Exhibit 10.1

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated
as of July 30, 2014 (the “Effective Date”) between SILICON VALLEY BANK, a
California corporation (“Bank”), and FATE THERAPEUTICS, INC., a Delaware
corporation (“Borrower”), amends and restates in its entirety that certain Loan
and Security Agreement by and between Bank and Borrower dated as of January 5,
2009 (the “Original Agreement”) and provides the terms on which Bank shall lend
to Borrower and Borrower shall repay Bank.  The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following GAAP.  Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13.  All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

 

2                                         LOAN AND TERMS OF PAYMENT

 

2.1                               Promise to Pay.  Borrower hereby
unconditionally promises to pay Bank the outstanding principal amount of all
Credit Extensions and accrued and unpaid interest thereon as and when due in
accordance with this Agreement.

 

2.1.1                     Term Loans.

 

(a)                                 Availability.  Bank shall make a term loan
available to Borrower in an amount equal to Ten Million Dollars ($10,000,000)
(the “Term A Loan”) on the Effective Date subject to the satisfaction of the
terms and conditions of this Agreement.  A portion of the Term A Loan Amount
shall be used to repay Borrower’s existing Indebtedness to Bank.  During the
Term B Draw Period, Bank shall make up to two (2) additional term loans
available to Borrower in an aggregate amount up to Ten Million Dollars
($10,000,000) (each a “Term B Loan” and collectively, the “Term B Loans”, and
together with the Term A Loan, each a “Term Loan” and collectively, the “Term
Loans”), provided that the first Term B Loan shall be in amount equal to at
least Five Million Dollars ($5,000,000).

 

(b)                                 Repayment.  Borrower shall make monthly
payments of interest only on each Term Loan commencing on the first day of each
month following the month in which the Funding Date of such Term Loan occurs
through and including the first day of the twelfth (12th) month after the month
in which the Funding Date of such Term Loan occurs.  Beginning on the first day
of the thirteenth (13th) month after the month in which the Funding Date of such
Term Loan occurs (the “Amortization Date”), Borrower shall repay each Term Loan
in equal monthly installments of principal and interest based on a 30 month
amortization schedule (each, a “Term Loan Payment”).  Borrower’s final Term Loan
Payment, due on the Term Loan Maturity Date, shall include all outstanding
principal and accrued and unpaid interest under the Term Loan.  Once repaid, the
Term Loan may not be reborrowed.

 

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(c)                                  Prepayment.

 

                                                (i) Voluntary Prepayment.  So
long as an Event of Default has not occurred and is not continuing, Borrower
shall have the option to prepay all, but not less than all, of the Term Loans
advanced by Bank under this Agreement, provided Borrower (i) delivers written
notice to Bank of its election to prepay the Term Loans at least five (5)
Business Days prior to such prepayment and (ii) pays, on the date of such
prepayment, (a) all outstanding principal with respect to the Term Loans, plus
accrued but unpaid interest, (b) the Final Payment, (c) the Prepayment Fee, plus
(d) all other sums, including Bank Expenses, if any, that shall have become due
and payable hereunder.

 

                                                (ii) Mandatory Prepayment Upon
an Acceleration.  If the Term Loans are accelerated by Bank in accordance with
Section 9.1 following the occurrence and continuance of an Event of Default or
otherwise, Borrower shall immediately pay to Bank an amount equal to the sum of
(i) all outstanding principal with respect to the Term Loans, plus accrued but
unpaid interest thereon, (ii) the Final Payment with respect to the Term Loans,
(iii) the Prepayment Fee with respect to the Term Loans, plus (d) all other
sums, including Bank Expenses, if any, that shall have become due and payable
hereunder, including interest at the Default Rate with respect to any past due
amounts.

 

2.2                               Intentionally Omitted.

 

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
per annum rate equal to the Basic Rate, fixed on the Funding Date of each Term
Loan, which interest shall be payable monthly in arrears.

 

(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 four percentage points (4.0%) above
the rate that is otherwise applicable thereto (the “Default Rate”).  Fees and
expenses which are required to be paid by Borrower pursuant to the Loan
Documents (including, without limitation, Bank Expenses) but are not paid when
due shall bear interest until paid at a rate equal to the highest rate
applicable to the Obligations.  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 Bank.

 

(c)                                  Payment; Interest Computation.  Interest is
payable monthly in arrears on the first calendar day of each month and shall be
computed on the basis of a 360-day year for the actual number of days elapsed. 
In computing interest, (i) all payments received after 12:00 p.m. Pacific time
on any day shall be deemed received at the opening of business on the next
Business Day, and (ii) the date of the making of any Credit Extension shall be
included and the date of payment shall be excluded; provided, however, that if
any Credit Extension is repaid on the same day on which it is made, such day
shall be included in computing interest on such Credit Extension.

 

2.4                               Fees.  Borrower shall pay to Bank:

 

(a)                                 Commitment Fee.  A fully earned,
non-refundable commitment fee of Four Hundred Thousand Dollars ($400,000) on the
Effective Date;

 

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(b)                                 Original Final Payment.  The Final Payment
(as defined in the Original Agreement) on the Effective Date (but not the
Prepayment Fee (as defined in the Original Agreement), which has been waived by
Bank);

 

(c)                                  Final Payment.  The Final Payment, when due
hereunder;

 

(d)                                 Prepayment Fee.  The Prepayment Fee, when
due hereunder;

 

(e)                                  Unused Fee.  A fully earned, non-refundable
fee equal to one percent (1.00%) of the total unfunded amount of the Term B
Loans on December 31, 2014, if Borrower achieves the Term B Draw Event prior to
December 31, 2014 but does not request a Term B Loan; and

 

(f)                                   Bank Expenses.  All Bank Expenses
(including reasonable attorneys’ fees and expenses for documentation and
negotiation of this Agreement) incurred through and after the Effective Date,
when due (or, if no stated due date, upon demand by Bank).

 

(g)                                  Good Faith Deposit.  Borrower has paid to
Bank a good faith deposit of Twenty Five Thousand Dollars ($25,000.00) (the
“Good Faith Deposit”) to initiate Bank’s due diligence review process, which
Good Faith Deposit net of Bank Expenses will be applied to the above-described
commitment fee on the Effective Date.

 

(h)                                 Fees Fully Earned.  Unless otherwise
provided in this Agreement or in a separate writing by Bank, Borrower shall not
be entitled to any credit, rebate, or repayment of any fees earned by Bank
pursuant to this Agreement notwithstanding any termination of this Agreement or
the suspension or termination of Bank’s obligation to make loans and advances
hereunder.  Bank may deduct amounts owing by Borrower under the clauses of this
Section 2.4 pursuant to the terms of Section 2.5(c).  Bank shall provide
Borrower written notice of deductions made from the Designated Deposit Account
pursuant to the terms of the clauses of this Section 2.4.

 

2.5                               Payments; Application of Payments; Debit of
Accounts.

 

(a)                                 All payments to be made by Borrower under
any Loan Document shall be made in immediately available funds in Dollars,
without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when
due.  Payments of principal and/or interest received after 12:00 p.m. Pacific
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
shall be due the next Business Day, and additional fees or interest, as
applicable, shall continue to accrue until paid.

 

(b)                                 Bank has the exclusive right to determine
the order and manner in which all payments with respect to the Obligations may
be applied.  Borrower shall have no right to specify the order or the accounts
to which Bank shall allocate or apply any payments required to be made by
Borrower to Bank or otherwise received by Bank under this Agreement when any
such allocation or application is not specified elsewhere in this Agreement.

 

(c)                                  Bank may debit any of Borrower’s deposit
accounts, including the Designated Deposit Account, for principal and interest
payments or any other amounts Borrower owes Bank when due.  These debits shall
not constitute a set-off.

 

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2.6                               Withholding.  Payments received by Bank from
Borrower under this Agreement will be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority (including any interest, additions to tax or penalties
applicable thereto).  Specifically, however, if at any time any Governmental
Authority, applicable law, regulation or international agreement requires
Borrower to make any withholding or deduction from any such payment or other sum
payable hereunder to Bank, 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, Bank 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 Bank with proof
reasonably satisfactory to Bank 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.  Bank’s obligation to make the initial Credit Extension is subject to
the condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, such documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate, including, without
limitation:

 

(a)                                 duly executed original signatures to the
Loan Documents;

 

(b)                                 duly executed original signatures to the
Control Agreements;

 

(c)                                  the Operating Documents and long-form good
standing certificates of Borrower and its Subsidiaries certified by the
Secretary of State (or equivalent agency) of Borrower’s and such Subsidiaries’
jurisdiction of organization or formation and each jurisdiction in which
Borrower and each Subsidiary is qualified to conduct business, each as of a date
no earlier than thirty (30) days prior to the Effective Date;

 

(d)                                 duly executed original signatures to the
completed Borrowing Resolutions for Borrower;

 

(e)                                  certified copies, dated as of a recent
date, of financing statement searches, as Bank shall have requested, 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;

 

(f)                                   the Perfection Certificate of Borrower,
together with the duly executed original signature thereto;

 

(g)                                  a legal opinion of Borrower’s counsel dated
as of the Effective Date together with the duly executed original signature
thereto;

 

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(h)                                 evidence satisfactory to Bank that the
insurance policies required by Section 6.5 hereof are in full force and effect,
together with appropriate evidence showing lender loss payable and/or additional
insured clauses in favor of Bank;

 

(i)                                     payment of the fees and Bank Expenses
then due as specified in Section 2.4 hereof.

 

3.2                               Conditions Precedent to all Credit
Extensions.  Bank’s obligations to make each Credit Extension, including the
initial Credit Extension, is subject to the following conditions precedent:

 

(a)                                 except as otherwise provided in Section
3.5(a), timely receipt of an executed Payment/Advance Form;

 

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

 

(c)                                  in Bank’s reasonable discretion, there has
not been any material impairment in the general affairs, management, results of
operation, financial condition or the prospect of repayment of the Obligations
when due, nor has there been any material adverse deviation by Borrower from the
most recent business plan of Borrower presented to and accepted by Bank.

 

3.3                               Condition Precedent to Term B Loan.  Bank’s
obligations to make the Term B Loan is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, the
Warrant.

 

3.4                               Post-Closing Conditions.  (a) Within thirty
(30) days after the Effective Date, Bank shall have received, in form and
substance satisfactory to Bank, evidence of the dissolution of Destin; and (b)
Within thirty (30) days after the Effective Date, Borrower shall deliver to Bank
(i) a landlord’s consent in favor of Bank for 3535 General Atomics Court, Suite
200, San Diego, CA 92121 by the landlord thereof, together with the duly
executed original signatures thereto, (ii) a bailee’s waiver in favor of Bank
for each location where Borrower maintains with a third party property valued in
excess of One Hundred Thousand Dollars ($100,000) , by each such third party,
together with the duly executed original signatures thereto, and (iii) evidence
satisfactory to Bank that the insurance endorsements required by Section 6.5
hereof are in full force and effect.

 

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3.5                               Covenant to Deliver.  Except as otherwise
provided in Section 3.3 and 3.4, Borrower agrees to deliver to Bank each item
required to be delivered to Bank under this  Agreement as a condition precedent
to any Credit Extension.  Borrower expressly agrees that a Credit Extension made
prior to the receipt by Bank of any such item shall not constitute a waiver by
Bank of Borrower’s obligation to deliver such item, and the making of any Credit
Extension in the absence of a required item shall be in Bank’s sole discretion.

 

3.6                               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
Bank (which notice shall be irrevocable) by electronic mail, facsimile, or
telephone by 12:00 p.m. Pacific time on the Funding Date of the Term Loan. 
Together with any such electronic or facsimile notification, Borrower shall
deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form
executed by a Responsible Officer or his or her designee.  Bank may rely on any
telephone notice given by a person whom Bank reasonably believes is a
Responsible Officer or designee.  Bank shall credit Term Loans to the Designated
Deposit Account.  Bank may make Term Loans under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Term Loans are necessary to meet Obligations which have
become due.

 

4                                         CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security Interest.  Borrower hereby
grants Bank, to secure the payment and performance in full of all of the
Obligations, a continuing security interest in, and pledges to Bank, the
Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof. Borrower acknowledges that it
previously has entered, and/or may in the future enter, into Bank Services
Agreements with Bank.  Regardless of the terms of any Bank Services Agreement,
Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed
to be Obligations hereunder and that it is the intent of Borrower and Bank to
have all such Obligations secured by the first priority perfected security
interest in the Collateral granted herein (subject only to Permitted Liens that
are permitted pursuant to the terms of this Agreement to have superior priority
to Bank’s Lien in this Agreement).

 

If this Agreement is terminated, Bank’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 (other than
inchoate indemnity obligations) and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at the sole cost and expense of
Borrower, release its Liens in the Collateral and all rights therein shall
revert to Borrower.  In the event (x) all Obligations (other than inchoate
indemnity obligations), except for Bank Services, are satisfied in full, and (y)
this Agreement is terminated, Bank shall terminate the security interest granted
herein upon Borrower providing cash collateral acceptable to Bank in its good
faith business judgment for Borrower’s Obligations under Bank Services, if any. 
In the event such Bank Services consist of outstanding Letters of Credit,
Borrower shall provide to Bank cash collateral in an amount equal to (x) if such
Letters of Credit are denominated in Dollars, then at least one hundred five
percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign
Currency, then at least one hundred ten percent (110.0%), of the Dollar
Equivalent of the face amount of all such Letters of Credit plus all interest,
fees, and costs due or to become due in connection therewith (as estimated by
Bank in its business judgment), to secure all of the Obligations relating to
such Letters of Credit.

 

4.2                               Priority of Security Interest.  Borrower
represents, warrants, and covenants that the security interest granted herein is
and shall at all times continue to be a first priority perfected security
interest in the Collateral (subject only to Permitted Liens that are permitted
pursuant to the terms of this Agreement to have superior priority to Bank’s Lien
under this

 

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Agreement).  If Borrower shall acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the general details
thereof and grant to Bank 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 Bank.

 

4.3                               Authorization to File Financing Statements. 
Borrower hereby authorizes Bank to file financing statements, without notice to
Borrower, with all appropriate jurisdictions to perfect or protect Bank’s
interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate
the rights of Bank under the Code.  Such financing statements may indicate the
Collateral as “all assets of the Debtor” or words of similar effect, or as being
of an equal or lesser scope, or with greater detail, all in Bank’s discretion.

 

4.4                               Pledge of Collateral.  Borrower hereby
pledges, collaterally assigns and grants to Bank a security interest in all the
Shares, together with all proceeds and substitutions thereof, all cash, stock
and other moneys and property paid thereon, all rights to subscribe for
securities declared or granted in connection therewith, and all other cash and
noncash proceeds of the foregoing, as security for the performance of the
Obligations.  Within ninety (90) days after the Effective Date, or, to the
extent not certificated as of such date, within ten (10) days of the
certification of any Shares, the certificate or certificates for the Shares will
be delivered to Bank, accompanied by an instrument of assignment duly executed
in blank by Borrower.  To the extent required by the terms and conditions
governing the Shares, Borrower shall cause the books of each entity whose Shares
are part of the Collateral and any transfer agent to reflect the pledge of the
Shares.  Upon the occurrence and during the continuance of an Event of Default
hereunder, Bank may effect the transfer of any securities included in the
Collateral (including but not limited to the Shares) into the name of Bank and
cause new (as applicable) certificates representing such securities to be issued
in the name of Bank or its transferee.  Borrower will execute and deliver such
documents, and take or cause to be taken such actions, as Bank may reasonably
request to perfect or continue the perfection of Bank’s security interest in the
Shares.  Unless an Event of Default shall have occurred and be continuing,
Borrower shall be entitled to exercise any voting rights with respect to the
Shares and to give consents, waivers and ratifications in respect thereof,
provided that no vote shall be cast or consent, waiver or ratification given or
action taken which would be inconsistent with any of the terms of this Agreement
or which would constitute or create any violation of any of such terms.  All
such rights to vote and give consents, waivers and ratifications shall terminate
upon the occurrence and continuance of an Event of Default.

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1                               Due Organization, Authorization; Power and
Authority.  Borrower is duly existing and in good standing as a Registered
Organization in its jurisdiction of formation and is qualified and licensed to
do business and is in good standing in any jurisdiction in which the conduct of
its business or its ownership of property requires that it be qualified except
where the failure to do so could not reasonably be expected to have a material
adverse effect on Borrower’s business.  In connection with this Agreement,
Borrower has delivered to Bank a completed certificate signed by Borrower,
entitled “Perfection Certificate”.  Borrower represents and warrants to Bank
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

 

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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) Borrower (and each of its predecessors) has
not, in the past five (5) years, changed its jurisdiction of formation,
organizational structure or type, or any organizational number assigned by its
jurisdiction; and (f) all other information set forth on the Perfection
Certificate pertaining to Borrower and each of its Subsidiaries is accurate and
complete (it being understood and agreed that Borrower may from time to time
update certain information in the Perfection Certificate after the Effective
Date to the extent permitted by one or more specific provisions in this
Agreement).  If Borrower is not now a Registered Organization but later becomes
one, Borrower shall promptly notify Bank of such occurrence and provide Bank
with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law, (iii)
contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect or (v) constitute an event of default under any material
agreement by which Borrower is bound.  Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could have a material adverse effect on Borrower’s business.

 

5.2                               Collateral.  Borrower has good title to,
rights in, and the power to transfer each item of the Collateral upon which it
purports to grant a Lien hereunder, free and clear of any and all Liens except
Permitted Liens.  Borrower has no Collateral Accounts at or with any bank or
financial institution other than Bank or Bank’s Affiliates except for the
Collateral Accounts described in the Perfection Certificate delivered to Bank in
connection herewith and which Borrower has taken such actions as are necessary
to give Bank a perfected security interest therein, pursuant to the term of
Section 6.6(b).  The Accounts are bona fide, existing obligations of the Account
Debtors.

 

The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate.  Other
than mobile equipment in the possession of Borrower’s employees or agents in an
amount not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate,
none of the components of the Collateral shall be maintained at locations other
than as provided in the Perfection Certificate or as permitted pursuant to
Section 7.2.  In the event that Borrower, after the date hereof, intends to
store or otherwise deliver any portion of the Collateral to a bailee in excess
of One Hundred Thousand Dollars ($100,000), then Borrower will first receive the
written consent of Bank and such bailee must execute and deliver a bailee
agreement in form and substance satisfactory to Bank in its reasonable
discretion.

 

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

 

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Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business and licenses that could not result in a legal
transfer of title of the licensed property but that may be exclusive in respects
other than territory and that may be exclusive as to territory only as to
discrete geographical locations outside the United States, except as otherwise
approved by Bank in writing pursuant to Section 7.1 hereof, (b) over-the-counter
software that is commercially available to the public, and (c) material
Intellectual Property licensed to Borrower and noted on the Perfection
Certificate.  To Borrower’s knowledge, each Patent which it owns or purports to
own and which is material to Borrower’s business is valid and enforceable, and
no part of the Intellectual Property which Borrower owns or purports to own and
which is material to Borrower’s business has been judged invalid or
unenforceable, in whole or in part.  To Borrower’s knowledge, no claim has been
made that any part of the Intellectual Property violates the rights of any third
party except to the extent such claim would not reasonably be expected to have a
material adverse effect on Borrower’s business.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is it bound by, any Restricted License.

 

5.3                               Litigation.  There are no actions or
proceedings pending or, to the knowledge of any Responsible Officer, threatened
in writing by or against Borrower or any of its Subsidiaries could reasonably be
expected to result in damages or costs to Borrower or any of its Subsidiaries
of, individually or in the aggregate, Two Hundred Fifty Thousand Dollars
($250,000).

 

5.4                               No Material Deterioration in Financial
Statements.  All consolidated financial statements for Borrower and its
Subsidiaries delivered to Bank fairly present in all material respects
Borrower’s consolidated financial condition and Borrower’s consolidated results
of operations as of the date thereof.  There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank.

 

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

 

5.6                               Regulatory Compliance.  Borrower is not an
“investment company” or a company “controlled” by an “investment company” under
the Investment Company Act of 1940, as amended.  Borrower is not engaged as one
of its important activities in extending credit for margin stock (under
Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower (a)
has complied in all material respects with all Requirements of Law, and (b) has
not violated any Requirements of Law the violation of which could reasonably be
expected to have a material adverse effect on its business.  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
legally.  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 Government Authorities that are necessary to continue
their respective businesses as currently conducted.

 

5.7                               Subsidiaries; Investments.  Borrower does not
own any stock, partnership, or other ownership interest or other equity
securities except for Permitted Investments.

 

5.8                               Tax Returns and Payments; Pension
Contributions.  Borrower has timely filed all required tax returns and reports,
and Borrower has timely paid all foreign, federal, state and

 

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local taxes, assessments, deposits and contributions owed by Borrower except (a)
to the extent such taxes are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted, so long as such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor, or (b) if such taxes,
assessments, deposits and contributions do not, individually or in the
aggregate, exceed Ten Thousand Dollars ($10,000).

 

To the extent Borrower defers payment of any contested taxes, Borrower shall (i)
notify Bank in writing of the commencement of, and any material development in,
the proceedings, and (ii) post bonds or take any other steps required to prevent
the governmental authority levying such contested taxes from obtaining a Lien
upon any of the Collateral that is other than a “Permitted Lien.”  Borrower is
unaware of any claims or adjustments proposed for any of Borrower’s prior tax
years which could result in additional taxes becoming due and payable by
Borrower.  Borrower has paid all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their terms,
and Borrower has not withdrawn from participation in, and has not permitted
partial or complete termination of, or permitted the occurrence of any other
event with respect to, any such plan 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.

 

5.9                               Use of Proceeds.  Borrower shall use the
proceeds of the Credit Extensions solely as working capital and to fund its
general business requirements and not for personal, family, household or
agricultural purposes.

 

5.10                        Full Disclosure.  No written representation,
warranty or other statement of Borrower in any certificate or written statement
given to Bank in connection with the Loan Documents, as of the date such
representation, warranty, or other statement was made, taken together with all
such written certificates and written statements given to Bank in connection
with the Loan Documents, 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, in light of the circumstances in which they were
made, not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).

 

5.11                        Definition of “Knowledge.”  For purposes of the Loan
Documents, whenever a representation or warranty is made to Borrower’s knowledge
or awareness, to the “best of” Borrower’s knowledge, or with a similar
qualification, knowledge or awareness means the actual knowledge, after
reasonable investigation, of any Responsible Officer.

 

5.12                        Shares.  Borrower has full power and authority to
create a first lien on the Shares and no disability or contractual obligation
exists that would prohibit Borrower from pledging the Shares pursuant to this
Agreement.  To Borrower’s knowledge, there are no subscriptions, warrants,
rights of first refusal or other restrictions on transfer relative to, or
options exercisable with respect to the Shares.  The Shares have been and will
be duly authorized and validly issued, and are fully paid and non-assessable. 
To Borrower’s knowledge, the Shares are not the subject of any present or
threatened suit, action, arbitration, administrative or other proceeding, and
Borrower knows of no reasonable grounds for the institution of any such
proceedings.

 

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6                                         AFFIRMATIVE COVENANTS

 

Borrower shall 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 formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a material adverse effect on Borrower’s business or operations.  Borrower
shall comply, and have each Subsidiary comply, in all material respects, with
all laws, ordinances and regulations to which it is subject.

 

(b)                                 Obtain all of the Governmental Approvals
necessary for the performance by Borrower of its obligations under the Loan
Documents to which it is a party and the grant of a security interest to Bank in
all of its property.  Borrower shall promptly provide copies of any such
obtained Governmental Approvals to Bank.

 

6.2                               Financial Statements, Reports, Certificates. 
Provide Bank with the following:

 

(a)                                 Quarterly Financial Statements.  Subject to
subsection (f) below, within five (5) days of filing with the SEC, a company
prepared consolidated balance sheet and income statement covering Borrower’s
consolidated operations for such quarter certified by a Responsible Officer and
in a form acceptable to Bank (the “Quarterly Financial Statements”);

 

(b)                                 Quarterly Compliance Certificate.  Together
with the Quarterly Financial Statements, a duly completed Compliance Certificate
signed by a Responsible Officer, certifying that as of the end of such quarter,
Borrower was in full compliance with all of the terms and conditions of this
Agreement, and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Bank may
reasonably request;

 

(c)                                  Annual Operating Budget and Financial
Projections.  Within the earlier of (X) seven (7) days after approval by
Borrower’s board of directors and (Y) sixty (60) days after the end of each
fiscal year of Borrower, (i) annual operating budgets (including income
statements, balance sheets and cash flow statements, by month) for the upcoming
fiscal year of Borrower, and (ii) annual financial projections for the following
fiscal year (on a quarterly basis) as approved by Borrower’s board of directors,
together with any related business forecasts used in the preparation of such
annual financial projections;

 

(d)                                 Annual Audited Financial Statements. 
Subject to subsection (f) below, within five (5) days of filing with the SEC,
but no later than one hundred eighty (180) days after the last day of Borrower’s
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from Ernest & Young LLP or another independent certified public
accounting firm acceptable to Bank in its reasonable discretion;

 

(e)                                  Other Statements.  Within five (5) days of
delivery, copies of all statements, reports and notices made available to
Borrower’s security holders or to any holders of Subordinated Debt;

 

(f)                                   SEC Filings.  Within five (5) days of
filing, copies of all periodic and other reports, proxy statements and other
materials filed by Borrower with the SEC, any Governmental Authority succeeding
to any or all of the functions of the SEC or with any

 

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national securities exchange, or distributed to its shareholders, as the case
may be.  Documents required to be delivered pursuant to the terms hereof (to the
extent any such documents are included in materials otherwise filed with the
SEC) may be delivered electronically and if so delivered, shall be deemed to
have been delivered on the date on which Borrower posts such documents, or
provides a link thereto, on Borrower’s website on the Internet at Borrower’s
website address;

 

(g)                                  Legal Action Notice.  A prompt report of
any legal actions pending or threatened in writing against Borrower or any of
its Subsidiaries that could reasonably be expected to result in damages or costs
to Borrower or any of its Subsidiaries of, individually or in the aggregate, Two
Hundred Fifty Thousand Dollars ($250,000) or more; and

 

(h)                                 Other Financial Information.  Other
financial information reasonably requested by Bank.

 

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

 

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 pay, all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for deferred payment of any taxes
contested pursuant to the terms of Section 5.8 hereof, and shall deliver to
Bank, 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.

 

(a)                                 Keep its business and the Collateral insured
for risks and in amounts standard for companies in Borrower’s industry and
location and as Bank may reasonably request.  Insurance policies shall be in a
form, with companies and in amounts that are satisfactory to Bank, it being
agreed that the insurance maintained by Borrower as of the Effective Date is
satisfactory to Bank as of the Effective Date.  All property policies shall have
a loss payable endorsement showing Bank as lender loss payee and waive
subrogation against Bank, and all liability policies shall show, or have
endorsements showing, Bank as an additional insured.

 

(b)                                 All policies (or the loss payable and
additional insured endorsements) shall provide that the insurer shall endeavor
to, and that the Borrower must, give Bank at least twenty (20) days’ notice
before canceling, amending, or declining to renew its policy.  At Bank’s
request, Borrower shall deliver certified copies of policies and evidence of all
premium payments.  Proceeds payable under any policy shall, at Bank’s option, be
payable to Bank 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 Two
Hundred Fifty Thousand Dollars ($250,000) with respect to any loss, but not
exceeding Two Hundred Fifty Thousand Dollars ($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

 

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Bank 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 Bank, be payable to
Bank on account of the Obligations.

 

(c)                                  At Bank’s request, Borrower shall deliver
certified copies of insurance policies and evidence of all premium payments. 
Each provider of any such insurance required under this Section 6.5 shall agree,
by endorsement upon the policy or policies issued by it or by independent
instruments furnished to Bank, that it will , and that Borrower will, give Bank
thirty (30) days prior written notice before any such policy or policies shall
be materially altered or canceled.  If Borrower fails to obtain insurance as
required under this Section 6.5 or to pay any amount or furnish any required
proof of payment to third persons and Bank, Bank 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 Bank deems prudent.

 

6.6                               Operating Accounts.

 

(a)                         Maintain its primary and its Subsidiaries’ and
parent’s (i) primary operating and other deposit accounts with Bank, and
(ii) securities accounts with Bank and Bank’s Affiliates, which accounts shall
represent (x) in the event Borrower’s aggregate Cash and Cash Equivalents total
less than $60 million, at least eighty five percent (85%) of the aggregate
dollar value of Borrower’s and such Subsidiaries’ accounts at all financial
institutions or (x) in the event Borrower’s aggregate Cash and Cash Equivalents
total $60 million or more, at least sixty percent (60%) of the aggregate dollar
value of Borrower’s and such Subsidiaries’ accounts at all financial
institutions. Any Guarantor shall maintain all depository, operating and
securities accounts with Bank, or SVB Securities.

 

(b)                                 Provide Bank five (5) days prior written
notice before establishing any Collateral Account at or with any bank or
financial institution other than Bank or Bank’s Affiliates.  For each Collateral
Account that Borrower at any time maintains, Borrower shall cause the applicable
bank or financial institution (other than Bank) at or with which any Collateral
Account is maintained to execute and deliver a Control Agreement or other
appropriate instrument with respect to such Collateral Account to perfect Bank’s
Lien in such Collateral Account in accordance with the terms hereunder, which
Control Agreement may not be terminated without the prior written consent of
Bank.  The provisions of the previous sentence shall not apply to deposit
accounts exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of Borrower’s employees and identified to
Bank by Borrower as such.

 

6.7                               Intentionally Omitted.

 

6.8                               Protection of Intellectual Property Rights.

 

(a)                                 Borrower shall use commercially reasonable
efforts to (i) protect, defend and maintain the validity and enforceability of
its Intellectual Property; (ii) promptly advise Bank in writing of material
infringements or any other event that could reasonably be expected to materially
and adversely affect the value of its Intellectual Property; and (iii) not allow
any Intellectual Property material to Borrower’s business to be abandoned,
forfeited or dedicated to the public without Bank’s written consent.

 

(b)                                 Provide written notice to Bank within ten
(10) days of entering or becoming bound by any Restricted License (other than
over-the-counter software that is commercially available to the public).

 

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

 

6.10                        Access to Collateral; Books and Records.  Allow
Bank, or its agents, at reasonable times during regular business hours, on five
(5) Business Days’ notice (provided no notice is required if an Event of Default
has occurred and is continuing), to inspect the Collateral and audit and copy
Borrower’s Books.  Such inspections or audits shall be conducted no more often
than once every twelve (12) months unless an Event of Default has occurred and
is continuing in which case such inspections and audits shall occur as often as
Bank shall determine is necessary.  The foregoing inspections and audits shall
be at Borrower’s expense, and the charge therefor shall be Eight Hundred Fifty
($850) per person per day (or such higher amount as shall represent Bank’s
then-current standard charge for the same), plus reasonable out-of-pocket
expenses.  In the event Borrower and Bank schedule an audit more than ten
(10) days in advance, and Borrower cancels or seeks to reschedule the audit with
less than ten (10) days written notice to Bank, then (without limiting any of
Bank’s rights or remedies), Borrower shall pay Bank a fee of One Thousand
Dollars ($1,000) plus any out-of-pocket expenses incurred by Bank to compensate
Bank for the anticipated costs and expenses of the cancellation or rescheduling.

 

6.11                        Formation or Acquisition of Subsidiaries. 
Notwithstanding and without limiting the negative covenants contained in
Sections 7.3 and 7.7 hereof, at the time that Borrower forms any direct or
indirect Subsidiary or acquires any direct or indirect Subsidiary after the
Effective Date, Borrower shall (a) cause each such new domestic Subsidiary to
provide to Bank a joinder to the Loan Agreement to cause such domestic
Subsidiary to become a co-borrower hereunder, together with such appropriate
financing statements and/or Control Agreements, all in form and substance
satisfactory to Bank (including being sufficient to grant Bank a first priority
Lien (subject to Permitted Liens) in and to the assets of such newly formed or
acquired domestic Subsidiary), (b) provide to Bank appropriate certificates and
powers and financing statements, pledging (i) all of the direct or beneficial
ownership interest in each such new domestic Subsidiary or (ii) 65% of the
ownership interest in each such new foreign Subsidiary, in form and substance
satisfactory to Bank, and (c) provide to Bank all other documentation in form
and substance satisfactory to Bank, including one or more opinions of counsel
satisfactory to Bank, which in its opinion is appropriate with respect to the
execution and delivery of the applicable documentation referred to above.  Any
document, agreement, or instrument executed or issued pursuant to this
Section 6.11 shall be a Loan Document.

 

6.12                        Further Assurances.  Execute any further instruments
and take further action as Bank reasonably requests to perfect or continue
Bank’s Lien in the Collateral or to effect the purposes of this Agreement.

 

7                                         NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

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 that is, in the reasonable judgment of
Borrower, no longer economically practicable to maintain or useful in the
ordinary course of business of

 

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Borrower; (c) in connection with Permitted Liens and Permitted Investments;
(d) consisting of the sale or issuance of any stock of Borrower permitted under
Section 7.2 of this Agreement; (e) consisting of Borrower’s use or transfer of
money or Cash Equivalents in a manner that is not prohibited by the terms of
this Agreement or the other Loan Documents; and (f) of non-exclusive licenses
for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business and licenses that could not result in a legal transfer of
title of the licensed property but that may be exclusive in respects other than
territory and that may be exclusive as to territory only as to discrete
geographical areas outside of the United States, unless otherwise approved by
Bank in writing to be determined by Bank in its reasonable discretion within
fifteen (15) Business Days of request by Borrower therefor.

 

7.2                               Changes in Business, Management, Ownership, or
Business Locations.  (a) Engage in or permit any of its Subsidiaries to engage
in any business other than the businesses currently engaged in by Borrower and
such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or
dissolve; or (c) (i) if any Key Person ceases to hold such office with Borrower
and replacements satisfactory to Board and Bank are not made within thirty (30)
days after such Key Person’s departure from Borrower, or (ii) enter into any
transaction or series of related transactions in which the stockholders of
Borrower who were not stockholders immediately prior to the first such
transaction own more than forty percent (40%) of the voting stock of Borrower
immediately after giving effect to such transaction or related series of such
transactions (other than by the sale of Borrower’s equity securities in a public
offering or to institutional or strategic investors so long as Borrower
identifies to Bank the investors prior to the closing of the transaction).

 

Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless each such new office or business location contains less than One Hundred
Thousand Dollars ($100,000) in Borrower’s assets or property) or deliver any
portion of the Collateral valued, individually or in the aggregate, in excess of
One Hundred Thousand Dollars ($100,000) to a bailee at a location other than to
a bailee and at a location already disclosed in the Perfection Certificate,
(2) change its jurisdiction of organization, (3) change its organizational
structure or type, (4) change its legal name, or (5) change any organizational
number (if any) assigned by its jurisdiction of organization.  If Borrower
intends to deliver any portion of the Collateral valued, individually or in the
aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee, and
Bank and such bailee are not already parties to a bailee agreement governing
both the Collateral and the location to which Borrower intends to deliver the
Collateral, then Borrower will first receive the written consent of Bank, and
such bailee shall execute and deliver a bailee agreement in form and substance
satisfactory to Bank.

 

7.3                               Mergers or Acquisitions.  Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with any
other Person, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.  A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

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, permit any Collateral not to be subject to
the first priority security interest granted herein, or enter into any
agreement, document,

 

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instrument or other arrangement (except with or in favor of Bank) with any
Person which directly or indirectly prohibits or has the effect of prohibiting
Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a
security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s Intellectual Property, except as is otherwise permitted in
Section 7.1 hereof and the definition of “Permitted Liens” herein.

 

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

 

7.7                               Distributions; Investments.  (a) Pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock provided that (i) Borrower may convert any of its convertible
securities into other securities pursuant to the terms of such convertible
securities or otherwise in exchange thereof; provided no cash payments are made
in connection therewith, (ii) Borrower may pay dividends solely in common stock;
and (iii) Borrower may repurchase the stock of former employees or consultants
pursuant to stock repurchase agreements so long as an Event of Default does not
exist at the time of such repurchase and would not exist after giving effect to
such repurchase, provided that the aggregate amount of all such repurchases does
not exceed One Hundred Thousand Dollars ($100,000) 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, except for transactions that are in the ordinary course
of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction with
a non-affiliated Person.

 

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

 

7.10                        Compliance.  Become an “investment company” or a
company controlled by an “investment company”, under the Investment Company Act
of 1940, as amended, or undertake as one of its important activities extending
credit to purchase or carry margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System), or use the proceeds of any
Credit Extension for that purpose; fail to meet the minimum funding requirements
of ERISA; permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the violation could reasonably be
expected to 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.

 

8                                         EVENTS OF DEFAULT

 

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

 

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

 

8.2                               Covenant Default.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4,
6.5, 6.6, 6.8(b), 6.10, 6.11, 6.12 or violates any covenant in Section 7; or

 

(b) Borrower 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).  Cure periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in clause (a) above;

 

8.3                               Material Adverse Change.  A Material Adverse
Change occurs;

 

8.4                               Attachment; Levy; Restraint on Business.

 

(a) (i) The service of process seeking to attach, by trustee or similar process,
any funds of Borrower or of any entity under the control of Borrower (including
a Subsidiary), or (ii) a notice of lien, levy, or assessment is filed against
any of Borrower’s assets by any Governmental Authority, 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; or

 

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

 

8.5                               Insolvency.  (a) Borrower or any of its
Subsidiaries is unable to pay its debts (including trade debts) as they become
due or otherwise becomes insolvent; (b) Borrower or any of its Subsidiaries
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower or any of its Subsidiaries and is 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, under any
agreement to which Borrower or any Guarantor is a party with a third party or
parties, (a) any default resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness in an

 

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amount individually or in the aggregate in excess of Two Hundred Fifty Thousand
Dollars ($250,000); or (b) any breach or default by Borrower or Guarantor, the
result of which could have a material adverse effect on Borrower’s or any
Guarantor’s business;

 

8.7                               Judgments; Penalties.  One or more fines,
penalties or final judgments, orders or decrees for the payment of money in an
amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand
Dollars ($250,000) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower by any Governmental Authority, and the same are not, within ten
(10) days after the entry, assessment or issuance thereof, discharged,
satisfied, or paid, or after execution thereof, stayed or bonded pending appeal,
or such judgments are not discharged prior to the expiration of any such stay
(provided that no Credit Extensions will be made prior to the satisfaction,
payment, discharge, stay, or bonding of such fine, penalty, 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
Bank or to induce Bank 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 Bank, or any
creditor that has signed such an agreement with Bank breaches any terms of such
agreement;

 

8.10                        Governmental Approvals.  Any Governmental Approval
shall have been (a) revoked, rescinded, suspended, modified in an adverse manner
or not renewed in the ordinary course for a full term or (b) subject to any
decision by a Governmental Authority that designates a hearing with respect to
any applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal cause, or could reasonably be expected to cause, a
Material Adverse Change.

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               Rights and Remedies.  Upon the occurrence and
during the continuance of an Event of Default, Bank may, without notice or
demand, do any or all of the following:

 

(a)                                 declare all Obligations immediately due and
payable (but if an Event of Default described in Section 8.5 occurs all
Obligations are immediately due and payable without any action by Bank);

 

(b)                                 stop advancing money or extending credit for
Borrower’s benefit under this Agreement or under any other agreement between
Borrower and Bank;

 

(c)                                  demand that Borrower (i) deposit cash with
Bank in an amount equal to at least one hundred ten percent (110%) of the Dollar
Equivalent of the aggregate face amount of all Letters of Credit remaining
undrawn (plus all interest, fees, and costs due or to become due in connection
therewith (as estimated by Bank in its good faith business judgment)), to secure
all of the Obligations relating to such Letters of Credit, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all letter of credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;

 

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(d)                                 terminate any FX Contracts;

 

(e)                                  verify the amount of, demand payment of and
performance under, and collect any Accounts and General Intangibles, settle or
adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, and notify any Person owing
Borrower money of Bank’s security interest in such funds;

 

(f)                                   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 Bank
requests and make it available as Bank designates at any location that is
reasonably convenient to Bank and Borrower.  Bank may enter premises where the
Collateral is located, take and maintain possession of any part of the
Collateral, and pay, purchase, contest, or compromise any Lien which appears to
be prior or superior to its security interest and pay all expenses incurred.
Borrower grants Bank a license to enter and occupy any of its premises, without
charge by Borrower, to exercise any of Bank’s rights or remedies;

 

(g)                                  apply to the Obligations then due any
(i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank
owing to or for the credit or the account of Borrower;

 

(h)                                 ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell the
Collateral.  Bank 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, 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 Bank’s exercise of its rights under this Section, Borrower’s
rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

(i)                                     place a “hold” on any account maintained
with Bank 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;

 

(j)                                    demand and receive possession of
Borrower’s Books; and

 

(k)                                 exercise all rights and remedies available
to Bank under the Loan Documents or at law or equity, including all remedies
provided under the Code (including disposal of the Collateral pursuant to the
terms thereof).

 

9.2                               Power of Attorney.  Borrower hereby
irrevocably appoints Bank 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 Bank 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 Bank or a third party as the Code
permits.  Borrower hereby appoints

 

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Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents
necessary to perfect or continue the perfection of Bank’s security interest in
the Collateral regardless of whether an Event of Default has occurred until all
Obligations (other than inchoate indemnify obligations) have been satisfied in
full and Bank is under no further obligation to make Credit Extensions
hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all
of Bank’s rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank’s 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 or which may be required to
preserve the Collateral, Bank may obtain such insurance or make such payment,
and all amounts so paid by Bank are Bank Expenses and immediately due and
payable, bearing interest at the then highest rate applicable to the
Obligations, and secured by the Collateral.  Bank will make reasonable efforts
to provide Borrower with notice of Bank obtaining such insurance at the time it
is obtained or within a reasonable time thereafter.  No payments by Bank are
deemed an agreement to make similar payments in the future or Bank’s waiver of
any Event of Default.

 

9.4                               Application of Payments and Proceeds Upon
Default.  If an Event of Default has occurred and is continuing, Bank shall have
the right to apply in any order any funds in its possession, whether from
Borrower account balances, payments, proceeds realized as the result of any
collection of Accounts or other disposition of the Collateral, or otherwise, to
the Obligations.  Bank shall pay any surplus to Borrower by credit to the
Designated Deposit Account or to other Persons legally entitled thereto;
Borrower shall remain liable to Bank for any deficiency.  If Bank, directly or
indirectly, enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Bank shall have the option, exercisable at
any time, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Bank of cash therefor.

 

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

 

9.7                               Demand Waiver.  Borrower waives demand, notice
of default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees held by Bank
on which Borrower is liable.

 

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10                                  NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by
any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the
earlier of actual receipt and three (3) Business Days after deposit in the U.S.
mail, first class, registered or certified mail return receipt requested, with
proper postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below.  Bank 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:                                                              
Fate Therapeutics, Inc.
3535 General Atomics Court, Suite 200
San Diego, CA 92121
Attn:  Scott Wolchko
Fax:  (858) 875-1843
Email: scott.wolchko@fatetherapeutics.com
Website URL:   www.fatetherapeutics.com

 

If to
Bank:                                                                                  
Silicon Valley Bank
4370 La Jolla Village Drive, Suite 1050
San Diego, CA 92122
Attn: Anthony Flores
Email: aflores@svb.com

 

11                                  CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, AND
JUDICIAL REFERENCE

 

California law governs the Loan Documents without regard to principles of
conflicts of law.  Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank.  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, or subsequently provided by Borrower in accordance with, Section 10 of this
Agreement and that service so made shall be deemed completed upon the earlier to
occur of Borrower’s actual receipt thereof or three (3) days after deposit in
the U.S. mails, proper postage prepaid.

 

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

 

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

 

This Section 11 shall survive the termination of this Agreement.

 

12                                  GENERAL PROVISIONS

 

12.1                        Termination Prior to Term Loan Maturity Date;
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) have been
satisfied.  So long as Borrower has satisfied the Obligations (other than
inchoate indemnity obligations, and any other obligations which, by their terms,
are to survive the termination of this Agreement, and any Obligations under Bank
Services Agreements that are cash collateralized in accordance with Section 4.1
of this Agreement), this Agreement may be terminated prior to the Term Loan
Maturity Date by Borrower, effective three (3) Business Days after written
notice of termination is given to Bank.  Those obligations that are expressly
specified in this Agreement as surviving this Agreement’s termination shall
continue to survive notwithstanding this Agreement’s termination.

 

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12.2                        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
Bank’s prior written consent (which may be granted or withheld in Bank’s
discretion).  Bank has 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 “Bank
Transfer”) all or any part of, or any interest in, Bank’s obligations, rights,
and benefits under this Agreement and the other Loan Documents (other than the
Warrant, as to which assignment, transfer and other such actions are governed by
the terms thereof).  Notwithstanding anything to the contrary contained herein,
so long as no Event of Default has occurred and is continuing, no Bank Transfer
(other than a Bank Transfer in connection with (x) assignments by Bank due to a
forced divestiture at the request of any regulatory agency, or (y) upon the
occurrence of a default, event of default or similar occurrence with respect to
Bank’s own financing or securitization transactions) shall be permitted to a
direct competitor of Borrower or a vulture fund, in each case as reasonably
determined by Bank, without Borrower’s consent.

 

12.3                        Indemnification.  Borrower agrees to indemnify,
defend and hold Bank and its directors, officers, employees, agents, attorneys,
or any other Person affiliated with or representing Bank (each, an “Indemnified
Person”) harmless against:  (i) all obligations, demands, claims, and
liabilities (collectively, “Claims”) claimed or asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and
(ii) all losses or expenses (including Bank Expenses) in any way suffered,
incurred, or paid by such Indemnified Person as a result of, following from,
consequential to, or arising from transactions between Bank 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.

 

This Section 12.3 shall survive until all statutes of limitation with respect to
the Claims, losses, and expenses for which indemnity is given shall have run.

 

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

 

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

 

12.6                        Correction of Loan Documents.  Bank may correct
patent errors and fill in any blanks in this Agreement and the other Loan
Documents consistent with the agreement of the parties.

 

12.7                        Amendments in Writing; Waiver; Integration.  No
purported amendment or modification of any Loan Document, or waiver, discharge
or termination of any obligation under any Loan Document, shall be enforceable
or admissible unless, and only to the extent, expressly set forth in a writing
signed by the party against which enforcement or admission is sought.  Without
limiting the generality of the foregoing, no oral promise or statement, nor any
action, inaction, delay, failure to require performance or course of conduct
shall operate as, or evidence, an amendment, supplement or waiver or have any
other effect on any Loan Document.  Any waiver granted shall be limited to the
specific circumstance expressly described in it, and shall

 

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not apply to any subsequent or other circumstance, whether similar or
dissimilar, or give rise to, or evidence, any obligation or commitment to grant
any further waiver.  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 the Loan Documents merge into
the Loan Documents.

 

12.8                        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.

 

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

 

Bank Entities may use anonymous forms of confidential information for aggregate
datasets, for analyses or reporting, and for any other uses not expressly
prohibited in writing by Borrower.  The provisions of the immediately preceding
sentence shall survive termination of this Agreement.

 

12.10                 Attorneys’ Fees, Costs and Expenses.  In any action or
proceeding between Borrower and Bank arising out of or relating to the Loan
Documents, the prevailing party shall be entitled to recover its reasonable
attorneys’ fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.

 

12.11                 Electronic Execution of Documents.  The words “execution,”
“signed,” “signature” and words of like import in any Loan Document shall be
deemed to include electronic signatures or the keeping of records in electronic
form, each of which shall be of the same legal effect, validity and
enforceability as a manually executed signature or the use of a paper-based
recordkeeping systems, as the case may be, to the extent and as provided for in
any applicable law, including, without limitation, any state law based on the
Uniform Electronic Transactions Act.

 

12.12                 Captions.  The headings used in this Agreement are for
convenience only and shall not affect the interpretation of this Agreement.

 

12.13                 Construction of Agreement.  The parties mutually
acknowledge that they and their attorneys have participated in the preparation
and negotiation of this Agreement.  In cases of uncertainty this Agreement shall
be construed without regard to which of the parties caused the uncertainty to
exist.

 

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12.14                 Relationship.  The relationship of the parties to this
Agreement is determined solely by the provisions of this Agreement.  The parties
do not intend to create any agency, partnership, joint venture, trust, fiduciary
or other relationship with duties or incidents different from those of parties
to an arm’s-length contract.

 

12.15                 Third Parties.  Nothing in this Agreement, whether express
or implied, is intended to: (a) confer any benefits, rights or remedies under or
by reason of this Agreement on any persons other than the express parties to it
and their respective permitted successors and assigns; (b) relieve or discharge
the obligation or liability of any person not an express party to this
Agreement; or (c) give any person not an express party to this Agreement any
right of subrogation or action against any party to this Agreement.

 

12.16                 Effect of Amendment and Restatement.  Except as otherwise
set forth herein, this Agreement is intended to and does completely amend and
restate, without novation, the Original Agreement. All security interests
granted under the Original Agreement are hereby confirmed and ratified and shall
continue to secure all Obligations under this Agreement.

 

13                                  DEFINITIONS

 

13.1                        Definitions.  As used in the Loan Documents, the
word “shall” is mandatory, the word “may” is permissive, the word “or” is not
exclusive, the words “includes” and “including” are not limiting, the singular
includes the plural, and numbers denoting amounts that are set off in brackets
are negative.  As used in this Agreement, the following capitalized terms have
the following meanings:

 

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

 

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

 

“Affiliate” is, with respect to any Person, each other 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 defined in Section 2.1.1(b).

 

“Authorized Signer” is any individual listed in Borrower’s Borrowing Resolution
who is authorized to execute the Loan Documents on behalf of Borrower.

 

“Bank” is defined in the preamble hereof.

 

“Bank Entities” is defined in Section 12.9.

 

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“Bank Expenses” are all documented audit fees and expenses, costs, and expenses
(including reasonable documented attorneys’ fees and expenses) 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 with respect to Borrower.

 

“Bank Services”  are any products, credit services, and/or financial
accommodations previously, now, or hereafter provided to Borrower or any of its
Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any
letters of credit, cash management services (including, without limitation,
merchant services, direct deposit of payroll, business credit cards, and check
cashing services), interest rate swap arrangements, and foreign exchange
services as any such products or services may be identified in Bank’s various
agreements related thereto (each, a “Bank Services Agreement”).

 

“Basic Rate” is the per annum rate of interest (based on a year of 360 days)
equal to the greater of (i) six and three quarters of one percent (6.75%) and
(ii) the sum of (a) U.S. Treasury note yield to maturity for a term equal to the
Treasury Note Maturity as reported in the Federal Reserve Statistical Release
H.15-Selected Interest Rates under the heading “U.S. Government
Securities/Treasury Constant Maturities” on the Funding Date, plus (b) the Loan
Margin; provided, however, in no event shall the Basic Rate be greater than
seven and one half percent (7.50%) (In the event Release H.15 is no longer
published, Bank shall select a comparable publication to determine the U.S.
Treasury note yield to maturity.)

 

“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.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
substantially in the form attached hereto as Exhibit D.

 

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

 

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than 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.; (c) certificates of deposit issued
maturing no more than one (1) year after issue; and (d) money market funds at
least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Claims” is defined in Section 12.3.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of California; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory

 

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provisions of law, any or all of the attachment, perfection, or priority of, or
remedies with respect to, Bank’s Lien on any Collateral is governed by the
Uniform Commercial Code in effect in a jurisdiction other than the State of
California, the term “Code” shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes of the provisions
thereof relating to such attachment, perfection, priority, or remedies and for
purposes of definitions relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

 

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

 

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

 

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

 

“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, in each
case, 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 maintains a Deposit Account or the
securities intermediary or commodity intermediary at which Borrower maintains a
Securities Account or a Commodity Account, (b) Borrower, and (c) Bank, pursuant
to which Bank obtains control (within the meaning of the Code) over such Deposit
Account, Securities Account, or Commodity Account.

 

“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret.

 

“Credit Extension” is any Term Loan or any other extension of credit by Bank 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.

 

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“Designated Deposit Account” is the multicurrency account denominated in
Dollars, account number XXXXXX6449, maintained by Borrower with Bank.

 

“Destin” is Destin Therapeutics, Inc., a corporation existing under the Canada
Business Corporations Act.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

 

“Effective Date” is defined in the preamble hereof.

 

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

 

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

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Fate Canada” is Fate Therapeutics (Canada) Inc., a corporation existing under
the Canada Business Corporations Act, and a Subsidiary of Borrower.

 

“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 Term Loan Maturity Date, or (b) the acceleration of any Term
Loan by Bank pursuant to Section 9.1, or (c) the prepayment of a Term Loan
pursuant to Section 2.1.1(c), equal to the original principal amount of such
Term Loan multiplied by the Final Payment Percentage.

 

“Final Payment Percentage” is seven and one half percent (7.50%).

 

“Foreign Currency” means lawful money of a country other than the United States.

 

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

 

“FX Contract” is any foreign exchange contract by and between Borrower and Bank
under which Borrower commits to purchase from or sell to Bank a specific amount
of Foreign Currency on a specified date.

 

“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, which are
applicable to the circumstances as of the date of determination.

 

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“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, options to purchase or sell real or personal property, rights
in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

 

“Governmental Approval” 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 Person providing a Guaranty in favor of Bank.

 

“Guaranty” is any guarantee of all or any part of the Obligations, as the same
may from time to time be amended, restated, modified or otherwise supplemented.

 

“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 12.3.

 

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

 

“Intellectual Property” means, with respect to any Person, means all of such
Person’s right, title, and interest in and to the following:

 

(a)                                 its Copyrights, Trademarks and Patents;

 

(b)                                 any and all trade secrets and trade secret
rights, including, without limitation, any rights to unpatented inventions,
know-how, operating manuals;

 

(c)                                  any and all source code;

 

(d)                                 any and all design rights which may be
available to such Person;

 

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(e)                                  any and all claims for damages by way of
past, present and future infringement of any of the foregoing, with the right,
but not the obligation, to sue for and collect such damages for said use or
infringement of the Intellectual Property rights identified above; and

 

(f)                                                             all amendments,
renewals and extensions of any of the Copyrights, Trademarks or Patents.

 

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’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” is each of Borrower’s (a) Chief Executive Officer, who is Christian
Weyer as of the Effective Date and (b) Chief Financial Officer, who is Scott
Wolchko as of the Effective Date.

 

“Letter of Credit” is a standby or commercial letter of credit issued by Bank
upon request of Borrower based upon an application, guarantee, indemnity, or
similar agreement.

 

“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 and any schedules, exhibits,
certificates, notices, and any other documents related to this Agreement, the
Canadian Share Pledge Documents, the UK Share Pledge Documents, the Warrant, any
Bank Services Agreement, any subordination agreement, any note, or notes or
guaranties executed by Borrower or any Guarantor, and any other present or
future agreement by Borrower and/or any Guarantor with or for the benefit of
Bank in connection with this Agreement or Bank Services, all as amended,
restated, or otherwise modified.

 

“Loan Margin” is five hundred ninety (590) basis points.

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’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 (c) a material impairment of the
prospect of repayment of any portion of the Obligations.

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal,
interest, fees, Bank Expenses, and other amounts Borrower owes Bank now or
later, whether under this Agreement, the other Loan Documents (other than the
Warrant), 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 also including interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower assigned to Bank, and to perform
Borrower’s duties under the Loan Documents (other than the Warrant).

 

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“Operating Documents” are, for any Person, such Person’s formation documents, as
certified by the Secretary of State (or equivalent agency) of such Person’s
jurisdiction of organization on a date that is no earlier than thirty (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.

 

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

 

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

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

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

 

(f)                                                             Indebtedness
secured by Liens permitted under clauses (a) and (c) of the definition of
“Permitted Liens” hereunder;

 

(g)                                                            other unsecured
Indebtedness not enumerated above not to exceed Fifty Thousand Dollars ($50,000)
at any time; and

 

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

 

“Permitted Investments” are:

 

(a)                                                           Investments
(including, without limitation, Subsidiaries) existing on the Effective Date and
shown on the Perfection Certificate;

 

(b)                                                           Investments
consisting of Cash Equivalents, and any other Investments permitted by
Borrower’s investment policy, as amended from time to time, provided that such
investment policy (and any such amendment thereto) has been approved in writing
by Bank (and Bank acknowledges the investment policy delivered on or prior to
the Effective Date is hereby approved);

 

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(c)                                                            Investments
consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;

 

(d)                                                           Investments
consisting of deposit accounts with Bank or in which Bank has a first perfected
security interest;

 

(e)                                                            Investments
accepted in connection with Transfers permitted by Section 7.1;

 

(f)                                                             Investments
consisting of the creation of a Subsidiary for the purpose of consummating a
merger transaction permitted by Section 7.3 of this Agreement, which is
otherwise a Permitted Investment;

 

(g)                                                            Investments
(i) by Borrower in Subsidiaries (other than Fate Canada) not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year
and (ii) by Subsidiaries (other than Fate Canada) in other Subsidiaries (other
than Fate Canada) not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in
the aggregate in any fiscal year or in Borrower;

 

(h)                                                           Investments
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower’s Board of Directors in an amount not
to exceed Fifty Thousand Dollars ($50,000) in the aggregate per fiscal year;

 

(i)                                                                Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of business;

 

(j)                                                               Investments
consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary
course of business; provided that this paragraph (j) shall not apply to
Investments of Borrower in any Subsidiary;

 

(k)                                                            Investments in
Fate Canada not to exceed the lesser of (a) Two Million Five Hundred Thousand
Dollars ($2,500,000) in the aggregate per year, and (b) the amount necessary to
cover trade expenses and general operating expenses of Fate Canada in the normal
course of business, as supported by appropriate documentation satisfactory to
Bank; and

 

(l)                                                                Investments
in deposit accounts held by Fate Canada in an amount not to exceed Two Hundred
Fifty Thousand Dollars ($250,000) per year for the purpose of general operating
expenses.

 

“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;

 

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

 

(c)                                  purchase money Liens (i) on Equipment
acquired or held by Borrower incurred for financing the acquisition of the
Equipment securing no more than Five Hundred Thousand Dollars ($500,000) in the
aggregate amount outstanding, or (ii) existing on Equipment when acquired, if
the Lien is confined to the property and improvements and the proceeds of the
Equipment;

 

(d)                                 Liens of carriers, warehousemen, suppliers,
or other Persons that are possessory in nature arising in the ordinary course of
business so long as such Liens attach only to Inventory, securing liabilities in
the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;

 

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

 

(f)                                   Liens incurred in the extension, renewal
or refinancing of the indebtedness secured by Liens described in (a) through
(c), 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;

 

(g)                                                             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 business, if the leases, subleases, licenses and sublicenses do not
prohibit granting Bank a security interest therein;

 

(h)                                                            non-exclusive
license of Intellectual Property granted to third parties in the ordinary course
of business, and licenses of Intellectual Property that could not result in a
legal transfer of title of the licensed property that may be exclusive in
respects other than territory and that may be exclusive as to territory only as
to discrete geographical areas outside of the United States entered into
pursuant to Section 7.1 hereof;

 

(i)                                                                Liens arising
from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 8.4 and 8.7; and

 

(j)                                                               Liens in favor
of other financial institutions arising in connection with Borrower’s deposit
and/or securities accounts held at such institutions, provided that Bank has a
first perfected security interest in the amounts held in such deposit and/or
securities accounts.

 

“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.

 

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“Prepayment Fee” is, with respect to any Term Loan subject to prepayment prior
to the Term Loan Maturity Date, whether by mandatory or voluntary prepayment,
acceleration or otherwise, an additional fee payable to Bank 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, three
percent (3.00%) 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, one percent (1.00%) of the principal amount
of such Term Loan prepaid; and

 

(iii)                                                          for a prepayment
made after the date which is after the second anniversary of the Funding Date of
such Term Loan and prior to the Maturity Date, no Prepayment Fee shall be
applicable.

 

“Quarterly Financial Statements” is defined in Section 6.2(a).

 

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

 

“Regulatory Change” means, with respect to Bank, any change on or after the date
of this Agreement in United States federal, state, or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives, or requests applying to a class of
lenders including Bank, of or under any United States federal or state, or any
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.

 

“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 Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.

 

“Restricted License” is any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting Bank a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or
termination of could interfere with the Bank’s right to sell any Collateral.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.

 

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

 

“Shares” is one hundred percent (100%) of the issued and outstanding capital
stock, membership units or other securities owned or held of record by Borrower
or Borrower’s Subsidiary, in any Subsidiary; provided that, “Shares” shall mean
sixty-five percent (65%) of the issued and outstanding capital stock, membership
units or other securities owned or held of record by Borrower in a foreign
Subsidiary.

 

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

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person.  Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.

 

“Term A Loan” is a loan made by Bank pursuant to the terms of
Section 2.1.1(a) hereof.

 

“Term B Loan” is a loan made by Bank pursuant to the terms of
Section 2.1.1(a) hereof.

 

“Term B Draw Period” is the period of time from the later to occur of (X) 
July 30, 2014 and (Y) the occurrence of the Term B Draw Event through the
earlier to occur of (a) December 31, 2014 or (b) an Event of Default.

 

“Term B Draw Event” means Bank’s receipt of evidence, in form and substance
satisfactory to Bank, of positive interim phase 2 data for the PROHEMA program
(defined as engraftment data on a minimum of twelve (12) PROHEMA patients
resulting in either (a) the trial stopping due to efficacy or (b) the trial
proceeding as planned).

 

“Term Loan” is a loan made by Bank pursuant to the terms of
Section 2.1.1(a) hereof.

 

“Term Loan Maturity Date” is, for each Term Loan, the date which is twenty nine
(29) months after the Amortization Date with respect to such Term Loan.

 

“Term Loan Payment” is defined in Section 2.1.1(b).

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

 

“Transfer” is defined in Section 7.1.

 

“Treasury Note Maturity” is thirty six (36) months.

 

“Warrant” is that certain Warrant to Purchase Stock executed by Borrower in
favor of Bank in substantially the form attached hereto as Exhibit E.

 

[Signature page follows]

 

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

 

BORROWER:

 

FATE THERAPEUTICS, INC.

 

By

/s/ J. Scott Wolchko

 

Name:

Scott Wolchko

 

Title:

COO/CFO

 

 

 

BANK:

 

 

 

SILICON VALLEY BANK

 

 

 

By

/s/ Anthony Flores

 

Name:

Anthony Flores

 

Title:

Vice President

 

 

[Signature page to Amended and Restated Loan and Security Agreement]

 

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EXHIBIT A — COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’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, 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 Intellectual
Property; provided, however, the Collateral shall include all Accounts and all
proceeds of Intellectual Property.  If a judicial authority (including a U.S.
Bankruptcy Court) would hold that a security interest in the underlying
Intellectual Property is necessary to have a security interest in such Accounts
and such property that are proceeds of Intellectual Property, then the
Collateral shall automatically, and effective as of the Effective Date, include
the Intellectual Property to the extent necessary to permit perfection of Bank’s
security interest in such Accounts and such other property of Borrower that are
proceeds of the Intellectual Property.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its Intellectual Property without
Bank’s prior written consent.

 

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EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

TO:

SILICON VALLEY BANK

Date:

 

FROM:

FATE THERAPEUTICS, INC.

 

 

 

The undersigned authorized officer of Fate Therapeutics, Inc. (“Borrower”)
certifies that under the terms and conditions of the Amended and Restated Loan
and Security Agreement between Borrower and Bank (the “Agreement”):

 

(1) Borrower is in compliance for the period ending
                               with all required covenants except as noted
below; (2) there are no Events of Default; (3) all representations and
warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of
the Agreement; and (5) no Liens have been levied or claims made against Borrower
relating to unpaid employee payroll or benefits of which Borrower has not
previously provided written notification to Bank.

 

Attached are the required documents supporting the certification.  The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The undersigned acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered.  Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenants

 

Required

 

Complies

Quarterly financial statements with Compliance Certificate

 

Quarterly within 5 days of filing with SEC

 

Yes No

Annual financial statement (CPA Audited) + CC

 

Within 5 days of filing with SEC and no later than within 180 days of FYE

 

Yes No

Annual budget and projections

 

Within earlier of (X) 7 days of board approval and (Y) 60 days FYE

 

Yes No

10-Q, 10-K and 8-K

 

Within 5 days after filing with SEC

 

Yes No

 

Other Matters

 

Have there been any amendments of or other changes to the capitalization table
of Borrower and to the Operating Documents of Borrower or any of its
Subsidiaries? If yes, provide copies of any such amendments or changes with this
Compliance Certificate.

Yes

No

 

The following are the exceptions with respect to the certification above:  (If
no exceptions exist, state “No exceptions to note.”)

 

 

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FATE THERAPEUTICS, INC.

 

BANK USE ONLY

 

 

 

 

 

Received by:

 

By:

 

 

AUTHORIZED SIGNER

Name:

 

 

Date:

 

Title:

 

 

 

 

 

 

Verified:

 

 

 

AUTHORIZED SIGNER

 

 

Date:

 

 

 

 

 

 

Compliance Status:

Yes                 No

 

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

 

EXHIBIT C — LOAN PAYMENT/ADVANCE REQUEST FORM

 

DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME

 

Fax To:

Date:

 

LOAN PAYMENT:

 

FATE THERAPEUTICS, INC.

 

From Account #

 

 

To Account #

 

(Deposit Account #)

 

(Loan Account #)

 

 

 

Principal $

 

 

and/or Interest $

 

 

 

 

Authorized Signature:

 

 

Phone Number:

 

Print Name/Title:

 

 

 

 

LOAN ADVANCE:

 

Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.

 

From Account #

 

 

To Account #

 

(Loan Account #)

 

(Deposit Account #)

 

 

 

Amount of Advance $

 

 

 

 

 

All Borrower’s representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the request for an advance; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date:

 

Authorized Signature:

 

 

Phone Number:

 

Print Name/Title:

 

 

 

 

OUTGOING WIRE REQUEST:

 

Complete only if all or a portion of funds from the loan advance above is to be
wired.

 

Deadline for same day processing is noon, Pacific Time

 

Beneficiary Name:

 

 

Amount of Wire: $

 

Beneficiary Bank:

 

 

Account Number:

 

City and State:

 

 

 

 

 

 

Beneficiary Bank Transit (ABA) #:

 

 

Beneficiary Bank Code (Swift, Sort, Chip, etc.):

 

 

 

(For International Wire Only)

 

 

 

Intermediary Bank:

 

 

Transit (ABA) #:

 

For Further Credit to:

 

 

 

 

 

 

 

Special Instruction:

 

 

 

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

 

Authorized Signature:

 

 

2nd Signature (if required):

 

Print Name/Title:

 

 

Print Name/Title:

 

Telephone #:

 

 

Telephone #:

 

 

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

* Unless otherwise provided for an Advance bearing interest at LIBOR.

 

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

 

EXHIBIT D

 

CORPORATE BORROWING CERTIFICATE

 

BORROWER: Fate Therapeutics, Inc.

 

DATE: July     , 2014

BANK:                                    Silicon Valley Bank

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Name

 

Title

 

Signature

 

Authorized to
Add or Remove
Signatories

 

 

 

 

 

 

 

 

 

 

 

 

 

o

 

 

 

 

 

 

 

 

 

 

 

 

 

o

 

 

 

 

 

 

 

 

 

 

 

 

 

o

 

 

 

 

 

 

 

 

 

 

 

 

 

o

 

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

 

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

 

Borrow Money.  Borrow money from Bank.

 

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

 

Execute Loan Documents.  Execute any loan documents Bank requires.

 

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

 

Negotiate Items.  Negotiate or discount all drafts, trade acceptances,
promissory notes, or other indebtedness in which Borrower has an interest and
receive cash or otherwise use the proceeds.

 

Apply for Letters of Credit.  Apply for letters of credit from Bank.

 

Enter Derivative Transactions.  Execute spot or forward foreign exchange
contracts, interest rate swap agreements, or other derivative transactions.

 

Issue Warrants.  Issue warrants for Borrower’s capital stock.

 

Further Acts.  Designate other individuals to request advances, pay fees and
costs and execute other documents or agreements (including documents or
agreement that waive Borrower’s right to a jury trial) they believe to be
necessary to effect these resolutions.

 

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

 

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

 

 

By:

 

 

Name:

 

 

Title:

 

 

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

 

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

 

 

By:

 

 

Name:

 

 

Title:

 

 

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

 

EXHIBIT E

 

FORM OF WARRANT

 

[please see attached]

 

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