Exhibit 10.31


 





Execution Copy







 





 



 


LOAN
AND SECURITY AGREEMENT


 


dated
as of December 21, 2015


 


among


 


PhaseRx,
Inc.


as
Borrower,


 


and


 


the
financial institutions and individuals listed on Annex A, 


as
Lenders 


 


and


 


Titan
Multi-Strategy Fund I, LTD.,


as
Security Agent


 


 






 




     


     


    

 


TABLE OF CONTENTS


 


	 	 	Page
	 	 	 
	ARTICLE I DEFINITIONS
    AND ACCOUNTING TERMS	2
	 	 	 
	SECTION 1.01.	Certain Defined Terms	2
	SECTION 1.02.	Times of Day	6
	SECTION 1.03.	Principles of Construction	7
	 	 	 
	ARTICLE II AMOUNTS
    AND TERMS OF THE ADVANCES	7
	 	 	 
	SECTION 2.01.	The Loan	7
	SECTION 2.02.	Repayment of Loan	7
	SECTION 2.03.	Interest	8
	SECTION 2.04.	Maximum Interest	8
	SECTION 2.05.	Prepayments of Loan	8
	SECTION 2.06.	Evidence of Debt	8
	SECTION 2.07.	Payments and Computations	9
	SECTION 2.08.	Mandatory Prepayments	9
	 	 	 
	ARTICLE III CONDITIONS
    OF LENDING	9
	 	 	 
	SECTION 3.01.	Conditions Precedent	9
	 	 	 
	ARTICLE IV REPRESENTATIONS
    AND WARRANTIES	10
	 	 	 
	SECTION 4.01.	Representations and Warranties	10
	SECTION
    4.02.	Lender Representations and Warranties	13
	 	 	 
	ARTICLE V COVENANTS
    OF BORROWER	13
	 	 	 
	SECTION 5.01.	Affirmative Covenants	13
	SECTION 5.02.	Negative Covenants	15
	 	 	 
	ARTICLE VI SECURITY
    INTEREST	17
	 	 	 
	SECTION 6.01.	Granting of Security Interest	17
	SECTION 6.02.	Proceeds	18
	SECTION 6.03.	Delivery of Certain Collateral	18
	SECTION 6.04.	Authorization to File Financing Statements	18
	 	 	 
	ARTICLE VII EVENTS
    OF DEFAULT	18
	 	 	 
	SECTION 7.01.	Events of Default	18
	SECTION 7.02.	Rights and Remedies	19
	 	 	 
	ARTICLE VIII CONVERSION	21
	 	 	 
	SECTION 8.01.	Conversion of Term Loans	21
	SECTION 8.02.	Conversion Limitation	21



 






    i


     


    

 


	ARTICLE
    IX Indemnification	21
	 	 	 
	SECTION
    9.01.	Indemnification	21
	 	 	 
	ARTICLE
    X MISCELLANEOUS	22
	 	 	 
	SECTION
    10.01.	Amendments	22
	SECTION
    10.02.	Notices;
    Effectiveness; Electronic Communications	22
	SECTION
    10.03.	Waiver	23
	SECTION
    10.04.	Equal
    Treatment of Lenders	23
	SECTION
    10.05.	Costs
    and Expenses	23
	SECTION
    10.06.	Governing
    Law; Submission to Jurisdiction	23
	SECTION
    10.07.	Severability	24
	SECTION
    10.08.	Counterparts;
    Integration; Effectiveness; Electronic Execution	24
	SECTION
    10.09.	Confidentiality	24
	SECTION
    10.10.	Cumulative
    Remedies	25
	SECTION
    10.11.	Wire
    Instructions	25
	SECTION
    10.12.	Construction



	25
	SECTION
    10.13.	Absolute Obligation



	26
	SECTION
    10.14.	Entire Agreement



	26


 


Annex
A Lenders


 


Annex
B Escrow Agreement


 


Annex
C Rights, Responsibilities and Immunities of the Security Agent


 


Annex
D Subordinated Lenders


 


Annex
E Excluded Collateral


 




    ii


     


    

 


This
LOAN AND SECURITY AGREEMENT dated as of December 21, 2015, among PhaseRx, Inc., a Delaware corporation
(“Borrower”) and the financial institutions and individuals listed on Annex A (collectively,
the “Lenders” and each a, “Lender”).


 


For
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:


 


ARTICLE
I


DEFINITIONS
AND ACCOUNTING TERMS


 


SECTION
1.01.         Certain Defined Terms.
As used in this Agreement, the following terms shall have the following meanings:


 


“Affiliate”
means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, “controls”
or is “controlled by” or is “under common control with” the Person specified.


 


“Agreement”
means this Loan and Security Agreement.


 


“Applicable
Rate” means the rate equal to five percent (5%) per annum.


 


“Automatic
Conversion” has the meaning specified in Section 8.01.


 


“Bankruptcy
Code” means the Federal Bankruptcy Code of 1978, Title 11 of the United States Code, as amended from time to time.


 


“Borrower”
has the meaning specified in the preamble hereto.


 


“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States
or any day on which banking institutions in the State of New York are required by law or other governmental action to close.


 


“Closing
Date” means the earliest date on which the conditions precedent set forth in Section 3.01 shall have
been satisfied or waived in accordance with Section 10.01 of this Agreement.


 


“Code”
means the U.S. Internal Revenue Code of 1986.


 


“Collateral”
has the meaning specified in Section 6.01.


 


“Conversion
Shares” means the shares of common stock of Borrower issuable upon an Automatic Conversion pursuant to Section
8.01.


 


“Debt”
means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness
or liabilities in accordance with GAAP, (a) all obligations of such Person for borrowed money; (b) all direct or contingent obligations
of such Person arising under letters of credit, bankers’ acceptances, bank guaranties, surety bonds and similar instruments;
(c) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable
in the ordinary course of business and not past due); (d) indebtedness secured by a Lien on property owned by such Person (including
conditional sales or other title retention agreements, whether or not such indebtedness shall have been assumed by such Person
or is limited in recourse; (e) capital leases and synthetic lease obligations; (f) all obligations of such Person to purchase,
redeem, retire, defease or otherwise make any payment in respect of any equity interest in such Person or any other Person; and
(g) all Guarantees of such Person in respect of any of the foregoing.




    2


     


    

  


“Debtor
Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, bankruptcy, moratorium,
receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions.


 


“Default”
means any event or condition that, with the giving of any notice, the passage of time, or both, would be an Event of Default.


 


“Default
Premium” has the meaning specified in Section 7.01.


 


“Disposition”
means any sale, transfer, lease, license, contribution or other conveyance (including by way of merger, partnering arrangement
or stock purchase) of all or any portion of Borrower’s assets to any other Person in a single transaction or series of transactions,
directly or indirectly.


 


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


 


“End
Date” has the meaning specified in Section 5.01(j).


 


“Escrow
Agreement” means the escrow agreement to be employed in connection with the transactions described herein, a copy
of which is annexed hereto as Annex B.


 


“Events
of Default” has the meaning specified in Section 7.01.


 


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


 


“Excluded
Collateral” means any Intellectual Property of Borrower that would otherwise be included as Collateral but for the
express terms imposed by a Person other than the Borrower, of any license, contract or other agreement or instrument constituting
or applicable to such Intellectual Property that prohibits the grant to the Security Agent of a security interest in and to such
Intellectual Property or under which the grant to the Security Agent of a security interest in and to such Intellectual Property
would impair the validity or enforceability of such Intellectual Property; provided, however, that any portion of any such Intellectual
property or other right shall cease to constitute Excluded Collateral at the time and to the extent that the grant of a security
interest therein does not result in any of the consequences specified above.


 


“Facility
Documents” means, collectively, this Agreement, Escrow Agreement and each other agreement or instrument executed
or delivered in connection herewith or therewith.


 


“GAAP”
means generally accepted accounting principles in the United States.


 


“Governmental
Authority” means the government of the United States of America or any other nation, or of any political subdivision
thereof.


 


“Guarantee”
means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect
of guaranteeing any Debt or other obligation payable or performable by another Person (the “primary obligor”)
in any manner, whether directly or indirectly, or (b) any Lien on any assets of such Person securing any Debt or other obligation
of any other Person, whether or not such Debt or other obligation is assumed by such Person (or any right, contingent or otherwise,
of any holder of such Debt to obtain any such Lien).


 




    3


     


    

  


“Information”
has the meaning specified in Section 10.09.


 


“Intellectual
Property” means the collective reference to all rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights
arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered
and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith,
including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all
letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof,
and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part
thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress,
service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing
or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether
in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or
any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade
secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to
obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes
of action for infringement of the foregoing.


 


“Investment”
means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase
or other acquisition of equity interests of another Person, (b) a loan, advance or capital contribution to, guarantee or assumption
of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) the purchase or other acquisition
(in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial
part of the business of, such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually
invested, without adjustment for subsequent increases or decreases in the value of such Investment.


 


“Law”
means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations,
ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof
by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative
orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in
each case whether or not having the force of law.


 


“Lenders”
has the meaning specified in the preamble hereto and each of the Lenders, individually, a “Lender.”


 


“Lien”
means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or
preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or
nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance
on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).


 






    4


     


    

 


“Major
Disposition” means the sale, transfer, lease, license, contribution or other conveyance of all or substantially
all of the assets of Borrower that results in net cash proceeds to Borrower sufficient to and which are actually employed to fully
satisfy all of the Obligations in accordance with Section 2.08.





 


“Material
Adverse Effect” means (a) a material impairment of the ability of Borrower to perform any of its obligations under
any of the Facility Documents, (b) a material adverse effect upon the legality, validity, binding effect or enforceability of
any material provision of any Facility Document, (c) a material adverse change in, or a material adverse effect upon, the business,
properties, liabilities (actual or contingent), or financial condition of Borrower or (d) a material adverse change in, a material
adverse effect upon, or a material impairment of, (i) the priority of the Lenders’ security interest in a material portion
of the Collateral or (ii) the rights, remedies and benefits available to, or conferred upon, the Lenders under any Facility Document
or the Lenders’ ability to foreclose on the Collateral at the times and in the manner contemplated herein.


 


“Maturity
Date” means the date that is one year after the date of this Agreement, subject to acceleration as provided in Article
VII.


 


“Maximum
Lawful Rate” has the meaning specified in Section 2.04.


 


“Necessary
Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed
and such other instruments or documents as the Security Agent may reasonably request.


 


“Obligations”
means the Term Loans to, and all debts, liabilities, obligations, covenants, indemnifications, and duties of, Borrower arising
at any time and from time to time, whether matured or unmatured, fixed or contingent, liquidated or unliquidated, under any Facility
Document, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to
become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against
Borrower of any proceeding under any Debtor Relief Laws naming Borrower as the debtor in such proceeding, regardless of whether
such interest and fees are allowed claims in such proceeding and including the Prepayment Premium and Default Premium, if applicable.


 


“Organization
Documents” means, as applicable, for any Person, such Person’s articles or certificate of incorporation, by-laws,
memorandum and articles of association, partnership agreement, trust agreement, certificate of limited partnership, articles of
organization, certificate of formation, shareholder agreement, voting trust agreement, operating agreement, subscription agreement,
side letters, if any, limited liability company agreement and/or analogous documents.


 


“Permitted
Debt” has the meaning specified in Section 5.02(a).


 


“Person”
means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.


 


“Prepayment
Premium” means, with respect to a repayment pursuant to Section 2.08, an amount equal to 25% of the
outstanding principal amount of the Term Loans on the date of repayment.


 






    5


     


    

 


“Qualified
Offering” means collectively, (i) a firm commitment underwritten initial public offering of the common stock of
Borrower which results not later than 167 calendar days after the Closing Date in gross proceeds to Borrower of at least $16,900,000
at a pre-Qualified Offering valuation of at least $36,000,000 (exclusive of the Term Loans and their subsequent conversion pursuant
to Article VIII), (ii) contemporaneously with which the Borrower becomes an entity whose common stock is listed on the NYSE MKT,
the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, (iii) conducted by Laidlaw or another
underwriter acceptable to Borrower and Required Lenders, (iv) in which shareholders of the Borrower as of the date of this Agreement
invest not less than $9,400,000 in the Qualified Offering or on the terms of the Qualified Offering in a concurrent private placement
but are not granted registration rights with respect to the common stock so acquired and, in any case, will be subject to the
underwriters lockup imposed in connection with the Qualified Offering, which lockup shall not be more than 180-days and (v) which
Qualified Offering is consistent with the post Qualified Offering capitalization set forth on Schedule 4.01(i) hereto.








 


“Required
Lenders” means Lenders representing at least 51% of the outstanding principal amount of the Term Loans.


 


“SEC”
means the U.S. Securities and Exchange Commission.


 


“Securities”
means collectively the Term Loans and Conversion Shares.


 


“Securities
Act” means the United States Securities Act of 1933, as amended.


 


“Security
Agent” has the meaning specified in the preamble hereto or his replacement.


 


“Subordination
Agreement” means the Subordination Agreement, dated as of the date hereof, among the Borrower, the subordinated
lenders listed on Annex D hereto, and Titan Multi-Strategy Fund I, LTD., as agent for the Lenders.


 


“Subsidiary”
of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority
of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body
(other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially
owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries”
shall refer to a Subsidiary or Subsidiaries of Borrower.


 


“Taxes”
means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments,
fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable
thereto.


 


“Term
Loans” means the term loans made pursuant to Section 2.01(a).


 


“UCC”
means Uniform Commercial Code in effect in the State of New York and any other applicable jurisdiction.


 


SECTION
1.02.         Times of Day. Unless otherwise specified, all references herein
to times of day shall be references to local time in New York City, New York.


 






    6


     


    

 


SECTION
1.03.         Principles of Construction








 


(a)          The
definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without limitation.”
Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including
any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time
amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set
forth herein or in any other Facility Document), (ii) except to the extent consent of the Required Lenders is required as provided
herein, any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the
words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Facility
Document, shall be construed to refer to such Facility Document in its entirety and not to any particular provision thereof, (iv)
all references in a Facility Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed
to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Facility Document in which such
references appear, and (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending,
replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such
law or regulation as amended, modified or supplemented from time to time.


 


(b)          In
the computation of periods of time from a specified date to a later specified date, the word “from” means “from
and including;” the words “to” and “until” each mean “to but excluding;” and the word
“through” means “to and including.”


 


(c)          Section
headings herein and in the other Facility Documents are included for convenience of reference only and shall not affect the interpretation
of this Agreement or any other Facility Document.


 


(d)          When
used herein the terms Accessions, Account, Certificated Securities, Chattel Paper, Commercial Tort Claim, Commodity Account, Commodity
Contract, Deposit Account, Document, Electronic Chattel Paper, Equipment, General Intangibles, Goods, Instrument, Inventory, Investment
Property, Letter-of-Credit Rights, Payment Intangible, Proceeds, Promissory Notes, Securities Account, Security Entitlement, Supporting
Obligations and Uncertificated Securities have the meaning provided in Article 8 or Article 9, as applicable, of the UCC. Letter
of Credit has the meaning provided in Section 5-102 of the UCC.


 


ARTICLE
II


AMOUNTS
AND TERMS OF THE ADVANCES


 


SECTION
2.01.         The Loan. Subject to the terms and conditions set forth
herein, each Lender, severally and not jointly, agrees to make a loan in Dollars to Borrower in the amount set forth opposite
such Lender’s name on Annex A (the “Term Loans”), by wire transfer in immediately available
funds to the account as set forth in the Escrow Agreement, the terms of which are incorporated herein by this reference or by
surrender of outstanding promissory notes of the Company of not more than $500,000 in principal. The surrender of notes for Term
Loans pursuant to the preceding sentence shall be on a dollar-for-dollar basis. The aggregate original principal amount of the
Term Loans shall be equal to $4,000,000 plus, if applicable, any accrued and unpaid interest on the principal amount of surrendered
promissory notes. Amounts borrowed hereunder and repaid or prepaid may not be reborrowed.


 


SECTION
2.02.         Repayment of Loan. Borrower shall repay to the Lenders on the Maturity
Date the principal amount of the Term Loans outstanding on such date, accrued but unpaid interest thereon and all other outstanding
Obligations unless earlier converted in accordance with Article VIII.


 






    7


     


    

 


SECTION
2.03.         Interest.








 


(a)          Ordinary
Interest. Borrower shall pay interest on the unpaid principal amount of the Term Loans, from the Closing Date until such principal
amount shall be paid in full, at a rate per annum equal to the Applicable Rate. Interest shall be payable in arrears on the Maturity
Date unless earlier converted in accordance with Article VIII hereof. Interest shall be computed on a year of 360
days and actual days elapsed in the period for which interest is payable. Interest (including the default interest set forth below)
shall be due and payable before and after judgment or the commencement of any proceeding under any Debtor Relief Law.


 


(b)          Default
Interest. If any Event of Default shall have occurred, Borrower shall pay interest on the Term Loans at a rate per annum equal
at all times to fifteen percent (15%), from the day of such Event of Default, payable on demand (and in any event in arrears on
the date such amount shall be paid in full).


 


SECTION
2.04.         Maximum Interest.  To the extent it may lawfully do
so, Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection
with any claim, action or proceeding that may be brought by any Lender in order to enforce any right or remedy under any Facility
Document. Notwithstanding any provision to the contrary contained in any Facility Document, it is expressly agreed and provided
that the total liability of Borrower under the Facility Documents for payments in the nature of interest shall not exceed the
maximum lawful rate authorized under applicable law (the “Maximum Lawful Rate”), and, without limiting the
foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in
the nature of interest that Borrower may be obligated to pay under the Facility Documents exceed such Maximum Lawful Rate. It
is agreed that if the maximum contract rate of interest allowed by law and applicable to the Facility Documents is increased or
decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Lawful Rate applicable to the Facility Documents from the Closing Date thereof forward, unless
such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Lawful
Rate is paid by Borrower to any Lender with respect to indebtedness evidenced by the Facility Documents, such excess shall be
applied by such Lender to the unpaid principal balance of any such indebtedness or be refunded to Borrower, the manner of handling
such excess to be at such Lender’s election.


 


SECTION
2.05.         Prepayments of Loan. Except as set
forth in this Agreement, Borrower may not prepay all or any portion of the outstanding principal amounts of the Term Loans or
the accrued and unpaid interest without the prior written consent of the Required Lenders.


 


SECTION
2.06.         Evidence of Debt.


 


(a)          The
records maintained by the Lenders regarding the Term Loans shall be prima facie evidence of the existence and amounts of the obligations
therein recorded; provided, however, that the failure of the Lenders to maintain such records or any error therein
shall not in any manner affect the obligation of Borrower to repay the Obligations in accordance with their terms.


 


(b)          No
promissory note shall be required to evidence the Term Loans. Upon the request of the Required Lenders, Borrower shall execute
and deliver to each Lender a promissory note, which shall evidence the Term Loans in addition to such records.


 




    8


     


    

  


SECTION
2.07.         Payments and Computations.


 


(a)          Borrower
shall make each payment hereunder not later than 5:00 PM on the day when due in Dollars to the Lenders in immediately available
funds. All payments received by the Lenders after 5:00 PM shall be deemed received on the next succeeding Business Day and any
applicable interest or fee shall continue to accrue. All payments shall be made pro rata among the Lenders based on the outstanding
principal amount of the Term Loans made by each Lender.


 


(b)          Whenever
any payment hereunder would be due on a day other than a Business Day, such payment shall be extended to the next succeeding Business
Day, and such extension of time shall in such case be included in the computation of payment of interest or any fees, as the case
may be.


 


(c)          All
payments (including prepayments and any other amounts received hereunder and payments and amounts received in connection with
the exercise of the Lenders’ rights after an Event of Default) made by or on behalf of Borrower under any Facility Document
shall be applied in the following order: (i) to any expenses and indemnities payable by Borrower to the Lenders; (ii) the Prepayment
Premium and Default Premium, as applicable and without duplication; (iii) to any accrued and unpaid interest and fees due; (iv)
to principal payments on the outstanding Term Loans; and (v) to the extent of any excess, to the payment of all other Obligations.


 


SECTION
2.08.         Mandatory Prepayments.


 


Upon
any Major Disposition by Borrower, Borrower shall, within two (2) Business Days of Borrower’s receipt of the proceeds of
such Major Disposition, satisfy the entire outstanding principal amount of the Term Loans, all accrued and unpaid interest thereon,
and all other components of the Obligations together with the Prepayment Premium.


 


ARTICLE
III


CONDITIONS
OF LENDING


 


SECTION
3.01.         Conditions Precedent





 


(a)          The
obligation of each Lender to make the Term Loans is subject to satisfaction of the following conditions precedent:


 


(i)          Each
Lender shall have received duly executed counterparts of this Agreement and Escrow Agreement.


 


(ii)         Each
other Lender shall have funded the amount set forth opposite each such other Lender’s name on Annex A in accordance
with Section 2.01.


 


(iii)        The
representations and warranties of the Borrower contained herein shall be true and correct in all material respects (in the case
of any representation or warranty not qualified by materiality or Material Adverse Effect) or in all respects (in the case of
any representation or warranty qualified by materiality or Material Adverse Effect) on the date of this Agreement and on the Closing
Date (unless as of a specific date therein in which case they shall be true and correct as of such date).








 


(iv)        There
shall have been no Material Adverse Effect with respect to the Borrower since the date hereof.


 






    9


     


    

 


(v)         Secretary’s
certificate containing (i) copies of the text of the resolutions by which the corporate action on the part of the Borrower necessary
to approve this Agreement and the other documents and the transactions and actions contemplated hereby and thereby, which shall
be accompanied by a certificate of the corporate secretary or assistant corporate secretary of Borrower dated as of the Closing
Date certifying to the Lenders that such resolutions were duly adopted and have not been amended or rescinded, (ii) an incumbency
certificate dated as of the Closing Date executed on behalf of Borrower by its corporate secretary or one of its assistant corporate
secretaries certifying the office of each officer of Borrower executing this Agreement, or any other agreement, certificate or
other instrument executed pursuant hereto, and (iii) copies of (A) the Borrower’s Certificate of Incorporation and bylaws
in effect on the Closing Date, and (B) the certificate evidencing the good standing of Borrower as of a day within five (5) Business
Days prior to the Closing Date.


 


(vi)        The
Security Agent shall have received a form of subordination agreement acceptable to the Borrower and Security Agent executed on
behalf of the Borrower and the subordinated lenders identified on Annex D hereto


 


The
acceptance of the Term Loans shall be deemed to be a representation and warranty by Borrower that the conditions specified in
Section 3.01 have been satisfied on and as of the Closing Date. For the avoidance of doubt, Borrower is not required
to accept any Term Loans unless and until the Escrow Agent has received $4,000,000 or, if any Lender has surrendered a promissory
note to the Company pursuant to Section 2.01, $3,500,000, as payment for the Term Loans, and each Lender has delivered its duly
executed counterpart to this Agreement to the Escrow Agent.


 


(b)          Borrower’s
obligations under this Agreement, and the Lenders’ and Security Agent’s rights and remedies hereunder, including under
Section 2.03, Article V, Article VI, Article VII, and Article VIII, shall
have no force or effect until the Escrow Agent (i) has released $4,000,000 or, if any Lender has surrendered a promissory note
to the Company pursuant to Section 2.01, $3,500,000, to or for the benefit of Borrower, and (ii) has deemed released from escrow
the documents deposited in escrow in connection therewith as set forth in the Escrow Agreement.


 


ARTICLE
IV


REPRESENTATIONS
AND WARRANTIES


 


SECTION
4.01.         Borrower Representations and Warranties. Borrower represents and
warrants to the Lenders that:


 


(a)          Borrower
(i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, (ii) is duly
qualified and in good standing in each other jurisdiction in which the conduct of its business requires it to so qualify or be
licensed and where, in each case, failure so to qualify and be in good standing could have a Material Adverse Effect, and (iii)
has all requisite company power and authority to own or lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted.





 


(b)          The
execution, delivery and performance by Borrower of this Agreement and the other Facility Documents to which Borrower is a party
(when delivered) and the consummation of the transactions contemplated under the Facility Documents are within its company powers,
have been duly authorized by all necessary company action, and do not and will not (i) contravene Borrower’s Organization
Documents, (ii) contravene any contractual restriction binding on it or require any consent under any agreement or instrument
to which it is a party or by which any of its properties or assets is bound, (iii) result in or require the creation or imposition
of any material Liens upon any property or assets of Borrower, or (iv) violate any Law (including, but not limited to, the Securities
Act and the Exchange Act and the regulations thereunder) or writ, judgment, injunction, determination or award, except, with respect
to clauses (ii) – (iv), such conflicts, contraventions, violations, and Liens that would not reasonably be expected to result
in a Material Adverse Effect.


 






    10


     


    

 


(c)          Except
for any filings to perfect the Security Agent’s security interest in the Collateral and such consents that have been obtained,
no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption
or waiver by, any Governmental Authority or any other third party, is required to authorize, or is required in connection with,
(i) the execution, delivery and performance by Borrower of any Facility Document, (ii) the creation or perfection of the security
interest in the Collateral granted to the Lenders hereunder or (iii) the legality, validity, binding effect or enforceability
of any Facility Document by the Lenders.


 


(d)          Borrower
is in compliance with the requirements of all Laws and all material orders, writs, injunctions and decrees applicable to it or
to its properties, except in such instances in which (i) such requirement of Law or order, writ, injunction or decree is being
contested in good faith by appropriate proceedings diligently conducted or (ii) the failure to comply therewith, either individually
or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.


 


(e)          This
Agreement and the other Facility Documents that Borrower is party to are, and will be, legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their respective terms. The security interest in the Collateral granted
herein is a valid and binding security interest in the Collateral subject to no other liens or security interests other than Liens
set forth on Schedule 4.01(e) or are otherwise of an immaterial nature.


 


(f)          No
Default or Event of Default has occurred and is continuing.


 


(g)          Borrower
owns all of the Collateral free and clear of Liens, other than Liens set forth on Schedule 4.01(e) or are otherwise of
an immaterial nature.


 


(h)          Borrower
has delivered to the Lenders an unaudited balance sheet, and the related unaudited statements of income or operations and cash
flows for the period ended October 31, 2015. The Financial Statements fairly present in all material respects the financial condition
and operating results of Borrower as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments.
Except as set forth in the Financial Statements, Borrower has no material liabilities or obligations, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business subsequent to October 31, 2015; (ii) obligations under
contracts and commitments incurred in the ordinary course of business; which, in all such cases, individually and in the aggregate
would not reasonably be expected to have a Material Adverse Effect.


 


(i)          The
capitalization of Borrower as of the date of this Agreement and the pro forma capitalization of the Borrower giving effect to
the closing of the Qualified Offering (assuming the Borrower raises the minimum of $16,900,000 in the Qualified Offering) and
the issuance of borrower’s securities in connection therewith are set forth on Schedule 4.01(i).


 


(j)          The
Term Loans are duly authorized, and the Conversion Shares, when issued and paid for in accordance with the applicable Facility
Documents upon closing of the Qualified Offering, will be duly authorized and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Borrower other than restriction on transfer arising pursuant to applicable securities laws.


 






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(k)          Except
as would not reasonably be expected to have a Material Adverse Effect, Borrower owns or licenses, believes it can license on commercially
reasonable terms or otherwise has the right to use all licenses, permits, patents, patent applications, trademarks, trademark
applications, service marks, tradenames, copyrights, copyright applications, authorizations and other intellectual property rights
that are necessary for the operation of its business. Except with respect to intellectual property rights Borrower believes it
can license on commercially reasonable terms or would not reasonably be expected to have a Material Adverse Effect, the use of
the aforementioned intellectual property rights by Borrower does not, to the Borrower’s knowledge, infringe upon or conflict
in any material respect with any federally registered and issued intellectual property owned by any other Person. Except as would
not reasonably be expected to have a Material Adverse Effect, Borrower has not received any communications alleging that Borrower
has violated any Intellectual Property of any other Person.


 


(l)          There
is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Borrower, threatened
against or affecting Borrower, or any of its properties before or by any court, arbitrator, governmental or administrative agency
or regulatory authority (federal, state, county, local or foreign) which (i) adversely affects or challenges the legality, validity
or enforceability of any of the Facility Documents or the Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.


 


(m)          Except
as set forth on Schedule 4.01(m), none of the officers or directors of the Borrower and, to the knowledge of the Borrower,
none of the employees of the Borrower is presently a party to any transaction with the Borrower (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money
to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of Borrower, any entity
in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder,
member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of Borrower, and (iii) other employee benefits, including stock option agreements
under any stock option plan of Borrower.


 


(n)          Except
as set forth on Schedule 4.01(n), no Person has any right to cause the Borrower to effect the registration under the Securities
Act of any securities of the Borrower.


 


(o)          No
registration under the Securities Act is required for the offer and sale of the Term Loans by the Borrower to the Lenders as contemplated
hereby.


 


(p)          As
of the date hereof, all Debt and Liens of the Borrower (other than Debt and Liens that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or are otherwise of an immaterial nature) and the principal terms thereof
are set forth on Schedule 4.01(p). Except as set forth on Schedule 4.01(p), as of the date of this Agreement and
the Closing Date, no Debt or other equity of the Borrower is or will be senior to the Term Loans in right of payment, whether
with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).








 


(q)          The
Borrower has no Subsidiaries and does not hold any “securities” as such term is defined in the UCC.


 






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(r)          Except
for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect,
Borrower (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns,
reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has
set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods
to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of Borrower and Borrower knows of no basis for any such claim.


 


(s)          The
foregoing representations and warranties shall survive the Closing.


 


SECTION
4.02.         Lender Representations and Warranties. Each Lender, severally
and not jointly, represents and warrants to Borrower that:


 


(a)          
Such Lender is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act.
Such Lender is acquiring the Securities for investment for its own account and not with a present view towards, or for resale
in connection with, the public sale or distribution of the Securities, except pursuant to sales registered or exempted under the
Securities Act.


 


(b)          Such
Lender understands and acknowledges that the Securities, upon issuance, will be “restricted securities” under the
federal securities laws inasmuch as they are being acquired from Borrower in a transaction not involving a public offering and
that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act
only in certain limited circumstances. In addition, such Lender represents that it is familiar with Rule 144 under the Securities
Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.


 


(c)          Such
Lender acknowledges that it can bear the economic and financial risk of its investment hereunder for an indefinite period, and
has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the
investment in the Securities. Such Lender has had an opportunity to ask questions and receive answers from Borrower regarding
the terms and conditions of the offering of the Securities and the business, properties, prospects and financial condition of
Borrower.


 


ARTICLE
V


COVENANTS
OF BORROWER


 


SECTION
5.01.         Affirmative Covenants. On and after the Closing Date and
so long as any Obligations have not been indefeasibly paid in full or converted pursuant to Article VIII:


 


(a)          Existence
and Conduct of Business. Except in connection with a Major Disposition, Borrower shall preserve renew and maintain in full
force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization. Except in connection
with a Major Disposition in connection with the Qualified Offering, Borrower will conduct its operations in the ordinary course
of business consistent with its past practices.








 


(b)          Use
of Proceeds. Borrower will use the proceeds of the Term Loans for working capital and general corporate purposes in the ordinary
course of business.


 


(c)          Payment
of Obligations. Borrower shall pay and discharge as the same shall become due and payable, all its obligations and liabilities,
including: (i) all material Taxes, assessments, claims and governmental charges or levies imposed upon it or upon its property;
provided, however, that Borrower shall not be required to pay or discharge any such tax, assessment, claim or charge that is being
diligently contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained; (ii) all
material lawful claims which, if unpaid, would become a Lien on its property; and (iii) all material Debt, as and when due and
payable.


 






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(d)          
Inspection Rights. Subject to the entry into of a non-disclosure and confidentiality agreement reasonably acceptable to
Borrower, Borrower shall, at any reasonable time during normal business hours and upon reasonable prior notice, from time to time
permit the Security Agent and its agent and representative (in each case, subject to Section 10.09) to (i) discuss
the affairs, finances, assets and accounts of Borrower with any of Borrower’s officers, directors or other representatives
and independent certified public accountants and (ii) examine and make copies of and abstracts from their records and books of
account, all at the expense of Borrower; provided, however, that so long as no Event of Default has occurred and
is continuing, such examinations shall be limited to no more often than once per each six months; provided, further,
however, in no event shall Borrower be required to provide access to any trade secrets, technical data or other commercially
sensitive information.


 


(e)          Compliance
with Laws. Borrower shall comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable
to it or to its business or property, except in such instances in which (i) such requirement of Law or order, writ, injunction
or decree is being contested in good faith by appropriate proceedings diligently conducted; or (ii) the failure to comply therewith
would not reasonably be expected to result in a Material Adverse Effect.


 


(f)          Information
Rights. As soon as available, but in any event within thirty (30) days after the end of each fiscal quarter, Borrower shall
deliver to the Security Agent an unaudited balance sheet as at the end of such fiscal quarter, and the related unaudited statements
of income or operations and cash flows for such fiscal quarter. Such financial statements shall be in a form consistent with the
financial statements delivered to the Security Agent prior to the date hereof and need not comply with GAAP.


 


(g)          Security
Interest. Borrower shall at all times maintain the Liens and security interest in the Collateral granted to the Security Agent
hereunder as valid and perfected first priority Liens and security interests in the Collateral in favor of the Security Agent
for the benefit of the Lenders. Borrower hereby agrees to defend the same against the claims of any and all Persons and entities.
Borrower shall safeguard and protect all Collateral for the account of the Lenders.


 


(h)          Further
Assurances. Borrower agrees to execute and/or deliver any additional agreements, documents and instruments, and take such
further actions as may be reasonably requested by the Required Lenders and/or the Security Agent from time to time to carry out
the intent of the Facility Documents. At the request of the Security Agent, Borrower will sign and deliver to the Security Agent
on behalf of the Lenders at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably
satisfactory to the Security Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed
by the Security Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting
the generality of the foregoing, Borrower shall pay all fees, taxes and other amounts necessary to make any filing required hereunder,
including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination
statements related thereto or any expenses of any searches, and to maintain the Collateral and the security interest in the Collateral
granted to the Lenders hereunder, and Borrower shall obtain and furnish to the Security Agent from time to time, upon demand,
such releases and/or subordinations of claims and liens which may be required to maintain the priority of the security interest
in the Collateral granted to the Security Agent hereunder. Borrower shall promptly execute and deliver to the Security Agent such
further deeds, mortgages, assignments, security agreements, or other instruments, documents, certificates and assurances and take
such further action as the Security Agent may from time to time reasonably request to the extent necessary to perfect, protect
or enforce the Security Agent’s security interest in the Collateral. The Security Agent is authorized to make any filings
with any governmental agency it deems appropriate or necessary to perfect or protect the security interest in the Collateral.


 






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(i)          Audits.
Not later than February 7, 2016, Borrower shall have delivered complete and accurate consolidated audited financial statements
prepared in accordance with generally accepted accounting principles in the United States for the two annual periods ending December
31, 2013 and December 31, 2014, and any reviewed stub periods, as are required by the SEC in connection with the Qualified Offering,
by a certified PCAOB auditing firm reasonably acceptable to the Required Lenders; it being agreed that Peterson Sullivan LLP is
reasonably acceptable to the Required Lenders.


 


(j)          Qualified
Offering. Borrower will use its reasonable best efforts to consummate the Qualified Offering on or prior to the date that
is 167 calendar days after the date hereof (the “End Date”).


 


(k)          No
Financial Advisors. Borrower acknowledges and agrees that each of the Lenders is acting solely in the capacity of an arm’s
length purchaser with respect to the Facility Documents and the transactions contemplated thereby. Borrower further acknowledges
that no Lender is acting as a financial advisor or fiduciary of Borrower (or in any similar capacity) with respect to the Facility
Documents and the transactions contemplated thereby and any advice given by any Lender or any of their respective representatives
or agents in connection with the Facility Documents and the transactions contemplated thereby is merely incidental to the Lenders’
purchase of the Securities. Borrower further represents to each Lender that Borrower’s decision to enter into this Agreement
and the other Facility Documents has been based solely on the independent evaluation of the transactions contemplated hereby by
Borrower and its representatives.


 


(l)          Registration
Rights. The parties hereto shall enter into a registration rights agreement with respect to the resale of the Conversion Shares
on terms mutually acceptable to Borrower and the Required Lenders within (45) days of the Closing Date. Such registration rights
agreement shall provide that Borrower must cause the registration statement covering the Conversion Shares to be declared effective
by the SEC concurrently with the registration statement for the Qualified Offering, which effectiveness shall be in a condition
precedent to the Automatic Conversion as provided in Section 8.01. In no event shall the Lenders have any piggyback rights with
respect to the Qualified Offering or rights to participate in the underwritten offering contemplated by the Qualified Offering.


 


(m)          Bad
Actor Disqualification Notification. Borrower will notify the Security Agent in writing, prior to the Closing Date of (i)
any Disqualification Event described in Rule 506(d)(1)(i) to (vii) under the Securities Act except for a Disqualification Event
covered by Rule 506(d)(2) or (d)(3) relating to any Issuer Covered Person and (ii) any event that would, with the passage of time,
become a Disqualification Event relating to any Issuer Covered Person. Issuer Covered Person shall mean any officer of Borrower
participating in the offering hereunder, any beneficial owner of 20% or more of Borrower’s outstanding voting equity securities,
calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected
with Borrower in any capacity at the time of sale.





 


SECTION
5.02.         Negative Covenants. So long as any Obligations have not
been indefeasibly paid in full or converted pursuant to Article VIII, without the prior written consent of the Required Lenders:


 


(a)          Additional
Debt. Borrower shall not, directly or indirectly, create, incur or assume any Debt, other than (i) Debt created under the
Facility Documents, (ii) trade payables not more than 120 days past due, (iii) Debt that is outstanding on the date hereof, and
(iv) other Debt not to exceed $100,000 in the aggregate (clauses (i) – (iv) collectively, “Permitted Debt”).


 






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(b)          Liens.
Except in connection with a Major Disposition, Borrower shall not, directly or indirectly, create, incur or assume any Lien upon
any Collateral, whether now owned or hereafter acquired, except (i) Liens created under the Facility Documents, (ii) Liens that
would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or are otherwise of an immaterial
nature and (iii) purchase money security interests in property acquired using Permitted Debt.


 


(c)          Mergers,
Etc. Except in connection with a Major Disposition, without the prior consent of the Lenders, Borrower shall not, directly
or indirectly, merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of, whether in one transaction
or in a series of transactions, all or substantially all of the property and assets (whether now owned or hereafter acquired)
of Borrower to any Person.


 


(d)          Investments.
Borrower shall not hold any material Investments except Investments by Borrower outstanding on the date hereof.


 


(e)          Transaction
with Affiliates. Borrower shall not enter into any material transaction of any kind with any Affiliate of Borrower, other
than in the ordinary course of business on fair and reasonable terms substantially as favorable to Borrower as would be obtainable
by Borrower at the time in a comparable arm’s length transaction with a Person other than an Affiliate.


 


(f)          Prepay
Debt. Except in connection with a Major Disposition, Borrower shall not prepay, redeem, purchase, defease or otherwise satisfy
prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt
of Borrower.


 


(g)          Change
Name, Status, Jurisdiction, Tradename. Borrower shall not change its name, change its corporate status or jurisdiction, or
use any trade name without delivering written notice to the Lenders at least twenty (20) days prior to the effectiveness of such
change or use.


 


(h)          Disposition
of Assets. Borrower shall not dispose of any interest in any Collateral, except for (i) any Major Disposition in accordance
with Section 2.08, and (ii) any other Disposition that is not a Major Disposition of the Collateral to a third party in an arms-length
transaction on terms fair and reasonable to Borrower as determined by Borrower’s board of directors in its sole discretion.


 








(i)          Capital
Stock. Borrower will not issue any shares of its capital stock or grant or issue any securities convertible into shares of
its capital stock, except for any issuances of capital stock pursuant to (i) Borrower’s equity incentive plan, (ii) any
option or convertible security outstanding on the date hereof, (iii) issuances approved by the Required Lenders, and (iv) any
transaction or agreement with one or more persons, firms or entities designated as a “strategic partner” of the Borrower,
as determined in good faith by the Board of Directors of the Borrower, provided that each such person, firm or entity is, itself
or through its subsidiaries, an operating company in a business synergistic with the business of the Borrower and in which the
Borrower receives benefits in addition to the investment of funds, but shall not include a transaction in which the Borrower is
issuing securities primarily for the purpose of raising capital or to one or more persons or entities whose primary business is
investing in securities; provided that any such issuance of capital stock pursuant to the foregoing clause (iv) shall be
at a price per share equal to the conversion price then in effect for the Borrower’s outstanding shares of Series A Preferred
Stock and shall be attributed to “Existing PhaseRx Shareholders” in the pro forma capitalization of the Borrower set
forth on Schedule 4.01(i).


 






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ARTICLE
VI


SECURITY
INTEREST


 


SECTION
6.01.         Granting of Security Interest. Borrower hereby pledges, assigns
and grants to the Security Agent for the benefit of the Lenders a first priority security interest in and lien on, and a right
of set-off against, the following property and assets, whether now or hereafter existing, owned or acquired by Borrower (collectively,
the “Collateral”) other than Excluded Collateral, to secure the payment and the performance of all the
Obligations:


 


		(a)	Accounts;



 


		(b)	Chattel Paper;



 


		(c)	Commercial Tort Claims;



 


		(d)	Deposit Accounts;



 


		(e)	Documents;



 


		(f)	General Intangibles;



 


		(g)	Goods;



 


		(h)	Inventory;



 


		(i)	Equipment;



 


		(j)	Instruments;



 


		(k)	Intellectual Property;



 


		(l)	Investment Property;



 


		(m)	Letter-of-Credit Rights and
Letters of Credit;



 


		(n)	Reserved;



 


		(o)	Supporting Obligations;









 


(p)          all
books, records, writings, databases, information and other property relating to, used or useful in connection with, evidencing,
embodying, incorporating or referring to, any of the foregoing in this Section 6.01;


 


(q)          all
Accessions to, Proceeds, substitutions and replacements of the foregoing and, to the extent not otherwise included, (i) all payments
under insurance (whether or not the Security Agent is the loss payee thereof) other than directors and officers insurance and
(ii) all tort claims; and


 


(r)          all
other property and rights of every kind and description and interests therein.


 


The
parties hereto agree that, as of the date of this Agreement, the “Excluded Collateral” consists of the Intellectual
Property set forth on Annex E attached hereto.


 






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SECTION
6.02.         Proceeds. Except as permitted to be distributed to Borrower
pursuant to the terms herein, (a) any property received by Borrower, which shall comprise such Accessions to, Proceeds, additions,
substitutes and replacements for, or proceeds of, the Collateral, shall, after the occurrence and during the continuance of an
Event of Default, be held in trust for the Lenders, and (y) any cash proceeds of the Collateral shall, after the occurrence and
during the continuance of an Event of Default, be held in trust for the Lenders.


 


SECTION
6.03.         Authorization to File Financing Statements. Borrower hereby authorizes
the Security Agent to file financing statements or take any other action required to memorialize or perfect the Security Agent’s
security interests in the Collateral, without notice to Borrower, with all appropriate jurisdictions to perfect or protect the
Lenders’ interest or rights under the Facility Documents, including a notice that any disposition of the Collateral, except
to the extent permitted by the terms of this Agreement, by Borrower, or any other Person, shall be deemed to violate the rights
of the Lenders or the Security Agent under the UCC. Security Agent shall provide written notice to Borrower of the filing of any
financing statement promptly after the filing thereof.


 


SECTION
6.04.         Appointment of Security Agent. The Lenders hereby appoint Security
Agent to act as their agent (the “Security Agent”) for purposes of exercising any and all rights and
remedies of the Lenders hereunder. Such appointment shall continue until revoked in writing by the Required Lenders, at which
time the Required Lenders shall appoint a new agent. The Security Agent shall have the rights, responsibilities and immunities
set forth in Annex C hereto.


 


ARTICLE
VII


EVENTS
OF DEFAULT


 


SECTION
7.01.         Events of Default. If any of the following events (“Events
of Default”) shall occur:


 


(a)          Borrower
shall fail to pay when due (i) any of the outstanding principal of the Term Loans, or (ii) accrued interest on the Term Loans
or other amounts or fees owing pursuant to any of the Facility Documents, and, in the case of clause (ii), such failure continues
for three (3) days after the due date; or








 


(b)          Except
for the non-occurrence of the firm commitment underwritten initial public offering component of the Qualified Offering and the
other components of the Qualified Offering contingent on such public offering, Borrower shall fail to perform or observe in any
material respect any term, covenant, or agreement contained in any Facility document and such failure if susceptible to cure shall
continue for ten (10) days after receipt of written notice thereof from the Security Agent or Required Lenders; or


 


(c)          
(i) any Facility Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder
or thereunder, ceases to be in full force and effect; (ii) Borrower contests in any manner the validity or enforceability of any
Facility Document; or (iii) Borrower denies that it has any or further liability or obligation under any Facility Document; or


 






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(d)          
(i) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of
the property of Borrower and is not released, vacated or fully bonded within sixty (60) days after its issue or levy; (ii) Borrower
institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit
of creditors, or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator
or similar officer for it or for all or any material part of its property; (iii) any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the application or consent of Borrower and the appointment continues
undischarged or unstayed for thirty (30) calendar days; (iv) any proceeding under any Debtor Relief Law relating to Borrower or
to all or any material part of its property is instituted without the consent of Borrower and continues undischarged or unstayed
for thirty (30) calendar days, or an order for relief is entered in any such proceeding; or (v) Borrower shall take any action
to authorize any of the actions set forth above in this Section 7.01(d);


 


(e)          except
as otherwise provided or permitted herein, the Lenders cease to have a first priority perfected Lien in a material portion of
the Collateral;


 


(f)          there
is entered against the Borrower (i) one or more final judgments or orders for the payment of money in an aggregate amount exceeding
$100,000 (as to all such judgments or orders), and (A) enforcement proceedings are commenced by any creditor upon such judgment
or order, or (B) there is a period of thirty (30) consecutive days during which a stay of enforcement of such judgment, by reason
of a pending appeal or otherwise, is not in effect; or (ii) any one or more non-monetary final judgments that have, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect; or


 


(g)          the
occurrence of an Event of Default with respect to fewer than all of the Lenders;


 


then,
and in any such event, the Required Lenders may declare the Term Loans, all accrued interest thereon, all fees and all other accrued
amounts payable under this Agreement and the other Facility Documents to be forthwith due and payable, whereupon the (i) Term
Loans, (ii) all such interest and fees and (iii) all such other amounts hereunder plus (iv) an additional amount equal to 25%
of the outstanding principal amount of the Term Loans (the “Default Premium”) (the sum of (i) –
(iv), the “Default Amount”) shall become and be forthwith due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by Borrower; provided, however, that upon the occurrence
of any event in Section 7.01(d), the Default Amount shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly waived by Borrower.


 


SECTION
7.02.         Rights and Remedies.





 


(a)          Following
acceleration of the Term Loans pursuant to Section 7.01 after the occurrence of an Event of Default, the Security
Agent may, on behalf of the Lenders, exercise in respect of the Collateral, in addition to other rights and remedies provided
for herein or otherwise available to them, all the rights and remedies of a Secured Party (as defined in Article 9 of the UCC)
on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may:


 


(i)          take
possession of any Collateral not already in the possession of a Lender without demand and without legal process;


 


(ii)         require
Borrower to, and Borrower hereby agrees that it will, at its expense and upon request of the Security Agent forthwith, assemble
all or part of the Collateral as directed by the Security Agent and make it available to the Security Agent at a place to be designated
by the Security Agent that is reasonably convenient to both Borrower and the Security Agent;


 


(iii)        enter
onto the property where any Collateral is located and take possession thereof without demand and without legal process;


 






    19


     


    

 


(iv)        without
notice except as specified below, lease, license, sell or otherwise dispose of the Collateral or any part thereof in one or more
parcels at public or private sale, at the Security Agent’s office or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Security Agent may deem commercially reasonable. Borrower agrees that, to the extent notice of
sale shall be required by law, at least ten (10) days’ prior notice to Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute reasonable notification. The Security Agent shall not
be obligated to make any sale of Collateral regardless of notice of sale having been given. The Security Agent may adjourn any
public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.


 


(b)          All
cash proceeds received by the Security Agent in respect of any sale of, collection from, or other realization upon, all or any
part of the Collateral shall be applied to the Term Loans in the order set forth in Section 2.07 (c).


 


(c)          The
Security Agent may:


 


(i)          transfer
all or any part of the Collateral into the name of the Security Agent or the Lenders, with or without disclosing that such Collateral
is subject to the Lien hereunder;


 


(ii)         notify
the parties obligated on any of the Collateral to make payment to the Lenders or the Security Agent on behalf of the Lenders of
any amount due or to become due thereunder;


 


(iii)        withdraw,
or cause or direct the withdrawal, of all funds from any Deposit Account or Securities Account of Borrower;


 


(iv)        enforce
collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise
or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party
with respect thereto;





 


(v)         endorse
any checks, drafts, or other writings in Borrower’s name to allow collection of the Collateral;


 


(vi)        take
control of any proceeds of the Collateral;


 


(vii)       use,
license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by Borrower; and


 


(viii)      execute
(in the name, place and stead of Borrower) endorsements, assignments, stock powers and other instruments of conveyance or transfer
with respect to all or any of the Collateral.


 






    20


     


    

 


ARTICLE
VIII


CONVERSION


 


SECTION
8.01.         Conversion of Term Loans. Subject to the other terms and provisions
of this Article VIII, upon the closing of the Qualified Offering, and compliance by Borrower with all components
comprising the Qualified Offering and provided that all Conversion Shares to be issued hereunder are registered for resale pursuant
to an effective registration statement on Form S-1, the entire outstanding principal amount of Term Loans together with all accrued
and unpaid interest thereon shall automatically convert, without any action on the part of the Lenders, into shares of common
stock of Borrower as are issued in the Qualified Offering at a conversion price equal to 80% of the Qualified Offering price (an
“Automatic Conversion”). Upon such Automatic Conversion, each Investor shall be deemed to be a purchaser
in the Qualified Offering and shall be granted all rights afforded to a purchaser in the Qualified Offering. Upon such Automatic
Conversion, Articles II, V, VI, and VII shall be of no further force and effect.


 


SECTION
8.02.         Conversion Limitation.
Notwithstanding Section 8.01,
in no event shall any portion of the Obligations due and owing to a Lender convert into Common Stock if it would cause such Lender’s
“beneficial ownership” (within the meaning of Section 13(d) of the Exchange Act), when taken together with other securities
of Borrower owned by such Lender (together with the Lender’s Affiliates, and any Persons acting as a group together with
the Lender or any of the Lender’s Affiliates), to exceed, at the written election of such Lender, either 4.99% or 9.99%
of the outstanding Common Stock (the “Beneficial Ownership Limitation”).
In such event, the portion of the Obligations that would cause such Lender to exceed the Beneficial Ownership Limitation, shall
instead be converted into a “common stock equivalent” preferred stock or special warrants which shall have terms customary
for “common stock equivalent” preferred stock or special warrants, as applicable, including, convertibility into a
number of shares of common stock that such Lender would have received under this Article VIII but for the Beneficial Ownership
Limitation, a Section 13(d) conversion blocker, participation rights with respect to dividends and distributions on the common
stock, and customary anti-dilution adjustments for stock splits, reverse splits, stock dividends and similar events.


 


ARTICLE
IX


Indemnification


 


SECTION
9.01.         Indemnification. Subject to the provisions of this Section, Borrower
will indemnify and hold each Lender and its directors, officers, shareholders, members, partners, employees and agents (and any
other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Lender (within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such
controlling persons (each, an “Indemnified Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such Indemnified Party may suffer or incur as a result of or relating
to (a) any breach of any of the representations, warranties, covenants or agreements made by Borrower in this Agreement or in
the other Facility Documents or (b) any action instituted against Indemnified Parties in any capacity, or any of them or their
respective Affiliates, by any stockholder of Borrower who is not an Affiliate of such Indemnified Party, with respect to any of
the transactions contemplated by the Facility Documents (unless such action is based upon a breach of such Indemnified Party’s
representations, warranties or covenants under the Facility Documents or any agreements or understandings such Indemnified Party
may have with any such stockholder or any violations by such Indemnified Party of state or federal securities laws or any conduct
by such Indemnified Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Indemnified Party in respect of which indemnity may be sought pursuant to this Agreement, such Indemnified
Party shall promptly notify Borrower in writing, and Borrower shall have the right to assume the defense thereof with one counsel
of its own choosing reasonably acceptable to the Indemnified Party. Any Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party except to the extent that (i) the employment thereof has been specifically authorized by Borrower in
writing, (ii) Borrower has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such
action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of Borrower
and the position of such Indemnified Party, in which case Borrower shall be responsible for the reasonable fees and expenses of
no more than one such separate counsel. Borrower will not be liable to any Indemnified Party under this Agreement (y) for any
settlement by a Indemnified Party effected without Borrower’s prior written consent, which shall not be unreasonably withheld
or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Indemnified
Party’s breach of its representations, warranties or covenants under the Facility Documents, or any violations by such Indemnified
Party of state or federal securities laws or any conduct by such Indemnified Party which constitutes fraud, gross negligence,
willful misconduct or malfeasance. The indemnification required by this Section 9.01 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity
agreements contained herein shall be in addition to any cause of action or similar right of any Indemnified Party against Borrower
or others and any liabilities Borrower may be subject to pursuant to law.


 






    21


     


    

 


ARTICLE
X


MISCELLANEOUS


 


SECTION
10.01.         Amendments. No amendment of any provision of this Agreement or
any other Facility Document shall be effective unless in writing signed by the Required Lenders and Borrower.


 


SECTION
10.02.         Notices; Effectiveness; Electronic Communications.





 


(a)          Notices
Generally. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall
be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, email, telegram, or facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery, email receipt or delivery by facsimile, with accurate confirmation
generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be: (i) if to Borrower, to: PhaseRx, Inc., 410 W. Harrison
Street, Suite 300, Seattle, Washington 98119, Attn: Robert Overell, CEO, email: robert@phaserx.com, with a copy by personal delivery,
fax or email only, to: Haynes and Boone, LLP, 30 Rockefeller Plaza, 26th Floor, New York, NY 10112, Attn: Rick Werner,
Esq., fax: (212) 884-8234, email: Rick.Werner@haynesboone.com, and (ii) if to the Lenders or Security Agent, to: the addresses
and fax numbers indicated on the signature pages hereto, with an additional copy by personal delivery, fax or email only, to (which
shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, fax: (212) 697-3575,
email: counslers@aol.com.


 






    22


     


    

 


SECTION
10.03.         Waiver. No
waiver of any provision of this Agreement or any other Facility Document and no consent to any departure by Borrower
therefrom shall be effective unless in writing signed by the Required Lenders and Borrower, as the case may be, and each such
waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No waiver or
consent by any party shall operate or be construed as a waiver or consent in respect of any failure, breach or default not
expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or
after that waiver. No failure on the part of a Lender to exercise, and no delay in exercising any right hereunder or under
any other Facility Document shall operate as a waiver thereof nor shall the single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other right. No notice to or demand on Borrower in any
case shall entitle Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver
of the rights of a Lender to any other or further action in any circumstances without notice or demand.


 


SECTION
10.04.         Equal Treatment of Lenders. No
consideration (including any modification of any Facility Documents) shall be offered or paid to any Person to amend or consent
to a waiver or modification of any provisions related to the Term Loans and Facility Documents unless the same consideration is
also offered to all Lenders. All payments hereunder shall be made pro rata among the Lenders based on the portion of the Term
Loans funded by each Lender as set forth on Annex A.


 


SECTION
10.05.         Costs and Expenses. Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Lenders and their Affiliates (including the reasonable fees, charges and disbursements of counsel) in
connection with the credit facilities provided for herein the preparation, negotiation, execution, delivery and administration
of the Facility Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the
transactions contemplated hereby or thereby shall be consummated) and for being Escrow Agent in the amount set forth in the Escrow
Agreement, (ii) all out-of-pocket expenses incurred by the Lenders (including the fees, charges and disbursements of any counsel),
in connection with the enforcement or protection of its rights in connection with this Agreement and the other Facility Documents,
including their rights under this Section 10.05, including all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of the Term Loans, and (iii) the fees, expenses and other obligations of the Borrower
pursuant to the placement agent agreement between the Borrower and Palladium Capital Advisors LLC dated December 17, 2015. Borrower
will also, upon demand, pay to the Security Agent the amount of any and all reasonable expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, which the Security Agent, for the benefit of the Lenders, may incur
in connection with (a) the enforcement of this Agreement, (b) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, or (c) the exercise or enforcement of any of the rights of the Lenders under
the Facility Documents.


 


SECTION
10.06.         Governing Law; Submission to Jurisdiction.


 


(a)          Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of the Facility Documents shall be
governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles
of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement and any other Facility Documents (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively
in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement
of any of the Facility Documents), and hereby irrevocably waives, and agrees not to assert in any action, suit or proceeding,
any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an
action or proceeding to enforce any provisions of the Facility Documents, then, in addition to the obligations of Borrower, the
prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.


 






    23


     


    

 


(b)          WAIVER
OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER FACILITY DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER FACILITY DOCUMENTS BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.06(d).





 


SECTION
10.07.         Severability. In case any provision in this Agreement or any other
Facility Document shall be held to be invalid, illegal or unenforceable, such provision shall be severable from the rest of this
Agreement or such other Facility Document, as the case may be, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.


 


SECTION
10.08.         Counterparts; Integration; Effectiveness; Electronic Execution.
This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other
Facility Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and
all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart
of a signature page of this Agreement by PDF shall be effective as delivery of a manually executed counterpart of this Agreement.


 


SECTION
10.09.         Confidentiality. Each Lender agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed (a) to such Lender’s Affiliates and to its
and its Affiliates’ respective partners, directors, officers, employees, agents, trustees, advisors and representatives
(it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information
and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have
jurisdiction over it (including any self-regulatory authority), (c) to the extent required by applicable Laws or regulations or
by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies under
any Facility Document or any action or proceeding relating to any Facility Document or the enforcement of rights hereunder or
thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 10.09,
to (i) any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under
this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating
to Borrower or the Obligations, (g) with the consent of Borrower or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section or (ii) becomes available to such Lender, or any of its Affiliates on a nonconfidential
basis from a source other than Borrower.


 






    24


     


    

 


For purposes
of this Section, “Information” means any and all information received from Borrower hereof relating
to Borrower or its business. Any Person required to maintain the confidentiality of Information as provided in this Section
10.09 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would accord to its own confidential information, but
in no event less than a reasonable degree of care. Each Lender acknowledges that (i) Borrower is under no obligation to disclose
Information except as expressly provided herein and (ii) such Lender may be required to enter into further non-disclosure agreements
in order to receive certain Information in Borrower’s possession that are subject to confidentiality obligations owed to
third parties. Notwithstanding anything contained herein to the contrary, the provisions of this Section 10.09 shall
survive the repayment of the Term Loans, any conversion of the Term Loans into capital stock of Borrower or any termination of
this Agreement.





 


SECTION
10.10.         Cumulative Remedies. In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of damages, each of the Lenders and Borrower will be entitled
to specific performance under the Facility Documents. The parties agree that monetary damages may not be adequate compensation
for any loss incurred by reason of any breach of obligations contained in the Facility Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.


 


SECTION
10.11.         Independent Nature of Lenders’ Obligations and Rights. The
obligations of each Lender under any Facility Document are several and not joint with the obligations of any other Lender, and
no Lender shall be responsible in any way for the performance or non-performance of the obligations of any other Lender under
any Facility Document. Nothing contained herein or in any other Facility Document, and no action taken by any Lender pursuant
hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Lenders are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Facility Documents. Each Lender shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this Agreement or out of the other Facility Documents, and
it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. Each Lender
has been represented by its own separate legal counsel in its review and negotiation of the Facility Documents. For reasons of
administrative convenience only, each Lender and its respective counsel have chosen to communicate with Borrower through Grushko
& Mittman, P.C. Borrower has elected to provide all Lenders with the same terms and Facility Documents for the convenience
of Borrower and not because it was required or requested to do so by any of the Lenders. It is expressly understood and agreed
that each provision contained in this Agreement and in each other Facility Document is between Borrower and a Lender, solely,
and not between Borrower and the Lenders collectively and not between and among the Lenders. In the event circumstances do not
enable or allow Borrower to fulfill its obligation in full to all Lenders, then Borrower shall fulfill its obligations to multiple
Lenders having the same rights, pro rata to each such affected Lender’s Subscription Amount actually delivered to Borrower.


 


SECTION
10.12.         Construction. The parties
agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Facility Documents
and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of the Facility Documents or any amendments thereto. In addition, each and every reference
to share prices and shares of common stock in any Facility Document shall be subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the date of this
Agreement.


 






    25


     


    

 


SECTION
10.13.         Absolute Obligation. Except
as expressly provided herein, no provision of this Agreement shall alter or impair the obligation of Borrower, which is absolute
and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on the Term Loan at the time,
place, and rate, and in the coin or currency, herein prescribed. The Term Loan is a direct debt obligation of Borrower. The Term
Loan ranks pari passu with all other Term Loans now or hereafter issued under the terms set forth herein.


 


SECTION
10.14.         Entire Agreement. THIS
AGREEMENT AND THE OTHER FACILITY DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.


 


[END
OF TEXT]


 




    26


     


    

 


IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers
or representatives thereunto duly authorized, as of the date first above written.


 





	 	BORROWER:
	 	 
	 	PhaseRx, Inc.
	 	as Borrower
	 	 	 
	 	By:	/s/ Robert Overell
	 	 	 
	 	Name:	Robert Overell
	 	 	 
	 	Title:	President & CEO
	 	 	 
	 	Security Agent:
	 	 
	 	Titan Multi-Strategy Fund I, LTD.
	 	 	 
	 	By:	/s/ Jonathan Honig
	 	 	 
	 	Name:	Jonathan Honig
	 	 	 
	 	Title:	Manager
	 	 	 
	 	Address:	4263 NW 61st Lane
	 	 	Boca Raton, Fl 33496
	 	Fax: 561-241-4749







 


[Signature
pages of Lenders follow]


 


Signature Page to Loan and Security
Agreement


 




     


     


    

 


 [SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: RIDING THE BULL LLC


 


Signature
of Authorized Signatory of Lender: /s/ Mark E Groussman


 


Name
of Authorized Signatory: Mark E Groussman


 


Title
of Authorized Signatory: Manager


 


Email
Address of Authorized Signatory: ######@##############.###


 


Facsimile
Number of Authorized Signatory: ________________________________________


 


State
of Residence of Lender: ___##_____________________________________________


 


Address
for Notice to Lender: __#### ## ##### #####, ##### #####, ## #####___________


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: __$1,050,000______________


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: _Alpha Capital Anstalt _________


 


Signature
of Authorized Signatory of Lender: _/s/ Konrad Ackermann___________________


 


Name
of Authorized Signatory: Konrad Ackermann__________________________________


 


Title
of Authorized Signatory: _Director__________________________________________


 


Email
Address of Authorized Signatory: __________________________________________


 


Facsimile
Number of Authorized Signatory: __Fax: ###-###-####_______________________


 


State
of Residence of Lender: #############


 


Address
for Notice to Lender: ALPHA CAPITAL ANSTALT


 


############
##


 



#### #####


 



############ ## #############


 


e-mail:
####@###########.###


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


ALPHA
CAPITAL ANSTALT


 


c/o
## ######### ######## ####.


 


###
####### ###### ##### ####


 


###
####, ## #####


 


Principal
Amount: __$500,000________________________


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

 


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Titan Multi-Strategy Fund I, LTD


 


Signature
of Authorized Signatory of Lender: /s/ Jonathan Honig


 


Name
of Authorized Signatory: Jonathan Honig


 


Title
of Authorized Signatory: Manager


 


Email
Address of Authorized Signatory: #############@###.###


 


Facsimile
Number of Authorized Signatory: ###-###-####


 


State
of Residence of Lender: #######


 


Address
for Notice to Lender: #### ## #### ####


 


####
#####, ## #####


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $500,000


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Chesed Found Ltd.


 


Signature
of Authorized Signatory of Lender: /s/ Menachem Goldshmid


 


Name
of Authorized Signatory: Menachem Goldshmid


 


Title
of Authorized Signatory: Director 


 


Email
Address of Authorized Signatory: ############@#####.###


 


Facsimile
Number of Authorized Signatory: _______________________________________


 


State
of Residence of Lender: ######


 


Address
for Notice to Lender: #### ###, ### #####. ##. ####### ########. # ### #####


 


######.
#######.


 


####
####


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $400,000.000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]





  


Name
of Lender: Fame Associates


 


Signature
of Authorized Signatory of Lender: /s/ Abraham H. Fruchthandler


 


Name
of Authorized Signatory: Abraham H. Fruchthandler


 


Title
of Authorized Signatory: General Partner


 


Email
Address of Authorized Signatory: ###@##########.###


 


Facsimile
Number of Authorized Signatory: ### ### ####


 


State
of Residence of Lender: ### ####


 


Address
for Notice to Lender: c/o ### ######, ### ######## #### #####


 


###
###, #.#. #####


 


_________________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: 250,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: H&M MACHINE Co.


 


Signature
of Authorized Signatory of Lender: /s/ Hershel Parnes


 


Name
of Authorized Signatory: HERSHEL PARNES


 


Title
of Authorized Signatory: SECT/ TREAS


 


Email
Address of Authorized Signatory: #####@########.###


 


Facsimile
Number of Authorized Signatory: ________________________________________


 


State
of Residence of Lender: _##_______________________________________________


 


Address
for Notice to Lender: _________________________________________________


 


__##
### ###______________________________________________________________


 


__######,
## #####_________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $250,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: KUYKENDALL ASSOCIATES, LLC & RETIREMENT TRUST, FREDERICK T KUYKENDALL III TRUSTEE 


 


Signature
of Authorized Signatory of Lender: /s/ Frederick T. Kuykendall III


 


Name
of Authorized Signatory: Frederick T. Kuykendall III


 


Title
of Authorized Signatory: Trustee 


 


Email
Address of Authorized Signatory: ############@#####.###


 


Facsimile
Number of Authorized Signatory: ________________________________________


 


State
of Residence of Lender: _#######__________________________________________


 


Address
for Notice to Lender: __________________________________________________


 


__##
#### ###### #####_____________________________________________________


 


__######,
####### #####____________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


__####
###### #####_______________________________________________________


 


__######,
####### #####____________________________________________________


 


Principal
Amount: 250,000.00


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Israel Muller 


 


Signature
of Authorized Signatory of Lender: /s/ Israel Muller


 


Name
of Authorized Signatory: Israel Muller


 


Title
of Authorized Signatory: Self 


 


Email
Address of Authorized Signatory: #####@####.###


 


Facsimile
Number of Authorized Signatory: #####@####.###


 


State
of Residence of Lender: _######___________________________________________


 


Address
for Notice to Lender: __________________________________________________


 


__#
####### #####_________________________________________________________


 


__#######,
## ######_______________________________________________________


 


__######
_________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_____Same________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $150,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Robert S. Colman Trust UDT 3/13/85


 


Signature
of Authorized Signatory of Lender: /s/ Robert S. Colman


 


Name
of Authorized Signatory: Robert S. Colman


 


Title
of Authorized Signatory: Trustee


 


Email
Address of Authorized Signatory: #######@###############.###/ #####@###############.###


 


Facsimile
Number of Authorized Signatory: _______________________________________


 


State
of Residence of Lender: _#####____________________________________________


 


Address
for Notice to Lender: __## ### ####, ####### ## #####______________________


 


_for
overnight delivery: ## ##### ##### ##, ####### ## #####________________________


 


__**please
confirm before sending**____________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


___________same__________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $150,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Joseph Hoch


 


Signature
of Authorized Signatory of Lender: /s/ Joseph Hoch


 


Name
of Authorized Signatory: Joseph Hoch


 


Title
of Authorized Signatory: __________________________________________________


 


Email
Address of Authorized Signatory: #####@##########.###


 


Facsimile
Number of Authorized Signatory: ###-###-####_____________________________


 


State
of Residence of Lender:    ### #####_________________________________________


 


Address
for Notice to Lender: __## #### #### ########____________________________


 



     ###-## ###### ####, ##### ###_____________________________________________


 


     ###
#######, ## #####____________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $100,000


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Point Capital Inc.


 


Signature
of Authorized Signatory of Lender: /s/ Eric Weisblum


 


Name
of Authorized Signatory: Eric Weisblum


 


Title
of Authorized Signatory: _President__________________________________________


 


Email
Address of Authorized Signatory: ####@###############.###


 


Facsimile
Number of Authorized Signatory: ###=###=####____________________________


 


State
of Residence of Lender: _##_______________________________________________


 


Address
for Notice to Lender: __### ##### ### #### #______________________________


 


__#########
## #####_____________________________________________________


 


_________________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_______same______________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $100,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Mordechai Belsky


 


Signature
of Authorized Signatory of Lender: /s/ Mordechai Belsky


 


Name
of Authorized Signatory: Mordechai Belsky


 


Title
of Authorized Signatory: Self_______________________________________________


 


Email
Address of Authorized Signatory: ####@##########.###


 


Facsimile
Number of Authorized Signatory: ________________________________________


 


State
of Residence of Lender: _### ####__________________________________________


 


Address
for Notice to Lender: __### ###### ### __________________________________


 


__########,
## #####______________________________________________________


 


_________________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_______same______________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $100,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: 2004 Leon Scharf Irrevocable Trust Corp


 


Signature
of Authorized Signatory of Lender: /s/ Willy Beer


 


Name
of Authorized Signatory: Willy Beer


 


Title
of Authorized Signatory: _Investment Trustee__________________________________


 


Email
Address of Authorized Signatory: #####@###############.###


 


Facsimile
Number of Authorized Signatory:    ###-###-####                                                                    


 


State
of Residence of Lender:    ##________________________________________________


 


Address
for Notice to Lender: __#### ######### ###. ##### ###, ########, ## #####_____


 


_______________________________________________________________________


 


   _______________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


____####
######### ###. ##### ###, ########, ## #####__________________________


 


_________________________________________________________________________


 


Principal
Amount: $50,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Max M. Mizrachi


 


Signature
of Authorized Signatory of Lender: /s/ Max M. Mizrachi


 


Name
of Authorized Signatory: Max M. Mizrachi


 


Title
of Authorized Signatory: _Self______________________________________________


 


Email
Address of Authorized Signatory: ####@####.###


 


Facsimile
Number of Authorized Signatory: _(###) ###-####___________________________


 


State
of Residence of Lender: _### ####__________________________________________


 


Address
for Notice to Lender: __#### #### ### ###### _____________________________


 


########,
## #####________________________________________________________


 


_________________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $50,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Erick Richardson


 


Signature
of Authorized Signatory of Lender: /s/ Erick Richardson


 


Name
of Authorized Signatory: Erick Richardson


 


Title
of Authorized Signatory: _Self______________________________________________


 


Email
Address of Authorized Signatory: ##@##################.###


 


Facsimile
Number of Authorized Signatory: ________________________________________


 


State
of Residence of Lender: _##_______________________________________________


 


Address
for Notice to Lender: __##### ###### #### _______________________________


 


###
######, ## #####______________________________________________________


 


_________________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: 44,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Chaim Gross


 


Signature
of Authorized Signatory of Lender: /s/ Chaim Gross


 


Name
of Authorized Signatory: Chaim Gross


 


Title
of Authorized Signatory: _Self______________________________________________


 


Email
Address of Authorized Signatory: ##########@#####.###


 


Facsimile
Number of Authorized Signatory:     ###-###-####                                                                  


 


State
of Residence of Lender: _##_______________________________________________


 


Address
for Notice to Lender: __#### ########## ##, ########, ## #####______________


 


________________________________________________________________________


 


     ______________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


_________________________________________________________________________


 


_________________________________________________________________________


 


Principal
Amount: $30,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

  


[SIGNATURE PAGE
OF LENDERS TO LOAN AND SECURITY AGREEMENT]


  


Name
of Lender: Jacob Maziar Arjang


 


Signature
of Authorized Signatory of Lender: /s/ Jacob Maziar Arjang


 


Name
of Authorized Signatory: Jacob Maziar Arjang


 


Title
of Authorized Signatory: _Self______________________________________________


 


Email
Address of Authorized Signatory: #######@########.###


 


Facsimile
Number of Authorized Signatory: ___(###) ###-####_________________________


 


State
of Residence of Lender: _### ####__________________________________________


 


Address
for Notice to Lender: __## ####### #### __________________________________


 



##### ####, ## #####_______________________________________________________


 


_________________________________________________________________________


 


Address
for Delivery of Securities to Lender (if not same as address for notice):


 


__##
####### #### ________________________________________________________


 



##### ####, ## #####______________________________________________________


 


Principal
Amount: $26,000


 


Beneficial
Ownership Limitation: [4.99% or 9.99%]: ____________________


 




     


     


    

 


Annex A


 


Lenders


 


	 Riding the Bull, LLC	 	$	1,050,000	 
	Alpha Capital Anstalt	 	$	500,000	 
	Titan Multi-Strategy
Fund I, Ltd.1	 	$	500,000	 
	Chesed Found Ltd.	 	$	400,000	 
	Fame Associates	 	$	250,000	 
	H & M Machine Co.	 	$	250,000	 
	Kuykendall Associates, LLC Retirement Trust	 	$	250,000	 
	Muller, Israel	 	$	150,000	 
	Robert S. Colman Trust UDT 3/13/85	 	$	150,000	 
	Hoch, Joseph	 	$	100,000	 
	Point Capital, Inc.	 	$	100,000	 
	Belsky, Mordechai	 	$	100,000	 
	2004 Leon Scharf Irrevocable Trust Corp	 	$	50,000	 
	Mizrachi, Max	 	$	50,000	 
	Richardson, Erick	 	$	44,000	 
	Gross, Chaim	 	$	30,000	 
	Arjang, Jacob Maziar	 	$	26,000	 
	Total	 	$	4,000,000	 



  


1 Titan
Multi-Strategy Fund I, LTD.’s payment is being deemed paid by the cancellation of a promissory note, in the aggregate
principal amount of $500,000, dated as of December 11, 2015, issued by the Company to Titan Multi-Strategy Fund I,
LTD.


 




     


     


    

 


Annex B 




 


Execution
Copy


 


ESCROW AGREEMENT


 


This Agreement is dated
as of the 21st day of December, 2015 among PhaseRx, Inc., a Delaware corporation (the “Company”),
the parties identified on Schedule A hereto (each a “Lender”, and collectively “Lenders”),
and Grushko & Mittman, P.C. (the “Escrow Agent”):


 


WITNESSETH:


 


WHEREAS, the Company
and Lenders have entered into a Loan and Security Agreement calling for loans by the Lenders to the Company of an aggregate of
$4,000,000; and


 


WHEREAS, the parties
hereto require the Escrowed Payments (as defined below) to be delivered to the Escrow Agent, along with the other documents, instruments
and payments hereinafter described, to be held in escrow and released by the Escrow Agent in accordance with the terms and conditions
of this Agreement; and


 


WHEREAS, the Escrow
Agent is willing to serve as escrow agent pursuant to the terms and conditions of this Agreement;


 


NOW THEREFORE, the
parties agree as follows:


 


ARTICLE I


 


INTERPRETATION


 


1.1.          Definitions.
Capitalized terms used and not otherwise defined herein that are defined in the Loan and Security Agreement shall have the meanings
given to such terms in the Loan and Security Agreement. Whenever used in this Agreement, the following terms shall have the following
respective meanings:


 


§“Agreement”
means this Agreement and all amendments made hereto and thereto by written agreement between the parties;


 


§“Closing
Date” shall have the meaning set forth in Section 1 of the Loan and Security Agreement;


 


§"Escrowed
Payment" means an aggregate cash payment of $4,000,000 (or $3,500,000 in the circumstance described in Section 3.01(b)
of the Loan and Security Agreement);


 


§“Loan
and Security Agreement" means the Loan and Security Agreement (and the exhibits thereto) entered into or to be entered
into by the parties in reference to the Loans;


 


§“Security
Agent” shall mean Titan Multi-Strategy Fund I, LTD.;


 


§The
Company executed Loan and Security Agreement and the annexes and schedules thereto are referred to as "Company Documents";
and


 


§Collectively,
the Escrowed Payment, each Lender’s and Security Agent’s executed Loan and Security Agreement and the annexes and schedules
thereto are referred to as "Lenders Documents".


 




    1 


     


    

  


1.2.          Entire
Agreement. This Agreement along with the Company Documents and the Lenders Documents to which the Lenders and the Company or
Subsidiary are a party constitute the entire agreement between the parties hereto pertaining to the Company Documents and Lenders
Documents and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties.
There are no warranties, representations and other agreements made by the parties in connection with the subject matter hereof,
except as specifically set forth in this Agreement, the Company Documents and the Lenders Documents.


 


1.3.          Extended
Meanings. In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine
gender include the feminine and neuter genders. The word “person” includes an individual, body corporate, partnership,
trustee or trust or unincorporated association, executor, administrator or legal representative.


 


1.4.          Waivers
and Amendments. This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions
hereof may be waived, only by a written instrument signed by all parties, or, in the case of a waiver, by the party waiving compliance.
Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude
any other or future exercise of any other right, power or privilege hereunder.


 


1.5.          Headings.
The division of this Agreement into articles, sections, subsections and paragraphs and the insertion of headings are for convenience
of reference only and shall not affect the construction or interpretation of this Agreement.


 


1.6.          Law
Governing this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of New
York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction.
Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought
only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individuals
executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive
trial by jury. The prevailing party (which shall be the party which receives an award most closely resembling the remedy or action
sought) shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any
provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall
be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision of any agreement.


 


1.7.          Specific
Enforcement, Consent to Jurisdiction. The Company and Lenders acknowledge and agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an injuction or injunctions to prevent or cure breaches
of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity. Subject to Section 1.6 hereof, each of the Company and
Lenders hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other
manner permitted by law.


 




    2 


     


    

  


ARTICLE II


 


DELIVERIES TO THE ESCROW AGENT


 


2.1.          Company
Deliveries. On or before the Closing Date, the Company shall execute and deliver the Company Documents to the Escrow Agent.


 


2.2.          Lenders
Deliveries. (i) On or before the Closing Date, Lenders shall execute and deliver the Lenders Documents, shall cause the Security
Agent to execute and deliver the Loan and Security Agreement, and shall deliver the Escrowed Payment in cash, to the Escrow Agent.
The Escrowed Payment will be delivered pursuant to the following wire transfer instructions:


 


Citibank, N.A.


1155 6th Avenue


New York, NY 10036


ABA Number: ####-#####


For Credit to: Grushko & Mittman,
IOLA Trust Account


Account Number: ##########


 


2.3.          Intention
to Create Escrow Over Company Documents and Lenders Documents. The Lenders and Company intend that the Company Documents and
Lenders Documents shall be held in escrow by the Escrow Agent pursuant to this Agreement for their benefit as set forth herein.


 


2.4.          Escrow
Agent to Deliver Company Documents and Lenders Documents. The Escrow Agent shall hold and release the Company Documents and
Lenders Documents only in accordance with the terms and conditions of this Agreement.


 


ARTICLE III


 


RELEASE OF COMPANY DOCUMENTS AND LENDERS
DOCUMENTS


 


3.1.          Release
of Escrow. Subject to the provisions of Section 4.2, the Escrow Agent shall release the Company Documents and Lenders Documents
as follows:


 


(a)          On
the Closing Date, the Escrow Agent will simultaneously (A) release the Company Documents to the Lenders, (B) release the Lender
Documents to the Company and (C) release (i) to Palladium Capital Advisors LLC the amounts to be paid to Palladium Capital Advisors
LLC mutually agreed by Palladium Capital Advisors LLC and the Company, (ii) to itself the sum of $17,500 plus Escrow Agent’s
documented, out-of-pocket costs for filing UCC financing statements (which shall be in full satisfaction of the Company’s
obligations under clause (i) of Section 10.05 of the Loan and Security Agreement), (iii) such other amounts described in Section
10.05 of the Loan and Security Agreement pursuant to written instructions approved by the Company, Palladium Capital Advisors LLC
and Security Agent, and (iii) to the Company, the balance of the Escrowed Payment. The Escrow Agent may request any written
representations, certifications and documents in Escrow Agent’s absolute discretion before releasing any funds from escrow.


 


(b)          Notwithstanding
the above, upon receipt by the Escrow Agent of joint written instructions (“Joint Instructions”) signed by the
Company and the Lenders, it shall deliver the Company Documents and Lenders Documents in accordance with the terms of the Joint
Instructions.


 




    3 


     


    

  


(c)          Anything
herein to the contrary notwithstanding, upon receipt by the Escrow Agent of a final and non-appealable judgment, order, decree
or award of a court of competent jurisdiction (a “Court Order”), the Escrow Agent shall deliver the Company
Documents and Lenders Documents in accordance with the Court Order. Any Court Order shall be accompanied by an opinion of counsel
for the party presenting the Court Order to the Escrow Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect
that the court issuing the Court Order has competent jurisdiction and that the Court Order is final and non-appealable.


 


3.2.          The
Closing may take place on or before December 21, 2015. After December 21, 2015, the Escrow Agent will promptly return the applicable
Company Documents to the Company and return the Lenders Documents to the Lenders.


 


3.3.          Acknowledgement
of Company and Lenders; Disputes. The Company and the Lenders acknowledge that the only terms and conditions upon which the
Company Documents and Lenders Documents are to be released are set forth in Sections 3 and 4 of this Agreement. The Company and
the Lenders reaffirm their agreement to abide by the terms and conditions of this Agreement with respect to the release of the
Company Documents and Lenders Documents. Any dispute with respect to the release of the Company Documents and Lenders Documents
shall be resolved pursuant to Section 4.2 or by agreement between the Company and Lenders.


 


ARTICLE IV


 


CONCERNING THE ESCROW AGENT


 


4.1.          Duties
and Responsibilities of the Escrow Agent. The Escrow Agent’s duties and responsibilities shall be subject to the following
terms and conditions:


 


(a)          The
Lenders and Company acknowledge and agree that the Escrow Agent (i) shall not be responsible for or bound by, and shall not be
required to inquire into whether either the Lenders or Company is entitled to receipt of the Company Documents and Lenders Documents
pursuant to any other agreement or otherwise; (ii) shall be obligated only for the performance of such duties as are specifically
assumed by the Escrow Agent pursuant to this Agreement; (iii) may rely on and shall be protected in acting or refraining from acting
upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by the
Escrow Agent in good faith to be genuine and to have been signed or presented by the proper person or party, without being required
to determine the authenticity or correctness of any fact stated therein or the propriety or validity or the service thereof; (iv)
may assume that any person believed by the Escrow Agent in good faith to be authorized to give notice or make any statement or
execute any document in connection with the provisions hereof is so authorized; (v) shall not be under any duty to give the property
held by Escrow Agent hereunder any greater degree of care than Escrow Agent gives its own similar property; and (vi) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and complete authorization and protection in respect
of any action taken, suffered or omitted by Escrow Agent hereunder in good faith and in accordance with the opinion of such counsel.


 


(b)          The
Lenders and Company acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and that the Escrow Agent
shall not be liable for any action taken by Escrow Agent in good faith and believed by Escrow Agent to be authorized or within
the rights or powers conferred upon Escrow Agent by this Agreement. The Lenders and Company, jointly and severally, agree to indemnify
and hold harmless the Escrow Agent and any of Escrow Agent’s partners, employees, agents and representatives for any action
taken or omitted to be taken by Escrow Agent or any of them hereunder, including the fees of outside counsel and other costs and
expenses of defending itself against any claim or liability under this Agreement, except in the case of gross negligence or willful
misconduct on Escrow Agent’s part committed in its capacity as Escrow Agent under this Agreement. The Escrow Agent shall
owe a duty only to the Lenders and Company under this Agreement and to no other person.


 




    4 


     


    

  


(c)          The
Lenders and Company jointly and severally agree to reimburse the Escrow Agent for reasonable outside counsel fees, to the extent
authorized hereunder and incurred in connection with the performance of its duties and responsibilities hereunder.


 


(d)          The
Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5) days prior written notice of resignation to the
Lenders and the Company. Prior to the effective date of the resignation as specified in such notice, the Lenders and Company will
issue to the Escrow Agent a Joint Instruction authorizing delivery of the Company Documents and Lenders Documents to a substitute
Escrow Agent selected by the Lenders and Company. If no successor Escrow Agent is named by the Lenders and Company, the Escrow
Agent may apply to a court of competent jurisdiction in the State of New York for appointment of a successor Escrow Agent, and
to deposit the Company Documents and Lenders Documents with the clerk of any such court.


 


(e)          The
Escrow Agent does not have and will not have any interest in the Company Documents and Lenders Documents, but is serving only as
escrow agent, having only possession thereof. The Escrow Agent shall not be liable for any loss resulting from the making or retention
of any investment in accordance with this Escrow Agreement.


 


(f)          This
Agreement sets forth exclusively the duties of the Escrow Agent with respect to any and all matters pertinent thereto and no implied
duties or obligations shall be read into this Agreement.


 


(g)          The
Escrow Agent shall be permitted to act as counsel for the Lenders in any dispute as to the disposition of the Company Documents
and Lenders Documents, in any other dispute between the Lenders and Company, whether or not the Escrow Agent is then holding the
Company Documents and Lenders Documents and continues to act as the Escrow Agent hereunder.


 


(h)          The
provisions of this Section 4.1 shall survive the resignation of the Escrow Agent or the termination of this Agreement.


 


4.2.          Dispute
Resolution: Judgments. Resolution of disputes arising under this Agreement shall be subject to the following terms and conditions:


 


(a)          If
any dispute shall arise with respect to the delivery, ownership, right of possession or disposition of the Company Documents and
Lenders Documents, or if the Escrow Agent shall in good faith be uncertain as to its duties or rights hereunder, the Escrow Agent
shall be authorized, without liability to anyone, to (i) refrain from taking any action other than to continue to hold the Company
Documents and Lenders Documents pending receipt of a Joint Instruction from the Lenders and Company, or (ii) deposit the Company
Documents and Lenders Documents with any court of competent jurisdiction in the State of New York, in which event the Escrow Agent
shall give written notice thereof to the Lenders and the Company and shall thereupon be relieved and discharged from all further
obligations pursuant to this Agreement. The Escrow Agent may, but shall be under no duty to, institute or defend any legal proceedings
which relate to the Company Documents and Lenders Documents. The Escrow Agent shall have the right to retain counsel if it becomes
involved in any disagreement, dispute or litigation on account of this Agreement or otherwise determines that it is necessary to
consult counsel.


 




    5 


     


    

  


(b)          The
Escrow Agent is hereby expressly authorized to comply with and obey any Court Order. In case the Escrow Agent obeys or complies
with a Court Order, the Escrow Agent shall not be liable to the Lenders and Company or to any other person, firm, corporation or
entity by reason of such compliance.


 


ARTICLE V


 


GENERAL MATTERS


 


5.1.          Termination.
This escrow shall terminate upon the release of all of the Company Documents and Lenders Documents or at any time upon the agreement
in writing of the Lenders and Company.


 


5.2.          Notices.
All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted
by hand delivery, email (including email transmission of a PDF file), telegram, or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written notice. Any notice or other communication required
or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, email receipt or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered
on a business day during normal business hours where such notice is to be received), or the first business day following such delivery
(if delivered other than on a business day during normal business hours where such notice is to be received), (b) on the second
business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur or (c) if by e-mail upon confirmation of receipt by the recipient. The addresses
for such communications shall be:


 


(a)          If
to the Company, to:


 


PhaseRx, Inc.


410 W. Harrison Street, Suite 300


Seattle, Washington 98119


Attn: Robert Overell, CEO


Email: robert@phaserx.com


 


With a copy by personal delivery,
fax or email only, to (which shall not constitute notice):


 


Haynes and Boone, LLP


30 Rockefeller Plaza, 26th Floor


New York, NY 10112


Attn: Rich Werner, Esq.


Fax: (212) 884-8234


Email: Rick.Werner@haynesboone.com


 


(b)          If
to the Lenders: to: the addresses and fax numbers listed on Schedule A hereto.


 


With a copy by personal delivery,
fax or email only, to (which shall not constitute notice):


 




    6 


     


    

  


Grushko &
Mittman, P.C.


515 Rockaway
Avenue


Valley Stream,
New York 11581


Attn: Edward
M. Grushko, Esq.


Fax: (212) 697-3575


Email: counslers@aol.com


 


(c)          If
to the Escrow Agent, to:


 


Grushko &
Mittman, P.C.


515 Rockaway
Avenue


Valley Stream,
New York 11581


Attn: Edward
M. Grushko, Esq.


Fax: (212) 697-3575


 


or to such other address as any of them
shall give to the others by notice made pursuant to this Section 5.2.


 


5.3.          Interest.
The Escrowed Payment shall not be held in an interest bearing account nor will interest be payable in connection therewith. In
the event the Escrowed Payment is deposited in an interest bearing account, any interest earned on the Escrowed Payment will be
paid in the New York State Client Protection Fund or for a similar purpose.


 


5.4.          Assignment;
Binding Agreement. Neither this Agreement nor any right or obligation hereunder shall be assignable by any party without the
prior written consent of the other parties hereto. This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective legal representatives, successors and assigns.


 


5.5.          Invalidity.
In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid,
illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that
all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.


 


5.6.          Counterparts/Execution.
This Agreement may be executed in any number of counterparts and by different signatories hereto on separate counterparts, each
of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.
This Agreement may be executed by e-mail transmission of a PDF or facsimile transmission and delivered by mail transmission of
a PDF facsimile transmission.


 


5.7.          Agreement.
Each of the undersigned states that he has read the foregoing Escrow Agreement and understands and agrees to it.


 




    7 


     


    

  


IN WITNESS WHEREOF,
the undersigned have executed and delivered this Escrow Agreement, as of the date first written above.


 





	 	COMPANY:
	 	PHASERX, INC.
	 	A Delaware corporation
	 	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 


 





	 	ESCROW AGENT:
	 	 
	 	GRUSHKO & MITTMAN, P.C.












 




    8 


     


    

 


[SIGNATURE PAGE OF LENDERS TO ESCROW AGREEMENT]


 


	Name of Lender:	 
	Signature of Authorized Signatory of Lender: 	 
	Name of Authorized Signatory:	 
	Title of Authorized Signatory: 	 
	Email Address of Authorized Signatory: 	 
	Facsimile Number of Authorized Signatory:	 
	State of Residence of Lender: 	 
	 	 
	Address for Notice to Lender: 	 
	 
	 
	 	 
	Address for Delivery of Securities to Lender (if not same as address for notice):
	 
	 



 


	Principal Amount: 	 


 




    9 


     


    

  





SCHEDULE A TO ESCROW AGREEMENT


 


	LENDER AND ADDRESS	 	LOAN
PRINCIPAL
	 
	 	 	 	 
	Riding the Bull, LLC
 #### ## ##### #####
 ##### #####, ## #####	 	$	1,050,000	 
	 	 	 	 	 
	Alpha Capital Anstalt
 ########## ## 
##-#### #####
 ########## #############	 	$	500,000	 
	 	 	 	 	 
	Titan Multi-Strategy Fund I, Ltd.1
 #### ## #### ####
 #### #####, ## #####	 	$	500,000	 
	 	 	 	 	 
	Chesed Found Ltd. 
#### ###, ### #####
 ##. ####### ########
 # ### ##### ###### #######
 #### ####	 	$	400,000	 
	 	 	 	 	 
	Fame Associates
 c/o ### ####### 
 ### ########, #### #####
 ### ####, ## #####	 	$	250,000	 
	 	 	 	 	 
	H & M Machine Co.
 ## ### ###
 ######, ## #####	 	$	250,000	 
	 	 	 	 	 
	Kuykendall Associates, LLC Retirement Trust
 #### ###### ##### 
 ######, ## #####	 	$	250,000	 
	 	 	 	 	 
	Muller, Israel
 # ########  ###### 
 #######, ## ### ###
 ######	 	$	150,000	 
	 	 	 	 	 
	Robert S. Colman Trust UDT 3/13/85
 ## ### ####
 #######, ## #####	 	$	150,000	 
	 	 	 	 	 
	Hoch, Joseph
 c/o #### ##### ######## 
 ###-## ###### #########, ##### ###
 ### #######, ## #####	 	$	100,000	 
	 	 	 	 	 
	Point Capital, Inc.
 ### ##### ######, ######## #
 #########, ## #####	 	$	100,000	 
	 	 	 	 	 
	Belsky, Mordechai
 ### ###### ###### 
 ########, ## #####	 	$	100,000	 
	 	 	 	 	 
	2004 Leon Scharf Irrevocable Trust Corp
 #### ######### ######, ##### ###
 ########, ## #####	 	$	50,000	 
	 	 	 	 	 
	Mizrachi, Max
 #### #### ### ###### 
 ########, ## #####	 	$	50,000	 
	 	 	 	 	 
	Richardson, Erick
 ##### ###### #### 
 ### #######, ## #####	 	$	44,000	 
	 	 	 	 	 
	Gross, Chaim
 #### ########## ######, ##
 ########, ## #####	 	$	30,000	 
	 	 	 	 	 
	Arjang, Jacob Maziar
 ## ####### #### 
 ##### ####, ## #####	 	$	26,000	 
	 	 	 	 	 
	Total	 	$	4,000,000	 






 


 






1 Titan Multi-Strategy Fund I, LTD.’s payment
is being deemed paid by the cancellation of a promissory note, in the aggregate principal amount of $500,000, dated as of December
11, 2015, issued by the Company to Titan Multi-Strategy Fund I, LTD.




 




    10 


     


    

 


Annex C


 


THE AGENT


 


1.          Appointment.
The Lenders (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Loan
and Security Agreement to which this Annex C is attached (the “Agreement”)), by their acceptance of
the benefits of the Agreement, hereby designate Titan Multi-Strategy Fund I, LTD. (the “Security Agent”)
as the Security Agent to act as specified herein and in the Agreement. Each Lender shall be deemed irrevocably to authorize the
Security Agent to take such action on its behalf under the provisions of the Agreement and any other Facility Documents and to
exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Security
Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Security Agent may perform
any of its duties hereunder by or through its agents or employees.


 


2.          Nature
of Duties. The Security Agent shall have no duties or responsibilities except those expressly set forth in the Agreement.
Neither the Security Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable
for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible
for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross
negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.
The duties of the Security Agent shall be mechanical and administrative in nature; the Security Agent shall not have by reason
of the Agreement or any other Facility Documents a fiduciary relationship in respect of any Borrower or any Lender; and nothing
in the Agreement or any other Facility Documents, expressed or implied, is intended to or shall be so construed as to impose upon
the Security Agent any obligations in respect of the Agreement or any other Facility Documents except as expressly set forth herein
and therein.


 


3.          Lack
of Reliance on the Security  Agent. Independently and without reliance upon the Security Agent, each Lender, to the extent
it deems appropriate, has made and shall continue to make (a) its own independent investigation of the financial condition and
affairs of Borrower in connection with such Lender’s investment in Borrower, the creation and continuance of the Obligations,
the transactions contemplated by the Facility Documents, and the taking or not taking of any action in connection therewith, and
(b) its own appraisal of the creditworthiness of Borrower, and of the value of the Collateral from time to time, and the Security
Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit,
market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at
any time or times thereafter.


 


The Security
Agent shall not be responsible to Borrower or any Lender for any recitals, statements, information, representations or warranties
herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Facility
Documents, or for the financial condition of Borrower or the value of any of the Collateral, or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Facility
Documents, or the financial condition of Borrower, or the value of any of the Collateral, or the existence or possible existence
of any default or Event of Default under the Agreement or any of the other Facility Documents.


 




     


     


    

 


4.          Certain
Rights of the Security Agent. The Security Agent shall have the right to take any action with respect to the Collateral, on
behalf of all of the Lenders. To the extent practical, the Security Agent shall request instructions from the Lenders with respect
to any material act or action (including failure to act) in connection with the Agreement or any other Facility Documents, and
shall be entitled to act or refrain from acting in accordance with the instructions of the Required Lenders; if such instructions
are not provided despite the Security Agent’s request therefor, the Security Agent shall be entitled to refrain from such
act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Lenders in respect
of actions to be taken by the Security Agent; and the Security Agent shall not incur liability to any person or entity by reason
of so refraining. Without limiting the foregoing, (a) no Lender shall have any right of action whatsoever against the Security
Agent as a result of the Security Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement
or any other Facility Documents, and Borrower shall have no right to question or challenge the authority of, or the instructions
given to, the Security Agent pursuant to the foregoing and (b) the Security Agent shall not be required to take any action that
the Security Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement,
the Facility Documents or applicable law.


 


5.          Reliance.
The Security Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed,
sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other
Facility Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this
Agreement and the other Facility Documents and its duties thereunder, upon advice of other experts selected by it. Anything to
the contrary notwithstanding, the Security Agent shall have no obligation whatsoever to any Lender to assure that the Collateral
exists or is owned by Borrower or is cared for, protected or insured or that the liens granted pursuant to the Agreement have
been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.


 


6.          Indemnification.
To the extent that the Security Agent is not reimbursed by Borrower, the Lenders will jointly and severally reimburse and indemnify
the Security Agent, in proportion to their respective principal amounts of the Term Loans, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Security Agent in performing its duties hereunder or under the Agreement
or any other Facility Documents, or in any way relating to or arising out of the Agreement or any other Facility Documents except
for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted
solely from the Security Agent’s own gross negligence or willful misconduct. Prior to taking any action hereunder as Security
Agent, the Security Agent may require each Lender to deposit with it sufficient sums as it determines in good faith is necessary
to protect the Security Agent for costs and expenses associated with taking such action.


 


7.            Resignation
by the Security Agent.


 


(a)          The
Security Agent may resign from the performance of all its functions and duties under the Agreement and the other Facility Documents
at any time by giving thirty (30) days’ prior written notice to Borrower and the Lenders. Such resignation shall take effect
upon the appointment of a successor Security Agent pursuant to clauses (b) and (c) below.


 




     


     


    

 


(b)          Upon
any such notice of resignation, the Required Lenders shall appoint a successor Security Agent hereunder.


 


(c)          If
a successor Security Agent shall not have been so appointed within said 30-day period, the Security Agent shall then appoint a
successor agent who shall serve as Security Agent until such time, if any, as the Lenders appoint a successor agent as provided
above. If a successor agent has not been appointed within such 30-day period, the Security Agent may petition any court of competent
jurisdiction or may interplead Borrower and the Lenders in a proceeding for the appointment of a successor Security Agent, and
all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated
therewith, shall be payable by Borrower on demand.


 


8.          Rights
with respect to Collateral. Each Lender agrees with all other Lenders and the Security Agent (a) that it shall not, and shall
not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement
or otherwise (other than pursuant to this Agreement), or take or institute any action against the Security Agent or any of the
other Lenders in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this
Agreement) and (b) that such Lender has no other rights with respect to the Collateral other than as set forth in this Agreement
and the other Facility Documents.


 


Upon the acceptance
of any appointment as the Security Agent hereunder by a successor Security Agent, such successor Security Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties of the retiring Security Agent and the retiring
Security Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Security Agent’s
resignation or removal hereunder as the Security Agent, the provisions of the Agreement including this Annex C shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was the Security Agent.


 




     


     


    

 


Annex D


 


SUBORDINATED
LENDERS


 


ARCH Venture Fund
VII, L.P.


Alexandria Equities,
LLC


Versant Venture
Capital III, L.P.


Versant Side Fund
III, L.P.


5AM Ventures II,
LP


5AM Co-Investors
II, LP


 




     


     


    

 


Annex E


 


EXCLUDED
COLLATERAL


 


		1)	Exclusive
                                         Patent License Agreement, dated as of December 6, 2006, by and between The University
                                         of Washington and PhaseRx, Inc., for Membrane Disruptive Polymers, as amended.



 


		2)	RAFT Non-Exclusive
                                         License Agreement, dated as of October 26, 2009, by and between the Commonwealth Scientific
                                         and Industrial Research Organisation and PhaseRx, Inc.



 






     


     


    

  


DISCLOSURE SCHEDULE


 


This Disclosure
Schedule is made and given pursuant to Section 4 of the Loan and Security Agreement, dated as of December 21, 2015 (the
“Agreement”), among PhaseRx, Inc., a Delaware corporation (the “Company”), the Investors
listed on Annex A thereto and Titan Multi-Strategy Fund I, LTD., as security agent, and shall be interpreted and applied as part
of the Agreement solely in connection with the Closing occurring on December 21, 2015. All capitalized terms used but not defined
herein shall have the meanings as defined in the Agreement, unless otherwise provided. The section numbers below correspond to
the section numbers of the representations and warranties in the Agreement; provided, however, that any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into any other section number under the Agreement where
such disclosure would be reasonably apparent from a reading of such disclosure item that it would also apply to such other representation
or warranty.


 


Nothing in
this Disclosure Schedule is intended to broaden the scope of any representation or warranty contained in the Agreement or to create
any covenant. Inclusion of any item in this Disclosure Schedule (1) does not represent a determination that such item is material
or establish a standard of materiality, (2) does not represent a determination that such item did not arise in the ordinary course
of business, (3) does not represent a determination that the transactions contemplated by the Agreement require the consent of
third parties, and (4) shall not constitute, or be deemed to be, an admission to any third party concerning such item.


  




     


     


    

 


Section 4.01(e). 


 


None.


 


Section 4.01(i). Capitalization


 


Capital Stock as of the Date of the Agreement


 


	Common Stock	 	 	5,678,408	 
	Common Stock Options	 	 	 	 
	Outstanding	 	 	4,808,646	 
	Available for Grant	 	 	243,042	 
	Preferred Stock	 	 	20,216,583	 
	Series A-1 Stock	 	 	5,500,000	 
	Bridge Notes*	 	 	19,368,623	 
	Common Stock Warrants	 	 	-	 
	Preferred Stock Warrants	 	 	3,614,761	 
	 	 	 	 	 
	Total	 	 	59,430,063	 



 


*Number
of shares of common stock issuable upon conversion of all of the convertible promissory notes set forth in Annex 4.01(p) as of
the date of the Agreement. 


 


Pro Forma Capitalization


 


	 	 	Shares	 	 	Amount ($)	 	 	Price	 	 	Ownership %	 	 	Ownership $	 	 	Ownership %	 	 	Ownership $	 
	Existing PhaseRx Shareholders(1)	 	 	7,393,939	 	 	 	 	 	 	 	 	 	 	 	66.28	%	 	$	44,363,636	 	 	 	58.99	%	 	$	39,483,636	 
	New PhaseRx Insider Investment	 	 	1,566,667	 	 	$	9,400,000	 	 	$	6.00	 	 	 	14.04	%	 	$	9,400,000	 	 	 	12.50	%	 	$	8,366,000	 
	Bridge Loan into Private Company	 	 	833,333	 	 	$	4,000,000	 	 	$	4.80	 	 	 	7.47	%	 	$	5,000,000	 	 	 	6.65	%	 	$	4,450,000	 
	IPO	 	 	1,250,000	 	 	$	7,500,000	 	 	$	6.00	 	 	 	11.20	%	 	$	7,500,000	 	 	 	9.97	%	 	$	6,675,000	 
	Palladium Capital Advisors	 	 	112,000	 	 	 	 	 	 	 	 	 	 	 	1.00	%	 	$	672,000	 	 	 	0.89	%	 	$	598,080	 
	Total	 	 	11,155,939	 	 	$	20,900,000	 	 	 	 	 	 	 	100.00	%	 	$	66,935,636	 	 	 	89.00	%	 	$	59,572,716	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ESOP	 	 	1,378,824	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	11.00	%	 	$	7,362,920	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total	 	 	12,534,763	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	100.00	%	 	$	66,935,636	 



 


(1) Including 19,404,163 shares of common stock
issuable upon conversion of all of the convertible promissory notes set forth in Annex 4.01(p) as of December 31, 2015.


 




    -2- 


     


    

 


Section 4.01(m). 


 


None.


 


Section 4.01(n). Registration Rights


 


		1.	The Company is a party to the Second Amended and Restated Investors’ Rights Agreement (the
“IRA”), dated November 17, 2014, by and among the Company and the holders of shares of the Company’s convertible
preferred stock and certain warrants (including Lighthouse, as defined below) and Company’s founders listed on the exhibits
thereto, which provides such holders and founders certain registration rights over the shares of common stock held by the Company’s
founders and shares of common stock issued or issuable pursuant to the conversion of shares of Series A and Series A-1 convertible
preferred stock or upon exercise of certain warrants (collectively, the “Registrable Securities”).



 


Demand registration rights 


 


Under the IRA, the holders of not less than 20% of
the voting power of the Registrable Securities may, on not more than two occasions, request that the Company file a registration
statement to register all or a portion of their Registrable Securities, subject to certain marketing and other limitations.


 


Piggyback registration rights 


 


Holders of the Registrable Securities are entitled
to certain piggyback registration rights. If the Company registers any of its securities for its own account or the account of
other security holder or holders, the holders of Registrable Securities may require the Company to include their Registrable Securities
in the registration upon written request made within 10 days after notice of such registration is mailed by the Company, subject
to certain marketing and other limitations.


 


Form S-3 registration rights 


 


Holders of the Registrable Securities are entitled
to certain Form S-3 registration rights, provided that the Company has not already effected one such registration within the twelve-month
period preceding the date of such request. Such holders may make a request that the Company register their shares on Form S-3 if
the Company is qualified to file a registration statement on Form S-3. The Company is not obligated to effect such request for
registration if such request for registration on Form S-3 does not cover securities at an aggregate price to the public of less
than $1,000,000.


 




    -3- 


     


    

  


The Company will pay the registration
expenses, other than underwriting discounts and commissions, of the shares registered pursuant to the demand, piggyback and Form
S-3 registrations described above. Generally, in an underwritten offering, the underwriters have the right, subject to specified
conditions, to limit, or exclude entirely, the number of shares such holders may include. The demand, piggyback and Form S-3 registration
rights described above terminate upon the earliest to occur of: (i) such date, on or after the closing of the Company’s
first registered public offering of common stock, on which all shares of common stock subject to the registration rights can be
sold under Rule 144 during any ninety day period, (ii) the date that is four years after the closing of the Company’s firm
commitment underwritten public offering of the Company’s common stock registered under the Securities Act of 1933, as amended;
or (iii) upon termination of the IRA.


 


		2.	On December 1, 2010, the Company issued a Preferred Stock Purchase Warrant (the “Lighthouse
Warrant”) to purchase up to 112,520 shares of the Company’s Series A Preferred Stock to Lighthouse Capital Partners
VI, L.P. (“Lighthouse”) in connection with that certain Loan and Security Agreement with Lighthouse. Pursuant to Section
15 of the Lighthouse Warrant, the shares of common stock issuable upon conversion of shares of Series A Preferred Stock issuable
upon exercise of the Lighthouse Warrant are subject to the registration rights to the holders of Registrable Securities under the
IRA.



 




    -4- 


     


    

  


Section 4.01(p). Debt and Liens


 


Promissory Note, in the aggregate principal amount
of $500,000, dated as of December 11, 2015, held by Titan Multi-Strategy Fund I, LTD., which shall be due and payable on June 10,
2016. Upon and as part of the closing of the Term Loans, the Promissory Note will be surrendered and the outstanding principal
balance and all accrued interest thereunder will be automatically converted into a Term Loan.


 


Convertible promissory notes set forth in Annex 4.01(p).


 


[End of Document]


 




    -5- 


     


    

  





	 	 	 	PhaseRx, Inc.	Page 1 of 2
	Report Date	:	12/11/15	 	 
	 	 	 	Convertible Promissory Notes (Next Equity or A)	 
	Date Printed	:	12/11/15 at 4:03:33 PM	 	 
	 	 	 	(Alphabetic Listing of Outstanding Notes)	 


 


 


		 	Instr.	 	Instr.	 	Instr.	 	Principal	 	Interest	 	Interest	 	Compound	 	Principal
    Plus	 		 	Shares
    Issuable on	 	Shares Issued on
	 Noteholder	 	Number	 	Date	 	Due
    Date	 	Amount
    ($)	 	Rate	 	Type	 	Rate	 	Accrued
    Interest	 	 Convertible	 	Conversion
    of Notes	 	Conversion of Notes
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	5AM Co-Investors II, LP	 	 	 	02/01/12	 	02/01/13	 	37,960.11	 	8.0000	 	Simple	 	N-A	 	49,683.02	 	Y	 	 	 	 
	 	 	 	 	12/10/12	 	06/10/13	 	17,082.05	 	8.0000	 	Simple	 	N-A	 	21,185.49	 	Y	 	 	 	 
	 	 	 	 	04/09/13	 	06/10/13	 	17,082.05	 	8.0000	 	Simple	 	N-A	 	20,736.20	 	Y	 	 	 	 
	5AM Ventures II, LP	 	 	 	02/01/12	 	02/01/13	 	962,039.89	 	8.0000	 	Simple	 	N-A	 	1,259,138.82	 	Y	 	 	 	 
	 	 	 	 	12/10/12	 	06/10/13	 	432,917.95	 	8.0000	 	Simple	 	N-A	 	536,913.12	 	Y	 	 	 	 
	 	 	 	 	04/09/13	 	06/10/13	 	432,917.95	 	8.0000	 	Simple	 	N-A	 	525,526.79	 	Y	 	 	 	 
	Alexandria Equities, LLC	 	 	 	12/10/12	 	06/10/13	 	150,000.00	 	8.0000	 	Simple	 	N-A	 	186,032.87	 	Y	 	 	 	 
	 	 	 	 	04/09/13	 	06/10/13	 	150,000.00	 	8.0000	 	Simple	 	N-A	 	182,087.66	 	Y	 	 	 	 
	 	 	 	 	07/02/12	 	06/10/13	 	160,000.00	 	8.0000	 	Simple	 	N-A	 	204,081.09	 	Y	 	 	 	 
	 	 	 	 	09/19/13	 	03/19/14	 	140,000.00	 	8.0000	 	Simple	 	N-A	 	164,946.85	 	Y	 	 	 	 
	 	 	 	 	12/04/13	 	06/04/14	 	140,000.00	 	8.0000	 	Simple	 	N-A	 	162,614.79	 	Y	 	 	 	 
	 	 	 	 	04/29/15	 	10/29/15	 	75,000.00	 	8.0000	 	Simple	 	N-A	 	78,715.07	 	Y	 	 	 	 
	 	 	 	 	06/17/15	 	12/17/15	 	75,000.00	 	8.0000	 	Simple	 	N-A	 	77,909.59	 	Y	 	 	 	 
	 	 	 	 	08/04/15	 	12/17/15	 	75,000.00	 	8.0000	 	Simple	 	N-A	 	77,120.54	 	Y	 	 	 	 
	 	 	 	 	10/01/15	 	03/01/16	 	100,000.00	 	8.0000	 	Simple	 	N-A	 	101,556.16	 	Y	 	 	 	 
	ARCH Venture Fund VII, L.P.	 	 	 	12/10/12	 	06/10/13	 	450,000.00	 	8.0000	 	Simple	 	N-A	 	558,098.60	 	Y	 	 	 	 
	 	 	 	 	04/09/13	 	06/10/13	 	450,000.00	 	8.0000	 	Simple	 	N-A	 	546,262.99	 	Y	 	 	 	 
	 	 	 	 	06/28/13	 	12/28/13	 	500,000.00	 	8.0000	 	Simple	 	N-A	 	598,191.76	 	Y	 	 	 	 
	 	 	 	 	07/16/13	 	12/28/13	 	900,000.00	 	8.0000	 	Simple	 	N-A	 	1,073,194.49	 	Y	 	 	 	 
	 	 	 	 	07/02/12	 	06/10/13	 	1,440,000.00	 	8.0000	 	Simple	 	N-A	 	1,836,729.79	 	Y	 	 	 	 
	 	 	 	 	09/19/13	 	03/19/14	 	1,260,000.00	 	8.0000	 	Simple	 	N-A	 	1,484,521.62	 	Y	 	 	 	 
	 	 	 	 	12/04/13	 	06/04/14	 	400,000.00	 	8.0000	 	Simple	 	N-A	 	464,613.70	 	Y	 	 	 	 
	 	 	 	 	06/17/15	 	12/17/15	 	375,000.00	 	8.0000	 	Simple	 	N-A	 	389,547.93	 	Y	 	 	 	 
	 	 	 	 	04/29/15	 	10/29/15	 	375,000.00	 	8.0000	 	Simple	 	N-A	 	393,575.34	 	Y	 	 	 	 
	 	 	 	 	08/04/15	 	12/17/15	 	375,000.00	 	8.0000	 	Simple	 	N-A	 	385,602.72	 	Y	 	 	 	 
	 	 	 	 	10/01/15	 	03/01/16	 	1,100,000.00	 	8.0000	 	Simple	 	N-A	 	1,117,117.76	 	Y	 	 	 	 
	 	 	 	 	02/01/12	 	02/01/13	 	1,300,000.00	 	8.0000	 	Simple	 	N-A	 	1,701,468.39	 	Y	 	 	 	 


 


Report Name : NotealphaSpec.rpt


 




     


     


    

 


	 	 	 	 	 
	 	 	 	PhaseRx, Inc.	Page 2 of 2
	Report Date	:	12/11/15	 	 
	 	 	 	Convertible Promissory Notes (Next Equity or A)	 
	Date Printed	:	12/11/15 at 4:03:33 PM	 	 
	 	 	 	(Alphabetic Listing of Outstanding Notes)	 


  


	Noteholder	 	Instr.

Number	 	Instr.

Date	 	

                                                                                 Instr.

Due Date
	 	Principal

Amount
    ($)	 	Interest

Rate	 	Interest

Type	 	Compound

Rate	 	Principal
    Plus

Accrued
    Interest	 	Convertible	 	Shares
    Issuable on

    Conversion of Notes	 	Shares
    Issued on

Conversion
    of Notes
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Versant Side Fund III, L.P.	 	 	 	02/01/12	 	02/01/13	 	7,631.00	 	8.0000	 	Simple	 	N-A	 	9,987.62	 	Y	 	 	 	 
	 	 	 	 	12/10/12	 	06/10/13	 	2,641.50	 	8.0000	 	Simple	 	N-A	 	3,276.04	 	Y	 	 	 	 
	 	 	 	 	04/09/13	 	06/10/13	 	2,641.50	 	8.0000	 	Simple	 	N-A	 	3,206.56	 	Y	 	 	 	 
	 	 	 	 	12/04/13	 	06/04/14	 	5,870.00	 	8.0000	 	Simple	 	N-A	 	6,818.21	 	Y	 	 	 	 
	 	 	 	 	04/29/15	 	10/29/15	 	2,201.25	 	8.0000	 	Simple	 	N-A	 	2,310.29	 	Y	 	 	 	 
	 	 	 	 	06/17/15	 	12/17/15	 	2,201.25	 	8.0000	 	Simple	 	N-A	 	2,286.65	 	Y	 	 	 	 
	 	 	 	 	08/04/15	 	12/17/15	 	2,201.25	 	8.0000	 	Simple	 	N-A	 	2,263.49	 	Y	 	 	 	 
	Versant Venture Capital III, L.P.	 	 	 	02/01/12	 	02/01/13	 	1,292,369.00	 	8.0000	 	Simple	 	N-A	 	1,691,480.77	 	Y	 	 	 	 
	 	 	 	 	12/10/12	 	06/10/13	 	447,358.50	 	8.0000	 	Simple	 	N-A	 	554,822.57	 	Y	 	 	 	 
	 	 	 	 	04/09/13	 	06/10/13	 	447,358.50	 	8.0000	 	Simple	 	N-A	 	543,056.43	 	Y	 	 	 	 
	 	 	 	 	12/04/13	 	06/04/14	 	994,130.00	 	8.0000	 	Simple	 	N-A	 	1,154,716.03	 	Y	 	 	 	 
	 	 	 	 	04/29/15	 	10/29/15	 	372,798.75	 	8.0000	 	Simple	 	N-A	 	391,265.05	 	Y	 	 	 	 
	 	 	 	 	06/17/15	 	12/17/15	 	372,798.75	 	8.0000	 	Simple	 	N-A	 	387,261.28	 	Y	 	 	 	 
	 	 	 	 	08/04/15	 	12/17/15	 	372,798.75	 	8.0000	 	Simple	 	N-A	 	383,339.23	 	Y	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Total
    :	 	 	 	16,215,000.00	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	No. of Noteholders
    :	 	6	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 


 


Report Name : NotealphaSpec.rpt