Exhibit 10.1


 





LOAN AND SECURITY
AGREEMENT


 


THIS LOAN AND SECURITY
AGREEMENT is made and dated as of June 7, 2016 and is entered into by and among (a) PHASERX, INC., a Delaware corporation, and
each of its Qualified Subsidiaries (hereinafter collectively referred to as the “Borrower”), (b) the several banks
and other financial institutions or entities from time to time parties to this Agreement (collectively, referred to as “Lender”),
and (c) HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent for itself and the Lender (in such
capacity, the “Agent”).


 


RECITALS


 


A.           Borrower
has requested Lender to make available to Borrower Term Loan Advances in an aggregate principal amount of up to Eight Million Dollars
($8,000,000) (the “Maximum Term Loan Amount”); and


 


B.           Lender
is willing to make the Term Loan Advances on the terms and conditions set forth in this Agreement.


 


AGREEMENT


 


NOW, THEREFORE, Borrower,
Agent and Lender agree as follows:


 


SECTION
1. DEFINITIONS AND RULES OF CONSTRUCTION


 


1.1           Unless
otherwise defined herein, the following capitalized terms shall have the following meanings:


 


“1934 Act”
shall have the meaning assigned to such term in Section 2.1(e)(iii).


 


“Account Control
Agreement(s)” means any agreement entered into by and among Agent, Borrower and a third party Bank or other institution (including
a Securities Intermediary) in which Borrower maintains a Deposit Account or an account holding Investment Property and which grants
Agent a perfected first priority security interest in the subject account or accounts.


 


“ACH Authorization”
means the ACH Debit Authorization Agreement in substantially the form of Exhibit I, which account numbers shall be redacted for
security purposes if and when filed publicly by the Borrower.


 


“Advance(s)”
means a Term Loan Advance.


 


“Advance Date”
means the funding date of any Advance.


 


“Advance Request”
means a request for an Advance submitted by Borrower to Agent in substantially the form of Exhibit A, which account numbers shall
be redacted for security purposes if and when filed publicly by Borrower.


 




     


     


    

  


“Affiliate”
means (a) any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question,
(b) any Person directly or indirectly owning, controlling or holding with power to vote ten percent (10%) or more of the outstanding
voting securities of another Person, (c) any Person ten percent (10%) or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held by another Person with power to vote such securities, or (d) any Person related by blood
or marriage to any Person described in subsection (a), (b) or (c) of this paragraph. As used in the definition of “Affiliate,”
the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.


 


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


 


“Agreement”
means this Loan and Security Agreement, as amended from time to time.


 


“Amortization Date”
means July 3, 2017; provided however, that if the Interest Only Period Extension Event occurs prior to July 3, 2017, the Amortization
Date shall be October 2, 2017.


 


“Assignee”
has the meaning given to it in Section 11.13.


 


“Board” means
Borrower’s board of directors.


 


“Borrower Products”
means all products, software, service offerings, technical data or technology that are currently being, and may be in the future,
designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any
products or service offerings under development, collectively, together with all products, software, service offerings, technical
data or technology that have been sold, licensed or distributed by Borrower since its incorporation.


 


“Business Day”
means any day other than Saturday, Sunday and any other day on which banking institutions in the State of California are closed
for business.


 


“Cash” means
all cash, cash equivalents and liquid funds.


 


“Change in Control”
means any reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions)
of Borrower, sale or exchange of outstanding shares (or similar transaction or series of related transactions) of Borrower in which
the holders of Borrower’s outstanding shares immediately before consummation of such transaction or series of related transactions
do not, immediately after consummation of such transaction or series of related transactions, retain shares representing more than
fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent
of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Borrower
is the surviving entity.


 


“Claims” has
the meaning given to it in Section 11.10.


 


“Closing Date”
means the date of this Agreement.


 


“Collateral”
means the property described in Section 3.


 




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“Confidential Information”
has the meaning given to it in Section 11.12.


 


“Contingent Obligation”
means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i)
any Indebtedness, lease, dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant
services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity
swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect
a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent
Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support arrangement.


 


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


 


“Copyrights”
means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof, or
of any other country.


 


“Deposit Accounts”
means any “deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account,
or certificate of deposit.


 


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


 


“Draw Period”
means the period commencing upon the occurrence of the Term B Milestone Event and ending on the earlier to occur of (a) December
15, 2016, (b) the date which is forty-five (45) days after the consummation of the Term B Milestone Event, and (c) an Event of
Default.


 


“Due Diligence Fee”
means Twenty Thousand Dollars ($20,000), which fee is due to Lender on or prior to the Closing Date, and shall be deemed fully
earned on such date regardless of the early termination of this Agreement.


 


“Eligible Foreign
Subsidiary” means any Foreign Subsidiary whose execution of a Joinder Agreement would not result in a material adverse tax
consequence to Borrower.


 


“End of Term Charge”
shall have the meaning assigned to such term in Section 2.5.


 


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


 




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“Event of Default”
has the meaning given to it in Section 9.


 


“Facility Charge”
means one percent (1.0%) of the Maximum Term Loan Amount, which is Eighty Thousand Dollars ($80,000).


 


“Financial Statements”
has the meaning given to it in Section 7.1.


 


“Foreign Subsidiary”
means any Subsidiary other than a Subsidiary organized under the laws of any state within the United States.


 


“GAAP” means
generally accepted accounting principles in the United States of America, as in effect from time to time.


 


“Indebtedness”
means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or
services (excluding trade credit entered into in the ordinary course of business due within ninety (90) days), including reimbursement
and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures
or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.


 


“Initial Public Offering”
means the initial firm commitment underwritten offering of Borrower’s common stock pursuant to a registration statement under
the Securities Act of 1933 filed with and declared effective by the Securities and Exchange Commission.


 


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


 


“Intellectual Property”
means all of Borrower’s Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; mask works; Borrower’s
applications therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill associated with any of the foregoing,
together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill
associated therewith.


 


“Interest Only Period
Extension Event” means the funding of all or a portion of the Term B Loan Advance has occurred.


 


“Investment”
means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any
loan, advance or capital contribution to any Person or the acquisition of all or a portion of the assets of another Person.


 


“Joinder Agreements”
means for each Qualified Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit
G.


 


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


 




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“License” means
any Copyright License, Patent License, Trademark License or other license of rights or interests.


 


“Lien” means
any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge
of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale
or other title retention agreement, and any lease in the nature of a security interest.


 


“Loan” means
the Advances made under this Agreement.


 


“Loan Documents”
means this Agreement, the Notes (if any), the ACH Authorization, the Account Control Agreements, the Joinder Agreements, all UCC
Financing Statements, the Warrant, any subordination agreement, and any other documents executed in connection with the Secured
Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.


 


“Material Adverse
Effect” means a material adverse effect upon: (i) the business, operations, properties, assets or financial condition of
Borrower and its Subsidiaries taken as a whole; or (ii) the ability of Borrower to perform or pay the Secured Obligations in accordance
with the terms of the Loan Documents, or the ability of Agent or Lender to enforce any of its rights or remedies with respect to
the Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral or the priority of such Liens.


 


“Maximum Term Loan
Amount” shall have the meaning assigned to such term in the preamble to this Agreement.


 


“Maximum Rate”
shall have the meaning assigned to such term in Section 2.2.


 


“Note(s)” means
a promissory note or promissory notes to evidence Lender’s Loans substantially in the form of Exhibit B.


 


“ordinary course
of business” and “ordinary course of Borrower’s business” means the normal and customary operations of
Borrower and its business and shall include, without limitation, collaboration or licensing transactions, or options to enter into
collaboration or licensing transactions, that are customary in Borrower’s industry (including the licensing or co-development
of orphan liver disease programs and collaboration around Borrower’s mRNA technology platform).


 


“Patent License”
means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application
is pending, in which agreement Borrower now holds or hereafter acquires any interest.


 


“Patents” means
all letters patent of, or rights corresponding thereto, in the United States or in any other country, all registrations and recordings
thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States or any other country.


 




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“Permitted Indebtedness”
means: (i) Indebtedness of Borrower in favor of Lender or Agent arising under this Agreement or any other Loan Document; (ii) Indebtedness
existing on the Closing Date which is disclosed in Schedule 1A; (iii) Indebtedness of up to Two Million Dollars ($2,000,000) outstanding
at any time secured by a Lien described in clause (vii) of the defined term “Permitted Liens,” provided such Indebtedness
does not exceed the cost of the Equipment financed with such Indebtedness; (iv) Indebtedness to trade creditors incurred in the
ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (v)
Indebtedness that also constitutes a Permitted Investment; (vi) Subordinated Indebtedness; (vii) reimbursement obligations in connection
with letters of credit that are secured by Cash and issued on behalf of Borrower or a Subsidiary thereof in an amount not to exceed
Two Hundred Fifty Thousand Dollars ($250,000) at any time outstanding, (viii) other Indebtedness in an amount not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) at any time outstanding, (ix) intercompany Indebtedness as long as either (A) each of
the Subsidiary obligor and the Subsidiary obligee under such Indebtedness is a Qualified Subsidiary that has executed a Joinder
Agreement, (x) lease obligations for real property including obligations in connection with leasehold improvements in an amount
not to exceed One Million Five Hundred Thousand Dollars ($1,500,000) at any time outstanding, and (xi) extensions, refinancings
and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified
to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.


 


“Permitted Investment”
means: (i) Investments existing on the Closing Date which are disclosed in Schedule 1B; (ii) (a) marketable direct obligations
issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year
from the date of acquisition thereof, (b) commercial paper maturing no more than one year from the date of creation thereof and
currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors
Service, (c) certificates of deposit issued by any bank with assets of at least Five Hundred Million Dollars ($500,000,000) maturing
no more than one year from the date of investment therein, (d) money market accounts, and (e) any Investments permitted by Borrower’s
investment policy, attached hereto as Schedule 1D, as amended from time to time, provided that such investment policy (and any
such amendment thereto) has been approved in writing by Agent; (iii) repurchases of stock from former employees, directors, or
consultants of Borrower under the terms of applicable repurchase agreements at the original issuance price of such securities in
an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year, provided that no Event of Default
has occurred, is continuing or would exist after giving effect to the repurchases; (iv) Investments accepted in connection with
Permitted Transfers; (v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization
of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising
in the ordinary course of Borrower’s business; (vi) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions and advances, to customers, suppliers, contract manufacturers, and/or licensors who are not Affiliates,
in the ordinary course of business, provided that this subparagraph (vi) shall not apply to Investments of Borrower in any Subsidiary;
(vii) Investments consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds
to employees, officers or directors relating to the purchase of capital stock of Borrower pursuant to employee stock purchase plans
or other similar agreements approved by Borrower’s Board; (viii) Investments consisting of travel advances in the ordinary
course of business; (ix) Investments in newly-formed Domestic Subsidiaries, provided that each such Domestic Subsidiary enters
into a Joinder Agreement promptly after its formation by Borrower and execute such other documents as shall be reasonably requested
by Agent; (x) Investments in Foreign Subsidiaries approved in advance in writing by Agent; (xi) joint ventures, partnering arrangements
or strategic alliances in the ordinary course of Borrower’s business consisting of the licensing of technology (that would
not result in a legal transfer of title of the licensed property), the development of technology or the providing of technical
support, provided that any cash Investments by Borrower do not exceed One Million Dollars ($1,000,000.00) in the aggregate in any
fiscal year; (xii) advances to landlords for the construction of leasehold improvements made to premises occupied by Borrower;
and (xiii) additional Investments that do not exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate.


 




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“Permitted Liens”
means any and all of the following: (i) Liens in favor of Agent or Lender; (ii) Liens existing on the Closing Date which are disclosed
in Schedule 1C; (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being
contested in good faith by appropriate proceedings; provided, that Borrower maintains adequate reserves therefor in accordance
with GAAP; (iv) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other
like Persons arising in the ordinary course of Borrower’s business and imposed without action of such parties; provided,
that the payment thereof is not yet required; (v) Liens arising from judgments, decrees or attachments in circumstances which do
not constitute an Event of Default hereunder; (vi) the following deposits, to the extent made in the ordinary course of business:
deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar
bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory
obligations (other than Liens arising under ERISA or environmental Liens) or surety or appeal bonds, or to secure indemnity, performance
or other similar bonds; (vii) Liens on Equipment or software or other intellectual property constituting purchase money Liens and
Liens in connection with capital leases securing Indebtedness permitted in clause (iii) of “Permitted Indebtedness”;
(viii) Liens incurred in connection with Subordinated Indebtedness; (ix) leasehold interests in leases or subleases and licenses
granted in the ordinary course of business and not interfering in any material respect with the business of the licensor; (x) Liens
in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties that are promptly paid
on or before the date they become due; (xi) Liens on insurance proceeds securing the payment of financed insurance premiums that
are promptly paid on or before the date they become due (provided that such Liens extend only to such insurance proceeds and not
to any other property or assets); (xii) statutory and common law rights of set-off and other similar rights as to deposits of cash
and securities in favor of banks, other depository institutions and brokerage firms; (xiii) easements, zoning restrictions, rights-of-way
and similar encumbrances on real property imposed by law or arising in the ordinary course of business so long as they do not materially
impair the value or marketability of the related property; (xiv) (A) Liens on Cash securing obligations permitted under clause
(vii) of the definition of Permitted Indebtedness and (B) security deposits in connection with real property leases, the combination
of (A) and (B) in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) at any time; (xv) Liens incurred in
connection with leasehold improvements made to the Borrower’s and its Subsidiaries’ facilities permitted under subsection
(x) of Permitted Indebtedness; and (xvi) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness
secured by Liens of the type described in clauses (i) through (xi) above; provided, that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced (as may have been reduced by any payment thereon) does not increase.


 




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“Permitted Transfers”
means (i) sales of Inventory in the ordinary course of business, (ii) licenses (including, without limitation, exclusive licenses)
and similar arrangements for the use of Intellectual Property in the ordinary course of business and licenses that could not result
in a legal transfer of title of the licensed Intellectual Property or other property, (iii) dispositions of worn-out, obsolete
or surplus Equipment at fair market value in the ordinary course of business, (iv) other transfers of assets having a fair market
value of not more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year, and (v) transfers, sales,
leases, assignments, or other dispositions of all or substantially all of Borrower’s assets or the merger or consolidation
of the Borrower with or into another Person in which, in each case, the proceeds thereof are immediately used to indefeasibly satisfy
all Secured Obligations in full and the Lender’s commitment to lend hereunder has been terminated.


 


“Person” means
any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, other entity or government.


 


“Prepayment Charge”
shall have the meaning assigned to such term in Section 2.5.


 


“Prime Rate”
means the “prime rate” as reported in The Wall Street Journal, and if not reported, then the prime rate most recently
reported in The Wall Street Journal.


 


“Qualified Subsidiary”
means any direct or indirect Domestic Subsidiary or Eligible Foreign Subsidiary.


 


“Receivables”
means (i) all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds
of any letter of credit, and Letter of Credit Rights, and (ii) all customer lists, software, and business records related thereto.


 


“Required Lenders”
means at any time, the holders of more than fifty percent (50%) of the aggregate unpaid principal amount of the Term Loan Advances
then outstanding.


 


“SBA” shall
have the meaning assigned to such term in Section 7.16.


 


“SBIC” shall
have the meaning assigned to such term in Section 7.16.


 


“SBIC Act”
shall have the meaning assigned to such term in Section 7.16.


 


“SEC” means
the Securities and Exchange Commission.


 


“Secured Obligations”
means Borrower’s obligations under this Agreement and any Loan Document (other than the Warrant), including any obligation
to pay any amount now owing or later arising (including, without limitation, the End of Term Charge and the Prepayment Charge).


 




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


 


“Subordinated Indebtedness”
means Indebtedness subordinated to the Secured Obligations in amounts and on terms and conditions satisfactory to Agent in its
sole discretion.


 


“Subsequent Financing”
means the next sale and issuance by Borrower, after the date hereof, of its equity securities to one or more institutional investors
for cash for financing purposes in a transaction or series of related transactions not registered under the Securities Act; provided,
however, in the event that Lender invests at least Five Hundred Thousand Dollars ($500,000) in the Initial Public Offering, then
“Subsequent Financing” shall mean each of the next two (2) sales and issuances by Borrower, after the date hereof,
of its equity securities to one or more institutional investors for cash for financing purposes in a transaction or series of related
transactions not registered under the Securities Act.


 


“Subsidiary”
means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns
or controls fifty percent (50.0%) or more of the outstanding voting securities, including each entity listed on Schedule 1 hereto.


 


“Term A Loan Advance”
shall have the meaning assigned to such term in Section 2.1(a).


 


“Term A Loan Funding
Event” means confirmation by Agent and Lender, that Borrower has received after March 7, 2016, but on or before June 7, 2016,
unrestricted and unencumbered net cash proceeds from the Initial Public Offering in an amount equal to or greater than Fifteen
Million Five Hundred Thousand Dollars ($15,500,000).


 


“Term B Loan Advance”
shall have the meaning assigned to such term in Section 2.1(a).


 


“Term B Milestone
Event” means confirmation by Agent and Lender in their sole discretion, that after the Closing Date, but on or prior to December
15, 2016, Borrower has entered into an arms-length strategic corporate development transaction with a non-affiliated Person that
is in a similar line of business and/or industry as Borrower pursuant to which (i) Borrower licenses its Intellectual Property
to such non-affiliated Person and (ii) whose financial character is validating in Agent’s and Lender’s sole discretion.


 


“Term Commitment”
means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to Borrower in a principal amount not
to exceed the amount set forth under the heading “Term Commitment” opposite such Lender’s name on Schedule 1.1.


 


“Term Loan Advance”
and “Term Loan Advances” shall have the meaning assigned to such terms in Section 2.1(a).


 


“Term Loan Interest
Rate” means for any day, a floating per annum rate equal to the greater of either (a) nine and one-quarter of one percent
(9.25%), or (b) the sum of (i) nine and one-quarter of one percent (9.25%), plus (ii) the Prime Rate minus three and one-half of
one percent (3.50%).


 


“Term Loan Maturity
Date” means December 2, 2019.


 




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


 


“Trademarks”
means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations,
recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States,
any State thereof or any other country or any political subdivision thereof.


 


“UCC” means
the Uniform Commercial Code as the same is, from time to time, in effect in the State of California; provided, that in the event
that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect
to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect
in a jurisdiction other than the State of California, then the term “UCC” shall mean the Uniform Commercial Code as
in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to such provisions.


 


“Warrant” means
the Warrant Agreement dated as of even date hereof by and between Hercules Technology III, L.P. and Borrower, as may be amended,
restated or modified from time to time.


 


Unless otherwise specified,
all references in this Agreement or any Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,”
“Annex,” or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule
in or to this Agreement. Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other
Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder
shall be computed in accordance with GAAP, consistently applied. Unless otherwise defined herein or in the other Loan Documents,
terms that are used herein or in the other Loan Documents and defined in the UCC shall have the meanings given to them in the UCC.


 


SECTION
2. THE LOAN


 


2.1           Term
Loan.


 


(a)          Advances.
Subject to the terms and conditions of this Agreement, on the date that the Term A Loan Funding Event occurs, Lender will severally
(and not jointly) make, in an amount not to exceed its respective Term Commitment, and Borrower agrees to draw, one (1) Term Loan
Advance in the amount of Six Million Dollars ($6,000,000) (the “Term A Loan Advance”). Subject to the terms and conditions
of this Agreement, during the Draw Period, Lender will severally (and not jointly) make, in an amount not to exceed its respective
Term Commitment, and Borrower may request, one (1) additional Term Loan Advance in an amount of Two Million Dollars ($2,000,000)
(the “Term B Loan Advance”). The Term A Loan Advance and the Term B Loan Advance are hereinafter referred to singly
as the “Term Loan Advance” and collectively as the “Term Loan Advances.” The aggregate outstanding Term
Loan Advances shall not exceed the Maximum Term Loan Amount. Proceeds of any Term Loan Advance shall be funded by the Lender into
an account that is subject to a first priority perfected security interest in favor of Agent perfected by an Account Control Agreement.


 




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(b)          Advance
Request. To obtain a Term Loan Advance, Borrower shall complete, sign and deliver to Agent an Advance Request (at least three (3)
Business Days before the Advance Date other than the Closing Date, which shall be at least one (1) Business Day). Lender shall
fund the Term Loan Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such
Term Loan Advance is satisfied as of the requested Advance Date.


 


(c)          Interest.
The principal balance of each Term Loan Advance shall bear interest thereon from such Advance Date at the Term Loan Interest Rate
based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed. The Term Loan
Interest Rate will float and change on the day the Prime Rate changes from time to time.


 


(d)          Payment.
Borrower will pay interest on each Term Loan Advance on the first (1st) Business Day of each month, beginning the month
after the Advance Date.  Borrower shall repay the aggregate principal balance of the Term Loan Advances that are outstanding
on the day immediately preceding the Amortization Date, in equal monthly installments of principal and interest (mortgage style)
beginning on the Amortization Date and continuing on the first (1st) Business Day of each month thereafter until the
Secured Obligations (other than inchoate indemnity obligations) are repaid.  The entire principal balance of the Term Loan
Advances and all accrued but unpaid interest hereunder, and all other Secured Obligations with respect to the Term Loan Advances,
shall be due and payable on the Term Loan Maturity Date.  Borrower shall make all payments under this Agreement without setoff,
recoupment or deduction and regardless of any counterclaim or defense. Lender will initiate debit entries to Borrower’s account
as authorized on the ACH Authorization (i) on each payment date of all periodic obligations payable to Lender under each Term Advance
and (ii) out-of-pocket legal fees and costs incurred by Agent or Lender in connection with Section 11.11 of this Agreement. Once
repaid, a Term Loan Advance or any portion thereof may not be reborrowed.


 


2.2           Maximum
Interest. Notwithstanding any provision in this Agreement or any other Loan Document, it is the parties’ intent not
to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of
competent jurisdiction shall deem applicable hereto (which under the laws of the State of California shall be deemed to be the
laws relating to permissible rates of interest on commercial loans) (the “Maximum Rate”). If a court of competent
jurisdiction shall finally determine that Borrower has actually paid to Lender an amount of interest in excess of the amount that
would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess
interest actually paid by Borrower shall be applied as follows: first, to the payment of the Secured Obligations consisting of
the outstanding principal amount of the Term Loan Advances; second, after all principal is repaid, to the payment of Lender’s
accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third, after all Secured Obligations
are repaid, the excess (if any) shall be refunded to Borrower.


 




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2.3           Default
Interest. In the event any payment is not paid on the scheduled payment date, an amount equal to five percent (5%) of the
past due amount shall be payable on demand. In addition, upon the occurrence and during the continuation of an Event of Default
hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest
at a rate per annum equal to the rate set forth in Section 2.1(c), plus five percent (5%) per annum. In the event any interest
is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded
at the rate set forth in Section 2.1(c) or Section 2.3, as applicable.


 


2.4           Prepayment.
At its option upon at least seven (7) Business Days prior notice to Agent, Borrower may prepay all or any portion, of the
outstanding Advances by paying the entire principal balance (or portion thereof), all accrued and unpaid interest with respect
to the principal balance being prepaid, together with a prepayment charge equal to the following percentage of the Advance amount
being prepaid: if such Advance amounts are prepaid on or prior to June 7, 2017, three percent (3.0%); after June 7, 2017, but
on or prior to June 7, 2018, two percent (2.0%); and thereafter, one percent (1.0%) (each, a “Prepayment Charge”).
Borrower agrees that the Prepayment Charge is a reasonable calculation of Lender’s lost profits in view of the difficulties
and impracticality of determining actual damages resulting from an early repayment of the Advances. Upon the occurrence of a Change
in Control, Borrower shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and
all unpaid Agent’s and Lender’s fees and expenses accrued to the date of the repayment (including the End of Term
Charge) together with the applicable Prepayment Charge. Notwithstanding the foregoing, Agent and Lender agree to waive the Prepayment
Charge if Agent and Lender agree in writing to refinance and redocument this Agreement prior to the Term Loan Maturity Date.


 


2.5           End
of Term Charge. On the earliest to occur of (i) the Term Loan Maturity Date, (ii) the date that Borrower prepays the outstanding
Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable, Borrower shall
pay Lender a charge equal to five and eighty-five hundredths percent (5.85%) of the aggregate original principal amount of all
Term Loan Advances extended by Lender to Borrower (the “End of Term Charge”). Notwithstanding the required payment
date of such charge, it shall be deemed earned by Lender as of the Closing Date.


 


2.6           Notes.
If so requested by Lender by written notice to Borrower, then Borrower shall execute and deliver to Lender (and/or, if applicable
and if so specified in such notice, to any Person who is an assignee of Lender pursuant to Section 11.13) (promptly after Borrower’s
receipt of such notice) a Note or Notes to evidence Lender’s Loans.


 


2.7           Pro
Rata Treatment.  Each payment (including prepayment) on account of any fee and any reduction of the Term Loan Advances shall
be made pro rata according to the Term Commitments of the relevant Lender.


 




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SECTION
3. SECURITY INTEREST


 


3.1           As
security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured Obligations,
Borrower grants to Agent a security interest in all of Borrower’s right, title, and interest in and to the following personal
property whether now owned or hereafter acquired (collectively, the “Collateral”): (a) Receivables; (b) Equipment;
(c) Fixtures; (d) General Intangibles (other than Intellectual Property); (e) Inventory; (f) Investment Property; (g) Deposit
Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal property of Borrower whether now or hereafter owned
or existing, leased, consigned by or to, or acquired by, Borrower and wherever located, and any of Borrower’s property in
the possession or under the control of Agent; and, to the extent not otherwise included, all Proceeds of each of the foregoing
and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing; provided,
however, that the Collateral shall include all Accounts and General Intangibles that consist of rights to payment and proceeds
from the sale, licensing or disposition of all or any part, or rights in, the Intellectual Property (the “Rights to Payment”).
Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the
underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall
automatically, and effective as of the date of this Agreement, include the Intellectual Property to the extent necessary to permit
perfection of Agent’s security interest in the Rights to Payment. Notwithstanding the broad grant of security interest set
forth in this Section 3.1, the Collateral shall not include (i) more than sixty-five percent (65%) of the presently existing and
hereafter arising issued and outstanding shares of capital stock owned by Borrower of any Foreign Subsidiary which shares entitle
the holder thereof to vote for directors or any other matter, or (ii) rights held under a license that are not assignable by their
terms without the consent of the licensor thereof (but only to the extent such restriction on assignment is enforceable under
applicable law).


 


SECTION
4. CONDITIONS PRECEDENT TO LOAN


 


The obligation of Lender
to make the Term Loan Advances hereunder is subject to the satisfaction by Borrower of the following conditions:


 


4.1           Initial
Advance. On or prior to the Closing Date, Borrower shall have delivered to Agent the following:


 


(a)          executed
copies of the Loan Documents (other than the Warrant, which shall be an original), Account Control Agreements, and all other documents
and instruments reasonably required by Agent to effectuate the transactions contemplated hereby or to create and perfect the Liens
of Agent with respect to all Collateral, in all cases in form and substance reasonably acceptable to Agent;


 


(b)          certified
copy of resolutions of Borrower’s Board evidencing approval of (i) the Loan and other transactions evidenced by the Loan
Documents; and (ii) the Warrant and transactions evidenced thereby;


 


(c)          certified
copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower;


 


(d)          a
certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions
in which it does business and where the failure to be qualified would have a Material Adverse Effect;


 




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(e)          evidence
that the Loan and Security Agreement dated as of December 21, 2015, by and among Borrower, Titan Multi-Strategy Fund I, Ltd. and
the investors listed on Annex A thereto, together with all documents and agreements executed in connection therewith, shall have
been terminated and all amounts thereunder shall have been paid in full;


 


(f)          evidence
that (i) the Lien securing Indebtedness owed by Borrower to Titan Multi-Strategy Fund I, Ltd. (Security Agent) will be terminated
and (ii) the documents and/or filings evidencing the perfection of such Lien, including without limitation any financing statements
and/or control agreements, have been terminated;


 


(g)          payment
of the Due Diligence Fee, the Facility Charge and reimbursement of Agent’s and Lender’s current expenses reimbursable
pursuant to this Agreement, which amounts may be deducted from the initial Advance; and


 


(h)          such
other documents as Agent may reasonably request.


 


4.2           All
Advances. On each Advance Date:


 


(a)          Agent
shall have received (i) an Advance Request for the relevant Advance as required by Section 2.1(b), each duly executed by Borrower’s
Chief Executive Officer, Chief Financial Officer or Vice President of Finance, and (ii) any other documents Agent may reasonably
request.


 


(b)          The
representations and warranties set forth in this Agreement shall be true and correct in all material respects on and as of the
Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties
expressly relate to an earlier date.


 


(c)          Borrower
shall be in compliance in all material respects with all the terms and provisions set forth herein and in each other Loan Document
on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred
and be continuing.


 


(d)          Each
Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the
matters specified in paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in the Advance Request.


 


4.3           No
Default. As of the Closing Date and each Advance Date, (i) no fact or condition exists that would (or would, with the passage
of time, the giving of notice, or both) constitute an Event of Default and (ii) no event that has had or would reasonably be expected
to have a Material Adverse Effect has occurred and is continuing.


 


SECTION
5. REPRESENTATIONS AND WARRANTIES OF BORROWER


 


Borrower represents and
warrants that:


 




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5.1           Corporate
Status. Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware,
and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties
require such qualifications and where the failure to be qualified would reasonably be expected to have a Material Adverse Effect.
Borrower’s present name, former names (if any), locations, place of formation, tax identification number, organizational
identification number and other information are correctly set forth in Exhibit C, as may be updated by Borrower in a written notice
(including any Compliance Certificate) provided to Agent after the Closing Date.


 


5.2           Collateral.
Borrower owns the Collateral and the Intellectual Property, free of all Liens, except for Permitted Liens. Borrower has the
power and authority to grant to Agent a Lien in the Collateral as security for the Secured Obligations.


 


5.3           Consents.
Borrower’s execution, delivery and performance of the Note(s) (if any), this Agreement and all other Loan Documents,
and Borrower’s execution of the Warrant, (i) have been duly authorized by all necessary corporate action of Borrower, (ii)
will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted Liens and the Liens created
by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s Certificate or Articles
of Incorporation (as applicable), bylaws, or any, law, regulation, order, injunction, judgment, decree or writ to which Borrower
is subject and (iv) except as described on Schedule 5.3, do not violate any contract or agreement or require the consent or approval
of any other Person which has not already been obtained. The individual or individuals executing the Loan Documents and the Warrant
are duly authorized to do so.


 


5.4           Material
Adverse Effect. No event that has had or would reasonably be expected to have a Material Adverse Effect has occurred and is
continuing.


 


5.5           Actions
Before Governmental Authorities. There are no actions, suits or proceedings at law or in equity or by or before any governmental
authority now pending or, to the knowledge of Borrower, threatened against or affecting Borrower or its property, that is reasonably
expected to result in a Material Adverse Effect.


 


5.6           Laws.
Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction
or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse
Effect. Borrower is not in default in any manner under any provision of any agreement or instrument evidencing material Indebtedness,
or any other material agreement to which it is a party or by which it is bound. Borrower, its Affiliates and, to the knowledge
of the Borrower and its Affiliates, any agent or other party acting on behalf of Borrower or its Affiliates are in compliance
with all applicable anti-money laundering, economic sanctions and anti-bribery laws and regulations, and none of the funds to
be provided under this Agreement will be used, directly or indirectly, for any activities in violation of such laws and regulations.


 




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5.7           Information
Correct and Current. No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on
behalf of Borrower to Agent in connection with any Loan Document or included therein or delivered pursuant thereto contained,
or, when taken as a whole, contains or will contain any material misstatement of fact or, when taken together with all other such
information or documents, omitted, omits or will omit to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were, are or will be made, not materially misleading at the time such statement
was made or deemed made. Additionally, any and all financial or business projections provided by Borrower to Agent, whether prior
to or after the Closing Date, shall be (i) provided in good faith and based on the most current data and information available
to Borrower, and (ii) the most current of such projections provided to Borrower’s Board (it being understood that such projections
are subject to significant uncertainties and contingencies, many of which are beyond the control of Borrower, that no assurance
is given that any particular projections will be realized, that actual results may differ).


 


5.8           Tax
Matters. Except as described on Schedule 5.8 and except those being contested in good faith with adequate reserves under GAAP,
(a) Borrower has filed all material federal, state and local tax returns that it is required to file, (b) Borrower has duly paid
or fully reserved for all material taxes or installments thereof (including any interest or penalties) as and when due, which
have or may become due pursuant to such returns, and (c) Borrower has paid or fully reserved for any material tax assessment received
by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and
by appropriate proceedings).


 


5.9           Intellectual
Property Claims. Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property material to Borrower’s
business. Except as described on Schedule 5.9, (i) to Borrower’s knowledge, each of the material Copyrights, Trademarks
and Patents is valid and enforceable, (ii) no material part of the Intellectual Property has been judged invalid or unenforceable,
in whole or in part, and (iii) no claim in writing has been made to Borrower that any material part of the Intellectual Property
violates the rights of any third party. Exhibit D is a true, correct and complete list of each of Borrower’s Patents, registered
Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties
(other than shrink-wrap software licenses), together with application or registration numbers, as applicable, owned by Borrower
or any Subsidiary, in each case as of the Closing Date. Borrower is not in material breach of, nor has Borrower failed to perform
any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrower’s knowledge, no
third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations
thereunder.


 


5.10         Intellectual
Property. Except as described on Schedule 5.10, Borrower has, or believes that it can license on commercially reasonable terms,
all material rights with respect to Intellectual Property necessary or material in the operation or conduct of Borrower’s
business as currently conducted and proposed to be conducted by Borrower. Without limiting the generality of the foregoing, and
in the case of Licenses, except for restrictions that are unenforceable under Division 9 of the UCC, to the Borrower’s knowledge,
Borrower has the right, to the extent required to operate Borrower’s business, to freely transfer, license or assign Intellectual
Property necessary or material in the operation or conduct of Borrower’s business as currently conducted and proposed to
be conducted by Borrower, without condition, restriction or payment of any kind (other than license payments in the ordinary course
of business and other conditions to the Borrower’s ability to grant a sublicense to any third party) to any third party,
and Borrower, to the Borrower’s knowledge, owns or has the right to use, pursuant to valid licenses, all software development
tools, library functions, compilers and all other third-party software and other items that are material to Borrower’s business
and used in the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products
except customary covenants in inbound license agreements and equipment leases where Borrower is the licensee or lessee.


 




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5.11         Borrower
Products. Except as described on Schedule 5.11, no Intellectual Property owned by Borrower or Borrower Product has been or
is subject to any actual or, to the knowledge of Borrower, threatened litigation, proceeding (including any proceeding in the
United States Patent and Trademark Office or any corresponding foreign office or agency) or outstanding decree, order, judgment,
settlement agreement or stipulation that restricts in any manner Borrower’s use, transfer or licensing thereof or that may
affect the validity, use or enforceability thereof. There is no decree, order, judgment, agreement, stipulation, arbitral award
or other provision entered into in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership
interest in any future Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products.
Borrower has not received any written notice or claim, or, to the knowledge of Borrower, oral notice or claim, challenging or
questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning
the ownership in any licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of
legal or beneficial ownership with respect thereto nor, to Borrower’s knowledge, is there a reasonable basis for any such
claim. To Borrower’s knowledge, neither Borrower’s use of its Intellectual Property nor the production and sale of
Borrower Products infringes the Intellectual Property or other rights of others.


 


5.12         Financial
Accounts. Exhibit E, as may be updated by Borrower in a written notice provided to Agent after the Closing Date, is a true,
correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit
Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such
exhibit correctly identifies the name, address and telephone number of each bank or other institution, the name in which the account
is held, a description of the purpose of the account, and the complete account number therefor.


 


5.13         Employee
Loans. Borrower has no outstanding loans to any employee, officer or director of Borrower nor has Borrower guaranteed the
payment of any loan made to an employee, officer or director of Borrower by a third party.


 


5.14         Capitalization
and Subsidiaries.  Borrower’s capitalization as of the Closing Date is set forth on Schedule 5.14 annexed hereto. Borrower
does not own any stock, partnership interest or other securities of any Person, except for Permitted Investments. Attached as
Schedule 1, as may be updated by Borrower in a written notice provided after the Closing Date, is a true, correct and complete
list of each Subsidiary.


 




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SECTION
6. INSURANCE; INDEMNIFICATION


 


6.1           Coverage.
Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks
customarily insured against in Borrower’s line of business. Such risks shall include the risks of bodily injury, including
death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement
found in Section 6.3. Borrower must maintain a minimum of Two Million Dollars ($2,000,000) of commercial general liability insurance
for each occurrence. Borrower has and agrees to maintain a minimum of Two Million Dollars ($2,000,000) of directors’ and
officers’ insurance for each occurrence and Five Million Dollars ($5,000,000) in the aggregate. So long as there are any
Secured Obligations outstanding, Borrower shall also cause to be carried and maintained commercially reasonable insurance upon
the Collateral, insuring against such risks of physical loss or damage from such causes as are typically covered by commercially
reasonable insurance policies for companies engaged in businesses similar to the business of the Borrower, in an amount not less
than the full replacement cost of the Collateral, provided that such insurance may be subject to standard exceptions and deductibles.


 


6.2           Certificates.
Borrower shall deliver to Agent certificates of insurance that evidence Borrower’s compliance with its insurance obligations
in Section 6.1 and the obligations contained in this Section 6.2. Borrower’s insurance certificate shall state Agent is
an additional insured for commercial general liability, a designated payee for the key man life insurance policy, a loss payee
for all risk property damage insurance, subject to the insurer’s approval, and a loss payee for property insurance and additional
insured for liability insurance for any future insurance that Borrower may acquire from such insurer. Attached to the certificates
of insurance will be additional insured endorsements for liability and lender’s loss payable endorsements for all risk property
damage insurance. Upon Borrower receiving notice of cancellation of its insurance policies from its insurance companies for any
reason, Borrower shall promptly provide notice of said cancellation to Agent. Any failure of Agent to scrutinize such insurance
certificates for compliance is not a waiver of any of Agent’s rights, all of which are reserved.


 


6.3           Indemnity.
Borrower agrees to indemnify and hold Agent, Lender and their officers, directors, employees, agents, in-house attorneys,
representatives and shareholders (each, an “Indemnified Person”) harmless from and against any and all claims, costs,
expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort,
including strict liability in tort), including reasonable attorneys’ fees and disbursements and other costs of investigation
or defense (including those incurred upon any appeal) (collectively, “Liabilities”), that may be instituted or asserted
against or incurred by such Indemnified Person as the result of credit having been extended, suspended or terminated under this
Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions
contemplated hereunder and thereunder, or any actions or failures to act in connection therewith, or arising out of the disposition
or utilization of the Collateral, excluding in all cases Liabilities to the extent resulting solely from any Indemnified Person’s
gross negligence or willful misconduct. Borrower agrees to pay, and to save Agent and Lender harmless from, any and all liabilities
with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes (excluding taxes imposed
on or measured by the net income of Agent or Lender) that may be payable or determined to be payable with respect to any of the
Collateral or this Agreement. In no event shall any Indemnified Person be liable on any theory of liability for any special, indirect,
consequential or punitive damages (including any loss of profits, business or anticipated savings). This Section 6.3 shall survive
the repayment of indebtedness under, and otherwise shall survive the expiration or other termination of, the Loan Agreement.


 




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SECTION
7. COVENANTS OF BORROWER


 


Borrower agrees as follows:


 


7.1           Financial
Reports. Borrower shall furnish to Agent the financial statements and reports listed hereinafter (the “Financial Statements”):


 


(a)          as
soon as practicable (and in any event within thirty (30) days) after the end of each month, unaudited interim and year-to-date
financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including
balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including
the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to
have a Material Adverse Effect, all certified by Borrower’s Chief Executive Officer, Chief Financial Officer or Vice President
of Finance to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that
they are subject to normal quarterly and year-end adjustments, and (iii) they do not contain certain non-cash items that are customarily
included in quarterly and annual financial statements;


 


(b)          as
soon as practicable (and in any event within forty-five (45) days) after the end of each calendar quarter, unaudited interim and
year-to-date financial statements as of the end of such calendar quarter (prepared on a consolidated and consolidating basis, if
applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material
contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would
reasonably be expected to have a Material Adverse Effect, certified by Borrower’s Chief Executive Officer, Chief Financial
Officer or Vice President of Finance to the effect that they have been prepared in accordance with GAAP, except (i) for the absence
of footnotes, and (ii) that they are subject to normal year-end adjustments;


 


(c)          as
soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, unqualified audited financial
statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including balance sheet
and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding
fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to
Agent, accompanied by any management report from such accountants;


 


(d)          as
soon as practicable (and in any event within thirty (30) days) after the end of each month and as soon as practicable (and in any
event within forty-five (45) days) the end of each calendar quarter, a Compliance Certificate in the form of Exhibit F;


 


(e)          promptly
after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports that Borrower
has made available to holders of its capital stock and copies of any regular, periodic and special reports or registration statements
that Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor,
or any national securities exchange;


 




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(f)          intentionally
omitted; and


 


(g)          financial
and business projections promptly following their approval by Borrower’s Board, and in any event, within thirty (30) days
prior to the end of Borrower’s fiscal year, as well as budgets, operating plans and other financial information reasonably
requested by Agent.


 


Borrower shall not make any change
in its (a) accounting policies or reporting practices, except as required by GAAP or (b) fiscal years or fiscal quarters, in each
case, without the prior written approval of the Agent, which shall not be unreasonably withheld, delayed or conditioned. The fiscal
year of Borrower shall end on December 31.


 


The executed Compliance Certificate
may be sent via email to Agent at legal@herculestech.com. All Financial Statements required to be delivered pursuant to clauses
(a), (b) and (c) shall be sent via e-mail to financialstatements@herculestech.com with a copy to legal@herculestech.com provided,
that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be sent via facsimile
to Agent at: (866) 468-8916, attention Chief Credit Officer.


 


Notwithstanding the foregoing, documents
required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed
with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which
Borrower emails a link thereto to Agent; provided that Borrower shall directly provide Agent all Financial Statements required
to be delivered pursuant to Section 7.1(b) and (c) hereunder.


 


7.2           Management
Rights.  Borrower shall permit any representative that Agent or Lender authorizes, including its attorneys and accountants,
to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Borrower (provided
that Borrower is not obligated to disclose pursuant to this Section 7.2 any privileged attorney-client communication, or information
that Borrower is not permitted by statute, regulation, or court order to disclose) at reasonable times and upon reasonable notice
during normal business hours; provided, however, that so long as no Event of Default has occurred and is continuing, such examinations
shall be limited to no more often than twice per fiscal year. In addition, any such representative shall have the right, during
such examination and inspection, to meet with management and officers of Borrower to discuss such books of account and records.
In addition, Agent or Lender shall be entitled at reasonable times and intervals to consult with and advise the management and
officers of Borrower concerning significant business issues affecting Borrower. Such consultations shall not unreasonably interfere
with Borrower’s business operations. The parties intend that the rights granted Agent and Lender shall constitute “management
rights” within the meaning of 29 C.F.R. Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation
by Agent or Lender with respect to any business issues shall not be deemed to give Agent or Lender, nor be deemed an exercise
by Agent or Lender of, control over Borrower’s management or policies.


 




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7.3           Further
Assurances. Borrower shall from time to time execute, deliver and file, alone or with Agent, any financing statements, security
agreements, collateral assignments, notices, control agreements, or other documents to perfect or give the highest priority to
Agent’s Lien on the Collateral. Borrower shall from time to time procure any instruments or documents as may be reasonably
requested by Agent, and take all further action that may be necessary, or that Agent may reasonably request, to perfect and protect
the Liens granted hereby and thereby. In addition, and for such purposes only, Borrower hereby authorizes Agent to execute and
deliver on behalf of Borrower and to file such financing statements, collateral assignments, notices, control agreements, security
agreements and other documents without the signature of Borrower either in Agent’s name or in the name of Agent as agent
and attorney-in-fact for Borrower. Borrower shall protect and defend Borrower’s title to the Collateral and Agent’s
Lien thereon against all Persons claiming any interest adverse to Borrower or Agent other than Permitted Liens.


 


7.4           Indebtedness.
Borrower shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any
Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower
an obligation to prepay any Indebtedness, except for (a) the conversion of Indebtedness into equity securities and the payment
of cash in lieu of fractional shares in connection with such conversion, (b) purchase money Indebtedness pursuant to its then
applicable payment schedule, (c) prepayment by any Subsidiary of (i) inter-company Indebtedness owed by such Subsidiary to any
Borrower, or (ii) if such Subsidiary is not a Borrower, intercompany Indebtedness owed by such Subsidiary to another Subsidiary
that is not a Borrower or (d) as otherwise permitted hereunder or approved in writing by Agent.


 


7.5           Collateral.
Borrower shall at all times keep the Collateral, the Intellectual Property and all other property and assets used in Borrower’s
business or in which Borrower now or hereafter holds any interest free and clear from any Liens whatsoever (except for Permitted
Liens), and shall give Agent prompt written notice of any legal process that is reasonably likely to result in damages, expenses
or liabilities in excess of Two Hundred Fifty Thousand Dollars ($250,000) affecting the Collateral, the Intellectual Property,
such other property and assets, or any Liens thereon, provided however, that the Collateral and such other property and assets
may be subject to Permitted Liens except that there shall be no Liens whatsoever on Intellectual Property. Borrower shall not
enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of the Borrower to create,
incur, assume or suffer to exist any Lien upon any of its Intellectual Property, whether now owned or hereafter acquired, to secure
its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b)
any agreements governing any purchase money Liens or capital lease obligations otherwise permitted hereby (in which case, any
prohibition or limitation shall only be effective against the assets financed thereby), (c) customary restrictions on the assignment
of leases, licenses and other agreements, and (d) restrictions on liens and encumbrances contained in the license agreements identified
on Schedule 5.10. Borrower shall cause its Subsidiaries to protect and defend such Subsidiary’s title to its assets
from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all
times to keep such Subsidiary’s property and assets free and clear from any legal process or Liens whatsoever (except for
Permitted Liens, provided however, that there shall be no Liens whatsoever on Intellectual Property), and shall give Agent prompt
written notice of any legal process that is reasonably likely to result in damages, expenses or liabilities in excess of Two Hundred
Fifty Thousand Dollars ($250,000) affecting such Subsidiary’s assets. Borrower shall not agree with any Person other than
Agent or Lender not to encumber its property.


 




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7.6           Investments.
Borrower shall not directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its
Subsidiaries so to do, other than Permitted Investments.


 


7.7           Distributions.
Borrower shall not, and shall not allow any Subsidiary to, (a) repurchase or redeem any class of stock or other equity interest
other than pursuant to employee, director or consultant repurchase plans or other similar agreements, provided, however, in each
case the repurchase or redemption price does not exceed the original consideration paid for such stock or equity interest, or
(b) declare or pay any cash dividend or make a cash distribution on any class of stock or other equity interest, except that a
Subsidiary may pay dividends or make distributions to another Qualified Subsidiary or to Borrower, or (c) lend money to any employees,
officers or directors or guarantee the payment of any such loans granted by a third party in excess of One Hundred Thousand Dollars
($100,000) in the aggregate or (d) waive, release or forgive any Indebtedness owed by any employees, officers or directors in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate.


 


7.8           Transfers.
 Except for Permitted Transfers, Borrower shall not, and shall not allow any Subsidiary to, voluntarily or involuntarily transfer,
sell, lease, license, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of
its assets.


 


7.9           Mergers
or Acquisitions. Borrower shall not merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with
or into any other business organization (other than mergers or consolidations of (a) a Subsidiary which is not a Borrower into
another Subsidiary or into Borrower or (b) a Borrower into another Borrower), or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another Person. Notwithstanding the foregoing, and for the
avoidance of doubt, Borrower may enter into any agreement to merge or consolidate with or into any other business organization,
provided that all Secured Obligations are indefeasibly satisfied in full, and Lender’s commitment to lend hereunder has
been terminated, upon the consummation thereof.


 


7.10         Taxes.
Borrower and its Subsidiaries shall pay when due all material taxes, fees or other charges of any nature whatsoever (together
with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Agent, Lender or the Collateral
or upon Borrower’s ownership, possession, use, operation or disposition thereof or upon Borrower’s rents, receipts
or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect
of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for
which Borrower maintains adequate reserves therefor in accordance with GAAP.


 




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7.11         Corporate
Changes.  Neither Borrower nor any Subsidiary shall change its corporate name, legal form or jurisdiction of formation without
twenty (20) days’ prior written notice to Agent. Neither Borrower nor any Subsidiary shall suffer a Change in Control; provided,
however, for the avoidance of doubt, Borrower may enter into any agreement with respect to a Change of Control, provided that
all Secured Obligations are indefeasibly satisfied in full, and Lender’s commitment to lend hereunder has been terminated,
upon the consummation thereof. Neither Borrower nor any Subsidiary shall relocate its chief executive office or its principal
place of business unless: (i) it has provided prior written notice to Agent; and (ii) such relocation shall be within the continental
United States. Neither Borrower nor any Qualified Subsidiary shall relocate any item of Collateral (other than (x) sales of Inventory
in the ordinary course of business, (y) relocations of Equipment having an aggregate value of up to $150,000 in any fiscal year,
and (z) relocations of Collateral from a location described on Exhibit C to another location described on Exhibit C) unless (i)
it has provided prompt written notice to Agent, (ii) such relocation is within the continental United States and, (iii) if such
relocation is to a third party bailee, it has delivered a bailee agreement in form and substance reasonably acceptable to Agent.


 


7.12         Deposit
Accounts.  Neither Borrower nor any Qualified Subsidiary shall maintain any Deposit Accounts, or accounts holding Investment
Property, except with respect to which Agent has an Account Control Agreement.


 


7.13         Subsidiaries.
Borrower shall notify Agent of each Subsidiary formed subsequent to the Closing Date and, within twenty (20) days of formation,
shall cause any such Qualified Subsidiary to execute and deliver to Agent a Joinder Agreement.


 


7.14         Notification
of Event of Default.  Borrower shall notify Agent immediately of the occurrence of any Event of Default.


 


7.15         Small
Business Administration. Agent and Lender have received a license from the U.S. Small Business Administration (“SBA”)
to extend loans as a small business investment company (“SBIC”) pursuant to the Small Business Investment Act of 1958,
as amended, and the associated regulations (collectively, the “SBIC Act”). Portions of the loan to Borrower will be
made under the SBA license and the SBIC Act. Addendum 1 to this Agreement outlines various responsibilities of Agent, Lender and
Borrower associated with an SBA loan, and such Addendum 1 is hereby incorporated in this Agreement.


 


SECTION
8. RIGHT TO INVEST


 


8.1           Lender
or its assignee or nominee shall have the right, in its discretion, to participate in any Subsequent Financing in an amount of
up to One Million Dollars ($1,000,000) on the same terms, conditions and pricing afforded to others participating in any such
Subsequent Financing. This Section 8.1, and all rights and obligations hereunder, shall survive the repayment of indebtedness
under, and otherwise shall survive the expiration or other termination of, the Loan Agreement.


 


SECTION
9. EVENTS OF DEFAULT


 


The occurrence of any one
or more of the following events shall be an Event of Default:


 




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9.1           Payments.
Borrower fails to pay any amount due under this Agreement, the Note(s), or any of the other Loan Documents on the due date;
provided, however, that an Event of Default shall not occur on account of a failure to pay due solely to an administrative or
operational error of Lender or Borrower’s bank if Borrower had the funds to make the payment when due and makes the payment
within three (3) Business Days following Borrower’s knowledge of such failure to pay; or


 


9.2           Covenants.
Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, or any of the
other Loan Documents or any other agreement among Borrower, Agent and Lender, and (a) with respect to a default under any covenant
under this Agreement (other than under Sections 6.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, and 7.14 , and 7.15), any other Loan Document
or any other agreement among Borrower, Agent and Lender, such default continues for more than ten (10) days after the earlier
of the date on which (i) Agent or Lender has given notice of such default to Borrower and (ii) Borrower has actual knowledge of
such default or (b) with respect to a default under any of Sections 6.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, and 7.14 , and 7.15 the
occurrence of such default; or


 


9.3           Material
Adverse Effect.  A circumstance has occurred that would reasonably be expected to have a Material Adverse Effect; or


 


9.4           Representations.
Any representation or warranty made by Borrower in any Loan Document or in the Warrant shall have been false or misleading
in any material respect when made or when deemed made; or


 


9.5           Insolvency.
Borrower (A) (i) shall make an assignment for the benefit of creditors; or (ii) shall be unable to pay its debts as they become
due, or be unable to pay or perform under the Loan Documents, or shall become insolvent; or (iii) shall file a voluntary petition
in bankruptcy; or (iv) shall file any petition, answer, or document seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such
circumstances; or (v) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower
or of all or any substantial part (i.e., 33-1/3% or more) of the assets or property of Borrower; or (vi) shall cease operations
of its business as its business has normally been conducted, or terminate substantially all of its employees; or (vii) Borrower
or its directors or majority shareholders shall take any action initiating any of the foregoing actions described in clauses (i)
through (vi); or (B) either (i) thirty (30) days shall have expired after the commencement of an involuntary action against Borrower
seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations
or the business of Borrower being stayed; or (ii) a stay of any such order or proceedings shall thereafter be set aside and the
action setting it aside shall not be timely appealed; or (iii) Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such proceedings; or (iv) the court in which such proceedings
are pending shall enter a decree or order granting the relief sought in any such proceedings; or (v) thirty (30) days shall have
expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower
or of all or any substantial part of the properties of Borrower without such appointment being vacated; or


 




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9.6           Attachments;
Judgments. Any portion of Borrower’s assets is attached or seized, or a levy is filed against any such assets, or a
judgment or judgments is/are entered for the payment of money (not covered by independent third party insurance as to which liability
has not been rejected by such insurance carrier), individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars
($250,000), or Borrower is enjoined or in any way prevented by court order from conducting any part of its business; or


 


9.7           Other
Obligations. The occurrence of any default under any agreement or obligation of Borrower involving any Indebtedness in excess
of One Hundred Thousand Dollars ($100,000).


 


SECTION
10. REMEDIES


 


10.1         General.
Upon and during the continuance of any one or more Events of Default, (i) Agent may, at its option, accelerate and demand
payment of all or any part of the Secured Obligations together with a Prepayment Charge and declare them to be immediately due
and payable (provided, that upon the occurrence of an Event of Default of the type described in Section 9.5, all of the Secured
Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), (ii)
Agent may, at its option, sign and file in Borrower’s name any and all collateral assignments, notices, control agreements,
security agreements and other documents it deems necessary or appropriate to perfect or protect the repayment of the Secured Obligations,
and in furtherance thereof, Borrower hereby grants Agent an irrevocable power of attorney coupled with an interest, and (iii)
Agent may notify any of Borrower’s account debtors to make payment directly to Agent, compromise the amount of any such
account on Borrower’s behalf and endorse Agent’s name without recourse on any such payment for deposit directly to
Agent’s account. Agent may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise
available to it under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect,
realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle
the Collateral, in any case, subject to the applicable provisions of the UCC. All Agent’s rights and remedies shall be cumulative
and not exclusive.


 


10.2         Collection;
Foreclosure. Upon the occurrence and during the continuance of any Event of Default, Agent may, at any time or from time to
time, in a commercially reasonable manner, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of,
any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such
order as Agent may elect. Any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower
agrees that any such public or private sale may occur upon ten (10) calendar days’ prior written notice to Borrower. Agent
may require Borrower to assemble the Collateral and make it available to Agent at a place designated by Agent that is reasonably
convenient to Agent and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral
shall be applied by Agent in the following order of priorities:


 


First, to Agent and Lender in an amount
sufficient to pay in full Agent’s and Lender’s reasonable costs and professionals’ and advisors’ fees and
expenses as described in Section 11.11;


 




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Second, to Lender in an amount equal
to the then unpaid amount of the Secured Obligations (including principal, interest, and the Default Rate interest), in such order
and priority as Agent may choose in its sole discretion; and


 


Finally, after the full and final
payment in Cash of all of the Secured Obligations (other than inchoate obligations), to any creditor holding a junior Lien on the
Collateral, or to Borrower or its representatives or as a court of competent jurisdiction may direct.


 


Agent shall be deemed to have acted reasonably in the
custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the
UCC.


 


10.3         No
Waiver. Agent shall be under no obligation to marshal any of the Collateral for the benefit of Borrower or any other Person,
and Borrower expressly waives all rights, if any, to require Agent to marshal any Collateral.


 


10.4         Cumulative
Remedies. The rights, powers and remedies of Agent hereunder shall be in addition to all rights, powers and remedies given
by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein
shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Agent.


 


SECTION
11. MISCELLANEOUS


 


11.1         Severability.
Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.


 


11.2         Notice.
 Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other
communication (including the delivery of Financial Statements) that is required, contemplated, or permitted under the Loan Documents
or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered,
and received upon the earlier of: (i) the day of transmission by facsimile, electronic mail or hand delivery or delivery by an
overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States
mails, with proper first class postage prepaid, in each case addressed to the party to be notified as follows:


 


	 	If to Agent:	HERCULES CAPITAL, INC.
	 	 	Legal Department
	 	 	Attention:  Chief Legal Officer and Mr. Bryan Jadot
	 	 	400 Hamilton Avenue, Suite 310
	 	 	Palo Alto, CA  94301
	 	 	Email: legal@herculestech.com
	 	 	Facsimile:  650-473-9194
	 	 	Telephone:  650-289-3060


 




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	 	If to Lender:	HERCULES TECHNOLOGY III, L.P.
	 	 	Legal Department
	 	 	Attention:  Chief Legal Officer and Mr. Bryan Jadot
	 	 	400 Hamilton Avenue, Suite 310
	 	 	Palo Alto, CA  94301
	 	 	Email: legal@herculestech.com
	 	 	Facsimile:  650-473-9194
	 	 	Telephone:  650-289-3060
	 	 	 
	 	If to Borrower:	PhaseRx, Inc.
	 	 	Attention: Dr. Robert W. Overell and Ms. Helen Tsui
	 	 	410 W. Harrison Street, Suite 300
	 	 	Seattle, Washington 98119
	 	 	Facsimile:  
	 	 	Telephone:  


 


or to such other address
as each party may designate for itself by like notice.


 


11.3         Entire
Agreement; Amendments. 


 


(a)          This
Agreement and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the
subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, non-disclosure
or confidentiality agreements, letters, negotiations or other documents or agreements, whether written or oral, with respect to
the subject matter hereof or thereof (including Agent’s revised proposal letter dated March 7, 2016).


 


(b)          Neither
this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance
with the provisions of this Section 11.3(b). The Required Lenders and Borrower party to the relevant Loan Document may, or, with
the written consent of the Required Lenders, Agent and Borrower party to the relevant Loan Document may, from time to time, (i)
enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any
provisions to this Agreement or the other Loan Documents or changing in any manner the rights of Lenders or of Borrower hereunder
or thereunder or (ii) waive, on such terms and conditions as the Required Lenders or Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement or the other Loan Documents or any default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (A) forgive the principal
amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect
of any Term Loan Advance, reduce the stated rate of any interest or fee payable hereunder, or extend the scheduled date of any
payment thereof, in each case without the written consent of each Lender directly affected thereby; (B) eliminate or reduce the
voting rights of any Lender under this Section 11.3(b) without the written consent of such Lender; (C) reduce any percentage specified
in the definition of Required Lenders, consent to the assignment or transfer by Borrower of any of its rights and obligations under
this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release a Borrower from its
obligations under the Loan Documents, in each case without the written consent of all Lenders; or (D) amend, modify or waive any
provision of Section 11.17 without the written consent of Agent. Any such waiver and any such amendment, supplement or modification
shall apply equally to each Lender and shall be binding upon Borrower, Lender, Agent, and all future holders of the Loans.


 




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


 


11.5         No
Waiver. The powers conferred upon Agent and Lender by this Agreement are solely to protect its rights hereunder and under
the other Loan Documents and its interest in the Collateral and shall not impose any duty upon Agent or Lender to exercise any
such powers. No omission or delay by Agent or Lender at any time to enforce any right or remedy reserved to it, or to require
performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such
right or remedy to which Agent or Lender is entitled, nor shall it in any way affect the right of Agent or Lender to enforce such
provisions thereafter.


 


11.6         Survival.
 All agreements, representations and warranties contained in this Agreement and the other Loan Documents or in any document
delivered pursuant hereto or thereto shall be for the benefit of Agent and Lender and shall survive the execution and delivery
of this Agreement and the expiration or other termination of this Agreement.


 


11.7         Successors
and Assigns. The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on
Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement or any of the other
Loan Documents without Agent’s express prior written consent, and any such attempted assignment shall be void and of no
effect. Agent and Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents without prior
notice to Borrower, and all of such rights shall inure to the benefit of Agent’s and Lender’s successors and assigns;
provided that as long as no Event of Default has occurred and is continuing, neither Agent nor any Lender may assign, transfer
or endorse its rights hereunder or under the Loan Documents to any party that is a direct competitor of Borrower (as reasonably
determined by Agent), it being acknowledged that in all cases, any transfer to an Affiliate of any Lender or Agent shall be allowed.


 


11.8         Governing
Law. This Agreement and the other Loan Documents have been negotiated and delivered to Agent and Lender in the State of California,
and shall have been accepted by Agent and Lender in the State of California. Payment to Agent and Lender by Borrower of the Secured
Obligations is due in the State of California. This Agreement and the other Loan Documents shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the
application of laws of any other jurisdiction.


 




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11.9         Consent
to Jurisdiction and Venue. All judicial proceedings (to the extent that the reference requirement of Section 11.10 is not
applicable) arising in or under or related to this Agreement or any of the other Loan Documents may be brought in any state or
federal court located in the State of California. By execution and delivery of this Agreement, each party hereto generally and
unconditionally: (a) consents to nonexclusive personal jurisdiction in Santa Clara County, State of California; (b) waives any
objection as to jurisdiction or venue in Santa Clara County, State of California; (c) agrees not to assert any defense based on
lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement or the other Loan Documents. Service of process on any party hereto in any action arising out
of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section
11.2, and shall be deemed effective and received as set forth in Section 11.2. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any
other jurisdiction.


 


11.10         Mutual
Waiver of Jury Trial / Judicial Reference. 


 


(a)          Because
disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced
and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties
desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER, AGENT AND LENDER SPECIFICALLY
WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY
OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY BORROWER AGAINST AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE OR BY
AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including Claims that involve
Persons other than Agent, Borrower and Lender; Claims that arise out of or are in any way connected to the relationship among Borrower,
Agent and Lender; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief
of any kind, arising out of this Agreement, any other Loan Document.


 


(b)          If
the waiver of jury trial set forth in Section 11.10(a) is ineffective or unenforceable, the parties agree that all Claims shall
be resolved by reference to a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638, before a mutually
acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of the Santa Clara County, California.
Such proceeding shall be conducted in Santa Clara County, California, with California rules of evidence and discovery applicable
to such proceeding.


 


(c)          In
the event Claims are to be resolved by judicial reference, either party may seek from a court identified in Section 11.9, any prejudgment
order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law
notwithstanding that all Claims are otherwise subject to resolution by judicial reference.


 




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11.11         Professional
Fees.  Borrower promises to pay Agent’s and Lender’s fees and expenses necessary to finalize the loan documentation,
including but not limited to reasonable attorneys fees, UCC searches, filing costs, and other miscellaneous expenses. In addition,
Borrower promises to pay any and all reasonable attorneys’ and other professionals’ fees and expenses incurred by
Agent and Lender after the Closing Date in connection with or related to: (a) the Loan; (b) the administration, collection, or
enforcement of the Loan; (c) the amendment or modification of the Loan Documents; (d) any waiver, consent, release, or termination
under the Loan Documents; (e) the protection, preservation, audit, field exam, sale, lease, liquidation, or disposition of Collateral
or the exercise of remedies with respect to the Collateral; (f) any legal, litigation, administrative, arbitration, or out of
court proceeding in connection with or related to Borrower or the Collateral, and any appeal or review thereof; and (g) any bankruptcy,
restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to Borrower,
the Collateral, the Loan Documents, including representing Agent or Lender in any adversary proceeding or contested matter commenced
or continued by or on behalf of Borrower’s estate, and any appeal or review thereof.


 


11.12         Confidentiality.
Agent and Lender acknowledge that certain items of Collateral and information provided to Agent and Lender by Borrower are
confidential and proprietary information of Borrower, if and to the extent such information either (x) is marked as confidential
by Borrower at the time of disclosure, or (y) should reasonably be understood to be confidential (the “Confidential Information”).
Accordingly, Agent and Lender agree that any Confidential Information it may obtain in the course of acquiring, administering,
or perfecting Agent’s security interest in the Collateral shall not be disclosed to any other Person or entity in any manner
whatsoever, in whole or in part, without the prior written consent of Borrower, except that Agent and Lender may disclose any
such information: (a) to its own directors, officers, employees, accountants, counsel and other professional advisors and to its
Affiliates if Agent or Lender in their reasonable discretion determines that any such party should have access to such information
in connection with such party’s responsibilities in connection with the Loan or this Agreement and, provided that such recipient
of such Confidential Information either (i) agrees to be bound by the confidentiality provisions of this paragraph or (ii) is
otherwise subject to confidentiality restrictions that reasonably protect against the disclosure and unauthorized use of Confidential
Information; (b) if such information is generally available to the public; (c) if required or appropriate in any report, statement
or testimony submitted to any governmental authority having or claiming to have jurisdiction over Agent or Lender; (d) if required
or appropriate in response to any summons or subpoena or in connection with any litigation, to the extent permitted or deemed
advisable by Agent’s or Lender’s counsel; (e) to comply with any legal requirement or law applicable to Agent or Lender;
(f) to the extent reasonably necessary in connection with the exercise of any right or remedy under any Loan Document, including
Agent’s sale, lease, or other disposition of Collateral after default; (g) to any participant or assignee of Agent or Lender
or any prospective participant or assignee; provided, that such participant or assignee or prospective participant or assignee
agrees in writing to be bound by this Section prior to disclosure; or (h) otherwise with the prior consent of Borrower; provided,
that any disclosure made in violation of this Agreement shall not affect the obligations of Borrower or any of its Affiliates
or any guarantor under this Agreement or the other Loan Documents.


 




    30 


     


    

  


11.13         Assignment
of Rights. Borrower acknowledges and understands that Agent or Lender may, subject to Section 11.7, sell and assign all or
part of its interest hereunder and under the Loan Documents to any Person or entity (an “Assignee”). After such assignment
the term “Agent” or “Lender” as used in the Loan Documents shall mean and include such Assignee, and such
Assignee shall be vested with all rights, powers and remedies of Agent and Lender hereunder with respect to the interest so assigned;
but with respect to any such interest not so transferred, Agent and Lender shall retain all rights, powers and remedies hereby
given. No such assignment by Agent or Lender shall relieve Borrower of any of its obligations hereunder. Lender agrees that in
the event of any transfer by it of the Note(s)(if any), it will endorse thereon a notation as to the portion of the principal
of the Note(s), which shall have been paid at the time of such transfer and as to the date to which interest shall have been last
paid thereon.


 


11.14         Revival
of Secured Obligations. This Agreement and the Loan Documents shall remain in full force and effect and continue to be effective
if any petition is filed by or against Borrower for liquidation or reorganization, if Borrower becomes insolvent or makes an assignment
for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of Borrower’s assets,
or if any payment or transfer of Collateral is recovered from Agent or Lender. The Loan Documents and the Secured Obligations
and Collateral security shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations or any transfer of Collateral to Agent, or any part thereof is rescinded, avoided
or avoidable, reduced in amount, or must otherwise be restored or returned by, or is recovered from, Agent, Lender or by any obligee
of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise,
all as though such payment, performance, or transfer of Collateral had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Loan Documents and the Secured Obligations
shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the
full, final, and indefeasible payment to Agent or Lender in Cash.


 


11.15         Counterparts;
Electronic Signatures. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number
of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an
original, but all of which counterparts shall constitute but one and the same instrument. The words “execution,” “signed,”
“signature,” and words of like import this Agreement or in any amendment or other modification hereof (including waivers
and consents) shall be deemed to include electronic signatures or the keeping of records in electronic form (including PDF), each
of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based
recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic
Signatures in Global and National Commerce Act or any state laws based on the Uniform Electronic Transactions Act.


 




    31 


     


    

  


11.16         No
Third Party Beneficiaries. No provisions of the Loan Documents are intended, nor will be interpreted, to provide or create
any third-party beneficiary rights or any other rights of any kind in any Person other than Agent, Lender and Borrower unless
specifically provided otherwise herein, and, except as otherwise so provided, all provisions of the Loan Documents will be personal
and solely among Agent, Lender and Borrower.


 


11.17         Agency.



 


(a)          Lender
hereby irrevocably appoints Hercules Capital, Inc. to act on its behalf as Agent hereunder and under the other Loan Documents and
authorizes Agent to take such actions on its behalf and to exercise such powers as are delegated to Agent by the terms hereof or
thereof, together with such actions and powers as are reasonably incidental thereto.


 


(b)          Lender
agrees to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation
of Borrower to do so), according to its respective Term Commitment percentages (based upon the total outstanding Term Loan Commitments)
in effect on the date on which indemnification is sought under this Section 11.17, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any
time be imposed on, incurred by or asserted against Agent in any way relating to or arising out of, this Agreement, any of the
other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby
or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; The agreements in this Section
shall survive the payment of the Loans and all other amounts payable hereunder.


 


(c)          Agent
in Its Individual Capacity. The Person serving as Agent hereunder shall have the same rights and powers in its capacity as a Lender
as any other Lender and may exercise the same as though it were not Agent and the term “Lender” shall, unless otherwise
expressly indicated or unless the context otherwise requires, include each such Person serving as Agent hereunder in its individual
capacity.


 


(d)          Exculpatory
Provisions. Agent shall have no duties or obligations except those expressly set forth herein and in the other Loan Documents.
Without limiting the generality of the foregoing, Agent shall not:


 


(i)          be
subject to any fiduciary or other implied duties, regardless of whether any default or any Event of Default has occurred and is
continuing;


 


(ii)         have
any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that Agent is required to exercise as directed in writing by Lender, provided
that Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose Agent to liability
or that is contrary to any Loan Document or applicable law; and


 




    32 


     


    

  


(iii)        except
as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and Agent shall not be liable for the
failure to disclose, any information relating to Borrower or any of its Affiliates that is communicated to or obtained by any Person
serving as Agent or any of its Affiliates in any capacity.


 


(e)          Agent
shall not be liable for any action taken or not taken by it (i) with the consent or at the request of Lender or as Agent shall
believe in good faith shall be necessary, under the circumstances or (ii) in the absence of its own gross negligence or willful
misconduct.


 


(f)          Agent
shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or therein or the occurrence of any default or Event of Default, (iv)
the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument
or document or (v) the satisfaction of any condition set forth in Section 4 or elsewhere herein, other than to confirm receipt
of items expressly required to be delivered to Agent.


 


(g)          Reliance
by Agent. Agent may rely, and shall be fully protected in acting, or refraining to act, upon, any resolution, statement, certificate,
instrument, opinion, report, notice, request, consent, order, bond or other paper or document that it has no reason to believe
to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies
and telexes, to have been sent by the proper party or parties. In the absence of its gross negligence or willful misconduct, Agent
may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates
or opinions furnished to Agent and conforming to the requirements of the Loan Agreement or any of the other Loan Documents. Agent
may consult with counsel, and any opinion or legal advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, not taken or suffered by Agent hereunder or under any Loan Documents in accordance therewith. Agent
shall have the right at any time to seek instructions concerning the administration of the Collateral from any court of competent
jurisdiction. Agent shall not be under any obligation to exercise any of the rights or powers granted to Agent by this Agreement,
the Loan Agreement and the other Loan Documents at the request or direction of Lenders unless Agent shall have been provided by
Lender with adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance
with such request or direction.


 


11.18         Publicity.
None of the parties hereto nor any of its respective member businesses and Affiliates shall, without the other parties’
prior written consent (which shall not be unreasonably withheld or delayed), publicize or use (a) the other party's name (including
a brief description of the relationship among the parties hereto), logo or hyperlink to such other parties’ web site, separately
or together, in written and oral presentations, advertising, promotional and marketing materials, client lists, public relations
materials or on its web site (together, the “ Publicity Materials”); (b) the names of officers of such other parties
in the Publicity Materials; and (c) such other parties’ name, trademarks, servicemarks in any news or press release concerning
such party; provided however, notwithstanding anything to the contrary herein, no such consent shall be required (i) to the extent
necessary to comply with the requests of any regulators, legal requirements or laws applicable to such party, pursuant to any
listing agreement with any national securities exchange (so long as such party provides prior notice to the other party hereto
to the extent reasonably practicable) and (ii) to comply with Section 11.12.


 


(SIGNATURES TO FOLLOW)


 




    33 


     


    

  


IN WITNESS WHEREOF, Borrower,
Agent and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.


 


	 	BORROWER:
	 	 	 
	 	PHASERX, INC.
	 	 	 
	 	Signature:	/s/ Robert Overell
	 	 	 
	 	Print Name:	Dr. Robert Overell
	 	 	 
	 	Title:	CEO 


 


Accepted in Palo Alto, California:


 


	 	AGENT:
	 	 	 
	 	HERCULES CAPITAL, INC.
	 	 	 
	 	Signature:	/s/ Ben Bang
	 	 	 
	 	Print Name:	Ben Bang
	 	 	 
	 	Title:	Assistant General Counsel


 


	 	LENDER:
	 	 	 
	 	HERCULES TECHNOLOGY III, L.P.,
	 	a Delaware limited partnership
	 	 	 
	 	By:	Hercules Technology SBIC
	 	 	Management, LLC, its General
	 	 	Partner
	 	 	 
	 	By:	Hercules Capital, Inc., its Manager


 


	 	By:	/s/ Ben Bang 
	 	Name:	Ben Bang
	 	Its:	Assistant General Counsel


 


(Signature Page to Loan
and Security Agreement)


 




     


     


    

  


Table of Addenda, Exhibits and Schedules


 


	Addendum 1:	SBA Provisions
	Exhibit A:	Advance Request 
	 	Attachment to Advance Request
	Exhibit B:	Promissory Note
	Exhibit C:	Name, Locations, and Other Information for Borrower
	Exhibit D:	Borrower’s Patents, Trademarks, Copyrights and Licenses
	Exhibit E:	Borrower’s Deposit Accounts and Investment Accounts
	Exhibit F:	Compliance Certificate
	Exhibit G:	Joinder Agreement
	Exhibit H:	ACH Debit Authorization Agreement
	 	 
	Schedule 1	Subsidiaries
	Schedule 1.1	Commitments
	 	 
	Schedule 1A	Existing Permitted Indebtedness
	Schedule 1B	Existing Permitted Investments
	Schedule 1C	Existing Permitted Liens
	Schedule 1D	Borrower’s Investment Policy
	Schedule 5.3	Consents, Etc.
	Schedule 5.5	Actions Before Governmental Authorities
	Schedule 5.8	Tax Matters
	Schedule 5.9	Intellectual Property Claims
	Schedule 5.10	Intellectual Property
	Schedule 5.11	Borrower Products
	Schedule 5.14	Capitalization


 




     


     


    

  


ADDENDUM 1 to LOAN AND SECURITY AGREEMENT


 


(a)          Borrower’s
Business.  For purposes of this Addendum 1, Borrower shall be deemed to include its “affiliates” as defined
in Title 13 Code of Federal Regulations Section 121.103.  Borrower represents and warrants to Agent and Lender as of the Closing
Date and covenants to Agent and Lender for a period of one year after the Closing Date with respect to subsections 2, 3, 4, 5,
6 and 7 below, as follows:


 


		1.	Size Status.  Borrower does not have tangible net
worth in excess of $19.5 million or average net income after Federal income taxes (excluding any carry-over losses) for the preceding
two completed fiscal years in excess of $6.5 million;



 


		2.	No Relender.  Borrower’s primary business activity
does not involve, directly or indirectly, providing funds to others, purchasing debt obligations, factoring, or long-term leasing
of equipment with no provision for maintenance or repair;



 


		3.	No Passive Business.  Borrower is engaged in a regular
and continuous business operation (excluding the mere receipt of payments such as dividends, rents, lease payments, or royalties).
 Borrower’s employees are carrying on the majority of day to day operations.  Borrower will not pass through substantially
all of the proceeds of the Loan to another entity;



 


		4.	No Real Estate Business.  Borrower is not classified
under Major Group 65 (Real Estate) or Industry No. 1531 (Operative Builders) of the SIC Manual.  The proceeds of the Loan
will not be used to acquire or refinance real property unless Borrower (x) is acquiring an existing property and will use at least
51 percent of the usable square footage for its business purposes; (y) is building or renovating a building and will use at least
67 percent of the usable square footage for its business purposes; or (z) occupies the subject property and uses at least 67 percent
of the usable square footage for its business purposes.



 


		5.	No Project Finance.  Borrower’s assets are not
intended to be reduced or consumed, generally without replacement, as the life of its business progresses, and the nature of Borrower’s
business does not require that a stream of cash payments be made to the business's financing sources, on a basis associated with
the continuing sale of assets (e.g., real estate development projects and oil and gas wells).  The primary purpose of the
Loan is not to fund production of a single item or defined limited number of items, generally over a defined production period,
where such production will constitute the majority of the activities of Borrower (e.g., motion pictures and electric generating
plants).



 




     


     


    

  


		6.	No Farm Land Purchases.  Borrower will not use the
proceeds of the Loan to acquire farm land which is or is intended to be used for agricultural or forestry purposes, such as the
production of food, fiber, or wood, or is so taxed or zoned.



 


		7.	No Foreign Investment.  The proceeds of the Loan will
not be used substantially for a foreign operation.  At the time of the Loan, Borrower will not have more than 49 percent
of its employees or tangible assets located outside the United States.  The representation in this subsection (7) is made
only as of the date hereof and shall not continue for one year as contemplated in the first sentence of this Section 1.



 


(b)          Small
Business Administration Documentation.  Agent and Lender acknowledge that Borrower completed, executed and delivered to
Agent SBA Forms 480, 652 and 1031 (Parts A and B) together with a business plan showing Borrower’s financial projections
(including balance sheets and income and cash flows statements) for the period described therein and a written statement (whether
included in the purchase agreement or pursuant to a separate statement) from Agent regarding its intended use of proceeds from
the sale of securities to Lender (the “Use of Proceeds Statement”).  Borrower represents and warrants to Agent
and Lender that the information regarding Borrower and its affiliates set forth in the SBA Form 480, Form 652 and Form 1031
and the Use of Proceeds Statement delivered as of the Closing Date is accurate and complete.


 


(c)          Inspection. 
The following covenants contained in this Section (c) are intended to supplement and not to restrict the related provisions
of the Loan Documents.  Subject to the preceding sentence, Borrower will permit, for so long as Lender holds any debt or equity
securities of Borrower, Agent, Lender or their representative, at Agent’s or Lender’ expense, and examiners of the
SBA to visit and inspect the properties and assets of Borrower, to examine its books of account and records, and to discuss Borrower’s
affairs, finances and accounts with Borrower’s officers, senior management and accountants, all at such reasonable times
as may be requested by Agent or Lender or the SBA; provided that Borrower is not obligated to disclose pursuant to this paragraph
any privileged attorney-client communication, or information that Borrower is not permitted by statute, regulation, or court order
to disclose.


 


(d)          Annual
Assessment.  Promptly after the end of each calendar year (but in any event prior to February 28 of each year) and
at such other times as may be reasonably requested by Agent or Lender, Borrower will deliver to Agent a written assessment of the
economic impact of Lender’s investment in Borrower, specifying the full-time equivalent jobs created or retained in connection
with the investment, the impact of the investment on the businesses of Borrower in terms of expanded revenue and taxes, other economic
benefits resulting from the investment (such as technology development or commercialization, minority business development, or
expansion of exports) and such other information as may be required regarding Borrower in connection with the filing of Lender’s
SBA Form 468.   Lender will assist Borrower with preparing such assessment.  In addition to any other rights granted
hereunder, Borrower will grant Agent and Lender and the SBA access to Borrower’s books and records for the purpose of verifying
the use of such proceeds.  Borrower also will furnish or cause to be furnished to Agent and Lender such other information
regarding the business, affairs and condition of Borrower as Agent or Lender may from time to time reasonably request.


 




     


     


    

  


(e)          Use
of Proceeds.  Borrower will use the proceeds from the Loan only for purposes set forth in Section 7.16.  Borrower
will deliver to Agent from time to time promptly following Agent’s request, a written report, certified as correct by Borrower's
Chief Financial Officer, verifying the purposes and amounts for which proceeds from the Loan have been disbursed.  Borrower
will supply to Agent such additional information and documents as Agent reasonably requests with respect to its use of proceeds
and will permit Agent and Lender and the SBA to have access to any and all Borrower records and information and personnel as Agent
deems necessary to verify how such proceeds have been or are being used, and to assure that the proceeds have been used for the
purposes specified in Section 7.16.


 


(f)          Activities
and Proceeds.  Neither Borrower nor any of its affiliates (if any) will engage in any activities or use directly or indirectly
the proceeds from the Loan for any purpose for which a small business investment company is prohibited from providing funds by
the SBIC Act, including 13 C.F.R. §107.720.  Without obtaining the prior written approval of Agent, Borrower will
not change within 1 year of the date hereof, Borrower’s current business activity to a business activity which a licensee
under the SBIC Act is prohibited from providing funds by the SBIC Act.


 


(g)          Compliance
and Resolution.   Borrower agrees that a failure to comply with Borrower’s obligations under this Addendum,
or any other set of facts or circumstances where it has been asserted by any governmental regulatory agency (or Agent or Lender
believes that there is a substantial risk of such assertion) that Agent, Lender and their affiliates are not entitled to hold,
or exercise any significant right with respect to, any securities issued to Lender by Borrower, will constitute a breach of the
obligations of Borrower under the financing agreements among Borrower, Agent and Lender.  In the event of (i) a failure to
comply with Borrower’s obligations under this Addendum; or (ii) an assertion by any governmental regulatory agency (or Agent
or Lender believes that there is a substantial risk of such assertion) of a failure to comply with Borrower’s obligations
under this Addendum, then (i) Agent, Lender and Borrower will meet and resolve any such issue in good faith to the satisfaction
of Borrower, Agent, Lender, and any governmental regulatory agency, and (ii) upon request of Lender or Agent, Borrower will cooperate
and assist with any assignment of the financing agreements among Hercules Technology III, L.P. and Hercules Capital, Inc.


 




     


     


    

  


EXHIBIT
A


ADVANCE
REQUEST


 


	To: 	Agent:	Date:	__________, 2016
	 	Hercules Capital, Inc. (the “Agent”)	 	 
	 	400 Hamilton Avenue, Suite 310	 	 
	 	Palo Alto, CA 94301	 	 
	 	Email: legal@herculestech.com	 	 
	 	Attn:	 	 


 


PhaseRx, Inc. (“Borrower”) hereby requests from
Hercules Technology III, L.P. (“Lender”) an Advance in the amount of _____________________ Dollars ($________________)
on ______________, _____ (the “Advance Date”) pursuant to the Loan and Security Agreement among Borrower, Agent and
Lender (the “Agreement”). Capitalized words and other terms used but not otherwise defined herein are used with the
same meanings as defined in the Agreement.


 


Please:


	 	(a)	Issue a check payable to Borrower	 	 
	 	 	or	 	 
	 	(b)	Wire Funds to Borrower’s account	 	 





	 	 	Bank:	 	 
	 	 	Address:	 	 
	 	 	 	 	 
	 	 	ABA Number:	 	 
	 	 	Account Number:	 	 
	 	 	Account Name:	 	 
	 	 	Contact Person:	 	 
	 	 	Phone Number	 	 
	 	 	To Verify Wire Info:	 	 
	 	 	E-mail Address:	 	 


 


Borrower represents
that the conditions precedent to the Advance set forth in the Agreement are satisfied and shall be satisfied upon the making of
such Advance, including but not limited to: (i) that no event that has had or would reasonably be expected to have a Material
Adverse Effect has occurred and is continuing; (ii) that the representations and warranties set forth in the Agreement and
in the Warrant are and shall be true and correct in all material respects on and as of the Advance Date with the same effect as
though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date;
(iii) that Borrower is in compliance with all the terms and provisions set forth in each Loan Document on its part to be observed
or performed; and (iv) that as of the Advance Date, no fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute an Event of Default under the Loan Documents. Borrower understands and acknowledges
that Agent has the right to review the financial information supporting this representation and, based upon such review in its
sole discretion, Lender may decline to fund the requested Advance.


 


Borrower hereby represents
that Borrower’s corporate status and locations have not changed since the date of the Agreement or, if the Attachment to
this Advance Request is completed, are as set forth in the Attachment to this Advance Request.


 









     


     

    

 


Borrower agrees to
notify Agent promptly before the funding of the Loan if any of the matters which have been represented above shall not be true
and correct on the Borrowing Date and if Agent has received no such notice before the Advance Date then the statements set forth
above shall be deemed to have been made and shall be deemed to be true and correct as of the Advance Date.


 


Executed as of [        ],
2016.


 


	 	BORROWER:  PHASERX, INC.
	 	 
	 	SIGNATURE:	 
	 	TITLE:	 
	 	PRINT NAME:	 


 









     


     

    

 


ATTACHMENT
TO ADVANCE REQUEST


 


Dated: _______________________


Borrower hereby represents and warrants to Agent that Borrower’s
current name and organizational status is as follows:


 


	 	Name:	[                                                          ]
	 	 	 
	 	Type of organization:	Corporation
	 	 	 
	 	State of organization:	[                                      ]
	 	 	 
	 	Organization file number:	[                                      ]


 


Borrower hereby represents and warrants to Agent that the street
addresses, cities, states and postal codes of its current locations are as follows:


 









     


     

    

 


EXHIBIT
B


PROMISSORY
NOTE


 


	$[  ],000,000	Advance Date:  ___ __, 20[  ]
	 	Maturity Date:  ___ __, 20[  ]


 


FOR VALUE RECEIVED, PhaseRx, Inc., a Delaware
corporation, for itself and each of its Qualified Subsidiaries (the “Borrower”) hereby promises to pay to the order
of Hercules Technology III, L.P., a Delaware limited partnership or the holder of this Note (the “Lender”) at 400 Hamilton
Avenue, Suite 310, Palo Alto, CA 94301 or such other place of payment as the holder of this Secured Term Promissory Note (this
“Promissory Note”) may specify from time to time in writing, in lawful money of the United States of America, the principal
amount of [ ] Million Dollars ($[ ],000,000) or such other principal amount as Lender has advanced to Borrower, together with interest
at a rate as set forth in Section 2.1(c) of the Loan Agreement based upon a year consisting of 360 days, with interest computed
daily based on the actual number of days in each month.


 


This Promissory Note is the Note referred
to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated June 7, 2016, by and among
Borrower, the Lender, and Hercules Capital, Inc., a Maryland corporation (the “Agent”) and the several banks and other
financial institutions or entities from time to time party thereto as lender (as the same may from time to time be amended, modified
or supplemented in accordance with its terms, the “Loan Agreement”), and is entitled to the benefit and security of
the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement
of all of the terms and conditions thereof. All payments shall be made in accordance with the Loan Agreement. All terms defined
in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. An Event of Default under
the Loan Agreement shall constitute a default under this Promissory Note.


 


Borrower waives presentment
and demand for payment, notice of dishonor, protest and notice of protest under the UCC or any applicable law. Borrower agrees
to make all payments under this Promissory Note without setoff, recoupment or deduction and regardless of any counterclaim or defense.
This Promissory Note has been negotiated and delivered to Lender and is payable in the State of California. This Promissory Note
shall be governed by and construed and enforced in accordance with, the laws of the State of California, excluding any conflicts
of law rules or principles that would cause the application of the laws of any other jurisdiction.


 


	BORROWER FOR ITSELF AND	 
	ON BEHALF OF ITS QUALIFIED SUBSIDIARIES:	PHASERX, INC.
	 	By:
	 	Title:


 









     


     

    

 


EXHIBIT
C


 


NAME, LOCATIONS,
AND OTHER INFORMATION FOR BORROWER


 


1.    Borrower
represents and warrants to Agent that Borrower’s current name and organizational status as of the Closing Date is as follows:


 


	Name:	PhaseRx, Inc.
	 	 
	Type of organization:	Corporation
	 	 
	State of organization:	Delaware
	 	 
	Organization file number:	4123262


 


2.  Borrower
represents and warrants to Agent that for five (5) years prior to the Closing Date, Borrower did not do business under any other
name or organization or form except the following:


 


Name: PhaseRx, Inc.


Used during dates of: March 9, 2006 -
Present


Type of Organization: Corporation


State of organization: Delaware


Organization file Number: 4123262


Borrower’s fiscal year ends on December 31.


Borrower’s federal employer tax identification
number is: 20-4690620


 


3.  Borrower
represents and warrants to Agent that its chief executive office is located at 410 W. Harrison Street, Suite 300, Seattle, Washington
98119.


 









     


     

    

 


EXHIBIT
D


 


BORROWER’S
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES


 


Patents and Patent Applications


 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
        Enhanced

        Transport

        Using

        Membrane

        Disruptive

        Agents

         
	 	1100.PRV1	 	USA	 	60/070,411	 	1/5/1998	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	 	1100.US1	 	USA	 	09/226,044	 	1/5/1999	 	Non-provisional	 	
        6,835,393

        12/28/2004
	 	Issued
	 	1100.USC1	 	USA	 	10/857,626	 	5/28/2004	 	Continuation	 	
        7,374,778

        5/20/2008
	 	Issued
	 	1100.USC2	 	USA	 	12/105,983	 	5/18/2008	 	Continuation 	 	
        8,003,129

        8/23/2011
	 	Issued
	 	1100.USC3	 	USA	 	13/182,756 	 	7/14/2011	 	Continuation 	 	
        8,846,106

        9/30/2014
	 	Issued
	 	1100.USC4	 	USA	 	14/175,891	 	2/7/2014	 	Continuation 	 	 	 	Pending
	 	1100.PCT1	 	PCT	 	PCT/US99/000122	 	1/5/1999	 	PCT	 	 	 	National-ized
	 	1100.AU1	 	AU	 	1999/20261A	 	1/5/1999	 	National Phase	 	
        AU758368B2

        7/10/2003
	 	Issued
	 	1100.CA1	 	CA	 	2317549A	 	1/5/1999	 	National Phase	 	
        CA2317549A1

        4/11/2006
	 	Issued
	 	1100.EP1	 	EP	 	99900750.3	 	1/5/1999	 	National Phase	 	
        EP1044021B1

        9/23/2009
	 	
        Issued/

        Validated

	 	1100.FR1	 	FR	 	99900750.3	 	1/5/1999	 	Validation of EP 1044021	 	
        EP1044021B1

        9/23/2009
	 	Issued
	 	1100.DE1	 	DE	 	99900750.3	 	1/5/1999	 	Validation of EP 1044021	 	
        EP1044021B1

        9/23/2009
	 	Issued
	 	1100.IE1	 	IE	 	99900750.3	 	1/5/1999	 	
        Validation of

        EP 1044021
	 	
        EP1044021B1

        9/23/2009
	 	Issued
	 	1100.IT1	 	IT	 	99900750.3	 	1/5/1999	 	
        Validation of

        EP 1044021
	 	
        EP1044021B1

        9/23/2009
	 	Issued
	 	1100.ES1	 	ES	 	99900750.3	 	1/5/1999	 	
        Validation of

        EP 1044021
	 	
        EP1044021B1

        9/23/2009
	 	Issued
	 	1100.CH1	 	CH	 	99900750.3	 	1/5/1999	 	
        Validation of

        EP 1044021
	 	
        EP 1044021

        9/23/2009
	 	Issued
	 	1100.GB1	 	GB	 	99900750.3	 	1/5/1999	 	
        Validation of

        EP 1044021
	 	
        EP1044021B1

        9/23/2009
	 	Issued




 






     


     

    

 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
        Enhanced

        Transport

        Using

        Membrane

        Disruptive Agents
	 	1200.PRV1	 	USA	 	60/174,893 	 	1/7/2000	 	 	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	 	1200.US1	 	USA	 	09/755,701	 	1/5/2001	 	Non-provisional	 	
        7,737,108 B1

        6/15/2010
	 	Issued
	 	1200.USD1	 	USA	 	12/771,850	 	4/30/2010	 	Divisional	 	
        8,318,816

        November 27,

        2012
	 	Issued
	
        Temperature

        - and pH-

        Responsive

        Polymer

        Composi-

        tions
	 	1300.PRV1	 	USA	 	 60/782,789	 	3/16/2006	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	 	1300.US1	 	USA	 	11/687,522	 	3/16/2007	 	Non-provisional	 	
        7,718,193

        5/18/2010
	 	Issued
	Diblock Copolymers	 	1400.PRV1	 	USA	 	61/052,908 	 	5/13/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	
        Endosomo-

        lytic Diblock

        Copolymer

        for siRNA

        Delivery
	 	1400.PRV2	 	USA	 	61/052,914	 	5/13/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	
        Diblock

        Copolymer

        Micelles
	 	1500.PRV1	 	USA	 	61/091,294	 	8/22/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	
        Micellic

        Assemblies
	 	1600.PRV1	 	USA	 	61/112,048	 	11/6/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	
        Micellic

        Assemblies
	 	1600.PRV2	 	USA	 	61/140,774	 	12/24/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	
        Micellic

        Assemblies
	 	1600.PRV3	 	USA	 	61/171,369	 	4/21/2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	
        Polymeric

        Carrier
	 	1700.PRV1	 	USA	 	61/112,054	 	11/6/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	
        Polymeric

        Carrier
	 	1700.PRV2	 	USA	 	61/140,779	 	12/24/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	
        Polymeric

        Carrier
	 	1700.PRV3	 	USA	 	61/171,358	 	4/21/2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document





 






     


     

    

 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
        Targeted Polymer

        Bioconju-gates
	 	1800.PRV1	 	USA	 	61/120,769	 	12/8/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	Diblock Copolymer Micelles	 	1900.PRV1	 	USA	 	61/171,377	 	4/21/2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	
        Bispecific Intracellular

        Delivery

        Vehicles
	 	2000.PRV1	 	USA	 	61/171,381	 	4/21/2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	
        Diblock

        Copolymers

        and

        Polynucleo-

        tide

        Complexes

        Thereof for

        Delivery

        Into Cells
	 	2100.PCT1	 	PCT	 	PCT/US2009/043847 	 	5/13/2009	 	PCT	 	 	 	National-ized
	 	2100.US1	 	USA	 	12/992,517 	 	11/12/2010	 	National Phase	 	 	 	Pending
	 	2100.EP1	 	EP	 	09747510.7	 	5/13/2009	 	National Phase	 	
        EP 2281011

        02/27/2013
	 	Issued
	 	2100.AU1	 	AU	 	2009246327	 	5/13/2009	 	National Phase	 	
        2009246327

        12/24/2013
	 	Issued
	 	2100.AUD1	 	AU	 	2013204733	 	4/12/2013	 	Divisional	 	 	 	Pending
	 	2100.BR1 	 	BR	 	PI0912159-5	 	5/13/2009	 	National Phase	 	 	 	Pending
	 	2100.CA1	 	CA	 	2,724,105	 	5/13/2009	 	National Phase	 	 	 	Pending
	 	2100.CN1	 	CN	 	200980122888	 	5/13/2009	 	National Phase	 	
        ZL200980122888.3

        7/10/2013
	 	Issued
	 	2100.CND1	 	CN	 	201310232498.x	 	5/13/2009	 	Divisional	 	 	 	Pending
	 	2100.IL1	 	IL	 	209238	 	5/13/2009	 	National Phase	 	
        209238

        7/1/2014
	 	Issued 
	 	2100.IN1	 	IN	 	8578/DELNP/2010	 	5/13/2009	 	National Phase	 	 	 	Pending
	 	2100.JP1	 	JP	 	2011-509670	 	5/13/2009	 	National Phase	 	 	 	
        Allowed/

        Issue Fee Paid

	 	2100.JPD1	 	JP	 	2015-200236	 	5/13/2009	 	Divisional	 	 	 	Pending
	 	2100.KR1	 	KR	 	10-2010-7027808	 	5/13/2009	 	National Phase 	 	 	 	Pending
	 	2100.MX1	 	MX	 	2010/012238	 	5/13/2009	 	National Phase 	 	
        316902

        01/07/2014
	 	Issued
	 	2100.SG1	 	SG	 	201008331-9	 	5/13/2009	 	National Phase	 	
        166444

        07/15/2013
	 	Issued




 






     


     

    

 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2100.ZA1	 	ZA	 	2010/08729	 	5/13/2009	 	National Phase	 	
        2010/08729

        05/28/2014
	 	Issued
	 	2100.FR1	 	FR	 	9747510.7	 	5/13/2009	 	
        Validation of

        EP 2281011
	 	
        EP 2281011

        02/27/2013
	 	Issued
	 	2100.DE1	 	DE	 	9747510.7	 	5/13/2009	 	
        Validation of

        EP 2281011
	 	
        EP 2281011

        02/27/2013
	 	Issued
	 	2100.IE1 	 	IE	 	9747510.7	 	5/13/2009	 	
        Validation of

        EP 2281011
	 	
        EP 2281011

        02/27/2013
	 	Issued
	 	2100.IT1 	 	IT	 	9747510.7	 	5/13/2009	 	
        Validation of

        EP 2281011
	 	
        EP 2281011

        02/27/2013
	 	Issued
	 	2100.ES1	 	ES	 	9747510.7	 	5/13/2009	 	
        Validation of

        EP 2281011
	 	
        EP 2281011

        02/27/2013
	 	Issued
	 	2100.CH1	 	CH	 	9747510.7	 	5/13/2009	 	
        Validation of

        EP 2281011
	 	
        EP 2281011

        02/27/2013
	 	Issued
	 	2100.GB1	 	GB	 	9747510.7	 	5/13/2009	 	
        Validation of

        EP 2281011
	 	
        EP 2281011

        02/27/2013
	 	Issued
	Micellic Assemblies  	 	2300.PCT1	 	PCT	 	PCT/US2009/043849	 	5/13/2009	 	PCT	 	 	 	National-ized
	 	2300.US1	 	USA	 	12/992,525 	 	11/12/2010	 	National Phase	 	
        9,339,558

        5/17/2016
	 	Issued
	 	2300.USC1	 	USA	 	15/059,026 	 	3/2/2016	 	Continuation	 	 	 	Pending
	 	2300.EP1	 	EP	 	9747512.3	 	5/13/2009	 	National Phase	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.FR1	 	FR	 	9747512.3	 	5/13/2009	 	
        Validation of

        EP 2285853
	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.DE1 	 	DE	 	9747512.3	 	5/13/2009	 	
        Validation of

        EP 2285853
	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.IE1 	 	IE	 	9747512.3	 	5/13/2009	 	
        Validation of

        EP 2285853
	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.IT1 	 	IT	 	9747512.3	 	5/13/2009	 	
        Validation of

        EP 2285853
	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.ES1 	 	ES	 	9747512.3	 	5/13/2009	 	
        Validation of

        EP 2285853
	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.CH1 	 	CH	 	9747512.3	 	5/13/2009	 	
        Validation of

        EP 2285853
	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.GB1 	 	GB	 	9747512.3	 	5/13/2009	 	
        Validation of

        EP 2285853
	 	
        EP 2285853

        2/27/2013
	 	Issued
	 	2300.AU1	 	AU	 	2009246329	 	5/13/2009	 	National Phase	 	
        2009246329

        2/20/2014
	 	Issued
	 	2300.CA1	 	CA	 	2,724,014	 	5/13/2009	 	National Phase	 	 	 	Pending
	 	2300.JP1	 	JP	 	2011-509671	 	5/13/2009	 	National Phase	 	
        5755563

        6/5/2015
	 	Issued




 






     


     

    

 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2300.JPD1	 	JP	 	2015-107802	 	5/13/2009	 	Divisional 	 	 	 	Pending
	 	2300.KR1	 	KR	 	10-2010-7027809	 	5/13/2009	 	National Phase 	 	 	 	Pending
	 	2300.MX1	 	MX	 	2010/012239	 	5/13/2009	 	National Phase 	 	
        315375

        11/15/2013
	 	Issued
	
        Polymeric

        Carrier
	 	2400.PCT1	 	PCT	 	PCT/US2009/043837	 	5/13/2009	 	PCT	 	 	 	National-ized
	 	2400.US1	 	USA	 	12/992,536  	 	11/12/2010	 	National Phase 	 	
        9,006,193

        4/14/2015
	 	Issued
	 	2400.USC1	 	USA	 	14/630,477	 	2/24/2015	 	Continuation 	 	 	 	Pending
	
        Micelles for

        Intracellular

        Delivery of

        Therapeutic

        Agents
	 	2500.PCT1	 	PCT	 	PCT/US2009/043853	 	5/13/2009	 	PCT	 	 	 	National-ized
	 	2500.MX1	 	MX	 	MX/a/2010/012237 	 	5/13/2009	 	National Phase	 	
        296591

        03/02/2012
	 	Issued
	
        Heterogeneo

        us Polymeric

        Micelles for

        Intracellular

        Delivery
	 	2600.PCT1	 	PCT	 	PCT/US2009/043859	 	5/13/2009	 	PCT	 	 	 	National-ized
	 	2600.US1	 	USA	 	13/059,946  	 	5/13/2009	 	National Phase	 	
        9,211,250

        12/15/2015
	 	Issued
	
        Bispecific

        Intracellular

        Delivery

        Vehicles
	 	2700.PCT1	 	PCT	 	PCT/US2009/043852	 	5/13/2009	 	PCT	 	 	 	National-ized
	 	2700.US1	 	USA	 	13/127,968 	 	5/13/2009	 	National Phase	 	
        8,822,213

        9/2/2014
	 	Issued
	 	2700.USC1	 	USA	 	14/173,730	 	2/5/2014	 	Continuation	 	
        9,220,791

        12/29/2015
	 	Issued
	 	2700.USC2	 	USA	 	14/957,429	 	12/2/2015	 	Continuation	 	 	 	Pending
	 	2700.CA1	 	CA	 	2,742,955	 	5/13/2009	 	National Phase	 	 	 	Pending
	 	2700.EP1	 	EP	 	9825146.5	 	5/13/2009	 	National Phase	 	 	 	Pending
	
        Micelles of

        Hydrophili-

        cally

        Shielded

        Membrane-

        Destabili-

        zing Copolymers
	 	2800.PCT1	 	PCT	 	PCT/US2009/043860	 	5/13/2009	 	PCT	 	 	 	National-ized
	 	2800.US1	 	USA	 	13/127,962 	 	5/13/2009	 	National Phase	 	 	 	Pending
	
        Multiblock

        Copolymers
	 	2900.PRV1	 	USA	 	61/177,921	 	5/13/2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	 	2900.PRV2	 	USA	 	61/243,898	 	Sept. 18, 2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document





 






     


     

    

 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2900.PCT1	 	PCT	 	PCT/US2009/063648	 	11/6/2009	 	PCT	 	 	 	National-ized
	 	2900.US1	 	USA	 	13/127,959	 	11/6/2009	 	National Phase	 	 	 	Pending
	 	2900.EP1	 	EP	 	9825524.3	 	11/6/2009	 	National Phase	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.FR1	 	FR	 	9825524.3	 	11/6/2009	 	
        Validation of

        EP 2364330
	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.DE1	 	DE	 	9825524.3	 	11/6/2009	 	
        Validation of

        EP 2364330
	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.IE1	 	IE	 	9825524.3	 	11/6/2009	 	
        Validation of

        EP 2364330
	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.IT1	 	IT	 	9825524.3	 	11/6/2009	 	
        Validation of

        EP 2364330
	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.ES1	 	ES	 	9825524.3	 	11/6/2009	 	
        Validation of

        EP 2364330
	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.CH1	 	CH	 	9825524.3	 	11/6/2009	 	
        Validation of

        EP 2364330
	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.GB1	 	GB	 	9825524.3	 	11/6/2009	 	
        Validation of

        EP 2364330
	 	
        EP2364330B1

        3/25/2015
	 	Issued
	 	2900.AU1	 	AU	 	2009313358	 	11/6/2009	 	National Phase	 	
        2009313358

        9/19/2013
	 	Issued
	 	2900.AUD1	 	AU	 	2013204152	 	11/6/2009	 	Divisional	 	 	 	Pending
	 	2900.BR1	 	BR	 	PI09213570	 	11/6/2009	 	National Phase	 	 	 	Pending
	 	2900.CA1	 	CA	 	2,742,880	 	11/6/2009	 	National Phase	 	 	 	Pending
	 	2900.CN1	 	CN	 	200980148153.8	 	11/6/2009	 	National Phase	 	
        ZL200980148

        153.8

        3/12/2014
	 	Issued
	 	2900.IL1	 	IL	 	212459	 	11/6/2009	 	National Phase	 	 	 	Pending
	 	2900.IN1	 	IN	 	3370/DELNP/2011	 	11/6/2009	 	National Phase	 	 	 	Pending
	 	2900.JP1	 	JP	 	2011-534933	 	11/6/2009	 	National Phase	 	
        5766611

        6/26/2015
	 	Issued
	 	2900.KR1	 	KR	 	10-2011-7012773	 	11/6/2009	 	National Phase	 	 	 	Pending
	 	2900.MX1	 	MX	 	2010/004242	 	11/6/2009	 	National Phase	 	
        330456

        5/29/2015
	 	Issued
	 	2900.SG1	 	SG	 	201103187-9	 	11/6/2009	 	National Phase	 	
        171100

        1/15/2014
	 	Issued




 






     


     

    

 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2900.ZA1	 	ZA	 	2011/03289	 	11/6/2009	 	National Phase	 	 	 	Pending
	
        Omega-

        Functional-

        ized

        Polymers
	 	3000.PRV2	 	USA	 	61/120,756	 	12/8/2008	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	 	3000.PCT1	 	PCT	 	PCT/US2009/067193	 	12/8/2009	 	PCT	 	 	 	National-ized
	 	3000.US1	 	USA	 	13/133,355 	 	12/8/2009	 	National Phase	 	 	 	Pending
	 	3000.CA1	 	CA	 	2,745,926	 	12/8/2009	 	National Phase	 	 	 	Pending
	
        Targeting

        Monomers

        and

        Polymers

        Having

        Targeting

        Blocks
	 	3200.PRV1	 	USA	 	61/262,512	 	11/18/2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	 	3300.PRV1	 	USA	 	61/262516	 	11/18/2009	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority Document

	 	3200.PCT1	 	PCT	 	PCT/US2010/056993	 	11/17/2010	 	PCT	 	 	 	National-ized
	 	3200.US1	 	USA	 	13/510,279 	 	5/16/2012	 	National Phase	 	 	 	Allowed
	
        RNA

        Targeted to

        Beta-Catenin
	 	3500.PRV1	 	USA	 	61/718,313	 	10/25/2012	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	 	3500.PCT1	 	PCT	 	PCT/US13/26624	 	2/19/2013	 	PCT	 	 	 	National-ized
	 	3500.US1	 	USA	 	14/437,923	 	4/23/2015	 	National Phase	 	 	 	Pending
	
        RNA

        Targeted to

        c-Met
	 	3600.PRV1	 	USA	 	61/751,495	 	1/11/2013	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	 	3600.PCT1	 	PCT	 	PCT/US13/26623	 	2/19/2013	 	PCT	 	 	 	National-ized
	 	3600.US1	 	USA	 	14/760,010	 	7/9/2015	 	National Phase	 	 	 	Pending
	
        Block

        Copolymers
	 	3700.PRV1	 	USA	 	61/860,136	 	7/30/2013	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	 	3800.PRV1	 	USA	 	61/868,122	 	8/21/2013	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document





 






     


     

    

 


	
        Application

        Title
	 	Docket	 	Country	 	Appl. S/N	 	Filing Date	 	
        Application

        Type
	 	
        Patent No./

        Issue Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	3800.PCT1	 	PCT	 	PCT/US14/48839	 	7/30/2014	 	PCT	 	 	 	National-ized
	 	3800.US1	 	USA	 	14/908,351	 	7/30/2014	 	National Phase	 	 	 	Pending
	 	3800.EP1	 	EP	 	14753175	 	7/30/2014	 	National Phase	 	 	 	Pending
	 	3800.AU1	 	AU	 	2014296278	 	7/30/2014	 	National Phase	 	 	 	Pending
	 	3800.CA1	 	CA	 	2919828	 	7/30/2014	 	National Phase	 	 	 	Pending
	
        Methods,

        Composi-

        tions, and

        Systems for

        Delivering

        Therapeutic

        and

        Diagnostic

        Agents into

        Cells
	 	3900.PRV1	 	USA	 	62/106,024	 	1/21/2015	 	Provisional	 	 	 	
        Expired/

        Claimed as

        Priority

        Document

	 	3900.PRV2	 	USA	 	62/173,847	 	6/10/2015	 	Provisional	 	 	 	Pending
	 	3900.PRV3	 	USA	 	62/233,568	 	9/28/2015	 	Provisional	 	 	 	Pending
	 	3900.PCT1	 	PCT	 	
        PCT/US16/

        14232
	 	9/28/2015	 	PCT	 	 	 	Pending




 


Registered Trademarks and Trademark Applications


 


	Country	 	Mark	 	Class	 	
        Application

        No.
	 	
        Filing

        Date
	 	
        Registration

        No.
	 	
        Registration

        Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	PHASERX	 	042	 	77/188,314	 	05/23/2007	 	3,941,026	 	04/05/2011	 	Registered
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	
        PHASERX &

        Design

         

        
	 	042	 	85/976,141	 	08/13/2010	 	4,103,251	 	02/21/2012	 	Registered
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	
        UNLOCKING

        THE VALUE

        OF RNAi
	 	042	 	85/976,140	 	
        08/13/2010

         
	 	4,103,250	 	02/21/2012	 	Registered
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	
        SMARTT

        POLYMER

        TECHNOLOGY
	 	042	 	85/976,126	 	08/13/2010	 	4,106,933	 	02/28/2012	 	Registered
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	
        PHASERX &

        Design

         

         
	 	005	 	86/358,306	 	08/05/2014	 	 	 	 	 	
        Allowed:

        09/08/2015

         

        1st

        Extension

        of Time

        filed





 









     


     

    

 


	Country	 	Mark	 	Class	 	
        Application

        No.
	 	
        Filing

        Date
	 	
        Registration

        No.
	 	
        Registration

        Date
	 	Status
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        02/29/2015

         

        Statement

        of Use or

        2nd

        Extension

        09/08/2016

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	
        UNLOCKING

        THE VALUE

        OF RNA
	 	005	 	86/358,307	 	08/05/2014	 	 	 	 	 	
        Allowed:

        10/13/2015

         

        1st

        Extension

        of Time

        filed

        04/05/2016

         

        Statement

        of Use or

        2nd

        Extension

        10/13/2016

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	
        SMARTT

        POLYMER

        TECHNOLOGY
	 	005	 	86/358,309	 	08/05/2014	 	 	 	 	 	
        Allowed:

        09/08/2015

         

        1st

        Extension

        of Time

        filed

        02/29/2016

         

        Statement

        of Use or

        2nd

        Extension

        09/08/2016

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	US	 	
        UNLOCKING

        THE VALUE

        OF RNA
	 	0042	 	86/358,313	 	08/05/2014	 	4,820,834	 	09/29/2015	 	Registered




 


Licenses


 


Second Amended and Restated Exclusive Patent License Agreement
between PhaseRx, Inc. and University of Washington for Membrane Disruptive Polymers, dated and effective as of February 9, 2016,
which amends and restates in its entirety the Amended and Restated Exclusive Patent License Agreement dated and effective as of
January 20, 2016, which amends and restates in its entirety the Exclusive Patent Agreement dated and effective as of December 6,
2006.


 









     


     

    

 


Amended and Restated RAFT Non-Exclusive License Agreement between
Commonwealth Scientific and Industrial Research Organisation (CSIRO) and PhaseRx, Inc., dated and effective as of January
22, 2016, which amends and restates in its entirety the RAFT Non-Exclusive Licence Agreement having dated and effective as of October
26, 2009.


 









     


     

    

 


EXHIBIT
E


 


BORROWER’S
DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS


 


Silicon Valley Bank


Global Deposit Operations


80 East Rio Salado Parkway, Mail Sort AZ145


Tempe, Arizona 85281


Telephone: (408) 557-4964


Account No. XXXXXXXXXX


 


State Street Bank and Trust Company


Crown Colony Park


1200 Crown Colony Drive


Quincy, Massachusetts 02169-0938


Account No. XXXXX


 









     


     

    

 


EXHIBIT
F


 


COMPLIANCE
CERTIFICATE


 


Hercules Capital, Inc. (as “Agent”)


400 Hamilton Avenue, Suite 310


Palo Alto, CA 94301


 


Reference is made to
that certain Loan and Security Agreement dated June 7, 2016 and the Loan Documents (as defined therein) entered into in connection
with such Loan and Security Agreement all as may be amended from time to time (hereinafter referred to collectively as the “Loan
Agreement”) by and among Hercules Technology III, L.P., the several banks and other financial institutions or entities from
time to time party thereto (collectively, the “Lender”) and Hercules Capital, Inc., as agent for the Lender (the “Agent”)
and PhaseRx, Inc. (the “Borrower”) as Borrower. All capitalized terms not defined herein shall have the same meaning
as defined in the Loan Agreement.


 


The undersigned is
an Officer of Borrower, knowledgeable of all Borrower financial matters, and is authorized to provide certification of information
regarding Borrower; hereby certifies, in such capacity, that in accordance with the terms and conditions of the Loan Agreement,
Borrower is in compliance for the period ending ___________ of all covenants, conditions and terms and hereby reaffirms that all
representations and warranties contained therein are true and correct on and as of the date of this Compliance Certificate with
the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate
to an earlier date, after giving effect in all cases to any standard(s) of materiality contained in the Loan Agreement as to such
representations and warranties. Attached are the required documents supporting the above certification. The undersigned further
certifies that these are prepared in accordance with GAAP (except for the absence of footnotes with respect to unaudited financial
statement and subject to normal year-end adjustments) and are consistent from one period to the next except as explained below.


  


	REPORTING REQUIREMENT	REQUIRED	CHECK IF

                                               ATTACHED

	Interim Financial Statements 	Monthly within 30 days	 
	Interim Financial Statements 	Quarterly within 45 days	 
	Audited Financial Statements 	FYE within 90 days	 


 


	
        BANK ACCOUNTS

         
	 
	Has Borrower opened any new Deposit Accounts or accounts holding Investment Property since the submission of the prior Compliance Certificate?	YES / NO
	 	 	 
	If yes, please provide the following information below:	 	 


 






     


     

    

 


	Name of Institution	Account Number	Purpose of Account
	 	 	 
	1.  	 	 
	2.  	 	 


 


 


	 	Very Truly Yours,
	 	PHASERX, INC.
	 	By:	 
	 	Name:	 
	 	Its:	 


 









     


     

    

 


EXHIBIT
G


 


FORM OF
JOINDER AGREEMENT


 


This Joinder Agreement
(the “Joinder Agreement”) is made and dated as of [ ], 20[ ], and is entered into by and between__________________.,
a ___________ corporation (“Subsidiary”), and HERCULES CAPITAL, INC., a Maryland corporation (as “Agent”).


 


RECITALS


 


A. Subsidiary’s
Affiliate, PHASERX, INC. (“Borrower”) has entered into that certain Loan and Security Agreement dated June 7, 2016,
with the several banks and other financial institutions or entities from time to time party thereto as lender (collectively, the
“Lender”) and Agent, as such agreement may be amended (the “Loan Agreement”), together with the other agreements
executed and delivered in connection therewith;


 


B. Subsidiary acknowledges
and agrees that it will benefit both directly and indirectly from Borrower’s execution of the Loan Agreement and the other
agreements executed and delivered in connection therewith;


 


AGREEMENT


 


NOW THEREFORE, Subsidiary
and Agent agree as follows:


 


		1.	The recitals set forth above are incorporated into and made part of this Joinder Agreement. Capitalized
terms not defined herein shall have the meaning provided in the Loan Agreement.



 


		2.	By signing this Joinder Agreement, Subsidiary shall be bound by the terms and conditions of the
Loan Agreement the same as if it were the Borrower (as defined in the Loan Agreement) under the Loan Agreement, mutatis mutandis,
provided however, that (a) with respect to (i) Section 5.1 of the Loan Agreement, Subsidiary represents that it is an entity duly
organized, legally existing and in good standing under the laws of [ ], (b) neither Agent nor Lender shall have any duties, responsibilities
or obligations to Subsidiary arising under or related to the Loan Agreement or the other agreements executed and delivered in connection
therewith, (c) that if Subsidiary is covered by Borrower’s insurance, Subsidiary shall not be required to maintain separate
insurance or comply with the provisions of Sections 6.1 and 6.2 of the Loan Agreement, and (d) that as long as Borrower satisfies
the requirements of Section 7.1 of the Loan Agreement, Subsidiary shall not have to provide Agent separate Financial Statements.
To the extent that Agent or Lender has any duties, responsibilities or obligations arising under or related to the Loan Agreement
or the other agreements executed and delivered in connection therewith, those duties, responsibilities or obligations shall flow
only to Borrower and not to Subsidiary or any other Person or entity. By way of example (and not an exclusive list): (i) Agent’s
providing notice to Borrower in accordance with the Loan Agreement or as otherwise agreed among Borrower, Agent and Lender shall
be deemed provided to Subsidiary; (ii) a Lender’s providing an Advance to Borrower shall be deemed an Advance to Subsidiary;
and (iii) Subsidiary shall have no right to request an Advance or make any other demand on Lender.



 


		3.	Subsidiary agrees not to certificate its equity securities without Agent’s prior written
consent, which consent may be conditioned on the delivery of such equity securities to Agent in order to perfect Agent’s
security interest in such equity securities.



 









     


     

    

 


		4.	Subsidiary acknowledges that it benefits, both directly and indirectly, from the Loan Agreement,
and hereby waives, for itself and on behalf on any and all successors in interest (including without limitation any assignee for
the benefit of creditors, receiver, bankruptcy trustee or itself as debtor-in-possession under any bankruptcy proceeding) to the
fullest extent provided by law, any and all claims, rights or defenses to the enforcement of this Joinder Agreement on the basis
that (a) it failed to receive adequate consideration for the execution and delivery of this Joinder Agreement or (b) its obligations
under this Joinder Agreement are avoidable as a fraudulent conveyance.



 


[REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK]


 









     


     

    

 


[SIGNATURE PAGE TO JOINDER
AGREEMENT]


 


	SUBSIDIARY:	 
	______________________________.	 


 


	 	By:	 
	 	Name:	 
	 	Title:	 
	 	 	 
	 	Address:	 
	 	 	 
	 	 	 
	 	Telephone: ___________	 
	 	Email: ____________	 


 


	AGENT:	 


 


	HERCULES CAPITAL, INC.	 
	 	 
	By:	 	 
	Name:	 	 
	Title:	 	 


 


Address:


400 Hamilton Ave., Suite 310


Palo Alto, CA 94301


Email: legal@herculestech.com


Telephone: 650-289-3060




 






     


     

    

  


EXHIBIT
H


 


ACH DEBIT
AUTHORIZATION AGREEMENT


 


Hercules Technology III, L.P.


400 Hamilton Avenue, Suite 310


Palo Alto, CA 94301


 


Re: Loan and Security Agreement
dated June 7, 2016 (the “Agreement”) by and among PhaseRx, Inc. (“Borrower”) and Hercules Capital, Inc.,
as agent (“Agent”) and the lenders party thereto (collectively, the “Lender”)


 


In connection with the above referenced
Agreement, Borrower hereby authorizes the Company to initiate debit entries for (i) the periodic payments due under the Agreement
and (ii) out-of-pocket legal fees and costs incurred by Agent or Lender pursuant to Section 11.11 of the Agreement
to Borrower’s account indicated below. Borrower authorizes the depository institution named below to debit to such
account.


 


	Depository
                                         Name

         
	Branch

         

	City

         
	State
    and Zip Code
	Transit/ABA
                                         Number

         
	Account
                                         Number

         



This authority will remain in full force
and effect so long as any amounts are due under the Agreement.


 


	PHASERX, INC.	 
	 	 
	 	 
	(Borrower)(Please Print)	 
	 	 
	By:	                      	 
	 	 	 
	Date: 	 	 


 




     


     


    

 


Acknowledged and agreed to:


 


AGENT:


 


HERCULES CAPITAL, INC.


 


	By:	 	 
	Name: 	 	 
	Title:	 	 


 


LENDER:


 


HERCULES TECHNOLOGY III, L.P.,


a Delaware limited partnership


 


		By:	Hercules Technology SBIC Management, LLC, its General Partner



 


		By:	Hercules Capital, Inc., its Manager



 


	By:	 	 
	Name: 	 	 
	Its:	 	 


 


Address:


400 Hamilton Ave., Suite 310


Palo Alto, CA 94301


Facsimile: (650) 473-9194


Telephone: (650) 289-3060


 




     


     


    

 


SCHEDULE
1


 


SUBSIDIARIES


 


None.


 




     


     


    

 


SCHEDULE
1.1


 


COMMITMENTS


 


	LENDER	TERM COMMITMENT
	HERCULES TECHNOLOGY III, L.P.	$6,000,000 (Term A Loan)
	HERCULES TECHNOLOGY III, L.P.	$2,000,000 (Term B Loan)
	TOTAL COMMITMENTS	$8,000,000


 




     


     


    

 


SCHEDULE 1A


 


EXISTING PERMITTED INDEBTEDNESS


 


None.


 




     


     


    

 


SCHEDULE 1B


 


EXISTING PERMITTED INVESTMENTS


 


None.


 




     


     


    

 


SCHEDULE 1C


 


EXISTING PERMITTED INVESTMENTS


 


None.


 




     


     


    

 


SCHEDULE 1D


 


INVESTMENT POLICY


 


The Borrower may invest in any of the following as part of its
cash management program:


 


(a)    U.S. Treasury bills, notes, and bonds
maturing within (2) two years from the date of acquisition thereof,


 


(b)   U.S. agency and government-sponsored entity
debt obligations maturing within (2) two years from the date of acquisition thereof,


 


(c)    Corporate and bank debt obligations
maturing within (2) two years from the date of acquisition thereof.  These include corporate notes carrying a minimum
long-term rating of at least A3 by Moody’s or A- by Standard & Poor’s or A- by Fitch, as well as commercial paper
carrying a minimum short-term rating of at least P1 by Moody’s or A1 by Standard & Poor’s or F1 by Fitch,


 


(d)   SEC-registered money market funds that have
a minimum of one (1) billion dollars in assets, and


 


(e)   Repurchase agreements that are collateralized
with cash, U.S. Treasury bills, notes or bonds and/or U.S. agency and government-sponsored entity debt obligations, including U.S.
agency and government-sponsored entity mortgage debt obligations.


 




     


     


    

 


SCHEDULE 5.3


 


CONSENTS, ETC.


 


None.


 




     


     


    

 


SCHEDULE 5.5


 


ACTIONS BEFORE GOVERNMENTAL AUTHORITIES


 


None.


 




     


     


    

 


SCHEDULE 5.8


 


TAX MATTERS


 


None.


 




     


     


    

 


SCHEDULE 5.9


 


INTELLECTUAL PROPERTY CLAIMS


 


None.


 




     


     


    

 


SCHEDULE 5.10


 


INTELLECTUAL PROPERTY


 


Borrower in-licenses some of the intellectual property related
to its product candidates from the University of Washington (“UW”) and the Commonwealth Scientific and Industrial Research
Organisation (“CSIRO”) pursuant to the following license agreements:


 


Second Amended and Restated Exclusive Patent License Agreement,
dated as of February 9, 2016: Licensed patents include three patent families owned by UW and nine patent families co-owned by Borrower
and UW. One of the licensed patent families is co-owned by UW and the University of Massachusetts, and the University of Massachusetts’s
rights in this patent family are licensed to Borrower under an inter-institutional agreement between UW and the University of Massachusetts.


 


Amended and Restated RAFT Non-Exclusive License Agreement, dated
as of January 22, 2016.


 


Borrower Patent Portfolio:


 


	Case Family	 	Issued Patents	 	
        Pending

        Applications

by

        Jurisdiction
	 	Owned or In-licensed
	Enhanced Transport	 	
        US 6,835,393; US 7,374,778; US 8,003,129; US 8,846,106;
        EP 1044021; AU 758368; CA 2317549 
	 	US	 	In-licensed
	Enhanced Transport	 	US 7,737,108; US 8,318,816	 	 	 	In-licensed
	Temperature and pH-responsive Compositions	 	US 7,718,193	 	 	 	In-licensed
	Diblock Copolymer	 	EP 2281011; AU 2009246327; CN ZL200980122888.3; IL 209238; MX 316902; SG 166444; ZA 2010/08729	 	US, AU, CA, JP, BR, CN, IN, KR	 	Co-owned; UW’s rights in-licensed
	Micellic Assemblies	 	EP 2285853; AU 2009246329; JP 5755563; MX 315375	 	US, AU, CA, JP, KR	 	Co-owned; UW’s rights in-licensed
	Polymeric Carrier	 	US 9,006,193	 	US	 	Co-owned; UW’s rights in-licensed


 






     


     


    

 


	Heterogeneous Polymeric Micelles	 	US 9,211,250	 	 	 	Co-owned; UW’s rights in-licensed
	Bispecific Intracellular Delivery Vehicles	 	US 8,822,213; 9,220,791	 	US, EP, CA	 	Co-owned; UW’s rights in-licensed 
	Hydrophilically Shielded Copolymers	 	 	 	US	 	Co-owned; UW’s rights in-licensed
	Multiblock Copolymers	 	EP 2364330; AU 2009313358; CN ZL200980148153.8; JP 5766611; MX 330456; SG 171100	 	US, CA, BR, IL, IN, KR, ZA	 	Co-owned; UW’s rights in-licensed
	Omega-Functionalized Polymers	 	 	 	US	 	Co-owned; UW’s rights in-licensed
	Targeting Monomers	 	 	 	US	 	Co-owned; UW’s rights in-licensed
	Case Family	 	Issued Patents	 	
        Pending

        Applications by

        Jurisdiction
	 	Owned or In-licensed
	RNA Targeted to c-Met	 	 	 	US	 	Owned
	Block Copolymers	 	 	 	US, AU, EP, CA	 	Owned
	Polymer-LNP Delivery	 	 	 	PCT, US	 	Owned


 




     


     


    

 


SCHEDULE 5.11


 


BORROWER’S PRODUCTS


 


None.


 




     


     


    

 


SCHEDULE 5.14


 


CAPITALIZATION


 


Capitalization as of the Closing Date (for illustrative purposes
only, assuming the issuance of 1,250,000 shares of common stock at a public offering price per share of $6.00 in the Qualified
Offering (as defined in the December Loan and Security Agreement):


 


	 	 	Shares	 	 	Amount
    ($)	 	 	Price	 	 	Without
    ESOP 

    Ownership %	 	 	Without
    ESOP

    Ownership $	 	 	With
    ESOP

    Ownership %	 	 	With
    ESOP

    Ownership $	 
	Existing PhaseRx Shareholders	 	 	6,012,593	 	 	 	 	 	 	 	 	 	 	 	47.79	%	 	$	36,075,558	 	 	 	42.53	%	 	$	32,107,247	 
	New PhaseRx Insider Investment	 	 	1,566,667	 	 	$	9,400,000	 	 	$	6.00	 	 	 	12.45	%	 	$	9,400,000	 	 	 	11.08	%	 	$	8,366,000	 
	Shire Investment	 	 	-	 	 	$	-	 	 	$	-	 	 	 	0.00	%	 	$	-	 	 	 	0.00	%	 	$	-	 
	Private Sale	 	 	1,393,939	 	 	$	-	 	 	$	-	 	 	 	11.08	%	 	$	8,363,634	 	 	 	9.86	%	 	$	7,443,634	 
	Bridge Loan into Private Company	 	 	833,333	 	 	$	4,000,000	 	 	$	4.80	 	 	 	6.62	%	 	$	5,000,000	 	 	 	5.89	%	 	$	4,450,000	 
	Laidlaw Clients	 	 	2,650,000	 	 	$	15,900,000	 	 	$	6.00	 	 	 	21.06	%	 	$	15,900,000	 	 	 	18.74	%	 	$	14,151,000	 
	Palladium Capital Advisors	 	 	125,824	 	 	 	 	 	 	 	 	 	 	 	1.00	%	 	$	754,941	 	 	 	0.89	%	 	$	671,898	 
	Total	 	 	12,582,356	 	 	$	29,300,000	 	 	 	 	 	 	 	100.00	%	 	$	75,494,134	 	 	 	89.00	%	 	$	67,189,779	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ESOP	 	 	1,555,123	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	11.00	%	 	$	8,304,355	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total	 	 	14,137,478	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	100.00	%	 	$	75,494,134	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Venture Debt1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	7,500,000	 	 	 	 	 	 	 	 	 
	Total Cash:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	36,800,000	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Post-Money Valuation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	75,494,134	 	 	 	 	 	 	 	 	 



 


1Venture Debt shall include warrants [TBD]


Existing PhaseRx Shareholders includes preferred, common,
noteholders, warrentholders, and optionholders Laidlaw Client shares include 15% overallotment shares


 


Subsidiaries


 


Herein incorporated by reference all subsidiaries listed in
Schedule 1.