EX-10.1



 



EXHIBIT
10.1


LOAN AND SECURITY AGREEMENT




Dated as of November 2, 2004




among




ATHERSYS, INC.,

a Delaware corporation




and




ADVANCED BIOTHERAPEUTICS, INC.,

a Delaware corporation




each sometimes individually as a “Borrower”, and sometimes collectively as “Borrowers”,




and




VENTURE LENDING & LEASING IV, INC. (“VLL”),

a Maryland corporation,

as “Agent” and “Lender”,




and




COSTELLA KIRSCH IV, L.P.

as “Lender”,




each individually a “Lender” and collectively, “Lenders”




 









 





LOAN AND SECURITY AGREEMENT




     The Borrowers, Agent and Lenders identified on the cover page of this document have entered or
anticipate entering into one or more transactions pursuant to which each Lender severally, but not
jointly, agrees to make available to Borrowers a loan facility governed by the terms and conditions
set forth in this document and one or more Supplements executed by Borrowers, Agent and Lenders
which incorporate this document by reference. Each Supplement constitutes a supplement to and
forms part of this document, and will be read and construed as one with this document, so that this
document and the Supplement constitute a single agreement among the parties (collectively referred
to as this “Agreement”).



     Accordingly, the parties agree as follows:



ARTICLE 1 — INTERPRETATION




     1.1 Definitions. The terms defined in Article 11 and in the Supplement will have the meanings
therein specified for purposes of this Agreement.



     1.2 Inconsistency. In the event of any inconsistency between the provisions of any Supplement
and this document, the provisions of the Supplement will be controlling for the purpose of all
relevant transactions.



     1.3 Each reference herein to “Borrower” shall mean and refer to each Borrower individually,
and to all Borrowers collectively, except as the context or meaning may otherwise require; and all
Obligations of the Borrowers shall be joint and several.



ARTICLE 2 — THE COMMITMENT AND LOANS




     2.1 The Commitment. Subject to the terms and conditions of this Agreement, each of the
Lenders agrees severally, but not jointly, to make term loans to Borrowers from time to time from
the Closing Date and to, but not including, the Termination Date in an aggregate principal amount
not exceeding such Lender’s Commitment Percentage of the Commitment. Each Lender’s Commitment under
this Agreement is not a revolving credit commitment, and Borrower does not have the right to repay
and reborrow hereunder. Each Loan requested by Borrower to be made on a single Business Day shall
be for a minimum principal amount set forth in the Supplement, except to the extent the remaining
Commitment is a lesser amount.



     2.2 Notes Evidencing Loans; Repayment. Each Loan shall be evidenced by a separate Note
executed jointly and severally by Borrowers payable to the order of each Lender, in the total
principal amount of the Loan. Principal and interest of each Loan shall be payable at the times
set forth in the Note and, at the election of any Lender, regularly scheduled payments thereof and
each Terminal Payment shall be effected by automatic debit of the appropriate funds from Borrower’s
Primary Operating Account as specified in the Supplement hereto or by wire transfer to such
Lender’s account according to the instructions shown on such Supplement opposite such Lender’s
name. Any payment received by the Agent or any Lender hereunder for the account of any other
Lender shall be paid promptly to such Lender, in like funds, for the Loan in respect of which such
payment is made.



     2.3 Procedures for Borrowing.



     (a) Whenever the Borrowers desire to borrow under this Agreement, the Borrowers shall give the
Agent written notice of such proposal, stating the total amount requested, in substantially the
form of the Borrowing Request attached to the Supplement as Exhibit “B”. The total amount
of the borrowing shall be allocated among the Lenders in accordance with the provisions of the
Supplement, to be advanced as separate Loans in the aggregate amount requested. Each Borrowing
Request shall be irrevocable and shall be effective only if received by the Agent not later than
10:00 a.m. Pacific time on the date that is at least five (5) Business Days prior to a proposed
Borrowing Date. If any such Borrowing Request is by facsimile transmission, it shall be confirmed
in a writing sent by the Borrowers to the Agent on the next Business Day.



     (b) Promptly upon receipt of a Borrowing Request, but not later than one (1) Business Day
after receipt of the Borrowing Request and the related documentation, the Agent shall calculate
each Lender’s Funding Amount, and notify each Lender telephonically of the Borrowing Request and
such Lender’s Funding Amount, and shall transmit copies of the Borrowing Request and the Funding
Amounts by facsimile to each Lender.



 









 





     2.4 Required Borrowing Documentation. The Borrower, on or prior to the Borrowing Date stated
in a Borrowing Request, which shall be a date that is not less than five (5) Business Days after
receipt by Agent of the Borrowing Request, and as of the date of the making of any related Loan,
shall have satisfied all applicable conditions precedent to such borrowing contained in this
Agreement, including delivery to each Lender of executed original Notes evidencing such Loan.
Without limiting the generality of the foregoing, not later than 1:00 p.m. Pacific time on the
Business Day that is two (2) Business Days prior to the Borrowing Date, Borrowers shall have
executed and delivered to Agent an original Note for each Lender for its Loan to be advanced, and
shall have authorized Agent to file any UCC-1 financing statements, amendments, releases or
termination statements that may be required by Agent. Such promissory notes and UCC statements, if
any, shall have been prepared by Agent and delivered to Borrowers promptly following receipt of the
related Borrowing Request, but in no event less than twenty-four hours prior to the deadline
referenced in the immediately preceding sentence unless otherwise agreed to by the parties. Agent
shall cause each Lender’s original executed promissory note and copies of any such UCC statements
relating to the Loan to be delivered to such Lender prior to the Borrowing Date to facilitate the
funding of its Loan.



     2.5 Disbursement of Loan Proceeds. Subject to the satisfaction of all of the conditions
precedent to borrowing specified herein and in the Supplement and so long as no Event of Default or
Default has occurred and is continuing, not later than 1:00 p.m., Pacific time, on the Borrowing
Date specified in the Borrowing Request, for each borrowing, each Lender shall transfer its
respective Funding Amount, allocated in accordance with the provisions of the Supplement, to the
Parent’s Primary Operating Account set forth in the Supplement, as the same may be amended from
time to time in accordance with the terms of Section 5.10 of this Agreement, by wire transfer
according to the instructions shown therein, or by other method but in any event in immediately
available funds.



     2.6 Time and Method of Payments.




     (a) Not later than one Business Day after receipt of the Borrowing Request, the Agent shall
prepare and distribute to each of the Lenders and the Borrower an amortization schedule showing the
principal amount of each Lender’s Loan that is to be advanced to the Parent’s Primary Operating
Account on the Borrowing Date and the regularly scheduled, monthly installment amount to be paid by
the Borrower in respect of each Lender’s Loan made on such Borrowing Date. Each Lender shall be
responsible for verifying such amounts; however, the Agent’s calculation shall be presumed correct
absent manifest error unless rebutted by such Lender or the Borrower. Agent shall not be liable
for any error in calculating a Lender’s Loan installment amount. If at any time or from time to
time a Lender desires to collect late charges and/or interest at the Default Rate, it shall
promptly notify Parent and Agent, and appropriate adjustment shall be made to the loan schedule to
reflect any changes in the monthly installment payable by Borrower in respect of such Lender’s
Loan(s).



     (b) All payments of principal, interest, fees and other amounts (including indemnities)
payable by the Borrower hereunder shall be made, in immediately available funds not later than 1:00
p.m., Pacific time, on the date on which such payment shall become due (the “Payment Date”), by
disbursement to each Lender of its respective share of such payment on each Payment Date to the
address of such Lender for payments shown on the Supplement and, if indicated on such Schedule, by
wiretransfer to such Lender’s account according to the instructions shown on such
Schedule opposite such Lender’s name; provided, however, that Parent hereby (i) authorizes
each Lender to initiate debit entries to Parent’s “Primary Operating Account” as specified in the
Supplement, through Automated Clearinghouse (“ACH”) or other transfers, in order to satisfy
regularly scheduled payments of principal, interest or fees; (ii) agrees to provide each
Lender at least ten (10) days’ written notice in advance of any change in Parent’s Primary
Operating Account; and (iii) grants each Lender any additional authorizations necessary to begin
ACH debits from a new account which becomes the Primary Operating Account. Any payment received by
the Agent or any Lender hereunder for the account of any other Lender shall be paid promptly by
Agent or Lender, as applicable, to such Lender, in like funds, for the Loan in respect of which
such payment is made.



     2.7 Several Obligations. The failure of any Lender to make any Loan to be made by it on the
date specified therefor shall not relieve the other Lenders of their respective obligations to make
their Loans on such date; but in
no event shall any Lender be responsible for the failure of the other Lenders to make Loans to be
made by such other Lenders.



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     2.8 Pro Rata Treatment Among Lenders. Except as otherwise provided herein: (i) each scheduled
payment of principal and Basic Interest on the Loans, if timely paid by Borrower, and any voluntary
prepayments of principal, shall be paid to the Lenders according to the amortization schedule
provided for in each Lender’s Note evidencing such Loans (in the event such scheduled payment is
less than the aggregate amount due to be paid to all Lenders under their Notes, but prior to any
acceleration of the Notes, such payment shall be allocated Pro Rata among the Lenders in proportion
to the regular installment amounts provided in the Notes); and (ii) all Terminal Payments shall be
allocated Pro Rata among the Lenders. If any payment under clause (i) or (ii) of this Section 2.8
is not paid Pro Rata among the Lenders, whether as a result of the Borrower’s failure to make a
particular payment to one or more Lenders while paying other Lenders, or otherwise, then each
Lender that has actually received a payment in excess of its Pro Rata share shall promptly remit to
the other Lender who received no payment or payment less than its Pro Rata share such amount as is
necessary to ensure the Pro Rata treatment of such payment and make such other adjustments from
time to time as shall be equitable, to the end that all Lenders shall share in such payments Pro
Rata in the aforesaid manner (however, no such adjustments shall affect the calculation of Pro Rata
items or the determination of Majority Lenders). If prior to all Obligations of Borrower to the
Lenders having been paid in full, any action to realize upon the Collateral is taken following an
Event of Default, then proceeds of Collateral and any other payments or distributions received on
account of the Loans shall be distributed in accordance with the terms of this Agreement.



     2.9 Sharing of Payments and Set-Off Among Lenders. Borrower hereby agrees that, in addition
to (and without limitation of) any right of set-off, banker’s lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option, to offset balances held by it at any
of its offices against any principal of or interest on any of its Loans hereunder, or any fee
payable to it, that is not paid when due in which case it shall promptly notify the Borrower and
the other Lenders thereof, provided that its failure to give such notice shall not affect the
validity thereof. If a Lender shall effect payment of any principal of or interest on Loans held
by it under this Agreement through the exercise of any right of set-off, banker’s lien,
counterclaim or similar right, it shall promptly remit to the other Lender such amounts and make
such other adjustments from time to time as shall be equitable, to the end that all the Lenders
shall share the benefit of such payment pro rata in accordance with the unpaid principal and
interest on the Loans held by each of them (however, no such adjustments shall affect the
calculation of Pro Rata items or the determination of Majority Lenders). To such end, all the
Lenders shall make appropriate adjustments among themselves if such payment is rescinded or must
otherwise be restored. Nothing contained herein shall require any Lender to exercise any such
right or shall affect the right of any Lender to exercise and retain the benefits of exercising,
any such right with respect to any other indebtedness or obligation of the Borrower.



     2.10 Interest. Except as otherwise specified in the applicable Note, Basic Interest on the
outstanding principal balance of each Loan shall accrue daily at the Designated Rate from the
Borrowing Date until the Maturity Date. If the outstanding principal balance of such Loan is not
paid on the Maturity Date, interest shall accrue at the Default Rate until paid in full, as further
set forth herein.



     2.11 Terminal Payment. Except as otherwise specified in the applicable Note, Borrower shall
pay the Terminal Payment with respect to each Loan on the Maturity Date of such Loan.



     2.12 Interest Rate Calculation. Basic Interest, along with charges and fees under this
Agreement and any Loan Document, shall be calculated for actual days elapsed on the basis of a
360-day year, which results in higher interest, charge or fee payments than if a 365-day year were
used. In no event shall Borrower be obligated to pay any Lender interest, charges or fees at a
rate in excess of the highest rate permitted by applicable law from time to time in effect.



     2.13 Default Interest. Any unpaid payments of principal or interest or the Terminal Payment,
or any portion thereof, with respect to any Loan shall bear interest from their respective
maturities, whether scheduled or accelerated, at the Designated Rate for such Loan plus
five percent (5.00%) per annum, until paid in full, whether before or after judgment (the “Default
Rate”). Borrower shall pay such interest on
demand.



     2.14 Late Charges. If Borrower is late in making any payment of principal or interest or



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Terminal Payment under this Agreement by more than five (5) Business Days, Borrower agrees to pay a
late charge of five percent (5%) of the unpaid amount due, but not less than fifty dollars ($50.00)
for any one such delinquent payment. This late charge may be charged by the Lenders for the purpose
of defraying the expenses incidental to the handling of such delinquent amounts. Borrower
acknowledges that such late charge represents a reasonable sum considering all of the circumstances
existing on the date of this Agreement and represents a fair and reasonable estimate of the costs
that will be sustained by Lenders due to the failure of Borrower to make timely payments. Borrower
further agrees that proof of actual damages would be costly and inconvenient. Such late charge
shall be paid without prejudice to the rights of Lenders to collect any other amounts provided to
be paid or to declare a default under this Agreement or any of the other Loan Documents or from
exercising any other rights and remedies of Lenders.



     2.15 Lender’s Records. Principal, Basic Interest, Terminal Payments and all other sums owed
under any Loan Document shall be evidenced by entries in records maintained by each Lender for such
purpose. Each payment on and any other credits with respect to principal, Basic Interest, Terminal
Payments and all other sums outstanding under any Loan Document shall be evidenced by entries in
such records. Absent manifest error, a Lender’s records shall be conclusive evidence thereof.



     2.16 Grant of Security Interests; Filing of Financing Statements.




          (a) To secure the timely payment and performance of all of Borrower’s Obligations to Lenders,
Borrower hereby grants to Agent for the benefit of the Lenders continuing security interests in all
of the Collateral. In connection with the foregoing, Borrower authorizes Agent to prepare and file
any financing statements describing the Collateral without otherwise obtaining the Borrower’s
signature or consent with respect to the filing of such financing statements.




          (b) Borrower is and shall remain absolutely and unconditionally liable for the performance of
its obligations under the Loan Documents, including, without limitation, any deficiency by reason
of the failure of the Collateral to satisfy all amounts due Lenders under any of the Loan
Documents.




          (c) All Collateral pledged by Borrower under this Agreement and any Supplement shall secure
the timely payment and performance of all Obligations under this Agreement, the Notes and the other
Loan Documents. Except as expressly provided in this Agreement, no Collateral pledged under this
Agreement or any Supplement shall be released until such time as all Obligations under this
Agreement and the other Loan Documents have been satisfied and paid in full.




ARTICLE 3 — REPRESENTATIONS AND WARRANTIES




     Borrower represents and warrants to Agent and each Lender that, except as set forth in either
the Supplement or the Schedule of Exceptions hereto, as of the Closing Date and each Borrowing
Date:



     3.1 Due Organization. Borrower is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, and is duly qualified to conduct
business and is in good standing in each other jurisdiction in which its business is conducted or
its properties are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.



     3.2 Authorization, Validity and Enforceability. The execution, delivery and performance of
all Loan Documents executed by Borrower are within Borrower’s powers, have been duly authorized,
and are not in conflict with Borrower’s certificate of incorporation or by laws, or the terms of
any charter or other organizational document of Borrower, as amended from time to time; and all
such Loan Documents constitute valid and binding obligations of Borrower, enforceable in accordance
with their terms (except as may be limited by bankruptcy, insolvency and similar laws affecting the
enforcement of creditors’ rights in general, and subject to general principles of equity).



     3.3 Compliance with Applicable Laws. Borrower has complied with all material licensing,
permit and fictitious name requirements necessary to lawfully conduct the business in which it is
engaged,
and to any sales, leases or the furnishing of services by Borrower, including without limitation
those requiring consumer or other disclosures, the noncompliance with which would have a Material
Adverse Effect.



     3.4 No Conflict. The execution, delivery, and performance by Borrower of all Loan Documents
and Warrants are not in conflict with any law, rule,



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regulation, order or directive applicable to
Borrower, or any indenture, agreement, or undertaking to which Borrower is a party or by which
Borrower may be bound or affected, except where such conflict would not have a Material Adverse
Effect. Without limiting the generality of the foregoing, the issuance of the Warrants to Lenders
(or their designees) will not violate any agreement or instrument by which Borrower is bound or
require the consent of any holders of Borrower’s securities other than consents which have been
obtained prior to the Closing Date or prior to the issuance of Warrants, as applicable.



     3.5 No Litigation, Claims or Proceedings. There is no litigation, tax claim, proceeding or
dispute pending, or, to the knowledge of Borrower, threatened against or affecting Borrower, or its
property or the conduct of business, which is reasonably likely to be determined adversely to
Borrower and , if so adversely determined, would result in a Material Adverse Effect.



     3.6 Correctness of Financial Statements. Parent’s financial statements which have been
delivered to each Lender fairly and accurately reflect in all material respects Borrowers’
consolidated financial condition in accordance with GAAP (except for the absence of footnote
disclosures and subject to normal year end adjustments) as of the latest date of such financial
statements; and, since that date there has been no Material Adverse Change.



     3.7 No Subsidiaries. As of the Closing Date, Borrower is not a majority owner of or in a
control relationship with any other business entity. Borrower may from time to time amend or
update the Schedule of Exceptions to reflect additions and/or deletions of subsidiaries and control
relationships with other entities. Each such update shall be effective immediately upon delivery to
Agent.



     3.8 Environmental Matters. To its knowledge, Borrower is in compliance with Environmental
Laws applicable to its business, except to the extent a failure to be in such compliance would not
have a Material Adverse Effect.



     3.9 No Event of Default. No Default or Event of Default has occurred and is continuing.



     3.10 Full Disclosure. None of the representations or warranties made by Borrower in the Loan
Documents as of the date such representations and warranties are made or deemed made, and none of
the factual statements contained in any exhibit, report, statement or certificate furnished by or
on behalf of Borrower in connection with the Loan Documents (including disclosure materials
delivered by or on behalf of Borrower to any Lender prior to the Closing Date or pursuant to
Section 5.2 hereof), contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made or delivered; it
being understood and agreed that Borrower gives no representation or warranty with respect to
projections, forecasts or other forward-looking statements prepared in good faith.



     3.11 Specific Representations Regarding Collateral.




     (a) Title. Except for the security interests created by this Agreement and Permitted Liens,
(i) Borrower is and will be the unconditional legal and beneficial owner of the Collateral, and
(ii) the Collateral is genuine and subject to no Liens, rights or defenses of others. Except for
any applicable Permitted Liens, there exist no assignments or encumbrances properly recorded with
the U.S. Patent and Trademark Office or the U.S. Copyright Office currently affecting any
Collateral in favor of any third party.



     (b) Rights to Payment. The names of the obligors, amount owing to Borrower, due dates and all
other information with respect to the Rights to Payment are and will be correctly stated in all
material respects in all Records relating to the Rights to Payment. Borrower further represents
and warrants, to its knowledge, that each Person appearing to be obligated on a Right to Payment
has authority and capacity to contract and is bound as it appears to be.



     (c) Location of Collateral. Borrower’s chief executive office, Inventory, Records, Equipment,
and any other offices or places of business are located at the address(es) shown on the Supplement.
Any notice of a change of location provided pursuant to section 5.1(a)
shall amend the Supplement automatically on the thirtieth day after receipt thereof.



     (d) Business Names. Other than its full corporate name, Borrower has not conducted business
using any trade names or fictitious business names except as shown on the Supplement.



     3.12 Copyrights, Patents, Trademarks and Licenses.



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     (a) Borrower owns or is licensed or otherwise has the right to use or has in its possession
all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises,
authorizations and other similar rights that are reasonably necessary for the operation of its
business as currently conducted, to Borrower’s knowledge, without conflict with the rights of any
other Person.



     (b) To Borrower’s knowledge, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be employed, by Borrower
infringes upon any rights held by any other Person.



     (c) No claim or litigation involving Borrower regarding any of the subject matter of Section
3.12(a) and (b) is pending or, to Borrower’s knowledge, threatened, and, to Borrower’s knowledge,
no statute, law, rule, regulation, standard or code applicable to Borrower is pending or proposed
which, if became effective, could reasonably be expected to have a Material Adverse Effect.



     3.13 Debt Obligations Current. Borrower is solvent and able to pay its debts (including trade
debts) as they mature.



     3.14 Regulatory Compliance. Borrower has met the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. No event has occurred resulting from
Borrower’s failure to comply with ERISA that will have a Material Adverse Effect. Borrower is not
required to register as an “investment company” or a company “controlled” by an entity required to
register as an “investment company” within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within the meaning of
Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has
complied in all material respects with all the provisions of the Federal Fair Labor Standards Act.



     3.15 Survival. The representations and warranties of Borrower as set forth in this Agreement
survive the execution and delivery of this Agreement.



ARTICLE 4 — CONDITIONS PRECEDENT




     4.1 Conditions to First Loan. The obligation of each Lender to make its first Loan hereunder
is, in addition to the conditions precedent specified in Section 4.2 and in the Supplement, subject
to the fulfillment of the following conditions and to the receipt by Agent of the documents
described below, duly executed and in form and substance satisfactory to Agent and Lenders:



     (a) Resolutions. A certified copy of the resolutions of the Board of Directors of each
Borrower authorizing the execution, delivery and performance by Borrower of the Loan Documents.



     (b) Incumbency and Signatures. A certificate of an authorized officer of Borrower certifying
the names of the officer or officers of Borrower authorized to sign the Loan Documents, together
with a sample of the true signature of each such officer.



     (c) Legal Opinion. The opinion of legal counsel for each Borrower as to such matters as Agent
or any Lender may reasonably request, in substantially the form of Exhibit “E” to the
Supplement.



     (d) Charter and By Laws. Certified copies of the Certificate of Incorporation and By Laws of
each Borrower, as amended through the Closing Date.



     (e) This Agreement. Original counterparts of this Agreement and an initial Supplement, with
all schedules completed and attached thereto, and disclosing such information as is acceptable to
Agent and Lenders exercising reasonable discretion.



     (f) Financing Statements; Lien Perfection Documents. Filing copies (or other evidence of
filing satisfactory to Agent, Lenders and their respective counsel) of such UCC financing
statements, collateral assignments, account control agreements, and termination statements, with
respect to the Collateral as Agent or Lenders shall reasonably request.



     (g) Lien Searches. Uniform Commercial Code lien, judgment, bankruptcy and tax lien searches
of Borrower from such jurisdictions or offices as Agent or any Lender may reasonably request, all
as of a date reasonably satisfactory to Agent, Lenders and their counsel.



     (h) Good Standing Certificate. A Certificate of status or good standing of each Borrower as
of a date acceptable to Agent from the jurisdiction of such Borrower’s organization and any
material foreign jurisdictions where Borrower is qualified to do business.



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     (i) Other Documents. Such other documents and instruments as Agent or Lenders may reasonably
request to effectuate the intents and purposes of this Agreement.



     4.2 Conditions to All Loans. The obligation of each Lender to make its initial Loan and each
subsequent Loan is subject to the following further conditions precedent that:



     (a) No Default. No Default or Event of Default has occurred and is continuing or will result
from the making of any such Loan, and the representations and warranties of Borrower contained in
Article 3 of this Agreement and Part 3 of the Supplement are true and correct (i) in all respects,
with respect to those representations and warranties qualified by materiality, and (ii) in all
material respects, with respect to those representations and warranties not so qualified as of the
Borrowing Date of such Loan.



     (b) No Material Adverse Change. No Material Adverse Effect has occurred since the date of the
Parent’s last annual audited financial statements.



     (c) Borrowing Request. Borrowers shall have delivered to Agent a Borrowing Request for such
Loan.



     (d) Note. Borrowers shall have delivered to Agent an original executed Note for each Lender
evidencing such Lender’s Loan, substantially in the form of Exhibit “A” attached to the
Supplement.



     (e) Supplemental Lien Filings. Borrowers shall have executed and delivered such amendments or
supplements to this Agreement and additional Security Documents, financing statements and third
party waivers as Agent may reasonably request in connection with the proposed Loan, in order to
create, protect or perfect or to maintain the perfection of Agent’s Liens on the Collateral for the
benefit of the Lenders.



     (f) VCOC Limitation. Absent the failure of VLL to exercise commercially reasonable efforts and
to act in good faith to qualify and remain so qualified, VLL shall not be obligated to make any
Loan under its Commitment if at the time of or after giving effect to the proposed Loan VLL would
no longer qualify as: (A) a “venture capital operating company” under U.S. Department of Labor
Regulations Section 2510.3-101(d), Title 29 of the Code of Federal Regulations, as amended; and (B)
a “business development company” under the provisions of federal Investment Company Act of 1940, as
amended; and (C) a “regulated investment company” under the provisions of the Internal Revenue Code
of 1986, as amended. VLL does not know, and has no reason to know of any facts or circumstances
that could reasonably be expected to cause VLL to no longer qualify as (A) a “venture capital
operating company”, (B) a “business development company”, or (C) a “regulated investment company”
as those terms are defined above.



     (g) Financial Projections. Borrower shall have delivered to each Lender Borrower’s financial
projections or business plan as prepared by or at the direction of Borrower’s management.



ARTICLE 5 — AFFIRMATIVE COVENANTS




     During the term of this Agreement so long as any Obligations to Agent and Lenders remain
outstanding, Borrower will:



     5.1 Notice to Lender. Promptly give written notice to Lenders of:



     (a) Any litigation or administrative or regulatory proceeding affecting Borrower where the
amount claimed against Borrower is at the Threshold Amount or more, or where the granting of the
relief requested would reasonably be expected to have a Material Adverse Effect.



     (b) Any substantial dispute which may exist between Borrower or any governmental or regulatory
authority.



     (c) The occurrence of any Default or any Event of Default.



     (d) Any change in the location of any of Borrower’s places of business or Collateral within
thirty (30) days of such change, or of the establishment of any new, or the discontinuance of any
existing, place of business.



     (e) Any dispute or default by Borrower or any other party under any joint venture, partnering,
distribution, cross-licensing, strategic alliance, collaborative research or manufacturing, license
or similar agreement which would reasonably be expected to have a Material Adverse Effect.



     (f) Any other matter which has resulted in a Material Adverse Change since December 31, 2003.



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     5.2 Financial Statements. Deliver to each Lender or cause to be delivered to each Lender, in
form and detail satisfactory to Lenders the following financial information, which Parent warrants
shall be accurate and complete in all material respects:



     (a) Monthly Financial Statements. As soon as available but no later than thirty (30) days
after the end of each month, Parent’s consolidated unaudited balance sheet as of the end of such
period, and its consolidated unaudited income statement and consolidated unaudited cash flow
statement for such period and for that portion of its financial reporting year ending with such
period, prepared in accordance with GAAP (except for the absence of footnotes and subject to normal
year end adjustments), and attested by a responsible financial officer of Parent as being complete
and correct and fairly presenting in all material respects Borrowers’ financial condition on a
consolidated basis and the results of Borrowers’ operations. After an Initial Public Offering, the
foregoing interim financial statements may be provided on a quarter-annual basis and shall be
deemed delivered upon timely filing by Parent of its quarterly and annual reports with the
Securities and Exchange Commission (“SEC”).



     (b) Year-End Financial Statements. As soon as available but no later than one hundred twenty
(120) days after and as of the end of each financial reporting year, a complete copy of Parent’s
audit report, which shall include consolidated balance sheet, income statement, statement of
changes in equity and statement of cash flows for such year, prepared in accordance with GAAP, and
certified by an independent certified public accountant selected by Parent (the “Accountant”). The
Accountant’s certification shall not be qualified or limited without the prior written consent of
each Lender.



     (c) Compliance Certificates. Simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a certificate of the chief financial
officer or other executive officer of Parent substantially in the form of Exhibit “C” to
the Supplement stating whether any Default or Event of Default exists on the date of such
certificate, and if so, setting forth in reasonable detail thereof and the action which Borrower is
taking or proposes to take with respect thereto.



     (d) Government Required Reports; Press Releases. Promptly after sending, issuing, making
available, or filing, copies of all statements released to any news media for publication, all
annual and quarterly reports, proxy statements, and financial statements that Parent sends or makes
available to its stockholders, and, not later than five (5) Business Days after actual filing or
the date such filing was first due, all registration statements and reports that Parent files or is
required to file with the Securities and Exchange Commission, or any other governmental or
regulatory authority.



     (e) Other Information. Such other statements, lists of property and accounts, budgets,
forecasts, reports, or other information as Agent or any Lender may from time to time reasonably
request.



     5.3 Managerial Assistance from VLL. Permit VLL to substantially participate in, and
substantially influence the conduct of management of Borrower through the exercise of “management
rights,” as that term is defined in 29 C.F.R. § 2510.3-101(d), including without limitation the
following rights:



     (a) Borrower agrees that (i) it will make its officers, directors, employees and affiliates
available at such times as VLL may reasonably request for VLL to consult with and advise as to the
conduct of Borrower’s business, its equipment and financing plans, and its financial condition and
prospects, (ii) VLL shall have the right to inspect Borrower’s books, records, facilities and
properties at reasonable times during normal business hours on reasonable advance notice at its own
expense, and (iii) VLL shall be entitled to recommend prospective candidates for election or
nomination for election to Borrower’s Board of Directors, and Borrower shall give due consideration
to (but shall not be bound by) such recommendations, it being the
intention of the parties that VLL shall be entitled through such rights, inter alia, to furnish
“significant managerial assistance”, as defined in Section 2(a)(47) of the Investment Company Act
of 1940, to Borrower.



     (b) Without limiting the generality of (a) above, if VLL reasonably believes that financial or
other developments affecting Borrower have impaired or are likely to impair Borrower’s ability to
perform its obligations under this Agreement, permit VLL reasonable access to Borrower’s management
and/or Board of Directors and opportunity to present VLL’s views with respect to such developments.


VLL shall cooperate with Borrower to ensure that the exercise of VLL’s rights shall not disrupt the
business of Borrower. The rights enumerated above shall not be construed as giving VLL control
over Borrower’s management or policies. Borrower


8









 






agrees that this Section 5.3 does not apply to
any Lender hereunder other than VLL. VLL agrees that it will indemnify, defend and hold harmless
each other Lender for any claims arising as a result of VLL’s exercise of its rights under this
Section 5.3.




     5.4 Existence. Maintain and preserve Borrower’s existence, present form of business, and all
material rights and privileges necessary or desirable in the normal course of its business; and
keep all Borrower’s property in good working order and condition, ordinary wear and tear excepted.



     5.5 Insurance. Obtain and keep in force insurance in such amounts and types as is usual in the
type of business conducted by Borrower with insurance carriers having a policyholder rating of not
less than “A-” and financial category rating of Class VII in “Best’s Insurance Guide,” unless
otherwise approved by Agent. Such insurance policies must be in form and substance satisfactory to
Agent. All property policies will have a lender’s loss payable endorsement showing Agent, for the
benefit of Lenders, as a loss payee and all liability policies will show the Agent, for the benefit
of Lenders, as an additional insured. At Agent’s request, Borrower will deliver to Agent certified
copies of policies, endorsements or a certificate of insurance evidencing the same, and evidence of
all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under
any casualty policy will, at Borrower’s option, be payable to Borrower to replace the property
subject to the claim, provided that any such replacement property shall be deemed Collateral in
which Agent, for the benefit of Lenders, has been granted a first priority security interest. If
an Event of Default has occurred and is continuing, then proceeds payable under any policy will be
payable to Agent, for the benefit of Lenders, toward the satisfaction of the Obligations in
accordance with the terms of this Agreement.



     5.6 Accounting Records. Maintain adequate books, accounts and records, and prepare all
financial statements in accordance with GAAP (except for the absence of footnotes and subject to
normal year end adjustments with respect to unaudited financial statements), and in compliance with
the regulations of any governmental or regulatory authority having jurisdiction over Borrower or
Borrower’s business; and permit employees or agents of Agent and any Lender at such reasonable
times and upon reasonable notice as they may request, at Borrower’s expense after the occurrence of
an Event of Default, to inspect Borrower’s properties, and to examine, and make copies and
memoranda of Borrower’s books, accounts and records.



     5.7 Compliance With Laws. Comply with all laws (including, without limitation, Environmental
Laws) rules, regulations applicable to, and all orders and directives of any governmental or
regulatory authority having jurisdiction over, Borrower or Borrower’s business, and with all
material agreements to which Borrower is a party, except where the failure to so comply would not
have a Material Adverse Effect.



     5.8 Taxes and Other Liabilities. Pay all Borrower’s Indebtedness when due; and pay all taxes
and other governmental or regulatory assessments before delinquency or before any penalty attaches
thereto, in each case, except as may be contested in good faith by the appropriate procedures and
for which Borrower shall maintain appropriate reserves in accordance with GAAP; and timely file all
required tax returns.



     5.9 Special Collateral Covenants.




     (a) Maintenance of Collateral; Inspection. Do all things reasonably necessary to maintain,
preserve, protect and keep all tangible Collateral in good working order and salable condition,
ordinary wear and tear excepted, utilize the Collateral for its intended use or as otherwise may be
used in the ordinary course of Borrower’s business, and use the Collateral lawfully
and, to the extent applicable, only as permitted by Borrower’s insurance policies. Maintain, or
cause to be maintained, complete and accurate Records relating to the Collateral. Upon reasonable
prior notice at reasonable times during normal business hours, Borrower hereby authorizes Agent and
each Lender’s officers, employees, representatives and agents to inspect the Collateral and to
discuss the Collateral and the Records relating thereto with Borrower’s officers and employees,
and, in the case of any Right to Payment, with any Person which is or may be obligated thereon.



     (b) Financing Statements and Other Actions. Execute and deliver to Agent all financing
statements, account control agreements, notices and other documents from time to time reasonably
requested by Agent to maintain a first perfected security interest in the Collateral in favor of
Agent, for the benefit of Lenders subject only to Permitted Liens; perform such other acts, and
execute and deliver to Agent such additional conveyances, assignments, agreements and instruments,
as Agent may at any time reasonably



9









 







request in connection with the administration and enforcement
of this Agreement or Agent’s or Lender’s rights, powers and remedies hereunder.



     (c) Liens. Not create, incur, assume or permit to exist any Lien or grant any other Person a
negative pledge on any Collateral, except Permitted Liens.



     (d) Documents of Title. Other than as required in connection with Permitted Liens or as set
forth in Section 6.1, not sign or authorize the signing of any financing statement or other
document naming Borrower as debtor or obligor, or acquiesce or cooperate in the issuance of any
bill of lading, warehouse receipt or other document or instrument of title with respect to any
Collateral, except those negotiated to Agent, or those naming Agent as secured party.



     (e) Change in Location or Name. Without at least 30 days’ prior written notice to Lenders:
(a) not relocate any Collateral or Records, its chief executive office, or establish a place of
business at a location other than as specified in the Supplement; and (b) not change its name,
mailing address, location of Collateral, jurisdiction of incorporation or its legal structure.



     (f) Decals, Markings. At the request of Agent, firmly affix a decal, stencil or other
marking to designated items of Equipment, indicating thereon the security interest of Agent.



     (g) [Intentionally omitted]



     (h) Certain Agreements on Rights to Payment. Other than in the ordinary course of business,
not make any material discount, credit, rebate or other reduction in the original amount owing on a
Right to Payment or accept in satisfaction of a Right to Payment an amount materially less than the
original amount thereof.



     5.10 Authorization for Automated Clearinghouse Funds Transfer. (i) Authorize each Lender to
initiate debit entries to Borrower’s Primary Operating Account, specified in the Supplement hereto,
through Automated Clearinghouse (“ACH”) transfers, in order to satisfy regularly scheduled payments
of principal, interest and Terminal Payments; (ii) provide Lenders at least thirty (30) days notice
of any change in Borrower’s Primary Operating Account; and (iii) grant Lenders any additional
authorizations necessary to begin ACH debits from a new account which becomes the Primary Operating
Account.



ARTICLE 6 — NEGATIVE COVENANTS




     During the term of this Agreement so long as any Obligations remain outstanding, Borrower will
not (without Majority Lenders’ prior written consent):



     6.1 Indebtedness. Be indebted for borrowed money, the deferred purchase price of property, or
leases which would be capitalized in accordance with GAAP; or become liable as a surety, guarantor,
accommodation party or otherwise for or upon the obligation of any other Person, except:



     (a) Indebtedness existing on the date hereof;



     (b) Indebtedness incurred for the acquisition of supplies or inventory on normal trade
credit;



     (c) Indebtedness incurred pursuant to one or more transactions permitted under Section
6.4;



     (d) Indebtedness of Borrower under this Agreement;



     (e) any Subordinated Debt;



     (f) Indebtedness arising out of earnout and
similar contingent payment obligations of Borrower in existence as of the Closing Date;



     (g) bridge loan financing, whether or not convertible into Borrower’s equity securities; and



     (h) and, in addition to the foregoing, up to Three Million Dollars ($3,000,000) in aggregate
principal amount of Indebtedness outstanding at any time.



     6.2 Liens. Create, incur, assume or permit to exist any Lien, or grant any other Person a
negative pledge, on any of Borrower’s property, except Permitted Liens. Borrower and Lender agree
that this covenant is not intended to constitute a lien, deed of trust, equitable mortgage, or
security interest of any kind on any of Borrower’s real property, and this Agreement shall not be
recorded or recordable. Without limiting the generality of the foregoing, and as a material
inducement to the Lenders’ making of the Commitment and entering into the Loan Documents, Borrower
agrees that it shall not assign, mortgage, pledge, grant a security interest in, or encumber any of
Borrower’s Intellectual Property, or enter into any agreement, document, instrument or other
arrangement (except with or in favor of Agent and Lenders) with any Person which directly or



10









 







indirectly prohibits or has the effect of prohibiting Borrower from assigning, mortgaging,
pledging, granting a security interest in or upon, or encumbering any of Borrower’s Intellectual
Property, except as is otherwise permitted in Section 6.5 of this Agreement and the definition of
“Permitted Lien” herein.



     6.3 Dividends. Except after an Initial Public Offering, pay any dividends or purchase, redeem
or otherwise acquire or make any other distribution with respect to any of Parent’s capital stock,
except (a) dividends or other distributions solely of capital stock of Parent, (b) cash payments
for fractional shares of Parent’s capital stock, including, without limitation, upon the exercise
or conversion of options, warrants, rights and other similar instruments exercisable or convertible
into Parent’s capital stock, (c) dividends by Advanced Biotheropeutics, Inc. to its Parent, and (d)
so long as no Event of Default has occurred and is continuing, (i) repurchases of stock from
employees, directors or consultants upon termination of employment under reverse vesting or similar
repurchase plans not to exceed $100,000 in aggregate in any calendar year and (ii) dividends and
distributions in respect of Financing Shares equating to periodic, unaccelerated cash payments of
non-default rate accrued interest on comparable Subordinated Debt financing.



     6.4 Changes/Mergers. Liquidate or dissolve; or enter into any consolidation, merger or other
combination in which the stockholders of the Borrower immediately prior to the first such
transaction own less than 50% of the voting stock of the Borrower or the entity that results from
such merger or consolidation (the “Surviving Entity”) immediately after giving effect to such
transaction or related series of such transactions, except that Borrower may consolidate or merge
so long as: (A) the Surviving Entity shall have executed and delivered to Agent an agreement in
form and substance reasonably satisfactory to Lenders, containing an assumption by the Surviving
Entity of the due and punctual payment and performance of all Obligations and performance and
observance of each covenant and condition of Borrower in the Loan Documents; (B) all such
obligations of the Surviving Entity to Lenders shall be guaranteed by any entity that directly or
indirectly owns or controls more than 50% of the voting stock of the Surviving Entity; (C)
immediately after giving effect to such merger or consolidation, no Default or Event of Default
shall have occurred and be continuing; and (D) the credit risk to Lenders, in their sole
discretion, of the Surviving Entity shall not be increased. In determining whether the proposed
merger or consolidation would result in an increased credit risk, Lenders may consider, among other
things, changes in Borrower’s management team, employee base, access to equity markets, venture
capital support, financial position and/or disposition of intellectual property rights which may
reasonably be anticipated as a result of the transaction.



     6.5 Sales of Assets. Sell, transfer, lease, license or otherwise dispose of (a “Transfer”) any
of Borrower’s assets except (i) exclusive and non-exclusive licenses of Intellectual Property
consistent with industry practice, including, without limitation, research and product development
collaborations (so long as no one exclusive license or series of exclusive licenses to any one
licensee covers all or substantially all of Borrower’s Intellectual Property assets and rights);
(ii) Transfers of worn-out, obsolete or surplus property (each as determined by the Borrower in its
reasonable judgment) not constituting Equipment as to which a Loan was made hereunder; (iii)
Transfers of Inventory not constituting Equipment as to which a Loan was made hereunder; (iv)
Transfers constituting
Permitted Liens; (v) Transfers permitted in Section 6.6 hereunder; (vi) Transfers in connection
with research and product development collaborations involving a joint venture or Delayed Joint
Venture, (vii) Transfers of equity interests to a Collaborator pursuant to a Delayed Joint Venture,
and (viii) Transfers of Collateral for fair consideration and in the ordinary course of its
business.



     6.6 Loans/Investments. Make or suffer to exist any loans, guaranties, advances, or
investments, except:



     (a) Accounts receivable in the ordinary course of Borrower’s business;



     (b) Investments other than in accordance with the investment policy approved by the Parent’s
Board of Directors, a copy of which has been made available to the Agent.



     (c) Temporary advances to cover incidental expenses to be incurred in the ordinary course of
business;



     (d) Investments in and loans to joint ventures, strategic alliances, licensing and similar
arrangements customary in Borrower’s industry;



11









 





     (e) other than as provided in Section 6.5, investments and loans which do not require Borrower
to assume or otherwise become liable for the obligations of any third party not directly related to
or arising out of such arrangement or, without the prior written consent of Lender, require
Borrower to transfer ownership of non-cash assets to a joint venture or other similar entity;



     (f) Investments and loans by Parent to direct and indirect in its wholly-owned subsidiaries,
including re-advance of Loan proceeds by Parent to its wholly-owned subsidiaries;



     (g) Investments and loans outstanding on the date hereof; and



     (h) Other loans, investments and advances in any amount not to exceed the Threshold Amount at
anytime outstanding.



     6.7 Transactions With Related Persons. Except as permitted under Section 6.6(f), or except in
connection with a strategic collaboration and as approved by Parent’s Board of Directors, directly
or indirectly enter into any transaction with or for the benefit of a Related Person on terms more
favorable to the Related Person than would have been obtainable in an “arms’ length” dealing except
agreements and transactions with and payments to Related Persons that are entered into outside the
ordinary course of business, not otherwise prohibited by this Loan Agreement and affirmatively
approved by a majority of the disinterested directors and of the stockholders of Borrower.



     6.8 Other Business. Engage in any material line of business other than the business Borrower
conducts as of the Closing Date or any business reasonably related or incidental thereto.



     6.9 Compliance. Become required to register as an “investment company” or controlled by an
entity required to register as an “investment company,” within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Loan for such purpose. Fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur, fail to comply in all material respects with the Federal Fair Labor Standards Act or violate
any law or regulation, but only to the extent any such violation results in a Material Adverse
Effect or a material adverse effect on the Collateral or the priority of Agent’s Lien on the
Collateral, or permit any of its subsidiaries to do any of the foregoing.



     6.11 Other Deposit and Securities Accounts. Maintain any deposit accounts or accounts holding
securities owned by Borrower except (i) Deposit Accounts and investment/securities accounts as set
forth in the Supplement, and (ii) other Deposit Accounts and securities/investment accounts, in
each case, Agent shall have taken such action as Lenders reasonably deem necessary to obtain a
perfected first security interest therein.



     6.12 Prepayment of Indebtedness. Prepay, redeem or otherwise satisfy in any manner prior to
the scheduled repayment thereof any Indebtedness (other than the Loans).



     6.13 Relationship of Borrowers. Parent ceases to own all of the issued and outstanding
capital stock of Advanced Biotherapeutics, Inc.



ARTICLE 7 — EVENTS OF DEFAULT




     7.1 Events of Default; Acceleration. Upon the occurrence and during the continuation of any
Default, the obligation of each Lender to make any additional Loan shall be suspended. The
occurrence of any of the following (each, an “Event of Default”) shall terminate any obligation of
Lenders to make any additional Loan; and shall, at the option of Majority Lenders (1) make all sums
of Basic Interest and principal, all Terminal Payments, and any Obligations and other amounts owing
under any Loan Documents immediately due and payable without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor or any other notices or demands,
and (2) give Agent and Lenders the right to exercise any other right or remedy provided by contract
or applicable law:



     (a) Borrower shall fail to pay any principal or interest or Terminal Payment under this
Agreement or any Note when due; or shall fail to pay any fees or other charges when due under any
Loan Document and such failure continues for five (5) Business Days or more after the same first
becomes due; or an Event of Default as defined in any other Loan Document shall have occurred.



     (b) Any representation or warranty made, or financial statement, certificate or other document
provided, by Borrower under any Loan Document



12









 




shall prove to have been false or misleading in any
material respect when made or deemed made herein.




     (c) Borrower shall fail to pay its debts generally as they become due or shall commence any
Insolvency Proceeding with respect to itself; an involuntary Insolvency Proceeding shall be filed
against Borrower, or a custodian, receiver, trustee, assignee for the benefit of creditors, or
other similar official, shall be appointed to take possession, custody or control of the properties
of Borrower, and such involuntary Insolvency Proceeding, petition or appointment is acquiesced to
by Borrower or is not dismissed within forty five (45) days; or results in the dissolution or
termination of the business of Borrower.



     (d) Borrower shall be in default beyond any applicable period of grace or cure under any other
agreement involving the borrowing of money, the purchase of property, the advance of credit or any
other monetary liability of any kind to Lenders or to any Person which results in the acceleration
of payment of such obligation in an amount in excess of the Threshold Amount.



     (e) Any governmental or regulatory authority shall take any judicial or administrative action,
or any defined benefit pension plan maintained by Borrower shall have any unfunded liabilities, any
of which, in the reasonable judgment of Agent, would result in a Material Adverse Effect.



     (f) Any sale, transfer or other disposition of all or substantially all of the assets of
Borrower, including without limitation to any trust or similar entity, shall occur except as
permitted under Sections 6.4 or 6.5.



     (g) Any judgment(s) singly or in the aggregate in excess of the Threshold Amount shall be
entered against Borrower which is not fully covered by insurance and which remain unsatisfied,
unvacated or unstayed pending appeal for thirty (30) or more days after entry thereof.



     (h) Any Person or two or more Persons who are not stockholders of Parent as of the Closing
Date acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3
of the Securities and Exchange Commission) of the voting stock of Parent representing fifty percent
(50%) or more of the outstanding voting power of Parent.



     (i) Borrower shall fail to perform or observe any covenant contained in Article 6 of this
Agreement.



     (j) Borrower shall fail to perform or observe any covenant contained in Section 5.9 of this
Agreement.



     (k) Borrower shall fail to perform or observe any covenant contained in this Agreement or any
other Loan Document (other than a covenant which is dealt with specifically elsewhere in this
Article 7) and, if capable of being cured, the breach of such covenant is not cured within 30 days
after the sooner to occur of Borrower’s receipt of notice of such breach from Agent or any Lender
or the date on which such breach first becomes known to any officer of Borrower; provided,
however that if such breach is not capable of being cured within such 30-day period and
Borrower timely notifies Agent of such fact and Borrower diligently pursues such cure, then the
cure period shall be extended to the date requested in Borrower’s notice but in no event more than
90 days from the initial breach; provided, further, that such additional 60-day
opportunity to cure shall not apply in the case of any
failure to perform or observe any covenant which has been the subject of a prior failure within the
preceding 180 days or which is a willful and knowing breach by Borrower.



     7.2 Remedies Upon Default. Upon the occurrence and during the continuance of an Event of
Default, Agent shall be entitled to, at the direction of the Majority Lenders, exercise any or all
of the rights and remedies available to a secured party under the UCC or any other applicable law,
and exercise any or all of its rights and remedies provided for in this Agreement and in any other
Loan Document, including, without limitation, delivering a notice of exclusive control (or similar
document) under a deposit account control agreement and/or securities account control agreement, as
applicable; provided, however, that Agent agrees and acknowledges that neither it nor any Lender
shall deliver any such notice of exclusive control (or similar document) until an Event of Default
occurs and continues thereafter without cure before such notice has been given. The obligations of
Borrower under this Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any Obligations is rescinded or must otherwise be returned by Agent
or any Lender upon, on account of, or in connection with, the insolvency, bankruptcy or
reorganization of Borrower or otherwise, all as though such payment had not been made.



     7.3 Sale of Collateral. Subject only to all rights of redemption and rights of stay or appeal
afforded to Borrower under applicable law, upon the occurrence and during the continuance of an
Event of Default,



13









 







Agent shall, at the direction of the Majority Lenders, sell all or any part of
the Collateral, at public or private sales, to a wholesaler, retailer or investor, for cash, upon
credit or for future delivery, and at such price or prices as Agent may deem commercially
reasonable. The Agent and/or any Lender may bid and purchase at any public sale of the Collateral.
Any such public or private sales shall be held at such times and at such place(s) as Agent may
determine. In case of the sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by Agent until the selling price is paid by the
purchaser, but Agent shall not incur any liability in case of the failure of such purchaser to pay
for the Collateral and, in case of any such failure, such Collateral may be resold. Agent shall,
at the direction of the Majority Lenders instead of exercising its power of sale, proceed to
enforce the Lenders’ security interest in the Collateral by seeking a judgment or decree of a court
of competent jurisdiction.



     7.4 Borrower’s Obligations Upon Default. Upon the request of Agent after the occurrence and
during the continuance of an Event of Default, Borrower will:



     (a) Assemble and make available to Agent the Collateral at such place(s) as Agent shall
reasonably designate, segregating all Collateral so that each item is capable of identification;
and



     (b) Subject to the rights of any lessor, permit Agent, by Agent’s officers, employees, agents
and representatives, to enter any premises where any Collateral is located, to take possession of
the Collateral, to complete the processing, manufacture or repair of any Collateral, and to remove
the Collateral, or to conduct any public or private sale of the Collateral, all without any
liability of Agent or any Lender for rent or other compensation for the use of Borrower’s premises.



ARTICLE 8 — SPECIAL COLLATERAL PROVISIONS




     8.1 Compromise and Collection. Borrower, Agent and Lenders recognize that setoffs,
counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the
Rights to Payment; that certain of the Rights to Payment may be or become uncollectible in whole or
in part; and that the expense and probability of success of litigating a disputed Right to Payment
may exceed the amount that reasonably may be expected to be recovered with respect to such Right to
Payment. Borrower hereby authorizes Agent, after and during the continuance of an Event of
Default, to compromise with the obligor, accept in full payment of any Right to Payment such amount
as Agent shall negotiate with the obligor, or abandon any Right to Payment. Any such action by
Agent shall be considered commercially reasonable so long as Agent acts in good faith based on
information known to it at the time it takes any such action.



     8.2 Performance of Borrower’s Obligations. Without having any obligation to do so, upon
reasonable prior notice to Borrower, Agent may perform or pay any obligation which Borrower has
agreed to perform or pay under this Agreement, including, without limitation, the payment or
discharge
of taxes or Liens levied or placed on or threatened against the Collateral. In so performing or
paying, Agent shall determine the action to be taken and the amount necessary to discharge such
obligations. Borrower shall reimburse Agent on demand for any amounts paid by Agent pursuant to
this Section, which amounts shall constitute Obligations secured by the Collateral and shall bear
interest from the date of demand at the Default Rate.



     8.3 Power of Attorney. For the purpose of protecting and preserving the Collateral and
Agent’s and each Lender’s rights under this Agreement, Borrower hereby irrevocably appoints Agent
for the benefit of Lenders, with full power of substitution, as its attorney-in-fact with full
power and authority, after the occurrence and during the continuance of an Event of Default, to do
any act which Borrower is obligated to do hereunder; to exercise such rights with respect to the
Collateral as Borrower might exercise; to use such Inventory, Equipment, Fixtures or other property
as Borrower might use; to enter Borrower’s premises; to give notice of Agent’s security interest
in, and to collect the Collateral; and before or after Default, to execute and file in Borrower’s
name any financing statements, amendments and continuation statements necessary or desirable to
perfect or continue the perfection of Agent’s security interests in the Collateral. Borrower
hereby ratifies all that Agent shall lawfully do or cause to be done by virtue of this appointment.



     8.4 Authorization for Agent to Take Certain Action. The power of attorney created in Section
8.3 is a power coupled with an interest and shall be irrevocable. The powers conferred on Agent
hereunder are solely to protect Lenders’ interests in the Collateral and shall not impose any duty
upon Agent or any Lender to exercise such powers. Agent shall be



14









 







accountable only for amounts that
it actually receives as a result of the exercise of such powers and in no event shall Agent or any
of its directors, officers, employees, agents or representatives be responsible to Borrower for any
act or failure to act, except for gross negligence or willful misconduct. After the occurrence and
during the continuance of an Event of Default, Agent may exercise this power of attorney without
notice to or assent of Borrower, in the name of Borrower, or in Agent’s or any Lender’s own name,
from time to time in Agent’s sole discretion and at Borrower’s expense. To further carry out the
terms of this Agreement, after the occurrence and during the continuance of an Event of Default,
Agent may:



     (a) Execute any statements or documents or take possession of, and endorse and collect and
receive delivery or payment of, any checks, drafts, notes, acceptances or other instruments and
documents constituting Collateral, or constituting the payment of amounts due and to become due or
any performance to be rendered with respect to the Collateral.



     (b) Sign and endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts; drafts, certificates and statements under any commercial or standby letter of
credit relating to Collateral; assignments, verifications and notices in connection with Accounts;
or any other documents relating to the Collateral, including without limitation the Records.



     (c) Use or operate Collateral or any other property of Borrower for the purpose of preserving
or liquidating Collateral.



     (d) File any claim or take any other action or proceeding in any court of law or equity or as
otherwise deemed appropriate by Agent in its reasonable discretion for the purpose of collecting
any and all monies due or securing any performance to be rendered with respect to the Collateral.



     (e) Commence, prosecute or defend any suits, actions or proceedings or as otherwise deemed
appropriate by Agent for the purpose of protecting or collecting the Collateral. In furtherance of
this right, upon the occurrence and during the continuance of an Event of Default, Agent may apply
for the appointment of a receiver or similar official to operate Borrower’s business.



     (f) Prepare, adjust, execute, deliver and receive payment under insurance claims, and collect
and receive payment of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and apply such amounts at Agent’s sole discretion, toward
repayment of the Obligations or replacement of the Collateral.



     8.5 Application of Proceeds. Any Proceeds and other monies or property received by Agent or
any Lender pursuant to the terms of this Agreement or any Loan Document shall be applied in
accordance with the terms of this Agreement.



     8.6 Deficiency. If the Proceeds of any disposition of the Collateral are insufficient to
cover all
costs and expenses of such sale and the payment in full of all the Obligations, plus all other sums
required to be expended or distributed by Agent or any Lender, then Borrower shall be liable for
any such deficiency.



     8.7 Lender Transfer. Upon the transfer of all or any part of the Obligations, any Lender may
transfer all or part of its interest in the Collateral and shall be fully discharged thereafter
from all liability and responsibility with respect to such Collateral so transferred, and the
transferee shall be vested with all the rights and powers of such Lender hereunder with respect to
such Collateral so transferred, but with respect to any Collateral not so transferred, such Lender
shall retain all rights and powers hereby given.



8.8 Agent’s Duties.




     (a) Agent shall use reasonable care in the custody and preservation of any Collateral in its
possession. Without limitation on other conduct which may be considered the exercise of reasonable
care, Agent shall be deemed to have exercised reasonable care in the custody and preservation of
such Collateral if such Collateral is accorded treatment substantially equal to that which Agent
accords its own property, it being understood that Agent and Lenders shall not have any
responsibility for ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, declining value, tenders or other matters relative to any Collateral, regardless of
whether Agent or any Lender has or is deemed to have knowledge of such matters; or taking any
necessary steps to preserve any rights against any Person with respect to any Collateral. Under no
circumstances shall Agent or any Lender be responsible for any injury or loss to the Collateral, or
any part thereof, arising from any cause beyond the reasonable control of Agent.



     (b) Agent may at any time deliver the Collateral or any part thereof to Borrower and the
receipt of Borrower shall be a complete and full acquittance for



15









 







the Collateral so delivered, and
Agent and Lenders shall thereafter be discharged from any liability or responsibility therefor.



     (c) Neither Agent, any Lender, nor any of their respective directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Agent or any Lender shall be
liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred
or suffered by Borrower or any other party other than by the gross negligence and/or willful
misconduct of Agent or any Lender, or any of their respective directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Agent or any Lender.



     8.9 Termination of Security Interests. Upon the indefeasible payment in full of the
Obligations (other than contingent indemnification obligations) and satisfaction of all Borrower’s
obligations under this Agreement and the other Loan Documents, and if Lenders have no further
obligations under their respective Commitments, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to Borrower. Upon any such termination,
the Agent shall, at Borrower’s expense, execute and deliver to Borrower such documents as Borrower
shall reasonably request to evidence such termination.



ARTICLE 9 — THE AGENT




     9.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and
authorizes Agent to act as its agent hereunder, under the Security Documents and the other Loan
Documents with such powers as are specifically delegated to the Agent by the terms of this
Agreement, the Security Documents and the other Loan Documents together with such other powers as
are reasonably incidental thereto. The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement, the Security Documents and the other Loan Documents and
shall not be a trustee for any Lender. The Agent shall not be responsible to the Lenders for any
recitals, statements, representations or warranties contained in this Agreement, the Security
Documents, or the other Loan Documents, or in any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement, the Security Documents or the
other Loan Documents, or for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement, the Security Documents, the other Loan Documents, or any other
document referred to or provided for herein or therein, or for the collectibility of the Loans or
for the validity, effectiveness or value of any interest or security covered by the Security
Documents or for the value of any Collateral or for the validity or effectiveness of any
assignment, mortgage, pledge, security agreement, financing statement, document or instrument, or
for any failure by the Borrower to perform any of its obligations here-under or under the other
Loan Documents. Agent may employ agents and attorneys-in-fact and shall only be answerable,
including as to money or securities received by it or its authorized agents, for the gross
negligence and/or willful misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Neither Agent nor any of its directors, officers, employees or agents shall be
liable or responsible for any action taken or omitted to be taken by it or them hereunder, under
the Security Documents or the other Loan Documents or in connection herewith or therewith, except
for its or their own gross negligence, willful misconduct, or breach of this Agreement.



     9.2 Reliance by Agent. Agent shall be entitled to rely upon any certification, notice or
other communication (including any thereof by telephone, facsimile transmission, or email) believed
by it to be genuine and correct and to have been signed or sent by or on behalf of the proper
person or persons, and upon advice and statements of legal counsel, independent accountants and
other experts selected by Agent. As to any matters not expressly provided for by this Agreement,
the Security Documents or the other Loan Documents, Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder, under the Security Documents or the other Loan
Documents in accordance with instructions signed by the Majority Lenders, and such instructions of
the Majority Lenders and any action taken or failure to act pursuant thereto shall be binding on
all of the Lenders.



     9.3 Knowledge of Default; Cross Defaults. Agent shall not be deemed to have knowledge of the
occurrence of a default or event of default, however defined in any Loan Document, unless Agent has
received notice from a Lender or the Borrower specifying such default or event of default and
stating that such notice is a “Notice of Default”. In the event that Agent receives such a notice
of the occurrence of a default or event of default, Agent shall give notice thereof to the Lenders.
The occurrence of an Event of Default under this Agreement shall constitute an Event of Default
under each other Loan Document. Upon becoming aware of the occurrence of an Event



16









 







of Default under
this Agreement, a Lender shall give notice thereof to all Lenders.



     9.4 Rights as a Lender. With respect to its Commitment and the Loans made by it, Agent in its
capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as an Agent, and the term “Lender” or
“Lenders” shall, unless the context other-wise indicates, include Agent in its individual capacity.



     9.5 Indemnification. The Lenders shall indemnify Agent ratably in accordance with the
aggregate principal amount of the Loans made by the Lenders (or, if no Loans are at the time
outstanding, ratably in accordance with their respective Commitments), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, the Security Documents
or any of the other Loan Documents or any other documents contemplated by or referred to herein or
therein or the transactions contemplated by or referred to herein or therein or the transactions
contemplated hereby and thereby (but excluding, unless a default or event of default has occurred
and is continuing, normal administrative costs and expenses incident to the performance of its
agency duties hereunder or under the Security Documents) or the enforcement of any of the terms
hereof or of the Security Documents, or of any such other documents, provided that no Lender shall
be liable for any of the foregoing to the extent they arise from the gross negligence, breach of
this Agreement, or willful misconduct of the party to be indemnified.



     9.6 Failure to Act. Except for action expressly required of an Agent hereunder or under the
Security Documents, Agent shall in all cases be fully justified in failing or refusing to act
hereunder or thereunder unless it shall be indemnified to its satisfaction by the Lenders against
any and all liability, cost and expense that may be incurred by it by reason of taking or
continuing to take any such action.



     9.7 Resignation or Removal of Agent. If at any time Agent deems it advisable, in its sole
discretion, it may submit to each of the Lenders a written notification of its resignation as Agent
under this Agreement and the Security Documents, such resignation to be effective on the thirtieth
(30th) day after the date of such notice. Agent may be removed at any time, with or without cause,
by vote of the Majority Lenders, provided, that if Agent is also one of the Lenders its vote shall
not be counted and the decision of the remaining Lenders must be unanimous. Upon any such
resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent from
among the Lenders. If no
successor Agent shall have been so appointed by the Majority Lenders and accepted such appointment
within 30 days after the retiring Agent’s giving of notice of resignation, then the retiring Agent
may, on behalf of Lenders, appoint a successor Agent, which successor Agent shall be either an
existing Lender or a commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least $100,000,000, and which
successor Agent (if not also a Lender), if no event of default on the part of Borrower shall have
occurred and be continuing, shall be reasonably satisfactory to Borrower. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and obligations under this
Agreement. Borrower and the Lenders shall execute such documents as shall be necessary to effect
such appointment. After any retiring Agent’s resignation hereunder as Agent, the provisions of
this Section 9.7 shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.



     9.8 Credit Decision. Each Lender acknowledges that none of Agent or the other Lenders has
made any representation or warranty to it, and that no act by Agent or one Lender hereinafter
taken, including any review of the affairs of Borrower, shall be deemed to constitute any
representation or warranty by the Agent or such Lender to any other Lender. Each Lender represents
to the other Lenders that it has, independently and without reliance upon any other Lender and
based on such documents and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower, and all applicable bank, lending, interest rate and securities
regulatory laws relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrower thereunder. Each Lender also represents
that it will, independently and without reliance upon any other



17









 







Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and creditworthiness of
Borrower. Except for any notices, reports and other documents expressly herein required to be
furnished to other Lenders by a Lender, such Lender shall not have any duty or responsibility to
provide such other Lenders with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of Borrower which may come
into the possession of any of such Lender.



     9.9 Lenders’ Representations Regarding IRS Withholding; Delivery of Tax Forms. To the extent
Agent may hold from time to time payments for the account of the Lenders, each Lender represents
and agrees as follows:



     (a) Lender represents and warrants that it is entitled to receive any payments under the Loan
Documents to which it is a party without the withholding of any tax, and will furnish to the Agent
such forms, certifications, statements and other documents as Agent may request from time to time
to evidence such Lender’s exemption from the withholding of any tax imposed by any jurisdiction or
to enable Agent to comply with any applicable laws or regulations relating thereto.



     (b) Without limiting the effect of the foregoing, if Lender is not created or organized under
the laws of the United States or any state thereof, Lender further represents and warrants (i)
that it is engaged in the conduct of a business within the United States and that the payments made
hereunder are or are reasonably expected to be effectively connected with the conduct of that trade
or business and are or will be includible in its gross income; or (ii) if Lender is not engaged in
a U.S. trade or business with which such payments are effectively connected, that Lender is
entitled to the benefits of a tax convention which exempts the income from U.S. withholding tax and
that it has satisfied all requirements to qualify for the exemption from tax.



     (c) Lender agrees that it will, immediately upon the request of Agent, furnish to Agent Form
4224 or Form 1001 of the Internal Revenue Service, or such other forms, certifications, statements
or documents, duly executed and completed by Lender as evidence of Lender’s exemption from the
withholding of U.S. tax with respect thereto. If Lender determines that, as a result of any change
in applicable law, regulation,
or treaty or in any official application or interpretation thereof, it ceases to qualify for
exemption from any tax imposed by any jurisdiction with respect to payments made hereunder, Lender
shall promptly notify Agent of such fact and Agent may, but shall not be required to withhold the
amount of any such applicable tax from amounts paid to Lender hereunder. Agent shall not be
obligated to make any payments hereunder to Lender in respect of Lender’s Loan until Lender shall
have furnished to Agent the requested form, certification, statement or document and may withhold
the amount of such applicable tax from amounts paid to Lender hereunder.



     (d) Lender shall reimburse, indemnify and hold Agent harmless for 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 upon, incurred by or asserted
against Agent due to its reliance upon the representation hereby made that Lender is exempt from
withholding of tax. Unless Agent receives written notice to the contrary, Lender shall be deemed
to have made the representations contained in this Section 9.9 and in each subsequent tax year of
Lender.



ARTICLE 10 — GENERAL PROVISIONS




     10.1 Notices. Any notice given by any party under any Loan Document shall be in writing and
personally delivered, sent by overnight courier, or United States mail, postage prepaid, or sent by
facsimile, or other authenticated message, charges prepaid, to the other party’s or parties’
addresses shown on the Supplement. Each party may change the address or facsimile number to which
notices, requests and other communications are to be sent by giving written notice of such change
to each other party. Notice given by hand delivery shall be deemed received on the date delivered;
if sent by overnight courier, on the next Business Day after delivery to the courier service; if by
first class mail, on the third Business Day after deposit in the U.S. Mail; and if by facsimile, on
the date of transmission.



     10.2 Binding Effect. The Loan Documents shall be binding upon and inure to the benefit of
Borrower, Agent and Lenders and their respective



18









 







successors and permitted assigns; provided,
however, that Borrower may not assign or transfer Borrower’s rights or obligations under any Loan
Document (except as otherwise provided herein). Each Lender reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any interest in, such
Lender’s rights and obligations under the Loan Documents. In connection with any of the foregoing,
any Lender may disclose all documents and information which Agent or such Lender now or hereafter
may have relating to the Loans, Borrower, or its business; provided that any person who receives
such information shall have agreed in writing in advance to maintain the confidentiality of such
information on terms reasonably acceptable to Borrower. It is the intention of the parties that, as
a “venture capital operating company,” Venture Lending & Leasing IV, LLC (“LLC”), the parent and
sole owner of VLL, shall have the benefit of, and the power to exercise independent of any other
Lender, those “management rights” provided in Section 5.3. To that end, the references to Lender
and VLL in Sections 4.2(f), 5.1, 5.2, 5.3 and 5.9(a) hereof shall include LLC, and LLC shall have
the right to exercise the advisory, inspection, information and other rights given to Lender under
those Sections independently of any Lender. No amendment or modification of this Agreement shall
alter or diminish LLC’s rights under the preceding sentence without the consent of LLC.



     10.3 No Waiver. Without the written consent of each Lender affected thereby (and the
Agent if expressly required in this Agreement or any of the Loan Documents), no amendment,
modification or waiver of any provision of this Agreement or any of the other Loan Documents shall
be effective if the result of which would be to (i) extend the Termination Date, (ii) extend the
Maturity Date of, or otherwise forgive or waive default in payment of, or postpone any date fixed
for any payment of principal or interest due from the Borrower under the Notes, (iii)
change the rate of interest applicable to any Loan, (iv) release the Lien on any portion of the
Collateral granted under any of the Security Documents except as and to the extent expressly
contemplated under the Security Documents or this Agreement, (v) change any provision of this
Agreement, or any of the Security Documents which, by its terms, requires the consent of all
Lenders, (vi) change the percentage specified in the definition of Majority Lenders, or (vii)
change the Commitment set forth on the Supplement with respect to any Lender. Each Lender
agrees that if the assignee of any Lender is a creditor of such Lender to whom such Lender has
granted a security interest in
this Agreement, then following the occurrence of an event of default (however defined) under or
with respect to the indebtedness held by such assignee or the occurrence of an event which with the
giving of notice or the passage of time or both would constitute such an event of default, the
written consent of such assignee, rather than of such assignor Lender, shall be required for any
modification or amendment to this Agreement. Any waiver, consent or approval by Agent or
any Lender of any Event of Default or breach of any provision, condition, or covenant of any Loan
Document must be in writing and shall be effective only to the extent set forth in writing. No
waiver of any breach or default shall be deemed a waiver of any later breach or default of the same
or any other provision of any Loan Document. No failure or delay on the part of Agent or any
Lender in exercising any power, right, or privilege under any Loan Document shall operate as a
waiver thereof, and no single or partial exercise of any such power, right, or privilege shall
preclude any further exercise thereof or the exercise of any other power, right or privilege.
Agent or any Lender has the right at its sole option to continue to accept interest and/or
principal payments due under the Loan Documents after default, and such acceptance shall not
constitute a waiver of said default or an extension of the Maturity Date unless Agent or such
Lender agrees otherwise in writing.



     10.4 Rights Cumulative. All rights and remedies existing under the Loan Documents are
cumulative to, and not exclusive of, any other rights or remedies available under contract or
applicable law.



     10.5 Unenforceable Provisions. Any provision of any Loan Document executed by Borrower which
is prohibited or unenforceable in any jurisdiction, shall be so only as to such jurisdiction and
only to the extent of such prohibition or unenforceability, but all the remaining provisions of any
such Loan Document shall remain valid and enforceable.



     10.6 Accounting Terms. Except as otherwise provided in this Agreement, accounting terms and
financial covenants and information shall be determined and prepared in accordance with GAAP.



     10.7 Indemnification; Exculpation. Borrower shall pay and protect, defend and indemnify
Agent and all Lenders and Agent and each Lender’s employees, officers, directors, shareholders,
affiliates, agents and representatives (collectively, the




19









 




“Indemnitees”) against, and hold Indemnitees harmless from, all claims, actions,
proceedings, liabilities, damages, losses, expenses (including, without limitation, reasonable
attorneys’ fees and costs) and other amounts actually incurred by such Indemnitee arising from (i)
the matters contemplated by this Agreement or any other Loan Documents (ii) any dispute between
Borrower and a third party or (iii) any contention that Borrower has failed to comply with any law,
rule, regulation, order or directive applicable to Borrower’s business; provided, however, that
this indemnification shall not apply to any of the foregoing incurred solely as the result of any
Indemnitee’s gross negligence or willful misconduct. This indemnification shall survive the
payment and satisfaction of all of Borrower’s Obligations to Agent and Lenders.




     10.8 Reimbursement. Borrower shall reimburse Agent and each Lender for all costs and
expenses, including without limitation reasonable attorneys’ fees and disbursements expended or
incurred by Agent or any Lender in any arbitration, mediation, judicial reference, legal action or
otherwise in connection with (a) the preparation and negotiation of the Loan Documents, (b) the
amendment and enforcement of the Loan Documents, including without limitation during any workout,
attempted workout, and/or in connection with the rendering of legal advice as to Agent’s or any
Lender’s rights, remedies and obligations under the Loan Documents, (c) collecting any sum which
becomes due Lenders under any Loan Document, (d) any proceeding for declaratory relief, any
counterclaim to any proceeding, or any appeal, or (e) the protection, preservation or enforcement
of any rights of Agent or Lenders. For the purposes of this section, attorneys’ fees shall
include, without limitation, reasonable and actual documented fees incurred in connection with the
following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity
of any kind in connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and
third party examinations; and (5) postjudgment motions and proceedings of any kind, including
without limitation any activity taken to collect or enforce any judgment. All of the foregoing
costs and expenses shall be payable upon demand by Lender, and if not paid within forty-five (45)
days of presentation of invoices shall bear interest at the highest applicable Default Rate.



     10.9 Execution in Counterparts. This Agreement may be executed in any number of counterparts
which, when taken together, shall constitute but one agreement.



     10.10 Entire Agreement. The Loan Documents are intended by the parties as the final
expression of their agreement and therefore contain the entire agreement between the parties and
supersede all prior understandings or agreements concerning the subject matter hereof. This
Agreement may be amended only in a writing signed by each Borrower, Agent and Lenders.



     10.11 Governing Law and Jurisdiction.



     (a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.



     (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER, AGENT AND
EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH BORROWER, AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF
THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. BORROWER, AGENT AND EACH LENDER EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED
BY CALIFORNIA LAW.



     10.12 Waiver of Jury Trial. EACH BORROWER, AGENT AND LENDER WAIVES ITS RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN



20









 







ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
BORROWER, AGENT AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.



ARTICLE 11 — DEFINITIONS




     The definitions appearing in this Agreement or any Supplement shall be applicable to both the
singular and plural forms of the defined terms:


“Account” means any “account,” as such term is defined in the UCC, now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments)
now owned or hereafter received or acquired by or belonging or owing to Borrower (including,
without limitation, under any trade name, style or division thereof) whether arising out of goods
sold or services rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without limitation, any such
obligation that may be characterized as an account or contract right under the UCC) and all of
Borrower’s rights in, to and under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services, and all of Borrower’s rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller’s rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and
all monies due or to become due to Borrower under all purchase orders and contracts for the sale of
goods or the performance of services or both by Borrower or in connection with any other
transaction (whether or not yet earned by performance on the part of Borrower), now in existence or
hereafter occurring, including, without limitation, the right to receive the proceeds of said
purchase orders and contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.



“Affiliate” means any Person which directly or indirectly controls, is controlled by, or is under
common control with Borrower. “Control,” “controlled by” and “under common control with” mean
direct or indirect possession of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or otherwise); provided, that
control shall be conclusively presumed when any Person or affiliated group directly or indirectly
owns ten percent (10%) or more of the securities having ordinary voting power for the election of
directors of a corporation.



“Agreement” means this Loan and Security Agreement and each Supplement thereto, as each may be
amended or supplemented from time to time.



“Agent” means Venture Lending & Leasing IV, Inc., not in its individual capacity, but solely in its
capacity as agent on behalf of and for the benefit of Lenders and any permitted successor agent
appointed hereunder.



“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et
seq.), as amended.



“Basic Interest” means the fixed rate of interest payable on the outstanding balance of each Loan
at the applicable Designated Rate.



“Borrowing Date” means the Business Day on which the proceeds of a Loan are disbursed by Lender.



“Borrowing Request” means a written request from Borrower in substantially the form of Exhibit
“B” to the Supplement, requesting the funding of one or more Loans on a particular Borrowing
Date.



“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks
in New York City or San Francisco are authorized or required by law to close.

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“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.



“Closing Date” means the date of this Agreement.



“Collateral” means, with respect to a Borrower, all of such Borrower’s right, title and interest in
and to the following property, whether now owned or hereafter acquired and wherever located: (a)
all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles; (e) all
Inventory; (f) all Investment Property; (g) all Deposit Accounts; (h) all other Goods and personal
property of Borrower, whether tangible or intangible and whether now or hereafter owned or
existing, leased, consigned by or to, or acquired by, Borrower and wherever located; (i) all
Records; and (j) all Proceeds of each of the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of each of the foregoing; provided,
however, that except as otherwise provided in the Supplement upon the happening of certain
events, “Collateral” shall not include Intellectual Property.



“Commitment” means the obligation of each Lender to make Loans to Borrower up to the aggregate
principal amount set forth in the Supplement opposite the name of such Lender.



“Commitment Percentage” is defined in the Supplement.



“Copyright License” means any written agreement granting any right to use any Copyright or
Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest.



“Copyrights” means all of the following now owned or hereafter acquired by Borrower or in which
Borrower now hold or hereafter acquires any interest: (i) all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof or of any other
country; (ii) all registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof or any other country;
(iii) all renewals or extensions thereof; and (iv) any registrations to be issued under any pending
copyright applications.



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



“Default Rate” is defined in Section 2.13.



“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.



“Designated Rate” means the rate of interest per annum described in the Supplement as being
applicable to an outstanding Loan from time to time.



“Documents” means any “documents,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.



“Environmental Laws” means all federal, state or local laws, statutes, common law duties, rules,
regulations, ordinances and codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, or safety matters.



“Equipment” means any “equipment,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any and
all additions, substitutions and replacements of any of the foregoing, wherever located, together
with all attachments, components, parts, equipment and accessories installed thereon or affixed
thereto.



“Event of Default” means any event described in Section 7.1.



“Financing Shares” means shares of Parent’s preferred stock issued to investors in connection with
a financing round occurring after the Closing Date in lieu of comparable debt securities of Parent.



“Fixtures” means any “fixtures,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.



“Funding Amount” means the amount of the Loan to be made by each respective Lender on the Borrowing
Date (net of any payments of interest and/or principal required to be paid by the Borrower


22









 






 on the
Borrowing Date under the terms of this Agreement).



“GAAP” means generally accepted accounting principles and practices consistent with those
principles and practices promulgated or adopted by the Financial Accounting Standards Board and the
Board of the American Institute of Certified Public Accountants, their respective predecessors and
successors. Each accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.



“General Intangibles” means any “general intangibles,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest and, in any event, shall include, without limitation, all right, title and interest that
Borrower may now or hereafter have in or under any contract, all customer lists, Intellectual
Property, claims in or under insurance policies, including unearned premiums, uncertificated
securities, money, cash or cash equivalents, deposit, checking and other bank accounts, right to
sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to
receive tax refunds and other payments and rights of indemnification.



“Goods” means any “goods,” as such term is defined in the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.



“Indebtedness” of any Person means at any date, without duplication and without regard to whether
matured or unmatured, absolute or contingent: (i) all obligations of such Person for borrowed
money; (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar
instruments; (iii) all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of business; (iv) all
obligations of such Person as lessee under capital leases; (v) all obligations of such Person to
reimburse or prepay any bank or other Person in respect of amounts paid under a letter of credit,
banker’s acceptance, or similar instrument, whether drawn or undrawn; (vi) other than obligations
related to any subsidiary of Parent, all obligations of such Person to purchase, redeem, exchange,
convert or otherwise acquire for cash any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, now or hereafter outstanding, except to the extent that such
obligations remain performable solely at the option of such Person; (vii) all obligations to
repurchase assets previously sold (including any obligation to repurchase any accounts or chattel
paper under any factoring, receivables purchase, or similar arrangement); (viii) obligations of
such Person under interest rate swap, cap, collar or similar hedging arrangements; and (ix) all
obligations of others of any type described in clause (i) through clause (viii) above guaranteed by
such Person.



“Insolvency Proceeding” means (a) any case, action or proceeding before any court or other
governmental authority relating to bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of its creditors,
undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.



“Instruments” means any “instrument,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.



“Intellectual Property” means all Copyrights, Trademarks, Patents, Licenses, trade secrets, source
codes, customer lists, proprietary or confidential information, inventions (whether or not patented
or patentable), technical information, designs, knowledge, know-how, software, databases,
processes, models, drawings, materials, records and goodwill associated

with the foregoing.



“Inventory” means any “inventory,” as such term is defined in the UCC, wherever located, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest, and, in any event, shall include, without limitation, all inventory, goods and other
personal property that are held by or on behalf of Borrower for sale or lease or are furnished or
are to be furnished under a contract of service or that constitute raw materials, work in process
or materials used or consumed or to be used or consumed in Borrower’s business, or the processing,
packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the
same is in transit or in the constructive, actual or exclusive possession of Borrower or is held by
others for Borrower’s account, including, without limitation, all goods covered by purchase orders
and contracts with suppliers and all goods billed and held by suppliers and all such property first
may be in the possession or custody of any carriers, forwarding


23









 






agents, truckers, warehousemen,
vendors, selling agents or other Persons.



“Investment Property” means any “investment property,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest.



“Letter of Credit Rights” means any “letter of credit rights,” as such term is defined in the UCC,
now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires
any interest, including any right to payment under any letter of credit.



“License” means any Copyright License, Patent License, Trademark License or other license of rights
or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and any renewals or extensions thereof.



“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security
interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by
operation of law or otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any financing
statement (other than a precautionary financing statement with respect to a lease that is not in
the nature of a security interest) under the UCC or comparable law of any jurisdiction.



“Loan” means an extension of credit by a Lender under this Agreement.



“Loan Documents” means, individually and collectively, this Loan and Security Agreement, each
Supplement, each Note, and any other security or pledge agreement(s) (including any account control
agreements), and all other contracts, instruments, addenda and documents executed in connection
with this Agreement or the extensions of credit which are the subject of this Agreement.



“Majority Lenders” means, at any time while no Loans are outstanding hereunder, Lenders having
Commitment Percentages totaling at least 51% of the aggregate Commitments, and at any time while
Loans are outstanding, Lenders holding at least 51% of the outstanding aggregate principal amount
of the Loans.



“Material Adverse Effect” or “Material Adverse Change” means (a) on a consolidated basis for all
Borrowers and their respective subsidiaries, a material adverse change in, or a material adverse
effect upon, the operations, business, properties, or condition (financial or otherwise) of any
Borrower; (b) a material impairment of the ability of Borrower to materially perform under any Loan
Document; or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.



“Maturity Date” means, with regard to a Loan, the earlier of (i) its maturity by reason of
acceleration, or (ii) its stated maturity date; and is the date on which payment of all outstanding
principal, accrued interest, and the Terminal Payment with respect to such Loan is due.



“Note” means a promissory note substantially in the form of Exhibit “A-1” or
Exhibit “A-2” attached to the Supplement, executed by Borrowers evidencing each Loan.



“Obligations” means all debts, obligations and liabilities of Borrower to Agent or any Lender
currently existing or now or hereafter made, incurred or created under, pursuant to or in
connection with this Agreement or any other Loan Document, whether voluntary or involuntary and
however arising or evidenced, whether direct or acquired by Agent or such Lender by assignment or
succession, whether due or not due, absolute or contingent (except as otherwise described below),
liquidated or unliquidated, determined or undetermined, and whether Borrower may be liable
individually or jointly, or whether recovery upon such debt may be or become barred by any statute
of limitations or otherwise unenforceable; and all renewals, extensions and modifications thereof;
and all attorneys’ fees and costs incurred by Agent or any Lender in connection with the collection
and enforcement thereof as provided for in any Loan Document excluding for all purposes (i)
contingent obligations for indemnity for which no claim has been asserted and (ii) upon issuance
thereof, all obligations in connection with or arising under the Warrants prior to exercise.



“Parent” means Borrower Athersys, Inc.



“Patent License” means any written agreement granting any right with respect to any Patent now
owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest.

24









 








“Patents” means all of the following property now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest: (a) all patents, or rights
corresponding thereto granted in, the United States or any other country, all
applications for patents or rights corresponding thereto existing in, the United States or any
other country, including, without limitation, applications 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; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c)
all petty patents, divisionals, and patents of addition; and (d) all patents to be issued under any
such applications.




“Permitted Lien” means




     (a) involuntary Liens which, in the aggregate, would not have a Material Adverse Effect and
which in any event would not exceed, in the aggregate, the Threshold Amount;



     (b) Liens for current taxes or other governmental or regulatory assessments which are not
delinquent, or which are contested in good faith by the appropriate procedures and for which
appropriate reserves are maintained;



     (c) security interests on any property held or acquired by Borrower in the ordinary course of
business securing Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property; provided, that such Lien attaches solely to the
property acquired with such Indebtedness and that the principal amount of such Indebtedness does
not exceed one hundred percent (100%) of the cost of such property; and further
provided, that such property is not Eligible Equipment or other property with respect to
which a Loan has been made hereunder to finance the acquisition thereof;



     (d) Liens in favor of Agent for the benefit of Lenders hereunder;



     (e) bankers’ liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business;



     (f) materialmen’s, mechanics’, repairmen’s, employees’ or other like Liens arising in the
ordinary course of business and which are not delinquent for more than 45 days or are being
contested in good faith by appropriate proceedings;



     (g) any judgment, attachment or similar Lien, unless the judgment it secures has not been
discharged or execution thereof effectively stayed and bonded against pending appeal within 30 days
of the entry thereof;



     (h) to the extent permitted under Section 6.5, non-exclusive and exclusive licenses or
sublicenses of Patents, Patent Licenses, Trademarks or Trademark Licenses;



     (i) Liens existing on the Closing Date and which are set forth on the schedule of exceptions
attached hereto;



     (j) any interest or title of a lessor under any lease entered into by Borrower in the ordinary
course of its business and covering the assets so leased; and



     (k) purchase money Liens in favor of a Collaborator or an affiliate for assets purchased using
Eligible Funding, including, without limitation, any license agreement between the Collaborator and
Borrower.


“Person” means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company, institution,
public benefit corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or
department thereof).



“Proceeds” means “proceeds,” as such term is defined in the UCC and, in any event, shall include,
without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of
money or currency or other proceeds payable to Borrower from time to time in respect of the
Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to
Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any
form whatsoever) made or due and payable to Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral
by any governmental authority (or any Person acting under color of governmental authority), (d) any
claim of Borrower against third parties (i) for past, present or future infringement of any
Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of
any Trademark or Trademark License or for injury to the goodwill associated with any Trademark,
Trademark


25









 






 registration or Trademark licensed under any Trademark License and (e) any and all other
amounts from time to time paid or payable under or in connection with any of the Collateral.



“Pro Rata” means, as to any Lender at any time, (a) with respect to the Loans, the percentage
equivalent at such time of (i) such Lender’s aggregate unpaid principal amount of Loans, divided by
(ii) the combined aggregate unpaid principal amount of all Loans of all Lenders, and (b) with
respect to the Commitments, the percentage equivalent at such time of (i) such Lender’s Commitment,
divided by (ii) the amount of the Total Commitment of all Lenders.



“Receivables” means all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting
Obligations, and letters of credit and Letter of Credit Rights.



“Records” means all Borrower’s computer programs, software, hardware, source codes and data
processing information, all written documents, books, invoices, ledger sheets, financial
information and statements, and all other writings concerning Borrower’s business.



“Related Person” means any Affiliate of Borrower, or any officer, employee, director or equity
security holder of Borrower or any Affiliate.



“Rights to Payment” means all Borrower’s accounts, instruments, contract rights, documents, chattel
paper and all other rights to payment, including, without limitation, the Accounts, all negotiable
certificates of deposit and all rights to payment under any Patent License, any Trademark License,
or any commercial or standby letter of credit.



“Security Documents” means this Loan and Security Agreement, the Supplement hereto, and any and all
account control agreements, collateral assignments, chattel mortgages, financing statements,
amendments to any of the foregoing and other documents from time to time executed or filed to
create, perfect or maintain the perfection of the Agent’s and Lender’s Liens on the Collateral.



“Subordinated Debt” means Indebtedness subordinated to the Obligations, including without limiting
the generality of the foregoing, subordination of such Indebtedness in right of payment to the
prior payment in full of the Obligations, the subordination of the priority of any Lien (other than
Permitted Liens) at any time securing such Indebtedness to the Lien of Agent for the benefit of
Lenders in the collateral covered thereby, and the subordination of the rights of the holder of
such Indebtedness to enforce its junior Lien following the occurrence and continuation of an Event
of Default hereunder pursuant to a written subordination agreement approved by Agent in its sole
and good faith discretion, which agreement may provide that regularly scheduled payments of accrued
interest on such subordinated Indebtedness may be paid by Borrower and retained by the holder so
long as no Event of Default has occurred and is continuing.



“Supplement” means that certain supplement to the Loan and Security Agreement, as the same may be
amended or restated from time to time, and any other supplements entered into between Borrower and
Lenders, as the same may be amended or restated from time to time.



“Supporting Obligations” means any “supporting obligations,” as such term is defined in the UCC,
now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires
any interest.



“Terminal Payment” means, with respect to each Loan, an amount payable on the Maturity Date of such
Loan in an amount equal to that percentage of the original principal amount of such Loan as is
specified in the Supplement.



“Termination Date” has the meaning specified in the Supplement.



“Threshold Amount” has the meaning specified in the Supplement.



“Total Commitment” means the aggregate Commitments of the Lenders to make Loans hereunder.



“Trademark License” means any written agreement granting any right to use any Trademark or
Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest.



“Trademarks” means all of the following property now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest: (a) all trademarks, tradenames,
corporate names, business names, service marks, logos, other source or business identifiers,
designs of like nature, all registrations and recordings thereof, and any


26









 






applications in
connection therewith, including, without limitation, registrations, recordings and applications 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 and (b) extensions or renewals thereof.



“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the
State of California; provided, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent’s
or any Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of California, the term “UCC” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority or remedies and for purposes
of definitions related to such provisions. Unless otherwise defined herein, terms that are defined
in the UCC and used herein shall have the meanings given to them in the UCC.





27









 








     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.



	 	 	 	 	 
	BORROWER:


ATHERSYS, INC.

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 
	 
	LENDERS:



VENTURE LENDING & LEASING IV, INC., as 
a Lender and in its capacity as Agent

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 
	 
	COSTELLA KIRSCH IV, L.P.,

as a Lender

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 









 







Signature Page to Loan and Security Agreement




	 	 	 	 	 
	BORROWER (together with Athersys, Inc.):



ADVANCED BIOTHERAPEUTICES, INC.

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 









 





SUPPLEMENT

to the

Loan and Security Agreement

Dated as of November 2, 2004,

among

Athersys, Inc. and Advanced Biotherapeutics, Inc.

(each individually a “Borrower” and collectively, “Borrowers”),

and

Venture Lending & Leasing IV, Inc. (in its capacity as Agent, “Agent”,

and individually as a lender, “Lender” or “VLL”),

and

Costella Kirsch IV, L.P. (a “Lender” or “Costella”)

sometimes VLL and Costella are referred to herein collectively as “Lenders”




     This is a Supplement identified in the document entitled Loan and Security Agreement dated as
of November 2, 2004, by and among Borrowers, Agent and Lenders (the “Loan and Security Agreement”).
All capitalized terms used in this Supplement and not otherwise defined in this Supplement have
the meanings ascribed to them in Article 10 of the Loan and Security Agreement, which is
incorporated in its entirety into this Supplement. In the event of any inconsistency between the
provisions of that document and this Supplement, this Supplement is controlling.



     In addition to the provisions of the Loan and Security Agreement, the parties agree as
follows:



Part 1. — Additional Definitions:




     “Additional Growth Capital Loan” means any Loan requested by Borrowers and funded by Lender
under the Additional Growth Capital Loan Commitment.



     “Cash Equivalents” means, as of any date of determination, the following assets or rights of
Borrower: (i) marketable direct obligations issued or unconditionally guaranteed by the United
States government having maturities of not more than 12 months from the date of acquisition; and
(ii) domestic certificates of deposit and time deposits having maturities of not more than 12
months from the date of acquisition, and overnight bank deposits, in each case issued by a
commercial bank organized under the laws of the United States or any state thereof which at the
time of acquisition are rated A-1 or better by Standard & Poor’s Corporation (or equivalent), and
not subject to any offset rights in favor of such bank arising from any banking relationship with
such bank.



     “Collaborator” is defined in Section 2 of Part 2 of this Supplement.



     “Commitment”: Subject to the terms and conditions set forth in the Loan and Security
Agreement and this Supplement:



          (i) each Lender commits to make Growth Capital Loans to Borrowers up to the aggregate original
principal amount equal to the product of its Commitment Percentage and Seven Million Five Hundred
Thousand Dollars ($7,500,000) (the “Growth Capital Loan Commitment”). The Growth Capital Loan
Commitment shall be divided into two tranches, one in the amount of $4,500,000, and one in the
amount of $3,000,000, which shall be referred to herein as the “First Tranche” and the “Second
Tranche”, respectively, of the Growth Capital Loan Commitment; and




          (ii) Subject to Section 2 of Part 2 hereof, each Lender commits to make Additional Growth
Capital Loans to Borrowers up to the aggregate original principal amount equal to the product of
its Commitment Percentage and Five Million Dollars ($5,000,000) (the “Additional Growth Capital
Loan Commitment”).



As used herein, the term “Commitment” shall mean the Growth Capital Loan Commitment, the Additional
Growth Capital Loan Commitment or any combination of them, as the context requires. Growth Capital
Loans and Additional Growth Capital Loans are sometimes referred to herein individually as a “Loan”
or collectively as




 









 




“Loans”. The Commitment shall be allocated among the Lenders based on their Commitment Percentage,
and their respective Commitments shall be several and not joint.




     “Commitment Percentage”: The Commitment Percentage applicable to each Lender is identified
below such Lender’s signature on this Supplement.



     “Delayed Joint Venture” means an arrangement in connection with a Strategic Collaborator and
receipt of Eligible Funding, pursuant to which Parent would form a wholly-owned Subsidiary and
agree to transfer equity rights in such Subsidiary to a Collaborator at a future date.



     “Designated Rate”: The Designated Rate for each Loan shall be a fixed rate of interest per
annum equal to the Prime Rate as published on the Business Day on which Lender prepares the Note
for such Loan following Borrower’s submission of the Borrowing Request therefor, plus four and
7/1000 percent (4.007%); provided, however, that in no event shall the Designated Rate for
a Loan be less than eight and 507/1000 percent (8.507%).



     “Eligible Funding” means contributions to Parent’s equity capital, non-debt advances of cash
and/or Subordinated Debt from a Collaborator pursuant to the terms of a Strategic Collaboration.



     “Four Months’ Expenses” means, as of any date of determination, the aggregate dollar amount of
(net of normal recurring revenues) operating and other expenses paid and accrued (excluding
amortization, depreciation, non-cash stock option expense, and deferred rent) and cash expended
(without duplication) by Borrowers (excluding any (i) amounts expended consisting of proceeds from
any sale of assets permitted under the Loan Agreement, and any related expenses resulting
therefrom, and (ii) amounts expended consisting of any insurance proceeds used to replace or repair
assets or properties) during the four calendar months most recently ended.



     “Interim Rate”: The Interim Rate for each Loan shall be a fixed rate of interest per month
equal to the quotient of (i) twelve (12), and (ii) the sum of 8.26% and the Prime Rate as
published on the Business Day on which Lender prepares the Note for such Loan following Borrower’s
submission of the Borrowing Request therefor; provided, however, that in no event shall the Interim
Rate for a Loan be less than one and 63/1000 percent (1.063%).



     “Initial Public Offering” or “IPO” means the closing of a firmly underwritten initial public
offering of Parent’s common stock.



     “Milestone Event” means the first to occur of Parent’s (i) consummation of an IPO, (ii) merger
with or into any other company (unless pursuant to such merger the securities of Parent outstanding
immediately prior to such transaction and that represent 100% of the voting power of the voting
stock of Parent are changed into, exchanged for, or represent at least a majority of the voting
power of the voting stock of the surviving corporation), (iii) sale of Parent or all or
substantially all of its assets, or (iv) liquidation or dissolution of Borrowers.



     “Milestone Event Price” means (i) in the case of an IPO, the price per share of Parent’s
common stock offered to the public in the IPO, or (ii) in the case of a Milestone Event of the type
described in clause (ii) or (iii) of the definition thereof, the value or price per share
attributed to Parent’s common stock in the merger or sale transaction.



     “Milestone Payment” is defined in Section 10 of Part 2 of this Supplement.



     “Next Financing Event” means the next bona fide sale of equity securities (including
convertible debt securities upon the conversion thereof into equity securities) after the Closing
Date resulting in net aggregate proceeds to Parent of at least $5,000,000.00 from one or more
financial (as opposed to strategic) investors, excluding Next Financing Event Securities (if any).



     “Next Financing Event Price” means the price per share paid by the lead investor for Parent’s
equity securities (including convertible debt securities upon the conversion thereof into equity
securities) issued in the Next Financing Event.



2









 





     “Next Financing Event Securities” means any options, warrants or rights on the terms issued
and delivered by Parent to investors in connection with the shares of its common stock or preferred
stock, as applicable, issued in the Next Financing Event.



     “Parent” means Athersys, Inc.



     “Prime Rate” means the “prime rate” of interest, as published from time to time by The
Wall Street Journal in the “Money Rates” section of its Western Edition newspaper.



     “Strategic Collaboration” is defined in Section 2 of Part 2 of this Supplement



     “Strategic Collaboration Funding Date” means the earliest date by which Borrowers have
received Eligible Funding of at least $10,000,000 in aggregate.



     “Terminal Payment”: Each Loan shall have a Terminal Payment equal to six and one-half
percent (6.50%) of the original principal amount of such Loan.



     “Termination Date” means:



          (i) for the First Tranche of the Growth Capital Loan Commitment, the earlier of (i) the date
Lender may terminate making Loans or extending other credit pursuant to the rights of Lender under
Article 7 of the Loan and Security Agreement, or (ii) November 12, 2004;




          (ii) for the Second Tranche of the Growth Capital Loan Commitment, the earlier of (i) the date
Lender may terminate making Loans or extending other credit pursuant to the rights of Lender under
Article 7 of the Loan and Security Agreement, or (ii) December 31, 2004; and




          (iii) for the Additional Growth Capital Loan Commitment, the earlier of (i) the date Lender
may terminate making Loans or extending other credit pursuant to the rights of Lender under Article
7 of the Loan and Security Agreement, or (ii) the earlier of June 30, 2005, or 120 days after the
Strategic Collaboration Funding Date.




     “Threshold Amount” means Two Hundred Fifty Thousand Dollars ($250,000.00).



     “Unrestricted Cash” means, as of any date of determination, Borrower’s cash on hand and Cash
Equivalents and liquid cash investments which are not subject to a Lien of any Person other than
Lender.



Part 2. — Additional Covenants and Conditions:




     1. Growth Capital Loan Commitment; Use of Proceeds; Limitations on Growth Capital Loans.
Subject to the terms and conditions of the Loan and Security Agreement and this Supplement, each
Lender agrees to make Growth Capital Loans to Borrowers from time to time from the Closing Date up
to and including the Termination Date in an aggregate original principal amount up to but not
exceeding the then unfunded portion of such Lender’s Growth Capital Loan Commitment. The proceeds
of each Growth Capital Loan shall be used by Borrower for general corporate purposes; provided that
the initial Borrowing Request for Growth Capital Loans shall be in an amount sufficient to repay
Borrower’s approximately $1,200,000 of outstanding long term debt, and any Liens against assets of
Borrower securing such debt shall have been released at or before the funding of the initial Growth
Capital Loan.



     2. Additional Growth Capital Loan Commitment; Additional Condition Precedent; Use of Proceeds;
Limitations on Additional Growth Capital Loans. Notwithstanding anything to the contrary in the
Loan and Security Agreement and this Supplement, the Additional Growth Capital Loan Commitment
shall not be effective unless and until Parent and Lenders mutually agree as to its effectiveness.
Subject to the foregoing and the terms and conditions of the Loan and Security Agreement and this
Supplement, each Lender agrees to make Additional Growth Capital Loans to Borrowers from time to
time from the Closing Date up to and including the



3









 




applicable Termination Date in an aggregate original principal amount up to but not exceeding the
then unfunded portion of the Additional Growth Capital Loan Commitment. The proceeds of each
Additional Growth Capital Loan shall be used by Borrowers for general corporate purposes. Without
limiting the generality of the foregoing, the Lenders’ Additional Growth Capital Commitments are
subject to (i) Parent having entered into a binding written agreement (a “Strategic Collaboration”)
with a recognized medical device or pharmaceutical company (a “Collaborator”) no later than March
31, 2005, pursuant to which the Collaborator has advanced Eligible Funding to Borrowers of at least
$10,000,000 by May 31, 2005, and (ii) Parent having formally selected (as evidenced in a
certificate of its chief executive officer to Lenders) at least one small molecule clinical
candidate. The Strategic Collaboration may take the form of an exclusive license agreement, the
formation of a joint venture or the formation of a Delayed Joint Venture, or any other form as
Parent may determine in its reasonable business judgment. The amount of the Additional Growth
Capital Commitment available shall also be dependent on the amount of Eligible Funding that has
been received by Borrowers, as shown in the following table:




	 	 	 
	Amount of Additional Growth Capital	 	Amount of Eligible Funding Received by
	Commitment Available	 	Borrower (cumulative)
	$2,500,000
	 	$10,000,000
	$3,750,000
	 	$12,500,000
	$5,000,000
	 	$15,000,000






     3. Minimum Funding Amount; Maximum Number of Borrowing Requests. Except to the extent the
remaining Commitment is a lesser amount, each Loan requested by Borrowers to be made on a single
Business Day shall be for a minimum aggregate principal amount of Five Hundred Thousand Dollars
($500,000.00). Borrower shall not submit a Borrowing Request more frequently than once each
calendar month.



     4. Repayment of Loans.



          (a) Growth Capital Loans. Principal of and interest on each Growth Capital Loan shall be
payable as set forth in the Note (substantially in the form as Exhibit “A-1”) evidencing
such Growth Capital Loan, which Note, shall provide substantially as follows. Principal and
interest at the Designated Rate shall be fully amortized over a period of thirty (30) months in
equal, monthly installments, commencing after an initial period of interest-only, monthly payments
ending on December 1, 2005. In particular, on the Borrowing Date applicable to the Growth Capital
Loan(s) evidenced by such Note, Borrowers shall pay to Lender (i) interest only at the Interim
Rate, in advance, on the outstanding principal balance of the Growth Capital Loans evidenced by
such Note, for the period from such Borrowing Date through the last day of the calendar month in
which such Borrowing Date occurs, and (ii) a first (1st) interest only installment at
the Interim Rate, in advance, on the outstanding principal balance of the Note for the ensuing
month. Commencing on the first day of the second full month after the Borrowing Date, and
continuing on the first day of each consecutive calendar month after the Borrowing Date up to and
including November 1, 2005, Borrowers shall pay interest only at the Interim Rate, in advance, on
the outstanding principal balance of the Note for the ensuing month. Commencing on December 1,
2005, and continuing on the first day of each consecutive calendar month thereafter, principal and
interest at the Designated Rate shall be payable, in advance, in thirty (30) equal consecutive
monthly installments in an amount sufficient to fully amortize the Growth Capital Loan evidenced by
such Note. The Terminal Payment shall be due and payable one month later.




          (b) Additional Growth Capital Loans. Principal of and interest on each Additional Growth
Capital Loan shall be payable as set forth in the Note (substantially in the form as Exhibit
“A-2”) evidencing such Additional Growth Capital Loan, which Note, shall provide substantially
as follows. Principal and interest at the Designated Rate shall be fully amortized over a period
of thirty (30) months in equal, monthly installments, commencing after an initial four-month period
of interest-only, monthly payments. In particular, on the Borrowing Date applicable to the
Additional Growth Capital Loan(s) evidenced by such Note, Borrowers shall pay to Lender (i)
interest only at the Interim Rate, in advance, on the outstanding principal balance of the Growth
Capital Loans evidenced by such Note, for the period from such Borrowing Date through the last day
of the calendar month in which such Borrowing Date occurs, and (ii) a first (1st)
interest only installment at the Interim Rate, in advance, on the outstanding principal balance of
the Note for the ensuing month. Commencing on the first day of the second full month after the
Borrowing Date, and continuing on the first day of next two succeeding calendar months, Borrowers




4









 




shall pay interest only at the Interim Rate, in advance, on the outstanding principal balance of
the Note for the ensuing month. Commencing on fifth (5th) full calendar month after the
Borrowing Date, and continuing on the first day of each consecutive calendar month thereafter,
principal and interest at the Designated Rate shall be payable, in advance, in thirty (30) equal
consecutive monthly installments in an amount sufficient to fully amortize the Additional Growth
Capital Loan evidenced by such Note. The Terminal Payment shall be due and payable one month
later.




     5. Voluntary Prepayment of Loans. No Loan may be voluntarily prepaid except as provided in
this Section 5. Borrower may voluntarily prepay all, but not less than all, Loans in whole, but
not in part, at any time by tendering to Lender cash payment in respect of such Loans in an amount
equal to the sum of : (i) accrued Basic Interest on such Loan to the date of such prepayment; (ii)
the outstanding principal amount of the Loan being prepaid; and (iii) a premium in an amount equal
to the product of (A) the percentage shown in the table below for the corresponding period after
the Borrowing Date applicable to such Loan in which such prepayment occurs, and (B) the outstanding
principal amount of the Loan being prepaid (taking into account the Terminal Payment applicable
thereto):



	 	 	 
	Month after the applicable Borrowing Date	 	 
	in which Prepayment Occurs	 	Applicable Premium Percentage
	First
	 	15.00
	Second
	 	14.50
	Third
	 	14.00
	Fourth
	 	13.50
	Fifth
	 	13.00
	Sixth
	 	12.50
	Seventh
	 	12.00
	Eighth
	 	11.50
	Ninth
	 	11.00
	Tenth
	 	10.50
	Eleventh
	 	10.00
	Twelfth
	 	9.50
	Thirteenth
	 	9.00
	Fourteenth
	 	8.50
	Fifteenth
	 	8.00
	Sixteenth
	 	7.50
	Seventeenth
	 	7.00
	Eighteenth
	 	6.50
	Nineteenth
	 	6.00
	Twentieth
	 	5.50
	Twenty-first
	 	5.00
	Twenty-second
	 	4.50
	Twenty-third
	 	4.00
	Twenty-fourth
	 	3.50
	Twenty-fifth and thereafter
	 	3.00





By way of illustration only, and for the avoidance of doubt as to the manner in which any such
prepayment amounts shall be calculated, the parties have set forth on Exhibit “G” to this
Supplement an example of the application of the foregoing prepayment provision, assuming a single
Growth Capital Loan in the full amount of the Growth Capital commitment were advanced on December
1, 2004.




     6. Subordination of Debt. During the term of the Loan and Security Agreement and until
performance of all Obligations to Lenders, Borrower shall not incur any Indebtedness for new
borrowed money (except for Indebtedness permitted under Section 6.1 and Liens permitted under
Section 6.2 of the Loan and Security Agreement) after the date hereof unless the holder’s right to
repayment of such Indebtedness, the priority of any Lien securing the same, and the rights of the
holder thereof to enforce remedies against Borrower following default have been made subordinate to
the Liens of Agent and Lenders and the prior payment of the Obligations to 


5









 




Lenders under the Loan
Documents pursuant to a written subordination agreement approved by the Majority
 Lenders in their sole discretion in writing, which agreement may provide that regularly scheduled
payments of accrued interest on such subordinated Indebtedness may be paid by Borrower and retained
by the holder so long as no Event of Default has occurred.




     7. Lien on Intellectual Property. In reliance on Borrower’s covenant in Section 6.2 of the
Loan and Security Agreement to keep all of its Intellectual Property assets free and clear of Liens
other than as set forth in Section 6.2, each Lender has agreed initially to exclude Intellectual
Property from the Collateral over which Borrower has granted to Lender (through the Agent) a Lien
to secure the Obligations. Borrowers agree that if at any time the ratio of its Unrestricted Cash
to Four Months’ Expenses (determined on a consolidated basis for both Borrowers) is less than
one-to-one (1:1), then the definition of Collateral in Article 10 of the Loan and Security
Agreement shall be automatically and immediately, without any further action or writing required by
the parties, amended to delete the final proviso thereof, such that all of Borrower’s Intellectual
Property then owned and thereafter arising or acquired becomes part of the Collateral for all
purposes of the Loan and Security Agreement, subject to any Permitted Liens. In the event the
definition of Collateral has been amended as set forth in this Section 7 and no Event of Default
has occurred and is then continuing, Parent shall be able to continue to license, exclusively and
non-exclusively, its Intellectual Property to other Persons consistent with industry practice
without the consent of Majority Lenders. If thereafter Parent closes a round of equity financing
resulting in net aggregate proceeds to Borrower of an amount in excess of 300% of Four Months’
Expenses, then, provided that no Default or Event of Default has occurred and is then continuing,
upon written request of the Borrower to Agent, Agent agrees that it shall promptly release its Lien
as to all Intellectual Property assets. Borrower and Agent agree to execute and deliver, at
Borrower’s sole cost and expense, all documents and instruments necessary to perfect such Lien when
it is created, including an Intellectual Property Security Agreement, substantially the form
attached hereto as Exhibit “F”, and to effectuate such later release of Lien, including,
without limitation, by filing all UCC-3 termination statements and other similar filings in each
applicable location and taking all other reasonable action reasonably requested by Borrower to
evidence such lien releases.



     8. Issuance of Warrants to Lenders. As additional consideration for the making of its Growth
Capital Loan Commitment, each Lender has earned and is entitled to receive immediately prior to
(or, in the case of a Milestone Event that is an IPO, concurrently with) the first to occur of a
Next Financing Event or a Milestone Event (other than as is defined in clause (iv) of the
definition thereof), (A) in the case of a Next Financing Event, a warrant instrument (a “Next
Financing Event Warrant”) issued by Parent to purchase, at the Next Financing Event Price, the
number of shares of Parent’s equity securities of the type issued in the Next Financing Event that
has an aggregate initial exercise price equal to such Lender’s Participation Value, and (B) in the
case of a Milestone Event (other than as is defined in clause (iv) of the definition thereof), a
warrant instrument (a “Milestone Event Warrant”; Next Financing Event Warrants and Milestone Event
Warrants being referred to herein individually and/or collectively upon issuance as “Lender
Warrants”) issued by Parent to purchase, at the Milestone Event Price, the number of shares of
Parent’s common stock that has an aggregate initial exercise price equal to such Lender’s
Participation Value. Upon a Lender’s exercise of a Next Financing Event Warrant, whether in whole
or in part, at any time prior to expiration thereof, that Lender shall receive (in addition to the
underlying equity securities for which such Next Financing Event Warrant is so exercised) such
number of Next Financing Event Securities (in like form, substance and proportion as those issued
to investors in connection with the Next Financing Event), if any, as Lender would have received
had Lender purchased underlying equity securities in such Next Financing Event, but, in the event
of a partial exercise, only to the extent of Lender’s exercise of the Next Financing Event Warrant.
Each Lender Warrant shall be in substantially the form attached hereto as Exhibit “D-1” or
“D-2”, as applicable, depending on whether the equity securities for which such Lender
Warrants are exercisable are Common Stock or a series of Preferred Stock of Parent, and, upon
issuance, shall be immediately vested and exercisable at any time and from time to time for a
period of seven years from date of issuance. As used in this section 8, a Lender’s “Participation
Value” means seven percent (7.00%) of the aggregate original dollar amount of all Loans advanced by
such Lender under its Growth Capital Loan Commitment and Additional Growth Capital Loan Commitment



     As a condition precedent to the issuance of any Lender Warrant and any Next Financing Event
Securities to any Lender, such Lender must execute an instrument of joinder agreeing to be bound by
the terms and conditions of Parent’s Amended and Restated Stockholders’ Agreement, dated as of
April 28, 2000 among Parent and certain of its stockholders, namely, Biotech 3 Investment, LLC,
Elan International Services, Inc., and the Class C Investors



6









 




and the Class F Investors (as defined
therein) and any transferee and/or assignees thereof (as amended, the
“Stockholders’ Agreement”) or any other stockholders’ agreement of Parent in existence immediately
prior to such issuance.




     Parent acknowledges that VLL has assigned its rights to receive its Lender Warrant and Next
Financing Event Securities, if any, to its parent, Venture Lending & Leasing IV, LLC; in connection
therewith, Parent shall issue such Lender Warrant and Next Financing Event Securities, if any,
directly to Venture Lending & Leasing IV, LLC. VLL shall furnish to Parent a copy of the agreement
in which VLL assigned such Lender Warrant and Next Financing Event Securities, if any, to Venture
Lending & Leasing IV, LLC.



     9. Accommodation of Investors’ ROFR. Lenders acknowledge that the Lender Warrants and Next
Financing Event Securities, if any, to be issued to Lenders under Section 8 hereof may constitute
“New Securities” of Parent, as that term is defined in the Stockholders’ Agreement, and that such
stockholders may have a right of first refusal under Section 8 of the Stockholders’ Agreement to
purchase warrant instruments similar to Lender Warrants, and options, warrants and other rights
similar to the Next Financing Event Securities to enable such stockholders to maintain their
respective percentage ownership of equity in Parent on a fully diluted basis. Lenders acknowledge
that Parent intends to give a New Issue Notice (as defined in the Stockholder Agreement) to such
stockholders, describing the terms and conditions on which Lenders have agreed to make Loans
hereunder as consideration for the issuance of the Lender Warrants and Next Financing Event
Securities, if any; and Lenders agree to use commercially reasonable efforts to allow any such
stockholder who timely elects to make loans to Borrowers on the same terms and conditions as
Lenders to become an additional “Lender” party to this Loan and Security Agreement and Supplement,
and to allocate to such stockholder a portion of the Commitment. Parent shall give the New Issue
Notice, if at all, promptly upon execution of this Supplement in order to start the running of the
30-day exercise period under Section 8(a) of the Stockholders Agreement. To the extent a Lender
has already funded Loans hereunder, and a stockholder timely elects to become a Lender party, VLL
and Costella will endeavor to amend the Loan Documents as appropriate to add such stockholder as a
Lender, to re-allocate a Commitment Percentage to such stockholder, and such stockholders shall
purchase from VLL and Costella a ratable portion of such outstanding Loans, and the Notes
evidencing the same shall cancelled by replacement with new Notes payable to each of the Lenders.
Such cooperation by VLL and Costella shall not require that they agree to any terms less favorable
to them than set forth in the Loan Documents as of the Closing Date, or that they incur any costs
or expenses unless Borrowers shall have agreed to reimburse the same promptly. Furthermore, any
stockholder becoming a Lender party shall have agreed to all of the provisions of the Loan
Documents, including Article 9 of the Loan and Security Agreement.



     10. Milestone Payments. Upon the occurrence and simultaneous with the closing of the
Milestone Event, Borrowers shall be obligated to pay and shall tender to each Lender it Pro Rata
Share of payments (each, a “Milestone Payment”) determined with reference to when the Milestone
Event occurs and to the portion of the Commitment that has been drawn or utilized by Borrowers, as
shown in the following two tables, the first of which relates to the Growth Capital Loan
Commitment, and the second of which relates to the Additional Growth Capital Loan Commitment. Each
Milestone Payment shall be tendered to Lenders in cash, except that if the Milestone Event is an
IPO, then Parent may (subject to the 25% limitation in the proviso below) elect, by written notice
to Lenders at least 10 days prior to the closing of the IPO, to tender to each Lender in lieu of
cash that number of shares of common stock having an aggregate value based on the per share
offering price of Parent’s common stock to the public equal to the amount of the applicable
Milestone Payment (in which event such shares shall be tendered no later than five days after the
effective date of the IPO, and such shares shall be subject to no transfer restrictions(other than
those imposed by federal and state securities laws, except for any customary lock-up agreement that
has also been executed by executive officers of Borrower and holders of 1% or more of Parent’s
common stock, not to exceed 180 days after the effective date of the IPO (unless such period is
extended to enable the underwriters to comply with NASD Rule 2711(f)); provided, however,
that notwithstanding such election by Parent, at least twenty-five percent (25%) of each Milestone
Payment shall be paid by Borrowers in the form of cash. Table 1 assumes that Borrowers have drawn
upon the entire $7,500,000 of the Growth Capital Loan Commitment; the Milestone Payment amounts set
forth in Table 1 shall be reduced pro rata if less than $7,500,000 has been drawn as of the closing
of the Milestone Event.



7









 





Table 1




	 	 	 
	Months From Closing	 	 
	Date Until Milestone Event	 	Milestone Payment Amount
	0 - 24
	 	$1,500,000
	25 or more
	 	$2,250,000





Table 2 assumes that Lenders have made available and that Borrowers have drawn upon the entire
$5,000,000 of the Additional Growth Capital Loan Commitment; the Milestone Payment amounts set
forth in Table 2 shall be reduced pro rata if less than $5,000,000 has been drawn as of the closing
of the Milestone Event.




Table 2




	 	 	 
	Months From Closing Date	 	 
	Until Milestone Event	 	Milestone Payment Amount
	0 - 24
	 	$800,000
	25 or more
	 	$1,000,000






     11. Payment and Disposition of Commitment Fee. As of the execution of this Agreement, Parent
has paid to Agent $22,500 of a total commitment fee of $45,000 for the Growth Capital Loan
Commitments of the Lenders. Borrowers agree to pay the remaining $22,500 portion of the Commitment
Fee upon execution of this Supplement, as a condition precedent to Lenders’ obligations to make the
initial Growth Capital Loan hereunder, and in any event if Lenders are willing and prepared to
close the transactions contemplated hereunder and Borrowers decline to do so. Each Lender agrees
that with respect to each Growth Capital Loan advanced, on the Borrowing Date applicable to such
Grown Capital Loan, such Lender shall credit against the first payments due from Borrowers on such
date in respect of such Growth Capital Loan an amount equal to the product of (i) of such Lender’s
Commitment Percentage times $45,000, and (ii) a fraction the numerator of which is the
principal amount of such Growth Capital Loan and the denominator of which is $4,500,000, until the
aggregate amount of such credits equals but does not exceed the amount in clause (i).



     12. Documentation Fee Payment. As an additional condition precedent under Section 4.1 of the
Loan and Security Agreement and pursuant to Section 9.8(a) thereof, on or prior to the initial
Borrowing Date, Borrowers shall pay to Agent its and each Lender’s reasonable and actual attorneys’
fees, costs and expenses incurred and expended in connection with the preparation and negotiation
of the Loan Documents, including out-of-pocket costs of perfecting Agent’s Liens against
Collateral, not to exceed $15,000.00 in aggregate.



     13. Debits to Account for ACH Transfers. For purposes of Section 2.2 and 5.10 of the Loan and
Security Agreement, Parent’s Primary Operating Account is:


Bank Name: National City Bank

Bank Address: 23711 Chagrin Boulevard

Locator 01-8485

Beachwood, OH 44122

ABA No.: 041000124

Account No.: 394901353

Attn: Joseph McMullen (216) 222-9621

For credit of: Athersys, Inc.



Loans will be advanced to the account specified above and payments will be automatically debited
from the same account.




8









 








Part 3. — Additional Representations:





Borrower represents and warrants that as of the Closing Date and each Borrowing Date:




	 	a)	 	Its chief executive office (“Chief Executive Office”) is
located at: 3201 Carnegie Avenue, Cleveland, OH 44115-2634
	 
	 	b)	 	Its Equipment is located at: the Chief Executive Office and
the Minnesota facility (as defined below).
	 
	 	c)	 	Its Inventory is located at: the Chief Executive Office and
the Minnesota facility.
	 
	 	d)	 	Its Records are located at: the Chief Executive Office and the
Minnesota facility.
	 
	 	e)	 	In addition to its chief executive office, Borrower maintains
offices or operates its business at the following locations: University of
Minnesota, Stem Cell Institute, 515 Delaware Street, Floor 2, Room 164,
Minnesota, MN 55455 and University of Minnesota, MMCT Facility, 1900 Fitch
Avenue, St. Paul, MN 55108 (collectively, the “Minnesota Facility”).
	 
	 	f)	 	Other than its full corporate name, Borrower has conducted
business using the following legal names, trade names or fictitious business
names: Advanced Biotherapeutics, Inc.
	 
	 	g)	 	Parent’s Delaware state corporation I.D. number is 2554801;
Advanced Biotherapeutics, Inc. Delaware state corporation I.D. number is
3466560.
	 
	 	h)	 	Parent’s federal tax identification number is: 34-1830213;
Advanced Biotherapeutics, Inc. federal tax identification number is 34-1915237.
	 
	 	i)	 	In addition to the Primary Operating Account identified in
Section 13 of Part 2 hereof, Borrowers maintain the following other deposit
accounts and investment/securities accounts:






	 	1.	 	Institution: National City Bank

Address: Contact Joseph McMullen,

joseph.mcmullen@nationalcity.com, Fax: 216-292-7123; Phone: 216-222-9621

Account Type: Athersys Checking

Account No.: 2045333
	 
	 	2.	 	Institution: National City Bank

Address: 23711 Chagrin Boulevard

Locator 01-8485

Beachwood, OH 44122

Account Type: Advanced Biotherapeutics, Inc. checking

Account No.: 657150003
	 
	 	3.	 	Institution: National City Bank

Address: 23711 Chagrin Boulevard

Locator 01-8485

Beachwood, OH 44122

Account Type: Advanced Biotherapeutics, Inc. CD

Account No.: 8561114097
	 
	 	4.	 	Institution: NatCity Investments

Address: 1965 East Sixth Street





9









 




LOC #3015

Cleveland, OH 44114

Account Type: Y016-1221-1913

Account No.: Athersys Money Market and T-bills




Part 4. — Additional Loan Documents:




	 	 	 
	Form of Note (Growth Capital Loans)

	 	Exhibit “A-1”
	Form of Note (Additional Growth Capital Loans)

	 	Exhibit “A-2”
	Form of Borrowing Request

	 	Exhibit “B”
	Form of Compliance Certificate

	 	Exhibit “C”
	Form of Warrant

	 	Exhibit “D”
	Form of Legal Opinion

	 	Exhibit “E”
	Form of Intellectual Property Security Agreement

	 	Exhibit “F”
	Example of Prepayment Calculation Under Section 5
of Part 2 of Supplement

	 	Exhibit “G”






Remainder of this page intentionally left blank; signature page follows




10









 








          IN WITNESS WHEREOF, the parties have executed this Supplement as of the date first above
written.




	 	 	 	 	 	 	 	 	 
	 	 	BORROWER:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	ATHERSYS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Address for Notices:	 	3201 Carnegie Avenue

Cleveland, OH 44115-2634

Attn: Chief Financial Officer

Fax # 215-432-2461

Phone # 216-431-9900	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	AGENT AND LENDER:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	VENTURE LENDING & LEASING IV, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Commitment Percentage: 75.00%	 	 
	 
	 	 	 	 	 	 	 	 
	Address for Notices:	 	2010 North First Street, Suite 310

San Jose, California 95131

Attn: Chief Financial Officer

Fax # 408-436-8625

Phone # 408-436-8577
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	LENDER:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	COSTELLA KIRSCH IV, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By                                         , its General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Commitment Percentage: 25.00%	 	 
	 
	 	 	 	 	 	 	 	 
	Address for Notices:	 	873 Santa Cruz Avenue, Suite 207

Menlo Park, CA 94025

Attn: William Kirsch

Fax # (650) 462-1891

Phone # (650) 462-5790	 	 






11









 






Signature Page to Supplement to Loan and Security Agreement




	 	 	 	 	 	 	 
	 	 	BORROWER:	 	 
	 
	 	 	 	 	 	 
	 	 	ADVANCED BIOTHERAPEUTICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	Address for Notices:	 	3201 Carnegie Avenue

Cleveland, OH 44115-2634

Attn: Chief Financial Officer

Fax # 215-432-2461

Phone # 216-431-9900	 	 







12









 








EXHIBIT “A-1”




FORM OF PROMISSORY NOTE

[for Growth Capital Loans]




[Note No. X-XXX]




	 	 	 
	$                                        

	 	                                        , 200_

San Jose, California






     Each of the undersigned (“Borrowers”) jointly and severally promises to pay to the order of
[VENTURE LENDING & LEASING IV, INC., a Maryland corporation (“Lender”) at its office at 2010 North
First Street, Suite 310, San Jose, California 95131] [COSTELLA KIRSCH IV, L.P., a                      limited
partnership, at its office at 873 Santa Cruz Avenue, Suite 207, Menlo Park, CA 94025] , or at such
other place as Lender may designate in writing, in lawful money of the United States of America,
the principal sum of                                          Dollars ($                    ), with Basic Interest
thereon from the date hereof until maturity, whether scheduled or accelerated, at a fixed rate per
annum equal to [the Prime Rate as published on the Business Day on which Agent prepares this Note
plus 4.007%, but in no event less than 8.507%] (the “Designated Rate”), except as otherwise
provided herein, according to the payment schedule described herein, and a Terminal Payment in the
sum of [6.5% of face amount of Loan]  Dollars ($                    ) payable on the Maturity
Date.


This Note is one of the Notes referred to in, and is entitled to all the benefits of, a Loan and
Security Agreement dated as of November 2, 2004, by and among Borrowers, Costella Kirsch IV, L.P.
and Venture Lending & Leasing IV, Inc. as “Agent” for itself and the other Lenders party thereto
(the “Loan Agreement”). Each capitalized term not otherwise defined herein shall have the meaning
set forth in the Loan Agreement. The Loan Agreement contains provisions for the acceleration of
the maturity of this Note upon the happening of certain stated events.




     Principal of and interest on this Note shall be payable as follows:




     On the Borrowing Date, Borrowers shall pay (i) interest on the outstanding principal
balance of this Note at the Interim Rate in the amount of $                    , in advance for the
period from the Borrowing Date through [the last day of the same month]___; and (ii) a
first (1st) installment of interest only on the outstanding principal balance of this Note
at the Interim Rate in the amount of $                    , in advance for the month of [date of
first regular interest only installment].




     Commencing on the first day of the second full month after the Borrowing Date and
continuing on the first day of each consecutive calendar month after the Borrowing Date up
to and including November 1, 2005, Borrowers shall pay interest only at the Interim Rate, in
advance, on the outstanding principal balance of this Note.




     Commencing on December 1, 2005, and continuing on the first day of each consecutive
month thereafter, principal and Basic Interest at the Designated Rate shall be payable, in
advance, in thirty (30) equal consecutive installments of                                         
Dollars ($                    ) each. The Terminal Payment and unpaid expenses, fees, interest and
principal amount shall be due and payable on [one month later] , 200___.]



     This Note may be voluntarily prepaid only as permitted under to Section 5 of Part 2 of the
Supplement to the Loan Agreement.



 









 





     Any unpaid payments of principal or interest on this Note shall bear interest from their
respective maturities, whether scheduled or accelerated, at a rate per annum equal to the Default
Rate until such amounts are paid in full, or in the case of acceleration, until the Event of
Default that gave rise to the acceleration is cured or waived. Borrowers shall pay such interest
on demand.



     Interest, charges and fees shall be calculated for actual days elapsed on the basis of a
360-day year, which results in higher interest, charge or fee payments than if a 365-day year were
used. In no event shall Borrowers be obligated to pay interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in effect.



     If Borrowers are late in making any payment under this Note by more than five (5) Business
Days, Borrowers agree to pay a “late charge” of five percent (5%) of the installment due, but not
less than fifty dollars ($50.00) for any such delinquent payment. This late charge may be charged
by Lender for the purpose of defraying the expenses incidental to the handling of such delinquent
amounts. Each Borrower acknowledges that such late charge represents a reasonable sum considering
all of the circumstances existing on the date of this Note and represents a fair and reasonable
estimate of the costs that will be sustained by Lender due to the failure of Borrower to make
timely payments. Each Borrower further agrees that proof of actual damages would be costly and
inconvenient. Such late charge shall be paid without prejudice to the right of Lender to collect
any other amounts provided to be paid or to declare a default under this Note or any of the other
Loan Documents or from exercising any other rights and remedies of Lender.



     This Note shall be governed by, and construed in accordance with, the internal laws of the
State of California.



	 	 	 	 	 	 	 
	 	 	ATHERSYS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Its:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	ADVANCED BIOTHERAPEUTICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Its:
	 	 

	 	 
	 

	 	 	 	 

	 	 







 









 








EXHIBIT “A-2”




FORM OF PROMISSORY NOTE

[for Additional Growth Capital Loans]




[Note No. X-XXX]




	 	 	 
	$                                        

	 	                                        , 200_

San Jose, California






     Each of the undersigned (“Borrowers”) jointly and severally promises to pay to the order of
[VENTURE LENDING & LEASING IV, INC., a Maryland corporation (“Lender”) at its office at 2010 North
First Street, Suite 310, San Jose, California 95131] [COSTELLA KIRSCH IV, L.P., a                      limited
partnership, at its office at 873 Santa Cruz Avenue, Suite 207, Menlo Park, CA 94025] , or at such
other place as Lender may designate in writing, in lawful money of the United States of America,
the principal sum of                                          Dollars ($                    ), with Basic Interest
thereon from the date hereof until maturity, whether scheduled or accelerated, at a fixed rate per
annum equal to [the Prime Rate as published on the Business Day on which Agent prepares this Note
plus 4.007%, but in no event less than 8.507%] (the “Designated Rate”), except as otherwise
provided herein, according to the payment schedule described herein, and a Terminal Payment in the
sum of [6.5% of face amount of Loan]  Dollars ($                    ) payable on the Maturity
Date.



     This Note is one of the Notes referred to in, and is entitled to all the benefits of, a Loan
and Security Agreement dated as of November 2, 2004, by and among Borrowers, Costella Kirsch IV,
L.P. and Venture Lending & Leasing IV, Inc. as “Agent” for itself and the other Lenders party
thereto (the “Loan Agreement”). Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Loan Agreement. The Loan Agreement contains provisions for the
acceleration of the maturity of this Note upon the happening of certain stated events.



     Principal of and interest on this Note shall be payable as follows:




     On the Borrowing Date, Borrowers shall pay (i) interest on the outstanding principal
balance of this Note at the Interim Rate in the amount of $                    , in advance for the
period from the Borrowing Date through  [the last day of the same month]___; and
(ii) a first (1st) installment of interest only on the outstanding principal
balance of this Note at the Interim Rate in the amount of $                    , in advance for the
month of [date of first regular interest only installment].




     Commencing on the first day of the second (2nd) full month after the
Borrowing Date and continuing on the first day of each of the next two consecutive calendar
months thereafter, Borrowers shall pay interest only at the Interim Rate, in advance, on the
outstanding principal balance of this Note.




     Commencing on the first day of the fifth (5th) full month after the
Borrowing Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest at the Designated Rate shall be payable, in advance, in thirty
(30) equal consecutive installments of                                          Dollars
($                    ) each. The Terminal Payment and unpaid expenses, fees, interest and principal
amount shall be due and payable on [one month later] , 200___.]



     This Note may be voluntarily prepaid only as permitted under to Section 5 of Part 2 of the
Supplement to the Loan Agreement.



 









 





     Any unpaid payments of principal or interest on this Note shall bear interest from their
respective maturities, whether scheduled or accelerated, at a rate per annum equal to the Default
Rate until such amounts are paid in full, or in the case of acceleration, until the Event of
Default that gave rise to the acceleration is cured or waived. Borrowers shall pay such interest
on demand.



     Interest, charges and fees shall be calculated for actual days elapsed on the basis of a
360-day year, which results in higher interest, charge or fee payments than if a 365-day year were
used. In no event shall Borrowers be obligated to pay interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in effect.



     If Borrowers are late in making any payment under this Note by more than five (5) Business
Days, Borrowers agree to pay a “late charge” of five percent (5%) of the installment due, but not
less than fifty dollars ($50.00) for any such delinquent payment. This late charge may be charged
by Lender for the purpose of defraying the expenses incidental to the handling of such delinquent
amounts. Each Borrower acknowledges that such late charge represents a reasonable sum considering
all of the circumstances existing on the date of this Note and represents a fair and reasonable
estimate of the costs that will be sustained by Lender due to the failure of Borrower to make
timely payments. Each Borrower further agrees that proof of actual damages would be costly and
inconvenient. Such late charge shall be paid without prejudice to the right of Lender to collect
any other amounts provided to be paid or to declare a default under this Note or any of the other
Loan Documents or from exercising any other rights and remedies of Lender.



     This Note shall be governed by, and construed in accordance with, the internal laws of the
State of California.



	 	 	 	 	 	 	 
	 	 	ATHERSYS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Its:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	ADVANCED BIOTHERAPEUTICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Its:
	 	 

	 	 
	 

	 	 	 	 

	 	 







 









 








EXHIBIT “B”




FORM OF BORROWING REQUEST




[Date]




Venture Lending & Leasing IV, Inc., as Agent

2010 North First Street, Suite 310

San Jose, CA 95131




          Re:       Athersys, Inc.



Gentlemen:




          Reference is made to the Loan and Security Agreement dated as of November 2, 2004 (as amended
from time to time, the “Loan Agreement”, the capitalized terms used herein as defined therein),
among Venture Lending & Leasing IV, Inc., as “Agent” and “Lender”, Costella Kirsch IV, L.P., as
“Lender”, and Athersys, Inc. (the “Company”) and its subsidiary Advanced Biotherapeutics, Inc., or
“Borrowers”.




          The undersigned is the                                          of the Company, and hereby requests on behalf of
the Company a Loan under the Loan Agreement, and in that connection certifies in such capacity as
follows:




          1. The type(s) of the proposed Loan is/are [a Growth Capital Loan] [an Additional Growth
Capital Loan]. The amount of the proposed Loan is                                          and ___/100 Dollars
($                    ). The Borrowing Date of the proposed Loan is                     , 200___.




          2. [If the initial Additional Growth Capital Loan is being requested] On or before the date
hereof, the Company (i) has entered into a binding written agreement with a recognized medical
device or pharmaceutical company (a “Collaborator”), pursuant to which the Collaborator has
advanced Eligible Funding to Borrower of at least $10,000,000, and (ii) the Company has formally
selected at least one small molecule candidate for clinical development. [For each Additional
Growth Capital Loan requested] As of the date hereof, the Company has received not less than
$                     of Eligible Funding, as required under Section 2 of Part 2 of the Supplement to the
Loan Agreement.




          3. As of this date, no Default or Event of Default has occurred and is continuing, or will
result from the making of the proposed Loan, the representations and warranties of the Company
contained in Article 3 of the Loan Agreement and Part 3 of the Supplement, as applicable, are true
and correct in all material respects, and the conditions precedent described in Article 4 of the
Loan Agreement have been met.




          4. No Material Adverse Change has occurred since the date of the Company’s last audited annual
financial statements.




          5. The Company’s most recent [financial projections or business plan] dated                     , and
prepared by or at the direction of its management on                     , are enclosed herewith in the
event such [financial projections or business plan] have not been previously provided to Agent.




 









 





          The Company shall notify you promptly before the funding of the Loan if any of the matters to
which I have certified above shall not be true and correct on the Borrowing Date.




	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	ATHERSYS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:*
	 	 

	 	 
	 

	 	 	 	 

	 	 








 




			
	*	 	Must be executed by Company’s Chief Financial Officer
or other executive officer.





 









 





EXHIBIT “C”




FORM OF

COMPLIANCE CERTIFICATE




Venture Lending & Leasing IV, Inc., as Agent

2010 North First Street, Suite 310

San Jose, CA 95131



Re: Athersys, Inc.



Gentlemen:




     Reference is made to the Loan and Security Agreement dated as of November 2, 2004 (as the same
have been and may be amended from time to time, the “Loan Agreement”, the capitalized terms used
herein as defined therein), between Venture Lending & Leasing IV, Inc., as “Agent” and “Lender,”
and Costella Kirsch IV, L.P., as “Lender”, and Athersys, Inc. (the “Company”) and its subsidiary,
Advanced Biotherapeutics, Inc., or “Borrowers”.



     The undersigned authorized representative of each Borrower hereby certifies that in accordance
with the terms and conditions of the Loan Agreement, each Borrower is in compliance for the
financial reporting period ending                      with all financial reporting and financial tests
required under the Loan Agreement, except as noted below. Attached herewith are the required
documents supporting the foregoing certification. The undersigned further certifies that the
accompanying financial statements have been prepared in accordance with Generally Accepted
Accounting Principles, and are consistent from one period to the next, except as explained below
and subject to modifications providing for the absence of footnote disclosures and normal year-end
adjustments.



Indicate compliance status by circling Yes/No under “Complies”




	 	 	 	 	 
	REPORTING REQUIREMENT	 	REQUIRED	 	COMPLIES
	Interim Financial Statements

	 	Monthly within 30 days
	 	YES / NO
	Audited Financial Statements

	 	FYE within 120 days
	 	YES / NO
	 
	 	 	 	 
	Date of most recent
budget/plan
	 	 	 	 
	Submitted with Borrowing Request

	 	 	 	YES / NO
	Any change in budget/plan since prior Borrowing Request

	 	 	 	YES / NO






ACCOUNT CONTROL AGREEMENTS



     Pursuant to Section 6.11 of the Loan Agreement, each Borrower represents and warrants that: (i) as
of the date hereof, it maintains only those deposit and investment accounts set forth below; and
(ii) a control agreement has been executed and delivered to Lender with respect to each such
account [Note: If either Borrower has established any new account(s) since the date of the last
compliance certificate, please so indicate].




Deposit Accounts




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Control Agt.	 	 	 	New
	 	 	Name of Institution	 	Account Number	 	In place?	 	Complies	 	Account
	1.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 
	2.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 
	3.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 





											
	4.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 





 









 





Investment Accounts




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Control Agt.	 	 	 	New
	 	 	Name of Institution	 	Account Number	 	In place?	 	Complies	 	Account
	1.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 
	2.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 
	3.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 
	4.)

	 	 	 	 	 	YES / NO
	 	YES / NO
	 	YES / NO
	 	 	 	 	 	 	 	 	 	 	 





EXPLANATIONS




	 	 	 
	 
	 
	 	 
	 
	 
	 	 
	 
	 
	 	 
	 







	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	ATHERSYS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:*
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	ADVANCED BIOTHERAPEUTICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:*
	 	 

	 	 
	 

	 	 	 	 

	 	 








 




			
	*	 	Must be executed by Company’s Chief Financial Officer
or other executive officer.
	 
	*	 	Must be executed by Company’s Chief Financial Officer
or other executive officer.





 









 





EXHIBIT “D”




FORM OF WARRANT




 









 





EXHIBIT “E”




FORM OF LEGAL OPINION




 









 





EXHIBIT “F”




FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT




 









 





EXHIBIT “G”




EXAMPLE OF PREPAYMENT CALCULATION

UNDER SECTION 5 of PART 2 of SUPPLEMENT