Exhibit 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of September 5,
2012 (the “Closing Date”) by and among MIDCAP FINANCIAL SBIC, LP, a Delaware
limited partnership (“MidCap”), as administrative agent (“Agent”), the Lenders
listed on Schedule 1 hereto and otherwise party hereto from time to time (each a
“Lender”, and collectively the “Lenders”), and KALOBIOS PHARMACEUTICALS, INC., a
Delaware corporation (“Borrower”), provides the terms on which Lenders agree to
lend to Borrower and Borrower shall repay Lenders. The parties agree as follows:

 

1. ACCOUNTING AND OTHER TERMS

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

 

2. LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay. Borrower hereby unconditionally promises to pay to Agent,
for payment to each Lender in accordance with its respective Pro Rata Share, the
outstanding principal amount of all Credit Extensions made by the Lenders, and
accrued and unpaid interest thereon, and any other amounts due hereunder as and
when due in accordance with this Agreement.

2.2 Term Loans.

(a) Availability. Subject to the terms and conditions of this Agreement, during
the Draw Period, the Lenders agree, severally and not jointly, to make one or
more term loans to Borrower in an aggregate amount up to Fifteen Million Dollars
($15,000,000) according to each Lender’s Term Loan Commitment as set forth on
Schedule 1 hereto (such term loans are hereinafter referred to singly as a “Term
Loan”, and collectively as the “Term Loans”). After repayment, no Term Loan may
be re-borrowed. The Term Loans shall be available in three (3) tranches. The
first tranche (“Tranche One”) shall be in an amount not less than Five Million
Dollars ($5,000,000), but not to exceed Ten Million Dollars ($10,000,000), and
shall be advanced on the Closing Date. The second tranche (“Tranche Two”) shall
be in an amount equal to Ten Million Dollars ($10,000,000) less the amount
advanced under Tranche One, and shall be available to be advanced in a single
advance during the Draw Period. The Third Tranche (“Tranche Three”) shall be in
amount equal to Five Million Dollars ($5,000,000) and shall be available in a
single advance during the Draw Period. Notwithstanding anything set forth herein
to the contrary, it is understood and agreed that Borrower is required to draw
not less than Ten Million Dollar ($10,000,000) on or prior to the Draw Period
Termination Date. Subject to the terms and conditions set forth in Section 12.1,
Borrower may not assign its right to request the Term Loans.

(b) Interest Payments and Repayment. Commencing on the first (1st) Payment Date
following the Funding Date of Tranche One, of Tranche Two and Tranche Three,
respectively, and continuing on the Payment Date of each successive month
thereafter through and including the Maturity Date, Borrower shall make monthly
payments of interest to Agent, for payment to each Lender in accordance with its
respective Pro Rata Share, in arrears, and calculated as set forth in
Section 2.3. Commencing on the Amortization Date, and continuing on the Payment
Date of each successive month thereafter through and including the Maturity
Date, Borrower shall make consecutive monthly payments of principal to Agent,
for payment to each Lender in accordance with its respective Pro Rata Share, as
calculated by Agent based upon: (i) the amount of such Lender’s Term Loans,
(ii) the effective rate of interest, as determined in Section 2.3, and (iii) a
straight-line amortization schedule for each Credit Extension beginning on the
Amortization Date and ending on the Maturity Date. All unpaid principal and
accrued interest with respect to the Term Loans is due and payable in full on
the Maturity Date. The Term Loans may be prepaid only in accordance with
Sections 2.2(c) and 2.2(d).

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(c) Mandatory Prepayments. If the Term Loans are accelerated following the
occurrence of an Event of Default, Borrower shall immediately pay to Agent, for
payment to each Lender in accordance with its respective Pro Rata Share, an
amount equal to the sum of: (i) all outstanding principal of the Term Loans and
all other Obligations, and all accrued and unpaid interest thereon, plus
(ii) the Final Payment, plus (iii) the Prepayment Fee, plus (iv) all other sums
that shall have become due and payable, including Lenders’ Expenses.

(d) Permitted Prepayment of Loans. Borrower shall have the option to prepay all
or a portion of the Term Loans advanced by the Lenders under this Agreement;
provided, however, that Borrower (i) provides written notice to Agent of its
election to prepay the Term Loans at least thirty (30) days prior to such
prepayment, and (ii) pays to Agent, for payment to each Lender in accordance
with its respective Pro Rata Share, on the date of such prepayment, an amount
equal to the sum of: (A) all amount of the Term Loan and Obligations (plus
accrued and unpaid interest thereon) being prepaid, plus (B) the Final Payment
applicable to the amount being prepaid, plus (C) the Prepayment Fee applicable
to the amount being prepaid, plus (D) all other sums that shall have become due
and payable, including Lenders’ Expenses.

2.3 Payment of Interest on the Credit Extensions.

(a) Computation of Interest. Interest on the Credit Extensions and all fees
payable hereunder shall be computed on the basis of a 360-day year and the
actual number of days elapsed in the period during which such interest accrues.
In computing interest on any Credit Extension, the date of the making of such
Credit Extension shall be included and the date of payment shall be excluded;
provided, however, that if any Credit Extension is repaid on the same day on
which it is made, such day shall be included in computing interest on such
Credit Extension.

(b) Interest Rate Determination. Subject to the provisions of Section 2.3(c)
below, each Term Loan shall bear interest on the outstanding principal amount
thereof from the date when made until paid in full at a rate per annum equal to
the sum of (i) the greater of (A) the LIBOR Rate in effect for the applicable
Interest Period and (B) three percent (3.00%), plus (ii) the LIBOR Rate Margin
adjusted on the first (1st) day of each Interest Period and fixed for the
duration of each such Interest Period. As of each Interest Rate Determination
Date, Agent shall determine (which determination shall, absent manifest error in
calculation, be final, conclusive and binding upon all parties) the interest
rate that shall apply to the Term Loan for which an interest rate is then being
determined for the applicable Interest Period. In the event that Agent shall
have determined (which determination shall be final and conclusive and binding
upon all parties hereto), as of any Interest Rate Determination Date with
respect to any Term Loan, that adequate and fair means do not exist for
ascertaining the interest rate applicable to such Term Loan on the basis
provided for in the definition of Base LIBOR Rate, then Agent may select a
comparable replacement index and corresponding margin.

(c) Default Rate. Immediately upon the occurrence and during the continuance of
an Event of Default, Obligations shall bear interest at a rate per annum that is
five percent (5.0%) above the rate that is otherwise applicable thereto (the
“Default Rate”). Payment or acceptance of the increased interest rate provided
in this Section 2.3(c) is not a permitted alternative to timely payment and
shall not constitute a waiver of any Event of Default or otherwise prejudice or
limit any rights or remedies of Agent or Lenders.

(d) Debit of Accounts. Agent may debit any of Borrower’s Deposit Accounts,
including the Designated Deposit Account, for principal and interest payments
when due or any other amounts Borrower owes the Lenders under the Loan Documents
when due, for payment to each Lender in accordance with its respective Pro Rata
Share. These debits shall not constitute a set-off.

(e) Payments. Payments of principal and/or interest received after 12:00 Noon
Eastern Time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest, as
applicable, shall continue to accrue until paid. All payments to be made by
Borrower hereunder or under any other Loan Document, including payments of
principal and interest made hereunder and pursuant to any other Loan Document,
and all fees, expenses, indemnities and reimbursements, shall be made without
set-off, recoupment or counterclaim, in lawful money of the United States and in
immediately available funds. All payments required under this Agreement are to
be made directly to Agent unless otherwise directed by Agent in writing.

 

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(f) Maximum Lawful Rate. In no event shall the interest charged hereunder, with
respect to the notes (if any) or any other obligations of Borrower under any of
the Loan Documents exceed the maximum amount permitted under the Laws of the
State of Maryland. Notwithstanding anything to the contrary herein or elsewhere,
if at any time the rate of interest payable hereunder or under any note or other
Loan Document (the “Stated Rate”) would exceed the highest rate of interest
permitted under any applicable Law to be charged (the “Maximum Lawful Rate”),
then for so long as the Maximum Lawful Rate would be so exceeded, the rate of
interest payable shall be equal to the Maximum Lawful Rate; provided, however,
that if at any time thereafter the Stated Rate is less than the Maximum Lawful
Rate, Borrower shall, to the extent permitted by Law, continue to pay interest
at the Maximum Lawful Rate until such time as the total interest received is
equal to the total interest which would have been received had the Stated Rate
been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable shall be the Stated Rate unless and until
the Stated Rate again would exceed the Maximum Lawful Rate, in which event this
provision shall again apply. In no event shall the total interest received by
any Lender exceed the amount which it could lawfully have received, had the
interest been calculated for the full term hereof at the Maximum Lawful Rate.
If, notwithstanding the prior sentence, any Lender has received interest
hereunder in excess of the Maximum Lawful Rate, then such excess amount shall be
applied to the reduction of the principal balance of such Lender’s Term Loan or
to other amounts (other than interest) payable hereunder, and if no such
principal or other amounts are then outstanding, such excess or part thereof
remaining shall be paid to Borrower. In computing interest payable with
reference to the Maximum Lawful Rate applicable to any Lender, such interest
shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by
the number of days in the year in which such calculation is made.

2.4 Fees and Expenses. Borrower shall pay to Agent, for payment to each Lender:

(a) Closing Fee. A non refundable closing fee to each Lender, in accordance with
its respective Pro Rata Share, equal to the product of (i) one half of one
percent (0.50%) multiplied by (ii) the aggregate Term Loan Commitment on the
Closing Date, which shall be due and payable on the Funding Date of Tranche One;

(b) Final Payment. The Final Payment, when due under Section 2.2(c) or 2.2(d),
or otherwise on the Maturity Date, to each Lender, in accordance with its
respective Pro Rata Share;

(c) Prepayment Fee. The Prepayment Fee, when due under Section 2.2(c) or 2.2(d),
to each Lender, in accordance with its respective Pro Rata Share immediately
prior to application of the corresponding prepayment;

(d) Good Faith Deposit. Borrower has paid to Agent, for payment to each Lender,
a deposit of Seventy Five Thousand Dollars ($75,000) (the “Good Faith Deposit”)
to initiate Agent’s due diligence review process. On the Closing Date, such Good
Faith Deposit will be applied to the Closing Fee; and

(e) Lenders’ Expenses. All of Lenders’ Expenses (including reasonable attorneys’
fees and expenses for documentation and negotiation of this Agreement) incurred
through and after the Closing Date, when due (and in the absence of any other
due date specified herein, such Lenders’ Expenses shall be due upon demand).

2.5 Additional Costs. If any new Law or regulation increases a Lender’s costs or
reduces its income for any Term Loan, Borrower shall pay the increase in cost or
reduction in income or additional expense; provided, however, that Borrower
shall not be liable for any amount attributable to any period before one hundred
eighty (180) days prior to the date such Lender notifies Borrower of such
increased costs. Each Lender agrees that it shall allocate any increased costs
among its customers similarly affected in good faith and in a manner consistent
with such Lender’s customary practice.

2.6 Payments and Taxes. Any and all payments made by Borrower under this
Agreement or any other Loan Document shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
governmental authority (including any interest, additions to tax or penalties
applicable thereto) other than any taxes imposed on or measured by any Lender’s
overall net income and franchise taxes imposed on it (in lieu of net income
taxes), by a jurisdiction (or any political subdivision thereof) as a result of
any Lender being organized or resident, conducting business (other than a
business deemed to arise from such Lender having executed, delivered or
performed its

 

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obligations or received a payment under, or enforced, or otherwise with respect
to, this Agreement or any other Loan Document) or having its principal office in
such jurisdiction (“Indemnified Taxes”). If any Indemnified Taxes shall be
required by Law to be withheld or deducted from or in respect of any sum payable
under this Agreement or any other Loan Document to any Lender, (a) an additional
amount shall be payable as may be necessary so that, after making all required
withholdings or deductions (including withholdings or deductions applicable to
additional sums payable under this Section) such Lender receives an amount equal
to the sum it would have received had no such withholdings or deductions been
made, (b) Borrower shall make such withholdings or deductions, (c) Borrower
shall pay the full amount withheld or deducted to the relevant taxing authority
or other authority in accordance with applicable Law, and (d) Borrower shall
deliver to such Lender evidence of such payment. Borrower’s obligation hereunder
shall survive the termination of this Agreement.

2.7 Secured Promissory Notes. Each Term Loan shall be evidenced by a Secured
Promissory Note in the form attached as Exhibit D hereto (each a “Secured
Promissory Note”), and shall be repayable as set forth herein. Borrower
irrevocably authorizes each Lender to make or cause to be made, on or about the
Funding Date of any Term Loan or at the time of receipt of any payment of
principal on such Lender’s Secured Promissory Note, an appropriate notation on
such Lender’s Secured Promissory Note Record reflecting the making of such Term
Loan or (as the case may be) the receipt of such payment. The outstanding amount
of each Term Loan set forth on such Lender’s Secured Promissory Note Record
shall be prima facie evidence of the principal amount thereof owing and unpaid
to such Lender, but the failure to record, or any error in so recording, any
such amount on such Lender’s Secured Promissory Note Record shall not limit or
otherwise affect the obligations of Borrower hereunder or under any Secured
Promissory Note to make payments of principal of or interest on any Secured
Promissory Note when due. Upon receipt of an affidavit of an officer of a Lender
as to the loss, theft, destruction, or mutilation of its Secured Promissory
Note, Borrower shall issue, in lieu thereof, a replacement Secured Promissory
Note in the same principal amount thereof and of like tenor.

2.8 Issuance of Warrants to Lenders. Borrower has duly authorized and issued to
Lenders warrants, the form of which is attached hereto as Exhibit E
(collectively, the “Warrants”), evidencing Lenders’ (or their respective
affiliates or designees) right to acquire their respective Pro Rata Share of the
class of stock of Borrower, on the terms and conditions set forth in the
Warrants, as necessary to comply with the requirements of the Loan Documents.

2.9 SBIC Acknowledgement. Borrower acknowledges that Agent is a Federal licensee
under the Small Business Investment Act of 1958, as amended.

 

3. CONDITIONS OF LOANS

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

(a) duly executed signatures to this Agreement, the Perfection Certificate and
the other Loan Documents to which Borrower is a party;

(b) duly executed original Secured Promissory Notes in favor of each Lender with
an aggregate face amount equal to the Term Loan Commitments;

(c) duly executed signatures to the Control Agreements with Comerica Bank and
State Street Bank;

(d) the Operating Documents of Borrower certified by the Secretary of State of
the state of organization of Borrower as of a date no earlier than thirty
(30) days prior to the Closing Date;

 

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(e) good standing certificates dated as of a date no earlier than thirty
(30) days prior to the Closing Date to the effect that Borrower is qualified to
transact business in all states in which the nature of Borrower’s business so
requires;

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

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

(h) a Registration Rights Agreement/Investors’ Rights Agreement and any
amendments thereto;

(i) completed SBA Forms 480, 652 and 1031 and the SBIC Side Letter; and

(j) payment of the Closing Fee described in Section 2.4(a) and the Lenders’
Expenses described in Section 2.4(e).

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

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

(b) the Operating Documents of each Loan Party certified by the secretary of
such Loan Party (or if such Operating Documents have been previously certified
and delivered and there have been no changes thereto, a certificate certifying
no change since such previous delivery);

(c) good standing certificates dated as of a date no earlier than thirty
(30) days prior to the Closing Date to the effect that each Loan Party is
qualified to transact business in all states in which the nature of such Loan
Party’s business so requires;

(d) certified copies, dated as of a recent date, of financing statement
searches, state and federal tax lien, fixture filings, judgment lien, litigation
and bankruptcy searches, as Agent shall request, accompanied by written evidence
(including any UCC termination statements) that the Liens indicated in any such
financing statements or other searches either constitute Permitted Liens or have
been or will be terminated or released prior to or simultaneously with the
funding of the applicable Term Loan;

(e) the representations and warranties in Section 5 shall be true, correct and
complete in all material respects on the date of the Payment/Advance Form and on
the Funding Date of each Credit Extension; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, and no Default or Event of Default shall
have occurred and be continuing or result from the Credit Extension. Each Credit
Extension is Borrower’s representation and warranty on that date that the
representations and warranties in Section 5 remain true, accurate and complete
in all material respects; provided, however, that such materiality qualifier
shall not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date;
and

(f) in such Lender’s sole discretion, there has not been any Material Adverse
Change.

3.3 Covenant to Deliver. Borrower agrees to deliver to Agent each item required
to be delivered to Agent under this Agreement as a condition precedent to any
Credit Extension. Borrower expressly agrees that a

 

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Credit Extension made prior to the receipt by Agent of any such item shall not
constitute a waiver by the Lenders of Borrower’s obligation to deliver such
item, and any such Credit Extension in the absence of a required item shall be
made in Agent’s sole discretion.

3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other
applicable conditions to the making of a Term Loan set forth in this Agreement,
to obtain a Term Loan, Borrower shall notify Agent (which notice shall be
irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon Eastern
time fifteen (15) Business Days prior to the date the Term Loan is to be made.
Together with any such electronic or facsimile notification, Borrower shall
deliver to Agent by electronic mail or facsimile a completed Payment/Advance
Form executed by a Responsible Officer or his or her designee. Upon receipt of a
Payment/Advance Form, Agent shall promptly provide a copy of the same to each
Lender. Agent may rely on any telephone notice given by a person whom Agent
reasonably believes is a Responsible Officer or designee.

 

4. CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Borrower hereby grants to Agent, for the ratable
benefit of the Lenders, to secure the payment and performance in full of all of
the Obligations, a continuing security interest in, and pledges to Agent, for
the ratable benefit of the Lenders, the Collateral, wherever located, whether
now owned or hereafter acquired or arising, and all proceeds and products
thereof. Borrower represents, warrants, and covenants that the security interest
granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral, subject only to Permitted Liens
that may have priority by operation of applicable Law. If Borrower shall acquire
a commercial tort claim (as defined in the Code), Borrower shall promptly notify
Agent in a writing signed by Borrower of the general details thereof (and
further details as may be required by Agent) and grant to Agent, for the ratable
benefit of the Lenders, in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to Agent.

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

 

5. REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows at all times unless expressly
provided below:

5.1 Due Organization, Authorization: Power and Authority.

(a) Borrower and each of its Subsidiaries (if any) are duly existing and in good
standing, as Registered Organizations in their respective jurisdictions of
formation and are qualified and licensed to do business and are in good standing
in any jurisdiction in which the conduct of their business or their ownership of
property requires that they be qualified except where the failure to do so could
not reasonably be expected to have a Material Adverse Change. Borrower
represents and warrants that(i) Borrower’s exact legal name is that indicated on
Schedule 5.1(a) and on the signature page hereof; (ii) Borrower is an
organization of the type and is organized in the jurisdiction set forth on
Schedule 5.1(a); (iii) Schedule 5.1(a) accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has
none; (iv) Schedule 5.1(a) accurately sets forth Borrower’s place of business,
or, if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); and (v) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction. Further, in connection with
this Agreement, Borrower has delivered to Agent a completed Perfection
Certificate signed by Borrower (the “Perfection Certificate”). All other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Closing 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.

 

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(b) The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents; (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law;
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected; (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals (x) which have already been obtained and are
in full force and effect or (y) as may be required by applicable securities laws
which such Governmental Approvals will be obtained by Borrower on a timely
basis); or (v) constitute an event of default under any Material Agreement by
which Borrower or any of its Subsidiaries or their respective properties is
bound, each of which is set forth on Schedule 5.2(b) hereto. 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
Change.

5.2 Collateral.

(a) Collateral Accounts. Borrower has good title to, has rights in, and has the
power to transfer each item of the Collateral upon which it purports to grant a
Lien hereunder, free and clear of any and all Liens, except Permitted Liens.
Borrower has no Deposit Accounts, Securities Accounts, Commodity Accounts or
other investment accounts other than the Collateral Accounts with the banks
and/or financial institutions listed on Schedule 5.2(a), for which Borrower has
given Agent notice and taken such actions as are necessary to grant to Agent,
for the ratable benefit of Lenders, a perfected security interest therein.

(b) Accounts. The Accounts are bona fide, existing obligations of the Account
Debtors.

(c) [Reserved].

(d) Intellectual Property and License Agreements. A list of all of Borrower’s
material Intellectual Property and all material license agreements, sublicenses,
or other rights of any Loan Party to use Intellectual Property (including all
material in-bound license agreements, but excluding over-the-counter software
that is commercially available to the public) is set forth on Schedule 5.2(d).
Except as noted on Schedule 5.2(d), Borrower is the sole owner of its
Intellectual Property, except for non-exclusive licenses granted to its
customers in the Ordinary Course of Business as identified on Schedule 5.2(d).
Each material Patent is valid and enforceable and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and to
the best of Borrower’s knowledge, no claim has been made that any part of the
Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to have a Material Adverse
Change.

(e) Location of Collateral. On the Closing Date, the Collateral is located at
the address(es) identified on Schedule 5.2(e), and are not in the possession of
any third party bailee (such as a warehouse) except as disclosed
Schedule 5.2(e), and as of the Closing Date, no such third party bailee
possesses components of the Collateral in excess of Twenty-Five Thousand Dollars
($25,000) or which constitutes Borrower’s Books. None of the components of the
Collateral shall be maintained at locations other than as disclosed
Schedule 5.2(e) on the Closing Date or as permitted pursuant to Section 7.2.
Subject to the provisions in Section 7.2, in the event that Borrower, after the
Closing Date, intends to store or otherwise deliver any portion of the
Collateral to a bailee in excess of Twenty-Five Thousand Dollars ($25,000) or
which constitutes Borrower’s Books, then Borrower will first receive the written
consent of Agent and such bailee must execute and deliver a bailee agreement in
form and substance satisfactory to Agent in its sole discretion.

5.3 Litigation. Except as disclosed on Schedule 5.3 hereto, there are no actions
or proceedings pending or, to the knowledge of the Responsible Officers,
threatened in writing by or against Borrower or any of its Subsidiaries
involving more than Three Hundred Thousand Dollars ($300,000).

 

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5.4 No Material Deterioration in Financial Condition; Financial Statements. All
consolidated financial statements for Borrower and any of its Subsidiaries
delivered to Agent fairly present, in conformity with GAAP, in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated
results of operations as of the date of such financial statements. There has not
been any material deterioration in Borrower’s consolidated financial condition
since the date of the most recent financial statements and projections submitted
to Agent.

5.5 Solvency. The fair salable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities. After giving
effect to the transactions described in this Agreement, (a) Borrower is not left
with unreasonably small capital in relation to its business as presently
conducted, and (b) Borrower is able to pay its debts (including trade debts) as
they mature.

5.6 Regulatory Compliance.

(a) Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act of 1940, as amended.
Borrower is not engaged in the business of purchasing or selling margin stock
and/or extending credit for the purpose of purchasing margin stock (under
Regulations X, T and U of the Federal Reserve Board of Governors). As of the
Closing Date, except as set forth on Schedule B, no Loan Party and no Subsidiary
of any Loan Party owns any Margin Stock. Borrower has complied in all material
respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of
its Subsidiaries is a “holding company” or an “affiliate” of a “holding company”
or a “subsidiary company” of a “holding company”, as each term is defined and
used in the Public Utility Holding Company Act of 2005. Borrower has not
violated any Laws, ordinances or rules, the violation of which could reasonably
be expected to have a Material Adverse Change. None of Borrower’s or any of its
Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary
or, to Borrower’s knowledge, by previous Persons, in disposing, producing,
storing, treating, or transporting any hazardous substance other than in
material compliance with applicable Laws. Borrower has obtained all Required
Permits, or has contracted with third parties holding Required Permits,
necessary for compliance in all material respects with all Laws and all such
Required Permits are current. Borrower and each of its Subsidiaries have
obtained all material 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.

(b) None of the Borrower, its Affiliates or any of their respective agents
acting or benefiting in any capacity in connection with the transactions
contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law,
(ii) engages in or conspires to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person.
Neither Borrower nor, to the knowledge of Borrower, any of its Affiliates or
agents acting or benefiting in any capacity in connection with the transactions
contemplated by this Agreement, (x) conducts any business or engages in making
or receiving any contribution of funds, goods or services to or for the benefit
of any Blocked Person, or (y) deals in, or otherwise engages in any transaction
relating to, any property or interest in property blocked pursuant to Executive
Order No. 13224, any similar executive order or other Anti-Terrorism Law.

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

5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed
all required tax returns or tax extensions and reports (except where the failure
to file any such tax return, extension or report does not result in penalties or
other liabilities to Borrower in excess of, individually or in the aggregate at
any time, Twenty Thousand Dollars ($20,000), and there are no Liens on any of
the Collateral in favor of a Governmental Authority resulting from the failure
to file any such tax return, extension or report except for “Permitted Liens”),
and Borrower and its Subsidiaries have timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower,
except for such taxes, assessments, deposits and contributions that do not at
any time exceed an amount of, individually or in the aggregate, Twenty Thousand
Dollars ($20,000) and there are no Liens on any of the Collateral in favor of a
Governmental Authority resulting from such unpaid taxes, assessments, deposits
and contributions except for “Permitted Liens”. Borrower may defer payment of
any contested taxes, provided, however, that Borrower (a) in good faith contests
its obligation to pay the taxes by appropriate

 

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proceedings promptly and diligently instituted and conducted, (b) notifies Agent
in writing of the commencement of, and any material development in, the
proceedings, and (c) posts bonds or takes any other steps required to prevent
the Governmental Authority levying such contested taxes from obtaining a Lien
upon any of the Collateral that is other than a “Permitted Lien”. Borrower is
unaware of any claims or adjustments proposed for any of Borrower’s prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their terms,
and Borrower has not withdrawn from participation in, and has not permitted
partial or complete termination of, or permitted the occurrence of any other
event with respect to, any such plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

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

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

5.11 Regulatory Developments.

(a) All Products and all material Required Permits are listed on Schedule 5.11
(as updated from time to time pursuant to Section 6.2(e)), and Borrower has
delivered to Agent a copy of all material Required Permits as of the date hereof
and to the extent requested by Agent pursuant to Section 6.2(e).

(b) Without limiting the generality of Section 5.6 above, except as disclosed in
writing to Agent from time to time, with respect to any Product being tested or
manufactured by Borrower, Borrower has received, and such Product is the subject
of, all Required Permits needed in connection with the testing or manufacture of
such Product as such testing is currently being conducted by or on behalf of
Borrower, and Borrower has not received any notice from any applicable
Governmental Authority, specifically including the FDA, that such Governmental
Authority is conducting an investigation or review of (i) Borrower’s
manufacturing facilities and processes for such Product which have disclosed any
material deficiencies or violations of Laws and/or the Required Permits related
to the manufacture of such Product, or (ii) any such Required Permit or that any
such Required Permit has been revoked or withdrawn, nor has any such
Governmental Authority issued any order or recommendation stating that the
development, testing and/or manufacturing of such Product by Borrower should
cease.

(c) Without limiting the generality of Section 5.6 above, except as disclosed in
writing to Agent from time to time, with respect to any Product marketed or sold
by Borrower, Borrower has received, and such Product is the subject of, all
Required Permits needed in connection with the marketing and sales of such
Product as currently being marketed or sold by Borrower, and Borrower has not
received any notice from any applicable Governmental Authority, specifically
including the FDA, that such Governmental Authority is conducting an
investigation or review of any such Required Permit or approval or that any such
Required Permit has been revoked or withdrawn, nor has any such Governmental
Authority issued any order or recommendation stating that such marketing or
sales of such Product cease or that such Product be withdrawn from the
marketplace.

(d) Without limiting the generality of Section 5.6 above, (i) there have been no
adverse clinical test results which have or could reasonably be expected to
cause a Material Adverse Change, and (ii) except as disclosed in writing to
Agent from time to time, there have been no Product recalls or voluntary Product
withdrawals from any market.

 

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6. AFFIRMATIVE COVENANTS

Borrower covenants and agrees to do all of the following:

6.1 Organization and Existence; Government Compliance.

(a) Maintain its and all its Subsidiaries’ legal existence and good standing in
their respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to
have a Material Adverse Change. Borrower shall comply, and have each Subsidiary
comply, with all Laws, ordinances and regulations to which it is subject, the
noncompliance with which could reasonably be expected to have a Material Adverse
Change.

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

(c) In connection with the development, testing, manufacture, marketing or sale
of each and any Product by Borrower, Borrower shall comply fully and completely
in all respects with all Required Permits at all times issued by any
Governmental Authority the noncompliance with which could reasonably be expected
to have a Material Adverse Change, specifically including the FDA, with respect
to such development, testing, manufacture, marketing or sales of such Product by
Borrower as such activities are at any such time being conducted by Borrower.

6.2 Financial Statements, Reports, Certificates.

(a) Deliver to Agent: (i) as soon as available, but no later than forty-five
(45) days after the last day of each month, a company prepared consolidated
balance sheet, income statement and cash flow statement covering Borrower’s
consolidated operations for such month certified by a Responsible Officer and in
a form acceptable to Agent; (ii) as soon as available, but no later than one
hundred twenty (120) days after the last day of Borrower’s fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm acceptable to Agent in its
reasonable discretion; (iii) as soon as available after approval thereof by
Borrower’s Board of Directors, but no later than thirty (30) days after the last
day of Borrower’s fiscal year, Borrower’s financial projections for current
fiscal year as approved by Borrower’s Board of Directors; (iv) within five
(5) days of delivery, copies of all statements, reports and notices made
available to all of Borrower’s security holders or to any holders of
Subordinated Debt; (v) in the event that Borrower becomes subject to the
reporting requirements under the Securities Exchange Act of 1934, as amended,
within five (5) days of filing, all reports on Form 10-K, 10-Q and 8 K filed
with the Securities and Exchange Commission or a link thereto on Borrower’s or
another website on the Internet; (vi) a prompt report of any legal actions
pending or threatened against Borrower or any of its Subsidiaries that could
result in damages or costs to Borrower or any of its Subsidiaries of Three
Hundred Thousand Dollars ($300,000) or more or could result in a Material
Adverse Change; and (vii) budgets, sales projections, operating plans and other
financial information reasonably requested by Agent.

(b) Within forty-five (45) days after the last day of each month, deliver to
Agent with the monthly financial statements described above, a duly completed
Compliance Certificate signed by a Responsible Officer.

(c) Keep proper books of record and account in accordance with GAAP in which
full, true and correct entries shall be made of all dealings and transactions in
relation to its business and activities. Borrower shall allow, at the sole cost
of Borrower, Agent and Lenders to visit and inspect any of its properties, to
examine and make abstracts or copies from any of Borrower’s Books, to conduct a
collateral audit and analysis of its operations and the Collateral to verify the
amount and age of the accounts, the identity and credit of the respective
account debtors, to review the billing practices of Borrower and to discuss its
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants as often as may reasonably be
desired. Notwithstanding the foregoing, such audits shall be conducted at
Borrower’s expense no more often than once every six (6) months unless a Default
or Event of Default has occurred and is continuing.

 

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(d) Within ten (10) days of (i) acquiring and/or developing any new material
Intellectual Property, or (ii) entering or becoming bound by any additional
material license or sublicense agreement or other material agreement with
respect to rights in Intellectual Property (other than over-the-counter software
that is commercially available to the public), deliver to Agent an updated
Schedule 5.2(d) reflecting same, and upon any other material change in
Borrower’s Material Intellectual Property from that listed on Schedule 5.2(d).
Borrower shall take such steps as Agent reasonably requests to obtain the
consent of, or waiver by, any person whose consent or waiver is necessary for
(x) all licenses or agreements 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 license or agreement, whether now existing or
entered into in the future, and (y) Agent to have the ability in the event of a
liquidation of any Collateral to dispose of such Collateral in accordance with
Agent’s rights and remedies under this Agreement and the other Loan Documents.

(e) If, after the Closing Date, Borrower determines to manufacture, sell,
develop, test or market any new Product, Borrower shall give prior written
notice to Agent of such determination (which shall include a brief description
of such Product, plus a list of all material Required Permits relating to such
new Product (and a copy of such material Required Permits if requested by Agent)
and/or Borrower’s manufacture, sale, development, testing or marketing thereof
issued or outstanding as of the date of such notice), along with a copy of an
updated Schedule 5.11; provided, however, that if Borrower shall at any time
obtain any new or additional material Required Permits from the FDA, DEA, or
parallel state or local authorities, or foreign counterparts of the FDA, DEA, or
parallel state or local authorities, with respect to any Product which has
previously been disclosed to Agent, Borrower shall promptly give written notice
to Agent of such new or additional Required Permits (along with a copy thereof
if requested by Agent).

(f) Within ninety (90) days after the end of each fiscal year of Borrower, and
at such other times as Agent may reasonably request to the extent related to SBA
regulations, Borrower shall provide to Agent such forms and financial and other
information with respect to any business or financial condition of Borrower or
any of its Subsidiaries required by the SBA, including, but not limited to
(i) forms and information with respect to Agent’s or any Lender’s reporting
requirements under SBA Form 468, (ii) information regarding the full-time
equivalent jobs created or retained in connection with any Lender’s investment
in Borrower, the impact of the financing on Borrower’s business in terms of
revenues and profits and on taxes paid by Borrower and its employees, and
(iii) a list of holders of the Loans.

(g) Upon request of Agent, the Borrower shall use commercially reasonable
efforts to promptly (and in any event within twenty (20) days of such request)
furnish to Agent all information reasonably requested, to the extent reasonably
available to the Borrower in order for Agent or any Lender to comply with the
requirements of 13 C.F.R. Section 107.620 or to prepare or file SBA Form 468 and
any other information requested or required by the SBA.

(h) Promptly, upon approval by Borrower’s board of directors, furnish to Agent
all amendments and modifications to the Investment Policy.

6.3 [Reserved].

6.4 Taxes; Pensions. Timely file and require each of its Subsidiaries to timely
file, all required tax returns or tax extensions and reports (except where the
failure to file any such tax return, extension or report does not result in
penalties or other liabilities to Borrower in excess of, individually or in the
aggregate at any time, Twenty Thousand Dollars ($20,000), and there are no Liens
on any of the Collateral in favor of a Governmental Authority resulting from the
failure to file any such tax return, extension or report, except for “Permitted
Liens”) 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 such Borrower and each of its Subsidiaries, except for
(i) taxes, assessments, deposits and contributions that do not at any time
exceed an amount of, individually or in the aggregate, Twenty Thousand Dollars
($20,000) and there are no Liens on any of the Collateral in favor of a
Governmental Authority resulting from such unpaid taxes, assessments, deposits
and contributions except for “Permitted Liens”, and (ii)

 

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deferred payment of any taxes contested pursuant to the terms of Section 5.8
hereof, and shall deliver to Agent, on demand, appropriate certificates
attesting to such payments, and pay all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their
terms.

6.5 Insurance. Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location and as Agent
may reasonably request. Insurance policies shall be in a form, with companies,
and in amounts that are satisfactory to Agent. All property policies shall have
a lender’s loss payable endorsement showing Agent as lender loss payee and waive
subrogation against Agent, and all liability policies shall show, or have
endorsements showing, Agent, as an additional insured. All policies (or the loss
payable and additional insured endorsements) shall provide that the insurer
shall endeavor to give Agent at least thirty (30) days notice before canceling,
amending, or declining to renew its policy. At Agent’s request, Borrower shall
deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy shall, at Agent’s option, be payable to Agent
on behalf of the Lenders on account of the Obligations, unless at the time of
such payment, no Default or Event of Default has occurred and is continuing and
such proceeds are less than Three Hundred Thousand Dollars ($300,000), in which
case, Borrower may use such proceeds to replace or repair the property which is
the subject of such casualty within ninety (90) days after Borrower’s receipt of
such proceeds. If Borrower fails to obtain insurance as required under this
Section 6.5 or to pay any amount or furnish any required proof of payment to
third persons and Agent, Agent may make all or part of such payment or obtain
such insurance policies required in this Section 6.5, and take any action under
the policies Agent deems prudent.

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

6.7 Protection of Intellectual Property Rights. Borrower shall own, or be
licensed to use or otherwise have the right to use, all Material Intellectual
Property. All Intellectual Property of Borrower is and shall be fully protected
and/or duly and properly registered, filed or issued in the appropriate office
and jurisdictions for such registrations, filings or issuances, except where the
failure to do so would not reasonably be expected to result in a Material
Adverse Change. Borrower shall at all times use commercially reasonable efforts
to not become a party to, nor become bound by, any material license or other
agreement with respect to which Borrower is the licensee that prohibits or
otherwise restricts Borrower from granting a security interest in Borrower’s
interest in such license or agreement or other property. Borrower shall at all
times conduct its business without infringement or claim of infringement of any
Intellectual Property rights of others. Borrower shall do the following, to the
extent it determines, in the exercise of its reasonable business judgment, that
it is prudent to do so: (a) protect, defend and maintain the validity and
enforceability of its Intellectual Property; (b) promptly advise Agent in
writing of material infringements of any Material Intellectual Property; and
(c) not allow any Material Intellectual Property to be abandoned, forfeited or
dedicated to the public without Agent’s prior written consent.

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

6.9 Notices of Litigation, Material Agreement Matters and Default. Borrower will
give prompt written notice to Agent of any litigation or governmental
proceedings pending or threatened (in writing) against Borrower which would
reasonably be expected to have a Material Adverse Change. Without limiting or
contradicting any other more specific provision of this Agreement, promptly (and
in any event within three (3) Business Days), (i) upon Borrower becoming aware
of the existence of any Event of Default or event which, with the giving of
notice or passage of time, or both, would constitute an Event of Default or
(ii) upon the execution and delivery of each amendment to, and copies of all
statements, reports and notices delivered to or by a Loan Party in

 

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connection with, any Material Agreement, Borrower shall give written notice to
Agent of such occurrence, which such notice shall include a reasonably detailed
description of such Event of Default or event which, with the giving of notice
or passage of time, or both, would constitute an Event of Default.

6.10 Creation/Acquisition of Subsidiaries. In the event Borrower or any
Subsidiary creates or, to the extent permitted hereunder, acquires any
Subsidiary, Borrower and such Subsidiary shall promptly (and in any event within
five (5) Business Days of such creation or acquisition) notify Agent of the
creation or acquisition of such new Subsidiary and take all such action as may
be reasonably required by Agent to cause each such domestic Subsidiary to become
a co-Borrower hereunder or to guarantee the Obligations of Borrower under the
Loan Documents and, in each case, grant a continuing pledge and security
interest in and to the assets of such Subsidiary (substantially as described on
Exhibit A hereto); and Borrower shall grant and pledge to Agent, for the ratable
benefit of the Lenders, a perfected security interest in the stock, units or
other evidence of ownership of each Subsidiary (provided that in no event shall
more than sixty-five percent (65%) of the total outstanding voting capital stock
of any Foreign Subsidiary be required to be so pledged if the pledge of a
greater amount would cause Borrower adverse tax consequences under Internal
Revenue Code Section 956, or any successor statute) (the foregoing collectively,
the “Joinder Requirements”); provided, that Borrower shall not be permitted to
make any Investment in such Subsidiary until such time as Borrower has satisfied
the Joinder Requirements.

6.11 Further Assurances.

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

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

6.12 Post-Closing Obligations. Borrower shall complete each of the post closing
obligations and/or deliver to Agent each of the documents, instruments,
agreements and information listed on Schedule 6.12 attached hereto, on or before
the date set forth for each such item thereon, each of which shall be completed
or provided in form and substance satisfactory to Agent and Lenders.

 

7. NEGATIVE COVENANTS

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

7.1 Dispositions. Convey, sell, lease, transfer, assign, grant a security in or
otherwise dispose of (collectively, “Transfer”), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, except
for (a) Transfers of Inventory in the Ordinary Course of Business; (b) Transfers
of worn-out or obsolete Equipment; (c) Transfers in connection with Permitted
Liens; (d) 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.
Without limiting the foregoing, Borrower agrees that it shall not grant a
security interest or otherwise encumber any of its Intellectual Property without
Agent’s and Required Lenders’ prior written consent.

7.2 Changes in Business, Ownership or Business Locations. (a) Engage in or
permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable,
or reasonably related thereto; (b) liquidate or dissolve; (c) enter into any
transaction or series of related transactions which would result in a Change in
Control, other than after a Qualifying Initial Public Offering, so long as at
such time Borrower’s shares continue to be sold on the NYSE, NASDAQ or other
comparable registered public exchange, (d) change its organizational structure
or type; (e) change its legal name; or (f) change any organizational number (if
any) assigned by its jurisdiction of organization. Notwithstanding anything to
the contrary herein or elsewhere, Borrower hereby agrees that Agent may, at any
time, in its sole but reasonable

 

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discretion, request that Borrower promptly deliver to Agent a fully-executed
Access Agreement in respect of (i) Borrower’s facilities at 260 East Grand
Avenue, South San Francisco, California 94080, (ii) Catalent Pharma Solutions,
LLC’s facilities at 3001 Red Lion Road, Philadelphia, Pennsylvania 19114,
(iii) Cook Pharmica LLC’s facilities at 1300 South Patterson Drive, Bloomington,
Indiana 47403, (iv) and/or any other facility, office or business location of
Borrower, including any warehouse.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person; provided, however, that a
Subsidiary of Borrower may merge or consolidate into another Subsidiary that is
a Loan Party or into Borrower, so long as (a) Borrower has provided Agent with
prior written notice of such transaction, (b) Borrower shall be the surviving
legal entity, (c) Borrower’s tangible net worth is not thereby reduced, and
(d) as long as no Event of Default is occurring prior thereto or arises as a
result therefrom.

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

7.5 Encumbrance. (a) Create, incur, allow, or suffer any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, (b) permit any Collateral not to be subject to the first priority
security interest granted herein, (c) enter into any agreement, document,
instrument or other arrangement (except with or in favor of Agent) with any
Person which directly or indirectly prohibits or has the effect of prohibiting
Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a
security interest in or upon, or (d) encumbering any of Borrower’s or any
Subsidiary’s Intellectual Property, except as is otherwise permitted in
Section 7.1 hereof and the definition of “Permitted Liens” herein.

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

7.7 Distributions; Investments. (a) Pay any dividends (other than dividends
payable solely in common stock) or make any distribution or payment on or
redeem, retire or purchase any capital stock (other than repurchases pursuant to
the terms of employee stock purchase plans, employee restricted stock agreements
or similar plans, and dividends required to be paid under the Borrower’s Amended
and Restated Certificate of Incorporation dated as of May 2, 2012 so long as a
Default or an Event of Default does not exist at the time of such dividend
payment and would not exist after giving effect to such dividend payment), or
(b) directly or indirectly make any Investment other than Permitted Investments,
or permit any of its Subsidiaries to do so.

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

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

7.10 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended or
undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other Law or
regulation, if the violation could reasonably be expected to have a Material
Adverse Change, or permit any of its Subsidiaries to do so; withdraw or permit
any Subsidiary to withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
present pension, profit sharing and deferred compensation plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.

 

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7.11 Amendments to Other Agreements. No Loan Party shall amend, modify or waive
any provision of (a) any Material Agreement, or (b) any of such Loan Party’s
organizational documents, in each case, without the prior written consent of
Agent, unless, in each case, the net effect of such amendment, modification or
waiver could not reasonably be expected to cause a Material Adverse Change.

7.12 Compliance with Anti-Terrorism Laws. Agent hereby notifies Borrower that
pursuant to the requirements of Anti-Terrorism Laws, and Agent’s policies and
practices, Agent is required to obtain, verify and record certain information
and documentation that identifies Borrower and its principals, which information
includes the name and address of Borrower and its principals and such other
information that will allow Agent to identify such party in accordance with
Anti-Terrorism Laws. Borrower will not, nor will Borrower permit any Subsidiary
or Affiliate to, directly or indirectly, knowingly enter into any documents,
instruments, agreements or contracts with any Person listed on the OFAC Lists.
Borrower shall immediately notify Agent if Borrower has knowledge that Borrower
or any Subsidiary or Affiliate is listed on the OFAC Lists or (a) is convicted
on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and
held over on charges involving money laundering or predicate crimes to money
laundering. Borrower will not, nor will Borrower permit any Subsidiary or
Affiliate to, directly or indirectly, (i) conduct any business or engage in any
transaction or dealing with any Blocked Person, including, without limitation,
the making or receiving of any contribution of funds, goods or services to or
for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any
transaction relating to, any property or interests in property blocked pursuant
to Executive Order No. 13224, any similar executive order or other
Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction
that evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in Executive Order No. 13224 or other
Anti-Terrorism Law.

7.13 Excluded Comerica Bank Account. Maintain an aggregate balance in excess of
Five Hundred Thousand Dollars ($500,000) at any time in the Excluded Comerica
Bank Account.

 

8. EVENTS OF DEFAULT

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

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

8.2 Covenant Default.

(a) Borrower fails or neglects to perform any obligation in Sections 6.1(c),
6.2, 6.4, 6.5, 6.6, 6.7, 6.10, or 6.11 or violates any covenant in Section 7; or

(b) Borrower or any of its Subsidiaries fails or neglects to perform, keep, or
observe any other term, provision, condition, covenant or agreement contained in
this Agreement or any Loan Documents, and as to any default (other than those
specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within
ten (10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional period (which shall not in any case exceed thirty
(30) days) to attempt to cure such default, and within such reasonable time
period the failure to cure the default shall not be deemed an Event of Default
(but no Credit Extensions shall be made during such cure period). Grace periods
provided under this Section shall not apply, among other things, to financial
covenants or any other covenants set forth in subsection (a) above;

 

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8.3 Material Adverse Change. A Material Adverse Change occurs; provided,
however, the failure of any Phase 2 Clinical Trial to demonstrate the desired
safety or efficacy of any one biologic or drug or the denial, delay or
limitation of approval of, or taking of any other regulatory action by, the FDA
or any other Governmental Authority with respect to any one biologic or drug
shall not, in and of itself, constitute a Material Adverse Change;

8.4 Attachment; Levy; Restraint on Business.

(a)(i) The service of process seeking to attach, by trustee or similar process,
any funds of Borrower or of any entity under control of Borrower (including a
Subsidiary) on deposit with the Lenders or any Lender Affiliate, or (ii) a
notice of lien, levy, or assessment is filed against any of Borrower’s assets by
any government agency, and the same under subclauses (i) and (ii) hereof are
not, within ten (10) days after the occurrence thereof, discharged or stayed
(whether through the posting of a bond or otherwise); provided, however, no
Credit Extensions shall be made during any ten (10) day cure period; and

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

8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts)
as they become due or otherwise becomes insolvent; (b) Borrower begins an
Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower
and not dismissed or stayed within thirty (30) days (but no Credit Extensions
shall be made while any of the conditions described in clause (a) exist and/or
until any Insolvency Proceeding is dismissed);

8.6 Other Agreements.

(a) There is a default in any agreement to which any Loan Party or its
Subsidiaries is a party with a third party or parties (i) resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of Three Hundred Thousand
Dollars ($300,000) or (ii) that could result in a Material Adverse Change; or

(b)(i) A default or event of default is declared under any Material Agreement by
a third party or parties party thereto (after any applicable grace period
contained therein), (ii) a Material Agreement shall be terminated by a third
party or parties party thereto prior to the expiration thereof, or (iii) there
is a loss of a material right of the Loan Party or its Subsidiary under any
Material Agreement to which it is a party.

8.7 Judgments. One or more judgments, orders, or decrees for the payment of
money in an amount, individually or in the aggregate, of at least Three Hundred
Thousand Dollars ($300,000) (not covered by independent third-party insurance as
to which liability has been accepted by such insurance carrier) shall be
rendered against Borrower and shall remain unsatisfied, unvacated, or unstayed
for a period of ten (10) days after the entry thereof, provided, however, that
no Credit Extensions will be made prior to the satisfaction, vacation, or stay
of such judgment, order or decree;

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Agent and/or the Lenders or to
induce Agent and/or the Lenders to enter this Agreement or any Loan Document,
and such representation, warranty, or other statement is incorrect in any
material respect when made;

8.9 Subordinated Debt. A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination,
intercreditor, or other similar agreement with Agent or the Lenders, or any
creditor that has signed such an agreement with Agent or the Lenders breaches
any terms of such agreement;

 

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8.10 Governmental Approvals. Any material Governmental Approval shall have been
revoked, rescinded, suspended, modified in an adverse manner or not renewed in
the Ordinary Course of Business for a full term, and such revocation,
rescission, suspension, modification or non-renewal (i) has, or could reasonably
be expected to have, a Material Adverse Change, or (ii) adversely affects the
legal qualifications of Borrower 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 affect the status of or legal qualifications of Borrower or any of its
Subsidiaries to hold any Governmental Approval in any other jurisdiction;

8.11 Criminal Proceeding. The institution by any Governmental Authority of
criminal proceedings against Borrower;

8.12 Lien Priority. Except as permitted by Agent, any Lien created hereunder or
by any other Loan Document shall at any time fail to constitute a valid and
perfected Lien on all of the Collateral purported to be secured thereby, subject
to no prior or equal Lien;

8.13 Change in Control. A Change in Control shall have occurred; or

8.14 Withdrawals, Recalls, Adverse Test Results and Other Matters. (a) The
institution of any proceeding by FDA or similar Governmental Authority to order
the withdrawal of any Product or Product category from the market or to enjoin
Borrower or any representative of Borrower from manufacturing, marketing,
selling or distributing any Product or Product category, which, in each case,
could cause a Material Adverse Change, (b) the institution of any action or
proceeding by any DEA, FDA, or any other Governmental Authority to revoke,
suspend, reject, withdraw, limit, or restrict any Required Permit held by
Borrower or any representative of Borrower, which, in each case, could cause a
Material Adverse Change, (c) the commencement of any enforcement action against
Borrower by DEA, FDA, or any other Governmental Authority, which, in each case,
could cause a Material Adverse Change, (d) the recall of any Products from the
market, the voluntary withdrawal of any Products from the market, or actions to
discontinue the sale of any Products, or (e) the occurrence of adverse test
results in connection with a Product which could reasonably be expected to cause
a Material Adverse Change.

 

9. RIGHTS AND REMEDIES

9.1 Rights and Remedies.

(a) Upon the occurrence and during the continuance of an Event of Default, Agent
may, without notice or demand, do any or all of the following: (i) deliver
notice of the Event of Default to Borrower, (ii) by notice to Borrower declare
all Obligations immediately due and payable (but if an Event of Default
described in Section 8.5 occurs all Obligations shall be immediately due and
payable without any action by Agent or the Lenders), or (iii) by notice to
Borrower suspend or terminate the obligations, if any, of the Lenders to advance
money or extend credit for Borrower’s benefit under this Agreement or under any
other agreement between Borrower and Agent and/or the Lenders (but if an Event
of Default described in Section 8.5 occurs all obligations, if any, of the
Lenders to advance money or extend credit for Borrower’s benefit under this
Agreement or under any other agreement between Borrower and Agent and/or the
Lenders shall be immediately terminated without any action by Agent or the
Lenders).

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

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

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

 

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

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

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

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

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

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

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

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

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

9.2 Power of Attorney. Borrower hereby irrevocably appoints Agent as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of
an Event of Default, to: (a) endorse Borrower’s name on any checks or other
forms of payment or security; (b) sign Borrower’s name on any invoice or bill of
lading for any Account or drafts against Account Debtors; (c) settle and adjust
disputes and claims about the Accounts directly with Account Debtors, for
amounts and on terms Agent determines reasonable; (d) make, settle, and adjust
all claims under Borrower’s insurance policies; (e) pay, contest or settle any
Lien, charge, encumbrance, security interest, and adverse claim in or to the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and (f) transfer the Collateral into the name
of Agent or a third party as the Code permits. Borrower hereby appoints Agent as
its lawful attorney-in-fact to sign Borrower’s name on any documents necessary
to perfect or continue the perfection of Agent’s security interest in the
Collateral regardless of whether an

 

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Event of Default has occurred until all Obligations have been satisfied in full
and Agent and the Lenders are under no further obligation to make Credit
Extensions hereunder. Agent’s foregoing appointment as Borrower’s attorney in
fact, and all of Agent’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Agent’s and the Lenders’ obligation to provide Credit Extensions terminates.

9.3 Protective Payments. If Borrower fails to obtain the insurance called for by
Section 6.5 or fails to pay any premium thereon or fails to pay any other amount
which Borrower is obligated to pay under this Agreement or any other Loan
Document, Agent may obtain such insurance or make such payment, and all amounts
so paid by Agent are Lenders’ Expenses and immediately due and payable, bearing
interest at the then highest applicable rate, and secured by the Collateral.
Agent will make reasonable efforts to provide Borrower with notice of Agent
obtaining such insurance at the time it is obtained or within a reasonable time
thereafter. No such payments by Agent are deemed an agreement to make similar
payments in the future or Agent’s waiver of any Event of Default.

9.4 Application of Payments and Proceeds.

(a) Notwithstanding anything to the contrary contained in this Agreement, upon
the occurrence and during the continuance of an Event of Default, (i) Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times thereafter received by Agent from or on behalf of Borrower
of all or any part of the Obligations, and, as between Borrower on the one hand
and Agent and Lenders on the other, Agent shall have the continuing and
exclusive right to apply and to reapply any and all payments received against
the Obligations in such manner as Agent may deem advisable notwithstanding any
previous application by Agent, and (ii) the proceeds of any sale of, or other
realization upon all or any part of the Collateral shall be applied: first, to
the Lenders Expenses; second, to accrued and unpaid interest on the Obligations
(including any interest which, but for the provisions of the United States
Bankruptcy Code, would have accrued on such amounts); third, to the principal
amount of the Obligations outstanding; and fourth, to any other indebtedness or
obligations of Borrower owing to Agent or any Lender under the Loan Documents.
Any balance remaining shall be delivered to Borrower or to whoever may be
lawfully entitled to receive such balance or as a court of competent
jurisdiction may direct. In carrying out the foregoing, (x) amounts received
shall be applied in the numerical order provided until exhausted prior to the
application to the next succeeding category, and (y) each of the Persons
entitled to receive a payment in any particular category shall receive an amount
equal to its pro rata share of amounts available to be applied pursuant thereto
for such category.

(b) Agent, or if applicable, each Lender, shall promptly remit to the other
Lenders such sums as may be necessary to ensure the ratable repayment of each
Lender’s portion of any Term Loan and the ratable distribution of interest, fees
and reimbursements paid or made by Borrower. Notwithstanding the foregoing, a
Lender receiving a scheduled payment shall not be responsible for determining
whether the other Lenders also received their scheduled payment on such date;
provided, however, if it is determined that a Lender received more than its
ratable share of scheduled payments made on any date or dates, then such Lender
shall remit to the Agent such sums as may be necessary to ensure the ratable
payment of such scheduled payments, as instructed by Agent. If any payment or
distribution of any kind or character, whether in cash, properties or securities
and whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise, shall be received by a Lender in excess of its ratable
share, then (i) the portion of such payment or distribution in excess of such
Lender’s ratable share shall be received by such Lender in trust for application
to the payments of amounts due on the other Lender’s claims, or, in the case of
Collateral, shall hold such Collateral for itself and as agent and bailee for
the Agent and other Lenders and (ii) such Lender shall promptly advise the Agent
of the receipt of such payment, and, within five (5) Business Days of such
receipt and, in the case of payments and distributions, such Lender shall
purchase (for cash at face value) from the other Lenders (through the Agent),
without recourse, such participations in the Term Loan made by the other Lenders
as shall be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them in accordance with the respective Pro Rata
Shares of the Lenders; provided, however, that if all or any portion of such
excess payment is thereafter recovered by or on behalf of Borrower from such
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest; provided,
further, that the provisions of this Section 9.4(b) shall not be construed to
apply to (x) any payment made by Borrower pursuant to and in accordance with the
express terms of this Agreement, or (y) any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Term Loan pursuant to Section 12.1. Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 9.4(b)
may exercise all its rights of payment (including the right of set-off) with

 

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respect to such participation as fully as if such Lender were the direct
creditor of Borrower in the amount of such participation. No documentation other
than notices and the like shall be required to implement the terms of this
Section 9.4(b). The Agent shall keep records (which shall be conclusive and
binding in the absence of manifest error) of participations purchased pursuant
to this Section 9.4(b) and shall in each case notify the Lenders following any
such purchases.

(c) Notwithstanding anything to the contrary herein, any warrants issued to the
Lenders by Borrower, the stock issuable thereunder, any equity securities
purchased by Lenders, any amounts paid thereunder, any dividends, and any other
rights in connection therewith shall not be subject to the terms and conditions
of this Agreement. Nothing herein shall affect any Lender’s rights under any
such warrants, stock, or other equity securities to administer, manage,
transfer, assign, or exercise such warrants, stock, or other equity securities
for its own account.

(d) Any reference in this Agreement to an allocation between or sharing by the
Lenders of any right, interest or obligation “ratably,” “proportionally” or in
similar terms shall refer to Pro Rata Share unless expressly provided otherwise.

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

9.6 No Waiver; Remedies Cumulative. Agent’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any
other Loan Document shall not waive, affect, or diminish any right of Agent
thereafter to demand strict performance and compliance herewith or therewith. No
waiver hereunder shall be effective unless signed by Agent and then is only
effective for the specific instance and purpose for which it is given. Agent’s
rights and remedies under this Agreement and the other Loan Documents are
cumulative. Agent has all rights and remedies provided under the Code, by Law,
or in equity. Agent’s exercise of one right or remedy is not an election, and
Agent’s waiver of any Event of Default is not a continuing waiver. Agent’s delay
in exercising any remedy is not a waiver, election, or acquiescence.

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

 

10. NOTICES

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”) by any party to this Agreement or any other Loan
Document must be in writing and shall be deemed to have been validly served,
given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by electronic mail (if an email address is specified
herein) or facsimile transmission; (c) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below. Any of Agent, Lender or Borrower may change its mailing or electronic
mail address or facsimile number by giving the other party written notice
thereof in accordance with the terms of this Section 10.

If to Borrower:

KaloBios Pharmaceuticals, Inc.

260 East Grand Avenue

South San Francisco, CA 94080

Attention: Jeff Cooper

Fax: (650) 243-3261

E-Mail: jcooper@kalobios.com

 

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If to Agent or Lenders:

MidCap Financial SBIC, LP

7255 Woodmont Avenue, Suite 200

Bethesda, Maryland 20814

Attention: Portfolio Management- Life Sciences

Fax: (301) 941-1450

E-Mail: lviera@midcapfinancial.com

with a copy to:

Midcap Financial, LLC

7255 Woodmont Avenue, Suite 200

Bethesda, Maryland 20814

Attention: General Counsel

Fax: (301) 941-1450

E-Mail: rgoodridge@midcapfinancial.com

 

11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

THIS AGREEMENT, EACH SECURED PROMISSORY NOTE AND EACH OTHER LOAN DOCUMENT, AND
THE RIGHTS, REMEDIES AND OBLIGATIONS OF THE PARTIES HERETO AND THERETO, AND ANY
CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT OR SUCH
LOAN DOCUMENT, THE RELATIONSHIP OF THE PARTIES, AND/OR THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES AND ALL OTHER MATTERS
RELATING HERETO, THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW,
TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS. NOTWITHSTANDING THE FOREGOING, AGENT AND LENDERS
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH AGENT AND LENDERS (IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 9.1) DEEM NECESSARY OR APPROPRIATE TO
REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE AGENT’S AND LENDERS’ RIGHTS
AGAINST BORROWER OR ITS PROPERTY. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINTS, AND OTHER PROCESS ISSUED IN SUCH ACTION OR SUIT AND AGREES
THAT SERVICE OF SUCH SUMMONS, COMPLAINTS, AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
SECTION 10 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER TO OCCUR OF BORROWER’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

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

 

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Borrower, Agent and each Lender agree that each Term Loan (including those made
on the Closing Date) shall be deemed to be made in, and the transactions
contemplated hereunder and in any other Loan Document shall be deemed to have
been performed in, the State of Maryland.

 

12. GENERAL PROVISIONS

12.1 Successors and Assigns; Additional Lenders; Participations. This Agreement
binds and is for the benefit of the successors and permitted assigns of each
party. Borrower may not assign this Agreement or any rights or obligations under
it without Agent’s prior written consent (which may be granted or withheld in
Agent’s discretion). Subject to the terms and conditions set forth herein, any
Lender may at any time assign to one or more Eligible Assignees all or any
portion of such Lender’s Term Loan, together with all related obligations of
such Lender hereunder, with the prior written consent of Borrower (which such
consent shall not be unreasonably withheld); provided, however, that no such
consent shall be required if the Eligible Assignee is an Approved Fund or an
Affiliate of such Lender or if an Event of Default has occurred and is
continuing at such time. Borrower and Agent shall be entitled to continue to
deal solely and directly with such Lender in connection with the interests so
assigned until Agent shall have received and accepted an effective assignment
agreement in form and substance acceptable to Agent, executed, delivered and
fully completed by the applicable parties thereto, and shall have received such
other information regarding such Eligible Assignee as Agent reasonably shall
require. Notwithstanding anything set forth in this Agreement to the contrary,
any Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such Lender,
including any pledge or assignment to secure obligations to a Federal Reserve
Bank; provided, however, that no such pledge or assignment shall release such
Lender from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto. Nothing herein shall be interpreted
or construed, however, to limit or otherwise restrict the Agent’s rights or
abilities to assign all of its agency rights hereunder to an Approved Fund or an
Affiliate of Agent or add new or additional Lenders after the Closing Date (each
an “Additional Lender”, and collectively the “Additional Lenders”); provided,
however, that any such Additional Lender which is not an Affiliate of Agent or
any Lender or is not an Approved Fund, shall, unless an Event of Default has
occurred and is continuing at such time, be subject to Borrower’s prior written
consent (which such consent shall not be unreasonably withheld). Notwithstanding
anything to the contrary in this Agreement, Agent and Lenders agree that Agent
(in its capacity as a Lender) and Lenders may assign one hundred percent
(100%) of the Term Loan Commitments of all Lenders (and in conjunction with such
assignment, Agent may assign all of its agency rights hereunder) to an Eligible
Assignee, without the consent of Borrower if (i) a majority of the Agent’s Life
Sciences loan portfolio (which for the avoidance of doubt, the term “majority”
as used in this sentence, shall mean more than half of the loans from such Life
Sciences loan portfolio) have been sold or assigned to another Person or
(ii) the Eligible Assignee is an Approved Fund or an Affiliate of such Lender,
or (iii) an Event of Default has occurred and is continuing at such time.
Notwithstanding anything set forth in this Agreement to the contrary, any Lender
may at any time sell a participation in all or any portion of its rights under
this Agreement, to any one or more Persons.

12.2 Indemnification.

(a) Borrower agrees to indemnify, defend and hold Agent and the Lenders and
their respective directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Agent or the Lenders (each, an
“Indemnified Person”) harmless against: (i) all obligations, demands, claims,
and liabilities (collectively, “Claims”) asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and
(ii) all losses or Lenders’ Expenses incurred, or paid by Indemnified Person
from, following, or arising from transactions between Agent, and/or the Lenders
and Borrower (including reasonable attorneys’ fees and expenses), except for
Claims and/or losses directly caused by such Indemnified Person’s gross
negligence or willful misconduct (collectively, the “Indemnified Liabilities”).

(b) Borrower hereby further indemnifies, defends and holds each Indemnified
Person harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including the fees and
disbursements of counsel for such Indemnitee) in connection with any
investigative, response, remedial, administrative or judicial matter or
proceeding, whether or not such Indemnified Person shall be designated a party
thereto and including any

 

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such proceeding initiated by or on behalf of Borrower, and the reasonable
expenses of investigation by engineers, environmental consultants and similar
technical personnel and any commission, fee or compensation claimed by any
broker (other than any broker retained by Agent or Lenders) asserting any right
to payment for the transactions contemplated hereby which may be imposed on,
incurred by or asserted against such Indemnified Person as a result of or in
connection with the transactions contemplated hereby and the use or intended use
of the proceeds of the loan proceeds.

(c) To the extent that the undertaking set forth in this Section 12.2 may be
unenforceable, Borrower shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all such indemnified liabilities incurred by the Indemnitees or
any of them.

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

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

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

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

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

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

12.9 Confidentiality. In handling any confidential information of Borrower, the
Lenders and Agent shall exercise the same degree of care that it exercises for
its own proprietary information, but disclosure of information may be made:
(a) to the Lenders’ and Agent’s Subsidiaries or Affiliates; (b) to prospective
transferees or purchasers of any interest in the Credit Extensions (provided,
however, the Lenders and Agent shall obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by Law,
regulation, subpoena, or other order; (d) to regulators or as otherwise required
in connection with an examination or audit; (e) as Agent considers appropriate
in exercising remedies under the Loan Documents; and (f) to third party service
providers of the Lenders and/or Agent so long as such service providers have
executed a confidentiality agreement with the Lenders and Agent with terms no
less restrictive than those contained herein. Confidential information does not
include information that either: (i) is in the public domain or in the Lenders’
and/or Agent’s possession when disclosed to the Lenders and/or Agent, or becomes
part of the public domain after disclosure to the Lenders and/or Agent; or
(ii) is disclosed to the Lenders and/or Agent by a third party, if the Lenders
and/or Agent does not know that the third party is prohibited from disclosing
the information. Agent and/or Lenders may use confidential information for any
purpose, including, without limitation, for the development of client databases,
reporting purposes, and market analysis, so long as Agent and/or Lenders, as
applicable, do not disclose Borrower’s identity or the identity of any Person
associated with Borrower unless otherwise expressly permitted by this Agreement.
The provisions of the immediately preceding sentence shall survive the
termination of this Agreement. The agreements provided under this Section 12.9
supersede all prior agreements, understanding, representations, warranties, and
negotiations between the parties about the subject matter of this Section 12.9.

 

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

12.11 [Reserved].

12.12 Amendments.

(a) No amendment, modification, termination or waiver of any provision of this
Agreement or any other Loan Document, no approval or consent thereunder, or any
consent to any departure by Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by Borrower, Agent and Required
Lenders. Except as set forth in clause (b) below, all such amendments,
modifications, terminations or waivers requiring the consent of the “Lenders”
shall require the written consent of Required Lenders.

(b) No amendment, modification, termination or waiver of any provision of this
Agreement or any other Loan Document shall, unless in writing and signed by
Agent and each Lender directly affected thereby: (i) increase or decrease the
Commitment of any Lender (which shall be deemed to affect all Lenders),
(ii) reduce the principal of or rate of interest on any Obligation or the amount
of any fees payable hereunder (other than waiving the imposition of the Default
Rate), (iii) postpone the date fixed for or waive any payment of principal of or
interest on any Term Loan, or any fees or reimbursement obligation hereunder,
(iv) release all or substantially all of the Collateral, or consent to a
transfer of any of the Intellectual Property, in each case, except as otherwise
expressly permitted in the Loan Documents (which shall be deemed to affect all
Lenders), (v) subordinate the lien granted in favor of Agent securing the
Obligations (which shall be deemed to affect all Lenders), (vi) release a Loan
Party from, or consent to a Loan Party’s assignment or delegation of, such Loan
Party’s obligations hereunder and under the other Loan Documents or any
Guarantor from its guaranty of the Obligations (which shall be deemed to affect
all Lenders) or (vii) amend, modify, terminate or waive Section 9.4, 12.10 or
12.12 or the definition of “Required Lenders” or any other provision hereof
specifying the number or percentage of Lenders required to amend, waive or
otherwise modify any rights hereunder or make any determination or grant any
consent hereunder, without the consent of each Lender.

(c) Notwithstanding any provision in this Section 12.12 to the contrary, no
amendment, modification, termination or waiver affecting or modifying the rights
or obligations of Agent hereunder shall be effective unless signed by Borrower,
Agent and Required Lenders.

Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 12.12 shall apply equally to, and shall be binding upon, all the
Lenders and Agent.

12.13 Publicity. Borrower will not directly or indirectly publish, disclose or
otherwise use in any public disclosure, advertising material, promotional
material, press release or interview, any reference to the name, logo or any
trademark of Agent or any Lender or any of their Affiliates or any reference to
this Agreement or the financing evidenced hereby, in any case except as required
by applicable Law (including the rules and regulations of the Securities and
Exchange Commission), subpoena or judicial or similar order, in which case
Borrower shall endeavor to give Agent prior written notice of such publication
or other disclosure. Each Lender and Borrower hereby authorizes each Lender to
publish the name of such Lender and Borrower, the existence of the financing
arrangements referenced under this Agreement, the primary purpose and/or
structure of those arrangements, the amount of credit extended under each
facility, the title and role of each party to this Agreement, and the total
amount of the financing evidenced hereby in any “tombstone”, comparable
advertisement or press release which such

 

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Lender elects to submit for publication. In addition, each Lender and Borrower
agrees that each Lender may provide lending industry trade organizations with
information necessary and customary for inclusion in league table measurements
after the Closing Date. With respect to any of the foregoing, such authorization
shall be subject to such Lender providing Borrower and the other Lenders with an
opportunity to review and confer with such Lender regarding, and approve, the
contents of any such tombstone, advertisement or information, as applicable,
prior to its initial submission for publication, but subsequent publications of
the same tombstone, advertisement or information shall not require Borrower’s
approval.

12.14 No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.

 

13. AGENT

13.1 Appointment and Authorization of Agent. Each Lender hereby irrevocably
appoints, designates and authorizes Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere herein or in any other Loan Document, Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender or participant, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against Agent. Without
limiting the generality of the foregoing sentence, the use of the term “agent”
herein and in the other Loan Documents with reference to Agent is not intended
to connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable Law. Instead, such term is used merely as a
matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.

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

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

13.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, communication, signature, resolution,
representation, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, electronic mail message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to Borrower), independent
accountants and other experts selected by Agent. Agent shall be fully justified
in failing or refusing to take any action under any Loan Document unless it
shall first receive such advice or concurrence of all Lenders as it deems
appropriate and, if

 

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it so requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of all Lenders
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Lenders.

13.5 Notice of Default. Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default and/or Event of Default, unless Agent shall have
received written notice from a Lender or Borrower, describing such default or
Event of Default. Agent will notify the Lenders of its receipt of any such
notice. Agent shall take such action with respect to an Event of Default as may
be directed in writing by the Required Lenders in accordance with Section 9(a);
provided, however, that while an Event of Default has occurred and is
continuing, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default as Agent
shall deem advisable or in the best interest of the Lenders, including without
limitation, satisfaction of other security interests, liens or encumbrances on
the Collateral not permitted under the Loan Documents, payment of taxes on
behalf of Borrower, payments to landlords, warehouseman, bailees and other
Persons in possession of the Collateral and other actions to protect and
safeguard the Collateral, and actions with respect to insurance claims for
casualty events affecting Borrower and/or the Collateral.

13.6 Credit Decision; Disclosure of Information by Agent. Each Lender
acknowledges that no Agent-Related Person has made any representation or
warranty to it, and that no act by Agent hereafter taken, including any consent
to and acceptance of any assignment or review of the affairs of Borrower or any
Affiliate thereof, shall be deemed to constitute any representation or warranty
by any Agent-Related Person to any Lender as to any matter, including whether
Agent-Related Persons have disclosed material information in their possession.
Each Lender represents to Agent that it has, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it
has deemed appropriate, made its own appraisal of, and investigation into, the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower and its respective Subsidiaries, and all applicable
bank or other regulatory Laws relating to the transactions contemplated hereby,
and made its own decision to enter into this Agreement and to extend credit to
Borrower hereunder. Each Lender also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by Agent herein, Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of Borrower or any of its Affiliates which may come into the
possession of any Agent-Related Person.

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

 

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

13.9 Successor Agent.

(a) Subject to the terms and conditions set forth in Section 12.1, Agent may at
any time assign its rights, powers, privileges and duties hereunder to
(i) another Lender, or (ii) any Person to whom Agent, in its capacity as a
Lender, has assigned (or will assign, in conjunction with such assignment of
agency rights hereunder) fifty percent (50%) or more of its Loan, in each case
without the consent of the Lenders, but, unless an Event of Default has occurred
and is continuing at such time, with the prior written consent of Borrower if
such assignee is not an Affiliate or Approved Fund of Agent (which such consent
shall not be unreasonably withheld). Following any such assignment, Agent shall
give notice to the Lenders and Borrower. An assignment by Agent pursuant to this
subsection (a) shall not be deemed a resignation by Agent for purposes of
subsection (b) below.

(b) Without limiting the rights of Agent to designate an assignee pursuant to
subsection (a) above, Agent may at any time give notice of its resignation to
the Lenders and Borrower. Upon receipt of any such notice of resignation,
Required Lenders shall have the right to appoint a successor Agent. If no such
successor shall have been so appointed by Required Lenders and shall have
accepted such appointment within ten (10) Business Days after the retiring Agent
gives notice of its resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent; provided, however, that if Agent shall
notify Borrower and the Lenders that no Person has accepted such appointment,
then such resignation shall nonetheless become effective in accordance with such
notice from Agent that no Person has accepted such appointment and, from and
following delivery of such notice, (i) the retiring Agent shall be discharged
from its duties and obligations hereunder and under the other Loan Documents,
and (ii) all payments, communications and determinations provided to be made by,
to or through Agent shall instead be made by or to each Lender directly, until
such time as Required Lenders appoint a successor Agent as provided for above in
this subsection (b).

(c) Upon (i) an assignment permitted by subsection (a) above, or (ii) the
acceptance of a successor’s appointment as Agent pursuant to subsection
(b) above, such successor shall succeed to and become vested with all of the
rights, powers, privileges and duties of the retiring (or retired) Agent, and
the retiring Agent shall be discharged from all of its duties and obligations
hereunder and under the other Loan Documents (if not already discharged
therefrom as provided above in this subsection (c)). The fees payable by
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 13 shall continue in effect for the benefit of
such retiring Agent and its sub-agents in respect of any actions taken or
omitted to be taken by any of them while the retiring Agent was acting or was
continuing to act as Agent.

13.10 Agent May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to Borrower, Agent
(irrespective of whether the principal of any Loan, shall then be due and
payable as herein expressed or by declaration or otherwise and irrespective of
whether Agent shall have made any demand on Borrower) shall be entitled and
empowered, by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Credit Extensions and all other Obligations
that are owing and unpaid and to file such other documents as may be necessary
or advisable in order to have the claims of the Lenders and Agent (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Lenders and Agent and their respective agents and counsel and all other
amounts due the Lenders and Agent allowed in such judicial proceeding); and

 

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

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to Agent and, in the event that Agent shall
consent to the making of such payments directly to the Lenders, to pay to Agent
any amount due for the reasonable compensation, expenses, disbursements and
advances of Agent and its agents and counsel, and any other amounts due Agent
under Section 2.4(e). To the extent that Agent fails timely to do so, each
Lender may file a claim relating to such Lender’s claim.

13.11 Collateral and Guaranty Matters. The Lenders irrevocably authorize Agent,
at its option and in its discretion, to release any Guarantor and any Lien on
any Collateral granted to or held by Agent under any Loan Document (a) upon the
date that all Obligations due hereunder have been fully and indefeasibly paid in
full and no Term Loan Commitments or other obligations of any Lender to provide
funds to Borrower under this Agreement remain outstanding, (b) that is
transferred or to be transferred as part of or in connection with any Transfer
permitted hereunder or under any other Loan Document, or (c) as approved in
accordance with Section 12.11. Upon request by Agent at any time, all Lenders
will confirm in writing Agent’s authority to release its interest in particular
types or items of Property, pursuant to this Section 13.11.

13.12 Cooperation of Borrower. If necessary, Borrower agrees to (a) execute any
documents (including new Secured Promissory Notes and Warrants) reasonably
required to effectuate and acknowledge each assignment of a Term Loan Commitment
or Loan to an assignee in accordance with Section 12.1, (b) make Borrower’s
management available to meet with Agent and prospective participants and
assignees of Term Loan Commitments or Credit Extensions and (c) assist Agent or
the Lenders in the preparation of information relating to the financial affairs
of Borrower as any prospective participant or assignee of a Term Loan Commitment
or Term Loan reasonably may request. Subject to the provisions of Section 12.9,
Borrower authorizes each Lender to disclose to any prospective participant or
assignee of a Term Loan Commitment, any and all information in such Lender’s
possession concerning Borrower and its financial affairs which has been
delivered to such Lender by or on behalf of Borrower pursuant to this Agreement,
or which has been delivered to such Lender by or on behalf of Borrower in
connection with such Lender’s credit evaluation of Borrower prior to entering
into this Agreement.

 

14. DEFINITIONS

As used in this Agreement, the following terms have the following meanings:

“Access Agreement” means a landlord consent, bailee letter or warehouseman’s
letter, in form and substance reasonably satisfaction to Agent, in favor of
Agent executed by such landlord, bailee or warehouseman, as applicable, for any
third party location.

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

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

“Additional Lender” or “Additional Lenders” has the meaning given it in
Section 12.1.

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

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

 

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

“Agreement” has the meaning given it in the preamble of this Agreement.

“Amortization Date” means January 1, 2014.

“Anti-Terrorism Laws” means any Laws relating to terrorism or money laundering,
including Executive Order No. 13224 (effective September 24, 2001), the USA
PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the
Laws administered by OFAC.

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

“Base LIBOR Rate” means, for any Interest Period, the rate per annum, determined
by Agent in accordance with its customary procedures, and utilizing such
electronic or other quotation sources as it considers appropriate (rounded
upwards, if necessary, to the next 1/100%), to be the rate at which Dollar
deposits (for delivery on the first day of such Interest Period or, if such day
is not a Business Day, on the preceding Business Day) in the amount of One
Million Dollars ($1,000,000) are offered to major banks in the London interbank
market on or about 11:00 a.m. (New York time) two (2) Business Days prior to the
commencement of such Interest Period, for a term comparable to such Interest
Period, which determination shall be conclusive in the absence of manifest
error.

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

“Borrower” has the meaning given it in the preamble of this Agreement.

“Borrower’s Books” means all of Borrower’s books and records, including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.

“Borrowing Resolutions” means, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors and delivered by such Person to
Agent approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as an Exhibit to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s) of such Person(s),
and (d) that Agent and the Lenders may conclusively rely on such certificate
unless and until such Person shall have delivered to Agent a further certificate
canceling or amending such prior certificate.

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

 

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“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition, (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., (c) certificates of deposit issued
maturing no more than one (1) year after issue, and (d) money market funds at
least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (b) of this
definition. For the avoidance of doubt, the direct purchase by Borrower,
co-borrower, or any subsidiary of Borrower of any Auction Rate Securities, or
purchasing participations in, or entering into any type of swap or other
derivative transaction, or otherwise holding or engaging in any ownership
interest in any type of Auction Rate Security by Borrower, co-borrower, or any
subsidiary of Borrower shall be conclusively determined by the Lenders as an
ineligible Cash Equivalent, and any such transaction shall expressly violate
each other provision of this agreement governing Permitted Investments.
Notwithstanding the foregoing, Cash Equivalents does not include, and each
Borrower and Subsidiary is prohibited from purchasing, purchasing participations
in, entering into any type of swap or other equivalent derivative transaction,
or otherwise holding or engaging in any ownership interest in any type of debt
instrument, including, without limitation, any corporate or municipal bonds with
a long-term nominal maturity for which the interest rate is reset through a
dutch auction and more commonly referred to as an auction rate security.

“Change in Control” means any event, transaction, or occurrence as a result of
which (a) Sofinnova Ventures, MPM Capital, Alloy Ventures and Fidelity (each, a
“Primary Investor”, and collectively, the “Primary Investors”) cease to own and
control, collectively, all of the economic and voting rights associated with
ownership of at least twenty percent (20%) of the outstanding securities of all
classes of Borrower on a fully diluted basis and one or more replacement
investors satisfactory to Agent in its sole and absolute discretion (each, an
“Acceptable Replacement Investor”, and collectively, the “Acceptable Replacement
Investors”) are not made in conjunction with the applicable Primary Investor’s
disposition of its economic and voting rights associated with ownership of
outstanding securities of Borrower; (b) during any period of twelve
(12) consecutive calendar months, individuals who at the beginning of such
period constituted the Board of Directors of Borrower (together with any new
directors whose election by the Board of Directors of Borrower was approved by a
vote of not less than two-thirds (2/3) of the directors then still in office who
either were directions at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason other
than death or disability to constitute a majority of the directors then in
office, other than as a result of Borrower’s Qualifying Initial Public Offering;
(c) Borrower ceases to own and control, directly or indirectly, all of the
economic and voting rights associated with the outstanding securities of each of
its Subsidiaries, other than as a result of Borrower’s Qualifying Initial Public
Offering; or (d) the occurrence of any “change of control” or any term of
similar effect under any Subordinated Debt document. In furtherance to the terms
set forth in clause (a) of this definition, an Acceptable Replacement Investor
shall be deemed to be included as a “Primary Investor”.

“Claims” has the meaning given it in Section 12.2.

“Closing Date” has the meaning given it in the preamble of this Agreement.

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

“Collateral” means all property, now existing or hereafter acquired, mortgaged
or pledged to, or purported to be subjected to a Lien in favor of Agent, for the
benefit of Agent and Lenders, pursuant to this Agreement and the other Loan
Documents, including, without limitation, all of the property described in
Exhibit A hereto.

“Collateral Account” means any Deposit Account, Securities Account or Commodity
Account, but excluding the Excluded Comerica Bank Account.

 

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“Commitment Percentage” means, as to any Lender, the percentage set forth
opposite such Lender’s name on Schedule 1, as amended from time to time.

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

“Communication” has the meaning given it in Section 10.

“Compliance Certificate” means a certificate, duly executed by an authorized
officer of Borrower, appropriately completed and substantially in the form of
Exhibit C.

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

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

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

“DEA” means the Drug Enforcement Administration of the United States of America,
and any successor agency thereof.

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

“Default Rate” has the meaning given it in Section 2.3(c).

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

“Designated Deposit Account” means Borrower’s deposit account, account number
1892865328, maintained with Comerica Bank and over which Agent has been granted
control for the ratable benefit of all Lenders.

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

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United
States or any state or territory thereof or the District of Columbia.

“Draw Period” means the period of time commencing upon the Closing Date and
continuing through the earliest to occur of (a) the Draw Period Termination
Date, (b) an Event of Default, and (c) the existence of any Default.

 

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“Draw Period Termination Date” means June 30, 2013.

“Drug Application” means a new drug application, an abbreviated drug
application, or a product license application for any Product, as appropriate,
as those terms are defined in the FDCA.

“Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an
Approved Fund, and (d) any other Person (other than a natural person) approved
by Agent; provided, however, that notwithstanding the foregoing, “Eligible
Assignee” shall not include Borrower, any Guarantor or any of Borrower’s or any
Guarantor’s Affiliates or Subsidiaries. Notwithstanding the foregoing, in
connection with assignments by a Lender due to a forced divestiture at the
request of any regulatory agency, the restrictions set forth herein shall not
apply and Eligible Assignee shall mean any Person or party becoming an assignee
incident to such forced divestiture.

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

“ERISA” means the Employee Retirement Income Security Act of 1974, and all
regulations promulgated thereunder.

“Event of Default” has the meaning given it in Section 8.

“Excluded Comerica Bank Account” means that certain cash collateral account of
Borrower maintained at Comerica Bank (Account No. 1892865336) securing the
performance of a letter of credit, having an aggregate balance not to exceed
Five Hundred Thousand Dollars ($500,000) at any time.

“FDA” means the Food and Drug Administration of the United States of America, or
any successor entity thereto.

“FDCA” means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C.
Section 301 et seq., and all regulations promulgated thereunder.

“Final Payment” means a payment (in addition to and not a substitution for the
regular monthly payments of principal plus accrued interest) due on the earlier
to occur of (a) the Maturity Date, (b) the acceleration of any Term Loan, and
(c) the prepayment of a Term Loan pursuant to Section 2.2(c) or (d)), equal to
the original principal amount of the applicable Term Loan subject to such Final
Payment multiplied by the Final Payment Percentage.

“Final Payment Percentage” means three percent (3.00%).

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

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

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

“General Intangibles” means all “general intangibles”, as defined in the Code,
with such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or

 

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unpublished, any patents, trademarks, service marks and, to the extent permitted
under applicable Law, any applications therefor, whether registered or not, any
trade secret rights, including any rights to unpatented inventions, payment
intangibles, royalties, contract rights, goodwill, franchise agreements,
purchase orders, customer lists, route lists, telephone numbers, domain names,
claims, income and other tax refunds, security and other deposits, options to
purchase or sell real or personal property, rights in all litigation presently
or hereafter pending (whether in contract, tort or otherwise), insurance
policies (including, without limitation, key man, property damage, and business
interruption insurance), payments of insurance and rights to payment of any
kind.

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

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

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

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

“Indemnified Liabilities” has the meaning given it in Section 12.2.

“Indemnified Person” has the meaning given it in Section 12.2.

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

“Intellectual Property” includes without limitation, all copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, trade names, service marks, mask
works, rights of use of any name, domain names, or any other similar rights, any
applications therefor, whether registered or not, know-how, operating manuals,
trade secret rights, clinical and non-clinical data, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing.

“Interest Expense” means for any fiscal period with respect to Borrower and its
Subsidiaries on a consolidated basis, interest expense (whether cash or
non-cash) determined in accordance with GAAP for the relevant period ending on
such date, including, in any event, interest expense with respect to any Credit
Extension and other Indebtedness of Borrower and its Subsidiaries, including,
without limitation or duplication, all commissions, discounts, or related
amortization and other fees and charges with respect to letters of credit and
bankers’ acceptance financing and the net costs associated with interest rate
swap, cap, and similar arrangements, and the interest portion of any deferred
payment obligation (including leases of all types).

“Interest Period” means the one-month period starting on the first (1st) day of
each month and ending on the last day of such month; provided, however, that the
first (1st) Interest Period for each Term Loan shall commence on the date that
the applicable Term Loan is made and end on the last day of such month.

“Interest Rate Determination Date” means the second (2nd) Business Day prior to
the first (1st) day of the related Interest Period.

 

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

“Investment” means, with respect to any Person, directly or indirectly, (a) to
purchase or acquire any stock or stock equivalents, or any obligations or other
securities of, or any interest in, any Person, including the establishment or
creation of a Subsidiary, (b) to make or commit to make any acquisition of all
or substantially all of the assets of another Person, or of any business,
Product, business line or product line, division or other unit operation of any
Person or (c) make or purchase any advance, loan, extension of credit or capital
contribution to, or any other investment in, any Person.

“Investment Policy” means that certain investment policy of Borrower approved by
Borrower’s board of directors and provided to Agent as of the Closing Date, as
the same may be amended from time to time with the prior approval of Borrower’s
board of directors (and any such amendments or other modifications to the
Investment Policy shall be promptly delivered to Agent after such approval by
Borrower’s board of directors pursuant to the terms set forth in
Section 6.2(h)).

“Laws” means any and all federal, state, provincial, territorial, local and
foreign statutes, laws, judicial decisions, regulations, guidances, guidelines,
ordinances, rules, judgments, orders, decrees, codes, plans, injunctions,
permits, concessions, grants, franchises, governmental agreements and
governmental restrictions, whether now or hereafter in effect, which are
applicable to Borrower in any particular circumstance.

“Lender” means any one of the Lenders.

“Lenders” means the Persons identified on Schedule 1 hereto, and each assignee
that becomes a party to this Agreement pursuant to Section 12.1.

“Lenders’ Expenses” means all audit fees and expenses, costs, and expenses
(including reasonable attorneys’ fees and expenses) of Agent and Lenders for
preparing, amending, negotiating, administering, defending and enforcing the
Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) or otherwise incurred by Agent or the Lenders
in connection with the Loan Documents.

“LIBOR Rate” means, for each Interest Period, the rate per annum determined by
Agent (rounded upwards, if necessary, to the next 1/100th%) by dividing (a) the
Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve
Percentage. The LIBOR Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.

“LIBOR Rate Margin” means six percent (6.00%) per annum.

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

“Loan Documents” means, collectively, this Agreement, the Warrant, the
Perfection Certificate, and each note and guarantee executed by one or more Loan
Parties in connection with the indebtedness governed by this Agreement, and each
other present or future agreement executed by one or more Loan Parties and, or
for the benefit of, the Lenders and/or Agent in connection with this Agreement,
all as amended, restated, or otherwise modified from time to time.

“Loan Party” means Borrower and each Guarantor.

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

 

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“Material Agreement” means (i) each agreement or contract to which a Loan Party
is a party involving the receipt or payment of amounts in the aggregate
exceeding One Million Dollars ($1,000,000) per year, and (ii) any agreement or
contract to which such Loan Party or its Subsidiaries is a party the termination
of which could reasonably be expected to cause a Material Adverse Change.

“Material Intellectual Property” means all of Borrower’s Intellectual Property
and license or sublicense agreements or other agreements with respect to rights
in Intellectual Property, the loss or termination of which could reasonably be
expected to cause a Material Adverse Change.

“Maturity Date” means December 31, 2016 for each Term Loan.

“Obligations” means all of Borrower’s obligations to pay when due any debts,
principal, interest, Lenders’ Expenses, the Prepayment Fee, the Final Payment,
and other amounts Borrower owes the Lenders now or later, under this Agreement
or the other Loan Documents, including, without limitation, interest accruing
after Insolvency Proceedings begin (whether or not allowed) and debts,
liabilities, or obligations of Borrower assigned to the Lenders and/or Agent,
and the performance of Borrower’s duties under the Loan Documents.

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

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

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

“Ordinary Course of Business” means, in respect of any transaction involving any
Loan Party, the ordinary course of business of such Loan Party, as conducted by
such Loan Party in accordance with past practices.

“Qualifying Initial Public Offering” means the sale of the Borrower’s common
stock in an initial public offering on the NYSE, NASDAQ or other comparable
registered public exchange.

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

“Payment Date” means the first calendar day of each calendar month.

“Perfection Certificate” has the meaning given it in Section 5.1.

“Permits” means licenses, certificates, accreditations, product clearances or
approvals, provider numbers or provider authorizations, marketing
authorizations, other authorizations, registrations, permits, consents and
approvals required in connection with the conduct of Borrower’s or any
Subsidiary’s business or to comply with any applicable Laws, including, without
limitation, drug listings and drug establishment registrations under 21 U.S.C.
Section 510, registrations issued by DEA under 21 U.S.C. Section 823 (if
applicable to any Product), and those issued by State governments for the
conduct of Borrower’s or any Subsidiary’s business.

 

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“Permitted Indebtedness” means:

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

(b) Indebtedness existing on the Closing Date and described on Schedule 7.4;

(c) Subordinated Debt;

(d) unsecured Indebtedness to trade creditors incurred in the Ordinary Course of
Business;

(e) Indebtedness secured by Permitted Liens; and

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

“Permitted Investments” means:

(a) Investments existing on the Closing Date and described on Schedule 7.7;

(b) Investments consisting of Cash Equivalents or those consistent with
Borrower’s Investment Policy solely with respect to cash Investments;

(c) Investments permitted under Borrower’s Investment Policy; and

(d) Investments in Subsidiaries solely to the extent permitted pursuant to
Section 6.10.

“Permitted Liens” means:

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

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

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

(d) statutory Liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other Persons imposed without action of
such parties, provided, however, that they have no priority over any of Agent’s
Lien and the aggregate amount of such Liens does not any time exceed Twenty Five
Thousand Dollars ($25,000);

(e) leases or subleases of real property granted in the Ordinary Course of
Business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or Intellectual Property) granted in the
Ordinary Course of Business, if the leases, subleases, licenses and sublicenses
do not prohibit granting Agent a security interest;

 

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(f) banker’s liens, rights of setoff and Liens in favor of financial
institutions incurred made in the Ordinary Course of Business arising in
connection with Borrower’s deposit accounts or securities accounts held at such
institutions to secure payment of fees and similar costs and expenses subject to
Borrower’s compliance with Section 6.6(b) hereof;

(g) Liens in identified accounts to secure performance bonds, letters of credit,
or other Contingent Obligations incurred in the Ordinary Course of Business and
the aggregate amount of such Liens does not any time exceed Three Hundred
Thousand Dollars ($300,000);

(h) Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
Ordinary Course of Business (other than Liens imposed by ERISA);

(i) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 8.5 or 8.7;

(j) easements, reservations, rights-of-way, restrictions, minor defects or
irregularities in title and similar charges or encumbrances affecting real
property not constituting a Material Adverse Change; and

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

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

“Phase 2 Clinical Trial” means any Phase 2 clinical trial, as such term is
defined in 21 C.F.R. §312.21, and any foreign equivalent thereof.

“Prepayment Fee” means with respect to any Term Loan subject to prepayment prior
to the Maturity Date, whether by mandatory or voluntary prepayment, acceleration
or otherwise, an additional fee payable to the Lenders in amount equal to:

(a) for a prepayment made on or after the Closing Date through and including the
date that is twelve (12) months after the Amortization Date, five percent
(5.0%) multiplied by the outstanding principal amount of such Term Loan being
prepaid;

(b) for a prepayment made after the date that is twelve (12) months after the
Amortization Date through and including the date which is twenty-four
(24) months after the Amortization Date, two percent (2.0%) multiplied by the
outstanding principal amount of such Term Loan being prepaid; and

(c) for a prepayment made after the date that is twenty-four (24) months after
the Amortization Date and prior to the Maturity Date, one percent
(1.0%) multiplied by the outstanding principal amount of such Term Loan being
prepaid.

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

“Products” means any products manufactured, sold, developed, tested or marketed
by Borrower or any of its Subsidiaries, including without limitation, those
products set forth on Schedule 5.11 (as updated from time to time in accordance
with Section 6.2(d) above); provided, however, that if Borrower shall fail to
comply with the obligations under Section 6.2(d) to give notice to Agent and
update Schedule 5.11 prior to manufacturing, selling, developing, testing or
marketing any new Product, any such improperly undisclosed Product shall be
deemed to be included in this definition; and provided, further, that products
manufactured by Borrower for unaffiliated third parties shall not be deemed
“Products” hereunder.

 

37

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

“Required Lenders” means Lenders having (a) more than 60% of the Term Loan
Commitments of all Lenders, or (b) if such Term Loan Commitments have expired or
been terminated, more than 60% of the aggregate outstanding principal amount of
the Term Loans; provided, however, that so long as a party that is a Lender
hereunder on the Closing Date does not assign any portion of its Term Loan
Commitment or Term Loan, the term “Required Lenders” shall include such Lender.
For purposes of this definition only, a Lender shall be deemed to include
itself, and any Lender that is an Affiliate or Approved Fund of such Lender.

“Required Permit” means a Permit (a) issued or required under Laws applicable to
the business of Borrower or any of its Subsidiaries or necessary in the
manufacturing, importing, exporting, possession, ownership, warehousing,
marketing, promoting, sale, labeling, furnishing, distribution or delivery of
goods or services under Laws applicable to the business of Borrower or any of
its Subsidiaries or any Drug Application (including without limitation, at any
point in time, all licenses, approvals and permits issued by the FDA or any
other applicable Governmental Authority necessary for the testing, manufacture,
marketing or sale of any Product by any applicable Borrower(s) as such
activities are being conducted by such Borrower with respect to such Product at
such time), and (b) issued by any Person from which Borrower or any of their
Subsidiaries have received an accreditation.

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

“Reserve Percentage” means, on any day, for any Lender, the maximum percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor Governmental Authority) for determining the reserve requirements
(including any basic, supplemental, marginal, or emergency reserves) that are in
effect on such date with respect to eurocurrency funding (currently referred to
as “eurocurrency liabilities”) of that Lender, but so long as such Lender is not
required or directed under applicable regulations to maintain such reserves, the
Reserve Percentage shall be zero.

“Responsible Officer” means any of the President and Chief Executive Officer or
Chief Financial Officer of Borrower.

“Secured Promissory Note” has the meaning given it in Section 2.7.

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

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

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

“Subsidiary” means, with respect to any Person, any Person of which more than
50.0% of the voting stock or other equity interests (in the case of Persons
other than corporations) is owned or controlled, directly or indirectly, by such
Person or one or more of Affiliates of such Person.

“Term Loan” or “Term Loans” has the meaning given it in Section 2.2(a).

 

38

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

“Tranche One” has the meaning given it in Section 2.2(a).

“Tranche Three” has the meaning given it in Section 2.2(a).

“Tranche Two” has the meaning given it in Section 2.2(a).

“Transfer” has the meaning given it in Section 7.1.

“Warrants” means those certain Warrants to Purchase Stock dated as of the
Closing Date executed by Borrower in favor of each Lender or such Lender’s
Affiliates.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

39

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

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

BORROWER:

KALOBIOS PHARMACEUTICALS, INC.

 

By:  

/s/ Jeffrey H. Cooper

Name:   Jeffrey H. Cooper Title:   Chief Financial Officer

AGENT:

MIDCAP FINANCIAL SBIC, LP,

as Agent for Lenders

 

By:   Midcap Financial SBIC GP, LLC   By:  

/s/ Josh Groman

  Name:   Josh Groman   Title:   Authorized Signatory

LENDERS:

MIDCAP FINANCIAL SBIC, LP

 

By:   Midcap Financial SBIC GP, LLC   By:  

/s/ Josh Groman

  Name:   Josh Groman   Title:   Authorized Signatory

[Signature Page to Loan and Security Agreement]

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

EXHIBITS AND SCHEDULES

EXHIBITS

 

Exhibit A    Collateral Exhibit B    Form of Loan Payment / Advance Request Form
Exhibit C    Form of Compliance Certificate Exhibit D    Form of Secured
Promissory Note Exhibit E    Form of Warrant

SCHEDULES

 

Schedule 1   Lenders and Commitments Schedule 5.1(a)   Organizational
Information Schedule 5.2(b)   Material Agreements Schedule 5.2(e)   Location of
Collateral Schedule 5.3   Litigation Schedule 5.11   Products and Required
Permits Schedule 6.12   Post-Closing Obligations Schedule 7.4   Indebtedness
Schedule 7.7   Investments

Exhibits and Schedules

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

EXHIBIT A

COLLATERAL

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

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

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

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

Notwithstanding the foregoing, the Collateral shall not include any Intellectual
Property of Borrower, whether now owned or hereafter acquired, except to the
extent that it is necessary under applicable law to have a Lien and security
interest in any such Intellectual Property in order to have a perfected Lien and
security interest in and to IP Proceeds (defined below), and for the avoidance
of any doubt, the Collateral shall include, and Agent shall have a Lien and
security interest in, (i) all IP Proceeds, and (ii) all payments with respect to
IP Proceeds that are received after the commencement of a bankruptcy or
insolvency proceeding. The term “IP Proceeds” means, collectively, all cash,
Accounts, license and royalty fees, claims, products, awards, judgments,
insurance claims, and other revenues, proceeds or income, arising out of,
derived from or relating to any Intellectual Property of Borrower, and any
claims for damage by way of any past, present or future infringement of any
Intellectual Property of Borrower (including, without limitation, all cash,
royalty fees, other proceeds, Accounts and General Intangibles that consist of
rights of payment to or on behalf of Borrower and the proceeds from the sale,
licensing or other disposition of all or any part of, or rights in, any
Intellectual Property by or on behalf of Borrower).

 

Exhibit A

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

EXHIBIT B

LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE IS NOON E.T.

Date:             , 201    

 

        LOAN PAYMENT:

 

        From Account #  

 

    To Account #  

 

    (Deposit Account #)       (Loan Account #)  

 

        Principal $  

 

  and/or Interest $  

 

 

 

        Authorized Signature:  

 

    Phone Number:  

 

 

        Print Name/Title:  

 

     

 

 

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

 

        From Account #  

 

    To Account #  

 

    (Loan Account #)       (Deposit Account #)  

 

        Amount of Advance $  

 

   

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

 

        Authorized Signature:  

 

                  Phone Number:  

 

 

        Print Name/Title:  

 

     

 

OUTGOING WIRE REQUEST:

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

 

        Beneficiary Name:  

 

    Amount of Wire: $  

 

          Beneficiary Lender:  

 

    Account Number:  

 

          City and State:  

 

       

 

        Beneficiary Lender Transit (ABA) #:  

 

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

 

 

        (For International Wire Only)

 

        Intermediary Lender:  

 

    Transit (ABA) #:  

 

 

 

        For Further Credit to:  

 

        Special Instruction:  

 

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

 

        Authorized Signature:  

 

    2nd Signature (if required):  

 

 

        Print Name/Title:  

 

    Print Name/Title:  

 

 

        Telephone #:  

 

    Telephone #:  

 

 

 

Exhibit B

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

EXHIBIT C

COMPLIANCE CERTIFICATE

 

TO:    MidCap Financial SBIC, LP, as Agent    FROM:   

 

   DATE:                        ,201       

The undersigned authorized officer of KALOBIOS PHARMACEUTICALS, INC.
(“Borrower”) certifies that under the terms and conditions of the Loan and
Security Agreement between Borrower, Agent and the Lenders (the “Agreement”):

(1) Borrower is in complete compliance with all required covenants for the month
ending             , 201    , except as noted below;

(2) there are no Events of Default;

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

(4) Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement;
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 certifications set forth in
this Compliance Certificate. The undersigned certifies, in his/her capacity as
an officer of the Borrower, that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The undersigned acknowledges, in his/her
capacity as an officer of Borrower, that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.

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

 

Reporting Covenant

  

Required

  

Complies

Monthly Financial Statements    Monthly within 45 days    Yes    No
Audited Financial Statements    Annually within 120 days after FYE    Yes    No
Board Approved Projections    Annually within 30 days after FYE    Yes    No
Compliance Certificate    Monthly within 45 days    Yes    No

[Signature Page Follows.]

 

Exhibit C

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

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

 

 

 

 

 

 

 

KALOBIOS PHARMACEUTICALS, INC.     AGENT USE ONLY By:  

 

    Received by:  

 

Name:  

 

    AUTHORIZED SIGNER Title:  

 

    Date:  

 

      Verified:  

 

      AUTHORIZED SIGNER       Date:  

 

      Compliance Status: Yes        No

 

Exhibit C

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

EXHIBIT D

SECURED PROMISSORY NOTE

[see attached]

 

Exhibit D

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

EXHIBIT E

WARRANT

[see attached]

 

Exhibit E

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

SCHEDULE 1

LENDERS AND COMMITMENTS

 

Lender

   Term Loan Commitment      Commitment Percentage  

MidCap Financial SBIC, LP

   $ 15,000,000         100 % 

TOTAL

   $ 15,000,000         100 % 

 

Schedule 1

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

SCHEDULE 5.1(a)

ORGANIZATIONAL INFORMATION

Legal Name of Borrower: KaloBios Pharmaceuticals, Inc.

Type of Legal Entity: corporation

State of Organization: Delaware

Organizational Identification Number: 3437218

Tax Identification Number: 77-0557236

Principal Place of Business: 260 East Grand Avenue, South San Francisco,
California 94080

 

Schedule 5.1

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

SCHEDULE 5.2(a)

COLLATERAL ACCOUNTS

Comerica Bank (1892865328); 5 Palo Alto Sq, Ste 800, 3000 El Camino Real, Palo
Alto, CA 940306

Comerica Bank (1892865336); 5 Palo Alto Sq, Ste 800, 3000 El Camino Real, Palo
Alto, CA 940306

State Street Bank (DE2460); 1200 Crown Colony Drive, CC1/2, Quincy, MA 02169.

 

Schedule 5.2(a)

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

SCHEDULE 5.2(b)

MATERIAL AGREEMENTS

Development, Commercialization, Collaboration and License Agreement, by and
between Sanofi Pasteur, S.A. and the Company, dated as of January 8, 2010.

Development and License Agreement, by and between Ludwig Institute for Cancer
Research and the Company, dated as of May 11, 2004.

License Agreement, by and between Ludwig Institute for Cancer Research and the
Company, dated as of April 7, 2006.

Exclusive License Agreement, by and between The Regents of the University of
California and the Company, dated as of October 4, 2011.

Non-Exclusive License Agreement, by and among BioWa, Inc., Lonza Sales AG and
the Company, dated as of October 15, 2010.

Master Services Agreement, by and between Chiltern International Inc. and the
Company, dated as of March 9, 2012.

Services Agreement, by and between Lonza Sales AG and the Company, dated as of
April 1, 2009.

Non-Exclusive License Agreement, by and between BioWa, Inc. and the Company,
dated as of September 2, 2008.

Master Services Agreement, by and between Biomedical Systems Corporation and the
Company, dated as of May 9, 2012.

Master Services Agreement, by and between Covance Central Laboratory Services,
LP and the Company, dated as of January 18, 2008.

Letter Agreement, by and between INC Research, LLC and the Company, dated as of
August 16, 2012.

Letter Agreement, by and between The Regents of the University of California and
the Company, dated as of May 10, 2011.

Exclusive License Agreement, by and between The Regents of the University of
California and the Company, dated as of April 6, 2004.

 

Schedule 5.2(b)

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

SCHEDULE 5.2(d)

INTELLECTUAL PROPERTY AND LICENSE AGREEMENTS

Development, Commercialization, Collaboration and License Agreement, by and
between Sanofi Pasteur, S.A. and the Company, dated as of January 8, 2010.

Development and License Agreement, by and between Ludwig Institute for Cancer
Research and the Company, dated as of May 11, 2004.

License Agreement, by and between Ludwig Institute for Cancer Research and the
Company, dated as of April 7, 2006.

Exclusive License Agreement, by and between The Regents of the University of
California and the Company, dated as of October 4, 2011.

Non-Exclusive License Agreement, by and among BioWa, Inc., Lonza Sales AG and
the Company, dated as of October 15, 2010.

Services Agreement, by and between Lonza Sales AG and the Company, dated as of
April 1, 2009.

Non-Exclusive License Agreement, by and between BioWa, Inc. and the Company,
dated as of September 2, 2008.

Letter Agreement, by and between The Regents of the University of California and
the Company, dated as of May 10, 2011.

Exclusive License Agreement, by and between The Regents of the University of
California and the Company, dated as of April 6, 2004.

 

Schedule 5.2(d)

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

SCHEDULE 5.2(e)

LOCATION OF COLLATERAL

Kalobios Pharmaceuticals, Inc., 260 East Grand Avenue, South San Francisco, CA
94080.

Catalent Pharma Solution (KB004, KB003, and soon KB001-A product inventory),
3001 Red Lion Road, Philadelphia, PA 19114.

Cook Pharmacra LLC, 1300 S. Patterson Drive, Bloomington, IN 47403.

 

Schedule 5.2(e)

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

SCHEDULE 5.3

LITIGATION

None.

 

Schedule 5.3

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

SCHEDULE 5.11

PRODUCTS AND REQUIRED PERMITS

The following list includes all Products:

KB001A

KB003

KB004

The following list includes all material Required Permits:

Environmental Health of San Mateo County, Permit No. 12-1657, issued on
August 1, 2012 and expires August 1, 2017.

Environmental Health of San Mateo County, Permit No. 11-2704, issued on
December 14, 2011 and expires December 31, 2013.

City of San Francisco, Business License, Business License No. 103547, for period
from January 1, 2012 to December 31, 2012.

 

Schedule 5.11

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

SCHEDULE 6.12

POST CLOSING OBLIGATIONS

Borrower shall satisfy and complete each of the following obligations, or
provide Agent each of the items listed below, as applicable, on or before the
date indicated below, all to the satisfaction of Agent in its sole and absolute
discretion:

 

1. Within five (5) Business Days after the Closing Date, Borrower shall deliver
to Agent, the original signatures of the following documents:

 

  (a) this Agreement,

 

  (b) the Perfection Certificate,

 

  (c) the Control Agreement with Comerica Bank,

 

  (d) the Control Agreement with State Street Bank,

 

  (e) the completed Borrowing Resolutions for Borrower,

 

  (f) the SBA Forms 480, 652 and 1031,

 

  (g) the Loan Disbursement State, and

 

  (h) the Warrant to Purchase Stock.

 

2. Within thirty (30) days after the Closing Date, Borrower shall deliver to
Agent, evidence satisfactory to Agent that the insurance policies required by
Section 6.5 hereof are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements
in favor of Agent, for the ratable benefit of Lenders.

Borrower’s failure to complete and satisfy any of the above obligations on or
before the date indicated above, or Borrower’s failure to deliver any of the
above listed items on or before the date indicated above, shall constitute an
immediate an automatic Event of Default.

 

Schedule 6.12

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

SCHEDULE 7.4

INDEBTEDNESS AS OF THE CLOSING DATE

The Company does not have any Indebtedness.

 

Schedule 7.4

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

SCHEDULE 7.7

INVESTMENTS AS OF THE CLOSING DATE

[see attached]

 

Schedule 7.7