Certain information has been excluded from this agreement (indicated by “[***]”)
because such information (i) is not material and (ii) would be competitively
harmful if publicly disclosed.

 

EXHIBIT 10.2

MEZZANINE
LOAN AND SECURITY AGREEMENT

THIS MEZZANINE LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of March
10, 2020 (the “Effective Date”) among (a) SILICON VALLEY BANK, a California
corporation (“SVB”), in its capacity as administrative agent and collateral
agent (“Agent”), (b) SILICON VALLEY BANK, a California corporation (“SVB”), as a
lender, (c) WESTRIVER INNOVATION LENDING FUND VIII, L.P., a Delaware limited
partnership (“WestRiver”), as a lender (SVB and WestRiver and each of the other
“Lenders” from time to time a party hereto are referred to herein collectively
as the “Lenders” and each individually as a “Lender”), and (d) VERRICA
PHARMACEUTICALS INC., a Delaware corporation (“Borrower”), provides the terms on
which Agent and the Lenders shall lend to Borrower and Borrower shall repay
Agent and the Lenders.  The parties agree as follows:

1ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP; provided that
if at any time any change in GAAP would affect the computation of any financial
ratio or requirement set forth in any Loan Document, and either Borrower or
Agent shall so request, Borrower and Agent shall negotiate in good faith to
amend such ratio or requirement to preserve the original intent thereof in light
of such change in GAAP; provided further, that until so amended, (a) such ratio
or requirement shall continue to be computed in accordance with GAAP prior to
such change therein and (b) Borrower shall provide Agent with financial
statements and other documents required under this Agreement or as reasonably
requested hereunder setting forth a reconciliation between calculations of such
ratio or requirement made before and after giving effect to such change in GAAP.
In addition, no effect shall be given to Accounting Standards Codification 842,
Leases (or any other Accounting Standards Codification having similar result or
effect) (and related interpretations) to the extent any lease (or similar
arrangement) would be required to be treated as a capital lease thereunder where
such lease (or arrangement) would have been treated as an operating lease under
GAAP as in effect immediately prior to the effectiveness of such Accounting
Standards Codification. Notwithstanding the foregoing, all financial covenant
and other financial calculations shall be computed with respect to Borrower
only, and not on a consolidated basis.  Capitalized terms not otherwise defined
in this Agreement shall have the meanings set forth in Section 14 of this
Agreement. 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.

2LOAN AND TERMS OF PAYMENT

2.1Promise to Pay.  Borrower hereby unconditionally promises to pay to Agent,
for the ratable benefit of each Lender, the outstanding principal amount of all
Credit Extensions advanced to Borrower by such Lender and accrued and unpaid
interest thereon, together with any fees as and when due in accordance with this
Agreement.

2.1.1Term Loan Advances

(a)Availability.  Subject to the terms and conditions of this Agreement, upon
Borrower’s request, the Lenders, severally and not jointly, shall make one (1)
term loan advance to Borrower on or about the Effective Date in an original
principal amount of Thirty-Five Million Dollars ($35,000,000.00) according to
each Lender’s Term Loan Commitment as set forth on Schedule 1 hereto (the “Term
A Loan Advance”).  Subject to the terms and conditions of this Agreement, upon
Borrower’s request, during the Draw Period, the Lenders, severally and not
jointly, shall make one (1) term loan advance available to Borrower in an
original principal amount of Fifteen Million Dollars ($15,000,000.00) according
to each Lender’s Term Loan Commitment as set forth on Schedule 1 hereto (the
“Term B Loan Advance”). The Term A Loan Advance and the Term B Loan Advance are
hereinafter referred to singly as a “Term Loan Advance” and collectively as the
“Term Loan Advances”. After repayment, no Term Loan Advance (or any portion
thereof) may be reborrowed.

224419752 v2

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

(b)Interest Period.  Commencing on the first (1st) Payment Date of the month
following the month in which the Funding Date of the applicable Term Loan
Advance occurs, and continuing on the Payment Date of each month thereafter,
Borrower shall make monthly payments of interest to Agent, for the account of
the Lenders, in arrears, on the principal amount of each Term Loan Advance, at
the rate set forth in Section 2.2 (a).

(c)Repayment.  Commencing on the Term Loan Amortization Date and continuing on
each Payment Date thereafter, Borrower shall repay the aggregate outstanding
Term Loan Advances to Agent, for the account of the Lenders, in (i) consecutive
equal monthly installments of principal based on the applicable Repayment
Schedule, plus (ii) monthly payments of accrued interest at the rate set forth
in Section 2.2(a). All outstanding principal and accrued and unpaid interest
with respect to the Term Loan Advances, and all other outstanding Obligations
under the Term Loan Advances, are due and payable in full on the Term Loan
Maturity Date.

(d)Permitted Prepayment.  Borrower shall have the option to prepay all or a
portion of the Term Loan Advances advanced by the Lenders under this Agreement,
provided that such partial prepayments shall be in increments of at least One
Million Dollars ($1,000,000.00), and provided further that Borrower (i) delivers
written notice to Agent of its election to prepay all or such portion of the
Term Loan Advances at least five (5) Business Days prior to such prepayment, and
(ii) pays to Agent, for the account of the Lenders in accordance with its
respective Pro Rata Share, on the date of such prepayment (A) the outstanding
principal plus accrued and unpaid interest with respect to the Term Loan
Advances, (B) the Final Payment, (C) the Prepayment Premium with respect to the
amount of such prepaid portion of the Term Loan Advances, and (D) all other
sums, if any, that shall have become due and payable with respect to the Term
Loan Advances, including Lenders’ Expenses and interest at the Default Rate with
respect to any past due amounts. Any of payments of principal with respect to
the Term Loan Advances made under this Section 2.1.1(d) will be applied to the
principal balance of the Term Loan Advances in the inverse order of maturity.

(e)Mandatory Prepayment Upon an Acceleration.  If the Term Loan Advances are
accelerated by Agent, following the occurrence of an Event of Default, Borrower
shall immediately pay to Agent, for the account of the Lenders in accordance
with its respective Pro Rata Share, an amount equal to the sum of (i) all
outstanding principal plus accrued and unpaid interest with respect to the Term
Loan Advances, (ii) the Final Payment, (iii) the Prepayment Premium, and (iv)
all other sums, if any, that shall have become due and payable with respect to
the Term Loan Advances, including Lenders’ Expenses and interest at the Default
Rate with respect to any past due amounts.

2.2Payment of Interest on the Credit Extensions.

(a)Interest Rate.  Subject to Section 2.2(b), the principal amount outstanding
under each Term Loan Advance shall accrue interest at a floating per annum rate
equal to the greater of (i) seven and one-quarter of one percent (7.25%) and
(ii) two and one-half of one percent (2.50%) above the Prime Rate, which
interest, in each case, shall be payable monthly in accordance with Section
2.2(d) below.

(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 percent (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, Lenders’
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 2.2(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 Agent
or any Lender.

(c)Adjustment to Interest Rate.  Changes to the interest rate of any Credit
Extension based on changes to the Prime Rate shall be effective on the effective
date of any change to the Prime Rate and to the extent of any such change.

(d)Payment; Interest Computation.  Interest is payable monthly on the Payment
Date 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. Eastern 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-

224419752 v2

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

2.3Fees.  Borrower shall pay to Agent:  

(a)Commitment Fee.  A fully earned, non-refundable commitment fee of Five
Hundred Thousand Dollars ($500,000.00), payable on the Effective Date, to be
shared between the Lenders pursuant to their respective Term Loan Commitment
Percentages;

(b)Final Payment.  The Final Payment, when due hereunder, to be shared between
the Lenders pursuant to their respective Term Loan Commitment Percentages;

(c)Prepayment Premium.  The Prepayment Premium, when due hereunder, to be shared
between the Lenders pursuant to their respective Term Loan Commitment
Percentages; and

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

Unless otherwise provided in this Agreement or in a separate writing by Agent,
Borrower shall not be entitled to any credit, rebate, or repayment of any fees
earned by Agent or any Lender pursuant to this Agreement notwithstanding any
termination of this Agreement or the suspension or termination of any Lender’s
obligation to make loans and advances hereunder.  Agent may deduct amounts owing
by Borrower under the clauses of this Section 2.3 pursuant to the terms of
Section 2.4(e).  Agent shall provide Borrower written notice of deductions made
from the Designated Deposit Account pursuant to the terms of the clauses of this
Section 2.3.

2.4Payments; Pro Rata Treatment; Application of Payments; Debit of Accounts.  

(a)All payments (including prepayments) to be made by Borrower under any Loan
Document shall be made to Agent for the account of Lenders, in immediately
available funds in Dollars, without setoff or counterclaim, before 12:00 p.m.
Eastern time on the date when due.   Agent shall distribute such payments to
Lenders in like funds as set forth in Section 2.5.  Payments of principal and/or
interest received after 12:00 p.m. Eastern time are considered received at the
opening of business on the next Business Day. When a payment is due on a day
that is not a Business Day, the payment shall be due the next Business Day, and
additional fees or interest, as applicable, shall continue to accrue until paid.

(b)Each borrowing by Borrower from Lenders hereunder shall be made according to
the respective Term Loan Commitment Percentages of the relevant Lenders.

(c)Except as otherwise provided herein, each payment (including each prepayment)
by Borrower on account of principal or interest on the Term Loan Advances shall
be applied according to each Lender’s Pro Rata Share of the outstanding
principal amount of the Term Loan Advances.  The amount of each principal
prepayment of the Term Loan Advances shall be applied to reduce the then
remaining installments of the Term Loan Advances based upon each Pro Rata Share
of Term Loan Advances.

(d)Agent 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 Agent shall allocate or
apply any payments required to be made by Borrower to Agent or otherwise
received by Agent or any Lender under this Agreement when any such allocation or
application is not specified elsewhere in this Agreement.

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

(f)Unless Agent shall have been notified in writing by Borrower prior to the
date of any payment due to be made by Borrower hereunder that Borrower will not
make such payment to Agent, Agent may assume that Borrower is making such
payment, and Agent may, but shall not be required to, in reliance upon such

-3-

224419752 v2

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

assumption, make available to Lenders their respective Pro Rata Share of a
corresponding payment amount.  If such payment is not made to Agent by Borrower
within three (3) Business Days after such due date, Agent shall be entitled to
recover, on demand, from each Lender to which any amount which was made
available pursuant to the preceding sentence, such amount with interest thereon
at the rate per annum equal to the daily average Federal Funds Effective
Rate.  Nothing herein shall be deemed to limit the rights of Agent or any Lender
against Borrower.

2.5Settlement Procedures.  If Agent receives any payment for the account of
Lenders on or prior to 12:00 p.m. (Eastern time) on any Business Day, Agent
shall pay to each applicable Lender such Lender’s Pro Rata Share of such payment
on such Business Day. If Agent receives any payment for the account of Lenders
after 12:00 p.m. (Eastern time) on any Business Day, Agent shall pay to each
applicable Lender such Lender’s Pro Rata Share of such payment on the next
Business Day.  

2.6Withholding by Borrower.  Payments received by Agent 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 Agent, 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, Agent 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 Agent with proof
reasonably satisfactory to Agent 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.

 

3CONDITIONS OF LOANS

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

(a)duly executed Senior Loan Documents and satisfaction of all conditions
precedent therein;

(b)duly executed signatures to the Loan Documents;

(c)the Operating Documents and a long-form good standing certificate of Borrower
certified by the Secretary of State of Delaware and each other state in which
Borrower is qualified to conduct business, each as of a date no earlier than
thirty (30) days prior to the Effective Date;

(d)duly executed signatures to the secretary’s corporate borrowing certificate
of Borrower with respect to such Borrower’s Operating Documents, incumbency,
specimen signatures and resolutions authorizing the execution and delivery of
this Agreement and the other Loan Documents to which it is a party;

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

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

-4-

224419752 v2

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

(g)the Perfection Certificate of Borrower, together with the duly executed
signatures thereto; and

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

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

(a)timely receipt by the Lenders of (i) an executed Disbursement Letter and (ii)
an executed Payment/Advance Form and any materials and documents required by
Section 3.4;  

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

(c)Agent and each Lender determine to its reasonable satisfaction that 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,
nor any material adverse deviation by Borrower from the most recent business
plan of Borrower presented to and accepted by Agent and the Lenders.

3.3Covenant to Deliver. Borrower agrees to deliver to Agent and each Lender each
item required to be delivered to Agent and each Lender under this Agreement as a
condition precedent to any Credit Extension.  Borrower expressly agrees that a
Credit Extension made prior to the receipt by Agent and each Lender of any such
item shall not constitute a waiver by Agent or Lenders 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 each Lender’s sole discretion.

3.4Procedures for Borrowing.  

(a)Term Loan Advances.  Subject to the prior satisfaction of all other
applicable conditions to the making of a Credit Extension set forth in this
Agreement, to obtain a Credit Extension, Borrower shall notify Agent (which
notice shall be irrevocable) by electronic mail, facsimile, or telephone by
12:00 p.m. Eastern time at least five (5) Business Days before the proposed
Funding Date of such Credit Extension.  Together with any such electronic or
facsimile notification, Borrower shall deliver to Agent by electronic mail or
facsimile a completed Disbursement Letter (and Payment/Advance Form) executed by
an Authorized Signer.  Agent may rely on any telephone notice given by a person
whom Agent believes is an Authorized Signer.  On the Funding Date, Agent shall
credit the Credit Extensions to the Designated Deposit Account.  Agent may make
Credit Extensions under this Agreement based on instructions from an Authorized
Signer or without instructions if the Credit Extensions are necessary to meet
Obligations which have become due.

(b)Funding.  In determining compliance with any condition hereunder to the
making of a Credit Extension that, by its terms, must be fulfilled to the
satisfaction of a Lender, Agent may presume that such condition is satisfactory
to such Lender unless Agent shall have received notice to the contrary from such
Lender prior to the making of such Credit Extension.  Unless Agent shall have
been notified in writing by any Lender prior to the date of any Credit
Extension, that such Lender will not make the amount that would constitute its
share of such borrowing available to Agent, Agent may assume that such Lender is
making such amount available to Agent, and Agent may, in reliance upon such
assumption, make available to Borrower a corresponding amount.  If such amount

-5-

224419752 v2

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

is not made available to Agent by the required time on the Funding Date
therefor, such Lender shall pay to Agent, on demand, such amount with interest
thereon, at a rate equal to the greater of (i) the Federal Funds Effective Rate
or (ii) a rate determined by Agent in accordance with banking industry rules on
interbank compensation, for the period until such Lender makes such amount
immediately available to Agent.  If such Lender’s share of such Credit Extension
is not made available to Agent by such Lender within three (3) Business Days
after such Funding Date, Agent shall also be entitled to recover such amount
with interest thereon at the rate per annum applicable to the Term Loan
Advances, on demand, from Borrower.

4CREATION OF SECURITY INTEREST

4.1Grant of Security Interest.  Borrower hereby grants Agent, for the ratable
benefit of the Lenders, to secure the payment and performance in full of all of
the Obligations, a continuing security interest in, and pledges to Agent, for
the ratable benefit of the Lenders, the Collateral, wherever located, whether
now owned or hereafter acquired or arising, and all proceeds and products
thereof.  For clarity, any reference to “Agent’s Lien” or any granting of
collateral to Agent in this Agreement or any Loan Document means the Lien
granted to Agent for the ratable benefit of the Lenders.

 

If this Agreement is terminated, Agent’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash.  Upon payment in full in cash of the Obligations (other than
inchoate indemnity obligations) and at such time as the Lenders’ obligation to
make Credit Extensions has terminated, Agent shall, at the sole cost and expense
of Borrower, release its Liens in the Collateral and all rights therein shall
revert to Borrower. Agent’s Lien in the assets of Borrower securing the
Obligations of Borrower to Lenders under this Agreement shall be junior and
subordinated to SVB’s security interest in the assets of Borrower securing the
Obligations of Borrower to SVB under the Senior Loan Agreement.

4.2Priority of Security Interest.  Borrower represents, warrants, and covenants
that the security interests granted herein are and shall at all times continue
to be a first priority perfected security interests in the Collateral (subject
only to Permitted Liens that are permitted pursuant to the terms of this
Agreement to have superior priority to Agent’s Lien under this Agreement).  If
Borrower shall acquire a commercial tort claim, Borrower shall promptly notify
Agent in a writing signed by Borrower of the general details thereof and grant
to Agent, for the ratable benefit of the Lenders, in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance reasonably satisfactory
to Agent.

4.3Authorization to File Financing Statements.  Borrower hereby authorizes
Agent, on behalf of the Lenders, to file financing statements, without notice to
Borrower, with all appropriate jurisdictions to perfect or protect Agent’s and
Lenders’ interest or rights hereunder, including a notice that any disposition
of the Collateral, by Borrower or any other Person, shall be deemed to violate
the rights of Agent 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 Agent’s discretion.

5REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1Due 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 Agent and each Lender a completed certificate signed by Borrower, entitled
“Perfection Certificate” (the “Perfection Certificate”).  Borrower represents
and warrants to Agent and each Lender that: (a) Borrower’s exact legal name is
that indicated on the Perfection Certificate and on the signature page hereof;
(b) Borrower is an organization of the type and is organized in the jurisdiction
set forth in the Perfection Certificate; (c) the Perfection Certificate
accurately sets forth Borrower’s organizational identification number or
accurately states that Borrower has none; (d) the Perfection Certificate
accurately sets forth Borrower’s place of business, or, if more than one, its
chief executive office as well as Borrower’s mailing address (if different than
its chief executive office); (e) Borrower (and each of its predecessors) has
not, in the

-6-

224419752 v2

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

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 in all
material respects (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 Agent of such occurrence and provide
Agent 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 (i) such Governmental Approvals which have already been obtained and are
in full force and effect or are being obtained pursuant to Section 6.1(b), and
(ii) any filings required by the Code in connection with perfecting the security
interest granted herein), or (v) conflict with, contravene, constitute a default
or breach under, or result in or permit the termination or acceleration of, 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 reasonably be expected to have a material adverse effect on
Borrower’s business.  

5.2Collateral.  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 SVB
or SVB’s Affiliates except for the Collateral Accounts described in the
Perfection Certificate delivered to Agent and each Lender in connection herewith
or established in accordance with Section 6.6(b) and which Borrower has given
Agent notice and taken such actions as are necessary to give Agent, for the
ratable benefit of the Lenders, a perfected security interest therein, pursuant
to the terms 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 or as
permitted pursuant to Section 7.2. 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.

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

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) licenses permitted hereunder, (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 or as otherwise disclosed to Agent in writing. 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 the best of Borrower’s knowledge, no claim has been made that any part
of the Intellectual Property violates the rights of any third party except to
the extent such claim would not reasonably be expected to have a material
adverse effect on Borrower’s business.

Except as noted on the Perfection Certificate or as otherwise disclosed to Agent
in writing pursuant to Section 6.8(b), Borrower is not a party to, nor is it
bound by, any Restricted License.

5.3Litigation.  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 involving more than, individually or in the aggregate, Five
Hundred Thousand Dollars ($500,000.00).

5.4Financial Statements; Financial Condition.  All consolidated financial
statements for Borrower and any of its Subsidiaries delivered to Agent and the
Lenders fairly present in all material respects Borrower’s consolidated
financial condition and Borrower’s consolidated results of operations as of the
date or for the period

-7-

224419752 v2

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

covered by such financial statements (except with respect to unaudited financial
statements, subject to normal year-end adjustments and the absence of
footnotes). There has not been any material deterioration in Borrower’s
consolidated financial condition since the date of the most recent financial
statements submitted to Agent and the Lenders.

5.5Solvency.  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.

5.6Regulatory 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 applicable Requirements of Law except where Borrower’s failure to do so
could not reasonably be expected to have a material adverse effect on Borrower’s
business, 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 the best of 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
Governmental Authorities that are necessary to continue their respective
businesses as currently conducted except where Borrower’s failure to do so could
not reasonably be expected to have a material adverse effect on Borrower’s
business.

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

5.8Tax Returns and Payments; Pension Contributions.  Borrower has timely filed
all required tax returns and reports, or duly filed valid extensions thereof,
and Borrower has timely paid when due and payable all foreign, federal, state
and 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 Fifty Thousand Dollars ($50,000.00).  

To the extent Borrower defers payment of any contested taxes, Borrower shall (i)
notify Agent 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 in excess of Fifty Thousand Dollars ($50,000.00).  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.

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

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

-8-

224419752 v2

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

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).

5.11Definition 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.

6AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1Government Compliance.  

(a)Except as permitted under 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; provided, that nothing in this Section 6.1
shall prohibit or prevent Borrower from discontinuing the legal existence and
qualification of any Immaterial Subsidiary in any jurisdiction other than its
jurisdiction of formation, with prior written notice to Agent, if in the
reasonable good faith judgment of Borrower such discontinuance or qualification
is no longer desirable in the conduct of its business or such Subsidiary is no
longer useful to the business of Borrower or such Subsidiary.  Borrower shall
comply, and have each Subsidiary comply, in all material respects, with all
laws, ordinances and regulations to which it is subject, the failure to comply
with which would reasonably be expected to result in a material adverse effect
on Borrower’s business or operations.

(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 Agent, for the ratable benefit of the
Lenders, in all of its property.  Borrower shall promptly provide copies of any
such obtained Governmental Approvals to Agent.

6.2Financial Statements, Reports, Certificates.  Provide Agent and each Lender
with the following:

(a)Monthly Compliance Certificate.  Within thirty (30) days after the last day
of each month and together with Borrower’s monthly revenue, net profit and cash
balance statements, a duly completed Compliance Certificate signed by a
Responsible Officer, certifying that as of the end of such month, 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 (if any) and such other information as Agent or the
Lenders may reasonably request;

(b)Quarterly Financial Statements. As soon as available, but no later than
forty-five (45) days after the end of each calendar quarter (ninety (90) days
for the calendar quarter ending December 31 of each fiscal year), a company
prepared consolidated balance sheet and income statement covering Borrower’s and
each of its Subsidiary’s operations for such calendar quarter certified by a
Responsible Officer and in a form acceptable to Agent (the “Quarterly Financial
Statements”);

(c)Quarterly Compliance Certificate. Within forty-five (45) days after the end
of each calendar quarter (ninety (90) days for the calendar quarter ending
December 31 of each fiscal year) and together with the Quarterly Financial
Statements, a duly completed Compliance Certificate signed by a Responsible
Officer, certifying that as of the end of such calendar 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 Agent or the Lenders may
reasonably request, including, without limitation, a statement that at the end
of such month there were no held checks;

(d)Board Projections.  Within thirty (30) days after the last day of each fiscal
year of Borrower, and contemporaneously with any updates or amendments thereto,
(A) annual operating budgets (including income

-9-

224419752 v2

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

statements, balance sheets and cash flow statements, by month), and (B) annual
financial projections (on a quarterly basis), in each case as approved by the
Board, together with any related business forecasts used in the preparation of
such annual financial projections;

(e)Annual Audited Financial Statements.  As soon as available, and in any event
within one hundred eighty (180) days following the end of Borrower’s fiscal
year, (A) audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Agent and (B) a duly completed Compliance Certificate signed by a
Responsible Officer, certifying that as of the end of such calendar year,
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 Agent or the
Lenders may reasonably request, including, without limitation, a statement that
at the end of such month there were no held checks;

(f)10-Q Reports. Within forty-five (45) days after the last day of each fiscal
quarter (ninety (90) days for the calendar quarter ending December 31 of each
fiscal year), Borrower’s 10-Q report;

(g)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 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;

(h)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;

(i)Beneficial Ownership Information. Prompt written notice of any changes to the
beneficial ownership information set out in Section 14 of the Perfection
Certificate.  Borrower understands and acknowledges that each Lender relies on
such true, accurate and up-to-date beneficial ownership information to meet such
Lender’s regulatory obligations to obtain, verify and record information about
the beneficial owners of its legal entity customers;

(j)Legal Action Notice.  A prompt report of any legal actions pending or
threatened in writing against Borrower or any of its Subsidiaries that could
result in damages or costs to Borrower or any of its Subsidiaries of,
individually or in the aggregate, Five Hundred Thousand Dollars ($500,000.00) or
more; and

(k)Other Financial Information.  Other financial information reasonably
requested by Agent or any Lender.

Notwithstanding the foregoing, 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), including without limitation any documents
required to be delivered pursuant to Sections 6.2(c), 6.2(f), 6.2(g), 6.2(j) and
6.2(k), 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.

6.3Taxes; 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 Agent, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.

6.4Inventory; 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

-10-

224419752 v2

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

practices as they exist at the Effective Date.  Borrower must promptly notify
Agent and the Lenders of all returns, recoveries, disputes and claims that
involve more than Two Hundred Fifty Thousand Dollars ($250,000.00).

6.5Insurance.  

(a)Keep its business and the Collateral insured for risks and in amounts
customary for companies in Borrower’s industry and location and as Agent may
reasonably request.  Insurance policies shall be in a form, with financially
sound and reputable insurance companies that are not Affiliates of Borrower, and
in amounts that are reasonably satisfactory to Agent. All property policies
shall have a lender’s loss payable endorsement showing Agent as the sole lender
loss payee.  All liability policies shall show, or have endorsements showing,
Agent as an additional insured.  Agent shall be named as lender loss payee
and/or additional insured with respect to any such insurance providing coverage
in respect of any Collateral.

(b)Ensure that proceeds payable under any property policy are, at Agent’s
option, payable to Agent for the ratable benefit of the Lenders on account of
the Obligations. Notwithstanding the foregoing, (a) so long as no Event of
Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy 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 Agent has been granted a
first priority security interest, and (b) after the occurrence and during the
continuance of an Event of Default, all proceeds payable under such casualty
policy shall, at the option of Agent, be payable to Agent on account of the
Obligations.

(c)At Agent’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
Agent, that it will give Agent thirty (30) days (ten (10) days for nonpayment of
premium) prior written notice before any such policy or policies shall be
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 Agent, Agent may make all or part of such payment or obtain such
insurance policies required in this Section 6.5, and take any action under the
policies Agent deems prudent.

6.6Operating Accounts.

(a)Maintain all of its and all of its Subsidiaries’ operating accounts and
excess cash with SVB and SVB’s Affiliates. In addition, Borrower shall conduct
all other primary banking with SVB for services such as letters of credit and
business credit cards. Any Guarantor shall maintain all operating accounts and
excess cash with SVB and SVB’s Affiliates

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

6.7Financial Covenant – Trailing Six (6) Month Net Revenue.  During a Testing
Period, Borrower shall achieve (calculated with respect to Borrower only and not
on a consolidated basis) for the most recent calendar quarter then-ended and
each calendar quarter thereafter if such Testing Period is still in effect,
minimum net revenue, generated from the sale of Borrower’s products (excluding
revenue generated with respect to licensing arrangements), determined in
accordance with GAAP, measured on a trailing six (6) month basis, of at least:

Trailing Six (6) Month Period Ending

Minimum Revenue

 

-11-

224419752 v2

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

September 30, 2020

[***]

December 31, 2020

[***]

March 31, 2021

[***]

June 30, 2021

 

September 30, 2021

 

December 31, 2021

[***]

 

[***]

 

[***]

 

With respect to the period ending March 31, 2022 and each calendar quarter
thereafter, the levels of minimum revenue shall be mutually agreed upon between
Borrower, Agent and Lenders, based upon, among other factors, Borrower’s
Board-approved operating plan and financial projections and Lenders’ then
current credit underwriting. With respect thereto, Borrower’s failure to agree
in writing (which agreement shall be set forth in a written amendment to this
Agreement) on or before March 15, 2022, to any net revenue covenant levels
proposed by Agent and Lenders with respect to any period from March 31, 2022
through and including December 31, 2023, shall result in an immediate Event of
Default for which there shall be no grace or cure period.

6.8Protection of Intellectual Property Rights.

(a)(i) Use commercially reasonable efforts to protect, defend and maintain the
validity and enforceability of its Intellectual Property material to Borrower’s
business; (ii) promptly advise Agent 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 material to Borrower’s business; and
(iii) not allow any Intellectual Property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Agent’s written
consent.  

(b)Provide written notice to Agent 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).  Borrower shall take such commercially
reasonable steps as Agent reasonably requests to obtain the consent of, or
waiver by, any person whose consent or waiver is necessary for (i) any
Restricted License to be deemed “Collateral” and for Agent to have a security
interest in it that might otherwise be restricted or prohibited by law or by the
terms of any such Restricted License, whether now existing or entered into in
the future, and (ii) Agent to have the ability in the event of a liquidation of
any Collateral to dispose of such Collateral in accordance with Agent’s and the
Lenders’ rights and remedies under this Agreement and the other Loan Documents.

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

6.10Access to Collateral; Books and Records.  Allow Agent or its agents, at
reasonable times, on one (1) Business Day’s 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. The foregoing inspections and
audits shall be conducted no more often than twice 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 Agent shall determine is
necessary. The foregoing inspections and audits shall be conducted at Borrower’s
expense and the charge therefor shall be One Thousand Dollars ($1,000.00) per
person per day (or such higher amount as shall represent Agent’s then-current
standard charge for the same), plus reasonable out-of-pocket expenses. In the
event Borrower and Agent schedule an audit more than eight (8) days in advance,
and Borrower cancels or reschedules the audit with less than eight (8) days
written notice to Agent, then (without limiting any of Agent’s or any Lender’s
rights or remedies) Borrower shall pay Agent a fee of Two Thousand Dollars
($2,000.00) plus any out-of-pocket expenses incurred by Agent to compensate
Agent for the anticipated costs and expenses of the cancellation or
rescheduling.

-12-

224419752 v2

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

6.11Further Assurances.  Execute any further instruments and take further action
as Agent and the Lenders reasonably request to perfect or continue Agent’s Lien
in the Collateral or to effect the purposes of this Agreement.  Deliver to Agent
and the Lenders, within five (5) days after the same are sent or received,
copies of all material correspondence, reports, documents and other material
filings with any Governmental Authority regarding compliance with or maintenance
of Governmental Approvals or Requirements of Law or that could reasonably be
expected to have a material effect on any of the Governmental Approvals or
otherwise on the operations of Borrower or any of its Subsidiaries.

6.12Formation 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 or any Guarantor forms any direct or indirect Subsidiary or
acquires any direct or indirect Subsidiary after the Effective Date (including,
without limitation, pursuant to a Division), Borrower and such Guarantor shall
(a) cause such new Subsidiary to provide to Agent and Lenders a joinder to this
Agreement to become a co-borrower hereunder, together with such appropriate
financing statements and/or Control Agreements, all in form and substance
satisfactory to Agent (including being sufficient to grant Agent a first
priority Lien (subject to Permitted Liens) in and to the assets of such newly
formed or acquired Subsidiary), (b) provide to Agent appropriate certificates
and powers and financing statements, pledging all of the direct or beneficial
ownership interest in such new Subsidiary, in form and substance satisfactory to
Agent; and (c) provide to Agent all other documentation in form and substance
satisfactory to Agent, including one or more opinions of counsel satisfactory to
Agent, 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 6.12 shall
be a Loan Document.

6.13Post-Closing Deliverables.  Deliver to Bank (i) within sixty (60) days after
the Effective Date, (A) a bailee’s waiver in favor of Bank for each of the
following locations where Borrower maintains property with a third party: (1)
Pharma Packaging Solutions - 341 JD Yarnell Industrial Parkway, Clinton, TN
37716, (2) Sterling Pharmaceutical Services LLC - 102 Coulter Road, East
Carondelet, IL 62240, and (3) Albany Molecular Research, Inc. - 33 Riverside
Avenue, Rensselaer, NY 12144, by the respective third party thereof, together
with the duly executed original signatures thereto, and (B) evidence
satisfactory to Bank that the insurance policies and endorsements required by
Section 6.7 hereof are in full force and effect, together with appropriate
evidence showing lender loss payable and/or additional insured clauses or
endorsements in favor of Bank, and (ii) within forty-five (45) days after the
Effective Date, (A) a completed Marketing Consent Form, together with the duly
executed signature thereto and (B) duly executed signatures to the Control
Agreement with U.S. Bank and SVB Asset Management.

6.14NEGATIVE COVENANTS

Borrower shall not do any of the following without the prior written consent of
the Lenders:

6.15Dispositions.  Convey, sell, lease, transfer, assign, or otherwise dispose
of (including, without limitation, pursuant to a Division) (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, surplus or obsolete Equipment that is, in
the reasonable judgment of Borrower, no longer economically practicable to
maintain or useful in the ordinary course of business of Borrower; (c)
consisting of 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; (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; (g) subject to the limitations set forth in Section 6.7(b)
with respect to the remittance of proceeds, Transfers of any property subject to
a casualty event; (h) consisting of the abandonment, cancellation, non-renewal
or discontinuance of use or maintenance of any Intellectual Property (or rights
relating thereto) that Borrower determined in its good faith business judgment
is no longer material to Borrower’s business and not materially disadvantageous
to the interests of Agent and Lenders; and (i) not otherwise permitted by this
Section 7.1, in an aggregate amount not to exceed Two Hundred Fifty Thousand
Dollars ($250,000.00) in any twelve (12) month period.

-13-

224419752 v2

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

6.16Changes in Business, Management, Control, or Business Locations.  (a) Engage
in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable,
or reasonably related thereto; (b) liquidate or dissolve; (c) fail to provide
notice to Agent and Lenders of any Key Person departing from or ceasing to be
employed by Borrower within five (5) days after such Key Person’s departure from
Borrower; or (d) permit or suffer any Change in Control.  

Borrower shall not, without at least ten (10) days prior written notice to
Agent: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Two Hundred
Fifty Thousand Dollars ($250,000.00) in Borrower’s assets or property) or
deliver any portion of the Collateral valued, individually or in the aggregate,
in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) to a bailee at a
location other than to a bailee and at a location already disclosed in the
Perfection Certificate, excluding contract manufacturers or clinical sites, (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 add
any new offices or business locations, including warehouses, containing in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00) of Borrower's assets
or property, then Borrower will cause such landlord of any such new offices or
business locations, including warehouses, to execute and deliver a landlord
consent in form and substance reasonably satisfactory to Agent. If Borrower
intends to deliver any portion of the Collateral valued, individually or in the
aggregate, in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) to a
bailee, and Agent 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 cause such bailee to execute and
deliver a bailee agreement in form and substance reasonably satisfactory to
Agent, excluding contract manufacturers or clinical sites.

6.17Mergers 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 (including, without limitation, by
the formation of any Subsidiary or pursuant to a Division) other than Permitted
Acquisitions.  Notwithstanding the foregoing, a Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.

6.18Indebtedness.  Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness.

6.19Encumbrance.  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 and Transfers permitted by Section 7.1, permit any Collateral not to be
subject to the first priority security interest granted herein (subject only to
Permitted Liens that are permitted pursuant to the terms of this Agreement to
have superiority to Agent’s Lien under this Agreement), or enter into any
agreement, document, instrument or other arrangement (except with or in favor of
Agent, for the ratable benefit of the Lenders or pursuant to the Senior Loan
Documents) 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 (a) as is otherwise
permitted in Section 7.1 hereof and the definition of Permitted Liens herein,
(b) customary restrictions on assignment, transfer and encumbrances in license
agreements under which Borrower or a Subsidiary is the licensee, and (c)
covenants with such restrictions in contracts of sale or merger or acquisition
agreements, provided that in the case of this clause (c), (i) such covenants do
not prohibit or restrict Borrower from granting a security interest in
Borrower’s or any Subsidiary’s Intellectual Property in favor of Agent, for the
ratable benefit of the Lenders, and (ii) the counter-parties to such covenants
are not permitted to receive or obtain a security interest in Borrower’s
Intellectual Property or any Collateral.

6.20Maintenance of Collateral Accounts.  Maintain any Collateral Account except
pursuant to the terms of Section 6.6(b) hereof.

6.21Distributions; Investments.  (a) Pay any dividends or make any distribution
or payment or redeem, retire or purchase any capital stock provided that
Borrower may (i) convert any of its convertible securities into other securities
pursuant to the terms of such convertible securities, (ii) pay dividends solely
in common stock, (iii) make cash payments in lieu of fractional shares of
capital stock arising out of stock dividends, splits or combinations or

-14-

224419752 v2

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

Permitted Acquisitions in an aggregate amount not to exceed Twenty-Five Thousand
Dollars ($25,000.00) in any twelve (12) month period, (iv) repurchase the stock
of former employees, directors or consultants pursuant to stock repurchase
agreements so long as an Event of Default does not exist at the time of any such
repurchase and would not exist after giving effect to any such repurchase,
provided that the aggregate amount of all such repurchases does not exceed One
Hundred Fifty Thousand Dollars ($150,000.00) per fiscal year, and (v) purchase
capital stock in connection with the exercise of stock options, warrants or
other equity awards by way of cashless exercise or in connection with the
satisfaction of withholding tax obligations; or (b) directly or indirectly make
any Investment (including, without limitation, by the formation of any
Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries
to do so.

6.22Transactions with Affiliates.  Directly or indirectly enter into or permit
to exist any material transaction with any Affiliate of Borrower, except for (i)
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, (ii)
reasonable and customary fees paid to members of the Board of Borrower and its
Subsidiaries, (iii) compensation arrangements and benefit plans for officers and
other employees of Borrower and its Subsidiaries entered into or maintained in
the ordinary course of business, (iv) bridge financings and equity financings
with Borrower’s investors that are otherwise permitted by Section 7.2 and
constitutes Subordinated Debt, (v) transactions of the type described in and
permitted by Section 7.7, and (vi) transactions of the type described in and
permitted by subsection (f) of Permitted Investments and subsection (h) of
Permitted Indebtedness.

6.23Subordinated 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, provide for earlier or greater principal, interest, or other
payments thereon, or adversely affect the subordination thereof to Obligations
owed to Agent and the Lenders.

6.24Compliance.  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.

7EVENTS OF DEFAULT

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

7.1Payment 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).  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);

7.2Covenant Default.  

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3,
6.4, 6.5, 6.6, 6.7, 6.8(b) or 6.13, 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

-15-

224419752 v2

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

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;

7.3Material Adverse Change.  A Material Adverse Change occurs;

7.4Attachment; 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 or levy 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;

7.5Insolvency.  (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);

7.6Other 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 amount individually or in the aggregate
in excess of Five Hundred Thousand Dollars ($500,000.00); 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; provided, however,
that the Event of Default under this Section 8.6 caused by the occurrence of a
breach or default under such other agreement shall be cured or waived for
purposes of this Agreement upon Agent receiving written notice from the party
asserting such breach or default of such cure or waiver of the breach or default
under such other agreement, if at the time of such cure or waiver under such
other agreement (x) Agent has not declared an Event of Default under this
Agreement and/or exercised any rights with respect thereto; (y) any such cure or
waiver does not result in an Event of Default under any other provision of this
Agreement or any Loan Document; and (z) in connection with any such cure or
waiver under such other agreement, the terms of any agreement with such third
party are not modified or amended in any manner which could in the good faith
business judgment of Agent be materially less advantageous to Borrower or any
Guarantor;

7.7Judgments; 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 Five Hundred Thousand Dollars ($500,000.00) (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);

7.8Misrepresentations.  Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Agent or any Lender or to induce
Agent or any Lender to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement is incorrect in any material
respect when made (it being recognized by

-16-

224419752 v2

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

Agent 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);

7.9Subordinated Debt.  Any document, instrument, or agreement evidencing any
Subordinated Debt shall for any reason be revoked or invalidated or otherwise
cease to be in full force and effect (provided that any revocation,
cancellation, invalidation, or termination of any such document, instrument or
agreement that (i) is consented to in writing by Agent in its sole and absolute
discretion or (ii) results from Borrower’s payment in full of the Subordinated
Debt if permitted under any subordination agreement, shall not constitute an
Event of Default under this Section 8.9), any Person shall be in breach thereof
or contest in any manner the validity or enforceability thereof or deny that it
has any further liability or obligation thereunder, or the Obligations shall for
any reason be subordinated or shall not have the priority contemplated by this
Agreement or any applicable subordination or intercreditor agreement; or

7.10Governmental Approvals.  Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not renewed
in the ordinary course for a full term or (b) subject to any decision by a
Governmental Authority that designates a hearing with respect to any
applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) cause, or could reasonably be expected to cause,
a Material Adverse Change, or (ii)  materially adversely affects the legal
qualifications of Borrower or any of its Subsidiaries to hold such Governmental
Approval in any applicable jurisdiction and such revocation, rescission,
suspension, modification or non-renewal could reasonably be expected to
materially adversely affect the status of or legal qualifications of Borrower or
any of its Subsidiaries to hold any Governmental Approval in any other
jurisdiction.

7.11Senior Loan Agreement. The occurrence of an Event of Default (as defined in
the Senior Loan Agreement) under the Senior Loan Agreement.

8RIGHTS AND REMEDIES

8.1Rights and Remedies.  Upon the occurrence and during the continuance of an
Event of Default, Agent, in accordance with the Lender Intercreditor Agreement
or, if such rights and remedies are not addressed in the Lender Intercreditor
Agreement, as directed by Lenders having a majority of the Obligations, 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 Agent or any Lender);

(b)stop advancing money or extending credit for Borrower’s benefit under this
Agreement or under any other agreement among Borrower, Agent and/or any Lenders;

(c)demand that Borrower (i) deposit cash with SVB in an amount equal to at least
(x) one hundred five percent (105.0%) of the Dollar Equivalent of the aggregate
face amount of all Letters of Credit denominated in Dollars remaining undrawn,
and (y) one hundred ten percent (110.0%) of the Dollar Equivalent of the
aggregate face amount of all Letters of Credit denominated in a Foreign Currency
remaining undrawn (plus, in each case, all interest, fees, and costs due or to
become due in connection therewith (as estimated by SVB 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;

(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

-17-

224419752 v2

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

in any order that Agent and/or the Lenders consider advisable, and notify any
Person owing Borrower money of Agent’s security interest in such funds;  

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

(g)apply to the Obligations (i) any balances and deposits of Borrower it holds,
or (ii) any amount held by Agent 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.  Agent, for the benefit of the
Lenders, 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 Agent’s exercise of its rights under this Section, Borrower’s
rights under all licenses and all franchise agreements inure to Agent, for the
ratable benefit of the Lenders;

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

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

(k)exercise all rights and remedies available to Agent and the Lenders 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).

8.2Power of Attorney.  Borrower hereby irrevocably appoints Agent, for the
benefit of the Lenders, as its lawful attorney-in-fact, exercisable upon the
occurrence and during the continuance of an Event of Default, to: (a) endorse
Borrower’s name on any checks or other forms of payment or security; (b) sign
Borrower’s name on any invoice or bill of lading for any Account or drafts
against Account Debtors; (c) settle and adjust disputes and claims about the
Accounts directly with Account Debtors, for amounts and on terms Agent
determines reasonable; (d) make, settle, and adjust all claims under Borrower’s
insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance,
security interest, and adverse claim in or to the Collateral, or any judgment
based thereon, or otherwise take any action to terminate or discharge the same;
and (f) transfer the Collateral into the name of Agent or a third party as the
Code permits. Borrower hereby appoints Agent as its lawful attorney-in-fact to
sign Borrower’s name on any documents necessary to perfect or continue the
perfection of Agent’s security interest in the Collateral regardless of whether
an Event of Default has occurred until all Obligations (other than inchoate
indemnity obligations or other obligations which, by their terms, survive the
termination of this Agreement) have been satisfied in full and Lenders are under
no further obligation to make Credit Extensions hereunder. Agent’s foregoing
appointment as Borrower’s attorney in fact, and all of Agent’s rights and
powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and each Lender’s obligation to provide Credit
Extensions terminates.

8.3Protective 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, Agent may obtain
such insurance or make such payment, and all amounts so paid by Agent are
Lenders’ Expenses and immediately due and payable, bearing interest at the then
highest rate applicable to the Obligations, and secured by the Collateral. Agent
will make reasonable efforts to provide Borrower with notice of Agent obtaining
such insurance at the time it is obtained or within a reasonable time
thereafter. No payments by Agent are deemed an agreement to make similar
payments in the future or Agent’s or and Lenders’ waiver of any Event of
Default.

-18-

224419752 v2

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

8.4Application of Payments and Proceeds Upon Default.  If an Event of Default
has occurred and is continuing, Agent 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. Agent 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 Agent and the
Lenders for any deficiency. If Agent, directly or indirectly, enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Agent 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 Agent of
cash therefor.

8.5Liability for Collateral.  So long as Agent and Lenders comply with
reasonable banking practices regarding the safekeeping of the Collateral in
their possession or under the control of Agent and/or Lenders, Agent and Lenders
shall not be liable or responsible for: (a) the safekeeping of the Collateral;
(b) any loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other Person. Borrower bears all risk of loss, damage or destruction of the
Collateral, except to the extent caused by the gross negligence or willful
misconduct of Agent or Lenders.

8.6No Waiver; Remedies Cumulative.  Agent’s and any Lender’s failure, at any
time or times, to require strict performance by Borrower of any provision of
this Agreement or any other Loan Document shall not waive, affect, or diminish
any right of Agent or any Lender 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. Agent’s and each Lender’s
rights and remedies under this Agreement and the other Loan Documents are
cumulative. Agent and each Lender have all rights and remedies provided under
the Code, by law, or in equity. Agent’s or any Lender’s exercise of one right or
remedy is not an election and shall not preclude Agent or any Lender from
exercising any other remedy under this Agreement or any other Loan Document or
other remedy available at law or in equity, and Agent’s or any Lender’s waiver
of any Event of Default is not a continuing waiver. Agent’s or any Lender’s
delay in exercising any remedy is not a waiver, election, or acquiescence.  

8.7Demand Waiver.  To the extent permitted by law, Borrower waives demand,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees held
by Agent on which Borrower is liable.

9Agent

9.1Appointment and Authority.

(a)Each Lender hereby irrevocably appoints SVB to act on its behalf as Agent
hereunder and under the other Loan Documents and authorizes Agent to take such
actions on its behalf and to exercise such powers as are delegated to Agent by
the terms hereof or thereof, together with such actions and powers as are
reasonably incidental thereto.

(b)The provisions of this Section 10 are solely for the benefit of Agent and
Lenders, and Borrower shall not have rights as a third party beneficiary of any
of such provisions.  Notwithstanding any provision to the contrary elsewhere in
this Agreement, Agent shall not have any duties or responsibilities to any
Lender or any other Person, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against Agent.

9.2Delegation of Duties.  Agent may perform any and all of its duties and
exercise its rights and powers hereunder or under any other Loan Document by or
through any one or more sub-agents appointed by Agent.  Agent and any such
sub-agent may perform any and all of its duties and exercise its rights and
powers by or through their respective Indemnified Persons.  The exculpatory
provisions of this Section 10.2 shall apply to any such sub-agent and to the
Indemnified Persons of Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Agent.

-19-

224419752 v2

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

9.3  Exculpatory Provisions.  Agent shall have no duties or obligations except
those expressly set forth herein and in the other Loan Documents.  Without
limiting the generality of the foregoing, Agent shall not:

(a)be subject to any fiduciary, trust, agency or other similar duties,
regardless of whether any Event of Default has occurred and is continuing;

(b)have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that Agent is required to exercise as directed in
writing by the Lenders, as applicable; provided that Agent shall not be required
to take any action that, in its opinion or the opinion of its counsel, may
expose Agent to liability or that is contrary to any Loan Document or applicable
law; and

(c)except as expressly set forth herein and in the other Loan Documents, have
any duty to disclose, and Agent shall not be liable for the failure to disclose,
any information relating to Borrower or any of its Affiliates that is
communicated to or obtained by any Person serving as Agent or any of its
Affiliates in any capacity.

Agent shall not be liable for any action taken or not taken by it (i) with the
consent or at the request of the Lenders (or as Agent shall believe in good
faith shall be necessary, under the circumstances as provided in Section 13.7)
or (ii) in the absence of its own gross negligence or willful misconduct.

Agent shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made in or in connection with this
Agreement or any other Loan Document, (ii) the contents of any certificate,
report or other document delivered hereunder or thereunder or in connection
herewith or therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth herein or therein
or the occurrence of any Event of Default, (iv) the validity, enforceability,
effectiveness or genuineness of this Agreement, any other Loan Document or any
other agreement, instrument or document or (v) the satisfaction of any condition
set forth in Section 3 or elsewhere herein, other than to confirm receipt of
items expressly required to be delivered to Agent.

 

9.4 Reliance by Agent.  Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing (including any electronic
message, internet or intranet website posting or other distribution) believed by
it to be genuine and to have been signed, sent or otherwise authenticated by the
proper Person.  Agent also may rely upon any statement made to it orally or by
telephone and believed by it to have been made by the proper Person, and shall
not incur any liability for relying thereon.  Agent may consult with legal
counsel (who may be counsel for Borrower), independent accountants and other
experts selected by it, and shall not be liable for any action taken or not
taken by it in accordance with the advice of any such counsel, accountants or
experts.  In determining compliance with any condition hereunder to the making
of a Credit Extension that, by its terms, must be fulfilled to the satisfaction
of a Lender, Agent may presume that such condition is satisfactory to such
Lender unless Agent shall have received notice to the contrary from such Lender
prior to the making of such Credit Extension.  Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Loan Documents in accordance with a request of the Lenders, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon Lenders and all future holders of the Credit Extensions.

9.5 Notice of Default.  Agent shall not be deemed to have knowledge or notice of
the occurrence of any Event of Default (except with respect to defaults in the
payment of principal, interest or fees required to be paid to Agent for the
account of Lenders), unless Agent has received notice from a Lender or Borrower
referring to this Agreement, describing such Event of Default and stating that
such notice is a “notice of default”.  In the event that Agent receives such a
notice, Agent shall give notice thereof to Lenders.  Agent shall take such
action with respect to such Event of Default as shall be reasonably directed by
the Lenders.

9.6 Non-Reliance on Agent and Other Lenders.  Each Lender expressly acknowledges
that neither Agent nor any of its officers, directors, employees, agents,
attorneys in fact or affiliates has made any representations or warranties to it
and that no act by Agent hereafter taken, including any review of the affairs of
a Group Member or any Affiliate of a Group Member, shall be deemed to constitute
any representation or warranty by Agent to any Lender.  Each Lender represents
to Agent that it has, independently and without reliance upon Agent or any other
Lender, and

-20-

224419752 v2

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

based on such documents and information as it has deemed appropriate, made its
own appraisal of, and investigation into, the business, operations, property,
financial and other condition and creditworthiness of the Group Members and
their Affiliates and made its own decision to make its Credit Extensions
hereunder and enter into this Agreement.  Each Lender also represents that it
will, independently and without reliance upon Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Group Members and their Affiliates.  Except for notices,
reports and other documents expressly required to be furnished to Lenders by
Agent hereunder, Agent shall have no duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
any Group Member or any Affiliate of a Group Member that may come into the
possession of Agent or any of its officers, directors, employees, agents,
attorneys in fact or Affiliates.

9.7Indemnification.  Each Lender agrees to indemnify Agent in its capacity as
such (to the extent not reimbursed by Borrower and without limiting the
obligation of Borrower to do so in accordance with the terms hereof), according
to its Term Loan Commitment Percentage in effect on the date on which
indemnification is sought under this Section 10.7 (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Obligations shall have been paid in full, in accordance with its Term Loan
Commitment Percentage immediately prior to such date), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever that may at any
time (whether before or after the payment of the Credit Extensions) be imposed
on, incurred by or asserted against Agent in any way relating to or arising out
of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by Agent under or
in connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
that are found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted primarily from Agent’s gross negligence or willful
misconduct.  The agreements in this Section shall survive the payment of the
Credit Extensions and all other amounts payable hereunder.

9.8Agent in Its Individual Capacity.  The Person serving as Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not Agent and the term
“Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the
context otherwise requires, include each such Person serving as Agent hereunder
in its individual capacity.  Such Person and its Affiliates may accept deposits
from, lend money to, act as the financial advisor or in any other advisory
capacity for and generally engage in any kind of business with Borrower, any
Guarantor or any Subsidiary or other Affiliate thereof as if such Person were
not Agent hereunder and without any duty to account therefor to Lenders.

9.9  Successor Agent.  Agent may at any time give notice of its resignation to
Lenders and Borrower, which resignation shall not be effective until the time at
which the majority of the Lenders have delivered to Agent their written consent
to such resignation.  Upon receipt of any such notice of resignation, the
Lenders shall have the right, in consultation with Borrower, to appoint a
successor, which shall be a financial institution with an office in the State of
California, or an Affiliate of any such bank with an office in the State of
California.  If no such successor shall have been so appointed by the Lenders
and shall have accepted such appointment within thirty (30) days after the
retiring Agent has received the written consent of the majority of the Lenders
to such resignation, then the retiring Agent may on behalf of Lenders, appoint a
successor Agent meeting the qualifications set forth above; provided that in no
event shall any such successor Agent be a Defaulting Lender and provided further
that if the retiring Agent shall notify Borrower and Lenders that no qualifying
Person has accepted such appointment, then such resignation shall nonetheless
become effective in accordance with such notice and (1) the retiring Agent shall
be discharged from its duties and obligations hereunder and under the other Loan
Documents (except that in the case of any collateral security held by Agent on
behalf of the Lenders under any of the Loan Documents, the retiring Agent shall
continue to hold such collateral security until such time as a successor Agent
is appointed and such collateral security is assigned to such successor Agent)
and (2) all payments, communications and determinations provided to be made by,
to or through Agent shall instead be made by or to each Lender directly, until
such time as the Lenders appoint a successor Agent as provided for above in this
Section 10.9.  Upon the acceptance of a successor’s appointment as Agent
hereunder, such successor shall succeed to and become vested with all of the
rights, powers, privileges and duties of the retiring

-21-

224419752 v2

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

(or retired) Agent, and the retiring Agent shall be discharged from all of its
duties and obligations hereunder or under the other Loan Documents (if not
already discharged therefrom as provided above in this Section 10.9).  The fees
payable by Borrower to a successor Agent shall be the same as those payable to
its predecessor unless otherwise agreed between Borrower and such
successor.  After the retiring Agent’s resignation hereunder and under the other
Loan Documents, the provisions of this Section 10 shall continue in effect for
the benefit of such retiring Agent, its sub-agents and their respective
Indemnified Persons in respect of any actions taken or omitted to be taken by
any of them while the retiring Agent was acting as Agent.

9.10Defaulting Lender.  

(a)Defaulting Lender Adjustments.  Notwithstanding anything to the contrary
contained in this Agreement, if any Lender becomes a Defaulting Lender, then,
until such time as such Lender is no longer a Defaulting Lender, to the extent
permitted by applicable law:

(i)Waivers and Amendments.  Such Defaulting Lender’s right to approve or
disapprove any amendment, waiver or consent with respect to this Agreement shall
be restricted as long as said Lender is a Defaulting Lender.

(ii)Defaulting Lender Waterfall.  Any payment of principal, interest, fees or
other amounts received by the Agent for the account of such Defaulting Lender
(whether voluntary or mandatory, at maturity, pursuant to Section 8 or
otherwise, and including any amounts made available to the Agent by such
Defaulting Lender pursuant to Section 13.10), shall be applied at such time or
times as may be determined by the Agent as follows: first, to the payment of any
amounts owing by such Defaulting Lender to the Agent hereunder; second, as
Borrower may request (so long as no Event of Default exists), to the funding of
any Term Loan Advance in respect of which such Defaulting Lender has failed to
fund its portion thereof as required by this Agreement, as determined by the
Agent; third, if so determined by the Agent and Borrower, to be held in a
Deposit Account and released pro rata to satisfy such Defaulting Lender’s
potential future funding obligations with respect to Term Loan Advances under
this Agreement; fourth, so long as no Event of Default has occurred and is
continuing, to the payment of any amounts owing to Borrower as a result of any
judgment of a court of competent jurisdiction obtained by Borrower against such
Defaulting Lender as a result of such Defaulting Lender’s breach of its
obligations under this Agreement; and fifth, to such Defaulting Lender or as
otherwise directed by a court of competent jurisdiction; provided that if
(A) such payment is a payment of the principal amount of any Term Loan Advances
in respect of which such Defaulting Lender has not fully funded its appropriate
share and (B) such Term Loan Advances were made at a time when the conditions
set forth in Section 3.1 were satisfied or waived, such payment shall be applied
solely to pay the Term Loan Advance of all non-Defaulting Lenders on a pro rata
basis prior to being applied to the payment of any Term Loan Advances of such
Defaulting Lender until such time as all Term Loan Advances are held by the
Lenders pro rata in accordance with the Term Loan Commitments under this
Agreement.  Any payments, prepayments or other amounts paid or payable to a
Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting
Lender pursuant to this Section 10.10(a)(ii) shall be deemed paid to and
redirected by such Defaulting Lender, and each Lender irrevocably consents
hereto.

(iii)Certain Fees.  No Defaulting Lender shall be entitled to receive any fee
pursuant to Section 2.3(b) or Section 2.3(c) for any period during which such
Lender is a Defaulting Lender (and Borrower shall not be required to pay any
such fee that otherwise would have been required to have been paid to such
Defaulting Lender).  

(b)Defaulting Lender Cure.  If Borrower and Agent agree in writing that a Lender
is no longer a Defaulting Lender, Agent will so notify the parties hereto,
whereupon as of the effective date specified in such notice and subject to any
conditions set forth therein, such Lender will, to the extent applicable,
purchase at par that portion of outstanding Term Loan Advances of the other
Lenders or take such other actions as Agent may determine to be necessary to
cause the Term Loan Advances to be held on a pro rata basis by the Lenders in
accordance with their respective Term Loan Commitment Percentages, whereupon
such Lender will cease to be a Defaulting Lender;

-22-

224419752 v2

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

provided that no adjustments will be made retroactively with respect to fees
accrued or payments made by or on behalf of Borrower while such Lender was a
Defaulting Lender; and provided further that, except to the extent otherwise
expressly agreed by the affected parties, no change hereunder from Defaulting
Lender to Lender will constitute a waiver or release of any claim of any party
hereunder arising from such Lender having been a Defaulting Lender.

(c)Termination of Defaulting Lender.  Borrower may terminate the unused amount
of the Term Loan Commitment of any Lender that is a Defaulting Lender upon not
less than ten (10) Business Days’ prior notice to Agent (which shall promptly
notify the Lenders thereof), and in such event the provisions of Section
10.10(a)(ii) will apply to all amounts thereafter paid by Borrower for the
account of such Defaulting Lender under this Agreement (whether on account of
principal, interest, fees, indemnity or other amounts); provided that (i) no
Event of Default shall have occurred and be continuing, and (ii) such
termination shall not be deemed to be a waiver or release of any claim Borrower,
Agent or any Lender may have against such Defaulting Lender.

(d)If the Person serving as Agent is a Defaulting Lender pursuant to clause (d)
of the definition thereof, the non-Defaulting Lenders may, to the extent
permitted by applicable law, by notice in writing to Borrower and such Person,
remove such Person as Agent and, in consultation with Borrower, appoint a
successor.  If no such successor shall have been so appointed by the
non-Defaulting Lenders and shall have accepted such appointment within thirty
(30) days (or such earlier day as shall be agreed by the non-Defaulting Lenders)
(the “Removal Effective Date”), then such removal shall nonetheless become
effective in accordance with such notice on the Removal Effective Date.

10NOTICES

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. Agent 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 11.

If to Borrower:Verrica Pharmaceuticals Inc.

10 North High Street, Suite 200

West Chester, Pennsylvania 19380
Attn: Brian Davis

Email: Bdavis@verrica.com

 

with a copy to:

 

 

Cooley LLP

101 California Street, 5th Floor

San Francisco, California 94111-5800

Attention: Maricel Mojares-Moore

Fax: (415) 693-2222

Email: mmoore@cooley.com

 

If to Agent or SVB:Silicon Valley Bank
275 Grove Street, Suite 2-200
Newton, Massachusetts 02466
Attn:Michael McMahon
Email:  Mmcmahon@svb.com

-23-

224419752 v2

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

 

with a copy to:Morrison & Foerster LLP
200 Clarendon Street, 20th Floor
Attn: David A. Ephraim, Esquire

Email: Dephraim@mofo.com

If to WestRiver:WestRiver Innovation Lending Fund VIII, L.P.

c/o WestRiver Management, LLC

920 5th Avenue, Suite 3450
Seattle, WA 98104

Attn: Harper Ellison

Email: Harper@wrg.VC

 

11Choice of Law, Venue AND Jury Trial Waiver

Except as otherwise expressly provided in any of the Loan Documents, California
law governs the Loan Documents without regard to principles of conflicts of
law.  Except to the extent otherwise set forth in the Loan Documents, Borrower,
Agent and Lenders 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 Agent or
Lenders 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 Agent or
any Lender.  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 11 of this Agreement and that service so
made shall be deemed completed upon the earlier to occur of Borrower’s actual
receipt thereof or three (3) days after deposit in the U.S. mails, proper
postage prepaid.

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, AGENT AND EACH
LENDER 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 ALL PARTIES TO ENTER INTO THIS
AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

This Section 12 shall survive the termination of this Agreement.

12GENERAL PROVISIONS

12.1Termination 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, any other obligations which, by
their terms, are to survive the termination of this Agreement) have been
satisfied.  So long as Borrower has satisfied the Obligations (other than
inchoate indemnity obligations, any other obligations which, by their terms, are
to survive the termination 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 Agent.  Those obligations
that are expressly specified in this Agreement as surviving this Agreement’s
termination shall continue to survive notwithstanding this Agreement’s
termination.  No termination of this Agreement shall in any way affect or impair
any right or remedy of Agent or any Lender, nor shall any such termination
relieve Borrower of any Obligation to any Lender, until all of the Obligations
have been paid and performed in full. Those Obligations that are expressly
specified in this Agreement as

-24-

224419752 v2

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

surviving this Agreement’s termination shall continue to survive notwithstanding
this Agreement’s termination and payment in full of the Obligations then
outstanding.

12.2Successors and Assigns.  This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or obligations under it without Agent and Lenders’ prior
written consent (which may be granted or withheld in Agent’s and Lenders’ sole
discretion). Agent and each Lender has the right, without the consent of or
notice to Borrower, to sell, transfer, assign, negotiate, or grant participation
in all or any part of, or any interest in, such Lender’s obligations, rights,
and benefits under this Agreement and the other Loan Documents. Notwithstanding
the foregoing, prior to the occurrence of an Event of Default, Lenders shall not
assign any interest in the Loan Documents to any person who is a direct
competitor of Borrower.

12.3Indemnification.  Borrower agrees to indemnify, defend and hold Agent, each
Lender and their respective directors, officers, employees, agents, attorneys,
or any other Person affiliated with or representing Agent or any Lender (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 Lenders’ 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 Agent, Lenders and
Borrower (including  reasonable attorneys’ fees and expenses),  except for
Claims and/or losses directly caused by such Indemnified Person’s gross
negligence or willful misconduct.  This Section 13.3 shall survive until all
statutes of limitation with respect to the Claims, losses, and expenses for
which indemnity is given shall have run.

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

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

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

12.7Amendments 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, or release, or subordinate Lenders’ security
interest in, or consent to the transfer of, any Collateral shall be enforceable
or admissible unless, and only to the extent, expressly set forth in a writing
signed by Agent, with the consent of the Lenders in accordance with the Lender
Intercreditor Agreement or, if such item is not addressed in the Lender
Intercreditor Agreement, as consented to by a majority of the Lenders, and
Borrower.  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 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.  In the event any provision of any other Loan Document is
inconsistent with the provisions of this Agreement, the provisions of this
Agreement shall exclusively control.

12.8Counterparts.  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.

12.9Confidentiality. Agent and each Lender agrees to maintain the
confidentiality of Information (as defined below), except that Information may
be disclosed (a) to Agent and/or any Lender’s subsidiaries or Affiliates, and
their respective employees, directors, investors, potential investors, agents,
attorneys, accountants and other professional advisors (collectively,
“Representatives” and, together with Agent and the Lenders, collectively,
“Lender Entities”) provided that such Representatives shall agree to be bound by
the confidentiality provisions or

-25-

224419752 v2

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

agreements substantially the same as those set forth in this Section 13.9; (b)
to prospective transferees, assignees, credit providers or purchasers of any of
Agent’s or Lenders’ interests under or in connection with this Agreement and
their Representatives (provided, however, Agent and the Lenders shall use their
best efforts to obtain any such prospective transferee’s, assignee’s, credit
provider’s, or purchaser’s or their Representatives’ agreement to the terms of
this provision); (c) as required by law, regulation, subpoena, or other order;
(d) to Agent’s or any Lender’s regulators or as otherwise required in connection
with Agent’s or any Lender’s examination or audit; (e) as Agent or any Lender
considers appropriate in exercising remedies under the Loan Documents; and (f)
to third-party service providers of Agent and/or any Lender so long as such
service providers have executed a confidentiality agreement with Agent or the
Lenders, as applicable, with terms no less restrictive than those contained
herein. The term “Information” means all information received from Borrower
regarding Borrower or its business, in each case other than information that is
either: (i) in the public domain or in Agent’s or any Lender’s possession when
disclosed to Agent or such Lender, or becomes part of the public domain (other
than as a result of its disclosure by Agent or a Lender in violation of this
Agreement) after disclosure to Agent and/or the Lenders; or (ii) disclosed to
Agent and/or a Lender by a third party, if Agent or such Lender, as applicable,
does not know that the third party is prohibited from disclosing the
information.

Lender 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 the termination of this Agreement.

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

12.11Electronic 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.

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

12.13Construction 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.

12.14Relationship.  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.

12.15Third 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.

-26-

224419752 v2

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

12.16Patriot Act.  Each Lender hereby notifies Borrower that pursuant to the
requirements of the USA PATRIOT Act, it is required to obtain, verify and record
information that identifies Borrower and each of its Subsidiaries, which
information includes the names and addresses of Borrower and each of its
Subsidiaries and other information that will allow Lender, as applicable, to
identify Borrower and each of its Subsidiaries in accordance with the USA
PATRIOT Act.

13DEFINITIONS

13.1Definitions.  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, as to any Person, any “account” of such Person as “account” is
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 such Person.

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

“Acquisition” is (a) the purchase or other acquisition by Borrower or any of its
Subsidiaries of all or substantially all of the assets of any other Person, or
(b) the purchase or other acquisition (whether by means of merger,
consolidation, or otherwise) by Borrower or any of its Subsidiaries of all or
substantially all of the stock or other equity interest of any other Person.

“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.

“Agent” is defined in the preamble hereof.

“Agreement” is defined in the preamble hereof.

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

“Board” is Borrower’s board of directors.

“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
adopted by such Person’s board of directors (and, if required under the terms of
such Person’s Operating Documents, stockholders) and delivered by such Person to
Agent approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying (a) such Person has the authority
to execute, deliver, and perform its obligations under each of the Loan
Documents to which it is a party, (b) that set forth as a part of or attached as
an exhibit to such certificate is a true, correct, and complete copy of the
resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents, including any Credit Extension request, on behalf of such
Person, together with a sample of the true signature(s) of such Person(s), and
(d) that Agent and Lenders may conclusively rely on such certificate unless

-27-

224419752 v2

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

and until such Person shall have delivered to Agent and Lenders a further
certificate canceling or amending such prior certificate.

“Business Day” is any day that is not a Saturday, Sunday or a day on which Agent
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) SVB’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95.0%) of the assets of which constitute
Cash Equivalents of the kinds described in clauses (a) through (c) of this
definition.

“Change in Control” means (a) at any time, any “person” or “group” (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become,
or obtain rights (whether by means of warrants, options or otherwise) to become,
the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)‑5 under the
Exchange Act), directly or indirectly, of forty-nine percent (49.0%) or more of
the ordinary voting power for the election of directors of Borrower (determined
on a fully diluted basis) other than by the sale of Borrower’s equity securities
in a public offering or to venture capital or private equity investors so long
as Borrower identifies to the Agent and the Lenders the venture capital or
private equity investors at least seven (7) Business Days prior to the closing
of the transaction and provides to Agent and the Lenders a description of the
material terms of the transaction; (b) during any period of twelve (12)
consecutive months, a majority of the members of the board of directors or other
equivalent governing body of Borrower cease to be composed of individuals
(i) who were members of that board or equivalent governing body on the first day
of such period, (ii) whose election or nomination to that board or equivalent
governing body was approved by individuals referred to in clause (i) above
constituting at the time of such election or nomination at least a majority of
that board or equivalent governing body or (iii) whose election or nomination to
that board or other equivalent governing body was approved by individuals
referred to in clauses (i) and (ii) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing
body; or (c) at any time, Borrower shall cease to own and control, of record and
beneficially, directly or indirectly, one hundred percent (100.0%) of each class
of outstanding capital stock of each Subsidiary of Borrower free and clear of
all Liens (except Liens created by this Agreement).

“Claims” is defined in Section 13.3.

“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 provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of 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.

“Commitment” and “Commitments” means the Term Loan Commitment(s).

“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.

-28-

224419752 v2

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

“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 the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Agent pursuant to which Agent
obtains control (within the meaning of the Code) for the benefit of the Lenders
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 Advance or any other extension of credit by
any Lender for Borrower’s benefit.

“Default Rate” is defined in Section 2.2(b).

“Defaulting Lender” is, subject to Section 10.10(b), any Lender that (a) has
failed to (i) fund all or any portion of its Term Loan Advances within two (2)
Business Days of the date such Term Loan Advances were required to be funded
hereunder unless such Lender notifies Agent and Borrower in writing that such
failure is the result of such Lender’s reasonable determination that one or more
conditions precedent to funding (each of which conditions precedent, together
with any applicable default, shall be specifically identified in such writing)
has not been satisfied, or (ii) pay to Agent or any other Lender any other
amount required to be paid by it hereunder within two (2) Business Days of the
date when due, (b) has notified Borrower or Agent in writing that it does not
intend to comply with its funding obligations hereunder, or has made a public
statement to that effect (unless such writing or public statement relates to
such Lender’s obligation to fund a Term Loan Advance hereunder and states that
such position is based on such Lender’s reasonable determination that a
condition precedent to funding (which condition precedent, together with any
applicable default, shall be specifically identified in such writing or public
statement) cannot be satisfied), (c) has failed, within three (3) Business Days
after written request by Agent or Borrower, to confirm in writing to Agent and
Borrower that it will comply with its prospective funding obligations hereunder
(provided that such Lender shall cease to be a Defaulting Lender pursuant to
this clause (c) upon receipt of such written confirmation by Agent and
Borrower), or (d) has, or has a direct or indirect parent company that has, (i)
become the subject of an Insolvency Proceeding, or (ii) had appointed for it a
receiver, custodian, conservator, trustee, administrator, assignee for the
benefit of creditors or similar Person charged with reorganization or
liquidation of its business or assets, including the Federal Deposit Insurance
Corporation or any other state or federal regulatory authority acting in such a
capacity; provided that a Lender shall not be a Defaulting Lender solely by
virtue of the ownership or acquisition of any equity interest in that Lender or
any direct or indirect parent company thereof by a Governmental Authority so
long as such ownership interest does not result in or provide such Lender with
immunity from the jurisdiction of courts within the United States or from the
enforcement of judgments or writs of attachment on its assets or permit such
Lender (or such Governmental Authority) to reject, repudiate, disavow or
disaffirm any contracts or agreements made with such Lender.  Any determination
by Agent that a Lender is a Defaulting Lender under any one or more of clauses
(a) through (d) above shall be conclusive and binding absent manifest error, and
such Lender shall be deemed to be a Defaulting Lender (subject to Section
10.10(b)) upon delivery of written notice of such determination to Borrower and
each Lender.

-29-

224419752 v2

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

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

“Designated Deposit Account” is the account number ending 564 (last three
digits), maintained by Borrower with SVB (provided, however, if no such account
number is included, then the Designated Deposit Account shall be any deposit
account of Borrower maintained with SVB as chosen by the Lenders).

“Disbursement Letter” is that certain form attached hereto as Exhibit D.

“Division” means, in reference to any Person which is an entity, the division of
such Person into two (2) or more separate Persons, with the dividing Person
either continuing or terminating its existence as part of such division,
including, without limitation, as contemplated under Section 18 217 of the
Delaware Limited Liability Company Act for limited liability companies formed
under Delaware law, or any analogous action taken pursuant to any other
applicable law with respect to any corporation, limited liability company,
partnership or other entity.

“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
Agent 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.

“Draw Period” is the period of time commencing upon the occurrence of the
Milestone Event and continuing through the earlier to occur of (a) December 31,
2021 or (b) an Event of Default.

“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.

“Equity Event” means Borrower has received, after the Effective Date, but on or
prior to December 31, 2021, unrestricted and unencumbered gross cash proceeds in
an amount of at least Forty Million Dollars ($40,000,000.00) from the issuance
and sale by Borrower of its equity securities to investors reasonably acceptable
to Agent and the Lenders (other than Liens in favor of Agent for the ratable
benefit of the Lenders under this Agreement).

“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.

“Federal Funds Effective Rate” means, for any day, the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by SVB from three federal
funds brokers of recognized standing selected by it.

“Final Payment” is a payment (in addition to and not in substitution for the
regular monthly payments of principal plus accrued interest) equal to the
original principal amount of each Term Loan Advance extended by Lenders to
Borrower hereunder multiplied by seven and one-half of one percent (7.50%), due
on the earliest to occur of (a) the Term Loan Maturity Date, (b) the payment in
full of such Term Loan Advance, (c) as required by Section 2.1.1(d) or 2.1.1(e)
or (d) the termination of this Agreement.

-30-

224419752 v2

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

“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 SVB
under which Borrower commits to purchase from or sell to SVB 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.

“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.

“Group Member” means Borrower and its Subsidiaries.

“Guarantor” is any Person providing a Guaranty in favor of Lenders.

“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.

“Immaterial Subsidiary” is any Subsidiary of Borrower which is not a Material
Subsidiary.

“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 13.3.

“Information” is defined in Section 13.9.

“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, all of such Person’s
right, title, and interest in and to the following:

(a)its Copyrights, Trademarks and Patents;

-31-

224419752 v2

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

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

(c)any and all source code;

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

(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 Ted White
as of the Effective Date, and (b) Chief Financial Officer, who is Brian Davis as
of the Effective Date.  

“Lender” and “Lenders” is defined in the preamble.

“Lender Entities” is defined in Section 13.9.

“Lender Intercreditor Agreement” is, collectively, any and all intercreditor
agreement, master arrangement agreement or similar agreement by and between
WestRiver and SVB, as each may be amended from time to time in accordance with
the provisions thereof.

“Lenders’ Expenses” are all of Agent’s and the Lenders’ audit fees and expenses,
costs, and expenses (including reasonable 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.

“Letter of Credit” is a standby or commercial letter of credit issued by SVB
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
Subordination Agreement, the Senior Loan Agreement, the Perfection Certificate,
each Disbursement Letter, the Lender Intercreditor Agreement, any Control
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 Agent and the
Lenders in connection with this Agreement, all as amended, restated, or
otherwise modified.

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

-32-

224419752 v2

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

“Material Subsidiary” is any Subsidiary of Borrower that has assets or revenue
or material Intellectual Property valued in excess of Five Hundred Thousand
Dollars ($500,000.00) or is a Borrower or Guarantor hereunder.

“Milestone Event” means Borrower has provided Agent and the Lenders, on or prior
to December 31, 2021, with evidence satisfactory to Agent and each Lender, in
Agent’s and each Lender’s sole and absolute discretion, that each of the
following have occurred on or prior to December 31, 2021: (i) the Equity Event
and (ii) the Revenue Event.

“Obligations” are Borrower’s obligations to pay when due any debts, principal,
interest, fees, Lenders’ Expenses, the Final Payment, the Prepayment Premium,
and other amounts Borrower owes Agent or any Lender now or later, whether under
this Agreement, the other Loan Documents, or otherwise, including, without
limitation, any interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Agent and/or the Lenders,
and to perform Borrower’s duties under the Loan Documents.

“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.

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

“Perfection Certificate” is defined in Section 5.1.

“Permitted Acquisition” or “Permitted Acquisitions” is any Acquisition by the
Borrower, disclosed to Agent, provided that each of the following shall be
applicable to any such Acquisition:

(a)no Event of Default shall have occurred and be continuing or would result
from the consummation of the proposed Acquisition;

(b)the entity or assets acquired in such Acquisition are in the same or similar
line of business as Borrower is in as of the date hereof or reasonably related
thereto;

(c)such transaction shall only involve an entity formed, and assets located, in
the United States;

(d)the Acquisition is approved by the Board (or equivalent control group) of all
parties to the transaction;

(e)if the Acquisition includes a merger of Borrower, Borrower shall remain a
surviving entity after giving effect to such Acquisition; if, as a result of
such Acquisition, a new Subsidiary of Borrower is formed or acquired, Borrower
shall cause such Subsidiary to comply with Section 6.12, as required by Agent;

(f)Borrower shall provide Agent with written notice of the proposed Acquisition
at least thirty (30) Business Days prior to the anticipated closing date of the
proposed Acquisition; and not less than five (5) Business Days prior to the
anticipated closing date of the proposed Acquisition, copies of the acquisition
agreement and all other material documents relative to the proposed Acquisition
(or if such acquisition agreement and other material documents are not in final
form, drafts of such acquisition agreement and other material documents;
provided that Borrower shall deliver final forms of such acquisition agreement
and other material documents promptly upon completion);

-33-

224419752 v2

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

(g)the total cash consideration, (excluding equity) for all such Acquisitions
does not exceed Five Million Dollars ($5,000,000.00) in the aggregate for all
such Acquisitions;

(h)the resulting transaction is accretive to Borrower’s business on a
prospective pro forma financial basis as of twelve (12) months after giving
effect to such Acquisition;

(i)no Indebtedness will be incurred, assumed, or would exist with respect to
Borrower or its Subsidiaries as a result of the contemplated transaction, other
than Permitted Indebtedness;

(j)the Acquisition shall not constitute an Unfriendly Acquisition;  and

(k)the entity or assets acquired in such Acquisition shall not be subject to any
Lien other than (x) the first-priority Liens granted in favor of Agent, if
applicable and (y) Permitted Liens.

“Permitted Indebtedness” is:

(a)

Borrower’s Indebtedness to Agent and the Lenders under this Agreement and the
other Loan Documents;

(b)

Indebtedness existing on the Effective Date which is 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)

Indebtedness in connection with the Senior Loan Agreement;

(h)to the extent constituting Indebtedness, Investments permitted pursuant to
subsection (f) of the definition of Permitted Investments;

(i)Indebtedness consisting of the financing of insurance premiums;

(j)

other unsecured Indebtedness not otherwise permitted by Section 7.4 in an
aggregate principal amount not to exceed Five Hundred Thousand Dollars
($500,000.00) outstanding at any time;

(k)

unsecured Indebtedness in respect of guarantees, bank guarantees, surety or
performance bonds and similar instruments issued for (i) Borrower’s account in
the ordinary course of Borrower’s business or (ii) the account of any Subsidiary
of Borrower in the ordinary course of Borrower’s business in a maximum aggregate
amount not to exceed Five Hundred Thousand Dollars ($500,000.00) in order to
provide security for: (A) workers’ compensation claims, unemployment insurance
and other types of social security and employee health and disability benefits,
or casualty-liability insurance, payment obligations in connection with
self-insurance or similar requirements; and (B) tenders, completion guarantees,
statutory obligations, surety, environmental or appeal bonds, bids, leases,
government contracts, contracts (other than for borrowed money), performance
bonds or other obligations of a like nature; and

(l)

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

“Permitted Investments” are:

-34-

224419752 v2

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

(a)

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

(b)

(i) Investments consisting of Cash Equivalents, and (ii) any 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 Agent;

(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 (but only to the extent that Borrower
is permitted to maintain such accounts pursuant to Section 6.6 of this
Agreement) in which Agent has a first priority perfected security interest;

(e)

Investments accepted in connection with Transfers permitted by Section 7.1;

(f)

Investments by Borrower or any Subsidiary in (i) any Subsidiary that is a
Borrower or a secured Guarantor or (ii) in any Borrower;

(g)

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;

(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 the Board;

(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)

joint ventures or strategic alliances in the ordinary course of Borrower’s
business, provided that any cash investments by Borrower do not exceed Five
Hundred Thousand Dollars ($500,000.00) in the aggregate in any fiscal year;

(l)

deposits made to secure the performance of leases in the ordinary course of
business;

(m)

Permitted Acquisitions; and

(n)

other Investments not otherwise permitted by Section 7, not exceeding Five
Hundred Thousand Dollars ($500,000.00) in the aggregate outstanding at any time.

“Permitted Liens” are:

(a)

Liens existing on the Effective Date which are shown on the Perfection
Certificate or arising under this Agreement and the other Loan Documents;

(b)

Liens for taxes, fees, assessments or other government charges or levies, either
(i) not due and payable or (ii) being contested in good faith and for which
Borrower maintains adequate reserves on Borrower’s 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;

-35-

224419752 v2

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

(c)

purchase money Liens or capital leases (i) on Equipment acquired or held by
Borrower incurred for financing the acquisition of the Equipment securing no
more than Five Hundred Thousand Dollars ($500,000.00) 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 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 in connection with the Senior Loan Agreement;

(f)

leases or subleases of real property granted in the ordinary course of
Borrower’s business (or, if referring to another Person, in the ordinary course
of such Person’s business), and leases, subleases, non-exclusive licenses or
sublicenses of personal property (other than Intellectual Property) granted in
the ordinary course of Borrower’s business (or, if referring to another Person,
in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Agent a security interest
therein;

(g)

non-exclusive licenses 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 discreet geographical areas outside of the United States;

(h)

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

(i)

Liens in favor of other financial institutions arising in connection with
Borrower’s deposit and/or securities accounts held at such institutions,
provided that (i) Agent has a first priority perfected security interest in the
amounts held in such deposit and/or securities accounts (ii) such accounts are
permitted to be maintained pursuant to Section 6.6 of this Agreement;

(j)

Liens on insurance proceeds in favor of insurance companies granted solely as a
security for financed premiums;

(k)

pledges and deposits made in the ordinary course of business in compliance with
workers' compensation, unemployment insurance and other social security laws or
regulations (including pledges of deposits securing liability for reimbursement
or indemnity arrangements and letters of credit with respect thereto);

(l)

Liens to secure the performance of bids, trade contracts (other than for
borrowed money), contracts for the purchase of property permitted hereunder,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case, incurred in the ordinary
course of business, not representing an obligation for borrowed money;

(m)

Liens arising from precautionary filings under the Code;

(n)

easements, rights-of-way, restrictions and other similar encumbrances incurred
in the ordinary course of business that, in the aggregate, are not substantial
in an amount and that do not in any case materially detract from the value of
the property subject thereto or materially interfere with the ordinary conduct
of the business of Borrower or any Subsidiary;

(o)

Liens on assets of Borrower or its Subsidiaries so long as (i) such Liens do not
cover any property not subject to Bank’s Liens and (ii) the aggregate
outstanding principal amount of the obligations secured thereby does not exceed
One Hundred Thousand Dollars ($100,000.00) at any time; and

-36-

224419752 v2

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

(p)

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

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

“Prepayment Premium” shall be an additional fee, payable to Agent, for the
ratable benefit of the Lenders based on their Pro Rata Share, with respect to
the Term Loan Advances, in an amount equal to:

(a)for a prepayment of the Term Loan Advances made on or prior to the first
(1st) anniversary of the Effective Date, three percent (3.0%) of the then
outstanding principal amount of the Term Loan Advances immediately prior to the
date of such prepayment;

(b)for a prepayment of the Term Loan Advances made after the first (1st)
anniversary of the Effective Date, but on or prior to the second (2nd)
anniversary of the Effective Date, two percent (2.0%) of the then outstanding
principal amount of the Term Loan Advances immediately prior to the date of such
prepayment;

(c)for a prepayment of the Term Loan Advances made after the second (2nd)
anniversary of the Effective Date, but on or prior to the third (3rd)
anniversary of the Effective Date, one percent (1.0%) of the then outstanding
principal amount of the Term Loan Advances immediately prior to the date of such
prepayment; and

(d)for a prepayment of the Term Loan Advances made after the third (3rd)
anniversary of the Effective Date, zero percent (0.0%) of the then outstanding
principal amount of the Term Loan Advances immediately prior to the date of such
prepayment.

“Prime Rate” is the rate of interest per annum from time to time published in
the money rates section of The Wall Street Journal or any successor publication
thereto as the “prime rate” then in effect; provided that, in the event such
rate of interest is less than zero, such rate shall be deemed to be zero for
purposes of this Agreement; and provided further that if such rate of interest,
as set forth from time to time in the money rates section of The Wall Street
Journal, becomes unavailable for any reason as determined by Agent, the “Prime
Rate” shall mean the rate of interest per annum announced by SVB as its prime
rate in effect at its principal office in the State of California (such SVB
announced Prime Rate not being intended to be the lowest rate of interest
charged by SVB in connection with extensions of credit to debtors); provided
that, in the event such rate of interest is less than zero, such rate shall be
deemed to be zero for purposes of this Agreement.

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

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

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

“Removal Effective Date” is defined in Section 10.10(d).

“Repayment Schedule” means the period of time equal to twenty-four (24)
consecutive months, which shall be reduced to eighteen (18) consecutive months,
once the Term B Loan Advance is made.

“Representatives” is defined in Section 13.9.

“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.

-37-

224419752 v2

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

“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 Borrower from granting 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 would
interfere with the Agent’s right to sell any Collateral.

“Revenue Event” means Borrower has achieved (calculated with respect to Borrower
only and not on a consolidated basis), net revenue generated from the sale of
Borrower’s products (excluding revenue generated with respect to licensing
arrangements), determined in accordance with GAAP, of at least [***] Dollars
($[***]) for any trailing six (6) month period ending no later than December 31,
2021 (which six (6) month period shall end no earlier than the last day of the
first (1st) calendar month ending after the Effective Date).

“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.

“Senior Loan Agreement” means that certain Loan and Security Agreement by and
between Borrower and SVB dated as of March 10, 2020, (as the same has been and
may from time to time be further amended, modified, supplemented and/or
restated).

“Senior Loan Documents” are, collectively, the Senior Loan Agreement and the
Loan Documents as defined therein, all as amended, extended or restated form
time to time.

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

“Subordination Agreement” is that certain Subordination Agreement by and among
SVB and Bank (as such term is defined in the Senior Loan Agreement), and the
Lenders dated as of March 10, 2020 (as the same may from time to time be
amended, modified, supplemented and/or restated).

“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.

“SVB” is defined in the preamble hereof.

“Term A Loan Advance” is defined in Section 2.1.1(a).

“Term B Loan Advance” is defined in Section 2.1.1(a).

“Term Loan Advance” and “Term Loan Advances” are each defined in Section
2.1.1(a).

“Term Loan Amortization Date” means April 1, 2022, which shall be extended until
October 1, 2022, once the Term B Loan Advance is made.

-38-

224419752 v2

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

“Term Loan Commitment” means, for any Lender, the obligation of such Lender to
make a Term Loan Advance as and when available, up to the principal amount shown
on Schedule 1.  “Term Loan Commitments” means the aggregate amount of such
commitments of all Lenders.

“Term Loan Commitment Percentage” means, as to any Lender at any time, the
percentage (carried out to the fourth decimal place) of the Term Loan
Commitments represented by such Lender’s Term Loan Commitment at such time.  The
initial Term Loan Commitment Percentage of each Lender is set forth opposite the
name of such Lender on Schedule 1.

“Term Loan Maturity Date” is March 1, 2024.

“Testing Period” is, at all times, commencing as of September 30, 2020, when
unrestricted and unencumbered cash (other than Liens in favor of Agent for the
ratable benefit of the Lenders under this Agreement) held in accounts in the
name of Borrower maintained with SVB is less than two times (2x) the aggregate
outstanding Obligations of Borrower to Lenders.

“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.

“WestRiver” is defined in the preamble hereof.

[Signature page follows.]

 

-39-

224419752 v2

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

Certain information has been excluded from this agreement (indicated by “[***]”)
because such information (i) is not material and (ii) would be competitively
harmful if publicly disclosed.

 

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

BORROWER:

VERRICA PHARMACEUTICALS INC.

By: /s/ A. Brian Davis
Name: A. Brian Davis
Title: Chief Financial Officer

AGENT:

SILICON VALLEY BANK, as Agent

By: /s/ Michael McMahon
Name: Michael McMahon
Title: Director

LENDERS:

SILICON VALLEY BANK, as Lender

By: /s/ Michael McMahon
Name: Michael McMahon
Title: Director

WESTRIVER INNOVATION LENDING FUND VIII, L.P., as Lender

By: /s/ Trent Dawson
Name:  Trent Dawson
Title:  Chief Financial Officer

[Signature Page to Mezzanine Loan and Security Agreement]

224419752 v2

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

Schedule 1

LENDERS AND COMMITMENTS

 

TERM LOAN COMMITMENTS

 

Term A Loan Advance

Lender

Term A Loan Advance Commitment

Term A Loan Advance Commitment Percentage

Silicon Valley Bank

 

$17,500,000.00

 

50.0%

WestRiver Innovation Lending Fund VIII, L.P.

 

$17,500,000.00

 

50.0%

TOTAL

$35,000,000.00

100.0000%

 

Term B Loan Advance

Lender

Term B Loan Advance Commitment

Term B Loan Advance Commitment Percentage

Silicon Valley Bank

 

$7,500,000.00

 

50.0%

WestRiver Innovation Lending Fund VIII, L.P.

 

$7,500,000.00

 

50.0%

TOTAL

$15,000,000.00

100.0000%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

224419752 v2

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

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, certificates of
deposit, fixtures, letters of credit rights (whether or not the letter of credit
is evidenced by a writing), securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and

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

Notwithstanding the foregoing, the Collateral does not include (a) any property
to the extent that such grant of security interest is prohibited by any
Requirement of Law of a Governmental Authority or constitutes a breach or
default under or results in the termination of or requires any consent not
obtained under, any contract, license, agreement, instrument or other document
evidencing or giving rise to such property, except to the extent that such
Requirement of Law or the term in such contract, license, agreement, instrument
or other document providing for such prohibition, breach, default or termination
or requiring such consent is ineffective under Section 9-406, 9-407, 9-408 or
9-409 of the Code (or any successor provision or provisions) of any relevant
jurisdiction or any other applicable law (including the Bankruptcy Code) or
principles of equity; provided, however, that such security interest shall
attach immediately at such time as such Requirement of Law is not effective or
applicable, or such prohibition, breach, default or termination is no longer
applicable or is waived, and to the extent severable, shall attach immediately
to any portion of the Collateral that does not result in such consequences; (b)
Equipment that is subject to a Lien that is otherwise permitted pursuant to
subsection (c) of the definition of “Permitted Liens” if the holder of such Lien
has expressly prohibited Borrower in writing from granting Liens on such
property in favor of third parties; provided that immediately upon the
ineffectiveness, lapse, or termination of any such provision, the term
“Collateral” shall include, and Borrower shall be deemed to have granted a
security interest in, all of its rights, title and interests in and to such
property as if such provision had never been in effect; or (c) 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
Agent’s, for the ratable benefit of the Lenders, 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 Agent and
the Lenders, Borrower has agreed not to encumber any of its Intellectual
Property without Agent and the Lenders’ prior written consent.  

 

 

 

 

224419752 v2

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

EXHIBIT B

COMPLIANCE CERTIFICATE

Date:  

 

TO:SILICON VALLEY BANK, as Agent, SVB, and WESTRIVER INNOVATION LENDING FUND
VIII, L.P., as Lender

FROM:  VERRICA PHARMACEUTICALS INC.

The undersigned authorized officer of VERRICA PHARMACEUTICALS INC. (“Borrower”)
certifies that under the terms and conditions of the Loan and Security Agreement
among Borrower, SVB, and WestRiver (the “Loan Agreement”), (1) Borrower is in
complete 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 5.8 of the Agreement, and (5) no
Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Agent.  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

 

 

 

Monthly revenue, net profit and cash balance

statements with Compliance Certificate

Monthly within 30 days

Yes   No

Quarterly financial statements with
Compliance Certificate

Within 45 days of quarter end (within 90 days of quarter end for Q4)  

 

Yes   No

Annual financial statement with Compliance Certificate (CPA Audited)

FYE within 180 days

 

Yes   No

10-Q Report

Within 45 days of quarter end for 10-Q (within 90 days of quarter end for Q4)

Yes   No

Filed 10‑Q, 10‑K and 8-K

Within 5 days after filing with SEC

 

Yes   No

Board approved projections

30 days of FYE and as amended/updated

Yes   No

 

Financial Covenants

Required

Actual

Complies

 

 

 

 

Minimum Revenue*

$                *

$

Yes   No

* as set forth in Section 6.7

As of the date of this Certificate, the following financial covenant analysis
and information set forth in Schedule 1 attached hereto are true and accurate
for the period indicated.

Other Matters

 

1

224419752 v2

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

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.”)

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

 

 

 

VERRICA PHARMACEUTICALS INC.

 

By:

Name:

Title:

 

 

AGENT USE ONLY

 

Received by: _____________________

authorized signer

Date: _________________________

 

Verified: ________________________

authorized signer

Date: _________________________

 

Compliance Status:Yes     No

 

 

2

224419752 v2

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

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall govern.

Dated:____________________

I.Minimum Revenue (Section 6.7)

Required: During a Testing Period, Borrower shall achieve (calculated with
respect to Borrower only and not on a consolidated basis) for the most recent
calendar quarter then-ended and each calendar quarter thereafter if such Testing
Period is still in effect, minimum net revenue, generated from the sale of
Borrower’s products (excluding revenue generated with respect to licensing
arrangements), determined in accordance with GAAP, measured on a trailing six
(6) month basis, of at least:  

Trailing Six (6) Month Period Ending

Minimum Revenue

 

September 30, 2020

[***]

December 31, 2020

[***]

March 31, 2021

[***]

June 30, 2021

 

September 30, 2021

 

December 31, 2021

[***]

 

[***]

 

[***]

.

Actual:

A.

Minimum Revenue

 

$

 

Is line A equal to or greater than ________*?

* As set forth above.

  No, not in compliance  Yes, in compliance

 

3

224419752 v2

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

EXHIBIT C

LOAN PAYMENT/ADVANCE REQUEST FORM

Deadline for same day processing is Noon eastern Time

 

Fax To:  Date: _____________________

 

Loan Payment:   VERRICA PHARMACEUTICALS 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 Term Loan Advance $___________________________

 

All Borrower’s representations and warranties in the Mezzanine 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, Eastern 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 #:

 

 

 

224419752 v2

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

 

Exhibit D

 

Form of Disbursement Letter

[see attached]

224419752 v2

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

 

DISBURSEMENT LETTER

[DATE]

The undersigned, being the duly elected and acting

of VERRICA PHARMACEUTICALS INC., a Delaware corporation (“Borrower”), does
hereby certify to (a) SILICON VALLEY BANK, a California corporation (“SVB”), in
its capacity as administrative agent and collateral agent (“Agent”), (b) SILICON
VALLEY BANK, a California corporation, as a lender, (c) WESTRIVER INNOVATION
LENDING FUND VIII, L.P., a Delaware limited partnership (“WestRiver”), as a
lender (SVB and WestRiver and each of the other “Lenders” from time to time a
party hereto are referred to herein collectively as the “Lenders” and each
individually as a “Lender”) in connection with that certain Mezzanine Loan and
Security Agreement dated as of March 10, 2020 by and among Borrower, Agent and
the Lenders from time to time party thereto (the “Loan Agreement”; with other
capitalized terms used below having the meanings ascribed thereto in the Loan
Agreement) that:

1.

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

 

2.

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

 

3.

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

 

4.

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

 

5.

No Material Adverse Change has occurred.

 

6.

The undersigned is an Authorized Signer.

 

 

[Balance of Page Intentionally Left Blank]

 

1

224419752 v2

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

 

7A.

The proceeds of the [Term Loan Advance] shall be disbursed as follows:

 

Disbursement from SVB:

 

Loan Amount

$_______________

Plus:

 

‑‑Deposit Received

$__________

 

 

Less:

 

‑‑Commitment Fee

($__________)

--Lender’s Legal Fees

($_________)*

 

 

Net Proceeds due from SVB:

$_______________

 

 

Disbursement from WestRiver:

 

Loan Amount

$_______________

Plus:

 

‑‑Deposit Received

$__________

 

 

Less:

 

‑‑Commitment Fee

($_________)

 

 

Net Proceeds due from WestRiver:

$_______________

 

 

 

 

Loan Amount

$_______________

Plus:

 

--Deposit Received

$__________

 

 

Less:

 

--Commitment Fee

($_________)

 

 

Net Proceeds due from Agent

$_____________

 

 

TOTAL [TERM LOAN ADVANCE] NET PROCEEDS FROM LENDERS

$_______________

 

 

 

 

 

7B.

Funds from VERRICA PHARMACEUTICALS INC. (“Borrower”) Designated Deposit Account
shall be disbursed as follows:

 

SVB:

 

 

Term Loan Fees

$_______________

Revolver Loan Fees

$_______________

Lender’s Legal Fees

$_______________

 

 

WestRiver: Designated Deposit Account:_____________________

 

 

 

* Legal fees and costs are through the Effective Date.  Postclosing legal fees
and costs, payable after the Effective Date, to be invoiced and paid
postclosing.

 

2

224419752 v2

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

 

Term Loan Fees

$_______________

Revolver Loan Fees

$_______________

Funds due from Borrower (“Total Funds”)

$_______________

 

8A.

The aggregate net proceeds of the [Term Loan Advance] shall be transferred to
the Designated Deposit Account as follows:

 

 

Account Name:

____________________________________

Bank Name:

Silicon Valley Bank

Bank Address:

3003 Tasman Drive
Santa Clara, California 95054

Account Number:

____________________________________

ABA Number:

____________________________________

 

 

8B.

Borrower authorized SVB to debit the Total Funds from the Designated Deposit
Account set forth below:

 

 

Account Name:

____________________________________

Bank Name:

Silicon Valley Bank

Bank Address:

3003 Tasman Drive
Santa Clara, California 95054

Account Number:

____________________________________

ABA Number:

____________________________________

 

 

 

 

3

224419752 v2

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

 

Dated as of the date first set forth above.

BORROWER:

 

 

 

 

 

VERRICA PHARMACEUTICALS INC.

 

 

 

 

 

 

 

 

By

 

 

Name:

 

 

Title:

 

 

 

 

 

AGENT AND LENDER:

 

 

 

 

 

SILICON VALLEY BANK

 

 

 

 

 

 

 

 

By

 

 

Name:

 

 

Title:

 

 

 

 

 

LENDER:

 

 

SILICON VALLEY BANK

 

 

 

 

 

 

 

 

By

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

 

LENDER:

 

 

 

 

 

WESTRIVER INNOVATION LENDING FUND VIII, L.P.

 

 

 

 

 

 

 

 

By

 

 

Name:

 

 

Title:

 

 

 

 

224419752 v2