EXHIBIT 10.1

 

FACILITY LOAN AGREEMENT

 

This FACILITY LOAN AGREEMENT (this “Agreement”), dated as of August 2, 2004, is
made by and between BioDelivery Sciences International, Inc. (the “Company”) and
Hopkins Capital Group II, LLC (the “Lender”).

 

WHEREAS, the Company is in need of up to $4,000,000 of subordinated debt
financing, which it desires to obtain through the Facility (as defined herein);

 

WHEREAS, the Lender desires to make the Facility available to the Company;

 

WHEREAS, the Lender owns certain equity interests in the Company and has direct
and indirect interests in the financial success and viability of the Company;
and

 

WHEREAS, the Lender is willing to make the Loan to the Company on the terms and
conditions contained in the herein;

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:

 

ARTICLE 1.

RECITALS AND DEFINITIONS

 

1.1 Incorporation of Recitals. It is expressly agreed that the recitals to this
Agreement are incorporated herein and made an operative part of this Agreement.

 

1.2 Defined Terms. As used in this Agreement, the following terms shall have the
following meanings. Other capitalized terms are defined elsewhere herein.

 

“Business Day” shall mean a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.

 

“Capital Stock” shall mean: (a) any and all shares, interests, participations or
other equivalents of or interests in (however designated) corporate stock,
including shares of preferred or preference stock and (b) all equity or
ownership interests in any Person of any other type, including any securities
convertible into or exchangeable for any of the foregoing or any options,
warrants or other rights to subscribe for, purchase or acquire any of the
forgoing.

 

“Change in Control” shall mean the occurrence of one or more of the following
events: (a) the acquisition of ownership, directly or indirectly, beneficially
or of record, by any Person (together with such Person’s affiliates and
associates within the meanings set forth in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended), in a single transaction or through a series
of related transactions, of securities of the Company ordinarily having the
right to elect a majority of directors or other individuals performing similar
functions, (b) any sale or disposition, in a single transaction or through a
series of related transactions, of all or substantially all of the assets of the
Company, other than leases, licenses and/or distribution arrangements entered
into by the Company consistent with industry practice with respect to non-sale
transactions, (c) any merger or consolidation of the Company with or into
another Person, or (d) the adoption of a plan relating to the liquidation or
dissolution of the Company.

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

“Commitment Termination Date” shall mean March 31, 2006.

 

“Common Stock” shall mean the shares of common stock, par value $0.01 per share,
of the Company.

 

“Company Equity Securities” shall mean any Capital Stock of the Company or
options, warrants or other rights acquire Capital Stock of the Company.

 

“Contractual Obligation” shall mean, as to any Person, any provision of any
security issued by such Person or of any contact, agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.

 

“Conversion Notice” shall mean a written notice given by Lender to the Company
of its election to convert the Loan Amount into Common Stock.

 

“Conversion Price” shall mean $4.25 per share, subject to proportional
adjustment in the event the Company: (a) pays a dividend or makes a distribution
on its Common Stock in the form of Common Stock; (b) subdivides its outstanding
shares of Common Stock into a greater number of shares; (c) combines its
outstanding shares of Common Stock into a smaller number of shares; or (d)
issues by reclassification of its Common Stock, or by merger or reorganization,
any interests of the Company or any successor entity. In the event of any such
occurrences, the Conversion Price shall be proportionately adjusted to a price
that would have permitted the Lender to receive the same Conversion Stock
Percentage which the Lender would have been entitled to receive immediately
following such action if the Lender had exercised its right to convert the Loan
Amount immediately prior to such action. The adjustment shall become effective
immediately after the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a subdivision, combination
or reclassification. The term “Conversion Stock Percentage” shall mean a
percentage derived by dividing the maximum number of shares of Conversion Stock
receivable at any given time by the then aggregate outstanding shares of Common
Stock at such time.

 

“Conversion Stock” shall mean only those shares of Common Stock (or equity
securities of any successor to the Company, as the case may be, receivable by
the Lender upon conversion of Loan Amounts in accordance with the terms hereof.

 

“Default” shall mean any event, act or condition which with notice or lapse of
time, or both, would constitute an Event of Default.

 

“Event of Default” shall mean any of the events specified in Section 8; provided
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.

 

“GAAP” shall mean generally accepted accounting principles in the United States
of America in effect from time to time.

 

2

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

“Indebtedness” shall mean (without double counting), at any time and with
respect to any Person: (i) indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables (payable within 90 days or such longer terms as may
be customary in the industry) arising in the ordinary course of business); (ii)
obligations of such Person in respect of letters of credit, acceptance
facilities, or drafts or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person; (iii) obligations
of such Person under capital leases and any financing lease involving
substantially the same economic effect; (iv) deferred payment obligations of
such Person resulting from the adjudication or settlement of any litigation to
the extent not already reflected as a current liability on the balance sheet of
such Person; and (v) indebtedness of others of the type described in clauses
(i), (ii), (iii) and (iv) which such Person has (a) directly or indirectly
assumed or guaranteed in connection with a guaranty, or (b) secured by a Lien on
the assets of such Person whether or not such Person has assumed such
indebtedness.

 

“Lien” shall mean any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, encroachment, lien (statutory or otherwise), claim of
property interest, reservation of title or property rights, easement, or
encumbrance of any kind.

 

“Loan Amount” shall mean the amount of any Loan outstanding including any
interest accrued thereon.

 

“Obligations” shall mean all money, debts, obligations and liabilities which now
are or have been or at any time hereafter may be or become due, owing or
incurred by the Company to the Lender pursuant to this Agreement or any Note,
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, whether on account of principal, interest
(including, without limitation, interest accruing after the Maturity Date of the
Note and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Company, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding), royalties, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise.

 

“Facility” shall mean the $4,000,000 convertible credit facility to be provided
by the Lender to the Company pursuant to this Agreement.

 

“Person” shall mean an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.

 

“Prime Rate” shall mean the “prime rate” or equivalent (non-LIBOR) base rate
from time to time, as reported in the Wall Street Journal from time to time,
determined on the first day of each calendar quarter and remaining constant at
such rate for the balance of such calendar quarter, adjusted quarterly for any
interim change therein, if any, on the first day of the next succeeding calendar
quarter.

 

“Requirement of Law” shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule

 

3

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

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
material property or to which such Person or any of its material property is
subject.

 

“Securities Act” shall mean the Securities Act of 1933, as amended from time to
time.

 

“Subsidiary” shall mean, with respect to any Person, any other Person whose
shares of stock or other security having a majority of the general voting power
in electing the board of directors or equivalent governing body of such other
Person are, at the time as of which any determination is made, owned by such
Person either directly or indirectly through one or more entities constituting
subsidiaries.

 

1.3 Other Definitional Provisions. The words “hereof,” “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section, subsection and Exhibit references are to this Agreement unless
otherwise specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. “Includes,”
“including” and like expressions are not limiting, i.e., “including” implies
“including, without limitation,” etc.

 

ARTICLE 2.

THE LOANS

 

2.1 Agreement to Make Loans. Subject to the terms and conditions hereof, upon
the written request of the Company at any time, the Lender agrees to make loans
to the Company on any Business Day (each, a “Funding Date”) from time to time
beginning on the date hereof up to but excluding the Commitment Termination
Date, each in the aggregate principal amount which, when added together, shall
not exceed $4,000,000. As used herein, the term “Loan” or “Loans” shall mean the
loans made by the Lender in accordance with this Section 2.1. Any Loan, when
repaid, may not be reborrowed.

 

2.2 Notes. In order to evidence each Loan, the Company will execute and deliver
to the Lender on the date of funding a promissory note substantially in the form
of Exhibit A hereto (each, a “Note”), payable to the order of the Lender and in
a principal amount equal to amount loaned. Each Note: (i) shall be dated as of
the applicable Funding Date, (ii) shall be payable as provided in Section 2.4,
and (iii) shall provide for the payment of interest in accordance with Section
3.1.

 

2.3 Procedures for Making Loans.

 

(a) Subject to the terms and conditions herein, each Loan shall be made as the
Company shall request subject to and in accordance with this Section 2.3. The
Company shall give the Lender at least three (3) Business Days’ prior written
notice of each requested borrowing (unless the Lender in its sole discretion
consents to a shorter period of notice). Each such notice shall be irrevocable
and shall specify the amount requested and the date that such Loan is to be
made. On the Funding Date specified in such notice, the Lender shall make the
Loan available to the Company by wire transfer of immediately available funds.
Unless otherwise agreed by the Lender, the amount of any borrowing hereunder
shall be in the minimum aggregate principal amount of US$50,000.

 

4

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

2.4 Repayment of Loan Amounts. The aggregate amount of the Loans, if not earlier
converted into Common Stock in accordance with Section 3.2 hereof or accelerated
upon or following an Event of Default, and subject to the mandatory repayment
requirements set forth below, shall be due and payable, together with all
accrued and unpaid interest thereon on March 31, 2006 (the “Maturity Date”).
Unless a payment is received at a time when no Default or Event of Default
exists and is earmarked for a specific purpose (e.g., a periodic interest
payment), the general rule for application of payments hereunder shall be: (i)
first, to accrued expense or indemnity Obligations then due under this Agreement
or any Note; (ii) second, to accrued interest under any Note; and (iii) third,
to principal of the Loans.

 

2.5 Voluntary Prepayment. The Company may voluntarily prepay all or any portion
of the outstanding Obligations on ten (10) days’ prior written notice to the
Lender without penalty. A prepayment notice, once given by the Company to the
Lender, shall be irrevocable unless the Lender, in its sole discretion, agrees
to the revocation of such notice.

 

ARTICLE 3.

OTHER LOAN-RELATED PROVISIONS

 

3.1 Interest Rate and Payments.

 

(a) General. The outstanding principal of the Loans shall accrue interest from
the applicable Funding Date pursuant to the terms hereunder until paid in full
at a rate per annum (computed on the basis of the actual number of days elapsed
over a year of 365 days) equal to the Prime Rate. All interest and principal
outstanding under any Note shall be payable on the Maturity Date or such earlier
date upon which the Note or any relevant portion thereof shall be repayable in
accordance with the terms hereof.

 

(b) Acceleration Upon a Change in Control. Upon the occurrence of a Change in
Control of the Company, the Lender may: (i) by written notice to the Company,
declare the then outstanding Loan Amount hereunder (including accrued but unpaid
interest thereon) and all other amounts owing under this Agreement or any Note
to be due and payable forthwith, whereupon the same shall immediately become due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are expressly waived by the Company, (ii) exercise all rights and
remedies available to it in equity, at law, or pursuant to the provisions of
this Agreement or otherwise and (iii) terminate its commitment to make any
future Loans to the Company.

 

3.2 Conversion of the Facility. The Loan Amount shall be convertible into shares
of Common Stock of the Company, subject to and in accordance with the provisions
set forth below:

 

(a) Optional Conversion.

 

(i) Upon a Change in Control. Upon the occurrence of a Change in Control of the
Company, even prior to the Maturity Date, the Lender may, in its sole discretion
and in

 

5

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

accordance with the terms hereof, convert all or any portion of the interest and
principal then outstanding on any Loan into shares of Common Stock by providing
a Conversion Notice to the Company.

 

(ii) At Maturity. Upon the giving of a Conversion Notice at any time following
the Maturity Date, the Lender may, in its sole discretion and in accordance with
the terms hereof, convert all or any portion of the interest and principal then
outstanding on any Loan into shares of Common Stock.

 

(ii) Conversion Price. The number of shares of Conversion Stock into which the
applicable Loan Amount may be converted pursuant to this Section 3.2(a) shall be
equal to the number resulting from dividing the applicable Loan Amount by the
applicable Conversion Price then in effect.

 

(b) Mechanics of Conversion. Upon receipt by the Company of a Conversion Notice
as provided for in Section 3.2(a) above, the Company shall promptly issue and
deliver to the Lender a certificate or certificates for the number of shares of
Conversion Stock to which the Lender is entitled based upon the then applicable
Conversion Price. To the extent that principal is being converted, in exchange
for such certificate or certificates, Lender shall surrender the original copy
of the applicable Note to the Company marked “cancelled” (or an appropriate lost
note indemnification agreement, reasonably acceptable to the Company, if
applicable).

 

(c) Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of all or any portion of the Loan Amount as provided for herein. All
fractional shares shall be rounded to the near whole share.

 

(d) Piggyback Registration Rights. The Lender shall have the following rights
with respect to any shares of Common Stock received by the Lender upon
conversion of the Loan Amount as provided for herein:

 

(i) Whenever the Company proposes to register any Company Equity Securities
under the Securities Act (other than pursuant to a registration statement on
Form S-4, Form S-8 or any successor form) and the registration statement form to
be used may be used for the registration of shares of Common Stock received by
the Lender pursuant to this Agreement (such shares of Common Stock only, and no
other shares of Capital Stock held by the Lender or its affiliates, are referred
to herein as the “Registrable Securities”), the Company shall give prompt
written notice to the Lender of its intention to effect such a registration. The
Company shall include in such registration and use commercially reasonable
efforts to include in any underwriting all shares of Registrable Securities held
by the Lender with respect to which the Company has received a written request
from the Lender for inclusion therein within 30 days after the receipt of the
Company’s notice (such registration, a “Piggyback Registration”).

 

(ii) If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold without materially and
adversely affecting the marketability of such offering or the timing thereof,
the Company shall include in such registration all Registrable

 

6

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

Securities held by the Lender on the condition that the Lender will agree to
refrain from selling a reasonable number of such Registrable Securities (as
determined in good faith by the Company based on the impact on the timing and
marketability of the offering of the sale immediate by the Lender of all of its
Registrable Securities) for a three (3) month period following the declaration
of effectiveness of the applicable registration statement.

 

(iii) Whenever the Lender requests that any Registrable Securities be registered
pursuant to this Agreement, the Company shall use its commercially reasonable
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof (subject in all
instances to the requirements of the Securities Act, the rules and regulations
promulgated thereunder, and all other applicable laws, rules and regulations),
and pursuant thereto the Company shall as expeditiously as possible take all
reasonable and customary actions necessary to effect such registration and sale.

 

(iv) All expenses incident to the Company’s performance of or compliance with
this Section 3.2(d), including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, fees and disbursements of custodians,
and fees and disbursements of counsel for the Company and all independent
certified public accountants, underwriters (excluding underwriting discounts and
commissions relating to the Registrable Securities) and other Persons retained
by the Company shall be borne by the Company.

 

(v) In connection with any registration statement in which the Lender is
participating pursuant to this Section 3.2(d), the Lender shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus.

 

ARTICLE 4.

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

 

The Company hereby represents, warrants and covenants to the Lender as of the
date hereof that:

 

4.1 Existence. The Company: (a) is duly organized, validly existing and in good
standing under the laws of the State of Delaware and (b) has the power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged.

 

4.2 Power; Authorization; Enforceable Obligations. The Company: (i) has the
power and authority, and the legal right, to make, deliver and perform this
Agreement and to borrow the Loans hereunder, (ii) has taken all necessary action
to authorize the execution, delivery and performance of this Agreement, and the
borrowing of the Loans on the terms and conditions of this Agreement and the
conversion of the principal amounts of the Loans outstanding or the Obligations,
as applicable, for shares of Common Stock on the terms and under the
circumstances provided for herein. Except for the required consent of Gold Bank
pursuant to that certain Loan Agreement, dated April 22, 2003, between the
Company and Gold Bank (such consent, the “Gold Bank Loan”), and except as has
been disclosed to the Lender, no consent or

 

7

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

authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person (including Persons who are
beneficiaries of Contractual Obligations of the Company) is required to be
obtained or made by or on behalf of the Company in connection with the
execution, delivery, performance, validity or enforceability of this Agreement,
the borrowing of the Loan hereunder or the conversion of the principal amounts
of the Loans outstanding plus accrued interest for shares of Common Stock on the
terms and under the circumstances provided for in Section 3.2 hereof. This
Agreement has been duly executed and delivered by the Company. This Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ rights generally and except as enforceability
may be subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).

 

4.3 No Legal or Contractual Bar. Except for the Gold Bank Loan and except as
previously disclosed to Lender, the execution, delivery and performance of this
Agreement by the Company, the borrowing of the Loans hereunder and the use of
the proceeds thereof by the Company and the conversion of the principal amounts
of the Loans outstanding plus accrued interest for shares of Common Stock under
the circumstances provided for herein: (a) do not and will not violate any
Requirement of Law or Contractual Obligation of the Company or permit the
acceleration of any obligation of the Company pursuant to any such Contractual
Obligation and (b) do not and will not result in, or require, the creation or
imposition of any Lien on any on the Company’s properties or revenues pursuant
to any such Requirement of Law or Contractual Obligation.

 

4.4 Litigation. Other than matters adequately covered by existing insurance or
for which the Company is indemnified (subject only to reasonable and customary
deductibles) there are no: (i) actions, suits or legal, equitable, arbitrative
or administrative proceedings pending, or to the knowledge of the Company,
threatened against the Company or (ii) judgments, injunctions, writs, rulings or
orders by any Governmental Authority against the Company.

 

4.5 Certain Regulations. The Company is not (a) an “investment company,” or a
company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940; (b) a “holding company,” or an “affiliate” of a
“holding company” or a “Subsidiary company” of a “holding company,” within the
meaning of the Public Utility Holding Company Act of 1935; or (c) to the
knowledge of the Company, subject to any other law, regulation or order
restricting its ability to incur debt or to grant Liens.

 

4.6 Compliance with Laws. The Company has obtained all material approvals
required by any Governmental Authority to carry on its business as now being
conducted. Each of such approvals is in full force and effect and the Company is
in compliance in all material respects with the terms and conditions of such
approvals, and is also in compliance in all material respects with all other
provisions of any applicable environmental law.

 

4.7 Title to Property and Assets. The Company has good and marketable title to,
or a valid leasehold in, all of the Company’s tangible and intangible assets, in
each case free and clear of all Liens other than: (i) Liens for taxes not yet
due or other statutory liens relating to

 

8

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

governmental obligations which are not yet due, (ii) statutory Liens arising in
the ordinary course of business, in each case, which do not interfere with the
use of the assets to which they relate for the purposes for which those assets
were acquired and Liens in favor of the Lender, (iii) Liens previously disclosed
to the Lender and (iv) the Liens specifically referred to in this Agreement.

 

4.8 Brokers. No broker or finder has acted for the Company in connection with
this Agreement or the transactions contemplated thereby, and no broker or finder
is entitled to any brokerage or finder’s fees or other commission in respect of
such transactions based in any way on agreements, arrangements or understandings
made by or on behalf of the Company.

 

ARTICLE 5.

REPRESENTATIONS AND WARRANTIES OF THE LENDER

 

The Lender hereby represents and warrants to the Company that:

 

5.1 Accredited Investor. The Lender is an “accredited investor” within the
meaning of Rule 501 promulgated under the Securities Act.

 

5.2 Investment Experience; Access; Investigation.

 

(a) Access to Information. The Lender, in making its investment decision
hereunder, represents that: (a) it has read, reviewed and relied solely on the
publicly available information concerning the Company and any independent
investigation made by it and its representatives, if any; (b) it has been
afforded an opportunity to request from the Company to review, and has received,
all additional information requested from the Company, (c) it acknowledges that
no person has been authorized to give any information or to make any
representation concerning the Company or the Loans, other than as contained in
this Agreement, and if given or made, any such other information or
representation has not been relied upon as having been authorized by the
Company.

 

(b) Reliance on own Advisors. The Lender has relied completely on the advice of,
or has consulted with, his or her own personal tax, investment, legal or other
advisors and has not relied on the Company, or any of their affiliates,
officers, directors, attorneys, accountants, representatives, agents, advisors
or any affiliates of any of the foregoing and each other person, if any, who
controls any of the foregoing, within the meaning of Section 15 of the
Securities Act, for any advice.

 

(c) Capability to Evaluate. The Lender has such knowledge and experience in
financial and business matters, either directly or through its representatives
or advisors, that it is capable of evaluating the merits and risks of the
prospective investment, which risks are substantial.

 

(d) Ability to Bear Economic Risk. The Lender understands and acknowledges that
an investment in the Notes and the shares of Common Stock involve a high degree
of risk. The Lender acknowledges that it has the ability to bear the economic
risk of its investment pursuant to this Agreement.

 

9

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

(e) Investment; No Distribution. The Lender is acquiring the Notes and the
Common Stock solely for the Lender’s own account for investment purposes as a
principal and not with a view to the resale or distribution of all or any part
thereof. The Lender is aware that there may be legal and practical limits on the
Lender’s ability to sell or dispose of the any of the Notes and the Common Stock
and, therefore, that the Lender must bear the economic risk of its investment
for an indefinite period of time. It is possible that the Lender may incur a
total loss of its investment. The Lender has adequate means of providing for the
Lender’s current needs and possible contingencies and does not have a need for
liquidity of this investment. The Lender’s commitment to illiquid investments,
including the investments provided for herein, is reasonable in relation to the
Lender’s net worth.

 

(f) No General Solicitation. None of the Notes and the Common Stock were offered
to the Lender through, and the Lender is not aware of, any form of general
solicitation or general advertising with respect to this Agreement and the
transactions contemplated hereby, including, without limitation: (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television, radio or via
the Internet, and (ii) any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising. The Lender further
understands that the Company is relying in part on this representation to ensure
compliance with the Securities Act.

 

ARTICLE 6.

CONDITIONS OF LENDING

 

The obligation of the Lender to make the any Loan hereunder is subject to the
following conditions precedent, each of which may be waived in the discretion of
the Lender:

 

6.1 Representations and Warranties. Each of the representations and warranties
made by the Company pursuant to this Agreement (or in any amendment,
modification or supplement hereto or thereto) shall, except to the extent that
they relate to a particular date, be true and correct in all material respects
on and as of such date as if made on and as of such date.

 

6.2 No Default. The Company shall have complied with each and every covenant and
agreement applicable to it contained in this Agreement and no Event of Default
shall have occurred and be continuing on such date or after giving effect to the
applicable Loan.

 

6.3 Other Documentation. The Lender shall have received such other documentation
and information as it may reasonably request.

 

ARTICLE 7.

AFFIRMATIVE COVENANTS

 

The Company hereby agrees that, from and after the date hereof and so long as
any Loan remains outstanding, and thereafter until payment in full of the Loan
Amount (or until all Loans are converted into shares of Conversion Stock and the
commitment of the Lender to make future loans has been terminated), the Company
shall:

 

7.1 Conduct of Business; Maintenance of Existence; Compliance with Laws.
Continue to engage in business of the same general type as conducted by the
Company on the

 

10

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

Closing Date, and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of the
business of the Company. The Company shall do or cause to be done all things
necessary to ensure compliance by the Company in all material respects with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, any Governmental Authority (including those with jurisdiction over
matters pertaining to the environment and hazardous materials).

 

7.2 Taxes. Timely pay all taxes except taxes being contested in good faith by
appropriate proceedings (which shall be reserved against on the Company’s books
and records); provided that it shall pay any contested taxes upon commencement
of proceedings to foreclose upon any property of the Company to pay such taxes.

 

7.3 Maintenance of Properties and Books and Records. (a) Maintain, preserve,
protect and keep its material properties in good repair, working order and
condition (ordinary wear and tear excepted), and make reasonable, necessary and
proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times consistent with its
past practices, and (b) Maintain a standard system of accounting that enables it
timely to produce financial statements in accordance with GAAP.

 

7.4 Maintenance of Insurance. Maintain insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies of similar size engaged in similar businesses
and owning similar properties in the same general areas in which the Company
operates.

 

ARTICLE 8.

EVENTS OF DEFAULT

 

8.1 Event of Default. If any of the following events shall occur and be
continuing:

 

(a) The Company shall fail to pay: (i) any principal of the Loan when due in
accordance with the terms hereof or (ii) any interest on the Loan, in either
case within ten (10) Business Days of the date when due in accordance with the
terms hereof; or

 

(b) The Company shall default in the observance or performance of any other
covenant or agreement contained in this Agreement (including, without
limitation, the obligation to issue Conversion Stock when due in accordance with
the terms hereof) and such default continues for fifteen (15) days after the
date that the Lender has given written notice to the Company specifying such
default and requiring that it be remedied; or

 

(c) (i) The Company shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or the Company shall make a general assignment
for the benefit of its creditors; or (ii) there shall be commenced

 

11

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

against the Company any case, proceeding or other action of a nature referred to
in clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged,
unstayed or unbonded for a period of 60 days; or (iii) there shall be commenced
against the Company any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
such relief which shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the Company shall
take any corporate action in furtherance of, or indicating its consent to,
approval of or acquiescence in, any of the acts set forth in clause (i), (ii),
or (iii) above; or (v) the Company shall be generally unable to, or shall admit
in writing its general inability to, pay its debts as they become due; or

 

(d) Any representation or warranty made by the Company under this Agreement
shall be false or incorrect in any material respect on the date such
representation or warranty was made; or

 

(e) This Agreement or any Note shall, for any reason, fail or cease to be
enforceable in any material respect;

 

then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of subsection (c) above with respect to the Company,
automatically the Loan hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement or any Note shall immediately become due and
payable, (B) if such event is any other Event of Default, the Lender may, by
written notice to the Company, declare the then outstanding Loan Amount
hereunder (including accrued but unpaid interest thereon) and all other amounts
owing under this Agreement or any Note to be due and payable forthwith,
whereupon the same shall immediately become due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by the Company, (C) the Lender may exercise all rights and
remedies available to it in equity, at law, or pursuant to the provisions of
this Agreement or otherwise, (D) the Lender may terminate its commitment to make
any future Loans to the Company (and such commitment automatically shall
terminate if such event is an Event of Default specified in clause (i) or (ii)
of subsection (c) above with respect to the Company).

 

8.2 Remedies Not Exclusive. The remedies conferred upon or reserved to the
Lender in this Section 8 are intended to be in addition to, and not in
limitation of, any other remedy or remedies available to the Lender.

 

ARTICLE 9.

MISCELLANEOUS

 

9.1 Indemnification by the Company. The Company agrees to indemnify, defend and
hold harmless the Lender and each of its successors, assigns, heirs,
Subsidiaries, Affiliates and all of the officers, directors, employees, partners
and agents (including attorneys and accountants) of each of the aforementioned
Persons, and each of them, from and against any and all losses, claims, damages,
liabilities, reasonable expenses, costs of collection or foreclosure, workout or
restructuring expenses, reasonable attorneys’ fees and disbursements, demands,
causes of action, suits, debts, obligations, rights, promises, acts, agreements
and damages of any

 

12

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

kind or nature whatsoever, whether at law or in equity, whether known or
unknown, foreseen or unforeseen, heretofore or hereafter arising out of,
relating to, or connected with the failure of any representation or warranty
made by the Company herein or in any other documents or agreements contemplated
hereby to be true in all material respects or the failure of the Company to
comply in all material respects with the covenants and agreements contained in
this Agreement or in any other documents or agreements contemplated hereby (but
excluding (i) any such losses, claims, damages, liabilities, expenses, demands,
causes of action, suits, debts, obligations, rights, promises, acts, agreements
and damages of the Lender to the extent incurred by reason of the gross
negligence or willful misconduct of the Lender or (ii) litigation solely between
the Company, on the one hand, and the Lender, on the other hand, in connection
with this Agreement, any Note or in any way relating to the transactions
contemplated hereby or thereby if, after final non-appealable judgment, the
Lender is not the prevailing party or parties in such litigation). The
agreements in this subsection shall survive the termination of this Agreement.

 

9.2 Indemnification by Lender with Respect to Registration Matters. In
connection with any registration statement in which the Lender is participating
pursuant to Section 3.2(d) hereof, the Lender shall, to the extent permitted by
law, indemnify the Company, its officers, directors, employees, agents and
representatives and each Person who controls the Company (within the meaning of
the Securities Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto resulting from such information
provided by Lender or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading and not provided by Lender; provided that the obligation to indemnify
shall be be limited to the net amount of proceeds received by Lender from the
sale of Registrable Securities pursuant to such registration statement.

 

9.3 Subordination Agreement. Lender and the Company hereby agree for the benefit
of the holders of any Indebtedness of the Company outstanding as of the date
hereof (including Gold Bank) which by its terms is senior to the Loan (“Senior
Indebtedness”) that, notwithstanding any provision of hereof or of any Noteto
the contrary, the payment and performance of the Loan is and shall be expressly
subordinated and junior in right of payment to the prior indefeasible payment in
cash in full of all Senior Indebtedness, whether now existing or hereafter
arising, and is hereby subordinated as a claim against the Company or any of the
assets of the Company, whether such claim be in the event of any distribution of
the assets of the Company upon any reorganization or composition or bankruptcy,
insolvency, receivership or other statutory or common law proceedings or
arrangements involving the Company or the readjustment of its liabilities or any
assignment for the benefit of creditors or any marshaling of its assets or
liabilities or any general failure of the Company to pay its debts as they
become due.

 

9.4 Amendments. This Agreement and any terms hereof may not be amended,
supplemented or modified except pursuant to a writing signed by both the Lender
and the Company.

 

9.5 Notices. All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by facsimile
transmission), and, unless

 

13

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

otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered: (a) by hand, upon receipt or (b) three (3) days after being
deposited in the mail, postage prepaid, or (c) in the case of a facsimile
transmission notice, when received (with confirmation of receipt), or (d) in the
case of delivery by a nationally recognized overnight courier, when received, in
each case addressed to such addresses or fax number as may be hereafter notified
by the respective parties hereto.

 

9.6 Successors and Assigns. The Company may not assign its rights or obligations
under this Agreement or the Note without the consent of the Lender. This
Agreement shall be binding upon and inure to the benefit of the Company and the
Lender and their respective successors and permitted assigns.

 

9.7 Further Assurances. Each party hereto, at the reasonable request of the
other party hereto, shall execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.

 

9.8 Captions. The captions of the Sections and Articles of this Agreement have
been inserted for convenience only and shall have no substantive effect.

 

9.9 Counterparts. This Agreement may be executed in any number of counterparts
(including by facsimile), each of which when so executed shall be deemed to be
an original and all of which counterparts together shall constitute one and the
same instrument.

 

9.10 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

9.11 Waiver of Jury Trial. To the extent not prohibited by applicable law which
cannot be waived, each of the Company and the Lender hereby waives, and
covenants that it will not assert (whether as plaintiff, defendant or
otherwise), any right to trial by jury in any forum in respect of any issue,
claim, demand, action, or cause of action arising out of or based upon this
Agreement, the subject matter hereof, any note or the subject matter thereof, in
each case whether now existing or hereafter arising and whether in contract or
tort or otherwise. Each of the Company and the Lender acknowledge that it has
been informed by the other parties hereto that the provisions of this section
constitute a material inducement upon which such other parties have relied, are
relying and will rely in entering into this Agreement. Any party may file an
original counterpart or a copy of this section with any court as written
evidence of the consent of the Company and the Lender to the waiver of its
rights to trial by jury.

 

9.12 Governing Law. This Agreement and any note and the rights and obligations
of the parties under this Agreement and any Note shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
New Jersey without regard to any conflicts of law provisions thereof.

 

14

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

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered on their behalf as of the date first above written.

 

LENDER: HOPKINS CAPITAL GROUP II, LLC

By:

 

/s/ Francis E. O’Donnell, Jr.

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

   

Name: Francis E. O’Donnell, Jr.

   

Title: Manager

COMPANY: BIODELIVERY SCIENCES INTERNATIONAL, INC.

By:

 

/s/ James A. McNulty

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

   

Name: James A. McNulty

   

Title: Secretary, Treasurer and Chief Financial Officer

 

[Signature Page to Facility Loan Agreement]

 

15

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

EXHIBIT A

 

FORM OF CONVERTIBLE NOTE

 

THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.

 

BIODELIVERY SCIENCES INTERNATIONAL, INC.

 

$                    

              , 200    

 

BIODELIVERY SCIENCES INTERNATIONAL, INC., a Delaware corporation (the
“Company”), for value received, hereby promises to pay to the order of Hopkins
Capital Group II, LLC (the “Lender”), the aggregate principal amount of
                     ($                    ) (the “Principal Amount”), together
with accrued and unpaid interest on the Principal Amount, on March 31, 2006 (the
“Maturity Date”), in such coin or currency of the United States of America as at
the time of payment shall be legal tender therein for the payment of public and
private debts. Capitalized terms used herein and not otherwise defined shall
have the meanings given to such terms in that certain Facility Loan Agreement,
dated as of August 2, 2004, between the Company and the Lender (the “Loan
Agreement”).

 

The obligations of the Company evidenced by this Note are mandatorily repayable
to the extent, in the manner, and on the dates provided for in the Loan
Agreement, and this Note may be optionally convertible into the shares of
Conversion Stock as set forth in and pursuant to the terms and conditions
provided for in the Loan Agreement. The Principal Amount, together with accrued
and unpaid interest on the Principal Amount, may be prepaid by the Company at
any time without penalty.

 

This Note shall accrue interest at a rate per annum equal to the Prime Rate with
respect to the outstanding unpaid Principal Amount plus any accrued but unpaid
interest thereon compounding annually (the “Interest”) until the Principal
Amount and such interest is paid in full. Such Interest shall accrue and be
paid, together with all outstanding Principal Amount, as provided in the Loan
Agreement. Interest shall be calculated on the basis of a 365-day year and the
actual number of days elapsed.

 

The Company hereby waives presentment, demand, protest, notice of dishonor,
diligence and all other notices, any release or discharge arising from any
extension of time, discharge of a prior party, release of any or all of any
security given from time to time for this Note, or other cause of release or
discharge other than actual payment in full hereof.

 

Lender may, but is not obligated to, enter the amount of each Loan and the
amount of each payment or prepayment of principal or interest thereon on the
appropriate spaces on the last page of this Note; provided, however, that the
failure of the Lender to set forth such Loan, principal payments or other
information shall not in any manner affect the obligations of the Company to
repay such Loan.

 

A-1

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

Lender shall not be deemed, by any act or omission, to have waived any of its
rights or remedies hereunder unless such waiver is in writing and signed by
Lender and then only to the extent specifically set forth in such writing. A
waiver with reference to one event shall not be construed as continuing or as a
bar to or waiver of any right or remedy as to a subsequent event. No delay or
omission of Lender to exercise any right, whether before or after a default
hereunder, shall impair any such right or shall be construed to be a waiver of
any right or default, and the acceptance at any time by Lender of any past-due
amount shall not be deemed to be a waiver of the right to require prompt payment
when due of any other amounts then or thereafter due and payable.

 

Upon any default hereunder, Lender may exercise all rights and remedies provided
for herein and by law or equity, including, but not limited to, the right to
immediate payment in full of this Note.

 

The remedies of Lender as provided herein, or any one or more of them, or in law
or in equity, shall be cumulative and concurrent, and may be pursued singularly,
successively or together at Lender’s sole discretion, and may be exercised as
often as occasion therefor shall occur.

 

It is expressly agreed that if this Note is referred to an attorney or if suit
is brought to collect or interpret this Note or any part hereof or to enforce or
protect any rights conferred upon Lender by this Note or any other document
evidencing or securing this Note, then the Company promises and agrees to pay
all costs, including attorneys’ fees, incurred by Lender unless, if after the
non-appealable final judgement, the Lender is not the prevailing party or
parties in such litigation.

 

This Note shall be governed by and construed and interpreted in accordance with,
the internal laws of the State of New Jersey without regard for any conflicts of
laws provisions thereof.

 

This is Note referred to in the Loan Agreement and is subject to and entitled to
the benefits of said Loan Agreement, including, but not limited to, acceleration
and the right in certain circumstances to require that this Note be prepaid
prior to the Maturity Date.

 

IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of
the date first written above.

 

BIODELIVERY SCIENCES INTERNATIONAL, INC.

By:

 

 

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

   

Name:

   

Title:

 

A-2