**EXHIBIT 10.1**

 

**GENAISSANCEPHARMACEUTICALS, INC.**

 

**LOAN AND SECURITY AGREEMENT**

 

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This LOAN AND SECURITY AGREEMENT is entered into as ofSeptember 30, 2003, by and between COMERICA BANK (“Bank”) and GENAISSANCEPHARMACEUTICALS, INC. (“Borrower”).

 

RECITALS

 

Borrowerwishes to obtain credit from time to time from Bank, and Bank desires to extendcredit to Borrower.  This Agreement setsforth the terms on which Bank will advance credit to Borrower, and Borrowerwill repay the amounts owing to Bank.

 

AGREEMENT

 

The parties agree asfollows:

 

1.             DEFINITIONSAND CONSTRUCTION.

 

## **1.1**           Definitions.  As used in this Agreement, the followingterms shall have the following definitions:

 

“Accounts”means all presently existing and hereafter arising accounts, contract rights,and all other forms of obligations owing to Borrower arising out of the sale orlease of goods (including, without limitation, the licensing of software andother technology) or the rendering of services by Borrower, whether or notearned by performance, and any and all credit insurance, guaranties, and othersecurity therefore, as well as all merchandise returned to or reclaimed byBorrower and Borrower’s Books relating to any of the foregoing.

 

“Affiliate”means, with respect to any Person, any Person that owns or controls directly orindirectly such Person, any Person that controls or is controlled by or isunder common control with such Person, and each of such Person’s seniorexecutive officers, directors, and partners.

 

“BankExpenses” means all:  reasonable costsor expenses (including reasonable attorneys’ fees and expenses) incurred inconnection with the preparation, negotiation, administration, and enforcementof the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonableattorneys’ fees and expenses incurred in amending, enforcing or defending theLoan Documents (including fees and expenses of appeal), incurred before, duringand after an Insolvency Proceeding, whether or not suit is brought.

 

“Borrower’sBooks” means all of Borrower’s books and records including:  ledgers; records concerning Borrower’sassets or liabilities, the Collateral, business operations or financialcondition; and all computer programs, or tape files, and the equipment,containing such information.

 

“BusinessDay” means any day that is not a Saturday, Sunday, or other day on which banksin the State of California or the Commonwealth of Massachusetts are authorizedor required to close.

 

“CashSecured Letter of Credit” means the letter of credit issued by Bank onBorrower’s behalf in March 2003, which is 105% cash secured in a moneymarket account at Bank.

 

 “Closing Date” means the date of thisAgreement.

 

“Code”means the California Uniform Commercial Code.

 

“Collateral”means the property described on Exhibit A attached hereto.

 

“ContingentObligation” means, as applied to any Person, any direct or indirect liability,contingent or otherwise, of that Person with respect to (i) anyindebtedness, lease, dividend, letter of credit or other obligation of another,including, without limitation, any such obligation directly or indirectlyguaranteed, endorsed, co-made or discounted or sold with recourse by thatPerson, or in respect of which that Person is otherwise directly or indirectlyliable; (ii) any obligations with respect to undrawn letters of creditissued for the account of that Person; and (iii) all obligations arisingunder any interest rate, currency or commodity swap agreement, interest ratecap agreement, interest rate collar agreement, or other agreement orarrangement designed to protect such Person against fluctuation in interestrates, currency exchange rates or commodity prices; provided, however, that theterm “Contingent Obligation” shall not include endorsements for collection ordeposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amountequal to the stated or determined amount of the primary obligation in respectof which such Contingent Obligation is made or, if not stated or determinable,the maximum reasonably anticipated liability in

 

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respect thereof as determined by such Person in goodfaith; provided, however, that such amount shall not in any event exceed themaximum amount of the obligations under the guarantee or other supportarrangement.

 

“CreditExtension” means the Equipment Advance, or any other extension of credit byBank for the benefit of Borrower hereunder.

 

“CurrentLiabilities” means, as of any applicable date, all amounts that should, inaccordance with GAAP, be included as current liabilities on the consolidatedbalance sheet of Borrower and its Subsidiaries, as at such date, plus, to theextent not already included therein, all outstanding Credit Extensions madeunder this Agreement, including all Indebtedness that is payable upon demand orwithin one year from the date of determination thereof unless such Indebtednessis renewable or extendible at the option of Borrower or any Subsidiary to adate more than one year from the date of determination.

 

“DailyBalance” means the amount of the Obligations owed at the end of a given day.

 

 “Eligible Accounts” means those Accounts thatarise in the ordinary course of Borrower’s business that comply with all ofBorrower’s representations and warranties to Bank set forth inSection 5.4; provided, that standards of eligibility may be fixed andrevised from time to time by Bank in Bank’s reasonable judgment and uponnotification thereof to Borrower in accordance with the provisions hereof.  Unless otherwise agreed to by Bank, EligibleAccounts shall not include the following:

 

### **(a)**           Accounts that the accountdebtor has failed to pay within ninety (90) days of invoice date;

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### **(b)**           Accounts with respect toan account debtor, twenty-five percent (25%) of whose Accounts the account debtorhas failed to pay within ninety (90) days of invoice date;

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### **(c)**           Accounts with respect towhich the account debtor is an officer, employee, or agent of Borrower(excluding any accounts on which the account debtor is Sciona, Ltd.);

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### **(d)**           Accounts with respect towhich goods are placed on consignment, guaranteed sale, sale or return, sale onapproval, bill and hold, or other terms by reason of which the payment by theaccount debtor may be conditional;

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### **(e)**           Accounts with respect towhich the account debtor is an Affiliate of Borrower;

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### **(f)**            Accounts with respect towhich the account debtor is the United States or any department, agency, orinstrumentality of the United States except for Accounts of the United Statesif the payee has assigned its payment rights to Bank and the assignment hasbeen acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);

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### **(g)**           Accounts with respect towhich Borrower is liable to the account debtor for goods sold or servicesrendered by the account debtor to Borrower or for deposits or other property ofthe account debtor held by Borrower, but only to the extent of any amountsowing to the account debtor against amounts owed to Borrower;

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### **(h)**           Accounts with respect toan account debtor, including Subsidiaries and Affiliates, whose totalobligations to Borrower exceed twenty-five percent (25%) of all Accounts, tothe extent such obligations exceed the aforementioned percentage, except asapproved in writing by Bank, which shall not be unreasonably withheld;

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### **(i)**            Accounts with respect towhich the account debtor disputes liability or makes any claim with respectthereto as to which Bank believes, in its sole discretion, that there may be abasis for dispute (but only to the extent of the amount subject to such disputeor claim), or is subject to any Insolvency Proceeding, or becomes insolvent, orgoes out of business; and

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### **(j)**            Accounts the collection ofwhich Bank reasonably determines to be doubtful.

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Notwithstandingany of the foregoing, Foreign Accounts shall only be considered “EligibleAccounts” up to the lesser of (i) thirty percent (30%) of all Eligible Accountsor (ii) One Million Dollars ($1,000,000). As used herein, “Foreign Accounts” means those Accounts with respect to whichthe account debtor is not invoiced by Borrower at a location in the UnitedStates.

 

NoAccount will be excluded from the definition of “Eligible Accounts” solelybecause the account debtor does not have its principal place of business in theUnited States.

 

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“Equipment”means all present and future machinery, equipment, tenant improvements,furniture, fixtures, vehicles, tools, parts and attachments in which Borrowerhas any interest.

 

“EquipmentAdvance” has the meaning set forth in Section 2.1(a).

 

“EquipmentLine” means a credit extension of up to Five Million Dollars ($5,000,000).

 

“EquipmentMaturity Date” means September 30, 2006.

 

 “ERISA” means the Employee Retirement IncomeSecurity Act of 1974, as amended, and the regulations thereunder.

 

“Eventof Default” has the meaning assigned in Article 0.

 

“GAAP”means generally accepted accounting principles as in effect from time to time.

 

“Indebtedness”means (a) all indebtedness for borrowed money or the deferred purchaseprice of property or services, including without limitation reimbursement andother obligations with respect to surety bonds and letters of credit,(b) all obligations evidenced by notes, bonds, debentures or similarinstruments, (c) all capital lease obligations and (d) all ContingentObligations.

 

“InsolvencyProceeding” means any proceeding commenced by or against any person or entityunder any provision of the United States Bankruptcy Code, as amended, or underany other bankruptcy or insolvency law, including assignments for the benefitof creditors, formal or informal moratoria, compositions, extension generallywith its creditors, or proceedings seeking reorganization, arrangement, orother relief.

 

“Inventory”means all present and future inventory in which Borrower has any interest,including merchandise, raw materials, parts, supplies, packing and shippingmaterials, work in process and finished products intended for sale or lease orto be furnished under a contract of service, of every kind and description nowor at any time hereafter owned by or in the custody or possession, actual orconstructive, of Borrower, including such inventory as is temporarily out ofits custody or possession or in transit and including any returns upon anyaccounts or other proceeds, including insurance proceeds, resulting from the saleor disposition of any of the foregoing and any documents of title representingany of the above, and Borrower’s Books relating to any of the foregoing.

 

“Investment”means any beneficial ownership of (including stock, partnership interest orother securities) any Person, or any loan, advance or capital contribution toany Person.

 

“IRC”means the Internal Revenue Code of 1986, as amended, and the regulationsthereunder.

 

“Lien”means any mortgage, lien, deed of trust, charge, pledge, security interest orother encumbrance.

 

“LoanDocuments” means, collectively, this Agreement, any note or notes executed byBorrower, and any other agreement entered into in connection with thisAgreement, all as amended or extended from time to time.  The Warrant to Purchase Stock issued byBorrower to Bank as of the Closing Date shall be a “Loan Document” only forpurposes of Section 5.2 and the definition of “Bank Expenses”.

 

“MaterialAdverse Effect” means a material adverse effect on (i) the businessoperations, condition (financial or otherwise) or prospects of Borrower and itsSubsidiaries taken as a whole or (ii) the ability of Borrower to repay theObligations or otherwise perform its obligations under the Loan Documents or(iii) the value or priority of Bank’s security interests in theCollateral.

 

“NegotiableCollateral” means all of Borrower’s present and future letters of credit ofwhich it is a beneficiary, notes, drafts, instruments, securities, documents oftitle, and chattel paper, and Borrower’s Books relating to any of theforegoing.

 

“Obligations”means all debt, principal, interest, Bank Expenses and other amounts owed toBank by Borrower pursuant to this Agreement or any other agreement, whetherabsolute or contingent, due or to become due, now existing or hereafterarising, including any interest that accrues after the commencement of anInsolvency Proceeding and including any debt, liability, or obligation owingfrom Borrower to others that Bank may have obtained by assignment or otherwise.

 

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“PeriodicPayments” means all installments or similar recurring payments that Borrowermay now or hereafter become obligated to pay to Bank pursuant to the terms andprovisions of any instrument, or agreement now or hereafter in existencebetween Borrower and Bank.

 

“PermittedIndebtedness” means:

 

### **(a)**           Indebtedness of Borrowerin favor of Bank arising under this Agreement or any other Loan Document;

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### **(b)**           Indebtedness existing onthe Closing Date and disclosed in the Schedule;

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### **(c)**           Indebtedness secured by alien described in clause 0 of the defined term “Permitted Liens,” provided(i) such Indebtedness does not exceed the lesser of the cost or fairmarket value of the equipment financed with such Indebtedness and(ii) such Indebtedness does not exceed $500,000 in the aggregate at anygiven time; and

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### **(d)**           Subordinated Debt.

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“Permitted Investment” means:

 

### **(a)**           Investments existing onthe Closing Date disclosed in the Schedule;

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### **(b)**           (i) marketable directobligations issued or unconditionally guaranteed by the United States ofAmerica or any agency or any State thereof maturing within one (1) year fromthe date of acquisition thereof, (ii) commercial paper maturing no morethan one (1) year from the date of acquisition thereof and currently havingrating of at least A-2 or P-2 from either Standard & Poor’sCorporation or Moody’s Investors Service, (iii) certificates of depositmaturing no more than one (1) year from the date of investment therein issuedby Bank and (iv) Bank’s money market accounts;

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### **(c)**           Acquisitions permittedpursuant to Section 7.3;

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### **(d)**           Investments in Sciona,Ltd. which do not exceed $300,000 during the term of this Agreement;

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### **(e)**           Investments consistingsolely of the equity securities of Borrower; and

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### **(f)**            Investments consisting ofjoint ventures or licensing arrangements, in which the sole consideration isequity securities.

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 “PermittedLiens” means the following:

 

### **(a)**         Any Liens existing on theClosing Date and disclosed in the Schedule or arising under this Agreementor the other Loan Documents;

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### **(b)**           Liens for taxes, fees,assessments or other governmental charges or levies, either not delinquent orbeing contested in good faith by appropriate proceedings, provided the samehave no priority over any of Bank’s security interests;

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### **(c)**           Liens (i) upon or in anyequipment which was not financed by Bank acquired or held by Borrower or any ofits Subsidiaries to secure the purchase price of such equipment or indebtednessincurred solely for the purpose of financing the acquisition of such equipment,or (ii) existing on such equipment at the time of its acquisition,provided that the Lien is confined solely to the property so acquired andimprovements thereon, and the proceeds of such equipment;

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### **(d)**           Liens incurred inconnection with the extension, renewal or refinancing of the indebtednesssecured by Liens of the type described in clauses (a) through (c) above,provided that any extension, renewal or replacement Lien shall be limited tothe property encumbered by the existing Lien and the principal amount of the indebtednessbeing extended, renewed or refinanced does not increase.

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 “Person”means any individual, sole proprietorship, partnership, limited liabilitycompany, joint venture, trust, unincorporated organization, association,corporation, institution, public benefit corporation, firm, joint stockcompany, estate, entity or governmental agency.

 

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“PrimeRate” means the variable rate of interest, per annum, most recently announcedby Bank, as its “prime rate,” whether or not such announced rate is the lowestrate available from Bank.

 

“QuickAssets” means, at any date as of which the amount thereof shall be determined,the unrestricted cash and marketable securities of Borrower at Bank or ComericaSecurities, Inc. plus 80% of Eligible Accounts, determined in accordancewith GAAP, provided that, for seven (7) Business Days after the Closing Date,all Borrower’s unrestricted cash and marketable securities shall be included inthe calculation of the Quick Assets.

 

 “Responsible Officer” means each of the ChiefExecutive Officer, the Chief Operating Officer, the Chief Financial Officer andthe Controller of Borrower.

 

“Schedule”means the schedule of exceptions attached hereto and approved by Bank, ifany.

 

“SubordinatedDebt” means any debt incurred by Borrower that is subordinated to the debtowing by Borrower to Bank on terms acceptable to Bank (and identified as beingsuch by Borrower and Bank).

 

“Subsidiary”means any corporation, company or partnership in which (i) any generalpartnership interest or (ii) more than 50% of the stock or other units ofownership which by the terms thereof has the ordinary voting power to elect theBoard of Directors, managers or trustees of the entity, at the time as of whichany determination is being made, is owned by Borrower, either directly orthrough an Affiliate.

 

## **1.2**           Accounting Terms.  All accounting terms not specificallydefined herein shall be construed in accordance with GAAP and all calculationsmade hereunder shall be made in accordance with GAAP.  When used herein, the terms “financial statements” shall includethe notes and schedules thereto.

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# **2.**             LOAN AND TERMS OF PAYMENT.

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## **2.1**           Credit Extensions.

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Borrower promises to pay to the order of Bank, inlawful money of the United States of America, the aggregate unpaid principalamount of all Credit Extensions made by Bank to Borrower hereunder.  Borrower shall also pay interest on theunpaid principal amount of such Credit Extensions at rates in accordance withthe terms hereof.

 

### **(a)**           Equipment Advance.

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#### **(i)**            Subject to and upon theterms and conditions of this Agreement, on or within ten (10) days after theClosing Date, Bank agrees to make an advance (the “Equipment Advance”) toBorrower in an amount not to exceed the Equipment Line.  The Equipment Advance shall be used only torefinance Borrower’s existing capital lease obligations with respect toequipment agreed upon by Bank and Borrower prior to the Closing Date, whichequipment will either be unencumbered on the Closing Date or will beunencumbered within 30 days after the Closing Date (other than by Bank’s Lien).

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#### **(ii)**           Interest shall accrue fromthe date of the Equipment Advance at the rate specified in Section 2.2,and shall be payable monthly on the first day of each month so long as anyportion of the Equipment Advance remains outstanding.  The Equipment Advance shall be payable in thirty six (36) equalmonthly installments of principal, plus all accrued interest, beginning onOctober 31, 2003 and continuing on the last day of each month thereafterthrough the Equipment Maturity Date, at which time any outstanding balance ofthe Equipment Advance shall be immediately due and payable.  Once repaid, neither the Equipment Advance,nor any portion thereof, may be reborrowed. Borrower may prepay the Equipment Advance in whole or in part from timeto time without penalty or premium.

 

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#### **(iii)**          When Borrower desires toobtain the Equipment Advance, Borrower shall notify Bank (which notice shall beirrevocable) by facsimile transmission to be received no later than 3:30 p.m.Eastern time three (3) Business Days before the day on which the EquipmentAdvance is to be made.  Such noticeshall be substantially in the form of Exhibit B.  The notice shall be signed by a Responsible Officer or itsdesignee and include a detailed schedule of the capital equipment beingfinanced.

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## **2.2**           Interest Rates, Payments,and Calculations.

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### **(a)**           Interest Rates.  Except as set forth in Section 2.2(b),the Equipment Advance shall bear interest, on the outstanding Daily Balancethereof, at a rate equal to two and one half percent (2.5%) above the PrimeRate.

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### **(b)**           Late Fee; Default Rate.  If any payment is not made within ten (10)days after the date such payment is due, Borrower shall pay Bank a late feeequal to the lesser of (i) five percent (5%) of the amount of such unpaidamount or (ii) the maximum amount permitted to be charged under applicablelaw.  All Obligations shall bearinterest, from and after the occurrence and during the continuance of an Eventof Default, at a rate equal to five (5) percentage points above the interestrate applicable immediately prior to the occurrence of the Event of Default.

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### **(c)**           Payments.  Interest hereunder shall be due and payableon the last calendar day of each month during the term hereof.  Bank shall, at its option, charge suchinterest, all Bank Expenses, and all Periodic Payments against any ofBorrower’s deposit accounts or against the Equipment Line, in which case thoseamounts shall thereafter accrue interest at the rate then applicable hereunder.  Any interest not paid when due shall becompounded by becoming a part of the Obligations, and such interest shallthereafter accrue interest at the rate then applicable hereunder.  All payments shall be free and clear of anytaxes, withholdings, duties, impositions or other charges, to the end that Bankwill receive the entire amount of any Obligations payable hereunder, regardlessof source of payment.

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### **(d)**           Computation.  In the event the Prime Rate is changed fromtime to time hereafter, the applicable rate of interest hereunder shall beincreased or decreased, effective as of the day the Prime Rate is changed, byan amount equal to such change in the Prime Rate.  All interest chargeable under the Loan Documents shall be computedon the basis of a three hundred sixty (360) day year for the actual number ofdays elapsed.

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## **2.3**           Crediting Payments.  Prior to the occurrence of an Event ofDefault, Bank shall credit a wire transfer of funds, check or other item ofpayment to such deposit account or Obligation as Borrower specifies.  After the occurrence of an Event of Default,the receipt by Bank of any wire transfer of funds, check, or other item ofpayment shall be immediately applied to conditionally reduce Obligations, butshall not be considered a payment on account unless such payment is ofimmediately available federal funds or unless and until such check or otheritem of payment is honored when presented for payment.  Notwithstanding anything to the contrarycontained herein, any wire transfer or payment received by Bank after 3:30 p.m.Eastern time shall be deemed to have been received by Bank as of the opening ofbusiness on the immediately following Business Day.  Whenever any payment to Bank under the Loan Documents would otherwisebe due (except by reason of acceleration) on a date that is not a Business Day,such payment shall instead be due on the next Business Day, and additional feesor interest, as the case may be, shall accrue and be payable for the period ofsuch extension.

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## **2.4**           Fees.  Borrower shall pay to Bank the following:

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### **(a)**           Facility Fee.  On or before the Closing Date, a FacilityFee equal to $25,000, which shall be nonrefundable; and

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### **(b)**           Bank Expenses.  On the Closing Date, all Bank Expensesincurred through the Closing Date, including reasonable attorneys’ fees andexpenses and, after the Closing Date, all Bank Expenses, including reasonableattorneys’ fees and expenses, as and when they are incurred by Bank.

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## **2.5**           Additional Costs.  In case any law, regulation, treaty orofficial directive or the interpretation or application thereof by any court orany governmental authority charged with the administration thereof or thecompliance with any guideline or request of any central bank or othergovernmental authority (whether or not having the force of law):

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### **(a)**           subjects Bank to any taxwith respect to payments of principal or interest or any other amounts payablehereunder by Borrower or otherwise with respect to the transactionscontemplated hereby (except for taxes on the overall net income of Bank imposedby the United States of America or any political subdivision thereof);

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### **(b)**           imposes, modifies or deemsapplicable any deposit insurance, reserve, special deposit or similarrequirement against assets held by, or deposits in or for the account of, orloans by, Bank; or

 

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### **(c)**           imposes upon Bank anyother condition with respect to its performance under this Agreement,

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and the result of any of theforegoing is to increase the cost to Bank, reduce the income receivable by Bankor impose any expense upon Bank with respect to the Obligations, Bank shallnotify Borrower thereof.  Borroweragrees to pay to Bank the amount of such increase in cost, reduction in incomeor additional expense as and when such cost, reduction or expense is incurredor determined, upon presentation by Bank of a statement of the amount andsetting forth Bank’s calculation thereof, all in reasonable detail, whichstatement shall be deemed true and correct absent manifest error.

 

## **2.6**           Term.  This Agreement shall become effective on theClosing Date and, subject to Section 0, shall continue in full force andeffect for so long as any Obligations remain outstanding or Bank has anyobligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank shallhave the right to terminate its obligation to make Credit Extensions under thisAgreement immediately and without notice upon the occurrence and during thecontinuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remainin effect for so long as any Obligations are outstanding.

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# **3.**           CONDITIONS OF LOANS.

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## **3.1**           Conditions Precedent toInitial Credit Extension.  The obligation of Bank to makethe initial Credit Extension is subject to the condition precedent that Bankshall have received, in form and substance satisfactory to Bank, the following:

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### **(a)**           this Agreement;

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### **(b)**           securities account controlagreements (Comerica Securities, Inc.);

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### **(c)**           a certificate of theSecretary of Borrower with respect to incumbency and resolutions authorizingthe execution and delivery of this Agreement;

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### **(d)**           UCC National FormFinancing Statement;

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### **(e)**           a warrant to purchasestock;

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### **(f)**            agreement to provideinsurance;

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### **(g)**           evidence that Borrower hasmoved at least Eight Million Dollars ($8,000,000) of its unrestricted cash toBank (including the proceeds of the initial Credit Extension);

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### **(h)**           payment of the fees andBank Expenses then due specified in Section 0 hereof;

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### **(i)**            current financialstatements of Borrower; and

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### **(j)**            such other documents, andcompletion of such other matters, as Bank may reasonably deem necessary orappropriate.

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## **3.2**           Conditions Precedent toall Credit Extensions.  The obligation of Bank to makeeach Credit Extension, including the initial Credit Extension, is furthersubject to the following conditions:

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### **(a)**           timely receipt by Bank ofthe Payment/Advance Form as provided in Section 0; and

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### **(b)**           the representations andwarranties contained in Section 0 shall be true and correct in allmaterial respects on and as of the date of such Payment/Advance Form and on theeffective date of each Credit Extension as though made at and as of each suchdate, and no Event of Default shall have occurred and be continuing, or wouldexist after giving effect to such Credit Extension (provided, however, thatthose representations and warranties expressly referring to another date shallbe true, correct and complete in all material respects as of such date).  The making of each Credit Extension shall bedeemed to be a representation and warranty by Borrower on the date of suchCredit Extension as to the accuracy of the facts referred to in thisSection 0.

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# **4.**             CREATION OF SECURITYINTEREST.

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## **4.1**           Grant of Security Interest.  Borrower grants and pledges to Bank acontinuing security interest in all presently existing and hereafter acquiredor arising Collateral in order to secure prompt repayment of any and allObligations and in

 

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## **order tosecure prompt performance by Borrower of each of its covenants and duties underthe Loan Documents.  Except as set forthin the Schedule, such security interest constitutes a valid, first prioritysecurity interest in the presently existing Collateral, and will constitute avalid, first priority security interest in Collateral acquired after the datehereof.  Borrower also hereby agrees notto sell, transfer, assign, mortgage, pledge, lease, grant a security interestin, or encumber any of its intellectual property, other than licenses grantedby Borrower in the ordinary course of its business or in connection with jointventures or other similar arrangements.**

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## **4.2**           Delivery of AdditionalDocumentation Required.  Borrower shall from time totime execute and deliver to Bank, at the request of Bank, all NegotiableCollateral, all financing statements and other documents that Bank mayreasonably request, in form satisfactory to Bank, to perfect and continue theperfection of Bank’s security interests in the Collateral and in order to fullyconsummate all of the transactions contemplated under the Loan Documents.

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## **4.3**           Right to Inspect.  Bank (through any of its officers,employees, or agents) shall have the right, upon reasonable prior notice, fromtime to time during Borrower’s usual business hours but no more than twice ayear (unless an Event of Default has occurred and is continuing), to inspectBorrower’s Books and to make copies thereof and to check, test, and appraisethe Collateral in order to verify Borrower’s financial condition or the amount,condition of, or any other matter relating to, the Collateral.

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## **4.4**           Cash Collateral.

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### **(a)**           Effective only upon theoccurrence of an Event of Default, as set forth in Section 6.10, Borrowergrants and pledges to Bank a continuing security interest in all presentlyexisting or hereafter arising Cash Collateral (as defined in Section 6.10),in order to secure prompt repayment of any and all Obligations.  Upon the occurrence of an Event of Default,(i) Bank may retain control over the Cash Collateral to secure the Obligationsuntil the Obligations have been satisfied in full, (ii) Borrower herebyauthorizes Bank to place restrictions on Borrower’s ability to withdraw amountsfrom accounts holding the Cash Collateral, and (iii)  Borrower authorizes Bank to execute and/or file such documents,and take such actions, as Bank determines reasonable to perfect its securityinterest in the Cash Collateral.  Suchsecurity interest constitutes a valid, first priority security interest in theCash Collateral, and will constitute a valid, first priority security interestin Cash Collateral acquired after the date hereof.  Notwithstanding termination of this Agreement, Bank’s Lien on theCash Collateral shall remain in effect for so long as any Obligations areoutstanding.

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### **(b)**           If the Cash Collateral isheld in a certificate of deposit, then, prior to the maturity of such CashCollateral, Borrower and Bank shall agree upon a security or instrument similarin form, quality and substance to the original Cash Collateral in which theproceeds of the Cash Collateral can be reinvested on maturity.  Upon maturity of such Cash Collateral inaccordance with its terms, or in the event such Cash Collateral otherwisebecomes payable during the term of this Agreement, such maturing CashCollateral may be presented for payment, exchange, or otherwise marketed by Bankon behalf of Borrower and the proceeds therefrom used to purchase the securityor instrument agreed to by Borrower and Bank in accordance with the immediatelypreceding sentence.  If no agreement hasbeen made, such proceeds shall be placed into an interest bearing accountoffered by Bank in which Bank has a first priority security interest until suchtime as an agreement as to the security replacing the original Cash Collateralcan be reached.  Bank may retain anysuch successor collateral and the proceeds therefrom as Cash Collateral inaccordance with the terms of this Agreement.

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# **5.**             REPRESENTATIONS ANDWARRANTIES.

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Borrower represents and warrants as follows:

 

## **5.1**           Due Organization andQualification.  Borrower and each Subsidiary isa corporation duly existing under the laws of its state of incorporation andqualified and licensed to do business in any state in which the failure to doso could reasonably be expected to have a Material Adverse Effect.

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## **5.2**           Due Authorization; NoConflict.  The execution, delivery, and performance ofthe Loan Documents are within Borrower’s powers, have been duly authorized, andare not in conflict with nor constitute a breach of any provision contained inBorrower’s Certificate of Incorporation or Bylaws, nor will they constitute anevent of default under any material agreement to which Borrower is a party orby which Borrower is bound.  Borrower isnot in default under any material agreement to which it is a party or by whichit is bound.

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## **5.3**           No Prior Encumbrances.  Borrower has good and marketable title toits property, free and clear of Liens, except for Permitted Liens.

 

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## **5.4**           Bona Fide EligibleAccounts.  The Eligible Accounts are bona fide existingobligations.  The property and servicesgiving rise to such Eligible Accounts has been delivered or rendered to theaccount debtor or to the account debtor’s agent for immediate and unconditionalacceptance by the account debtor.

## ** **

## **5.5**           Merchantable Inventory.  All Inventory is in all material respects ofgood and marketable quality, free from all material defects, except forInventory for which adequate reserves have been made.

## ** **

## **5.6**           Intellectual Property.  Borrower is the licensee or sole owner ofits patents, trademarks, copyrights, and other intellectual property, except forlicenses granted by Borrower to its customers in the ordinary course ofbusiness.  To the knowledge of Borrower,each of Borrower’s patents is valid and enforceable, and no part of itsintellectual property has been judged invalid or unenforceable, in whole or inpart, and no claim has been made that any part of its intellectual propertyviolates the rights of any third party.

## ** **

## **5.7**           Name; Location of ChiefExecutive Office.  Except as disclosed in theSchedule, Borrower has not done business under any name other than thatspecified on the signature page hereof. The chief executive office of Borrower is located at the addressindicated in Section 0 hereof. Except as disclosed in the Schedule, all Borrower’s Inventory andEquipment is located only at the location set forth in Section 10 hereofand Borrower has paid for and owns all Equipment financed by Bank hereunder.

## ** **

## **5.8**           Litigation.  Except as set forth in the Schedule, thereare no actions or proceedings pending by or against Borrower or any Subsidiarybefore any court or administrative agency in which an adverse decision couldhave a Material Adverse Effect, or a material adverse effect on Borrower’sinterest or Bank’s security interest in the Collateral.

## ** **

## **5.9**           No Material Adverse Changein Financial Statements.  All consolidated andconsolidating financial statements related to Borrower and any Subsidiary thatBank has received from Borrower fairly present in all material respectsBorrower’s financial condition as of the date thereof and Borrower’s consolidatedand consolidating results of operations for the period then ended.  There has not been a material adverse changein the consolidated or the consolidating financial condition of Borrower sincethe date of the most recent of such financial statements submitted to Bank.

## ** **

## **5.10**         Solvency, Payment of Debts.  Borrower is solvent and able to pay itsdebts (including trade debts) as they mature.

## ** **

## **5.11**         Regulatory Compliance. Borrower and eachSubsidiary have met the minimum funding requirements of ERISA with respect toany employee benefit plans subject to ERISA, and no event has occurredresulting from Borrower’s failure to comply with ERISA that could result inBorrower’s incurring any material liability. Borrower is not an “investment company” within the meaning of theInvestment Company Act of 1940. Borrower is not engaged principally, or as one of the importantactivities, in the business of extending credit for the purpose of purchasingor carrying margin stock (within the meaning of Regulations T and U of theBoard of Governors of the Federal Reserve System).  Borrower has complied with all the provisions of the Federal FairLabor Standards Act.  Borrower has notviolated any statutes, laws, ordinances or rules applicable to it, violation ofwhich could have a Material Adverse Effect.

## ** **

## **5.12**         Environmental Condition.  Except as disclosed in the Schedule, none ofBorrower’s or any Subsidiary’s properties or assets has ever been used byBorrower or any Subsidiary or, to the best of Borrower’s knowledge, by previousowners or operators, in the disposal of, or to produce, store, handle, treat,release, or transport, any hazardous waste or hazardous substance other than inaccordance with applicable law; to the best of Borrower’s knowledge, none ofBorrower’s properties or assets has ever been designated or identified in anymanner pursuant to any environmental protection statute as a hazardous waste orhazardous substance disposal site, or a candidate for closure pursuant to anyenvironmental protection statute; no lien arising under any environmentalprotection statute has attached to any revenues or to any real or personalproperty owned by Borrower or any Subsidiary; and neither Borrower nor anySubsidiary has received a summons, citation, notice, or directive from theEnvironmental Protection Agency or any other federal, state or othergovernmental agency concerning any action or omission by Borrower or anySubsidiary resulting in the releasing, or otherwise disposing of hazardouswaste or hazardous substances into the environment.

## ** **

## **5.13**         Taxes.  Borrower and each Subsidiary have filed orcaused to be filed all tax returns required to be filed, and have paid, or havemade adequate provision for the payment of, all taxes reflected therein.

## ** **

## **5.14**         Subsidiaries.  Borrower does not own any stock, partnershipinterest or other equity securities of any Person, except for PermittedInvestments.

## ** **

## **5.15**         Government Consents.  Borrower and each Subsidiary have obtainedall consents, approvals and authorizations of, made all declarations or filingswith, and given all notices to, all governmental authorities that are necessaryfor the continued operation of Borrower’s business as currently conducted, thefailure to obtain which could have a Material Adverse Effect.

 

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## **5.16**         Accounts.  None of Borrower’s nor any Subsidiary’sproperty is maintained or invested with a Person other than Bank.

## ** **

## **5.17**         Full Disclosure.  No representation, warranty or otherstatement made by Borrower in any certificate or written statement furnished toBank contains any untrue statement of a material fact or omits to state amaterial fact necessary in order to make the statements contained in suchcertificates or statements not misleading.

## ** **

# **6.**             AFFIRMATIVE COVENANTS.

# ** **

Borrower covenants and agrees that, until payment infull of all outstanding Obligations, and for so long as Bank may have anycommitment to make a Credit Extension hereunder, Borrower shall do all of thefollowing:

 

## **6.1**           Good Standing.  Borrower shall maintain its and each of itsSubsidiaries’ corporate existence and good standing in its jurisdiction ofincorporation and maintain qualification in each jurisdiction in which it isrequired under applicable law and the failure to do so could cause a MaterialAdverse Effect.  Borrower shall maintain,and shall cause each of its Subsidiaries to maintain, in force all governmentallicenses, approvals and agreements, the loss of which could have a MaterialAdverse Effect.

## ** **

## **6.2**           Government Compliance.  Borrower shall meet, and shall cause eachSubsidiary to meet, the minimum funding requirements of ERISA with respect toany employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, withall statutes, laws, ordinances and government rules and regulations to which itis subject, noncompliance with which could have a Material Adverse Effect.

## ** **

## **6.3**           Financial Statements,Reports, Certificates. Borrower shall deliver the following to Bank in each case at both theInglewood and the Boston addresses referenced in Section 10:  (a) as soon as available, but in any eventwithin forty five (45) days after the end of each quarter, a company preparedconsolidated balance sheet, income, and cash flow statement, together with agedlistings of accounts receivable and accounts payable, covering Borrower’sconsolidated operations during such period, prepared in accordance with GAAP,consistently applied in a form acceptable to Bank and certified by aResponsible Officer; (b) as soon as available, but in any event within ninety (90)days after the end of Borrower’s fiscal year, audited consolidated financialstatements of Borrower prepared in accordance with GAAP, consistently applied,together with an unqualified opinion on such financial statements of anindependent certified public accounting firm reasonably acceptable to Bank; (c)copies of all material statements, reports and notices sent or made availablegenerally by Borrower to its security holders or to any holders of SubordinatedDebt and all reports on Forms 10-K and 10-Q filed with the Securities andExchange Commission; (d) promptly upon receipt of notice thereof, a report ofany legal actions pending or threatened against Borrower or any Subsidiary thatcould result in damages or costs to Borrower or any Subsidiary of Two HundredFifty Thousand Dollars ($250,000) or more; (e) no more than thirty (30) daysafter each fiscal year end, Borrower’s annual financial forecast for thesubsequent year, broken down by quarter, as approved by Borrower’s Board ofDirectors; and (f) such other financial information as Bank may reasonablyrequest from time to time.

## ** **

Borrower shall deliver to Bank, with the quarterlyfinancial statements, a Compliance Certificate signed by a Responsible Officerin substantially the form of Exhibit C hereto.

 

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## **6.4**           Inventory; Returns.  Borrower shall keep all Inventory in goodand marketable condition, free from all material defects except for Inventoryfor which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its accountdebtors shall be on the same basis and in accordance with the usual customarypractices of Borrower, as they exist at the time of the execution and deliveryof this Agreement.  Borrower shallpromptly notify Bank of all returns and recoveries and of all disputes andclaims, where the return, recovery, dispute or claim involves more than TwoHundred Fifty Thousand Dollars ($250,000).

## ** **

## **6.5**           Taxes.  Borrower shall make, and shall cause eachSubsidiary to make, due and timely payment or deposit of all material federal,state, and local taxes, assessments, or contributions required of it by law,and will execute and deliver to Bank, on demand, appropriate certificatesattesting to the payment or deposit thereof; and Borrower will make, and willcause each Subsidiary to make, timely payment or deposit of all material taxpayments and withholding taxes required of it by applicable laws, including,but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,and local, state, and federal income taxes, and will, upon request, furnishBank with proof satisfactory to Bank indicating that Borrower or a Subsidiaryhas made such payments or deposits; provided that Borrower or a Subsidiary neednot make any payment if the amount or validity of such payment is contested ingood faith by appropriate proceedings and is reserved against (to the extentrequired by GAAP) by Borrower.

## ** **

## **6.6**           Insurance.

## ** **

### **(a)**           Borrower, at its expense,shall keep the Collateral insured against loss or damage by fire, theft, explosion,sprinklers, and all other hazards and risks, and in such amounts, as ordinarilyinsured against by other owners in similar businesses conducted in thelocations where Borrower’s business is conducted on the date hereof.  Borrower shall also maintain insurancerelating to Borrower’s business, ownership and use of the Collateral in amountsand of a type that are customary to businesses similar to Borrower’s.

### ** **

### **(b)**           All such policies ofinsurance shall be in such form, with such companies, and in such amounts asreasonably satisfactory to Bank.  Allsuch policies of property insurance shall contain a lender’s loss payableendorsement, in a form satisfactory to Bank, showing Bank as an additional losspayee thereof, and all liability insurance policies shall show the Bank as anadditional insured and shall specify that the insurer shall endeavor to give atleast thirty (30) days notice (or ten (10) days notice for nonpayment) to Bankbefore canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies ofsuch policies of insurance and evidence of the payments of all premiumstherefor.  All proceeds payable underany such policy shall, at the option of Bank, be payable to Bank to be appliedon account of the Obligations. Notwithstanding the foregoing, so long as no Event of Default hasoccurred and is continuing, Borrower shall have the option of applying theproceeds of any casualty policy up to $500,000 toward the replacement or repairof damaged or destroyed property.

### ** **

## **6.7**           Accounts.  As of the date which is 60 days after theClosing Date and at all times thereafter, Borrower shall maintain and shallcause each of its Subsidiaries to maintain its depository, operating, andinvestment accounts with Bank and/or, if securities account control agreementsacceptable to Bank have been entered into, Comerica Securities, Inc.

## ** **

## **6.8**           Quick Ratio.  Borrower shall maintain at all times a ratioof Quick Assets to Current Liabilities plus, to the extent not already includedtherein, all Indebtedness (including without limitation any ContingentObligations) owing from Borrower to Bank (excluding the Cash Secured Letter ofCredit), less the current portion of any deferred revenue, of at least 1.25 to1.00.  Bank may decline to honor anychecks, drafts or other items of payment if, after giving effect to the paymentof any such item, Borrower will not be in compliance with this Section.

## ** **

## **6.9**           Minimum Cash.  At all times until seven (7) Business Daysafter the Closing Date, Borrower shall maintain a balance of unrestricted cashat Bank of at least Eight Million Dollars ($8,000,000).  Thereafter, Borrower shall maintain at alltimes unrestricted cash and marketable securities at Bank and/or ComericaSecurities, Inc. of at least the greater of (i) two (2) times the aggregateamount of all Indebtedness (including without limitation any ContingentObligations but excluding the Cash Secured Letter of Credit) owing fromBorrower to Bank (the “Comerica Indebtedness Amount”) or (ii) Three MillionDollars ($3,000,000) plus the Comerica Indebtedness Amount.  Bank may decline to honor any checks, draftsor other items of payment if, after giving effect to the payment of any suchitem, Borrower will not be in compliance with this Section.

## ** **

## **6.10**         Cash Collateral.  Upon the occurrence of an Event of Default,Borrower shall immediately pledge to Bank and shall thereafter maintain at alltimes unencumbered cash (together with all proceeds thereof, interest paidthereon, and substitutions therefor, and with all accounts, securities,instruments, securities entitlements and financial assets arising out of any ofthe foregoing, the “Cash Collateral”) in an amount equal to at least 105% ofthe outstanding balance of all Indebtedness (including without limitation anyContingent Obligations) owing from Borrower to Bank.  Unrestricted cash pledged pursuant to this Section 6.10shall count toward the cash balance required under Section 6.9 (and thecash required under Section 6.9 is not in addition to cash pledged hereunder).

 

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## **6.11**         Intellectual Property.  Borrower shall use commercially reasonableefforts to (i) protect, defend and maintain the validity andenforceability of its trademarks, patents and copyrights, (ii) detectinfringements of its trademarks, patents and copyrights and promptly adviseBank in writing of material infringements detected and (iii) not allow anymaterial trademarks, patents or copyrights to be abandoned, forfeited ordedicated to the public without the written consent of Bank, which shall not beunreasonably withheld.

## ** **

## **6.12**         Further Assurances.  At any time and from time to time Borrowershall execute and deliver such further instruments and take such further actionas may reasonably be requested by Bank to effect the purposes of this Agreement.

## ** **

# **7.**             NEGATIVE COVENANTS.

# ** **

Borrower covenants and agrees that, so long as anycredit hereunder shall be available and until payment in full of theoutstanding Obligations or for so long as Bank may have any commitment to makeany Credit Extensions, Borrower will not do any of the following without theprior written consent of Bank which shall not be unreasonably withheld:

 

## **7.1**           Dispositions.  Convey, sell, lease, transfer or otherwisedispose of (collectively, a “Transfer”), or permit any of its Subsidiaries toTransfer, all or any part of its business or property, including withoutlimitation its intellectual property, other than:  (i) Transfers of Inventory in the ordinary course ofbusiness; (ii) Transfers of licenses and similar arrangements for the useof the property of Borrower or its Subsidiaries in the ordinary course ofbusiness or in connection with joint ventures or other similar arrangements;(iii) Transfers of worn-out or obsolete Equipment which was not financedby Bank; or (iv) a Transfer of the DNA.com domain name.

## ** **

## **7.2**           Change in Business orExecutive Office.  Engage in any business, orpermit any of its Subsidiaries to engage in any business, other than thebusinesses currently engaged in by Borrower and any business substantially similaror related thereto (or incidental thereto); or cease to conduct business in themanner conducted by Borrower as of the Closing Date; or without thirty (30)days prior written notification to Bank, relocate its chief executive office orstate of incorporation; or without Bank’s prior written consent, change thedate on which its fiscal year ends.

## ** **

## **7.3**           Mergers or Acquisitions.  Merge or consolidate, or permit any of itsSubsidiaries to merge or consolidate, with or into any other businessorganization, or acquire, or permit any of its Subsidiaries to acquire, all orsubstantially all of the capital stock or property of another Person.  Notwithstanding the foregoing, thisSection 7.3 shall not apply to transactions in which (i) the soleconsideration is (A) Borrower’s stock and/or (B) cash which does not exceed$100,000 (the “Cash Cap”) in the aggregate during the term of this Agreement(provided that Investments in Sciona, Ltd. shall not be subject to this cap,but shall instead be subject to the cap set forth in subsection (d) of thedefined term “Permitted Investments”), (ii) Borrower is the surviving entity,and (iii) after giving effect to such transaction, there is no Change inControl, provided that at the time of any such transaction an Event of Defaulthas not occurred which is continuing and no Event of Default would exist aftergiving effect to any such transaction. For purposes of clarity, Bank hereby acknowledges that the Cash Capapplies only to Borrower’s Investment itself; it is not a limitation onBorrower’s out of pocket fees and expenses incurred in connection with theInvestment.

## ** **

## **7.4**           Indebtedness.  Create, incur, assume or be or remain liablewith respect to any Indebtedness, or permit any Subsidiary so to do, other thanPermitted Indebtedness.

## ** **

## **7.5**           Encumbrances.  Create, incur, assume or suffer to exist anyLien with respect to any of its property, including its intellectual property,or assign or otherwise convey any right to receive income, including the saleof any Accounts, or permit any of its Subsidiaries so to do, except forPermitted Liens.  Agree with any Personother than Bank not to grant a security interest in, or otherwise encumber, anyof its property, or permit any Subsidiary to do so.

## ** **

## **7.6**           Distributions.  Pay any dividends or make any otherdistribution or payment on account of or in redemption, retirement or purchaseof any capital stock, or permit any of its Subsidiaries to do so, except that(i) Borrower may repurchase the stock of former employees pursuant to stockrepurchase agreements, (ii) Borrower may pay dividends in an aggregate amountnot to exceed $1,160,000 during the term of this Agreement, and (iii) Borrowermay repurchase stock in an aggregate amount not to exceed $250,000 during theterm of this Agreement pursuant to stock repurchase plans approved byBorrower’s Board of Directors, in each case as long as an Event of Default doesnot exist prior to such repurchase or dividend and would not exist after givingeffect to such repurchase or dividend.

## ** **

## **7.7**           Investments.  Directly or indirectly acquire or own, ormake any Investment in or to any Person, or permit any of its Subsidiaries soto do, other than Permitted Investments; or maintain or invest any of itsproperty with a Person other than Bank or permit any of its Subsidiaries to doso unless such Person has entered into an account control agreement with Bankin form

 

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## **andsubstance satisfactory to Bank; or suffer or permit any Subsidiary to be aparty to, or be bound by, an agreement that restricts such Subsidiary frompaying dividends or otherwise distributing property to Borrower.**

## ** **

## **7.8**           Transactions withAffiliates.  Directly or indirectly enter into or permitto exist any material transaction with any Affiliate of Borrower except fortransactions that are in the ordinary course of Borrower’s business, upon fairand reasonable terms that are no less favorable to Borrower than would beobtained in an arm’s length transaction with a non-affiliated Person.

## ** **

## **7.9**           Subordinated Debt.  Make any payment in respect of anySubordinated Debt, or permit any of its Subsidiaries to make any such payment,except to the extent such payments are permitted under a subordinationagreement between Bank and the applicable subordinated creditor, or amend anyprovision contained in any documentation relating to the Subordinated Debtwithout Bank’s prior written consent.

## ** **

## **7.10**         Inventory and Equipment. Store the Inventory orthe Equipment with a bailee, warehouseman, or other third party unless thethird party has been notified of Bank’s security interest and Bank (a) hasreceived an acknowledgment from the third party that it is holding or will holdthe Inventory or Equipment for Bank’s benefit or (b) is in pledge possession ofthe warehouse receipt, where negotiable, covering such Inventory or Equipment.Store or maintain any Equipment or Inventory at a location other than thelocation set forth in Section 10 of this Agreement.

## ** **

## **7.11**         Compliance.  Become an “investment company” within themeaning of the Investment Company Act of 1940, or become principally engagedin, or undertake as one of its important activities, the business of extendingcredit for the purpose of purchasing or carrying margin stock, or use theproceeds of any Credit Extension for such purpose.  Fail to meet the minimum funding requirements of ERISA, permit aReportable Event or Prohibited Transaction, as defined in ERISA, to occur, failto comply with the Federal Fair Labor Standards Act or violate any law orregulation, which violation could have a Material Adverse Effect, or a materialadverse effect on the Collateral or the priority of Bank’s Lien on theCollateral, or permit any of its Subsidiaries to do any of the foregoing.

## ** **

## **7.12**         Negative Pledge Agreements.  Permit the inclusion in any contract towhich it or a Subsidiary becomes a party of any provisions that could restrictor invalidate the creation of a security interest in any of Borrower’s or suchSubsidiary’s property.

## ** **

# **8.**             EVENTS OF DEFAULT.

# ** **

Any one or more of the following events shallconstitute an Event of Default by Borrower under this Agreement:

 

## **8.1**           Payment Default.  If Borrower fails to pay, when due, any ofthe Obligations;

## ** **

## **8.2**           Covenant Default.

## ** **

### **(a)**           If Borrower fails toperform any obligation under Article 6 or violates any of the covenantscontained in Article 7 of this Agreement; or

### ** **

### **(b)**           If Borrower fails orneglects to perform or observe any other material term, provision, condition,covenant contained in this Agreement, in any of the Loan Documents, or in anyother present or future agreement between Borrower and Bank and as to anydefault under such other term, provision, condition or covenant that can becured, has failed to cure such default within ten days after Borrower receiveswritten notice thereof or any officer of Borrower becomes aware thereof;provided, however, that if the default cannot by its nature be cured within theten day period or cannot after diligent attempts by Borrower be cured withinsuch ten day period, and such default is likely to be cured within a reasonabletime, then Borrower shall have an additional reasonable period (which shall notin any case exceed 30 days) to attempt to cure such default, and within suchreasonable time period the failure to have cured such default shall not bedeemed an Event of Default but no Credit Extensions will be made.

### ** **

## **8.3**           Material Adverse Effect.  If there occurs any circumstance orcircumstances that could reasonably be expected to have a Material AdverseEffect;

## ** **

## **8.4**           Attachment.  If any portion of Borrower’s assets isattached, seized, subjected to a writ or distress warrant, or is levied upon,or comes into the possession of any trustee, receiver or person acting in asimilar capacity and such attachment, seizure, writ or distress warrant or levyhas not been removed, discharged or rescinded within ten (10) days afterBorrower receives notice thereof, or if Borrower is enjoined, restrained, or inany way prevented by court order from continuing to conduct all or any materialpart of its business affairs, or if a judgment or other claim becomes a lien orencumbrance upon any material portion of Borrower’s assets, or if a notice oflien, levy, or assessment is filed of record with respect to any of Borrower’sassets by the United

 

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## **StatesGovernment, or any department, agency, or instrumentality thereof, or by anystate, county, municipal, or governmental agency, and the same is not paidwithin ten (10) days after Borrower receives notice thereof, provided that noneof the foregoing shall constitute an Event of Default where such action orevent is stayed or an adequate bond has been posted pending a good faithcontest by Borrower (provided that no Credit Extensions will be required to bemade during such cure period);**

## ** **

## **8.5**           Insolvency.  If Borrower becomes insolvent, or if anInsolvency Proceeding is commenced by Borrower, or if an Insolvency Proceedingis commenced against Borrower and is not dismissed or stayed within forty five(45) days (provided that no Credit Extensions will be made prior to thedismissal of such Insolvency Proceeding);

## ** **

## **8.6**           Other Agreements.  If there is a default or other failure toperform (i) in any agreement to which Borrower is a party or by which it isbound resulting in a right by a third party or parties, whether or notexercised, to accelerate the maturity of any Indebtedness in an amount inexcess of Two Hundred Fifty Thousand Dollars ($250,000) or which could have aMaterial Adverse Effect or (ii) under the CII Notes (as defined inSection 8.7);

## ** **

## **8.7**           Subordinated Debt.  If Borrower makes any payment on account ofSubordinated Debt, except to the extent such payment is allowed under anysubordination agreement entered into with Bank, or if Borrower makes anypayment to CII (as defined in Section 8.10) on account of the Indebtednessowing by Borrower to CII other than regularly scheduled payments of interestand principal pursuant to that certain Promissory Note made by Borrower infavor of CII dated December 1, 1999 in the amount of $2,720,000, thatcertain Promissory Note made by Borrower in favor of CII dated July 26,2000 in the amount of $1,500,000, and that certain Promissory Note made byBorrower in favor of CII dated September 15, 1998 in the amount of$950,000, each in the form delivered to Bank prior to the Closing Date(collectively, the “CII Notes”).

## ** **

## **8.8**           Judgments.  If a judgment or judgments for the paymentof money in an amount, individually or in the aggregate, of at least TwoHundred Fifty Thousand Dollars ($250,000) shall be rendered against Borrowerand shall remain unsatisfied and unstayed for a period of ten (10) days(provided that no Credit Extensions will be made prior to the satisfaction orstay of such judgment);

## ** **

## **8.9**           Misrepresentations.  If any material misrepresentation ormaterial misstatement exists now or hereafter in any warranty or representationset forth herein or in any certificate delivered to Bank by any ResponsibleOfficer pursuant to this Agreement or to induce Bank to enter into thisAgreement or any other Loan Document; or

## ** **

## **8.10**         Subordination Agreement.  If, within thirty (30) days after theClosing Date, Connecticut Innovations, Inc. (“CII”) has not entered into anagreement with Bank, in form and substance reasonably satisfactory to Bankproviding that CII (i) will not interfere with the exercise by Bank of itsremedies hereunder, (ii) has no claim to the Collateral, (iii) will not acceptany prepayment of any amounts owing from Borrower to CII, and (iv) will notifyBank of any default under the CII Notes (as defined in Section 8.7).

## ** **

# **9.0**           BANK’S RIGHTS AND REMEDIES.

# ** **

## **9.1**           Rights and Remedies.  Upon the occurrence and during thecontinuance of an Event of Default, Bank may, at its election, without noticeof its election and without demand, do any one or more of the following, all ofwhich are authorized by Borrower:

## ** **

### **(a)**           Declare all Obligations,whether evidenced by this Agreement, by any of the other Loan Documents, orotherwise, immediately due and payable (provided that upon the occurrence of anEvent of Default described in Section 0, all Obligations shall become immediatelydue and payable without any action by Bank);

### ** **

### **(b)**           Cease advancing money orextending credit to or for the benefit of Borrower under this Agreement orunder any other agreement between Borrower and Bank;

### ** **

### **(c)**           Settle or adjust disputesand claims directly with account debtors for amounts, upon terms and inwhatever order that Bank reasonably considers advisable;

### ** **

### **(d)**           Make such payments and dosuch acts as Bank considers necessary or reasonable to protect its securityinterest in the Collateral.  Borrower agreesto assemble the Collateral if Bank so requires, and to make the Collateralavailable to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral islocated, to take and maintain possession of the Collateral, or any part of it,and to pay, purchase, contest, or compromise any encumbrance, charge, or lienwhich in Bank’s determination appears to be prior or superior to its securityinterest and to pay all expenses incurred in connection therewith.  With respect to any of Borrower’s ownedpremises, Borrower hereby grants Bank a license to enter into possession ofsuch premises and to occupy the same, without charge, in order to exercise anyof Bank’s rights or remedies provided herein, at law, in equity, or otherwise;

 

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### **(e)**           Set off and apply to theObligations any and all (i) balances and deposits of Borrower held byBank, or (ii) indebtedness at any time owing to or for the credit or theaccount of Borrower held by Bank;

### ** **

### **(f)**            Ship, reclaim, recover,store, finish, maintain, repair, prepare for sale, advertise for sale, and sell(in the manner provided for herein) the Collateral.  Bank is hereby granted subject to the rights of third parties alicense or other right, solely pursuant to the provisions of this Section 0,to use, without charge, Borrower’s labels, patents, copyrights, rights of useof any name, trade secrets, trade names, trademarks, service marks, andadvertising matter, or any property of a similar nature, as it pertains to theCollateral, in completing production of, advertising for sale, and selling anyCollateral and, in connection with Bank’s exercise of its rights under thisSection 0, Borrower’s rights under all licenses and all franchiseagreements shall inure to Bank’s benefit;

### ** **

### **(g)**           Dispose of the Collateralby way of one or more contracts or transactions, for cash or on terms, in suchmanner and at such places (including Borrower’s premises) as Bank determines iscommercially reasonable, and apply any proceeds to the Obligations in whatevermanner or order Bank deems appropriate;

### ** **

### **(h)**           Bank may credit bid andpurchase at any public sale; and

### ** **

### **(i)**            Any deficiency that existsafter disposition of the Collateral as provided above will be paid immediatelyby Borrower.

### ** **

## **9.2**           Power of Attorney. Effective only upon theoccurrence and during the continuance of an Event of Default, Borrower herebyirrevocably appoints Bank (and any of Bank’s designated officers, or employees)as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtorsof Bank’s security interest in the Accounts; (b) endorse Borrower’s name on anychecks or other forms of payment or security that may come into Bank’spossession; (c) sign Borrower’s name on any invoice or bill of lading relatingto any Account, drafts against account debtors, schedules and assignments ofAccounts, verifications of Accounts, and notices to account debtors; (d)dispose of any Collateral; (e) make, settle, and adjust all claims under anddecisions with respect to Borrower’s policies of insurance with respect to theCollateral; (f) settle and adjust disputes and claims respecting the accountsdirectly with account debtors, for amounts and upon terms which Bank determinesto be reasonable; and (g) to file, in its sole discretion, one or morefinancing or continuation statements and amendments thereto, relative to any ofthe Collateral; provided Bank may exercise such power of attorney to sign thename of Borrower on any of the documents described in Section 4.2 regardlessof whether an Event of Default has occurred. The appointment of Bank as Borrower’s attorney in fact, and each andevery one of Bank’s rights and powers, being coupled with an interest, isirrevocable until all of the Obligations have been fully repaid and performedand Bank’s obligation to provide Credit Extensions hereunder is terminated.

## ** **

## **9.3**           Accounts Collection.  At any time after the occurrence and duringthe continuance of an Event of Default, Bank may notify any Person owing fundsto Borrower of Bank’s security interest in such funds and verify the amount ofsuch Account.  Borrower shall collectall amounts owing to Borrower for Bank, receive in trust all payments as Bank’strustee, and immediately deliver such payments to Bank in their original formas received from the account debtor, with proper endorsements for deposit.

## ** **

## **9.4**           Bank Expenses.  If Borrower fails to pay any amounts orfurnish any required proof of payment due to third persons or entities, asrequired under the terms of this Agreement, then Bank may do any or all of thefollowing after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set upsuch reserves under a facility in Section 2.1 as Bank deems necessary toprotect Bank from the exposure created by such failure; or (c) obtain andmaintain insurance policies of the type discussed in Section 0 of thisAgreement, and take any action with respect to such policies as Bank deemsprudent.  Any amounts so paid ordeposited by Bank shall constitute Bank Expenses, shall be immediately due andpayable, and shall bear interest at the then applicable rate hereinaboveprovided, and shall be secured by the Collateral.  Any payments made by Bank shall not constitute an agreement byBank to make similar payments in the future or a waiver by Bank of any Event ofDefault under this Agreement.

## ** **

## **9.5**           Bank’s Liability forCollateral.  So long as Bank complies with reasonablebanking practices, Bank shall not in any way or manner be liable or responsiblefor:  (a) the safekeeping of theCollateral; (b) any loss or damage thereto occurring or arising in anymanner or fashion from any cause; (c) any diminution in the value thereof;or (d) any act or default of any carrier, warehouseman, bailee, forwardingagency, or other person whomsoever.  Allrisk of loss, damage or destruction of the Collateral shall be borne byBorrower.

## ** **

## **9.5**           Remedies Cumulative.  Bank’s rights and remedies under thisAgreement, the Loan Documents, and all other agreements shall becumulative.  Bank shall have all otherrights and remedies not inconsistent herewith as provided under the Code, bylaw, or in equity.  No exercise by Bankof one right or remedy shall be deemed an election, and no waiver by Bank ofany Event of Default on Borrower’s part shall be deemed a continuingwaiver.  No delay by Bank shallconstitute a waiver, election, or

 

----

##  

## **acquiescenceby it.  No waiver by Bank shall beeffective unless made in a written document signed on behalf of Bank and thenshall be effective only in the specific instance and for the specific purposefor which it was given.**

## ** **

## **9.6**           Demand; Protest.  Borrower waives demand, protest, notice ofprotest, notice of default or dishonor, notice of payment and nonpayment,notice of any default, nonpayment at maturity, release, compromise, settlement,extension, or renewal of accounts, documents, instruments, chattel paper, andguarantees at any time held by Bank on which Borrower may in any way be liable.

## ** **

# **10.**           NOTICES.

# ** **

Unless otherwise provided in this Agreement, allnotices or demands by any party relating to this Agreement or any otheragreement entered into in connection herewith shall be in writing and (exceptfor financial statements and other informational documents which may besent by first-class mail, postage prepaid) shall be personally delivered orsent by a recognized overnight delivery service, certified mail, postageprepaid, return receipt requested, or by telefacsimile to Borrower or to Bank,as the case may be, at its addresses set forth below:

 
| If to Borrower: |   | GENAISSANCE PHARMACEUTICALS, INC.                 |
|-----------------|--------|---------------------------------------------------|
|            |   | 5 Science Park                                    |
|            |   | New Haven, CT 06511                               |
|            |   | Attn:  Chief Financial Officer               |
|            |   | FAX:  (203) 562-9377                         |
|            |   |                                              |
| with a copy to: |   | Hale & Dorr LLP                               |
|            |   | 60 State Street                                   |
|            |   | Boston, MA 02109                                  |
|            |   | Attn:  Steven Singer, Esq.                   |
|            |   | FAX:  (617) 526-5000                         |
|            |   |                                              |
| If to Bank:     |   | Comerica Bank                                     |
|            |   | 9920 S. La Cienega Blvd., Suite 1401              |
|            |   | Inglewood, CA 90301                               |
|            |   | Attn:  Manager                               |
|            |   | FAX:  (310) 338-6110                         |
|            |   |                                              |
| with a copy to: |   | COMERICA BANK                                     |
|            |   | 100 Federal Street, 28th Floor                    |
|            |   | Boston, MA 02110                                  |
|            |   | Attn:  Kristen Kosofsky &  Gauri Ponappa |
|            |   | FAX:  (617) 757-6310                         |

 

Notwithstandingthe foregoing, notice sent to Borrower in accordance with this Section 10shall be effective despite any failure to provide a copy of such notice toBorrower’s counsel.  The parties heretomay change the address at which they are to receive notices hereunder, bynotice in writing in the foregoing manner given to the other.

 

# **11.**           CHOICEOF LAW AND VENUE; JURY TRIAL WAIVER.

# ** **

ThisAgreement shall be governed by, and construed in accordance with, the internallaws of the State of California, without regard to principles of conflicts oflaw.  Each of Borrower and Bank herebysubmits to the exclusive jurisdiction of the state and Federal courts locatedin the County of Santa Clara, State of California.  BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO AJURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OFTHE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDINGCONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAWOR STATUTORY CLAIMS.  EACH PARTYRECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIALINDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT.  EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THISWAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITSJURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

----

 

# **12.**           GENERALPROVISIONS.

# ** **

## **12.1**         Successors and Assigns.  ThisAgreement shall bind and inure to the benefit of the respective successors andpermitted assigns of each of the parties; provided, however, that neither thisAgreement nor any rights hereunder may be assigned by Borrower without Bank’sprior written consent, which consent may be granted or withheld in Bank’s solediscretion.  Bank shall have the rightwithout the consent of or notice to Borrower to sell, transfer, negotiate, orgrant participation in all or any part of, or any interest in, Bank’s obligations,rights and benefits hereunder.

## ** **

## **12.2**         Indemnification.  Borrower shall defend,indemnify and hold harmless Bank and its officers, employees, and agentsagainst:  (a) all obligations,demands, claims, and liabilities claimed or asserted by any other party inconnection with the transactions contemplated by this Agreement; and(b) all losses or Bank Expenses in any way suffered, incurred, or paid byBank as a result of or in any way arising out of, following, or consequentialto transactions between Bank and Borrower whether under this Agreement, orotherwise (including without limitation reasonable attorneys’ fees andexpenses), except for losses caused by Bank’s gross negligence or willfulmisconduct.

## ** **

## **12.3**         Time of Essence.  Time is of the essence forthe performance of all obligations set forth in this Agreement.

## ** **

## **12.4**         Severability of Provisions.  Eachprovision of this Agreement shall be severable from every other provision ofthis Agreement for the purpose of determining the legal enforceability of anyspecific provision.

## ** **

## **12.5**         Amendments in Writing, Integration.  Neitherthis Agreement nor the Loan Documents can be amended or terminated orally.  All prior agreements, understandings,representations, warranties, and negotiations between the parties hereto withrespect to the subject matter of this Agreement and the Loan Documents, if any,are merged into this Agreement and the Loan Documents.

## ** **

## **12.6**         Counterparts.  This Agreement may beexecuted in any number of counterparts and by different parties on separatecounterparts, each of which, when executed and delivered, shall be deemed to bean original, and all of which, when taken together, shall constitute but oneand the same Agreement.

## ** **

## **12.7**         Survival.  All covenants, representations andwarranties made in this Agreement shall continue in full force and effect solong as any Obligations remain outstanding or Bank has any obligation to makeCredit Extensions to Borrower.  Theobligations of Borrower to indemnify Bank with respect to the expenses, damages,losses, costs and liabilities described in Section 0 shall survive untilall applicable statute of limitations periods with respect to actions that maybe brought against Bank have run.

## ** **

INWITNESS WHEREOF, the parties hereto have caused this Agreement to be executedas of the date first above written.

 

 
|   | GENAISSANCE PHARMACEUTICALS, INC. |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | By:                               |    /s/ Ben Kaplan |   |
|   | Title:                            | Senior Vice President & CFO |   |
|   |                              |
|   |                              |
|   | COMERICA BANK                     |
|   |                              |
|   |                              |
|   | By:                               |    /s/ Kristen Kosofsky |   |
|   | Title:                            | Vice President |   |
|        |                                   |  |  |  |  |

 

----

 
| DEBTOR:        |   | GENAISSANCE PHARMACEUTICALS, INC. |
|----------------|--------|-----------------------------------|
| SECURED PARTY: |   | COMERICA BANK                     |

 

**EXHIBITA**

 

COLLATERAL DESCRIPTION ATTACHMENTTO LOAN AND SECURITY AGREEMENT

 

All personal property ofBorrower (herein referred to as “Borrower” or “Debtor”) whether presentlyexisting or hereafter created or acquired, and wherever located, including, butnot limited to:

 

(a)           all accounts (including health-care-insurance receivables), chattel paper(including tangible and electronic chattel paper), deposit accounts, documents(including negotiable documents), equipment (including all accessions andadditions thereto), general intangibles (including payment intangibles andsoftware), goods (including fixtures), instruments (including promissorynotes), inventory (including all goods held for sale or lease or to befurnished under a contract of service, and including returns andrepossessions), investment property (including securities and securitiesentitlements), letter of credit rights, money, and all of Debtor’s books andrecords with respect to any of the foregoing, and the computers and equipmentcontaining said books and records; and

 

(e)           any and all cash proceeds and/or noncash proceeds of any of theforegoing, including, without limitation, insurance proceeds, and allsupporting obligations and the security therefor or for any right topayment.  All terms above have themeanings given to them in the California Uniform Commercial Code, as amended orsupplemented from time to time, including revised Division 9 of the UniformCommercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45),Section 35, operative July 1, 2001.

 

----

 

**EXHIBITB**

 

**TECHNOLOGY & LIFE SCIENCES DIVISIONLOAN ANALYSISLOAN ADVANCE/PAYDOWN REQUEST FORM**DEADLINE FOR EQUIPMENT ADVANCE IS 3:30 P.M. E.S.T.** DEADLINE FOR WIRE TRANSFERS IS 3:30 P.M. E.S.T.***Subject to 3 day advance notice.*

 
| TO:  Loan Analysis     | DATE:  |   |   | TIME: |   |   |
|-----------------------------|--------|--------|--------|-------|--------|--------|
| FAX #:  (650) 846-6840 |   |   |

 
| FROM:                                       | GENAISSANCE PHARMACEUTICALS, INC. | TELEPHONE REQUEST (For Bank Use Only):                                                                                              |
|---------------------------------------------|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|                                        | Borrower’s Name              |                                                                                                                                |
|                                        |                              | The following person is authorized to request the loan payment  transfer/loan advance on the designated account and is known to me. |
| FROM:                                       |                              |                                                                                                                                |   |
|                                        | Authorized Signer’s Name     |                                                                                                                                |
| FROM:                                       |                              |                                                                                                                                |   |   |   |
|                                        | Authorized Signature (Borrower)   |                                                                                                                                | Authorized Request & Phone # |   |
| PHONE #:                                    |                              |                                                                                                                                |   |   |   |
|                                        |                              |                                                                                                                                | Received by (Bank) & Phone # |   |
| FROM ACCOUNT#:                              |                              |                                                                                                                                |   |   |   |
| (please include Note number, if applicable) |                              |                                                                                                                                |   |
| TO ACCOUNT #:                               |                              |                                                                                                                                |   | Authorized Signature (Bank) |   |
| (please include Note number, if applicable) |                              |

 
|                          |                    |              |
|-------------------------------|-------------------------|-------------------|
| REQUESTED TRANSACTION TYPE    | REQUESTED DOLLAR AMOUNT | For Bank Use Only |
|                          |                    |              |
| PRINCIPAL INCREASE* (ADVANCE) | $                       | Date Rec’d:  |
| PRINCIPAL PAYMENT (ONLY)      | $                       | Time:             |
|                          |                    | Comp. Status:     | YES | NO |
| OTHER INSTRUCTIONS:           |                    | Status Date:      |
|                          |                    | Time:             |
|                          |                    | Approval:         |

 

All representations and warranties of Borrower stated in the LoanAgreement are true, correct and complete in all material respects as of thedate of the telephone request for and advance confirmed by this BorrowingCertificate, including without limitation the representation that Borrower haspaid for and owns the equipment financed by the Bank; provided, however, that thoserepresentations and warranties the date expressly referring to another dateshall be true, correct and complete in all material respects as of such date. 

 

----

***IS THERE A WIRE REQUEST TIED TO THIS LOANADVANCE?  (PLEASE CIRCLEONE)      YES      NO**

If YES, the Outgoing Wire Transfer Instructions must be completedbelow.

 
| **OUTGOING WIRE TRANSFER INSTRUCTIONS**                                  | Fed Reference Number | Bank Transfer Number |
|--------------------------------------------------------------------------|----------------------|----------------------|
|                                                                     |                 |                 |
| **The items marked with an asterisk (*) are  required to be completed.** |
|                                                                     |                 |
| *Beneficiary Name                                                        |                 |
| *Beneficiary Account Number                                              |                 |
| *Beneficiary Address                                                     |                 |
| Currency Type                                                            | US DOLLARS ONLY      |
| *ABA Routing Number (9 Digits)                                           |                 |
| *Receiving Institution Name                                              |                 |
| *Receiving Institution Address                                           |                 |
| *Wire Account                                                            | $                    |
|                                                                          |                      |                      |  |

 

----

 

**EXHIBIT C**

 

COMPLIANCE CERTIFICATE

 
| TO:    |   | COMERICA BANK                     |
|--------|--------|-----------------------------------|
|   |   |                              |
| FROM:  |   | GENAISSANCE PHARMACEUTICALS, INC. |

 

The undersignedauthorized officer of GENAISSANCE PHARMACEUTICALS, INC. hereby certifies thatin accordance with the terms and conditions of the Loan and Security Agreementbetween Borrower and Bank (the “Agreement”), (i) Borrower is in completecompliance for the period ending                      with all required covenants except as noted below and (ii) allrepresentations and warranties of Borrower stated in the Agreement are true andcorrect as of the date hereof.  Attachedherewith are the required documents supporting the above certification.  The Officer further certifies that these areprepared in accordance with Generally Accepted Accounting Principles (GAAP) andare consistently applied from one period to the next except as explained in anaccompanying letter or footnotes.

 

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

 
| **Reporting Covenant**                                                    |   | **Required**             |   |   |   | **Complies** |
|---------------------------------------------------------------------------|--------|--------------------------|--------|--------|--------|--------------|
|                                                                      |   |                     |   |   |   |         |   |   |
| Quarterly financial statements                                            |   | Quarterly within 45 days |   |   |   | Yes          |   | No |
| Annual (CPA Audited)                                                      |   | FYE within 90 days       |   |   |   | Yes          |   | No |
| 10K and 10Q                                                               |   | When filed with SEC      |   |   |   | Yes          |   | No |
| A/R & A/P Agings                                                      |   | Quarterly within 45 days |   |   |   | Yes          |   | No |
| Annual Budget                                                             |   | FYE within 30 days       |   |   |   | Yes          |   | No |
| Total amount of Borrower’s cash and investments                      |   | Amount:  $          |   |   |   | Yes          |   | No |
| Total amount of Borrower’s cash and investments maintained with Bank |   | Amount:  $          |   |   |   | Yes          |   | No |

 
| **Financial Covenant**            |   | **Required** |   | **Actual** |   | **Complies** |
|-----------------------------------|--------|--------------|--------|------------|--------|--------------|
|                              |   |         |   |       |   |         |   |   |
| Minimum Quick Ratio               |   | 1.25:1.00    |   | :1.00      |   | Yes          |   | No |
| Minimum Unrestricted Cash Balance |   | *            |   | $          |   |         | Yes |   | No |
|                                   |        |              |        |            |        |              |  |  |  |

 

----

* Borrower shall maintain at all times unrestricted cash at Bank and/orComerica Securities, Inc. of at least the greater of (i) two (2) times theaggregate amount of all Indebtedness (including without limitation anyContingent Obligations but excluding the Cash Secured Letter of Credit) owingfrom Borrower to Bank (the “Comerica Indebtedness Amount”) or (ii) ThreeMillion Dollars ($3,000,000) plus the Comerica Indebtedness Amount.

 
| **Comments Regarding  Exceptions:**   See Attached. |   |              |
|----------------------------------------------------------|--------|-------------------|
|                                                     |   | No                |
|                                                     |   | Received by:      |   |   |
| Sincerely,                                               |   | AUTHORIZED SIGNER |
|                                                     |   |              |
|                                                     |   | Date:             |   |   |
|                                                     |   | Verified:         |   |   |
| SIGNATURE                                                |   | AUTHORIZED SIGNER |
|                                                     |   |              |
|                                                     |   | Date:             |   |   |
| TITLE                                                    |   |              |
|                                                     |   | Compliance Status | Yes |
|                                                     |   |              |
| DATE                                                     |   |              |
|                                                          |        |                   |  |  |  |  |  |  |  |

 

----

 

SCHEDULE OF EXCEPTIONS

 

Permitted Indebtedness  (Section 1.1)

 

Connecticut Innovations, Incorporated in the amount of $4,650,000.

 

General Electric Capital Corporation (aka Oxford Venture Capital) inthe amount of $1,861,000.

 

Permitted Investments  (Section 1.1)

 

Investments in Epigenix, Inc. (aka Asilas Genomic Systems, Inc.) consistingsolely of equity securities.

 

Investments in Sciona Limited (provided that investments made after theClosing Date will be subject to the limitations set forth insubsection (d) of the defined term “Permitted Investments”).

 

Permitted Liens  (Section 1.1)

 

Connecticut Innovations, Incorporated covering leasehold improvementsand related rights.

 

Prior Names  (Section 5.7)

 

BIOS Laboratories, Inc.

 

Additional Locations(Section 5.7)

 

3500 Paramount Parkway

 

Morrisville, NC

 

Litigation  (Section 5.8)

 

None

 

Environmental  (Section 5.12)

 

Genaissance leases space in New Haven, CT that previously housed a gunand ammunition manufacturing company. To the best of our knowledge, any potential environmental issues wereaddressed in the renovation of the building and surrounding grounds.  To the best of our knowledge, the leasespace is not currently and has not in the past been designated or identified inany manner pursuant to any environmental protection statute.

 

----

 

**COMERICABANKMember FDIC**

 

**ITEMIZATIONOF AMOUNT FINANCEDDISBURSEMENT INSTRUCTIONS**

 
| Name(s):  GENAISSANCE  PHARMACEUTICALS, INC. | Date:  September 30, 2003                                                                                                                                                                               |
|---------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                              |
| $                                                 | credited to deposit account No.                         when Credit Extensions are requested by Borrower |
|                                              |
| Amounts paid to others on your behalf:            |
| $                                                 | to COMERICA BANK for Loan Fee                                                                                                                                                                                     |
| $                                                 | to Bank counsel fees and expenses                                                                                                                                                                                 |
| $                                                 | to                                                                                                                                                                                                                |
| $                                                 | to                                                                                                                                                                                                                |
| $5,000,000                                        | TOTAL (AMOUNT FINANCED)                                                                                                                                                                                           |
|                                                   |                                                                                                                                                                                                                   |  |  |

 

Upon consummation of this transaction, this documentwill also serve as the authorization for COMERICA BANK to disburse the loanproceeds as stated above.

 
|      |   |      |
|-----------|--------|-----------|
| Signature |   | Signature |

 

----

 

**AGREEMENT TO PROVIDE INSURANCE**

 
| TO:    |   | COMERICA BANK                                |   | Date:  September 30, 2003                |
|--------|--------|----------------------------------------------|--------|----------------------------------------------------|
|   |   |                                         |   |                                               |
|   |   | attn:  Collateral Operations,  M/C 4604 |   |                                               |
|   |   | 9920 South La Cienega Blvd, 14th Floor       |   |                                               |
|   |   | Inglewood, CA  90301                    |   | Borrower:  GENAISSANCE  PHARMACEUTICALS, INC. |

 

Inconsideration of a loan in the amount of $5,000,000, secured by all tangiblepersonal property including inventory and equipment.

 

I/Weagree to obtain adequate insurance coverage to remain in force during the termof the loan.

 

I/Wealso agree to advise the below named agent to add COMERICA BANK as lender’sloss payable on the new or existing insurance policy, and to furnish Bank atabove address with a copy of said policy/endorsements and any subsequentrenewal policies.

 

I/Weunderstand that the policy must contain:

 

1.             Fire and extendedcoverage in an amount sufficient to cover:

 

(a)           The amount of the loan,OR

 

(b)           All existingencumbrances, whichever is greater,

 

Butnot in excess of the replacement value of the improvements on the realproperty.

 

2.             Lender’s “LossPayable” Endorsement Form 438 BFU in favor of COMERICA BANK, or any otherform acceptable to Bank.

 

**INSURANCEINFORMATION**

 
| Insurance Co./Agent   | Telephone No.:        |
|-----------------------|-----------------------|
|                  |                  |
| Agent’s Address: |                  |
|                  |
|                  | Signature of Obligor: |   |   |
|                  |                  |   |   |
|                  | Signature of Obligor: |   |   |
|                  |                  |   |   |
|                       |                       |  |  |  |

 
| FOR BANK USE ONLY             |
|-------------------------------|
|                          |
| INSURANCE VERIFICATION: Date: |
|                          |
| Person Spoken to:             |
|                          |
| Policy Number:                |
|                          |
| Effective From:               |   | To: |   |
|                          |   |   |   |
| Verified by:                  |   |   |
|                               |  |  |  |  |  |

 

----

 
| **COMERICA BANK**                    |   |                              |
|--------------------------------------|--------|-----------------------------------|
| **California’s Business Banks** |   | **AUTOMATIC DEBIT AUTHORIZATION** |
| **Member FDIC**                      |   |                              |

 
| To:  **COMERICA BANK**                                                                                                                                                                                                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                               |
| Re:  **Loan #**                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                               |
| You are hereby authorized and instructed to charge account No.                                            in the name of GENAISSANCE PHARMACEUTICALS, INC. |
| for principal and interest payments due on above referenced loan as  set forth below and credit the loan referenced above.                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                               | ý               Debit  each interest payment as it becomes due according to the terms of the note  and any renewals or amendments thereof. |
|                                                                                                                                                                                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                                                                                                                                               | ý               Debit  each principal payment as it becomes due according to the terms of the note  and any renewals or amendments thereof. |
|                                                                                                                                                                                                                                                                                                                                                               |
| This Authorization is to remain in full force and effect until  revoked in writing.                                                                                                                                                                                                                                                                                |

 
| Borrower Signature |                    |   | Date |   |   |
|--------------------|-------------------------|--------|------|--------|--------|
|               | September 30, 2003 |

 

----

 
|   |           | **COMERICA  BANK/BOSTON OFFICE** |
|--------|----------------|----------------------------------|
| Phone: | (800) 413-4624 |                             | **CLIENT  AUTHORIZATION** |
| Fax    | (617) 956-0557 |                             |   |

 

**General Authorization**

I hereby authorize COMERICA BANK to use my companyname, logo, and information relating to our banking relationship in its marketingand advertising campaigns which is intended for COMERICA BANK’s customers,prospects and shareholders.

 

COMERICA BANK will forward any advertising orarticle including client for prior review and approval.

 
|                  |
|-----------------------|
| Signature             |
|                  |
|                  |
|                  |
| Printed Name          | Title |
|                  |
|                  |
|                  |
| Company               |
|                  |
|                  |
|                  |
| Mailing Address       |
|                  |
|                  |
|                  |
| City, State, Zip Code |
|                  |
|                  |
|                  |
| Phone Number          |
|                  |
|                  |
|                  |
| Fax Number            |
|                  |
|                  |
|                  |
| E-Mail                |
|                  |
|                  |
|                  |
| Date                  |

 

----

 
| **DEBTOR:**         |   | **GENAISSANCE PHARMACEUTICALS, INC.** |
|---------------------|--------|---------------------------------------|
|                |   |                                  |
| **SECURED  PARTY:** |   | **COMERICA  BANK**                    |

 

**EXHIBIT A**

 

COLLATERAL DESCRIPTION ATTACHMENTTO UCC-1 FINANCING STATEMENT

 

Allpersonal property of Borrower (herein referred to as “Borrower” or “Debtor”)whether presently existing or hereafter created or acquired, and whereverlocated, including, but not limited to:

 

(a)           all accounts (includinghealth-care-insurance receivables), chattel paper (including tangible andelectronic chattel paper), deposit accounts, documents (including negotiabledocuments), equipment (including all accessions and additions thereto), generalintangibles (including payment intangibles and software), goods (includingfixtures), instruments (including promissory notes), inventory (including allgoods held for sale or lease or to be furnished under a contract of service,and including returns and repossessions), investment property (includingsecurities and securities entitlements), letter of credit rights, money, andall of Debtor’s books and records with respect to any of the foregoing, and thecomputers and equipment containing said books and records; and

 

(b)           any and all cashproceeds and/or noncash proceeds of any of the foregoing, including, withoutlimitation, insurance proceeds, and all supporting obligations and the securitytherefor or for any right to payment. All terms above have the meanings given to them in the CaliforniaUniform Commercial Code, as amended or supplemented from time to time,including revised Division 9 of the Uniform Commercial Code-SecuredTransactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operativeJuly 1, 2001.

 

----