Exhibit 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of December 22,
2010 (the “Effective Date”) among OXFORD FINANCE CORPORATION, a Delaware
corporation with an office located at 133 North Fairfax Street, Alexandria,
Virginia 22314 (“Oxford”), as collateral agent (in such capacity, the
“Collateral Agent”), the Lenders listed on Schedule 1.1 hereof or otherwise a
party hereto from time to time including Oxford in its capacity as a Lender
(each a “Lender” and collectively, the “Lenders”), ZALICUS INC., a Delaware
corporation with offices located at 245 First Street, Third Floor, Cambridge,
Massachusetts 02142 (“Zalicus”) and ZALICUS PHARMACEUTICALS LTD., a corporation
organized under the laws of British Columbia, Canada (“Zalicus-Canada”) (Zalicus
and Zalicus-Canada are referred to herein individually and collectively, jointly
and severally, solidarily, as “Borrower”), provides the terms on which the
Lenders shall lend to Borrower and Borrower shall repay the Lenders. The parties
agree as follows:

 

 

1

ACCOUNTING AND OTHER TERMS

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

 

 

2

LOANS AND TERMS OF PAYMENT

2.1         Promise to Pay Borrower hereby unconditionally promises to pay each
Lender, the outstanding principal amount of all Term Loans advanced to Borrower
by such Lender and accrued and unpaid interest thereon and any other amounts due
hereunder as and when due in accordance with this Agreement.

 

 

2.2

Term Loans.

(a)         Availability.     (i) Subject to the terms and conditions of this
Agreement, the Lenders agree, severally and not jointly, to make term loans to
Borrower on the Effective Date in an aggregate amount up to Three Million
Dollars ($3,000,000) according to each Lender’s Term A Loan Commitment as set
forth on Schedule 1.1 hereto (such term loans are hereinafter referred to singly
as a “Term A Loan”, and collectively as the “Term A Loans”). After repayment, no
Term A Loan may be re-borrowed.

(ii) Subject to the terms and conditions of this Agreement, the Lenders agree,
severally and not jointly, during the Second Draw Period, to make term loans to
Borrower in an aggregate amount up to Eight Million Five Hundred Thousand
Dollars ($8,500,000) according to each Lender’s Term B Loan Commitment as set
forth on Schedule 1.1 hereto (such term loans are hereinafter referred to singly
as a “Term B Loan”, and collectively as the “Term B Loans”). After repayment, no
Term B Loan may be re-borrowed.

(iii) Subject to the terms and conditions of this Agreement, the Lenders agree,
severally and not jointly, during the Third Draw Period, to make term loans to
Borrower in an aggregate amount up to Eight Million Five Hundred Thousand
Dollars ($8,500,000) according to each Lender’s Term C Loan Commitment as set
forth on Schedule 1.1 hereto (such term loans are hereinafter referred to singly
as a “Term C Loan”, and collectively as the “Term C Loans”; each Term A Loan,
Term B Loan or Term C Loan is hereinafter referred to singly as a “Term Loan”
and the Term A Loans, the Term B Loans and the Term C Loans are hereinafter
referred to collectively as the “Term Loans”). After repayment, no Term C Loan
may be re-borrowed.

(b)         Repayment.     (i) Borrower shall make monthly payments of interest
only commencing on the first (1st) Payment Date following the Funding Date of
the Term A Loans, and continuing on the Payment Date of each successive month
thereafter through and including the Payment Date immediately preceding the
Amortization Date. Commencing on the Amortization Date, and continuing on the
Payment Date of each month thereafter, Borrower shall make consecutive equal
monthly payments of principal and interest, in arrears, to each Lender, as
calculated by Collateral Agent based upon: (1) the amount of such Lender’s Term
A Loan, (2) the effective rate of interest, as determined in Section 2.3(a), and
(3) a repayment schedule equal to thirty-six (36) months. All unpaid principal
and accrued and unpaid interest with respect to the Term A Loans is due and
payable in full on the Maturity Date. The Term A Loans may only be prepaid in
accordance with Sections 2.2(c) and 2.2(d).

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(ii) Borrower shall make monthly payments of interest only commencing on the
first (1st) Payment Date following the Funding Date of the Term B Loans, and
continuing on the Payment Date of each successive month thereafter through and
including the Payment Date immediately preceding the Amortization Date.
Commencing on the Amortization Date, and continuing on the Payment Date of each
month thereafter, Borrower shall make consecutive equal monthly payments of
principal and interest, in arrears, to each Lender, as calculated by Collateral
Agent based upon: (1) the amount of such Lender’s Term B Loan, (2) the effective
rate of interest, as determined in Section 2.3(a), and (3) a repayment schedule
equal to thirty-six (36) months. All unpaid principal and accrued interest with
respect to the Term B Loans is due and payable in full on the Maturity Date. The
Term B Loans may only be prepaid in accordance with Sections 2.2(c) and 2.2(d).

(iii) Borrower shall make monthly payments of interest only commencing on the
first (1st) Payment Date following the Funding Date of the Term C Loans, and
continuing on the Payment Date of each successive month thereafter through and
including the Payment Date immediately preceding the Amortization Date.
Commencing on the Amortization Date, and continuing on the Payment Date of each
month thereafter, Borrower shall make consecutive equal monthly payments of
principal and interest, in arrears, to each Lender, as calculated by Collateral
Agent based upon: (1) the amount of such Lender’s Term C Loan, (2) the effective
rate of interest, as determined in Section 2.3(a), and (3) a repayment schedule
equal to thirty-six (36) months. All unpaid principal and accrued interest with
respect to the Term C Loans is due and payable in full on the Maturity Date. The
Term C Loans may only be prepaid in accordance with Sections 2.2(c) and 2.2(d).

(c)         Mandatory Prepayments.     If the Term Loans are accelerated
pursuant to Section 9.1(a) hereof following the occurrence of an Event of
Default, Borrower shall immediately pay to Lenders, payable to each Lender in
accordance with its respective Pro Rata Share, an amount equal to the sum of:
(i) all outstanding principal of the Term Loans plus accrued interest thereon
through the prepayment date, (ii) the Final Payment, (iii) the Prepayment Fee,
plus (iv) all other sums, that shall have become due and payable under the Loan
Documents, including Lenders’ Expenses and interest at the Default Rate with
respect to any past due amounts. Notwithstanding (but without duplication with)
the foregoing, on the Maturity Date, if the Final Payment had not previously
been paid in full in connection with the prepayment of the Term Loans in full,
Borrower shall pay to Collateral Agent, for payment to each Lender in accordance
with its respective Pro Rata Share, the Final Payment in respect of the Term
Loan(s).

(d)         Permitted Prepayment of Term Loans.     Borrower shall have the
option to prepay all, but not less than all, of the Term A Loans and/or the Term
B Loans and/or the Term C Loans advanced by the Lenders under this Agreement,
provided Borrower (i) provides written notice to Collateral Agent of its
election to prepay the applicable Term Loans at least five (5) Business Days
prior to such prepayment, identifying whether Borrower will be prepaying all of
the Term A Loans and/or all of the Term B Loans and/or all of the Term C Loans,
and (ii) pays to the Lenders on the date of such prepayment, payable to each
Lender in accordance with its respective Pro Rata Share, an amount equal to the
sum of (A) all outstanding principal of the Term Loans being prepaid plus
accrued interest thereon through the prepayment date, (B) the Final Payment in
respect of the Term Loans being prepaid, (C) the Prepayment Fee in respect of
the Term Loans being prepaid, plus (D) all other sums, that shall have become
due and payable, including Lenders’ Expenses, if any, and interest at the
Default Rate with respect to any past due amounts.

 

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2.3

Payment of Interest on the Credit Extensions.

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

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

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

(d)         Debit of Accounts.     Collateral Agent and each Lender may debit
the Designated Deposit Account, for (i) principal and interest payments when
due, and (ii) any other amounts Borrower owes the Lenders under the Loan
Documents when due, provided that any debit pursuant to this clause (ii) shall
only be made upon prior notice to Borrower. These debits shall not constitute a
set-off.

(e)         Payments.     Except as otherwise expressly provided herein, all
loan payments by Borrower hereunder shall be made to the respective Lender to
which such payments are owed, at such Lender’s office in immediately available
funds on the date specified herein. Unless otherwise provided, interest is
payable monthly on the Payment Date of each month. Payments of principal and/or
interest received after 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.

2.4         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 (including customary lost
note indemnification provisions) 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.

2.5         Fees. Borrower shall pay to Collateral Agent:

(a)         Facility Fee.     A fully earned, non-refundable facility fee of One
Hundred Thousand Dollars ($100,000) to be shared between the Lenders pursuant to
their respective Commitment Percentages, which fee was received by the Lenders
prior to the Effective Date;

 

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

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

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

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

 

 

3

CONDITIONS OF LOANS

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

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

(b)         duly executed original signatures to Control Agreements with Bank of
America, Royal Bank of Canada and Capital Advisors Group/State Street;

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

(d)         the Operating Documents of Zalicus and a good standing certificate
of Zalicus certified by the Secretary of State of the State of Delaware;

(e)         good standing certificates for Zalicus certified by the Secretary of
State of the States of New Jersey and Washington and the Commonwealths of
Massachusetts and Pennsylvania and each other state in which Zalicus is
qualified to conduct business, each as of a date no earlier than thirty
(30) days prior to the Effective Date;

(f)         the Operating Documents of Zalicus-Canada and good standing
certificates of Zalicus-Canada certified by the British Columbia Registrar of
Companies and each jurisdiction in which Zailcus-Canada is registered to conduct
business in Canada, each as of a date no earlier than thirty (30) days prior to
the Effective Date;

(g)         the Perfection Certificates for Zalicus and Zalicus-Canada;

 

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(h)         duly executed original signatures to an officer’s certificate for
Zalicus, in a form acceptable to Collateral Agent;

(i)         duly executed original signatures to an officer’s certificate for
Zalicus-Canada, in a form acceptable to Collateral Agent;

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

(k)         a landlord’s consent executed in favor of Collateral Agent in
respect of Borrower’s locations at 245 First Street, Third Floor, Cambridge,
Massachusetts 02142 and 301-2389 Health Sciences Mall, Vancouver, British
Columbia V6T 1Z3 Canada;

(l)         a copy of any applicable Registration Rights Agreement or Investors’
Rights Agreement and any amendments thereto;

(m)         a legal opinion of Zalicus’ United States counsel dated as of the
Effective Date together with the duly executed original signatures thereto;

(n)         a legal opinion of Zalicus-Canada’s Canadian counsel dated as of the
Effective Date together with the duly executed original signatures thereto;

(o)         evidence satisfactory to Collateral 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 Collateral Agent, for the ratable benefit of the
Lenders; and

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

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

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

(b)         the representations and warranties in Section 5 hereof shall be
true, accurate 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
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 hereof are true,
accurate and complete in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date;

(c)         in such Lender’s reasonable discretion, there has not been any
Material Adverse Change; and

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

 

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3.3         Covenant to Deliver. Borrower agrees to deliver to Collateral Agent
each item required to be delivered to Collateral 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 Collateral 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 each Lender’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 Collateral Agent (which
notice shall be irrevocable) by electronic mail, facsimile, or telephone by
12:00 noon Eastern time three (3) 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 Collateral Agent by electronic mail or facsimile a
completed Payment/Advance Form executed by a Responsible Officer or his or her
designee. Upon receipt of a Payment/Advance Form, Collateral Agent shall
promptly provide a copy of the same to each Lender. Collateral Agent may rely on
any telephone notice given by a person whom Collateral Agent reasonably believes
is a Responsible Officer or designee. On the Funding Date, each Lender shall
credit and/or transfer (as applicable) to Borrower’s Designated Deposit Account,
an amount equal to its Term Loan Commitment.

 

 

4

CREATION OF SECURITY INTEREST

4.1         Grant of Security Interest. Borrower and Guarantor each hereby
grants Collateral 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 Collateral 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 and
Guarantor each represents, warrants, and covenants that the security interest
granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral, subject only to Permitted Liens
that are permitted by the terms of this agreement to have priority to Collateral
Agent’s Lien. If Borrower or Guarantor shall acquire a commercial tort claim (as
defined in the Code), Borrower or Guarantor, as the case may be, shall promptly
notify Collateral Agent in a writing signed by Borrower or Guarantor, as the
case may be, of the general details thereof (and further details as may be
required by Collateral Agent) and grant to Collateral Agent, for the ratable
benefit of 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 Collateral Agent.

If this Agreement is terminated, Collateral Agent’s Lien in the Collateral shall
continue until the Obligations (other than inchoate indemnity obligations) are
repaid in full in cash. Upon payment in full in cash of the Obligations and at
such time as the Lenders’ obligation to make Credit Extensions has terminated,
Collateral Agent shall, at Borrower’s sole cost and expense, release its Liens
in the Collateral and all rights therein shall revert to Borrower or Guarantor,
as applicable.

4.2         Authorization to File Financing Statements. Borrower and Guarantor
hereby authorize Collateral Agent to file financing statements or take any other
action required to prefect Collateral Agent’s security interests in the
Collateral, without notice to Borrower or Guarantor, with all appropriate
jurisdictions to perfect or protect Collateral Agent’s and each Lender’s
interest or rights hereunder, including a notice that any disposition of the
Collateral, except to the extent permitted by the terms of this Agreement, by
either Borrower, Guarantor or any other Person, shall be deemed to violate the
rights of Collateral Agent and Lenders under the Code or the PPSA, as
applicable. Such financing statements may indicate the Collateral as “all assets
of the Debtor other than Debtor’s Intellectual Property” or words of similar
effect, or as being of an equal or lesser scope, or with greater detail, all in
Collateral Agent’s discretion, provided that such financing statements shall
note the assets excluded from Collateral as specified on Exhibit A hereto.

 

 

5

REPRESENTATIONS AND WARRANTIES

Borrower and Guarantor represent and warrant to Collateral Agent and the Lenders
as follows at all times:

5.1         Due Organization, Authorization: Power and Authority. Borrower,
Guarantor and each of their respective Subsidiaries is duly existing and
Borrower is in good standing as Registered Organizations in its jurisdiction of
organization and Borrower, Guarantor, and each of their respective Subsidiaries
is qualified and licensed to do business and is in good standing in any

 

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jurisdiction in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to have a material adverse effect on Borrower’s business.
In connection with this Agreement, Borrower has delivered to Collateral Agent a
completed perfection certificate signed by an officer of Borrower (the
“Perfection Certificate”). Borrower represents and warrant that (a) Borrower’s
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the
Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate 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); (e) except as disclosed
on the Perfection Certificate, Borrower (and each of their respective
predecessors) has not, in the past five (5) years, changed its jurisdiction of
organization, organizational structure or type, or any organizational number
assigned by its jurisdiction of organization; and (f) all other information set
forth on the Perfection Certificate pertaining to Borrower and each of their
respective Subsidiaries is accurate and complete (it being understood and agreed
that Borrower may from time to time update certain information in the Perfection
Certificates (including the information set forth in clause (d) above) after the
Effective Date to the extent permitted by one or more specific provisions in
this Agreement). If Borrower, Guarantor or any Subsidiary is not now a
Registered Organization but later becomes one, Borrower shall notify Collateral
Agent of such occurrence and provide Collateral Agent with such Person’s
organizational identification number within five (5) Business Days of receiving
such organizational identification number.

The execution, delivery and performance by Borrower or Guarantor of the Loan
Documents to which it is a party have been duly authorized, and do not
(i) conflict with any of Borrower’s or Guarantor’s organizational documents,
including the Operating Documents, (ii) contravene, conflict with, constitute a
default under or violate any material Requirement of Law, (iii) contravene,
conflict or violate any applicable order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority by which Borrower,
Guarantor or any of their respective 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 are being obtained pursuant
to Section 6.1(b), or (v) constitute an event of default under any material
agreement by which Borrower, Guarantor or any of their respective Subsidiaries
or their respective properties is bound. Neither Borrower nor Guarantor is in
default under any agreement to which it is a party or by which it or any of its
assets is bound in which such default could reasonably be expected to have a
Material Adverse Change.

 

 

5.2

Collateral.

(a)         Borrower and Guarantor have good title to, has rights in, and the
power to transfer each item of the Collateral upon which it purports to grant a
Lien under the Loan Documents, free and clear of any and all Liens except
Permitted Liens, and neither Borrower nor Guarantor has any Deposit Accounts,
Securities Accounts, Commodity Accounts or other investment accounts other than
the Collateral Accounts or the other investment accounts, if any, described in
the Perfection Certificate delivered to Collateral Agent in connection herewith
with respect of which Borrower or Guarantor has given Collateral Agent notice
and taken such actions as are necessary to give Collateral Agent a perfected
security interest therein. The Accounts are bona fide, existing obligations of
the Account Debtors.

(b)         On the Effective Date, except for Clinical Testing Assets having a
value not exceeding Two Hundred Thousand Dollars ($200,000) individually or in
the aggregate, the Collateral is not in the possession of any third party bailee
(such as a warehouse) except as disclosed in the Perfection Certificate, and, as
of the Effective Date, no such third party bailee possesses components of the
Collateral (other than Clinical Testing Assets having a value not exceeding Two
Hundred Thousand Dollars ($200,000) individually or in the aggregate) in excess
of Fifty Thousand Dollars ($50,000). Except for mobile equipment (such as laptop
computers and mobile phones) in the possession of Borrower’s employees and
agents, none of the components of the Collateral shall be maintained at
locations other than as disclosed in the Perfection Certificate on the Effective
Date or as permitted pursuant to Section 7.2. In the event that Borrower or
Guarantor, after the Effective Date, intends to store or otherwise deliver any
portion of the Collateral (other than Clinical Testing Assets having a value not
exceeding Two Hundred Thousand Dollars ($200,000) individually or in the
aggregate) to a bailee in excess of Fifty Thousand Dollars ($50,000), then
Borrower or Guarantor, as applicable, will first receive the written consent of
Collateral Agent and such bailee must execute and deliver a bailee agreement in
form and

 

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substance reasonably satisfactory to Collateral Agent. The term “Clinical
Testing Assets” shall include all products or equipment included on Borrower’s
balance sheet which is maintained at pre-clinical and clinical testing sites.
Notwithstanding the foregoing, “Clinical Testing Assets” does not include
products or equipment located with manufacturers or distributors of Borrower.

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

(d)         Borrower and Guarantor are the sole owners of the Intellectual
Property each respectively owns or purports to own, except for (i) non-exclusive
licenses granted to its customers in the ordinary course of business,
(ii) Permitted Intellectual Property Licenses, (iii) over-the-counter software
that is commercially available to the public, and (iv) material Intellectual
Property licensed to Borrower and noted on the Perfection Certificate. Each of
Borrower’s and Guarantor’s Patents that it owns or purports to own and is
material to its business is valid and enforceable (with respect to issued
patents) or includes patentable claims (with respect to pending patent
applications) and no part of the Intellectual Property that it owns or purports
to own and is material to its business has been judged invalid or unenforceable,
in whole or in part, and to Borrower’s and Guarantor’s knowledge, no claim has
been made that any part of the Intellectual Property or any practice by Borrower
or Guarantor violates the rights of any third party except to the extent such
claim has not resulted in and could not reasonably be expected to result in a
Material Adverse Change. Except as noted on the Perfection Certificate, neither
Borrower nor Guarantor is a party to, nor is bound by, any material license or
other agreement with respect to which Borrower or Guarantor is the licensee that
(i) prohibits or otherwise restricts Borrower or Guarantor from granting a
security interest in Borrower’s or Guarantor’s interest in such license or
agreement or any other property, or (ii) for which a default under or
termination of could interfere with Collateral Agent’s right to sell any
Collateral. Borrower and Guarantor shall provide written notice to Collateral
Agent within ten (10) days of entering into or becoming bound by any such
license or agreement (other than over-the-counter software that is commercially
available to the public). Borrower and Guarantor shall take such commercially
reasonable steps as Collateral Agent requests to obtain the consent of, or
waiver by, any Person whose consent or waiver is necessary for (i) all such
licenses or agreements to be deemed “Collateral” and for Collateral Agent to
have a security interest in it that might otherwise be restricted or prohibited
by law or by the terms of any such license or agreement, whether now existing or
entered into in the future, and (ii) Collateral Agent shall have the ability in
the event of a liquidation of any Collateral to dispose of such Collateral in
accordance with Collateral Agent’s rights and remedies under this Agreement and
the other Loan Documents.

5.3         Litigation. Except as disclosed on the Perfection Certificate, there
are no actions, suits, investigations, or proceedings pending or, to the
knowledge of the Responsible Officers, threatened in writing by or against
Borrower, Guarantor or any of their respective Subsidiaries involving more than
Two Hundred Thousand Dollars ($200,000.00).

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

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

5.6         Regulatory Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Zalicus-Canada is not a “mutual fund” as defined in the
Securities Act (British Columbia). 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

 

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Federal Fair Labor Standards Act and the Employment Standards Act (British
Columbia) as applicable. Neither Borrower nor any of its Subsidiaries is a
“holding company” or an “affiliate” of a “holding company” or a “subsidiary
company” of a “holding company” as each term is defined and used in the Public
Utility Holding Company Act of 2005 or the Securities Act (British Columbia), as
applicable. Borrower has not violated any laws, ordinances or rules, the
violation of which has had or could reasonably be expected to have 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 material compliance with applicable laws.
Borrower and each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all Governmental Authorities that are necessary to continue their respective
businesses as currently conducted.

None of Borrower, Guarantor or their respective 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, Guarantor nor, to the knowledge of
Borrower and Guarantor, any of their 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. Neither Borrower nor Guarantor owns any
stock, shares, partnership interests or other equity securities except for
Permitted Investments.

5.8         Tax Returns and Payments; Pension Contributions. Borrower, Guarantor
and their respective Subsidiaries have timely filed all required tax returns and
reports, and Borrower, Guarantor and their respective Subsidiaries have timely
paid all foreign, federal, state, and local taxes, assessments, deposits and
contributions owed by Borrower, Guarantor and their respective Subsidiaries in
all jurisdictions in which Borrower, Guarantor or their respective Subsidiaries
are subject to taxes, including the United States, unless such taxes are being
contested in accordance with the following sentence. Borrower, Guarantor and
their respective Subsidiaries may defer payment of any contested taxes, provided
that Borrower or Guarantor or such Subsidiary (a) in good faith contests its
obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies Collateral Agent in writing of the
commencement of, and any material development in, the proceedings, and (c) posts
bonds or takes any other steps required to prevent the governmental authority
levying such contested taxes from obtaining a Lien upon any of the Collateral
that is other than a “Permitted Lien”. Borrower and Guarantor are unaware of any
claims or adjustments proposed for any of Borrower, Guarantor or their
respective Subsidiaries prior tax years which could result in additional taxes
becoming due and payable by Borrower, Guarantor or their respective
subsidiaries. Borrower, Guarantor and their respective Subsidiaries have paid
all amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms, and Borrower, Guarantor and
their respective Subsidiaries have not withdrawn from participation in, and has
not permitted partial or complete termination of, or permitted the occurrence of
any other event with respect to, any such plan which could reasonably be
expected to result in any liability of Borrower, Guarantor or their respective
Subsidiaries, including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other governmental agency, as applicable.

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 in accordance with the provisions of this Agreement, and not for
personal, family, household or agricultural purposes.

5.10         Full Disclosure. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to
Collateral Agent or any Lender, as of the date such representation, warranty, or
other statement was made, taken together with all such written certificates and
written statements given to Collateral Agent or any Lender, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading (it
being recognized that the projections and forecasts provided by 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).

 

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6

AFFIRMATIVE COVENANTS

Borrower and Guarantor shall, and shall cause each of their respective
subsidiaries to, do all of the following:

6.1         Government Compliance.

(a)         Except as permitted by Section 7.3, maintain its and all its
Subsidiaries’ legal existence and good standing in their respective
jurisdictions of organization and maintain qualification in each jurisdiction in
which the failure to so qualify could reasonably be expected to have a material
adverse effect on Borrower’s business or operations. Borrower and Guarantor
shall comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, the noncompliance with which could
reasonably be expected to have a material adverse effect on Borrower’s business.

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

 

 

6.2        Financial

Statements, Reports, Certificates.

(a)         Deliver to Collateral Agent: (i) as soon as available, but no later
than forty-five (45) days after the last day of each of its first three fiscal
quarters, a company prepared consolidated financial statements prepared under
GAAP (except for the absence of footnotes and subject to normal year-end
adjustments), consistently applied and consolidating balance sheet, and income
statement covering the consolidated operations of Borrower, Guarantor, and their
respective Subsidiaries for such month certified by a Responsible Officer and in
a form reasonably acceptable to Collateral Agent; (ii) as soon as available, but
no later than one hundred twenty (120) days after the last day of Borrower’s
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion (other than a “going
concern” qualification) on the financial statements from a nationally-recognized
independent certified public accounting firm; (iii) as soon as available, but no
later than sixty (60) days after the last day of each of Borrower’s fiscal
years, Borrower’s financial budget, in a form reasonably acceptable to Lenders,
for the entire current fiscal year (on a quarterly basis) as approved by
Borrower’s Board of Directors; (iv) within five (5) days of delivery, copies of
all statements, reports and notices made available to Borrower’s security
holders or holders of Subordinated Debt; (v) within five (5) days of filing, all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission (other than confidential treatment requests), which documents may be
delivered electronically and if so delivered, shall be deemed to have been
delivered on the date on which Borrower provides Collateral Agent with a link
thereto on Borrower’s website, (vi) prompt notice of (A) any material adverse
change in the composition of the Intellectual Property that is material to
Borrower’s business, (B) the invalidation of any material patent of borrower
that is material to Borrower’s business, and (C) Borrower’s knowledge of any
event that could reasonably be expected to materially and adversely affect the
value of the Intellectual Property; (vii) as soon as available, but no later
than thirty (30) days after the last day of each month, copies of the month-end
bank statements for each deposit account or securities account maintained by
Borrower, or Guarantor or any Subsidiary, which bank statements may be provided
to Collateral Agent by Borrower or directly from the applicable bank(s), and
(viii) other financial information as reasonably requested by Collateral Agent.

(b)         Concurrently with the delivery of the financial statements specified
in Section 6.2(a)(i) above, deliver to Collateral Agent, a duly completed
Compliance Certificate signed by a Responsible Officer.

(c)         Keep proper books of record and account in accordance with GAAP in
all material respects, in which full, true and correct entries shall be made of
all dealings and transactions in relation to its business and activities.
Borrower shall allow, at the sole cost of Borrower (not to exceed $1,200 per
day, excluding out-of-pocket expenses), Collateral Agent and Lenders, during
regular

 

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business hours upon reasonable prior notice (except while an Event of Default
has occurred and is continuing), to visit and inspect any of its properties, to
examine and make abstracts or copies from any of its books and records, and to
conduct a collateral audit and analysis of its operations and the Collateral.
Such audits shall be conducted no more often than twice every twelve months
unless an Event of Default has occurred and is continuing.

6.3         Inventory; Returns. Keep all Inventory in good and marketable
condition, free from material defects. Returns and allowances between Borrower,
Guarantor and their Account Debtors shall follow Borrower’s or Guarantor’s
customary practices as they exist at the Effective Date. Borrower and Guarantor
must promptly notify Collateral Agent of all returns, recoveries, disputes and
claims that involve more than Two Hundred Thousand Dollars ($200,000)
individually or in the aggregate in any calendar year.

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

6.5         Insurance. Keep its business and the Collateral insured for risks
and in amounts standard for companies in Borrower’s and Guarantor’s industry and
location and as Collateral Agent may reasonably request. Insurance policies
shall be in a form, with companies, and in amounts that are reasonably
satisfactory to Collateral Agent. All property policies shall have a lender’s
loss payable endorsement showing Collateral Agent as lender loss payee and waive
subrogation against Collateral Agent, and all general liability policies shall
show, or have endorsements showing, Collateral Agent, as an additional insured.
All policies (or the loss payable and additional insured endorsements) shall
provide that the insurer shall endeavor to give Collateral Agent at least thirty
(30) days notice before canceling, amending (with respect to property policies
only), reducing, or declining to renew its policy. At Collateral Agent’s
request, Borrower shall deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy shall, at Collateral Agent’s
option, be payable to Collateral Agent on behalf of the Lenders on account of
the Obligations. Notwithstanding the foregoing, (a) so long as no Event of
Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy up to $100,000 with respect to any
loss, but not exceeding $250,000, in the aggregate for all losses under all
casualty policies in any one year, toward the replacement or repair of destroyed
or damaged property; provided that any such replaced or repaired property
(i) shall be of equal or like value as the replaced or repaired Collateral and
(ii) shall be deemed Collateral in which Collateral Agent has been granted a
first priority security interest, and (b) after the occurrence and during the
continuance of an Event of Default, all proceeds payable under such casualty
policy shall, at the option of Collateral Agent, be payable to Collateral Agent,
for the ratable benefit of the Lenders, on account of the Obligations. If
Borrower or Guarantor fails to obtain insurance as required under this
Section 6.5 or to pay any amount or furnish any required proof of payment to
third persons and Collateral Agent, Collateral Agent may make all or part of
such payment or obtain such insurance policies required in this Section 6.5, and
take any action under the policies Collateral Agent deems prudent.

6.6         Operating Accounts.

(a)         Maintain all of Borrower’s and Guarantor’s and all of their
Subsidiaries’ operating and other deposit accounts and securities accounts with
Bank of America, Royal Bank of Canada and Capital Advisors Group/State Street in
accounts which are subject to a Control Agreement in favor of Collateral Agent;
notwithstanding the foregoing, Borrower may maintain account #3300536717 with
Silicon Valley Bank (the “SVB Account”) until June 30, 2011, provided, however,
that the amount on deposit in such account shall not exceed One Hundred Thousand
Dollars ($100,000) at any time.

(b)         Borrower, Guarantor and their respective Subsidiaries shall provide
Collateral Agent five (5) days’ prior written notice before establishing any
Collateral Account at or with any Person other than Bank of America, Royal Bank
of Canada and Capital Advisors Group/State Street. In addition, for each
Collateral Account that Borrower or Guarantor or any of their Subsidiaries any
time maintains, Borrower shall cause the applicable bank or financial
institution at or with which such Collateral Account is maintained to execute
and deliver a Control Agreement or other appropriate instrument with respect to
such Collateral Account to perfect Collateral Agent’s Lien in such Collateral
Account in accordance with the terms hereunder, which Control Agreement may

 

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not be terminated without prior written consent of Collateral 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 or Guarantor’s or such Subsidiary’s
employees and identified to Collateral Agent by Borrower or Guarantor as such or
the SVB Account provided that the amount on deposit in such account does not
exceed One Hundred Thousand Dollars ($100,000) at any time.

(c)         Borrower, Guarantor, and their respective Subsidiaries shall not
maintain any Collateral Accounts except Collateral Accounts located in the
United States and Canada in accordance with Sections 6.6(a) and (b).

6.7         Protection of Intellectual Property Rights. Borrower and Guarantor
each shall: (a) use commercially reasonable efforts to protect, defend and
maintain the validity and enforceability of its Intellectual Property that is
material to Borrower’s business; (b) promptly advise Collateral Agent in writing
of material infringement by a third party of its Intellectual Property; and
(c) not allow any Intellectual Property material to Borrower’s business to be
abandoned, forfeited (excluding terminal disclaimers in Patents that are filed
in the ordinary course of Borrower’s business) or dedicated to the public
without Collateral Agent’s written consent.

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

6.9         Notices of Litigation and Default. Borrower will give prompt written
notice to Collateral Agent of any litigation or governmental proceedings pending
or threatened (in writing) against Borrower, Guarantor or any of their
Subsidiaries which could reasonably be expected to result in damages or costs to
Borrower, Guarantor or any of their Subsidiaries of Two Hundred Thousand Dollars
($200,000) or more or which has resulted in or could 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 any event within
three (3) Business Days) upon Borrower becoming aware of the existence of any
Event of Default or event which, with the giving of notice or passage of time,
or both, would constitute an Event of Default, Borrower shall give written
notice to Collateral Agent of such occurrence, which such notice shall include a
reasonably detailed description of such Event of Default or event which, with
the giving of notice or passage of time, or both, would constitute an Event of
Default.

6.10         Creation/Acquisition of Subsidiaries. In the event Borrower,
Guarantor or any Subsidiary creates or acquires any Subsidiary, Borrower,
Guarantor and such Subsidiary shall promptly notify Collateral Agent of the
creation or acquisition of such new Subsidiary and take all such action as may
be reasonably required by Collateral Agent to cause each such Subsidiary to
become a 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 or Guarantor, as applicable, shall grant and
pledge to Collateral Agent, for the ratable benefit of the Lenders, a perfected
security interest in the stock, units or other evidence of ownership of each
Subsidiary.

6.11         Neuromed Pharmaceuticals, Inc. On or before June 30, 2011, Borrower
shall cause Neuromed Pharmaceuticals, Inc., a Delaware corporation and a
wholly-owned subsidiary of Zalicus (“Neuromed”), to be either (i) liquidated and
dissolved with all of Neuromed’s assets, if any, distributed to Zalicus, or
(ii) merged with and into Zalicus with Zalicus being the surviving corporation.
On and after the Effective Date and prior to such dissolution or merger,
Borrower shall not, and shall not permit any Subsidiary to, (i) make any
Investment in Neuromed except for monies necessary to finance the expenses of
such dissolution or merger in an aggregate amount not to exceed $20,000 or
(ii) permit Neuromed to incur any liabilities or Indebtedness (other than
liabilities existing on the Effective Date in respect of a real property lease
for certain property located in Conshohocken, Pennsylvania, which lease expires
on December 31, 2010).

 

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6.12         0797733 B.C. Ltd. On or before June 30, 2011, Borrower shall cause
0797733 B.C. Ltd., a corporation organized under the laws of British Columbia,
Canada a wholly-owned subsidiary of Zalicus-Canada (“0797733 B.C. Ltd.”), to be
either (i) liquidated and dissolved with all of 0797733 B.C. Ltd.’s assets, if
any, distributed to Zalicus-Canada, or (ii) merged with and into Zalicus-Canada
with Zalicus-Canada being the surviving corporation. On and after the Effective
Date and prior to such dissolution or merger, Borrower shall not, and shall not
permit any Subsidiary to, (i) make any Investment in 0797733 B.C. Ltd. except
for monies necessary to finance the expenses of such dissolution or merger in an
aggregate amount not to exceed $20,000 or (ii) permit 0797733 B.C. Ltd. to incur
any liabilities or Indebtedness.

6.13         Zalicus Securities Corporation. On and after the Effective Date,
Borrower shall not, and shall not permit any Subsidiary to, (i) make any
Investment in Zalicus Securities Corporation, a Massachusetts corporation and a
wholly-owned subsidiary of Zalicus (“Zalicus Securities”), other than
Investments which do not exceed $250,000 in the aggregate, (ii) permit Zalicus
Securities to incur any liabilities or Indebtedness or (iii) permit Zalicus
Securities to engage in any business activity other than such business
activities as are necessary to qualify as, and permissible to be engaged in by,
a “Massachusetts Securities Corporation” pursuant to Massachusetts General Laws
(MGL) chapter 63, section 38b.

6.14         Further Assurances.

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

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

 

 

7

NEGATIVE COVENANTS

Borrower and Guarantor shall not, and shall not permit any of their respective
Subsidiaries to, do any of the following without the prior written consent of
the Required Lenders:

7.1         Dispositions. Convey, sell, lease, transfer, assign, or otherwise
dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers
(a) of Inventory in the ordinary course of business; (b) of worn-out, obsolete
or surplus Equipment; (c) in connection with Permitted Liens and Permitted
Investments; (d) Permitted Intellectual Property Licenses; (e) Transfers of
property to the extent permitted by clause (e) of the definition of Permitted
indebtedness; and (f) other Transfers in an aggregate amount not to exceed
$50,000 in any fiscal year. In no event shall Borrower be permitted to Transfer
its rights, title and interest in or to the Exalgo Agreements or any royalty or
other payments thereunder or other proceeds thereof without the prior written
consent of Lenders.

7.2         Changes in Business, Management, Ownership, or Business Locations.
(a) Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses engaged in by Borrower and Guarantor as of the Effective
Date or reasonably related thereto; (b) liquidate or dissolve; or (c) any Key
Person shall cease to be actively engaged in the management of Borrower unless a
replacement or interim replacement for such Key Person, is approved by
Borrower’s Board of Directors and engaged by Borrower within one hundred twenty
(120) days, or (ii) permit or suffer any Change in Control. Neither Borrower nor
Guarantor shall, without at least thirty (30) days prior written notice to
Collateral Agent: (A) add any new offices or business locations, including
warehouses (unless such new offices or business locations contain less than One
Hundred Thousand Dollars ($100,000), individually or in the aggregate, in
Borrower’s or Guarantor’s assets or property), (B) change its jurisdiction of
organization, (C) change its organizational structure or type, (D) change its
legal name, or (E) change any organizational number (if any) assigned by its
jurisdiction of organization.

7.3         Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock, shares or property of another Person, except for Permitted
Acquisitions. A Subsidiary may merge or consolidate into another Subsidiary
(provided such surviving Subsidiary is a “co-Borrower” hereunder or has provided
a secured guaranty of Borrower’s Obligations hereunder) or into Borrower or
Guarantor provided Borrower or Guarantor is the surviving legal entity, and as
long as no Event of Default is occurring prior thereto or arises as a result
therefrom.

 

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

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

7.7         Distributions; Investments. (a) Pay any dividends (other than
dividends payable solely in capital stock) or make any distribution or payment
or redeem, retire or purchase any capital stock (other than repurchases pursuant
to the terms of employee stock purchase plans, employee restricted stock
agreements, stockholder rights plans, director or consultant stock option plans,
or similar plans, provided such repurchases do not exceed One Hundred Thousand
Dollars ($100,000) in the aggregate per fiscal year) or (b) directly or
indirectly make any Investment other than Permitted Investments, or permit any
of its Subsidiaries to do so.

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

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, become a “mutual company” under the Securities Act (British Columbia),
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 (a) ERISA or (b) any
Canadian employee benefit plan or pension plan, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or the Employment Standards Act (British
Columbia), as applicable, or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or
permit any Subsidiary to withdraw from participation in, permit partial or
complete termination of, or permit the occurrence of any other event with
respect to, any present pension, profit sharing and deferred compensation plan
which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.

7.11         Compliance with Anti-Terrorism Laws. Collateral Agent hereby
notifies Borrower and Guarantor that pursuant to the requirements of
Anti-Terrorism Laws, and Collateral Agent’s policies and practices, Collateral
Agent is required to obtain, verify and record certain information and
documentation that identifies Borrower and Guarantor and their principals, which
information includes the name and address of Borrower and Guarantor and their
principals and such other information that will allow Collateral

 

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Agent to identify such party in accordance with Anti-Terrorism Laws. Neither
Borrower nor Guarantor will, nor will Borrower or Guarantor 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 and Guarantor shall immediately notify Collateral Agent if
Borrower or Guarantor has knowledge that Borrower, Guarantor 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. Neither
Borrower nor Guarantor will, nor will Borrower or Guarantor permit any
Subsidiary or Affiliate to, directly or indirectly, (i) conduct any business or
engage in any transaction or dealing with any Blocked Person, including, without
limitation, the making or receiving of any contribution of funds, goods or
services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise
engage in any transaction relating to, any property or interests in property
blocked pursuant to Executive Order No. 13224, any similar executive order or
other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in Executive Order
No. 13224 or other Anti-Terrorism Law.

 

 

8

EVENTS OF DEFAULT

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

8.1         Payment Default. 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 or Guarantor fails or neglects to perform any obligation in
Sections 6.2 (Financial Statements, Reports, Certificates), 6.4 (Taxes), 6.5
(Insurance), 6.6 (Operating Accounts), 6.7 (Protection of Intellectual Property
Rights), 6.9 (Notices of Default), 6.10 (Creation/Acquisition of Subsidiaries),
6.11 (Neuromed Pharmaceuticals, Inc., 6.12 (0797733 B.C. Ltd), or 6.13 (Zalicus
Securities Corporation) or Borrower or violates any covenant in Section 7; or

(b)         Borrower, Guarantor or any of their Subsidiaries fails or neglects
to perform, keep, or observe any other term, provision, condition, covenant or
agreement contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure the default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten
(10) day period or cannot after diligent attempts by Borrower be cured within
such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to cure the default shall not be deemed
an Event of Default (but no Credit Extensions shall be made during such cure
period). Grace periods provided under this Section shall not apply, among other
things, to 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 Guarantor or of any entity under control of
Borrower or Guarantor (including a Subsidiary) on deposit with any Lender or any
Lender’s Affiliate or any bank or other institution at which Borrower or
Guarantor maintains a Collateral Account, or (ii) a notice of lien, levy, or
assessment is filed against any of Borrower’s or Guarantor’s assets by any
government agency, and the same under subclauses (i) and (ii) hereof are not,
within ten (10) days after the occurrence thereof, discharged or stayed (whether
through the posting of a bond or otherwise); provided, however, no Credit
Extensions shall be made during any ten (10) day cure period; and

 

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(b)         (i) any material portion of Borrower’s or Guarantor’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 or Guarantor
from conducting any part of its business;

8.5         Insolvency (a) Borrower or Guarantor is unable to pay its debts
(including trade debts) generally as they become due or otherwise becomes
insolvent; (b) Borrower or Guarantor begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower or Guarantor and not dismissed
or stayed within forty-five (45) 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 or Guarantor 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 Two Hundred Thousand
Dollars ($200,000) or that could have a material adverse effect on Borrower’s
business.

8.7         Judgments. One or more judgments, orders, or decrees for the payment
of money in an amount, individually or in the aggregate, of at least Two Hundred
Thousand Dollars ($200,000) (not covered by independent third-party insurance as
to which liability has been accepted by such insurance carrier) shall be
rendered against Borrower or Guarantor and shall remain unsatisfied, unvacated,
or unstayed for a period of ten (10) days after the entry thereof (provided that
no Credit Extensions will be made prior to the satisfaction, vacation, or stay
of such judgment, order or decree);

8.8         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 Collateral Agent and/or Lenders
or to induce Collateral 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 Collateral Agent or the Lenders,
or any creditor that has signed such an agreement with Collateral Agent or the
Lenders breaches any terms of such agreement; or

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

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

 

 

9

RIGHTS AND REMEDIES

9.1         Rights and Remedies.

 

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(a)         Upon the occurrence and during the continuance of an Event of
Default, Collateral Agent may, and at the written direction of any Lender shall,
without notice or demand, do any or all of the following: (i) deliver notice of
the Event of Default to 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 Collateral 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 Collateral 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 Collateral Agent
and/or the Lenders shall be immediately terminated without any action by
Collateral Agent or the Lenders).

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

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

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

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

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

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

(ii)         make any payments and do any acts it considers necessary or
reasonable to protect the Collateral and/or its security interest in the
Collateral. Borrower shall assemble the Collateral if Collateral Agent requests
and make it available in a location as Collateral Agent reasonably designates.
Collateral Agent may peaceably 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 Collateral
Agent a license to enter and occupy any of its premises, without charge, to
exercise any of Collateral Agent’s rights or remedies;

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

(iv)         place a “hold” on any account maintained with Collateral 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;

 

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

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

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

9.2         Power of Attorney.   Borrower hereby irrevocably appoints Collateral
Agent as its lawful attorney-in-fact, exercisable upon the occurrence and during
the continuance of an Event of Default, to: (a) endorse 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 Collateral 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 Collateral Agent or a third party
as the Code or PPSA or any applicable law permits. Borrower hereby appoints
Collateral Agent as its lawful attorney-in-fact to sign Borrower’s name on any
documents necessary to perfect or continue the perfection of Collateral Agent’s
security interest in the Collateral regardless of whether an Event of Default
has occurred until all Obligations (other than inchoate indemnity obligations)
have been satisfied in full and Collateral Agent and the Lenders are under no
further obligation to make Credit Extensions hereunder. Collateral Agent’s
foregoing appointment as Borrower’s attorney in fact, and all of Collateral
Agent’s rights and powers, coupled with an interest, are irrevocable until all
Obligations (other than inchoate indemnity obligations) have been fully repaid
and performed and Collateral 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, Collateral Agent may obtain such insurance or make such
payment, and all amounts so paid by Collateral Agent are Lenders’ Expenses and
immediately due and payable, bearing interest at the Default Rate, and secured
by the Collateral. Collateral Agent will make reasonable efforts to provide
Borrower with notice of Collateral Agent obtaining such insurance or making such
payment at the time it is obtained or paid or within a reasonable time
thereafter. No such payments by Collateral Agent are deemed an agreement to make
similar payments in the future or Collateral Agent’s waiver of any Event of
Default.

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 Collateral Agent from or on behalf of Borrower of all or any part of
the Obligations, and, as between Borrower on the one hand and Collateral Agent
and Lenders on the other, Collateral Agent shall have the continuing and
exclusive right to apply and to reapply any and all payments received against
the Obligations in such manner as Collateral Agent may deem advisable
notwithstanding any previous application by Collateral Agent, and (b) the
proceeds of any sale of, or other realization upon all or any part of the
Collateral shall be applied: first, to 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 Collateral
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
until exhausted

 

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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. Collateral Agent, or if
applicable, each Lender, shall promptly remit to the other Lenders such sums as
may be necessary to ensure the ratable repayment of each Lender’s portion of 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
Collateral Agent or other Lenders such sums as may be necessary to ensure the
ratable payment of such scheduled payments, as instructed by Collateral Agent.
Any payment or distribution of any kind or character, whether in cash,
properties or securities, shall be received by a Lender in excess of its ratable
share, then the portion of such payment or distribution in excess of such
Lender’s ratable share shall be received by such Lender in trust for and shall
be promptly paid over to the other Lender for application to the payments of
amounts due on the other Lenders’ claims. To the extent any payment for the
account of 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 Collateral Agent and other Lenders for purposes of
perfecting Collateral Agent’s security interest therein.

9.5         Liability for Collateral.   So long as Collateral Agent and the
Lenders comply with applicable law and reasonable banking practices regarding
the safekeeping of the Collateral in the possession or under the control of
Collateral Agent and the Lenders, Collateral 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.   Collateral 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 Collateral Agent thereafter to demand strict performance and
compliance herewith or therewith. No waiver hereunder shall be effective unless
signed by Collateral Agent and then is only effective for the specific instance
and purpose for which it is given. Collateral Agent’s rights and remedies under
this Agreement and the other Loan Documents are cumulative. Collateral Agent has
all rights and remedies provided under the Code or PPSA, any applicable law, by
law, or in equity. Collateral Agent’s exercise of one right or remedy is not an
election, and Collateral Agent’s waiver of any Event of Default is not a
continuing waiver. Collateral Agent’s delay in exercising any remedy is not a
waiver, election, or acquiescence.

9.7         Demand Waiver.   Borrower waives, to the fullest extent permitted by
law, demand, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees held by Collateral Agent on which 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 PPSA or any other
applicable law, and (b) any right to require the Lenders or the Collateral 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 the
Collateral Agent may exercise or not exercise any right or remedy it has against
any Borrower or any security it holds (including the right to foreclose by
judicial or non-judicial sale) without affecting any Borrower’s
liability. Notwithstanding any other provision of this Agreement or other
related document, each Borrower irrevocably waives all rights that it may have
at law or in equity (including, without limitation, any law subrogating Borrower
to the rights of the Lenders and the Collateral 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

 

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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 the Collateral Agent and such payment shall be promptly
delivered to the Collateral 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 facsimile transmission; (c) one (1) Business Day
after deposit with a reputable overnight courier with all charges prepaid; or
(d) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address, facsimile number,
or email address indicated below. Any of Collateral Agent, Lender or Borrower
may change its mailing or electronic mail address or facsimile number by giving
the other party written notice thereof in accordance with the terms of this
Section 10.

 

If to Borrower:

 

Zalicus Inc.

 

245 First Street

 

Third Floor

 

Cambridge, Massachusetts 02142

 

Attn: Chief Financial Officer

 

Fax: (617) 301-7108

with a copy to:

 

Zalicus Inc.

 

245 First Street, Third Floor

 

Cambridge, Massachusetts 02142

 

Attn: Jason Cole, Esq.

 

Fax: (617) 301-7010

If to Collateral Agent:

 

Oxford Finance Corporation

 

133 North Fairfax Street

 

Alexandria, Virginia 22314

 

Attention: General Counsel

 

Fax: (703) 519-5225

with a copy to:

 

Riemer & Braunstein LLP

 

Three Center Plaza

 

Boston, Massachusetts 02108

 

Attn: John J. Malloy, Esquire

 

Fax: (617) 880-3449

 

 

11

CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

New York law governs the Loan Documents without regard to principles of
conflicts of law. Borrower, Lenders and Collateral Agent each submit to the
exclusive jurisdiction of the State and Federal courts in the City of New York,
Borough of Manhattan. NOTWITHSTANDING THE FOREGOING, COLLATERAL 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 COLLATERAL AGENT
AND LENDERS (IN ACCORDANCE WITH THE

 

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PROVISIONS OF SECTION 9.1) DEEM NECESSARY OR APPROPRIATE TO REALIZE ON THE
COLLATERAL OR TO OTHERWISE ENFORCE COLLATERAL AGENT’S AND LENDERS’ RIGHTS
AGAINST 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 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, first class, registered or certified mail
return receipt requested, proper postage prepaid.

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

 

 

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 Collateral
Agent’s prior written consent (which may be granted or withheld in Collateral
Agent’s discretion, subject to Section 12.6). The Lenders have the right,
without the consent of or notice to Borrower, to sell, transfer, assign,
negotiate, or grant participation in (any such sale, transfer, assignment,
negotiation, or grant of a participation, a “Lender Transfer”) all or any part
of, or any interest in, the Lenders’ obligations, rights, and benefits under
this Agreement and the other Loan Documents provided, however, that any such
Lender Transfer (other than a sale or assignment to an Eligible Assignee) of its
obligations, rights, and benefits under this Agreement and the other Loan
Documents shall require the prior written consent of the Required Lenders (such
approved assignee, an “Approved Lender”). Borrower and Collateral Agent shall be
entitled to continue to deal solely and directly with such Lender in connection
with the interests so assigned until Collateral Agent shall have received and
accepted an effective assignment agreement in form satisfactory to Collateral
Agent executed, delivered and fully completed by the applicable parties thereto,
and shall have received such other information regarding such Eligible Assignee
or Approved Lender as Collateral Agent reasonably shall require.

12.2         Indemnification.     Borrower agrees to indemnify, defend and hold
Collateral Agent and the Lenders and their respective directors, officers,
employees, agents, attorneys, or any other Person affiliated with or
representing Collateral Agent or the Lenders (each, an “Indemnified Person”)
harmless against: (a) all obligations, demands, claims, and liabilities
(collectively, “Claims”) asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (b) all losses or Lenders’
Expenses incurred, or paid by Indemnified Person from, following, or arising
from transactions between Collateral Agent, and/or 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. 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 Indemnified Person) in connection
with any investigative, response, remedial, administrative or judicial matter or
proceeding, whether or not such Indemnified Person shall be designated a party
thereto and including any such proceeding initiated by or on behalf of Borrower,
and the reasonable expenses of investigation by engineers, environmental
consultants and similar technical personnel and any commission, fee or
compensation claimed by any broker (other than any broker retained by Collateral
Agent or Lenders) asserting any right to payment for the transactions
contemplated hereby which may be imposed on, incurred by or asserted against
such Indemnified Person as a result of or in connection with the transactions
contemplated hereby and the use or intended use of the proceeds of the loan
proceeds.

 

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

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

12.5         Correction of Loan Documents. Collateral Agent and 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, so long as
Collateral Agent provides Borrower with written notice of such correction and
allows Borrower at least ten (10) days to object to such correction. In the
event of such objection, such correction shall not be made except by an
amendment signed by both Collateral Agent and Borrower.

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

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

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

(iii)         no such amendment, waiver or other modification shall, unless
signed by all 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 12.6 or the definitions of the terms used in this Section 12.6 insofar
as the definitions affect the substance of this Section 12.6; (F) consent to the
assignment, delegation or other transfer by Borrower or Guarantor of any of its
rights and obligations under any Loan Document or release Borrower or 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 Collateral Agent securing the Obligations; or
(I) amend any of the provisions of Section 12.10. It is hereby understood and
agreed that all Lenders shall be deemed directly affected by an amendment,
waiver or other modification of the type described in the preceding clauses (C),
(D), (E), (F), (G) and (H) of the preceding sentence;

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

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

 

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

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

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

12.9         Confidentiality.     In handling any confidential information of
Borrower, the Lenders and Collateral Agent shall exercise the same degree of
care that it exercises for their own proprietary information, but disclosure of
information may be made: (a) to the Lenders’ and Collateral Agent’s Subsidiaries
or Affiliates; (b) to prospective transferees or purchasers of any interest in
the Credit Extensions (provided, however, the Lenders and Collateral 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 Lenders’ or Collateral Agent’s
regulators or as otherwise required in connection with an examination or audit;
(e) as Collateral Agent considers appropriate in exercising remedies under the
Loan Documents; and (f) to third party service providers of the Lenders and/or
Collateral Agent so long as such service providers have executed a
confidentiality agreement with the Lenders and Collateral Agent with terms no
less restrictive than those contained herein. Confidential information does not
include information that either: (i) is in the public domain or in the Lenders’
and/or Collateral Agent’s possession when disclosed to the Lenders and/or
Collateral Agent, or becomes part of the public domain after disclosure to the
Lenders and/or Collateral Agent; or (ii) is disclosed to the Lenders and/or
Collateral Agent by a third party, if the Lenders and/or Collateral Agent does
not know that the third party is prohibited from disclosing the information.
Collateral Agent and the 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 Collateral Agent does 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.

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

 

 

13

COLLATERAL AGENT

13.1         Appointment and Authorization of Collateral Agent.     Each Lender
hereby irrevocably appoints, designates and authorizes Collateral Agent to take
such action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere herein or in
any other Loan Document, Collateral Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Collateral
Agent have or be deemed to have any fiduciary relationship with any Lender or
participant, and

 

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no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against Collateral Agent. Without limiting the generality of the
foregoing sentence, the use of the term “agent” herein and in the other Loan
Documents with reference to Collateral Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.

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

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

13.4         Reliance by Collateral Agent.     Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing,
communication, signature, resolution, representation, notice, consent,
certificate, affidavit, letter, 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
Collateral Agent. Collateral Agent shall be fully justified in failing or
refusing to take any action under any Loan Document unless it shall first
receive such advice or concurrence of all Lenders as it deems appropriate and,
if it so requests, it shall first be indemnified to its satisfaction by 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. Collateral Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of all Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders.

13.5         Notice of Default.     Collateral Agent shall not be deemed to have
knowledge or notice of the occurrence of any default and/or Event of Default,
unless Collateral Agent shall have received written notice from a Lender or
Borrower, describing such default or Event of Default. Collateral Agent will
notify the Lenders of its receipt of any such notice. Collateral Agent shall
take such action with respect to an Event of Default as may be directed in
writing by the Required Lenders in accordance with Article 9(a); provided,
however, that while an Event of Default has occurred and is continuing,
Collateral Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default as
Collateral Agent shall deem advisable or in the best interest of 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 Collateral Agent.
    Each Lender acknowledges that no Collateral Agent-Related Person has made
any representation or warranty to it, and that no act by Collateral Agent
hereafter taken, including any consent to and acceptance of any assignment or
review of the affairs of Borrower or any Affiliate thereof, shall be deemed to
constitute any representation or warranty by any Collateral Agent-Related Person
to any Lender as to any matter, including whether

 

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Collateral Agent-Related Persons have disclosed material information in their
possession. Each Lender represents to Collateral Agent that it has,
independently and without reliance upon any Collateral Agent-Related Person and
based on such documents and information as it has deemed appropriate, made its
own appraisal of, and investigation into, the business, prospects, operations,
property, financial and other condition and creditworthiness of 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
Collateral Agent-Related Person and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of Borrower. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
Collateral Agent herein, Collateral Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of Borrower or any of its Affiliates which may
come into the possession of any Collateral Agent-Related Person.

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

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

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

 

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13.10         Collateral Agent May File Proofs of Claim.     In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to Borrower, Collateral Agent (irrespective of whether the
principal of any Loan, shall then be due and payable as herein expressed or by
declaration or otherwise and irrespective of whether Collateral Agent shall have
made any demand on 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 Collateral
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and Collateral Agent and their
respective agents and counsel and all other amounts due the Lenders and
Collateral Agent allowed in such judicial proceeding); and

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

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

13.11         Collateral and Guaranty Matters.     The Lenders irrevocably
authorize Collateral Agent, at its option and in its discretion, to release any
Guarantor and any Lien on any Collateral granted to or held by Collateral Agent
under any Loan Document (i) upon the date that all Obligations due hereunder
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, (ii) that is transferred or to be transferred as
part of or in connection with any Transfer permitted hereunder or under any
other Loan Document, or (iii) as approved in accordance with Section 12.6. Upon
request by Collateral Agent at any time, all Lenders will confirm in writing
Collateral Agent’s authority to release its interest in particular types or
items of Property, pursuant to this Section 13.11.

13.12         Cooperation of Borrower.     If necessary, Borrower agrees to
(i) execute any documents (including new Secured Promissory Notes) reasonably
required to effectuate and acknowledge each assignment of a Term Loan Commitment
or Loan to an assignee in accordance with Section 12.1, (ii) make Borrower’s
management available to meet with Collateral Agent and prospective participants
and assignees of Term Loan Commitments or Credit Extensions (which meetings
shall be conducted no more often than twice every twelve months unless an Event
of Default has occurred and is continuing) and (iii) assist Collateral Agent or
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

14.1         Definitions.     As used in this Agreement, the following terms
have the following meanings. In addition, unless otherwise defined herein,
(a) the following terms are used herein as defined in the PPSA as applicable:
Accession, Account, Chattel

 

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Paper, Document of Title, Equipment, Goods, Intangible, Instrument, Inventory,
Investment Property, Money, financing statement, and financing change statement,
and (b) the following terms have the meanings given to them in the STA:
“Certificated Security”, “Entitlement Holder”, “Entitlement Order”, “Financial
Asset”, “Issuer”, “Security”, “Securities Account”, “Securities Intermediary”,
“Security Entitlement”, and “Uncertificated Security”:

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

“Account Debtor” is any “account debtor” as defined or contemplated by in the
Code or PPSA, as applicable, with such additions to such term as may hereafter
be made.

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

“Agreement” is defined in the preamble hereof.

“Amortization Date” is, (i) with respect to a Term A Loan, August 1, 2011,
(ii) with respect to the Term B Loan , the seventh (7th) Payment Date following
the Funding Date of Term B Loan and (ii) with respect to the Term C Loan , the
seventh (7th) Payment Date following the Funding Date of Term C Loan.

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

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

“Basic Rate” means with respect to a Term Loan, the per annum rate of interest
(based on a year of 360 days) equal to the greater of (i) 10.25% and (ii) the
sum of (a) the 90-day U.S. LIBOR rate reported in the Wall Street Journal three
(3) Business Days prior to the Funding Date of such Term Loan, plus (b) 9.96%.

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

“Borrower” is defined in the preamble hereof.

“Borrower’s Books” are all 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.

 

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

“Cash Burn” is equal to the sum of the forecasted monthly net income/losses of
Borrower, Guarantor and their respective Subsidiaries for each of the
twenty-four (24) months following the date of determination.

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

“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 forty-nine percent (49%) or
more of the combined voting power of Borrower’s then outstanding securities; or
(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 directions 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.

“Claims” are defined in Section 12.2.

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

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

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

 

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

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

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

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

“Communication” is defined in Section 10.

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

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

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

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

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

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

“Designated Deposit Account” is Borrower’s primary deposit account, maintained
with Bank of America N.A., or such other account as may be used from time to
time with the written consent of both parties.

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

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

“Eligible Assignee” means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an
Approved Fund and (iv) any commercial bank, savings and loan association or
savings bank or any other entity which is an “accredited investor” (as defined
in Regulation D under the Securities Act of 1933, as amended) and which extends
credit or buys loans as one of its businesses, including insurance companies,
mutual funds, lease financing companies and commercial finance companies, in
each case,

 

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which either (A) has a rating of BBB or higher from Standard & Poor’s Rating
Group and a rating of Baa2 or higher from Moody’s Investors Service, Inc. at the
date that it becomes a Lender or (B) has total assets in excess of
$5,000,000,000, and in each case of clauses (i) through (iv), which, through its
applicable lending office, is capable of lending to Borrower without the
imposition of any withholding or similar taxes; provided that notwithstanding
the foregoing, “Eligible Assignee” shall not include (i) Borrower, Guarantor or
any of Borrower’s or Guarantor’s Affiliates or Subsidiaries or (ii) unless an
Event of Default has occurred and is continuing, a direct competitor of Borrower
or Guarantor or a vulture hedge fund, each as determined by Collateral Agent.
Notwithstanding the foregoing, in connection with assignments by a Lender due to
a forced divestiture at the request of any regulatory agency, the restrictions
set forth herein shall not apply and Eligible Assignee shall mean any Person or
party.

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

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

“Event of Default” is defined in Section 8.

“Exalgo Agreements” means collectively, (i) the Asset Purchase Agreement dated
as of June 11, 2009 between Zalicus-Canada (as successor to Neuromed Development
Inc.) and Mallinckrodt Inc., as amended by the First Amendment to Asset Purchase
Agreement dated as of July 15, 2009, and (ii) the Assignment and Assumption
Agreement dated as of June 11, 2009 between Zalicus-Canada (as successor to
Neuromed Development Inc.) and Mallinckrodt Inc. [Others?]

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

“Final Payment Percentage” is one and one-half percent (1.50%).

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

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

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

 

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

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

“Guarantor” is any present or future guarantor of the Obligations.

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

“Indemnified Person” is defined in Section 12.2.

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, (b) the Bankruptcy and Insolvency Act (Canada) or
the Companies’ Creditors Arrangement Act (Canada) or (c) 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” 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, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, trade names, service marks, mask
works, rights of use of any name, domain names, or any other similar rights, any
applications therefor, whether registered or not, and the goodwill of the
business of any Person connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, clinical and non-clinical data, rights
to unpatented inventions, and any claims for damage by way of any past, present,
or future infringement of any of the foregoing.

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

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

“Key Person” means each of Borrower’s (i) President and Chief Executive Officer,
who is Mark Corrigan as of the Effective Date and (ii) Chief Financial Officer,
who is Justin Renz as of the Effective Date.

“Lender” is any one of the Lenders.

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

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

 

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

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

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

“Maturity Date” is, for each Term Loan, the date which is Thirty-five
(35) months after the Amortization Date with respect to such Term Loan.

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

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

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

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

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

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

“Perfection Certificate” is defined in Section 5.1.

“Permitted Acquisition” means an acquisition by Borrower of capital stock or
property of any Person which results in such stock or property being owned by
Borrower following the closing of such transaction, provided that: (a) Borrower
has provided the Lenders with no less than thirty (30) days notice prior to the
closing of such transaction, including without limitation, the name of the
Person being acquired by Borrower or a summary description of the assets being
acquired by Borrower, the total consideration for the transaction (broken out
into line items for cash and other property), the form of the transaction (asset
purchase, stock purchase or otherwise) and any other information reasonably
requested by the Lenders; (b) the Person being acquired operates in the
pharmaceutical, biopharmaceutical, or biotechnology industry; (c) the
consideration paid by Borrower in any such transaction is in the form of the
capital stock of Borrower or cash (provided that the cash consideration

 

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(including any earn-outs or deferred payments) paid by Borrower shall not exceed
$5,000,000 in the aggregate for all such Permitted Acquisitions); (d) before and
after giving effect to the consummation of the transaction, no Event of Default
has occurred and is continuing or could not reasonably be expected to result
from such transaction; (e) the assets of the target company in such acquisition
are free and clear of all Liens that would not otherwise constitute Permitted
Liens hereunder at the time of the closing of such transaction; (f) Borrower (or
a Subsidiary of Borrower provided that such Subsidiary complies with the
provisions of Section 6.10 hereof) is the surviving corporation of any such
transaction, (g) Borrower delivers to the Lenders, within thirty (30) days of
the closing of any such transaction, any documents required by the Lenders in
order for the Lenders to obtain a first priority security interest in the assets
acquired by Borrower (including, without limitation, assets owned by a
Subsidiary with respect to which Borrower has acquired all or a portion of such
entity’s stock) subject only to Permitted Liens, (h) Borrower shall comply with
the provisions of Section 6.10 hereof with respect to any Person acquired in any
such transaction, (i) Borrower delivers to the Lenders, within thirty (30) days
of the closing of any such transaction, projections, in form and substance
reasonably acceptable to Lenders, projecting that such transaction will not
increase the projected net losses associated with the Cash Burn of Borrower,
Guarantor and their Subsidiaries (after giving pro forma effect for such
transaction), (j) Borrower’s board of directors has approved the transaction,
(k) in the event the transaction involves the acquisition of capital stock of a
Person, Borrower or one of its Subsidiaries acquires a majority of the capital
stock of such Person and (l) after giving effect to the transaction there is no
Change in Control.

“Permitted Indebtedness” is:

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

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

(c)         Subordinated Debt;

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

(e)         Indebtedness secured by liens specified in clause (c) of the
definition of “Permitted Liens” provided such Indebtedness shall not exceed Two
Million Dollars ($2,000,000) in the aggregate principal amount outstanding at
any one time;

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

(g)         Indebtedness consisting of interest rate, currency or commodity swap
agreements, interest rate cap or collar agreements or arrangements entered into
in the ordinary course of business and not for speculative purposes and designed
to protect Borrower or Guarantor or their Subsidiaries against fluctuations in
interest rates, currency exchange rates, or commodity prices;

(h)         Indebtedness incurred as a result of endorsing negotiable
instruments received in the ordinary course of business;

(i)         earn-out obligations or deferred payments of consideration in
connection with Permitted Acquisition to the extent permitted by the definition
of “Permitted Acquisition”;

(j)         guarantees of Permitted Indebtedness;

(k)         other Indebtedness in aggregate amount outstanding not to exceed One
Hundred Fifty Thousand Dollars ($150,000) at any time; and

 

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

“Permitted Intellectual Property Licenses” are: (i) non-exclusive licenses of
Intellectual Property granted to third parties in the ordinary course of
business, (ii) licenses of Intellectual Property that could not result in a
legal transfer of title of the licensed property but that may be exclusive or
non-exclusive with respect to territory, field(s) of use, rights to research,
develop, commercialize, manufacture, market and/or distribute, and
(iii) exclusive or non-exclusive licenses, assignments or other conveyance of
rights to Intellectual Property directly related to specific neuronal Ion
channels and/or compounds interacting with such neuronal Ion channels.

“Permitted Investments” are:

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

(b)         Investments permitted by Borrower’s or Guarantor’s investment policy
as approved by Collateral Agent and the Lenders, as amended from time to time
with the approval of the Collateral Agent and the Lenders;

(c)         Investments consisting of extensions of credit to customers of
Borrower, Guarantor or their respective Subsidiaries in the nature of accounts
receivable, prepaid royalties or notes receivable in the ordinary course of
business arising from the sale or lease of goods, provision of services or
licensing activities;

(d)         Investments received in connection with settlements with or the
bankruptcy or reorganization of customers or suppliers;

(e)         joint ventures or strategic alliances in the ordinary course of
Borrower’s or Guarantor’s business consisting of the non-exclusive licensing of
technology, the development of technology or the providing of technical support,
provided that any cash investments by Borrower or Guarantor do not exceed
$100,000 in any fiscal year;

(f)         Investments consisting of interest rate, currency or commodity swap
agreements, interest rate cap or collar agreements or arrangements entered into
in the ordinary course of business and not for speculative purposes and designed
to protect Borrower or Guarantor or their Subsidiaries against fluctuations in
interest rates, currency exchange rates, or commodity prices;

(g)         Investments consisting of travel advances, employee relocation loans
and other employee loans and advances in the ordinary course of business in an
amount not to exceed One Hundred Thousand Dollars ($100,000) in any fiscal year;

(h)         Cash and Cash Equivalents; and

(h)         other Investments in an amount not to exceed One Hundred Fifty
Thousand Dollars ($150,000) at any time.

“Permitted Liens” are:

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

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

 

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(c)         Liens (i) on Equipment or other assets subject to capital leases
acquired or held by Borrower or Guarantor incurred for financing the acquisition
of the Equipment or such assets subject to capital leases, or (ii) on existing
Equipment or such assets subject to capital leases when acquired, in each case
if the Lien is confined to the property and improvements and the proceeds of the
Equipment or other assets subject to capital leases; provided that such Liens
under this clause (c) (A) may have priority over liens granted to Collateral
Agent hereunder to the extent provided under the Code or the PPSA, as
applicable, so long as the Indebtedness secured by the Liens remain outstanding
and (B) may secure Indebtedness of no more than Two Million Dollars ($2,000,000)
in the aggregate principal amount outstanding at any one time;

(d)         statutory Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other Persons imposed without
action of such parties, provided they have no priority over any of Collateral
Agent’s Lien and the aggregate amount of the obligations secured by such Liens
does not any time exceed Fifty Thousand Dollars ($50,000);

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

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

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

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

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

(j)         Liens on insurance proceeds in favor of insurance companies granted
solely to secure financed insurance premiums;

(k)         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; and

(l)         Liens existing at the time that a Person becomes a Subsidiary of
Borrower or any of its Subsidiaries as part of a Permitted Acquisition provided
such Liens constitute “Permitted Liens” hereunder;

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

“PPSA” the Personal Property Security Act (British Columbia), including the
regulations thereto, provided that, if perfection or the effect of perfection or
non-perfection or the priority of any Lien created hereunder on the Collateral
is governed by the personal property security legislation or other applicable
legislation with respect to personal property security in effect in a
jurisdiction other than British Columbia, “PPSA” means the Personal Property
Security Act or such other applicable legislation in effect from time to time in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection, effect of perfection or non-perfection or priority. References to
“PPSA” include where applicable, provisions and definitions of the STA.

 

35

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“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:

 

 

(i)

for a prepayment made on or after the Funding Date of such Term Loan through and
including the first anniversary of the Funding Date of such Term Loan, four
percent (4.00%) of the principal amount of such Term Loan prepaid;

 

 

(ii)

for a prepayment made after the date which is after the first anniversary of the
Funding Date of such Term Loan through and including the second anniversary of
the Funding Date of such Term Loan, two percent (2.00%) of the principal amount
of the Term Loans prepaid; and

 

 

(iii)

for a prepayment made after the date which is after the second anniversary of
the Funding Date of such Term Loan but prior to the Maturity Date of such Term
Loan, one percent (1.00%) of the principal amount of the Term Loans prepaid.

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

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made, or as
applicable, any “corporation” or partnership as defined or contemplated in the
Business Corporations Act (British Columbia).

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

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

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

 

36

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“Second Draw Period” means the period commencing on the Effective Date and
ending on the earlier of (i) July 15, 2011 and (ii) the occurrence of an Event
of Default.

“Secured Promissory Note” is defined in Section 2.4.

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

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

“STA” means the Securities Transfer Act (British Columbia), including the
regulations thereto, provided that, to the extent that perfection or the effect
of perfection or non-perfection or the priority of any Lien created hereunder on
Collateral that is Investment Property is governed by the laws in effect in any
province or territory of Canada other than British Columbia in which there is in
force legislation substantially the same as the Securities Transfer Act, 2007
(British Columbia) (an “Other STA Province”), then “STA” shall mean such other
legislation as in effect from time to time in such Other STA Province for
purposes of the provisions hereof referring to or incorporating by reference
provisions of the STA;

“Subordinated Debt” is indebtedness incurred by Borrower or Guarantor
subordinated to all of Borrower’s or Guarantor’s now or hereafter indebtedness
to the Lenders (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Collateral Agent and the Lenders
entered into between Collateral Agent, Borrower, and the other creditor), on
terms acceptable to Collateral 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” is defined in Section 2.2(a)(ii) hereof.

“Term A Loan” is defined in Section 2.2(a)(i) hereof.

“Term B Loan” is defined in Section 2.2(a)(ii) hereof.

“Term C Loan” is defined in Section 2.2(a)(iii) hereof.

“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 1.1. “Term Loan
Commitments” means the aggregate amount of such commitments of all Lenders.

“Third Draw Period” means the period commencing on the Effective Date and ending
on the earlier of (i) January 15, 2012 and (ii) the occurrence of an Event of
Default.

“Transfer” is defined in Section 7.1.

“Warrants” are those certain Warrants to Purchase Stock dated as of the
Effective Date executed by Borrower in favor of Lenders.

[Signature Page to Follow]

 

37

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

BORROWER:

ZALICUS INC.

By /s/ Mark H. N. Corrigan

Name:   Mark H. N. Corrigan

Title:   President and Chief Executive Officer

ZALICUS PHARMACEUTICALS LTD.

By /s/ Mark H. N. Corrigan

Name:   Mark H. N. Corrigan

Title:   President and Chief Executive Officer

COLLATERAL AGENT AND LENDER:

OXFORD FINANCE CORPORATION, as Collateral Agent and as a Lender

By /s/ John Hendersen

Name:   John Hendersen

Title:   Senior Vice President and General Counsel

 

 

 

[Signature Page to Loan and Security Agreement]

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

SCHEDULE 1.1

LENDERS AND COMMITMENTS

Term A Loans

Lender    Term Loan Commitment    Commitment Percentage

Oxford Finance Corporation

   $3,000,000    100.00%

TOTAL

   $3,000,000    100.00%

Term B Loans

Lender    Term Loan Commitment    Commitment Percentage

Oxford Finance Corporation

   $8,500,000    100.00%

TOTAL

   $8,500,000    100.00%

Term C Loans

Lender    Term Loan Commitment    Commitment Percentage

Oxford Finance Corporation

   $8,500,000    100.00%

TOTAL

   $8,500,000    100.00%

Aggregate (all Term Loans)

Lender    Term Loan Commitment    Commitment Percentage

Oxford Finance Corporation

   $20,000,000    100.00%

TOTAL

   $20,000,000    100.00%

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

EXHIBIT A

The Collateral consists of all of Borrower’s and/or Guarantor’s right, title and
interest in and to the following personal property:

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

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

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

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

EXHIBIT B

Loan Payment/Advance Request Form

DISBURSEMENT LETTER

The undersigned, being the duly elected and acting                          of
Zalicus Inc., a Delaware corporation with offices located at 245 First Street,
Third Floor, Cambridge, MA 02459 (“Borrower”), does hereby certify to OXFORD
FINANCE CORPORATION, (“Oxford” and “Lender”), as collateral agent (the
“Collateral Agent”) in connection with that certain Loan and Security Agreement
dated as of December __, 2010, by and between Borrower and Collateral Agent (the
“Loan Agreement”; with other capitalized terms used below having the meanings
ascribed thereto in the Loan Agreement) that:

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

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

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

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

5.         No Material Adverse Change has occurred.

6.         The undersigned is a Responsible Officer.

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

Disbursement from Collateral Agent:

            Loan Amount                                          
                $                

            Plus:

            --Deposit Received                                     ($
                )

            Less:

            --Lender’s Legal Fees                                 ($     
            )

            --Facility Fee                                 ($                 )

Net Proceeds due from Collateral Agent:         $                

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

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

 

Account Name:

             

Bank Name:

             

Bank Address:

             

Account Number:

             

ABA Number:

             

Dated:                                         

BORROWER:

ZALICUS INC.

By                                                               
                              

Name:                                                               
                        

Title:                                                                          
               

ZALICUS PHARMACEUTICALS LTD.

By                                                               
                              

Name:                                                               
                        

Title:                                                                          
               

AS COLLATERAL AGENT AND AS A LENDER:

OXFORD FINANCE CORPORATION

By                                                                          
                   

Name:                                                               
                        

Title:                                                                          
               

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

EXHIBIT C - COMPLIANCE CERTIFICATE

 

    

TO:

  

Oxford Finance

Corporation, as Collateral

Agent

                      

FROM:

  

Zalicus Inc./Zalicus Pharmaceuticals Ltd.

           

The undersigned authorized officer of Zalicus Inc. and Zalicus Pharmaceuticals
Ltd. (“Borrower”) hereby certifies that in accordance with the terms and
conditions of the Loan and Security Agreement dated as of December __, 2010,
among Borrower, Guarantor, Collateral Agent, and the Lenders (the “Agreement”),

  

(i) Borrower and Guarantor are in compliance for the period ending
_______________ with all required covenants except as noted below;

  

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

  

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

  

(iv) 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;

  

(v) 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 Collateral Agent

  

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

  

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

     

Reporting Covenant

 

  

Requirement

 

       

Complies

 

1)

  

Financial statements

  

Quarterly within 45 days

      Yes    No    N/A

2)

  

Annual (CPA Audited) statements

  

Within 120 days after Fiscal Year End

      Yes    No    N/A

3)

  

Annual Financial Budget

  

Annually (w/n 60days of FYE), and when revised

      Yes    No    N/A

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

 

4)

  

A/R & A/P agings

  

If applicable

      Yes    No    N/A

5)

  

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

  

If applicable

      Yes    No    N/A

6)

  

IP Report

  

when required

      Yes    No    N/A

7)

  

Total amount of Borrower’s

cash and cash equivalents

at the last day of the

measurement period

      $________         

8)

     

Month

   QTD    YTD      

9)

        

$___________

           

Deposit and Securities

Accounts

  

        (Please list all accounts; attach separate sheet if additional space
needed)

     

Bank

  

Account Number

  

New Account?

  

Acct Control

Agmt in place?

1)

         Yes    No    Yes    No

2)

         Yes    No    Yes    No

3)

         Yes    No    Yes    No

4)

         Yes    No    Yes    No

5)

         Yes    No    Yes    No

6)

         Yes    No    Yes    No

7)

                 

8)

                 

9)

                 

10)

                    

Other Matters

                 

Have there been any changes in any Key Person since the

last Compliance Certificate?

     

Yes

  

No

     

Have there been any transfers/sales/disposals/retirement of Collateral or IP

prohibited by the Agreement?

     

Yes

  

No

     

Have there been any new or pending claims or causes of action against

Borrower that involve more than $200,000?

     

Yes

  

No

  

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

 

  

Exceptions

        

Please explain any

       

exceptions with respect to

the certification above: (If

       

no exceptions exist, state

“No exceptions.” Attach

       

separate sheet if additional

                    

space needed.)

                                                            

LENDERS USE

ONLY

  

ZALICUS INC.

  

DATE

                       

By:                                                     

        

Received by:

   _______    Verified by:    _______       

Name:                                                

                          

Title:                                                   

        

Date:

      Date:                     _______       _______                

Compliance Status

   Yes    No

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

EXHIBIT D

SECURED PROMISSORY NOTE

 

$                                 

   Dated:                             , 2010

FOR VALUE RECEIVED, the undersigned, ZALICUS INC., a Delaware corporation with
offices located at 245 First Street, Third Floor, Cambridge, Massachusetts 02142
(“Zalicus”) and ZALICUS PHARMACEUTICALS LTD., a corporation organized under the
laws of British Columbia, Canada (“Zalicus-Canada”) (Zalicus and Zalicus-Canada
are referred to herein individually and collectively, jointly and severally,
solidarily, as “Borrower”)HEREBY PROMISES TO PAY to the order of OXFORD FINANCE
CORPORATION (“Lender”) the principal amount of [                    ] MILLION
DOLLARS [($                    )] or such lesser amount as shall equal the
outstanding principal balance of the Term Loan made to Borrower by Lender, plus
interest on the aggregate unpaid principal amount of Term Loan, at the rates and
in accordance with the terms of the Loan and Security Agreement dated as of
December __, 2010, by and among Borrower, Oxford Finance Corporation, as
Collateral Agent and as a Lender, and the Lenders from time to time party
thereto (as amended, restated, supplemented or otherwise modified from time to
time, the “Loan Agreement”). If not sooner paid, the entire principal amount and
all accrued and unpaid interest hereunder shall be due and payable on the
Maturity Date as set forth in the Loan Agreement. Any capitalized term not
otherwise defined herein shall have the meaning attributed to such term in the
Loan Agreement.

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

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

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

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

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

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

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

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

Note Register; Ownership of Note. The ownership of an interest in this Note
shall be registered on a record of ownership maintained by Lender or its agent.
Notwithstanding anything else in this Note to the contrary, the right to the
principal of, and stated interest on, this Note may be transferred only if the
transfer is registered on such record of ownership and the transferee is
identified as the owner of an interest in the obligation. Borrower shall be
entitled to treat the registered holder of this Note (as recorded on such record
of ownership) as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in this Note on
the part of any other person or entity.

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

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

 

BORROWER:

ZALICUS INC.

By

   

Name:

   

Title:

   

ZALICUS PHARMACEUTICALS LTD.

By

   

Name:

   

Title: