing on the Payment Date of each successive month thereafter through and
including the Maturity Date, Borrower shall make monthly payments of interest to
Agent, for payment to each Lender in accordance with its respective Pro Rata
Share, in arrears, and calculated as set forth in
 
 
1

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

 
 
Section 2.3.  Commencing on the Amortization Date, and continuing on the Payment
Date of each successive month thereafter through and including the Maturity
Date, Borrower shall make consecutive monthly payments of principal to Agent,
for payment to each Lender in accordance with its respective Pro Rata Share, as
calculated by Agent based upon: (i) the amount of such Lender’s Term Loans,
(ii) the effective rate of interest, as determined in Section 2.3, and (iii) a
straight-line amortization schedule for each Credit Extension beginning on the
Amortization Date and ending on the Maturity Date.  All unpaid principal and
accrued interest with respect to the Term Loans is due and payable in full on
the Maturity Date.  The Term Loans may be prepaid only in accordance with
Sections 2.2(c) and 2.2(d).
 
(c) Mandatory Prepayments.  If the Term Loans are accelerated following the
occurrence of an Event of Default, Borrower shall immediately pay to Agent, for
payment 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 Loans and
all other Obligations, and all accrued and unpaid interest thereon, plus
(ii) the Prepayment Fee, plus (iii) all other sums that shall have become due
and payable, including Lenders’ Expenses.
 
(d) Permitted Prepayment of Loans.  Borrower shall have the option to prepay all
or a portion of the Term Loans advanced by the Lenders under this Agreement;
provided, however, that Borrower (i) provides written notice to Agent of its
election to prepay the Term Loans at least thirty (30) days prior to such
payment, and (ii) pays to Agent, for payment to each Lender in accordance with
its respective Pro Rata Share, on the date of such prepayment, an amount equal
to the sum of: (A) all amount of the Term Loan and Obligations (plus accrued and
unpaid interest thereon) being prepaid, plus (B) the Prepayment Fee applicable
to the amount being prepaid, plus (C) all other sums that shall have become due
and payable, including Lenders’ Expenses.
 
2.3 Payment of Interest on the Credit Extensions.
 
(a) Computation of Interest.  Interest on the Credit Extensions and all fees
payable hereunder shall be computed on the basis of a 360-day year and the
actual number of days elapsed in the period during which such interest
accrues.  In computing interest on any Credit Extension, the date of the making
of such Credit Extension shall be included and the date of payment shall be
excluded; provided, however, that if any Credit Extension is repaid on the same
day on which it is made, such day shall be included in computing interest on
such Credit Extension.
 
(b) Interest Rate Determination.  Subject to the provisions of
Section 2.3(c) below, each Term Loan shall bear interest on the outstanding
principal amount thereof from the date when made until paid in full at a rate
per annum equal to eleven and 95/100 percent (11.95%).
 
(c) Default Rate.  Immediately upon the occurrence and during the continuance of
an Event of Default, Obligations shall bear interest at a rate per annum that is
five percent (5.0%) 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(c) is not a permitted
 
 
2

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

 
 
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 Agent or
Lenders.
 
(d) Debit of Accounts.  Agent may debit any of Borrower’s Deposit Accounts,
including the Designated Deposit Account, for principal and interest payments
when due or any other amounts Borrower owes the Lenders under the Loan Documents
when due, for payment to each Lender in accordance with its respective Pro Rata
Share.  These debits shall not constitute a set-off.
 
(e) Payments.  Payments of principal and/or interest received after 12:00 Noon
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
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.  All payments required under this Agreement are to
be made directly to Agent unless otherwise directed by Agent in writing.
 
(f) Maximum Lawful Rate.  In no event shall the interest charged hereunder, with
respect to the notes (if any) or any other obligations of Borrower under any of
the Loan Documents exceed the maximum amount permitted under the Laws of the
State of Maryland.  Notwithstanding anything to the contrary herein or
elsewhere, if at any time the rate of interest payable hereunder or under any
note or other Loan Document (the “Stated Rate”) would exceed the highest rate of
interest permitted under any applicable Law to be charged (the “Maximum Lawful
Rate”), then for so long as the Maximum Lawful Rate would be so exceeded, the
rate of interest payable shall be equal to the Maximum Lawful Rate; provided,
however, that if at any time thereafter the Stated Rate is less than the Maximum
Lawful Rate, Borrower shall, to the extent permitted by Law, continue to pay
interest at the Maximum Lawful Rate until such time as the total interest
received is equal to the total interest which would have been received had the
Stated Rate been (but for the operation of this provision) the interest rate
payable.  Thereafter, the interest rate payable shall be the Stated Rate unless
and until the Stated Rate again would exceed the Maximum Lawful Rate, in which
event this provision shall again apply.  In no event shall the total interest
received by any Lender exceed the amount which it could lawfully have received,
had the interest been calculated for the full term hereof at the Maximum Lawful
Rate.  If, notwithstanding the prior sentence, any Lender has received interest
hereunder in excess of the Maximum Lawful Rate, then such excess amount shall be
applied to the reduction of the principal balance of such Lender’s Term Loan or
to other amounts (other than interest) payable hereunder, and if no such
principal or other amounts are then outstanding, such excess or part thereof
remaining shall be paid to Borrower.  In computing interest payable with
reference to the Maximum Lawful Rate applicable to any Lender, such interest
shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by
the number of days in the year in which such calculation is made.
 
 
3

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

 
 
2.4 Fees and Expenses.  Borrower shall pay to Agent, for payment to each Lender:
 
(a) Closing Fee.
 
(i) With respect to Tranche One, a non-refundable closing fee to each Lender, in
accordance with its respective Pro Rata Share, equal to the product of (i)
one-half of one percent (0.50%) multiplied by (ii) Tranche One (i.e.,
$8,000,000). Agent, each Lender and Borrower agree the closing fee allocable to
Tranche One was paid on February 15, 2012.
 
(ii) With respect to Tranche Two, a non-refundable closing fee to each Lender,
in accordance with its respective Pro Rata Share, equal to the product of (i)
one-half of one percent (0.50%) multiplied by (ii) Tranche Two (i.e.,
$4,000,000). Agent, each Lender and Borrower agree the closing fee allocable to
Tranche Two shall be due and payable on the Funding Date of Tranche Two.
 
(b) Reserved.
 
(c) Prepayment Fee.  The Prepayment Fee, when due under Section 2.2(c) or
2.2(d), to each Lender, in accordance with its respective Pro Rata Share
immediately prior to application of the corresponding prepayment; and
 
(d) Lenders’ Expenses.  All of Lenders’ Expenses (including reasonable
attorneys’ fees and expenses for documentation and negotiation of this
Agreement) incurred through and after the Closing Date, when due (and in the
absence of any other due date specified herein, such Lenders’ Expenses shall be
due within five (5) Business Days of written notice).
 
2.5 Additional Costs.  If any new Law or regulation increases a Lender’s costs
or reduces its income for any Term Loan, Borrower shall pay the increase in cost
or reduction in income or additional expense; provided, however, that Borrower
shall not be liable for any amount attributable to any period before one hundred
eighty (180) days prior to the date such Lender notifies Borrower of such
increased costs.  Each Lender agrees that it shall allocate any increased costs
among its customers similarly affected in good faith and in a manner consistent
with such Lender’s customary practice.
 
2.6 Payments and Taxes.  Any and all payments made by Borrower under this
Agreement or any other Loan Document shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
governmental authority (including any interest, additions to tax or penalties
applicable thereto) other than any taxes imposed on or measured by any Lender’s
overall net income and franchise taxes imposed on it (in lieu of net income
taxes), by a jurisdiction (or any political subdivision thereof) as a result of
any Lender being organized or resident, conducting business (other than a
business deemed to arise solely from such Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, or otherwise
with respect to, this Agreement or any other Loan Document) or having its
principal office in such jurisdiction (“Indemnified Taxes”).  If any Indemnified
Taxes shall be required by Law to be withheld or deducted from or in respect of
any sum payable under this Agreement or any other Loan Document to any Lender,
(a) an additional amount shall be payable as may be necessary so that, after
making all required withholdings or deductions
 
 
4

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

 
 
(including withholdings or deductions applicable to additional sums payable
under this Section) such Lender receives an amount equal to the sum it would
have received had no such withholdings or deductions been made, (b) Borrower
shall make such withholdings or deductions, (c) Borrower shall pay the full
amount withheld or deducted to the relevant taxing authority or other authority
in accordance with applicable Law, and (d) Borrower shall deliver to such Lender
evidence of such payment.  Borrower’s obligation hereunder shall survive the
termination of this Agreement.
 
2.7 Secured Promissory Notes.  Each Term Loan shall be evidenced by a Secured
Promissory Note in the form attached as Exhibit D hereto (each a “Secured
Promissory Note”), and shall be repayable as set forth herein.  Borrower
irrevocably authorizes each Lender to make or cause to be made, on or about the
Funding Date of any 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 such Term
Loan or (as the case may be) the receipt of such payment.  The outstanding
amount of each 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 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 of an officer of a
Lender as to the loss, theft, destruction, or mutilation of its Secured
Promissory Note, Borrower shall issue, in lieu thereof, a replacement Secured
Promissory Note in the same principal amount thereof and of like tenor.
 
2.8 Issuance of Warrants to Lenders.  Borrower has duly authorized issuance of
the Warrants substantially in the form attached hereto as Exhibit E.
 
2.9 SBIC Acknowledgement.  Borrower acknowledges that Agent is a Federal
licensee under the Small Business Investment Act of 1958, as amended.
 
 
3. CONDITIONS OF LOANS
 
3.1 Conditions Precedent to Initial Credit Extension.  Each Lender’s obligation
to make a Term Loan is subject to the condition precedent that Agent shall
consent to or shall have received, in form and substance satisfactory to Agent
and Lenders, such documents, and completion of such other matters, as Agent may
reasonably deem necessary or appropriate, including, without limitation:
 
(a) duly executed original signatures to this Agreement, the Perfection
Certificate and the other Loan Documents to which Borrower is a party;
 
(b) duly executed original Secured Promissory Notes in favor of each Lender with
a face amount equal to such Lender’s Term Loan Commitment;
 
(c) duly executed original signatures to the Control Agreements with TD Bank;
 
 
5

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

 
 
(d) the Operating Documents of Borrower certified by the Secretary of State of
the state of organization of Borrower as of a date no earlier than thirty
(30) days prior to the Closing Date;
 
(e) good standing certificates dated as of a date no earlier than thirty
(30) days prior to the Closing Date to the effect that Borrower is qualified to
transact business in all states in which the nature of Borrower’s business so
requires;
 
(f) a duly executed original signatures to the completed Borrowing Resolutions
for Borrower;
 
(g) a payoff letter from Hercules Technology Growth Capital;
 
(h) evidence that (i) the Liens securing Indebtedness owed by Borrower to
Hercules Technology Growth Capital will be terminated, and (ii) the documents
and/or filings evidencing the perfection of such Liens, including without
limitation any financing statements and/or control agreements, have or will,
concurrently with the initial Credit Extension, be terminated;
 
(i) certified copies, dated as of a recent date, of financing statement
searches, as 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;
 
(j) an Access Agreement in respect of Borrower’s offices at 170 N. Radnor
Chester Road, Suite 300, Radnor PA 19087;
 
(k) a legal opinion of Borrower’s counsel dated as of the Closing Date together
with the duly executed original signatures thereto;
 
(l) evidence satisfactory to Agent that the insurance policies required by
Section 6.5 hereof are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements
in favor of Agent, for the ratable benefit of Lenders;
 
(m) completed SBA Forms 480, 652 and 1031 and the SBIC Side Letter; and
 
(n) payment of amounts due and payable in connection with the Closing Fee
described in Section 2.4(a) and the Lenders’ Expenses described in
Section 2.4(d).
 
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) timely receipt by the Agent of an executed Payment/Advance Form in the form
of Exhibit B attached hereto;
 
 
6

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

 
 
(b) the representations and warranties in Section 5 shall be true, correct and
complete 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 Default or Event of Default shall
have occurred and be continuing or result from the Credit Extension.  Each
Credit Extension is Borrower’s representation and warranty on that date that the
representations and warranties in Section 5 remain 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;
and
 
(c) there has not been any Material Adverse Change.
 
3.3 Covenant to Deliver.  Borrower agrees to deliver to Agent each item required
to be delivered to Agent under this Agreement as a condition precedent to any
Credit Extension.  Borrower expressly agrees that a Credit Extension made prior
to the receipt by Agent of any such item shall not constitute a waiver by the
Lenders of Borrower’s obligation to deliver such item, and any such Credit
Extension in the absence of a required item shall be made in Agent’s sole
discretion.
 
3.4 Procedures for Borrowing.  Subject to the prior satisfaction of all other
applicable conditions to the making of a Term Loan set forth in this Agreement,
to obtain a Term Loan, Borrower shall notify Agent (which notice shall be
irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon Eastern
time fifteen (15) Business Days prior to the date the Term Loan is to be
made.  Together with any such electronic or facsimile notification, Borrower
shall deliver to 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, Agent shall promptly provide
a copy of the same to each Lender.  Agent may rely on any telephone notice given
by a person whom Agent reasonably believes is a Responsible Officer or designee.
 
 
4. CREATION OF SECURITY INTEREST
 
4.1 Grant of Security Interest.  Borrower hereby grants to Agent, for the
ratable benefit of the Lenders, to secure the payment and performance in full of
all of the Obligations, a continuing security interest in, and pledges to Agent,
for the ratable benefit of the Lenders, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof.  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 may have priority by operation of applicable Law.  If
Borrower shall acquire a commercial tort claim (as defined in the Code),
Borrower shall promptly notify Agent in a writing signed by Borrower of the
general details thereof (and further details as may be required by Agent) and
grant to Agent, for the ratable
 
 
7

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

 
 
benefit of the 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 Agent.
 
4.2 Authorization to File Financing Statements.  Borrower hereby authorizes
Agent to file financing statements, without notice to Borrower, with all
appropriate jurisdictions to perfect or protect Agent’s and each Lender’s
interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate
the rights of Agent and the Lenders under the Code.  Agent agrees to provide a
copy of any such filing to Borrower, provided, that the failure of Agent to do
so shall not affect the validity or effectiveness of any such filing. Such
financing statements may indicate the Collateral as “all assets of Debtor” or
words of similar effect, or as being of an equal or lesser scope, or with
greater detail, all in Agent’s sole discretion; provided, however, that such
financing statements shall exclude from the description of “Collateral” set
forth thereon Borrower’s Intellectual Property, but not the IP Proceeds, as set
forth in Schedule 5.2(d).
 
 
5. REPRESENTATIONS AND WARRANTIES
 
Borrower represents and warrants as follows at all times unless expressly
provided below:
 
5.1 Due Organization, Authorization: Power and Authority.
 
(a) Borrower and each of its Subsidiaries (if any) are duly existing and in good
standing, as Registered Organizations in their respective jurisdictions of
formation and are qualified and licensed to do business and are in good standing
in any jurisdiction in which the conduct of their business or their ownership of
property requires that they be qualified and licensed except where the failure
to do so could not reasonably be expected to result in a Material Adverse
Change.  Borrower represents and warrants that (i) Borrower’s exact legal name
is that indicated on Schedule 5.1 and on the signature page hereof;
(ii) Borrower is an organization of the type and is organized in the
jurisdiction set forth on Schedule 5.1; (iii) Schedule 5.1 accurately sets forth
Borrower’s organizational identification number or accurately states that
Borrower has none; (iv) Schedule 5.1 accurately sets forth Borrower’s place of
business, or, if more than one, its chief executive office as well as Borrower’s
mailing address (if different than its chief executive office); and (v) Borrower
(and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction.  Further, in connection with
this Agreement, Borrower has delivered to Agent a completed Perfection
Certificate signed by Borrower (the “Perfection Certificate”).  All other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete as of the Closing Date.  If
Borrower is not now a Registered Organization but later becomes one, Borrower
shall promptly notify Agent of such occurrence and provide Agent with Borrower’s
organizational identification number.
 
(b) The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents; (ii) contravene, conflict with,
constitute a default under or
 
 
8

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

 
 
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 Borrower or any of its Subsidiaries or
any of their property or 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 which have
already been obtained and are in full force and effect); or (v) constitute an
event of default under any material agreement by which Borrower or any of its
Subsidiaries or their respective properties is bound.  Borrower is not in
default under any agreement to which it is a party or by which it is bound in
which the default could reasonably be expected to result in a Material Adverse
Change.
 
5.2 Collateral.
 
(a) Collateral Accounts.  Borrower has good title to, has rights in, and has the
power to transfer each item of the Collateral upon which it purports to grant a
Lien hereunder, free and clear of any and all Liens, except Permitted
Liens.  Borrower has no Deposit Accounts, Securities Accounts, Commodity
Accounts or other investment accounts other than the Collateral Accounts with
the banks and/or financial institutions listed on Schedule 5.2(a), for which
Borrower has given Agent notice and taken such actions as are necessary to grant
to Agent, for the ratable benefit of Lenders, a perfected security interest
therein in accordance with Section 6.6 hereof.
 
(b) Reserved.
 
(c) Reserved.
 
(d) Intellectual Property and License Agreements.  A list of all of Borrower’s
Registered Intellectual Property and all license agreements, sublicenses, or
other rights of any Loan Party to use Intellectual Property (including all
in-bound license agreements, but excluding over-the-counter software that is
commercially available to the public) as of the date hereof and as of the date
of each Compliance Certificate is set forth on Schedule 5.2(d) (as such schedule
may be updated in connection with the delivery of a Compliance Certificate after
the Closing Date), which indicates, for each item of property: (i) the name of
Borrower owning such Registered Intellectual Property or licensee to such
license agreement; (ii) Borrower’s identifier for such property (i.e., name of
patent, license, etc.), (iii) whether such property is Registered Intellectual
Property (or application therefor) owned by Borrower or is property to which
Borrower has rights pursuant to a license agreement, and (iv) the expiration
date of such Registered Intellectual Property or license agreement.  In the case
of any Material Intellectual Property that is a license agreement,
Schedule 5.2(d) further indicates, for each: (A) the name and address of the
licensor, (B) the name and date of the agreement pursuant to which such item of
Material Intellectual Property is licensed, (C) whether or not such license
agreement grants an exclusive license to Borrower, (D) whether there are any
purported restrictions in such license agreement as to the ability of Borrower
to grant a security interest in and/or to transfer any of its rights as a
licensee under such license agreement, and (E) whether a default under or
termination of such license agreement could interfere with Agent’s right to sell
or assign such license or any other Collateral.  Except as noted on
Schedule 5.2(d), Borrower is the sole owner of its Intellectual Property,
subject to Permitted IP Licenses, as identified on Schedule 5.2(d).  Each
 
 
9

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

 
 
Patent is valid and enforceable and no part of the Intellectual Property has
been judged invalid or unenforceable, in whole or in part, except, solely with
respect to Intellectual Property that is not Material Intellectual Property, to
the extent such adjudication could not reasonably be expected to result in a
Material Adverse Change, and to the best of Borrower’s knowledge, no claim has
been made that any part of the Intellectual Property violates the rights of any
third party, except to the extent such claim could not reasonably be expected to
result in a Material Adverse Change.
 
(e) Location of Collateral.  On the Closing Date, the Collateral is located at
the address(es) identified on Schedule 5.2(e), and is not in the possession of
any third party bailee (such as a warehouse) except as disclosed
Schedule 5.2(e), and as of the Closing Date, no such third party bailee
possesses components of the Collateral in excess of One Hundred Thousand Dollars
($100,000) or which constitutes Borrower’s Books.  None of the components of the
Collateral (other than research and development equipment used off-site) shall
be maintained at locations other than as disclosed Schedule 5.2(e) on the
Closing Date or as permitted pursuant to Section 7.2.  In the event that
Borrower, after the Closing Date, intends to store or otherwise deliver any
portion of the Collateral (other than research and development equipment used
off-site) to a bailee in excess of One Hundred Thousand Dollars ($100,000) or
which constitutes Borrower’s Books, then Borrower will first receive the written
consent of Agent and such bailee must execute and deliver a bailee agreement in
form and substance satisfactory to Agent in its sole discretion.
 
5.3 Litigation.  Except as disclosed on Schedule 5.3 hereto, there are no
actions or proceedings pending or, to the knowledge of the Responsible Officers,
threatened in writing by or against Borrower or any of its Subsidiaries
involving more than One Hundred Thousand Dollars ($100,000.00).
 
5.4 No Material Deterioration in Financial Condition; Financial Statements.  All
consolidated financial statements for Borrower and any of its Subsidiaries
delivered to Agent fairly present, in conformity with GAAP, in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated
results of operations.  There has not been any change in Borrower’s consolidated
financial condition since the date of the most recent financial statements and
projections submitted to Agent that would have a Material Adverse Change.
 
5.5 Solvency.  The fair salable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities.  After
giving effect to the transactions described in this Agreement, (a) Borrower is
not left with unreasonably small capital in relation to its business as
presently conducted, and (b) Borrower is able to pay its debts (including trade
debts) as they mature.
 
5.6 Regulatory Compliance.
 
(a) Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act of 1940, as
amended.  Borrower is not 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).  Borrower has complied in all material respects
with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its
 
 
10

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

 
 
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.  Borrower has not violated
any Laws, ordinances or rules, the violation of which could reasonably be
expected to result in a Material Adverse Change.  None of 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 compliance with applicable Laws, except for such matters as would not
reasonably be expected to result in a Material Adverse Change.  Borrower has
obtained all Required Permits, or has contracted with third parties holding
Required Permits, necessary for compliance with all Laws and all such Required
Permits are current, except for such matters as would not reasonably be expected
to result in a Material Adverse Change.  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, except for such matters as would not reasonably be expected
to result in a Material Adverse Change.
 
(b) None of the Borrower, 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.  Borrower does not own any stock, partnership
interest or other equity securities, except for Permitted Investments.
 
5.8 Tax Returns and Payments; Pension Contributions.  Borrower has timely filed
all required income tax returns and all other material tax returns and reports,
and Borrower and its Subsidiaries have timely paid all foreign, federal, state
and local income taxes, and all other material assessments, deposits and
contributions owed by Borrower.  Borrower may defer payment of any contested
taxes, provided, however, that Borrower (a) in good faith contests its
obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies 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”.  Borrower is unaware of any claims or adjustments
proposed for any of Borrower’s prior tax years which could result in additional
taxes becoming due and payable by Borrower.  Borrower has paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has 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
 
 
11

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

 
 
which could reasonably be expected to result in any material liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.
 
5.9 Use of Proceeds.  Borrower shall use the proceeds of the Credit Extensions
solely as working capital and to fund its general business requirements, and not
for personal, family, household or agricultural purposes.  A portion of the
proceeds of the initial Credit Extension shall be used on the Closing Date to
repay in full the indebtedness of Borrower to Hercules Technology Growth
Capital.
 
5.10 Full Disclosure.  No written representation, warranty or other statement of
Borrower in any certificate or written statement given to 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
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 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).
 
5.11 Regulatory Developments.
 
(a) All Products and all material Required Permits required by applicable Laws
for the manufacture sale, marketing or testing in humans of such Products are
listed on Schedule 5.11 (as updated from time to time pursuant to
Section 6.2(e)), and Borrower has delivered to Agent a copy of all such Required
Permits as of the date hereof and to the extent requested by Agent pursuant to
Section 6.2(e).
 
(b) Without limiting the generality of Section 5.6 above, (i) with respect to
any Product being tested or manufactured by any Borrower or any of its
Subsidiaries, such Borrower or Subsidiary has applied for and received, and such
Product is the subject of, all Required Permits from Regulatory Authorities
required by applicable Laws in connection with the testing or manufacture of
such Product as such testing or manufacturing is currently being conducted by or
on behalf of such Borrower or Subsidiary; (ii) such Borrower or Subsidiary has
not received any notice from any Regulatory Authorities that (A) such Regulatory
Authority is conducting an investigation or review of such Borrower’s or
Subsidiary’s manufacturing facilities and processes for such Product which has
disclosed any material deficiencies or violations of applicable Laws and/or such
Required Permits, or (B) that any Required Permit or that any such Required
Permit has been revoked or withdrawn; and (iii) no Regulatory Authority has
issued any order or recommendation stating that the testing and/or manufacturing
of such Product by such Borrower or Subsidiary should cease, in each case which
matter could reasonably be expected to result in a Material Adverse Change.
 
(c) Without limiting the generality of Section 5.6 above, (i) with respect to
any Product marketed or sold by any Borrower or any of its Subsidiaries, such
Borrower or Subsidiary has applied for and received, all Required Permits from
Regulatory Authorities required by applicable Laws to market and sell such
Product as currently being marketed or sold
 
 
12

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

 
 
by such Borrower or Subsidiary; (ii) such Borrower or Subsidiary has not
received any notice from any Regulatory Authority, specifically including the
FDA, that (A) such Regulatory Authority is conducting an investigation or review
of any such Required Permit or (B)  that any such Required Permit has been
revoked or withdrawn; and (iii) no Regulatory Authority nor has issued any order
or recommendation stating that the marketing or sale of such Product should
cease, or that such Product be withdrawn from the marketplace, in each case
which matter could reasonably be expected to result in a Material Adverse
Change.
 
(d) Without limiting the generality of Section 5.6 above, (i) there have been no
adverse clinical test results, of which Borrowers has been made, or reasonably
should be, aware, which have or could reasonably be expected to cause a Material
Adverse Change, and (ii) there have been no Product recalls or voluntary Product
withdrawals from any market.
 
 
6. AFFIRMATIVE COVENANTS
 
Borrower covenants and agrees to do all of the following:
 
6.1 Organization and Existence; Government Compliance.
 
(a) Maintain its and all its Subsidiaries’ legal existence and good standing in
their respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to
result in a Material Adverse Change.  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 result in
a Material Adverse Change.
 
(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 to which it is a party and the grant of a security interest to Agent
for the ratable benefit of the Lenders, in all of the Collateral.  Borrower
shall promptly provide copies of any such obtained Governmental Approvals to
Agent.
 
(c) In connection with the testing in humans, manufacture, marketing or sale of
each Product by any Borrower or any of its Subsidiaries, such Borrower or
Subsidiary shall comply with all Required Permits, the noncompliance with which
could reasonably be expected to result in a Material Adverse Change,
specifically including all Required Permits issued by the FDA, with respect to
the testing in humans, manufacture, marketing or sale of such Product by such
Borrower or Subsidiary, as such activities are at any such time being conducted
by such Borrower or Subsidiary.
 
6.2 Financial Statements, Reports, Certificates.
 
(a) Deliver to Agent: (i) as soon as available, but no later than thirty
(30) days after the last day of each month, a company prepared consolidated
balance sheet and income statement of Parent, covering both Borrower’s
consolidated operations for such month certified by a Responsible Officer and in
a form acceptable to 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
 
 
13

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

 
 
unqualified opinion on the financial statements from Deloitte & Touche LLC or
such other independent certified public accounting firm acceptable to Agent in
its reasonable discretion; (iii) as soon as available after approval thereof by
Borrower’s Board of Directors, but no later than thirty (30) days after the last
day of Borrower’s fiscal year, Borrower’s financial projections for current
fiscal year as approved by Borrower’s Board of Directors; (iv) unless on file
with the Securities and Exchange Commission within five (5) days of delivery,
copies of all statements, reports and notices made available to all of
Borrower’s security holders or to any holders of Subordinated Debt; provided
that, in the case of information that is filed with the Securities and Exchange
Commission, Borrower shall provide Agent with written notice of such filing
within five (5) days of such filing, together with a link thereto on Borrower’s
or another website on the Internet; (v) a prompt report of any legal actions
pending or threatened against 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 could result
in a Material Adverse Change; and (vi) budgets, sales projections, operating
plans and other financial information reasonably requested by Agent.
 
(b) Within thirty (30) days after the last day of each month, deliver to Agent
with the monthly financial statements described above, a duly completed
Compliance Certificate signed by a Responsible Officer.
 
(c) Keep proper books of record and account in accordance with GAAP in which
full, true and correct entries shall be made of all dealings and transactions in
relation to its business and activities.  Borrower shall allow, at the sole cost
of Borrower, Agent and Lenders to visit and inspect any of its properties, to
examine and make abstracts or copies from any of Borrower’s Books, to conduct a
collateral audit and analysis of its operations and the Collateral to verify the
amount and age of the accounts, the identity and credit of the respective
account debtors, to review the billing practices of Borrower and to discuss its
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants as often as may reasonably be
desired.  Notwithstanding the foregoing, such audits shall be conducted at
Borrower’s expense no more often than once every calendar year unless a Default
or Event of Default has occurred and is continuing, in which case Borrower shall
be responsible for reimbursing the cost of such audits irrespective of the
number that occur during a calendar year.
 
(d) Together with each Compliance Certificate delivered pursuant to Section
6.2(b), deliver to Agent an updated Schedule 5.2(d) describing any new
Registered Intellectual Property that has been acquired and/or developed,
indicates whether Borrower seeks to identify such new Registered Intellectual
Property as Non-Material Intellectual Property and describes any other material
change in Borrower’s Material Intellectual Property from that listed on
Schedule 5.2(d), in each case since the date of the last Compliance Certificate.
 
(e) If, after the Closing Date, any Borrower or Subsidiary determines to test in
humans or manufacture, sell, or market any new Product, such Borrower or
Subsidiary (i) shall give prompt written notice to Agent of such determination
(which notice shall include a brief description of such Product, plus a list of
all Required Permits from Regulatory Authorities issued or outstanding as of the
date of such notice), along with a copy of an updated Schedule 5.11 and (ii)
shall provide Agent with a copy of all such Required Permits issued to
 
 
14

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

 
 
such Borrower or Subsidiary if requested by Agent; provided, however, that if
any Borrower shall at any time obtain any new or additional Required Permits
from any Regulatory Authority, with respect to any Product which has previously
been disclosed to Agent, such Borrower or Subsidiary shall promptly give written
notice to Agent of such new or additional Required Permit and shall provide
Agent with a copy thereof upon request.
 
(f)           Within ninety (90) days after the end of each fiscal year of
Borrower, and at such other times as Agent may reasonably request to the extent
related to SBA regulations, Borrower shall provide to Agent such forms and
financial and other information with respect to any business or financial
condition of Borrower or any of its Subsidiaries required by the SBA, including,
but not limited to (i) forms and information with respect to Agent’s or any
Lender’s reporting requirements under SBA Form 468, (ii) information regarding
the full-time equivalent jobs created or retained in connection with any
Lender’s investment in Borrower, the impact of the financing on Borrower’s
business in terms of revenues and profits and on taxes paid by Borrower and its
employees, and (iii) a list of holders of the Loans.
 
(g)           Upon request of Agent, the Borrower shall use commercially
reasonable efforts to promptly (and in any event within twenty (20) days of such
request) furnish to Agent all information reasonably requested, to the extent
reasonably available to the Borrower in order for Agent or any Lender to comply
with the requirements of 13 C.F.R. Section 107.620 or to prepare or file SBA
Form 468 and any other information requested or required by the SBA.
 
6.3 Inventory; Returns.  Use commercially reasonably efforts to keep all
Inventory in good and marketable condition, free from material
defects.  Borrower must promptly notify Agent of all returns, recoveries,
disputes and claims that involve more than Five Hundred Thousand Dollars
($500,000)].
 
6.4 Taxes; Pensions.  Timely file and require each of its Subsidiaries to timely
file, all required income tax returns and all other material tax returns and
reports and timely pay, and require each of its Subsidiaries to timely pay all
foreign, federal, state, and local income taxes and all other material 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 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 companies in Borrower’s industry and location and as Agent
may reasonably request.  Insurance policies shall be in a form, with companies,
and in amounts that are reasonably satisfactory to Agent.  Except as may be
otherwise agreed by Agent, all property policies shall have a lender’s loss
payable endorsement showing Agent as lender loss payee and waive subrogation
against Agent, and all liability policies shall show, or have endorsements
showing, Agent, as an additional insured.  Except as may be otherwise agreed by
Agent, all policies (or the loss payable and additional insured endorsements)
shall provide that the insurer shall endeavor to give Agent at least thirty
(30) days notice before canceling its policy.  At Agent’s request, Borrower
shall deliver certified copies of policies and evidence of all premium
payments.  Proceeds payable under any policy shall, at Agent’s option, be
payable to Agent on
 
 
15

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

 
 
behalf of the Lenders on account of the Obligations.  If 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 Agent, 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 Agent deems prudent.
 
6.6 Operating Accounts.
 
(a) Reserved.
 
(b) Provide Agent five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution.  In addition,
for each Collateral Account that Borrower at any time maintains, Borrower shall
cause the applicable bank or financial institution at or with which any
Collateral Account is maintained to execute and deliver a Control Agreement or
other appropriate instrument with respect to such Collateral Account to perfect
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
Agent.  The provisions of the previous sentence shall not apply to deposit
accounts exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of Borrower’s employees and identified to
Agent by Borrower as such.  The information provided to Agent pursuant to this
Section 6.6 shall be deemed an update to Schedule 5.2(a).
 
6.7 Protection of Intellectual Property Rights.  Borrower shall own, or be
licensed to use or otherwise have the right to use, all Material Intellectual
Property.  All Intellectual Property of Borrower is and shall be fully protected
and/or duly and properly registered, filed or issued in the appropriate office
and jurisdictions for such registrations, filings or issuances, except where the
failure to do so would not reasonably be expected to result in a Material
Adverse Change.  Borrower shall not become a party to, nor become bound by, any
material license or other agreement with respect to which Borrower is the
licensee that prohibits or otherwise restricts Borrower from granting a security
interest in Borrower’s interest in such license or agreement or other
property.  Borrower shall at all times conduct its business without knowingly
infringing on any Intellectual Property rights of others.  Borrower shall do the
following, to the extent it determines, in the exercise of its reasonable
business judgment, that it is prudent to do so: (a) protect, defend and maintain
the validity and enforceability of its Intellectual Property; (b) promptly
advise Agent in writing of material infringements of its Intellectual Property;
and (c) not allow any Material Intellectual Property to be abandoned, forfeited
or dedicated to the public without Agent’s prior written consent.
 
6.8 Litigation Cooperation.  From the date hereof and continuing through the
termination of this Agreement, make available to Agent, without expense to
Agent, Borrower and its officers, employees and agents and Borrower’s Books, to
the extent that Agent may deem them reasonably necessary to prosecute or defend
any third-party suit or proceeding instituted by or against Agent with respect
to any Collateral or relating to Borrower.
 
6.9 Notices of Litigation and Default.  Borrower will give prompt written notice
to Agent of any litigation or governmental proceedings pending or threatened (in
writing) against Borrower which would reasonably be expected to result in a
Material Adverse Change.  Without limiting or contradicting any other more
specific provision of this Agreement, promptly (and in
 
 
16

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

 
 
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 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.
 
6.10 Creation/Acquisition of Subsidiaries.  In the event Borrower or any
Subsidiary creates or, to the extent permitted hereunder, acquires any
Subsidiary, Borrower and such Subsidiary shall promptly (and in any event within
five (5) Business Days of such creation or acquisition) notify Agent of the
creation or acquisition of such new Subsidiary and take all such action as may
be reasonably required by Agent to cause each such Subsidiary to become a
co-Borrower hereunder or to guarantee the Obligations of Borrower under the Loan
Documents 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 Borrower shall grant and pledge to Agent, for the ratable benefit
of the Lenders, a perfected security interest in the stock, units or other
evidence of ownership of each Subsidiary (the foregoing collectively, the
“Joinder Requirements”); provided, that Borrower shall not be permitted to make
any Investment in excess of $100,000 in such Subsidiary until such time as
Borrower has satisfied the Joinder Requirements; and provided further, that
Borrower shall not be required to comply with the Joinder Requirements with
respect to any Foreign Subsidiary whose guarantee or grant of a Lien would
result in material adverse tax consequences to Borrower under Section 956 of the
“Internal Revenue Code of 1986, as amended, as determined by Agent.
 
6.11 Further Assurances.
 
(a) Promptly (but in any event within five (5) Business Days after request)
execute any further instruments and take further action as Agent reasonably
requests to perfect or continue Agent’s Lien in the Collateral or to effect the
purposes of this Agreement.
 
(b) Deliver to 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
effect on any of the Governmental Approvals material to Borrower’s business or
otherwise on the operations of Borrower or any of its Subsidiaries.
 
6.12 Post-Closing Obligations.  Borrowers shall complete each of the post
closing obligations and/or deliver to Agent each of the documents, instruments,
agreements and information listed on Schedule 6.12 attached hereto, on or before
the date set forth for each such item thereon, each of which shall be completed
or provided in form and substance satisfactory to Agent and Lenders.
 
 
7. NEGATIVE COVENANTS
 
Borrower shall not do any of the following without the prior written consent of
Agent and Required Lenders:
 
 
17

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

 
 
7.1 Dispositions.  Convey, sell, lease, transfer, assign, grant a security in 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 (i) Transfers of Inventory in the Ordinary Course of Business; (ii)
Permitted IP Licenses; (iii) dispositions of worn-out or obsolete Equipment at a
fair market value in the Ordinary Course of Business; (iv) other Transfers of
assets (other than Intellectual Property) having a fair market value of not more
than $500,000 in the aggregate in any fiscal year; (v) Transfers to any
Borrower, (vi) Transfers of, and transactions constituting, Permitted
Investments, or (vii) Permitted Liens.  Without limiting the foregoing, Borrower
agrees that it shall not grant a security interest in, nor shall it or otherwise
encumber (except for encumbrances expressly permitted by clause (ii) above and
clause (j) of the definition of Permitted Liens), any of its Intellectual
Property without Agent’s and Required Lenders’ prior written consent.
 
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 currently engaged in by Borrower and such
Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or
dissolve; (c) enter into any transaction or series of related transactions which
would result in a Change in Control; (f) change its organizational structure or
type; (g) without providing Agent at least five (5) Business Days prior written
notice thereof, (i) change its legal name or (ii) change any organizational
number (if any) assigned by its jurisdiction of organization.
 
7.3 Mergers or Acquisitions.  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 or property of another Person; provided, however, that a
Subsidiary of Borrower may merge or consolidate into another Subsidiary that is
a Loan Party or into Borrower, so long as (a) Borrower has provided Agent with
prior written notice of such transaction, (b) Borrower or such Loan Party shall
be the surviving legal entity, (c) Borrower’s tangible net worth is not thereby
reduced, and (d) as long as no Event of Default exists or arises as a result
therefrom.
 
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.  (a) 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, (b) permit any Collateral not to be subject to the first priority
security interest granted herein, or (c) enter into any agreement, document,
instrument or other arrangement (except with or in favor of Agent) with any
Person which directly or indirectly prohibits or has the effect of prohibiting
Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a
security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s Intellectual Property, except as is otherwise permitted in
Section 7.1 hereof and the definition of “Permitted Liens” herein.
 
7.6 Maintenance of Collateral Accounts.  Maintain any Collateral Account, except
pursuant to the terms of Section 6.6(b) hereof.
 
 
18

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

 
 
7.7 Distributions; Investments.  (a) Pay any dividends (other than dividends
payable solely in common stock) or make any distribution or payment on or
redeem, retire or purchase any capital stock (other than repurchases pursuant to
the terms of employee stock purchase plans, employee restricted stock agreements
or similar plans), 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, except for
transactions that are in the Ordinary Course of 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 the Lenders.
 
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 the Federal Fair Labor Standards Act or violate any other Law or
regulation, if the violation could reasonably be expected to result in a
Material Adverse Change, 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 unpaid material 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.  Agent hereby notifies Borrower that
pursuant to the requirements of Anti-Terrorism Laws, and Agent’s policies and
practices, Agent is required to obtain, verify and record certain information
and documentation that identifies Borrower and its principals, which information
includes the name and address of Borrower and its principals and such other
information that will allow Agent to identify such party in accordance with
Anti-Terrorism Laws.  Borrower will not, nor will 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.  Borrower shall immediately notify Agent if Borrower has knowledge that
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.  Borrower will not, nor will 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,
 
 
19

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

 
 
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.  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) Borrower fails or neglects to perform any obligation in Sections 6.1(c),
6.2, 6.4, 6.5, 6.6, 6.7, 6.10, 6.11, or 6.12 or violates any covenant in
Section 7; or
 
(b) 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 Section 8.2(a) above) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within
ten (10) Business Days after the earlier of written notice from Agent or
knowledge thereof by a Responsible Officer of Borrower; provided, however, that
if the default cannot by its nature be cured within the ten (10) Business Day
period or cannot after diligent attempts by Borrower be cured within such ten
(10) Business 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).  Grace periods provided under this Section shall not apply, among other
things, to financial covenants or any other covenants set forth in
subsection (a) above;
 
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 Borrower or of any entity under control of Borrower (including a
Subsidiary) on deposit with the Lenders or any Lender Affiliate, or (ii) a
notice of lien, levy, or assessment is filed against any of 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
 
 
20

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

 
 
(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 material portion of 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 Borrower from conducting any material part of
its business;
 
8.5 Insolvency.  (a) Borrower is unable to pay its debts (including trade debts)
as they become due or otherwise becomes insolvent; (b) Borrower begins an
Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against 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 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 reasonably be expected to result in a Material Adverse Change;
 
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 One Hundred
Thousand Dollars ($100,000) (not covered by independent third-party insurance as
to which liability has been accepted by such insurance carrier) shall be
rendered against Borrower and shall remain unsatisfied, unvacated, or unstayed
for a period of ten (10) days after the entry thereof, provided, however, that
no Credit Extensions will be made prior to the satisfaction, vacation, or stay
of such judgment, order or decree;
 
8.8 Misrepresentations.  Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Agent and/or the Lenders to induce
Agent and/or the Lenders to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement is incorrect in any material
respect when made;
 
8.9 Subordinated Debt.  A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination,
intercreditor, or other similar agreement with Agent or the Lenders, or any
creditor that has signed such an agreement with Agent or the Lenders breaches
any terms of such agreement;
 
8.10 Governmental Approvals.  Any Governmental Approval (other than a
Governmental Approval issued by any Regulatory Authority, which is the subject
of Section 8.14) shall have been (a) revoked, rescinded, suspended, modified in
an adverse manner or not renewed in the Ordinary Course of Business 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 in each case described in
(a) and (b),  such decision or such revocation, rescission, suspension,
modification or non-renewal has, or could reasonably be expected to have, a
Material Adverse Change;
 
 
21

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

 
 
8.11 Criminal Proceeding.  The institution by any Governmental Authority of
criminal proceedings against Borrower;
 
8.12 Lien Priority.  Except as permitted by Agent, any Lien created hereunder or
by any other Loan Document shall at any time fail to constitute a valid and
perfected Lien on all of the Collateral purported to be secured thereby, subject
to no prior or equal Lien;
 
8.13 Change in Control.  A Change in Control shall have occurred; or
 
8.14 Withdrawals, Recalls, Adverse Test Results and Other Matters.  Borrower
ceases clinical development for both PMX-60056 and PMX-30063 as a result of
either (i) an internal decision to cease all further clinical testing in humans
for all indications or (ii) the institution of any action or proceeding by any
Regulatory Authority to cause Borrower to cease all further clinical testing in
humans for all indications.  In and of itself, (i) the failure of any
nonclinical or clinical trial to demonstrate the desired safety or efficacy or
(b) the denial, delay or limitation of approval of, or taking of any other
regulatory action by, any Regulatory Authority shall not constitute an Event of
Default under this Section 8.14.
 
9. RIGHTS AND REMEDIES
 
9.1 Rights and Remedies.
 
(a) Upon the occurrence and during the continuance of an Event of
Default,  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 Borrower, (ii) by notice to 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 Agent or the Lenders), or (iii) by notice to Borrower suspend or terminate
the obligations, if  any, of the Lenders to advance money or extend credit for
Borrower’s benefit under this Agreement or under any other agreement between
Borrower and Agent and/or the Lenders (but if an Event of Default described in
Section 8.5 occurs all obligations, if any, of the Lenders to  advance money or
extend credit for Borrower’s benefit under this Agreement or under any other
agreement between Borrower and Agent and/or the Lenders shall be immediately
terminated without any action by Agent or the Lenders).
 
(b) Without limiting the rights of Agent and Lenders set forth in Section 9.1(a)
above, upon the occurrence and during the continuance of an Event of Default,
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 Borrower that
Agent or any Lender holds or controls, or (b) any amount held or controlled by
Agent or any Lender owing to or for the credit or the account of Borrower;
and/or
 
(iii) commence and prosecute an Insolvency Proceeding or consent to Borrower
commencing any Insolvency Proceeding.
 
 
22

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

 
 
(c) Without limiting the rights of 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 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 Agent considers advisable, notify any
Person owing Borrower money of 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.  Borrower
shall assemble the Collateral if Agent requests and make it available as Agent
designates.  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.  Borrower grants Agent a license to
enter and occupy any of its premises, without charge, to exercise any of Agent’s
rights or remedies;
 
(iii) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
and/or advertise for sale, the Collateral.  Agent is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
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 Agent’s exercise of its rights under this Section 9.1,
Borrower’s rights under all licenses and all franchise agreements inure to Agent
for the  benefit of the Lenders;
 
(iv) place a “hold” on any account maintained with Agent or the 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 Borrower’s Books; and
 
(vi) subject to clauses 9.1(a) and (b), exercise all rights and remedies
available to 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, 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 Agent, imminently threatens the
ability of 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
 
 
23

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

 
 
adequate casualty insurance coverage, or which, in the judgment of Agent, could
result in a material diminution in value of the Collateral.
 
9.2 Power of Attorney.  Borrower hereby irrevocably appoints Agent as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of
an Event of Default, to:  (a) endorse Borrower’s name on any checks or other
forms of payment or security; (b) sign 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 Agent determines reasonable; (d) make, settle, and adjust
all claims under 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 Agent or a third party as the Code permits.  Borrower hereby appoints Agent
as its lawful attorney-in-fact to sign Borrower’s name on any documents
necessary to perfect or continue the perfection of 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 Agent and the Lenders are under no
further obligation to make Credit Extensions hereunder.  Agent’s foregoing
appointment as Borrower’s attorney in fact, and all of Agent’s rights and
powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Agent’s and the Lenders’ obligation to
provide Credit Extensions terminates.
 
9.3 Protective Payments.  If 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 which Borrower is obligated to pay under this Agreement or any other Loan
Document, Agent may obtain such insurance or make such payment, and all amounts
so paid by Agent are Lenders’ Expenses and immediately due and payable, bearing
interest at the then highest applicable rate, and secured by the
Collateral.  Agent will make reasonable efforts to provide Borrower with notice
of Agent obtaining such insurance at the time it is obtained or within a
reasonable time thereafter.  No such payments by Agent are deemed an agreement
to make similar payments in the future or Agent’s waiver of any Event of
Default.
 
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) Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times thereafter
received by Agent from or on behalf of Borrower of all or any part of the
Obligations, and, as between Borrower on the one hand and Agent and Lenders on
the other, 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
Agent may deem advisable notwithstanding any previous application by 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 the 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 Borrower owing to Agent
or any Lender under the Loan Documents.  Any balance remaining shall be
delivered to 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
 
 
24

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

 
 
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 the Lenders of any right, interest or
obligation “ratably,” “proportionally” or in similar terms shall refer to Pro
Rata Share unless expressly provided otherwise.  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 any Term Loan and
the ratable distribution of interest, fees and reimbursements paid or made by
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 the Agent or
other Lenders such sums as may be necessary to ensure the ratable payment of
such scheduled payments, as instructed by 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
Lender’s claims.  To the extent any payment for the account of Borrower is
required to be returned as a voidable transfer or otherwise, the 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
the Agent and other Lenders for purposes of perfecting Agent’s security interest
therein.  Notwithstanding anything to the contrary herein, any warrants issued
to the Lenders by Borrower, the stock issuable thereunder, any equity securities
purchased by Lenders, any amounts paid thereunder, any dividends, and any other
rights in connection therewith shall not be subject to the terms and conditions
of this Agreement.  Nothing herein shall affect any Lender’s rights under any
such warrants, stock, or other equity securities to administer, manage,
transfer, assign, or exercise such warrants, stock, or other equity securities
for its own account.
 
9.5 Liability for Collateral.  So long as Agent and the Lenders comply with
reasonable banking practices regarding the safekeeping of the Collateral in the
possession or under the control of Agent and the Lenders, Agent and the 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.  Borrower bears all risk of loss, damage or destruction of the
Collateral.
 
9.6 No Waiver; Remedies Cumulative.  Agent’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any
other Loan Document shall not waive, affect, or diminish any right of Agent
thereafter to demand strict performance and compliance herewith or
therewith.  No waiver hereunder shall be effective unless signed by Agent and
then is only effective for the specific instance and purpose for which it is
given.  Agent’s rights and remedies under this Agreement and the other Loan
Documents are cumulative.  Agent has all rights and remedies provided under the
Code, by Law, or in equity.  Agent’s exercise of one right or remedy is not an
election, and Agent’s waiver of any Event of
 
 
25

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

 
 
Default is not a continuing waiver.  Agent’s delay in exercising any remedy is
not a waiver, election, or acquiescence.
 
9.7 Demand Waiver.  Borrower waives 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 Agent on which Borrower is
liable.
 
9.8 Borrower Liability.  Either Borrower may, acting singly, request Term Loans
hereunder.  Each Borrower hereby appoints the other as agent for the other for
all purposes hereunder, including with respect to requesting Term Loans
hereunder.  Each Borrower hereunder shall be jointly and severally obligated to
repay all Term Loans made hereunder and all other Obligations, regardless of
which Borrower actually receives said Term Loans, as if each Borrower hereunder
directly received all Term Loans.  Each Borrower waives (a) any suretyship
defenses available to it under the Code or any other applicable law, and (b) any
right to require the Lenders or Agent to: (i) proceed against any Borrower or
any other person; (ii) proceed against or exhaust any security; or (iii) pursue
any other remedy.  The Lenders or Agent may exercise or not exercise any right
or remedy they have against any Borrower or any security (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 the Lenders and Agent 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 the Lenders and Agent and such payment shall be promptly delivered to Agent
for application to the Obligations, whether matured or unmatured.
 
 
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 Agent, Lender or Borrower may change its mailing or electronic
mail
 
 
26

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

 
 
address or facsimile number by giving the other party written notice thereof in
accordance with the terms of this Section 10.
 
 
If to Borrower:

 
c/o PolyMedix Pharmaceuticals, Inc.
 
170 N. Radnor Chester Road, Suite 300
 
Radnor, Pennsylvania 19807
 
Attention: Edward Smith, Chief Financial Officer
 
Fax: (484) 598-2333
 
E-Mail: esmith@polymedix.com
 
 
If to Agent or Lenders:

 
MidCap Financial SBIC, LP
 
7255 Woodmont Avenue, Suite 200
 
Bethesda, Maryland  20814
 
Attention:  Portfolio Management- Life Sciences
 
Fax:  (301) 941-1450
 
E-Mail:  lviera@midcapfinancial.com
 
 
with a copy to:

 
Midcap Financial, LLC
 
7255 Woodmont Avenue, Suite 200
 
Bethesda, Maryland  20814
 
Attention:  General Counsel
 
Fax:  (301) 941-1450
 
E-Mail: rgoodridge@midcapfinancial.com
 
 
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
 
THIS AGREEMENT, EACH SECURED PROMISSORY NOTE AND EACH OTHER LOAN DOCUMENT, AND
ALL MATTERS RELATING HERETO OR THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN
CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.  NOTWITHSTANDING THE FOREGOING,
AGENT AND LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH 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 AGENT’S AND
LENDERS’ RIGHTS AGAINST BORROWER OR ITS PROPERTY.  BORROWER EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON
 
 
27

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

 
 
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT.  BORROWER HEREBY 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 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, PROPER POSTAGE PREPAID.
 
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, 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 BOTH PARTIES TO ENTER INTO
THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
 
Borrower, Agent and each Lender agree that each Term Loan (including those made
on the Closing Date) shall be deemed to be made in, and the transactions
contemplated hereunder and in any other Loan Document shall be deemed to have
been performed in, the State of Maryland.
 
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.  Borrower may not assign this
Agreement or any rights or obligations under it without Agent’s prior written
consent (which may be granted or withheld in Agent’s discretion).Any Lender may
at any time assign to one or more Eligible Assignees all or any portion of such
Lender’s Loan, together with all related obligations of such Lender
hereunder.  Borrower and Agent shall be entitled to continue to deal solely and
directly with such Lender in connection with the interests so assigned until
Agent shall have received and accepted an effective assignment agreement in form
and substance acceptable to Agent, executed, delivered and fully completed by
the applicable parties thereto, and shall have received such other information
regarding such Eligible Assignee as Agent reasonably shall
require.  Notwithstanding anything set forth in this Agreement to the contrary,
any Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such Lender,
including any pledge or assignment to secure obligations to a Federal Reserve
Bank; provided, however, that no such pledge or assignment shall release such
Lender from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.
 
 
28

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

 
 
12.2 Indemnification.
 
(a) Borrower agrees to indemnify, defend and hold Agent and the Lenders and
their respective directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Agent or the Lenders  (each, an
“Indemnified Person”) harmless against: (i) all obligations, demands, claims,
and liabilities (collectively, “Claims”) asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and
(ii) all losses or Lenders’ Expenses incurred, or paid by Indemnified Person
from, following, or arising from transactions between Agent, and/or the Lenders
and 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 (collectively, the “Indemnified Liabilities”).
 
(b) 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 whatsoever (including the fees and
disbursements of counsel for such Indemnitee) 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 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 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.
 
(c) To the extent that the undertaking set forth in this Section 12.2 may be
unenforceable, Borrower shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all such indemnified liabilities incurred by the Indemnitees or
any of them.
 
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.  Agent and the 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 Integration.  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.
 
 
29

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

 
 
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 Borrower in Section 12.2 to
indemnify each Lender and Agent 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 Borrower, the
Lenders and Agent shall exercise the same degree of care that it exercises for
its own proprietary information, but disclosure of information may be made:
(a) to the Lenders’ and Agent’s Subsidiaries or Affiliates; (b) to prospective
transferees or purchasers of any interest in the Credit Extensions (provided,
however, the Lenders and Agent shall use commercially reasonable efforts to
obtain such prospective transferee’s or purchaser’s agreement to the terms of
this provision); (c) as required by Law, regulation, subpoena, or other order;
(d) to regulators or as otherwise required in connection with an examination or
audit; (e) as Agent considers appropriate in exercising remedies under the Loan
Documents; and (f) to third party service providers of the Lenders and/or Agent
so long as such service providers have executed a confidentiality agreement with
the Lenders and 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 the Lenders’ and/or Agent’s possession when
disclosed to the Lenders and/or Agent, or becomes part of the public domain
after disclosure to the Lenders and/or Agent; or (ii) is disclosed to the
Lenders and/or Agent by a third party, if the Lenders and/or Agent does not know
that the third party is prohibited from disclosing the information.  Agent
and/or Lenders may use confidential information for any purpose, including,
without limitation, for the development of client databases, reporting purposes,
and market analysis, so long as Agent and/or Lenders, as applicable, do not
disclose 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.  The agreements provided under this Section 12.9 supersede all prior
agreements, understanding, representations, warranties, and negotiations between
the parties about the subject matter of this Section 12.9.
 
12.10 Right of Set Off.  Borrower hereby grants to Agent and to each Lender, a
lien, security interest and right of set off as security for all Obligations to
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 Agent or the Lenders or any
entity under the control of Agent or the Lenders (including a 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, Agent or the
Lenders may set off the same or any part thereof and apply the same to any
liability or obligation of Borrower even though unmatured and regardless of the
adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS
TO REQUIRE AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE
 
 
30

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

 
 
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.
 
12.11 [Reserved].
 
12.12 Amendments.
 
(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 Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by Borrower, Agent and the
Required Lenders, provided, however, 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 Agent shall be effective without Agent’s written consent or signature;
 
(iii) no such amendment, waiver or other modification shall, unless signed by
all the Lenders directly affected thereby, (A) reduce the principal of, rate of
interest on or any fees with respect to any Term Loan or forgive any principal,
interest (other than default interest) or fees (other than late charges) with
respect to any Term Loan (B) postpone the date fixed for, or waive, any payment
of principal of any Term Loan or of interest on any 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 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 12.12 or the
definitions of the terms used in this Section 12.12 insofar as the definitions
affect the substance of this Section 12.12; (F) consent to the assignment,
delegation or other transfer by any Borrower or any Guarantor of any of its
rights and obligations under any Loan Document or release Borrower or any
Guarantor 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 the 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 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;
 
 
31

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

 
 
(iv) the provisions of the foregoing clauses (i), (ii) and (iii) are subject to
the provisions of any interlender or agency agreement among the Agent and
Lenders 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 12.12(a)(i) through (iii)
above, 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 the Borrower.
 
12.13 Publicity.  Borrower will not directly or indirectly publish, disclose or
otherwise use in any public disclosure, advertising material, promotional
material, press release or interview, any reference to the name, logo or any
trademark of Agent or any Lender or any of their Affiliates or any reference to
this Agreement or the financing evidenced hereby, in any case except (i) such
filings and disclosures as Borrower shall determine to be necessary or
appropriate under federal securities law, (ii) as required by applicable Law,
subpoena or judicial or similar order, in which case Borrower shall endeavor to
give Agent prior written notice of such disclosure or (ii) without first
providing Agent and such Lender(s) with an opportunity to review and confer with
Borrower regarding, and approve, the contents of any such advertisement or
information, as applicable, prior to its initial submission for publication, but
subsequent publications of the same advertisement or information shall not
require Agent’s or such Lender(s)’ approval.  Each Lender and Borrower hereby
authorizes each Lender to publish the name of such Lender and Borrower, the
existence of the financing arrangements referenced under this Agreement, the
primary purpose and/or structure of those arrangements, the amount of credit
extended under each facility, the title and role of each party to this
Agreement, and the total amount of the financing evidenced hereby in any
“tombstone”, comparable advertisement or press release which such Lender elects
to submit for publication.  In addition, each Lender and Borrower agrees that
each Lender may provide lending industry trade organizations with information
necessary and customary for inclusion in league table measurements after the
Closing Date.  With respect to any of the foregoing, such authorization shall be
subject to such Lender providing Borrower and the other Lenders with an
opportunity to review and confer with such Lender regarding, and approve, the
contents of any such tombstone, advertisement or information, as applicable,
prior to its initial submission for publication, but subsequent publications of
the same tombstone, advertisement or information shall not require Borrower’s
approval.
 
12.14 No Strict Construction.  The parties hereto have participated jointly in
the negotiation and drafting of this Agreement.  In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
 
 
13. AGENT
 
13.1 Appointment and Authorization of Agent.  Each Lender hereby irrevocably
appoints, designates and authorizes 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
 
 
32

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

 
 
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, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall 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 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 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.  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.  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 Agent.  Except as otherwise provided herein, no 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 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 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.
 
13.4 Reliance by Agent.  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, telegram,
facsimile, telex 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 Borrower), independent
accountants and other experts selected by Agent.  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 the 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.  Agent shall in all cases be fully protected in acting, or in
 
 
33

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

 
 
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 the
Lenders.
 
13.5 Notice of Default.  Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default and/or Event of Default, unless Agent shall
have received written notice from a Lender or Borrower, describing such default
or Event of Default.  Agent will notify the Lenders of its receipt of any such
notice.  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 Section 9(a);
provided, however, that while an Event of Default has occurred and is
continuing, 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 Agent
shall deem advisable or in the best interest of the 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 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 Borrower and/or the Collateral.
 
13.6 Credit Decision; Disclosure of Information by Agent.  Each Lender
acknowledges that no Agent-Related Person has made any representation or
warranty to it, and that no act by 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 Agent-Related Person to any Lender as to any matter, including whether
Agent-Related Persons have disclosed material information in their
possession.  Each Lender represents to Agent that it has, independently and
without reliance upon any 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 Borrower and its respective
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
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 Borrower.  Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
Agent herein, 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
Borrower or any of its Affiliates which may come into the possession of any
Agent-Related Person.
 
13.7 Indemnification of 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 Agent-Related Person (to
the extent not reimbursed by or on behalf of Borrower and without limiting the
obligation of Borrower to do so), and hold harmless each Agent-Related Person
from and against any and all Indemnified Liabilities (which
 
 
34

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

 
 
shall not include legal expenses of Agent incurred in connection with the
closing of the transactions contemplated by this Agreement) incurred by it;
provided, however, that no Lender shall be liable for the payment to any
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 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 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 Agent (in its capacity as 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 Agent is not reimbursed for such expenses by or on behalf of
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 Agent.
 
13.8 Agent in its Individual Capacity.  With respect to its Credit Extensions,
MidCap 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 Agent, and
the terms “Lender” and “Lenders” include MidCap in its individual capacity.
 
13.9 Successor Agent.
 
(a) Agent may at any time assign its rights, powers, privileges and duties
hereunder to (i) another Lender, or (ii) any Person to whom Agent, in its
capacity as a Lender, has assigned (or will assign, in conjunction with such
assignment of agency rights hereunder) 50% or more of its Loan, in each case
without the consent of the Lenders or Borrowers.  Following any such assignment,
Agent shall give notice to the Lenders and Borrowers.  An assignment by Agent
pursuant to this subsection (a) shall not be deemed a resignation by Agent for
purposes of subsection (b) below.
 
(b) Without limiting the rights of Agent to designate an assignee pursuant to
subsection (a) above, Agent may at any time give notice of its resignation to
the Lenders and Borrowers.  Upon receipt of any such notice of resignation,
Required Lenders shall have the right to appoint a successor Agent.  If no such
successor shall have been so appointed by Required Lenders and shall have
accepted such appointment within ten (10) Business Days after the retiring Agent
gives notice of its resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent; provided, however, that if Agent shall
notify Borrowers and the Lenders that no Person has accepted such appointment,
then such resignation shall nonetheless become effective in accordance with such
notice from Agent that no Person has accepted such appointment and, from and
following delivery of such notice, (i) the retiring Agent shall be discharged
from its duties and obligations hereunder and under the other Loan Documents,
and (ii) all payments, communications and determinations provided to be made by,
 
 
35

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

 
 
to or through Agent shall instead be made by or to each Lender directly, until
such time as Required Lenders appoint a successor Agent as provided for above in
this subsection (b).
 
(c) Upon (i) an assignment permitted by subsection (a) above, or (ii) the
acceptance of a successor’s appointment as Agent pursuant to subsection (b)
above, such successor shall succeed to and become vested with all of the rights,
powers, privileges and duties of the retiring (or retired) Agent, and the
retiring Agent shall be discharged from all of its duties and obligations
hereunder and under the other Loan Documents (if not already discharged
therefrom as provided above in this subsection (c)).  The fees payable by
Borrowers to a successor Agent shall be the same as those payable to its
predecessor unless otherwise agreed between Borrower and such successor.  After
the retiring Agent’s resignation hereunder and under the other Loan Documents,
the provisions of this Section 13 shall continue in effect for the benefit of
such retiring Agent and its sub-agents in respect of any actions taken or
omitted to be taken by any of them while the retiring Agent was acting or was
continuing to act as Agent.
 
13.10 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 Borrower, 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 Agent shall have made any demand on 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 the Lenders and Agent (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Lenders and Agent and their respective agents and counsel and all other
amounts due the Lenders and 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;
 
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 Agent and, in the event that Agent shall
consent to the making of such payments directly to the Lenders, to pay to Agent
any amount due for the reasonable compensation, expenses, disbursements and
advances of Agent and its agents and counsel, and any other amounts due Agent
under Section 2.4(d).  To the extent that Agent fails timely to do so, each
Lender may file a claim relating to such Lender’s claim.
 
13.11 Collateral and Guaranty Matters.  The Lenders irrevocably authorize Agent,
at its option and in its discretion, to release any Guarantor and any Lien on
any Collateral granted to or held by Agent under any Loan Document (a) upon the
date that all Obligations due hereunder have been fully and indefeasibly paid in
full and no Term Loan Commitments or other obligations of any Lender to provide
funds to Borrower under this Agreement remain outstanding, (b) that is
transferred or to be transferred as part of or in connection with any
 
 
36

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

 
 
Transfer permitted hereunder or under any other Loan Document, or (c) as
approved in accordance with Section 12.11.  Upon request by Agent at any time,
all Lenders will confirm in writing 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.  If necessary, Borrower agrees to (a) 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, (b) make Borrower’s management
available to meet with Agent and prospective participants and assignees of Term
Loan Commitments or Credit Extensions and (c) assist Agent or the Lenders in the
preparation of information relating to the financial affairs of 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 Borrower
authorizes each Lender to disclose to any prospective participant or assignee of
a Term Loan Commitment, any and all information in such Lender’s possession
concerning Borrower and its financial affairs which has been delivered to such
Lender by or on behalf of 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
 
As used in this Agreement, the following terms have the following meanings:
 
“Access Agreement” means a landlord consent, bailee letter or warehouseman’s
letter, in form and substance reasonably satisfaction to Agent, in favor of
Agent executed by such landlord, bailee or warehouseman, as applicable, for any
third party location.
 
“Account” means 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” means any “account debtor”, as defined in the Code, with such
additions to such term as may hereafter be made.
 
“Affiliate” means, with respect to any Person, 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.
 
“Agent” means, MidCap, not in its individual capacity, but solely in its
capacity as agent on behalf of and for the benefit of the Lenders.
 
“Agent-Related Person” means the Agent, together with its Affiliates, and the
officers, directors, employees, agents, advisors, auditors and attorneys-in-fact
of such Persons; provided, however, that no Agent-Related Person shall be an
Affiliate of Borrower.
 
“Agreement” has the meaning given it in the preamble of this Agreement.
 
 
37

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

 
 
“Amortization Date” means February 1, 2013.
 
“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.
 
“Approved Fund” means any (a) 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 Business, or (b) any Person (other than a natural person)
which temporarily warehouses loans for any Lender or any entity described in the
preceding clause (a) and that, with respect to each of the preceding clauses (a)
and (b), is administered or managed by (i) a Lender, (ii) an Affiliate of a
Lender or (iii) a Person (other than a natural person) or an Affiliate of a
Person (other than a natural person) that administers or manages a Lender.
 
“Blocked Person” means: (a) any Person 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” has the meaning given it in the preamble of this Agreement.
 
“Borrower’s Books” means all of 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.
 
“Borrowing Resolutions” means, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors and delivered by such Person to
Agent approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as an Exhibit to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s) of such Person(s),
and (d) that Agent and the Lenders may conclusively rely on such certificate
unless and until such Person shall have delivered to Agent a further certificate
canceling or amending such prior certificate.
 
 
38

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

 
 
“Business Day” means any day that is not a Saturday, Sunday or a day on which
Agent is closed.
 
“Capital Lease Obligations” means the balance sheet amount of any obligations in
respect of leases required to be capitalized in accordance with GAAP as in
effect on the date hereof.
 
“Cash Equivalents” means (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 (2) years after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., (c) certificates of deposit issued
maturing no more than two (2) years after issue, and (d) money market funds at
least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (b) of this
definition.  For the avoidance of doubt, the direct purchase by Borrower,
co-borrower, or any subsidiary of 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, co-borrower, or any
subsidiary of Borrower shall be conclusively determined by the 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 Subsidiary is 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.
 
“Change in Control” means any event, transaction, or occurrence as a result of
which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of Borrower, is or becomes a beneficial owner
(within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Borrower, representing 35% or more of the combined
voting power of Borrower’s then outstanding securities; (b) during any period of
twelve consecutive calendar months, individuals who at the beginning of such
period constituted the Board of Directors of Borrower (together with any new
directors whose election by the Board of Directors of Borrower was approved by a
vote of not less than two-thirds of the directors then still in office who
either were directors at the beginning of such period  or whose election or
nomination for election was previously so approved) cease for any reason other
than death or disability to constitute a majority of the directors then in
office; (c) Borrower ceases to own and control, directly or indirectly, all of
the economic and voting rights associated with the outstanding securities of
each of its Subsidiaries; or (d) the occurrence of any “change of control” or
any term of similar effect under any Subordinated Debt document.
 
“Claims” has the meaning given it in Section 12.2.
 
“Closing Date” has the meaning given it in the preamble of this Agreement.
 
 
39

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

 
 
“Code” means the Uniform Commercial Code in effect on the date hereof, as the
same may, from time to time, be enacted and in effect in the State of Maryland;
provided, however, 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; and 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, Agent’s Lien on any
Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than the State of Maryland, 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” means all property, now existing or hereafter acquired described in
Exhibit A hereto or in any other Loan Document that contains a grant of a
security interest by a Borrower.
 
“Collateral Account” means any Deposit Account, Securities Account or Commodity
Account.
 
“Commitment Percentage” means, as to any Lender, the percentage set forth
opposite such Lender’s name on Schedule 1, as amended from time to time.
 
“Commodity Account” means any “commodity account”, as defined in the Code, with
such additions to such term as may hereafter be made.
 
“Communication” has the meaning given it in Section 10.
 
“Compliance Certificate” means a certificate, duly executed by an authorized
officer of Borrower, appropriately completed and substantially in the form of
Exhibit C.
 
“Contingent Obligation” means, 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” means any control agreement entered into among the
depository institution at which Borrower maintains a Deposit Account or the
securities intermediary or commodity intermediary at which Borrower maintains a
Securities Account or a Commodity Account, Borrower, and Agent pursuant to which
Agent obtains control (within the meaning of
 
 
40

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

 
 
the Code) for the benefit of the Lenders over such Deposit Account, Securities
Account or Commodity Account.
 
“Credit Extension” means any Term Loan or any other extension of credit by Agent
or the Lenders for Borrower’s benefit.
 
“DEA” means the Drug Enforcement Administration of the United States of America,
and any successor agency thereof.
 
“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.
 
“Default Rate” has the meaning given it in Section 2.3(c).
 
“Deposit Account” means any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Designated Deposit Account” means Borrower’s deposit account, account number
424-4667890, maintained with TD Bank and over which Agent has been granted
control for the ratable benefit of all Lenders.
 
“Dollars,” “dollars” and “$” each means lawful money of the United States.
 
“Draw Period” means the period of time commencing upon the Closing Date and
continuing through the earliest to occur of (a) the Draw Period Termination Date
and (b) an Event of Default.
 
“Draw Period Termination Date” means September 30, 2012.
 
“Drug Application” means a new drug application, an abbreviated drug
application, or a product license application for any Product, as appropriate,
as those terms are defined in the FDCA.
 
“Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an
Approved Fund, and (d) any other Person (other than a natural person) approved
by Agent; provided, however, that notwithstanding the foregoing, “Eligible
Assignee” shall not include Borrower, any Guarantor or any of Borrower’s or any
Guarantor’s Affiliates or Subsidiaries.  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 becoming an assignee
incident to such forced divestiture.
 
“Equipment” means 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” means the Employee Retirement Income Security Act of 1974, and all
regulations promulgated thereunder.
 
 
41

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

 
 
“Event of Default” has the meaning given it in Section 8.
 
“Exclusive License” means, in respect of any Intellectual Property, a license
that grants the licensee the exclusive rights to exploit such Intellectual
Property for all uses and indications.
 
“FDA” means the Food and Drug Administration of the United States of America, or
any successor entity thereto.
 
“FDCA” means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C.
Section 301 et seq., and all regulations promulgated thereunder.
 
“Foreign Subsidiary” means any Subsidiary that is not organized, incorporated or
otherwise formed under the laws of the United States or any State thereof.
 
“Funding Date” means any date on which a Credit Extension is made to or on
account of Borrower which shall be a Business Day.
 
“GAAP” means 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” means all “general intangibles”, as defined in the Code,
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.
 
“Governmental Approval” means 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” means 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” means any present or future guarantor of the Obligations.
 
 
42

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

 
 
“Indebtedness” means (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 Liabilities” has the meaning given it in Section 12.2.
 
“Indemnified Person” has the meaning given it in Section 12.2.
 
“Insolvency Proceeding” means 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” means all intellectual property and similar rights,
including 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, 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, know-how, operating manuals, trade secret rights,
clinical and non-clinical data, rights to unpatented inventions, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing.
 
“Interest Expense” means for any fiscal period with respect to Borrower and its
Subsidiaries on a consolidated basis, interest expense (whether cash or
non-cash) determined in accordance with GAAP for the relevant period ending on
such date, including, in any event, interest expense with respect to any Credit
Extension and other Indebtedness of Borrower and its Subsidiaries, including,
without limitation or duplication, all commissions, discounts, or related
amortization and other fees and charges with respect to letters of credit and
bankers’ acceptance financing and the net costs associated with interest rate
swap, cap, and similar arrangements, and the interest portion of any deferred
payment obligation (including leases of all types).
 
“Inventory” means all “inventory”, as defined in the Code, 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 Borrower’s custody or possession or in
transit and including any returned goods and any documents of title representing
any of the above.
 
“Investment” means any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.
 
“Laws” means any and all federal, state, provincial, territorial, local and
foreign statutes, laws, judicial decisions, regulations, guidances, guidelines,
ordinances, rules, judgments, orders,
 
 
43

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

 
 
decrees, codes, plans, injunctions, permits, concessions, grants, franchises,
governmental agreements and governmental restrictions, whether now or hereafter
in effect, which are applicable to any Borrower in any particular circumstance.
 
“Lender” means any one of the Lenders.
 
“Lenders” means the Persons identified on Schedule 1 hereto, and each assignee
that becomes a party to this Agreement pursuant to Section 12.1.
 
“Lenders’ Expenses” means all reasonable, customary and documented audit fees
and expenses, costs, and expenses (including reasonable attorneys’ fees and
expenses) of Agent and Lenders 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 Agent or the Lenders in connection with the Loan
Documents.
 
“Lien” means 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” means, collectively, this Agreement, the Warrant, the
Perfection Certificate, the IP Agreement, any note, or notes or guaranties
executed by Borrower or any Guarantor in connection with the indebtedness
governed by this Agreement, and any other present or future agreement between
Borrower and/or for the benefit of the Lenders and Agent in connection with this
Agreement, all as amended, restated, or otherwise modified.
 
“Loan Party” means Borrower and each Guarantor.
 
“Material Adverse Change” means a material adverse change in: (i) the business,
operations, properties, assets, or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to perform the secured obligations in accordance with the terms of the loan
documents, or the ability of Agent to enforce any of its rights or remedies with
respect to the secured obligations; or (iii) the value of the Collateral and
Intellectual Property in the aggregate; or (iv) material impairment in the
perfection or priority of Agent’s liens on the Collateral.
 
“Material Intellectual Property” means all of Borrower’s Intellectual Property
and license or sublicense agreements or other agreements with respect to rights
in Intellectual Property that are material to the condition (financial or
other), business or operations of Borrower, as determined by Agent in its good
faith credit judgment; it being agreed that, unless Agent otherwise advises
Borrower in writing, and with the exception of Non-Material Intellectual
Property, all of Borrower’s Intellectual Property and other assets described in
this definition, whether owned on the Closing Date or acquired or developed
thereafter, shall be “Material Intellectual Property.”
 
“Maturity Date” means July 1, 2015 for each Term Loan.
 
 
44

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

 
 
“Non-Material Intellectual Property” means (a) the Intellectual Property
designated as “Non-Material Intellectual Property” on Schedule 5.2(d) as of the
Closing Date and (b) the Intellectual Property acquired or developed following
the Closing Date that is designated as such on any Compliance Certificate
delivered after the Closing Date (but only to the extent Agent has not advised
Borrower in writing that it does not agree with such designation); provided
that, for the avoidance of doubt, no Intellectual Property that is Material
Intellectual Property on the Closing Date shall be designated as Non-Material
Intellectual Property after the Closing Date unless expressly consented to by
Agent in its good faith credit judgment.
 
“Obligations” means all of Borrower’s obligations to pay when due any debts,
principal, interest, Lenders’ Expenses, the Prepayment Fee, and other amounts
Borrower owes the Lenders now or later, under this Agreement or the other Loan
Documents, including, without limitation, interest accruing after Insolvency
Proceedings begin (whether or not allowed) and debts, liabilities, or
obligations of Borrower assigned to the Lenders and/or Agent, and the
performance of Borrower’s duties under the Loan Documents.
 
“OFAC” means the U.S. Department of Treasury Office of Foreign Assets Control.
 
“OFAC Lists” means, 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” means, for any Person, such Person’s formation documents,
as certified with the Secretary of State of such Person’s state of formation on
a date that is no earlier than 30 days prior to the Closing 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.
 
“Ordinary Course of Business” means, in respect of any transaction involving any
Loan Party, the ordinary course of business of such Loan Party.
 
“Payment/Advance Form” means that certain form attached hereto as Exhibit B.
 
“Payment Date” means the first calendar day of each calendar month, or if such
day is not a Business Day, the next following Business Day.
 
“Perfection Certificate” has the meaning given it in Section 5.1.
 
“Permit” means any license, certificate, accreditation, product clearance or
approval, provider number or provider authorization, marketing authorization,
other authorization, registration, permit, consent or approval that is issued by
a Governmental Authority and required in connection with the conduct of
Borrower’s or any Subsidiary’s business or to comply with any applicable Laws,
including, without limitation, drug listings and drug establishment
registrations
 
 
45

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

 
 
under 21 U.S.C. Section 510, registrations issued by DEA under 21 U.S.C.
Section 823 (if applicable to any Product).
 
“Permitted IP Licenses” means any of the following licenses for the use of
Intellectual Property in the Ordinary Course of Business, but, in each case,
only to the extent such license could not result in a legal transfer of title of
the licensed Intellectual Property:
 
(a)           licenses by any Borrower or any of its Subsidiaries of
Intellectual Property that are not Exclusive Licenses;
 
(b)           Exclusive Licenses by any Borrower or any of its Subsidiaries of
Intellectual Property for non-therapeutic uses;
 
(c)           Exclusive Licenses by any Borrower or any of its Subsidiaries of
Intellectual Property covering any compound or substance that has not been
tested in humans as of the date of the applicable Exclusive License;
 
(d)           Exclusive Licenses by any Borrower or any of its Subsidiaries of
Intellectual Property for use outside of North America;
 
(e)           Exclusive Licenses by any Borrower or any of its Subsidiaries of
Intellectual Property covering the Product PMX-30063 in North America, provided,
that (i) Borrower receives up front proceeds in an amount at least equal to the
lesser of (x) $20,000,000 or (y) two times the principal balance of the Loan
outstanding as of the date of the applicable Exclusive Licenses, and (ii)
following receipt of the aforesaid upfront proceeds the Borrower has cash on
hand in an amount at least equal to the Projected Cash Burn for the twelve month
period commencing with the month in which such Borrower entered into such
Exclusive License;
 
(f)           Exclusive Licenses by any Borrower or any of its Subsidiaries of
Intellectual Property covering the Product PMX-60056 in North America; provided
that, following receipt of any upfront proceeds payable in connection with the
applicable Exclusive Licenses, the Borrower has cash on hand in an amount at
least equal to the Projected Cash Burn for the twelve month period commencing
with the month in which such Borrower entered into such Exclusive License; and
 
(g)           any other license of Intellectual Property for use within North
America that is approved in writing by Agent prior to entry into such license.
 
“Permitted Indebtedness” means:
 
(a) Borrower’s Indebtedness to the Lenders and Agent under this Agreement and
the other Loan Documents;
 
(b) Indebtedness existing on the Closing Date and described on Schedule 7.4;
 
(c) Indebtedness of up to $1,000,000 outstanding at any time secured by a Lien
described in clause (c) of the defined term “Permitted Liens”, provided such
Indebtedness
 
 
46

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

 
 
does not exceed the lesser of the cost or fair market value of Equipment
financed with such Indebtedness;
 
(d) Unsecured Indebtedness to trade creditors incurred in the Ordinary Course of
Business;
 
(e) Indebtedness incurred in the Ordinary Course of Business with respect to
corporate credit cards so long as (i) such Indebtedness is secured only by cash
or Cash Equivalents and (ii) the aggregate amount of all such Indebtedness does
not exceed $500,000 at any time outstanding;
 
(f) Indebtedness that also constitutes a Permitted Investment;
 
(g) Subordinated Debt;
 
(h) Reimbursement obligations in connection with letters of credit that are (i)
outstanding on the Closing Date; (ii) secured by cash or cash equivalents and
(iii) issued on behalf of the Borrower or a Subsidiary in an amount not to
exceed $1,000,000 at any time outstanding;
 
(i) Other unsecured Indebtedness in an amount not to exceed $100,000 at any time
outstanding; and
 
(j) extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness (a) through (h) above, provided, however, that
the principal amount thereof is not increased or the terms thereof are not
modified to impose more burdensome terms upon Borrower or its Subsidiary, as the
case may be.
 
“Permitted Investments” means:
 
(a) Investments existing on the Closing Date and described on Schedule 7.7;
 
(b) Investments consisting of Cash Equivalents;
 
(c) Investments in Subsidiaries solely to the extent permitted pursuant to
Section 6.10;
 
(d) Investments consisting of cash advances to employees for business-related
expenses in the Ordinary Course of Business in an aggregate amount not to exceed
$50,000 in any fiscal year; and
 
(e) additional Investments that do not exceed $500,000 in the aggregate amount
outstanding at any time.
 
“Permitted Liens” means:
 
(a) Liens existing on the Closing Date and shown on the Perfection Certificate
or arising under this Agreement and the other Loan Documents;
 
 
47

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

 
 
(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
maintains adequate reserves on its Books in accordance with GAAP, provided,
however, 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 acquired or held by Borrower incurred
for financing the acquisition of the Equipment securing no more than One Million
Dollars ($1,000,000) in the aggregate amount outstanding, or (ii) existing on
Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;
 
(d) statutory Liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other Persons imposed without action of
such parties, provided, however, that they have no priority over any of Agent’s
Lien and the aggregate amount due and unpaid to such Persons 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 Business, if the leases, subleases, licenses and sublicenses
do not prohibit granting Agent a security interest;
 
(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 deposit accounts or securities accounts held at such
institutions to secure payment of fees and similar costs and expenses subject to
Borrower’s compliance with Section 6.6(b) hereof;
 
(g) Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
Ordinary Course of Business (other than Liens imposed by ERISA), or to secure
appeal bonds;
 
(h) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 8.5 or 8.7;
 
(i) easements, reservations, rights-of-way, restrictions, minor defects or
irregularities in title and similar charges or encumbrances affecting real
property not constituting a Material Adverse Change;
 
(j) Permitted IP Licenses;
 
(k) Liens in favor of customs or revenue authorities arising as a matter of law
to secure payment of customs duties that are promptly paid;
 
(l) Liens on Cash Equivalents securing obligations permitted under clauses (e)
and (h) of the definition of Permitted Indebtedness; and
 
 
48

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

 
 
(m) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) and (c) 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” means 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 any Term Loan subject to prepayment prior
to the Maturity Date, whether by mandatory or voluntary prepayment, acceleration
or otherwise, an additional fee payable to the Lenders in amount equal to:
 
(a) for a prepayment made on or after the Closing Date through and including the
date which is twelve (12)  months after the Closing Date, three percent (3.0%)
multiplied by the principal amount of the Term Loan that is prepaid;
 
(b) for a prepayment made after the date which is twelve (12) months after the
Closing Date through and including the date which is twenty-four (24)  months
after the Closing Date, two percent (2.0%) multiplied by the principal amount of
the Term Loan that is prepaid; and
 
(c) for a prepayment made after the date which is twenty-four (24) months after
the Closing Date through and including the date which is thirty-six (36) months
after the Closing Date, one percent (1.0%) multiplied by the principal amount of
the Term Loan that is prepaid.
 
Provided, however, that in the event Borrower has (i) provided a written request
for approval of an Exclusive License of Intellectual Property pursuant to clause
(g) of the definition of Permitted IP Licenses, (ii) the Board of Directors of
the Borrower proposing to grant such Exclusive License has approved such
proposed Exclusive License, as certified by an officer of such Borrower, and
(iii) Agent has not granted such approval within thirty (30) days after receipt
of such request, then if Borrower prepays the Loans in full on or prior to the
date of entry into the license that was the subject of such approval request (on
the same terms as those presented to Agent for approval) but in any event within
sixty (60) days after the earlier of (a) the date on which Agent advises
Borrower that it does not approve of such license or (b) the expiration of the
thirty (30) day approval period referenced in (iii) above, the Prepayment Fee
shall equal $0.
 
“Pro Rata Share” means, as determined by Agent, with respect to each Lender, a
percentage (expressed as a decimal, rounded to the ninth decimal place)
determined by dividing the amount of Term Loans held by such Lender by the
aggregate amount of all outstanding Term Loans.
 
“Product” means (i) any compound or substance that is the subject of a Permit
for testing in humans held by any Borrower or any Subsidiary or (ii) any product
manufactured, sold, or marketed by any Borrower or any of its Subsidiaries,
including without limitation, those products set forth on Schedule 5.11 (as
updated from time to time in accordance with Section 6.2(e)
 
 
49

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

 
 
above); provided, however, that if Borrower shall fail to comply with the
obligations under Section 6.2(e) to give notice to Agent and update
Schedule 5.11 prior to testing any new compound or substance in humans, or
manufacturing, selling, developing (i.e., testing in humans) or marketing any
new product, any such compound, substance or product shall nonetheless be deemed
a “Product” included in this definition; and provided, further, that any
products manufactured by any Borrower or any of its Subsidiaries for
unaffiliated third parties shall not be deemed “Products” hereunder.
 
“Projected Cash Burn” means, in connection with any Exclusive License pursuant
to clause (e) or  (f) of the definition of Permitted IP License, the forecast
net cash outflows of the Borrower for the twelve (12) month period commencing
with the month in which such Exclusive License is entered into based on
projections prepared in good faith by management of Borrower based on
assumptions believed to be reasonable and provided to Agent not less than five
(5) Business Days prior to the consummation of such Permitted IP License.
 
“Registered Intellectual Property” means registered copyrights, registered
trademarks, patents and applications for any of the foregoing.
 
“Registered Organization” means any “registered organization” as defined in the
Code, with such additions to such term as may hereafter be made.
 
“Regulatory Authority” means any of the FDA, DEA, parallel state or local
Governmental Authorities, and their foreign counterparts.
 
“Required Lenders” means Lenders having (a) more than 60% of the Term Loan
Commitments of all Lenders, or (b) if such Term Loan Commitments have expired or
been terminated, more than 60% of the aggregate outstanding principal amount of
the Term Loans; provided, however, that so long as a party that is a Lender
hereunder on the Closing Date does not assign any portion of its Term Loan
Commitment or Term Loan, the term “Required Lenders” shall include such
Lender.  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.
 
“Required Permit” means a Permit issued or required under Laws applicable to the
business of any Borrower or any of its Subsidiaries or necessary in the
manufacturing, importing, exporting, possession, ownership, warehousing,
marketing, promoting, sale, labeling, furnishing, distribution or delivery of
goods or services under Laws applicable to the business of Borrower or any of
its Subsidiaries or any Drug Application (including without limitation, at any
point in time, all licenses, approvals and permits issued by the FDA or any
other Regulatory Authority necessary for the testing, manufacture, marketing or
sale of any Product by any Borrower or any of its Subsidiaries as such
activities are being conducted by such Borrower or Subsidiary with respect to
such Product at such time); provided that “Required Permits” shall not include
state and local licenses and permits generally required in the Ordinary Course
of Business and not specific to the line(s) of business in which any Borrower or
any of its Subsidiaries is engaged.
 
“Requirement of Law” means 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
 
 
50

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

 
 
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” means any of the President and Chief Executive Officer or
Chief Financial Officer of Borrower.
 
“Secured Promissory Note” has the meaning given it in Section 2.7.
 
“Secured Promissory Note Record” means a record maintained by each Lender with
respect to the outstanding Obligations and credits made thereto.
 
“Securities Account” means any “securities account”, as defined in the Code,
with such additions to such term as may hereafter be made.
 
“Subordinated Debt” means indebtedness incurred by Borrower subordinated to all
of Borrower’s now or hereafter indebtedness to the Lenders (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Agent and the Lenders entered into between Agent, Borrower and
the other creditor), on terms acceptable to Agent and the 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” or “Term Loans” has the meaning given it in Section 2.2(a).
 
“Term Loan Commitment” means, for any Lender, the obligation of such Lender to
make a Term Loan, up to the principal amount shown on Schedule 1.”Term Loan
Commitments” means the aggregate amount of such commitments of all Lenders.
 
“Tranche Two Eligibility Date” means the date on which Agent determines that
Borrower has satisfied the following condition precedent to an advance in
respect of Tranche Two:  Borrower has announced final results from the present
ongoing Phase II study for PMX-60056 or PMX-30063, which data results in
Borrower having regulatory clearance to proceed with additional Phase 2 or Phase
3 clinical studies; provided that, in Agent’s sole and absolute discretion, such
condition precedent may be waived.
 
“Transfer” has the meaning given it in Section 7.1.
 
“Warrants” means those certain Warrants to Purchase Stock dated as of the
Closing Date executed by Borrower in favor of each Lender or such Lender’s
Affiliates.
 
[SIGNATURES APPEAR ON FOLLOWING PAGE(S)]
 

 
51

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

 
(Signature Page to Loan and Security Agreement)

IN WITNESS WHEREOF, intending to be legally bound, and intending that this
Agreement constitute an agreement executed under seal, the undersigned have duly
executed this Agreement under seal as of the Closing Date.
 
BORROWER:
 
POLYMEDIX, INC., a Delaware corporation
By:           /s/ Edward F. Smith (SEAL)
Name:           Edward F. Smith
Title:             Vice President, Chief Financial
      Officer and Secretary
 
POLYMEDIX PHARMACEUTICALS, INC., a Delaware corporation
By:           /s/ Edward F. Smith (SEAL)
Name:           Edward F. Smith
Title:             Vice President, Chief Financial
      Officer and Secretary

 
 

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

 
(Signature Page to Loan and Security Agreement)

AGENT:
MIDCAP FINANCIAL SBIC, LP,
a Delaware limited partnership
By:  Midcap Financial SBIC GP, LLC
By:             /s/ Joshua Groman (SEAL)
Name:             Joshua Groman, Ph.D.
Title:              Authorized Signatory

 

 
 

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

 
(Signature Page to Loan and Security Agreement)

LENDERS:
MIDCAP FINANCIAL SBIC, LP,
a Delaware limited partnership
By:  Midcap Financial SBIC GP, LLC
By:             /s/ Joshua Groman (SEAL)
Name:             Joshua Groman, Ph.D.
Title:              Authorized Signatory

 

 

 
 

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

 

EXHIBITS  AND SCHEDULES
 
EXHIBITS 
 
Exhibit A
Collateral
Exhibit B
Form of Loan Payment / Advance Request Form
Exhibit C
Form of Compliance Certificate
Exhibit D
Form of Secured Promissory Note
Exhibit E
Form of Warrant
Exhibit F
SBA Form 468

SCHEDULES
 
Schedule 1
Lenders and Commitments
Schedule 5.1
Organizational Information
Schedule 5.2
Collateral Disclosures
Schedule 5.3
Litigation
Schedule 5.11
Products and Required Permits
Schedule 6.12
Post-Closing Obligations
Schedule 7.4
Indebtedness
Schedule 7.7
Investments

 
 

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

 

EXHIBIT A
 
COLLATERAL
 

 
The Collateral consists of all assets of Borrower, including all of Borrower’s
right, title and interest in and to the following personal property:
 
(a)           all goods, Accounts (including health-care insurance receivables),
Equipment, Inventory, contract rights or rights to payment of money, leases,
license agreements, franchise agreements, General Intangibles, commercial tort
claims, documents, instruments (including any promissory notes), chattel paper
(whether tangible or electronic), cash, deposit accounts, investment accounts,
commodity accounts and other Collateral Accounts, all certificates of deposit,
fixtures, letters of credit rights (whether or not the letter of credit is
evidenced by a writing), IP Proceeds, securities, and all other investment
property, supporting obligations, and financial assets, whether now owned or
hereafter acquired, wherever located; and
 
(b)           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.
 
Notwithstanding the foregoing, the Collateral shall not include any Intellectual
Property of any Loan Party, whether now owned or hereafter acquired, except to
the extent that it is necessary under applicable law to have a Lien and security
interest in any such Intellectual Property in order to have a perfected Lien and
security interest in and to IP Proceeds (defined below), and for the avoidance
of any doubt, the Collateral shall include, and Agent shall have a Lien and
security interest in, (i) all IP Proceeds, and (ii) all payments with respect to
IP Proceeds that are received after the commencement of a bankruptcy or
insolvency proceeding.  The term “IP Proceeds” means, collectively, all cash,
Accounts, license and royalty fees, claims, products, awards, judgments,
insurance claims, and other revenues, proceeds or income, arising out of,
derived from or relating to any Intellectual Property of any Loan Party, and any
claims for damage by way of any past, present or future infringement of any
Intellectual Property of any Loan Party (including, without limitation, all
cash, royalty fees, other proceeds, Accounts and General Intangibles that
consist of rights of payment to or on behalf of a Loan Party and the proceeds
from the sale, licensing or other disposition of all or any part of, or rights
in, any Intellectual Property by or on behalf of a Loan Party).
 
Pursuant to the terms of a certain negative pledge arrangement with Agent and
Lenders, Borrower has agreed not to encumber any of its Intellectual Property
without Agent’s and Lenders’ prior written consent.
 

 

 

 
 

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

 

EXHIBIT B
 
LOAN PAYMENT/ADVANCE REQUEST FORM
 
Deadline is Noon E.S.T.
 
Date: __________________, 201__
 
LOAN PAYMENT:
From Account #________________________
    (Deposit Account #)
To Account #__________________________
(Loan Account #)
Principal $___________________________ and/or Interest
____________________________
Authorized Signature:
                                                                    
Phone Number:
                                                                    
Print
Name/Title:                                                                    
 

Loan Advance:
Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.
From Account #
(Loan Account #)
To Account #                                                              
(Deposit Account #)
Amount of Advance
$                                                              
All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
request for an advance; 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:
Authorized Signature:
Phone Number:                                                              
Print Name/Title:
 

Outgoing Wire Request:
Complete only if all or a portion of funds from the loan advance above is to be
wired.
Beneficiary Name:
Amount of Wire: $                                                              
Beneficiary Lender:
Account Number:                                                              
City and State:
 
Beneficiary Lender Transit (ABA) #:
(For International Wire Only)
Beneficiary Lender Code (Swift, Sort, Chip, etc.):
Intermediary Lender:
Transit (ABA) #:                                                              
For Further Credit to:
Special Instruction:
By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me.
Authorized Signature:
2nd Signature (if
required):                                                              
Print Name/Title:
Print Name/Title:                                                              
Telephone #:
Telephone #:                                                              

 
 

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

 

EXHIBIT C
 
COMPLIANCE CERTIFICATE
 
TO:
MidCap Financial SBIC, LP, as Agent
FROM:
_________________________________
DATE:
________________, 201__

The undersigned authorized officer of [PolyMedix, Inc.]
(“                                                                                                                     ”)
certifies that under the terms and conditions of the Loan and Security Agreement
between PolyMedix, Inc., PolyMedix Pharmaceuticals, Inc., Agent and the Lenders
(the “Agreement”):
 
(1)           Borrower is in complete compliance with all required covenants for
the month ending _______________, 201__, except as noted below;
 
(2)           there are no Events of Default;
 
(3)           all representations and warranties in the 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;
 
(4)           Borrower, and each of its Subsidiaries, has timely filed all
required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.8 of
the Agreement;
 
(5)           no Liens have been levied or claims made against Borrower or any
of its Subsidiaries relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Agent; and
 
(6)           [an updated Schedule 5.2(d) is attached hereto describing any new
Registered Intellectual Property that has been acquired and/or developed and any
other material change in Borrower’s Material Intellectual Property, in each case
since the date of the last Compliance Certificate] OR [no new Registered
Intellectual Property has been acquired and/or developed, nor has there been any
material change in Borrower’s Material Intellectual Property since the date of
the last Compliance Certificate]
 
Attached are the required documents supporting the certifications set forth in
this Compliance Certificate.  The undersigned certifies, in his/her capacity as
an officer of the Borrower, that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The undersigned acknowledges, in his/her
capacity as an officer of Borrower, that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.  Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.
 
Please indicate compliance status by circling Yes/No under “Complies” column.
 
Reporting Covenant
 
Required
Complies
Monthly Financial Statements
Monthly within 30 days
Yes
No
Audited Financial Statements
Annually within 120 days after FYE
Yes
No
Board Approved Projections
Annually within 30 days after FYE
Yes
No
Compliance Certificate
Monthly within 30 days
Yes
No

The following are the exceptions with respect to the certification above:  (If
no exceptions exist, state “No exceptions to note.”)
 
__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
 
POLYMEDIX, INC.
By:                                                              
Name:                                                              
Title:                                                              
AGENT USE ONLY
Received by:                                                              
authorized signer
Date:                                                              
Verified:                                                              
authorized signer
Date:                                                              
 
Compliance Status:
Yes
No

 
 

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

 

EXHIBIT D
 
SECURED PROMISSORY NOTE
 

 
 

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

 

EXHIBIT E
 
WARRANT
 

 
 

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

 

SCHEDULE 1
 
LENDERS AND COMMITMENTS
 

Lender
Term Loan Commitment
Commitment Percentage
MidCap Financial SBIC, LP
$12,000,000
100%
     
TOTAL
$12,000,000
100%

 
 

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

 

SCHEDULE 5.1
 
ORGANIZATIONAL INFORMATION
 
Legal Name of Borrower:
 
Type of Legal Entity:
 
State of Organization:
 
Organizational Identification Number:
 
Tax Identification Number:
 
Principal Place of Business:
 

Legal Name of Borrower:
 
Type of Legal Entity:
 
State of Organization:
 
Organizational Identification Number:
 
Tax Identification Number:
 
Principal Place of Business:
 

 
 

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

 

SCHEDULE 5.2(A)
 
COLLATERAL ACCOUNTS
 

 
 

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

 

SCHEDULE 5.2(D)
 
INTELLECTUAL PROPERTY AND LICENSE AGREEMENTS
 

[APPLIES TO ALL Intellectual Property and License Agreements]
Borrower
Name / Identifier of IP or License
Type of IP (e.g., patent, TM, ©, mask work) or License Agreement
Expiration Date
(if a License, expiration of License and Licensed Property)
                                       

[APPLIES TO License Agreements ONLY]
Name and Address of Licensor
Name and Date of License Agreement
Exclusive License? (Yes/No)
Restrictions to grant a lien, assign or sublicense?
(Yes/No)
Default or Termination affect Agent’s ability to sell or assign?
(Yes/No)
                                                           

 
 

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

 

SCHEDULE 5.2(E)
 
LOCATION OF COLLATERAL
 

 
 

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

 

SCHEDULE 5.3
 
LITIGATION
 

 
 

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

 

SCHEDULE 5.11
 
PRODUCTS AND REQUIRED PERMITS
 

 
 

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

 

SCHEDULE 6.12
 
POST CLOSING OBLIGATIONS
 
Borrowers shall satisfy and complete each of the following obligations, or
provide Agent each of the items listed below, as applicable, on or before the
date indicated below, all to the satisfaction of Agent in its sole and absolute
discretion:
 
1.
 
Borrower’s failure to complete and satisfy any of the above obligations on or
before the date indicated above, or Borrower’s failure to deliver any of the
above listed items on or before the date indicated above, shall constitute an
immediate an automatic Event of Default.
 

 
 

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

 

SCHEDULE 7.4
 
INDEBTEDNESS AS OF THE CLOSING DATE
 

 
 

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

 

SCHEDULE 7.7
 
INVESTMENTS AS OF THE CLOSING DATE
 

 
 

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

 

 
TABLE OF CONTENTS
 

Page
 

1.
ACCOUNTING AND OTHER TERMS 
1

 
2.
LOAN AND TERMS OF PAYMENT 
1

 
 
2.1
Promise to Pay 
1

 
 
2.2
Term Loans 
1

 
 
2.3
Payment of Interest on the Credit Extensions 
2

 
 
2.4
Fees and Expenses 
4

 
 
2.5
Additional Costs 
4

 
 
2.6
Payments and Taxes 
4

 
 
2.7
Secured Promissory Notes 
5

 
 
2.8
Issuance of Warrants to Lenders 
5

 
 
2.9
SBIC Acknowledgement 
5

 
3.
CONDITIONS OF LOANS 
5

 
 
3.1
Conditions Precedent to Initial Credit Extension 
5

 
 
3.2
Conditions Precedent to all Credit Extensions 
6

 
 
3.3
Covenant to Deliver 
7

 
 
3.4
Procedures for Borrowing 
7

 
4.
CREATION OF SECURITY INTEREST 
7

 
 
4.1
Grant of Security Interest 
7

 
 
4.2
Authorization to File Financing Statements 
8

 
5.
REPRESENTATIONS AND WARRANTIES 
8

 
 
5.1
Due Organization, Authorization: Power and Authority 
8

 
 
5.2
Collateral 
9

 
 
5.3
Litigation 
10

 
 
5.4
No Material Deterioration in Financial Condition; Financial
Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   10

 
 
5.5
Solvency 
10

 
 
5.6
Regulatory Compliance 
10

 
 
5.7
Subsidiaries; Investments 
11

 
 
5.8
Tax Returns and Payments; Pension Contributions 
11

 
 
i

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

 
 
 
5.9
Use of Proceeds 
12

 
 
5.10
Full Disclosure 
12

 
 
5.11
Regulatory Developments 
12

 
6.
AFFIRMATIVE COVENANTS 
13

 
 
6.1
Organization and Existence; Government Compliance 
13

 
 
6.2
Financial Statements, Reports, Certificates 
13

 
 
6.3
Inventory; Returns 
15

 
 
6.4
Taxes; Pensions 
15

 
 
6.5
Insurance 
15

 
 
6.6
Operating Accounts 
16

 
 
6.7
Protection of Intellectual Property Rights 
16

 
 
6.8
Litigation Cooperation 
16

 
 
6.9
Notices of Litigation and Default 
16

 
 
6.10
Creation/Acquisition of Subsidiaries 
17

 
 
6.11
Further Assurances 
17

 
 
6.12
Post-Closing Obligations 
17

 
7.
NEGATIVE COVENANTS 
17

 
 
7.1
Dispositions 
18

 
 
7.2
Changes in Business, Management, Ownership or Business Locations 
18

 
 
7.3
Mergers or Acquisitions 
18

 
 
7.4
Indebtedness 
18

 
 
7.5
Encumbrance 
18

 
 
7.6
Maintenance of Collateral Accounts 
18

 
 
7.7
Distributions; Investments 
19

 
 
7.8
Transactions with Affiliates 
19

 
 
7.9
Subordinated Debt 
19

 
 
7.10
Compliance 
19

 
 
7.11
Compliance with Anti-Terrorism Laws 
19

 
 
ii

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

 
 
8.
EVENTS OF DEFAULT 
20

 
 
8.1
Payment Default 
20

 
 
8.2
Covenant Default 
20

 
 
8.3
Material Adverse Change 
20

 
 
8.4
Attachment; Levy; Restraint on Business 
20

 
 
8.5
Insolvency 
21

 
 
8.6
Other Agreements 
21

 
 
8.7
Judgments 
21

 
 
8.8
Misrepresentations 
21

 
 
8.9
Subordinated Debt 
21

 
 
8.10
Governmental Approvals 
21

 
 
8.11
Criminal Proceeding 
22

 
 
8.12
Lien Priority 
22

 
 
8.13
Change in Control 
22

 
 
8.14
Withdrawals, Recalls, Adverse Test Results and Other Matters 
22

 
9.
RIGHTS AND REMEDIES 
22

 
 
9.1
Rights and Remedies 
22

 
 
9.2
Power of Attorney 
24

 
 
9.3
Protective Payments 
24

 
 
9.4
Application of Payments and Proceeds 
24

 
 
9.5
Liability for Collateral 
25

 
 
9.6
No Waiver; Remedies Cumulative 
25

 
 
9.7
Demand Waiver 
26

 
 
9.8
Borrower Liability 
26

 
10.
NOTICES 
26

 
11.
CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER 
27

 
12.
GENERAL PROVISIONS 
28

 
 
12.1
Successors and Assigns 
28

 
 
iii

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

 
 
 
12.2
Indemnification 
29

 
 
12.3
Time of Essence 
29

 
 
12.4
Severability of Provisions 
29

 
 
12.5
Correction of Loan Documents 
29

 
 
12.6
Integration 
29

 
 
12.7
Counterparts 
30

 
 
12.8
Survival 
30

 
 
12.9
Confidentiality 
30

 
 
12.10
Right of Set Off 
30

 
 
12.11
[Reserved] 
31

 
 
12.12
Amendments 
31

 
 
12.13
Publicity 
32

 
 
12.14
No Strict Construction 
32

 
13.
AGENT 
32

 
 
13.1
Appointment and Authorization of Agent 
32

 
 
13.2
Delegation of Duties 
33

 
 
13.3
Liability of Agent 
33

 
 
13.4
Reliance by Agent 
33

 
 
13.5
Notice of Default 
34

 
 
13.6
Credit Decision; Disclosure of Information by Agent 
34

 
 
13.7
Indemnification of Agent 
34

 
 
13.8
Agent in its Individual Capacity 
35

 
 
13.9
Successor Agent 
35

 
 
13.10
Agent May File Proofs of Claim 
36

 
 
13.11
Collateral and Guaranty Matters 
36

 
 
13.12
Cooperation of Borrower 
37

 
14.
DEFINITIONS 
37

 
 
iv

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