Unassociated Document


    
       

      Exhibit
        10.1

    

     

    
      	  	
              EXECUTION
                COPY

            


    

     

    MERRILL
      LYNCH CAPITAL, A DIVISION OF 

    MERRILL
      LYNCH BUSINESS FINANCIAL SERVICES INC.

     

    
      
        

      

    

    


    CREDIT
      AND SECURITY AGREEMENT

    


    THIS
      CREDIT AND SECURITY AGREEMENT (the “Agreement”) is made as of the 21st
      day of
      May, 2007 (the “Closing Date”), by and among MERRILL LYNCH CAPITAL, A DIVISION
      OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., its successors and assigns
      (“Lender”), and DISCOVERY
      LABORATORIES, INC.,
      a
      Delaware corporation (“Principal Borrower”), and any additional borrower that
      may hereafter be added to this Agreement (together with Principal Borrower,
      each
      individually as a “Borrower” and collectively as “Borrowers”).

    


    Borrowers
      are desirous of obtaining a loan from Lender and Lender is willing to make
      the
      loan to Borrowers upon the terms and conditions set forth herein.

    


    NOW,
      THEREFORE, in consideration of the sum of Ten Dollars ($10.00) in hand paid
      and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the parties do hereby agree as follows:

    


    1.    Advance
      of Loan.

    


     (a)     Availability.
      Subject
      to the terms and conditions of this Agreement, during the Draw Period, Lender
      shall make advances (each, an “Equipment Advance” and, collectively, “Equipment
      Advances”) not exceeding the Equipment Line (such Equipment Advances,
      individually and collectively, the “Loan”). Equipment Advances may only be used
      to finance Eligible Equipment purchased within one hundred twenty (120) days
      (determined based upon the applicable invoice date of such Eligible Equipment)
      before the date of each Equipment Advance; provided, however, that the initial
      advance under the Loan shall be used to pay in full all indebtedness owed by
      Borrowers to General Electric Capital Corporation up to Four Million Five
      Hundred Thousand Dollars ($4,500,000) (the “GECC Debt”). All Eligible Equipment
      must have been new when purchased by Borrower, except for such Eligible
      Equipment that is disclosed in writing to Lender by Borrowers, and that Lender
      in its sole discretion has agreed to finance, prior to being financed by Lender.
      No Equipment Advance may exceed one hundred percent (100%) of the total invoice
      for Eligible Equipment (excluding taxes, shipping, warranty charges, freight
      discounts and installation expenses relating to such Eligible Equipment, except
      to the extent that any of the foregoing are allowed to be financed pursuant
      hereto as Other Equipment). The proceeds of the Loan used to finance Hard Costs
      shall not exceed an amount equal to (A) the Equipment Line, minus (B) the GECC
      Debt paid off from proceeds of the initial Equipment Advance, and minus the
      principal amount of all Other Equipment Advances made under this Agreement.
      The
      proceeds of the Loan used to finance Other Equipment shall not exceed an amount
      equal to (i) One Million Five Hundred Thousand Dollars ($1,500,000) plus the
      lesser of (X) the prepayment penalty incurred by Borrowers in connection with
      the prepayment of the GECC Debt or (Y) Two Hundred Thousand Dollars ($200,000).
      In addition, not more than Four Million Five Hundred Thousand Dollars
      ($4,500,000) of the proceeds of the Loan shall be used to pay off the GECC
      Debt.
      Each Equipment Advance must be in an amount equal to or greater than the lesser
      of One Hundred Thousand Dollars ($100,000) or the amount that has not yet been
      drawn under the Loan. After repayment, no Equipment Advance may be reborrowed.
      Each Equipment Advance shall be advanced on or before the second Business Day
      following Lender’s receipt of Borrower’s written request for such Equipment
      Advance (provided that all conditions precedent set forth in Section 4 below
      have been satisfied as of the funding date of such Equipment
      Advance).

    


     (b)    Repayment.

    


       
      (1)     Each
      Hard
      Cost Equipment Advance shall amortize from and after the Advance Date (as
      defined in Section 4(b) below) of the Hard Cost Equipment Advance and be payable
      in thirty-six (36) equal monthly payments of principal and interest beginning
      on
      the first day of the second month following such Equipment Advance and
      continuing on the first day of each month thereafter.

    


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

      
        Exhibit
          10.1

         

        
          	  	
                  EXECUTION
                    COPY

                


        

      

       

    

    (2) Each
      Other Equipment Advance shall amortize from and after the Advance Date of the
      Other Equipment Advance and be payable in twenty-four (24) equal monthly
      payments of principal and interest beginning on the first day of the second
      month following such Equipment Advance and continuing on the first day of each
      month thereafter.

    


    (3) The
      GECC
      Payoff Equipment Advance shall amortize from and after the Advance Date of
      the
      GECC Payoff Equipment Advance and be payable in twenty-seven (27) equal monthly
      payments of principal and interest beginning on the first day of the second
      month following such Equipment Advance and continuing on the first day of each
      month thereafter.

    


    (4) In
      addition to the scheduled payments set forth in Sections 1(b)(1), (2) and (3)
      above, on the first day of the month following the Advance Date for each
      Equipment Advance, Borrowers shall pay to Lender the accrued interest on such
      Equipment Advance, at the rate set forth in Section 1(c)(1) below.

    


    (5) Borrowers
      may prepay any Equipment Advance at any time, in whole or in part, for any
      reason; provided, however, that no prepayment of a Hard Cost Equipment Advance
      shall be permitted at any time that Other Equipment Advances made
      in
      conjunction with such Hard Cost Equipment Advance are
      outstanding unless such Other Equipment Advances are prepaid simultaneously.
      In
      the event of any prepayment (whether such prepayment is voluntary or mandatory
      by reason of the occurrence of a Default (as defined in Section 7 below) or
      the
      acceleration of the Loan, or otherwise), or if the Loan shall be accelerated
      and
      become due and payable in full, Borrowers shall pay to Lender, as compensation
      for the costs of Lender making funds available to Borrowers under this
      Agreement, a prepayment fee (the “Prepayment Fee”) calculated in accordance with
      this subsection; provided that no Prepayment Fee shall be owed in the event
      that
      the prepayment occurs in connection with a refinancing of the Obligations (as
      defined in Section 3(a) below) with Lender. If such prepayment occurs prior
      to
      the first anniversary date of the Closing Date, the Prepayment Fee shall be
      equal to the principal amount prepaid (or accelerated) multiplied
      by
      four
      percent (4.0%), if such prepayment occurs on or after the first anniversary
      date
      of the Closing Date, but prior to the second anniversary date of the Closing
      Date, the Prepayment Fee shall be equal to the principal amount prepaid (or
      accelerated) multiplied
      by
      two
      percent (2.0%) and if such prepayment occurs on or after the second anniversary
      date of the Closing Date, the Prepayment Fee shall be equal to the principal
      amount prepaid (or accelerated) multiplied
      by
      one
      percent (1.0%). All fees payable pursuant to this paragraph shall be deemed
      fully earned and non-refundable as of the Closing Date. 

    


    (6) Payments
      of principal and interest shall be made by Automated Clearing House debit of
      immediately available funds from the account designated by Borrowers in the
      Automated Clearing House debit authorization executed by Borrowers in connection
      with the Agreement, or by wire transfer of immediately available funds to
      LaSalle Bank, 135 S. LaSalle St., Chicago, IL 60603, ABA 071000505, Account
      name: MLBFS Healthcare Finance, Account #5800395088, Reference:
      Discovery Laboratories,
      or such
      other address as Lender shall have designated to the Borrowers in writing;
      and
      shall be effective upon receipt.

    


     (c)    Interest.

    


    (1) Subject
      to Section 1(c)(2),
      the
      principal amount outstanding under each Equipment Advance shall accrue interest
      (payable monthly in arrears) at a fixed per annum rate equal to the sum of
      the
      LIBOR Rate plus six hundred twenty five basis points (6.25%), determined on
      the
      date of each Equipment Advance. For purposes of calculating interest, all funds
      received by Lender for application to the Loan shall be subject to a two (2)
      Business Day clearance period.

    


    (2) At
      the
      election of Lender, after the occurrence of a Default and for so long as it
      continues, (a) the Equipment Advances and other Obligations (as defined in
      Section 3(a) below) shall bear interest at rates that are two percent (2.0%)
      per
      annum in excess of the rates otherwise payable under this Agreement (the
“Default Rate”); provided that, notwithstanding anything to the contrary
      contained in the foregoing or otherwise in this Agreement, the increased rates
      of default interest provided for in this section shall be applicable
      automatically and immediately upon the occurrence and during the continuance
      of
      any Default occurring under Section 6(e) below without the necessity of any
      further affirmative action by any party.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

    (3) All
      interest and fees under each Financing
      Document
      (as defined below) shall be calculated on the basis of a 360-day year for the
      actual number of days elapsed. The date of funding of an Equipment Advance
      shall
      be included in the calculation of interest. The date of payment of an Equipment
      Advance shall be excluded from the calculation of interest. If an Equipment
      Advance is repaid on the same day that it is made, one (1) day’s interest shall
      be charged.

    


     (d)     Commitment
      Fee.
      Contemporaneous with Borrowers’ execution of this Agreement, Borrowers shall pay
      Lender a commitment fee in an amount equal to Thirty-One Thousand Two Hundred
      Fifty Dollars ($31,250). This fee shall be deemed fully earned and
      non-refundable as of the Closing Date.

    


     (e)     Promissory
      Notes.
      The
      obligation to repay the Loan hereunder shall be evidenced by one or more
      promissory notes payable by Borrowers to the order of Lender in substantially
      the form attached hereto as Exhibit 1 (hereinafter collectively referred to
      as
      the “Promissory Note”). “Financing Documents” as used herein shall mean the
      Promissory Note, this Agreement and all other documents executed in connection
      with the Loan.

    


    2.    [Reserved.]

    


    3.    Security.
      

    


     (a)     As
      security for the payment as and when due of the indebtedness of Borrowers to
      Lender hereunder and under the Promissory Note (and any renewals, extensions
      and
      modifications thereof), both now in existence and hereafter created (as the
      same
      may be renewed, extended or modified), and the performance as and when due
      of
      all other obligations of Borrowers to Lender, both now in existence and
      hereafter created (as the same may be renewed, extended or modified) (the
“Obligations”), Borrowers hereby assign and grant to Lender, a Lien on and
      security interest in, upon, and to the Collateral. As set forth in the
      definition of “Collateral” in Section 12 below, the Collateral shall change on
      the Collateral Modification Date (provided that no Default has occurred and
      is
      continuing at such time). Lender hereby agrees to file, at Borrowers’ cost,
      promptly following the Collateral Modification Date (provided that no Default
      has occurred and is continuing as of the Collateral Modification Date), an
      amendment to its UCC Financing Statement to reflect the change to the Collateral
      and to provide such other termination documents and releases as Borrower may
      reasonably request to reflect the change to the Collateral.

    


     (b)     Borrowers
      agree that with respect to the Collateral Lender shall have all of the rights
      and remedies of a secured party under the UCC. Borrowers hereby authorize Lender
      to file UCC statements describing the Collateral. Without Lender’s prior written
      consent, Borrowers agree not to file any corrective or termination statements
      or
      partial releases with respect to any UCC statements filed by Lender pursuant
      to
      this Agreement. 

    


     (c)     Promptly
      after any Financed Equipment ceases to be Collateral in accordance with either
      Schedule 1-A or Schedule 1-B attached hereto, Lender agrees to file partial
      releases and termination statements, as appropriate, with respect to such
      Financed Equipment.

    


    4 Conditions.

    


     (a)     Conditions
      Precedent to Lender’s Obligation.
      The
      obligation of Lender to make the Loan as set forth in Section 1 hereof is
      expressly conditioned upon compliance by Borrowers, to the reasonable
      satisfaction of Lender and its counsel, of the conditions precedent that
      concurrently with the execution hereof, or on or prior to the date on which
      Lender is to advance the Loan hereunder, Borrowers shall cause to be provided
      to
      Lender the following:

    


    (1) Resolutions
      of the Board of Directors or validly authorized Executive Committee of
      Borrowers, certified by the Secretary or an Assistant Secretary of each
      Borrower, duly authorizing the borrowing of funds hereunder and the execution,
      delivery and performance of this Agreement, Financing Documents, and all related
      instruments and documents.

    


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

      
        Exhibit
          10.1

         

        
          	  	
                  EXECUTION
                    COPY

                


        

      

       

    

    (2) An
      opinion of counsel for Borrowers satisfactory as to form and substance to
      Lender.

    


    (3) The
      payment of all fees, expenses and other amounts that under the Financing
      Documents are due and payable on the Closing Date.

    


    (4) A
      landlord’s agreement or mortgagee agreement, as applicable, from the lessor of
      each leased property or mortgagee of owned property with respect to any business
      location where any portion of the Collateral, or the records relating to such
      Collateral and/or software and collateral relating to such records or
      Collateral, is stored or located, which agreement or letter shall be reasonably
      satisfactory in form and substance to Lender.

    


    (5) An
      Intercreditor Agreement in a form acceptable to Lender and executed by Borrowers
      and PharmaBio Development Inc. d/b/a NovaQuest (“NovaQuest”).

    


    (6) A
      payoff
      letter, acceptable to Lender, signed by General Electric Capital Corporation
      with regard to the payoff of the GECC Debt and the release of all Liens securing
      the GECC Debt upon such payoff.

    


     (b)     Conditions
      Precedent to Advance of Funds.
      The
      obligation of Lender to make the Loan as set forth in Section 1 hereof is
      expressly conditioned upon compliance by Borrowers, to the reasonable
      satisfaction of Lender and its counsel, of the conditions precedent that on
      each
      date (“Advance Date”) on which Lender is to advance funds
      hereunder:

    


    (1)     Borrowers
      shall cause to be provided to Lender no less than one (1) Business Day prior
      to
      the Advance Date (electronically in .pdf format or by facsimile, with originals
      to follow via overnight delivery) the following:

    
 

        
      a.     A
      certificate executed by the Secretary, Assistant Secretary or other officer
      of
      Borrower, certifying that the representations and warranties of Borrowers
      contained herein remain true and correct as of the Advance Date, and that no
      Default has then occurred and is continuing and Borrower is not aware of any
      event which, with the giving of notice or the lapse of time, or both, would
      become a Default under this Agreement.

    


        
      b.     Evidence
      satisfactory to Lender as to due compliance with the insurance provisions of
      Section 5(d) hereof.

    


        
      c.     A
      Promissory Note in the amount of the Loan to be advanced on such date, duly
      executed on behalf of Borrowers, pursuant to Section 1 hereof.

    


        
      d.     Photocopies
      of the invoice(s) or other evidence reasonably satisfactory to Lender and its
      counsel, related to the acquisition cost of the Financed Equipment to which
      such
      advance of the Loan relates.

    


        
      e.     A
      Collateral Schedule describing the Financed Equipment to which such advance
      of
      the Loan relates (upon Lender’s receipt of a Collateral Schedule such Collateral
      Schedule shall be deemed to be annexed to and made a part of this
      Agreement).

    


      
      (2)     The
      absence, since the date of the financial statements last delivered by Borrowers
      to Lender, of any Material Adverse Effect, or any event or condition which
      could
      reasonably be expected to result in such a Material Adverse Effect.

    


    (3)     Borrowers
      shall have executed such documents and taken such actions as reasonably may
      be
      required by Lender and its counsel to perfect a valid, first priority purchase
      money security interest granted by Borrowers to Lender with respect to the
      Financed Equipment.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

    (4)     No
      Default or event which, with the giving of notice or lapse of time, or both,
      would become a Default hereunder, shall have occurred.

    


    5.    Representations
      and Warranties.
      Except
      as set forth in the schedules prepared by Borrowers and attached to and made
      a
      part of this Agreement (the “Borrower Schedules”), each Borrower hereby
      represents and warrants that:

    


     (a)     Due
      Organization.
      Each
      Borrower’s exact legal name is indicated on the signature page of this Agreement
      and Borrower has the form of business organization, and is and will remain
      duly
      organized and validly existing in good standing under the laws of the
      jurisdiction, specified below the signature of each Borrower; and each Borrower
      is duly qualified and authorized to transact business and is in good standing
      wherever necessary to perform its obligations under the Financing Documents,
      including each jurisdiction in which the Collateral is to be
      located.

    


     (b)     Power
      and Authority.
      Each
      Borrower has the requisite power and authority to own or hold under lease its
      properties and to enter into and perform its obligations hereunder; and the
      borrowing hereunder by such Borrower from Lender, the execution, delivery and
      performance of the Financing Documents, (1) have been duly authorized by all
      necessary action consistent with such Borrower’s form of organization; (2) do
      not require any approval or consent of any stockholder, member, partner,
      trustee, holders of any indebtedness or obligations of such Borrower or any
      other party except such as have been duly obtained; and (3) do not and will
      not
      contravene (A) any law, governmental rule, regulation or order now binding
      on
      such Borrower, except such law, governmental rule, regulation or order where
      contravention thereof could not reasonably be expected to have a Material
      Adverse Effect or a material adverse effect on the validity or enforceability
      of
      the Financing Documents, (B) the organizational documents of such Borrower,
      or
      (C) the provisions of, or constitute a default under, or result in the creation
      of any Lien upon the Collateral under any agreement to which such Borrower
      is a
      party or by which it or its property is bound.

     

     (c)     Consents
      and Approvals.
      Neither
      the execution and delivery by such Borrower of the Financing Documents, nor
      the
      consummation of any of the transactions by such Borrower contemplated hereby
      or
      thereby, requires the consent or approval of, the giving of notice to, the
      registration with, or the taking of any other action in respect of, any Federal,
      state or foreign governmental authority or agency, except as provided
      herein.

    


     (d)     Legal,
      Valid and Binding Obligations.
      This
      Agreement constitutes, and all other Financing Documents when entered into
      will
      constitute, the legal, valid and binding obligation of such Borrower enforceable
      against such Borrower in accordance with the terms hereof and thereof, except
      as
      limited by applicable bankruptcy, insolvency, reorganization, moratorium or
      similar laws or equitable principles relating to or affecting the enforcement
      of
      creditors’ rights generally, and by Applicable Laws (including any applicable
      common law and equity) and judicial decisions which may affect the remedies
      provided herein and therein.

    


    (e)    
 Actions
      and Proceedings.
      Except
      as set forth in Schedule 5(e) attached hereto, there are no pending or
      threatened actions or proceedings to which such Borrower is a party, and there
      are no other pending or threatened actions or proceedings of which such Borrower
      has knowledge, before any court, arbitrator or administrative agency, which,
      either individually or in the aggregate, would have a Material Adverse Effect.
      Further, such Borrower is not in default under any material obligation for
      the
      payment of borrowed money, for the deferred purchase price of property or for
      the payment of any rent which, either individually or in the aggregate, would
      have a Material Adverse Effect.

    


     (f)    
 Fixtures.
      With
      the exception of certain tenant improvements and soft costs included in Other
      Equipment, under the laws of the state(s) in which the Collateral is to be
      located, the Collateral consists solely of personal property and not
      fixtures.

    


     (g)     Title
      to Financed Equipment; Lien on Financed Equipment.
      Upon
      payment in full of the acquisition cost of the Financed Equipment, the
      applicable Borrower will have good and marketable title to the Financed
      Equipment, free and clear of all Liens (excepting only the Lien of Lender).
      Upon
      the last to occur of: (1) delivery of an item of Financed Equipment, (2) payment
      to the vendor of the acquisition cost of such item of the Financed Equipment,
      (3) advance by Lender to Borrowers of the Loan relating to such item of the
      Financed Equipment, and (4) filing in the appropriate public offices of Uniform
      Commercial Code financing statements or statements of amendment naming each
      Borrower as debtor and Lender as secured party, and accurately describing such
      item of the Financed Equipment, all as provided in the UCC, Lender will have
      a
      valid, perfected, first priority purchase money security interest in such item
      of the Financed Equipment, subject only to Permitted Liens, and, in each case,
      to the extent that a security interest in such item of Financed Equipment can
      be
      perfected by the filing of UCC financing statements.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

     (h)     Financial
      Statements.
      The
      financial statements of such Borrower (copies of which have been furnished
      to
      Lender) have been prepared in accordance with generally accepted accounting
      principles consistently applied (“GAAP”), and fairly present such Borrower’s
      financial condition and the results of such Borrower’s operations as of the date
      of and for the period covered by such statements, and since the date of such
      statements there has been no material adverse change in such conditions or
      operations.

    


     (i)    
 Taxes.
      Such
      Borrower has filed or has caused to have been filed all federal, state and
      local
      tax returns which, to the knowledge of such Borrower, are required to be filed,
      and has paid or caused to have been paid all taxes as shown on such returns
      or
      on any assessment received by it, to the extent that such taxes have become
      due,
      unless and to the extent only that such taxes, assessments and governmental
      charges are currently contested in good faith and by appropriate proceedings
      by
      such Borrower and adequate reserves therefor have been established as required
      under GAAP. To the extent Borrower believes it advisable to do so, such Borrower
      has set up reserves which are believed by such Borrower to be adequate for
      the
      payment of additional taxes for years which have not been audited by the
      respective tax authorities.

    


     (j)    
 Use
      of
      Proceeds.
      None of
      the proceeds of the Loan will be used, directly or indirectly, by such Borrower
      for the purpose of purchasing or carrying, or for the purpose of reducing or
      retiring any indebtedness which was originally incurred to purchase or carry,
      any “margin security” within the meaning of Regulation G (12 CFR Part 207), or
“margin stock” within the meaning of Regulation U (12 CFR Part 221), of the
      Board of Governors of the Federal Reserve System (herein called “margin
      security” and “margin stock”) or for any other purpose which might make the
      transactions contemplated herein a “purpose credit” within the meaning of
      Regulation G or Regulation U, or cause this Agreement to violate any other
      regulation of the Board of Governors of the Federal Reserve System or the
      Securities Exchange Act of 1934 or the Small Business Investment Act of 1958,
      as
      amended, or any rules or regulations promulgated under any of such
      statutes.

    


     (k)    
Name
      Changes.
      As of
      the Closing Date, the legal name, jurisdiction of organization, Federal Employer
      Identification Number and Organizational Number of such Borrower, specified
      on
      the signature page hereof, are true and correct. Within the previous six (6)
      years, such Borrower has not changed its name, done business under any other
      name, or merged or been the surviving entity of any merger, except as disclosed
      to Lender in writing.

    


     (l)    
 Compliance
      with Laws.
      Such
      Borrower is in compliance with the requirements of all Applicable Laws
      (including Environmental Laws), except for such Laws the noncompliance with
      which could not reasonably be expected to have a Material Adverse Effect and
      such Borrower has obtained any and all material licenses, permits, franchises
      or
      other governmental authorizations necessary for the ownership of its properties
      and the conduct of its business. Except as set forth in Schedule 5(l) attached
      hereto and as otherwise previously disclosed in writing by Borrowers to Lender,
      there are no Hazardous Substances generated, treated, handled, stored,
      transported, discharged, emitted, released or otherwise disposed of in
      connection with Borrowers’ use of the Collateral that could reasonably be
      expected to result in any material liability or obligations. Borrowers have
      in
      full force and effect all material Federal, state and local licenses, permits,
      orders and approvals required to operate the Collateral in compliance with
      all
      Environmental Laws in all material respects. Neither such Borrower nor, to
      the
      knowledge of any Borrower, its Affiliates or any of its or their respective
      agents acting or benefiting in any capacity in connection with the transactions
      contemplated by this Agreement is (i) in violation of any Anti-Terrorism
      Law, (ii) engages in or conspires to engage in any transaction that evades
      or avoids, or has the purpose of evading or avoiding, or attempts to violate,
      any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a
      Blocked Person. Neither such Borrower nor, to the knowledge of such Borrower,
      any of its Affiliates or its or their agents acting or benefiting in any
      capacity in connection with the transactions contemplated by this Agreement,
      (x) conducts any business or engages in making or receiving any
      contribution of funds, goods or services to or for the benefit of any Blocked
      Person, or (y) deals in, or otherwise engages in any transaction relating
      to, any property or interest in property blocked pursuant to Executive Order
      No. 13224, any similar executive order or other Anti-Terrorism
      Law.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

     (m)    Bailees.
      The
      Collateral consisting of Financed Equipment is not in the possession of any
      third party bailee (such as a warehouse) except for Collateral which has been
      sent out for service, and as otherwise disclosed to Lender in
      writing.

    


    6.    Covenants
      of Borrowers.
      Each
      Borrower covenants and agrees as follows:

    


     (a)     Compliance
      with Laws.
      Each
      Borrower shall maintain its legal existence and good standing in its
      jurisdiction of formation and maintain qualification in each jurisdiction in
      which the failure to so qualify would reasonably be expected to have a Material
      Adverse Effect. Each Borrower shall comply with the requirements of all
      Applicable Laws (including Environmental Laws), except for such Applicable
      Laws
      the noncompliance with which could not reasonably be expected to have a Material
      Adverse Effect. Each Borrower shall obtain and maintain any and all material
      licenses, permits, franchises or other governmental authorizations necessary
      for
      the ownership of its properties and the conduct of its business in compliance
      with all Applicable Laws (including, without limitation, Environmental Laws)
      in
      all material respects.

    


     (b)    Use
      of
      Proceeds.
      The
      proceeds of the Loan will be used exclusively to pay off in full the GECC Debt
      and to finance the purchase by Borrowers of Financed Equipment.

    


     (c)    Use
      and Location of Financed Equipment.
      Each
      Borrower shall use the Financed Equipment solely in the Continental United
      States and in the conduct of its business, in a careful and proper manner in
      accordance with Applicable Law; shall not permanently discontinue use of the
      Financed Equipment; and shall provide written notice to Lender not more than
      thirty (30) days after any change of the location of any item of the Financed
      Equipment (or the location of the principal garage of any item of the
      Collateral, to the extent that such item is mobile collateral) as specified
      on
      the applicable Collateral Schedule. 

    


     (d)    Insurance.

    


    (1)     Each
      Borrower
      agrees to keep the Collateral insured against loss or damage by fire and
      extended coverage perils, theft, burglary, and if requested by Lender, against
      such other risks as Lender may reasonably require. The insurance coverage shall
      be in an amount no less than the full replacement value of the Collateral,
      and
      deductible amounts, insurers and policies shall be acceptable to Lender. All
      such insurance shall be provided by insurers having an A.M. Best policyholders
      rating reasonably acceptable to Lender.

    


    (2)    On
      or
      prior to the Closing Date, and at all times thereafter, each Borrower will
      cause
      Lender to be named as an additional insured, assignee and loss payee (which
      shall include, as applicable, identification as mortgagee), as applicable,
      on
      each insurance policy required to be maintained pursuant to this Section 5(d)
      pursuant
      to endorsements in form and content reasonably acceptable to Lender.
      Borrowers will deliver to Lender (A) on the Closing Date, a certificate
      from Borrowers’ insurance broker dated such date showing the amount of coverage
      as of such date, and that such policies will include effective waivers (whether
      under the terms of any such policy or otherwise) by the insurer of all claims
      for insurance premiums against all loss payees and additional insureds and
      all
      rights of subrogation against all loss payees and additional insureds, and
      that
      if all or any part of such policy is canceled, terminated or expires, the
      insurer will forthwith give notice thereof to each additional insured, assignee
      and loss payee and that no cancellation, reduction in amount or material change
      in coverage thereof shall be effective until at least thirty (30) days after
      receipt by each additional insured, assignee and loss payee of written notice
      thereof, (B) upon the request of Lender from time to time full information
      as to the insurance carried, (C) within five (5) days of receipt of notice
      from any insurer, a copy of any notice of cancellation, nonrenewal or material
      change in coverage from that existing on the date of this Agreement, and
      (D) forthwith, notice of any cancellation or nonrenewal of coverage by any
      Borrower.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

    (3)    So
      long
      as Borrowers are not in default under this Agreement, proceeds of insurance
      less
      than One Hundred Thousand Dollars ($100,000) shall be applied at the Borrowers’
option, to repair or replace the Collateral or to reduce any of the Obligations,
      otherwise insurance proceeds shall be applied, at the option of Lender, to
      repair or replace the Collateral or to reduce any of the
      Obligations.

    


     (e)    Notice
      of Certain Events.
      Each
      Borrower shall provide written notice to Lender: (1) not less than thirty (30)
      days prior to any contemplated change in the name, the jurisdiction of
      organization, or address of the chief executive office, of such Borrower or
      of
      such Borrower’s organizational structure such that a filed financing statement
      would become seriously misleading (within the meaning of the UCC); and (2)
      promptly upon the occurrence of any event which constitutes a Default (as
      hereinafter defined) hereunder or which, with the giving of notice, lapse of
      time or both, would constitute a Default hereunder; (3) promptly of any
      litigation or governmental proceedings pending or threatened (in writing)
      against such Borrower which, if adversely determined, could result in a Material
      Adverse Effect or a material adverse effect upon, any of (i) the rights and
      remedies of Lender under any Financing Document, or (ii) the legality,
      validity or enforceability of any Financing Document, (iii) the existence,
      perfection or priority of any security interest granted in any Financing
      Document, or (iv) the value of any material Collateral; and (4) promptly of
      the
      commencement of proceedings under the Federal bankruptcy laws or other
      insolvency laws (as now or hereafter in effect) involving such Borrower as
      a
      debtor.

    


     (f)     Financial
      Statements.
      Each
      Borrower shall furnish Lender (1) within one hundred twenty (120) days after
      the
      end of each fiscal year of such Borrower, its balance sheet as at the end of
      such year, and the related statement of income and statement of changes in
      financial position for such fiscal year, prepared in accordance with GAAP,
      all
      in reasonable detail and certified by independent certified public accountants
      of recognized standing selected by such Borrower and reasonably acceptable
      to
      Lender; and (2) within sixty (60) days after the end of each quarter of such
      Borrower’s fiscal year, its balance sheet as at the end of such quarter and the
      related statement of income and statement of changes in financial position
      for
      such quarter, prepared in accordance with GAAP.

    


     (g)    Collateral.
      Each
      Borrower, at its own expense, will pay or cause to be paid all taxes and fees
      relating to the ownership and use of the Collateral and will keep and maintain,
      or cause to be kept and maintained, the Financed Equipment in accordance with
      the manufacturer’s recommended specifications, and in good operating condition,
      ordinary wear and tear resulting from proper use thereof excepted, and will
      provide all maintenance and service and make all repairs necessary for such
      purpose. All accessories, parts and replacements for or which are added to
      or
      become attached to the Collateral shall immediately be deemed incorporated
      in
      the Collateral and subject to the security interest granted by such Borrower
      herein. Upon at least five (5) Business Days’ advance notice and at all times
      subject to and in accordance with and subject to Borrower’s policies and
      operating procedures with regard to access to any manufacturing and laboratory
      areas, Lender shall have the right to inspect the Collateral and all maintenance
      and other records with respect thereto, if any, at any reasonable
      time.

    


     (h)    Landlord
      Waivers.
      The
      parties intend that the Collateral shall remain personal property,
      notwithstanding the manner in which it may be affixed to any real property.
      Each
      Borrower shall obtain and deliver to Lender (to be recorded at Borrower’s
      expense) from each person having a Lien on the property (the “Premises”) where
      the Collateral is to be located, waivers of any Lien or other interest which
      such person might have or hereafter obtain or claim with respect to the
      Collateral. 

    


     (i)    
 Bailee
      Agreements.
      None of
      the components of the Collateral shall be maintained at locations other than
      as
      provided in writing to Lender or as Borrowers have given Lender notice. In
      the
      event that any Borrower, after the date hereof, intends to store or otherwise
      deliver any portion of the Collateral to a bailee, then such Borrower will
      first
      receive the written consent of Lender and such bailee must execute and deliver
      a
      bailee agreement in form and substance satisfactory to Lender in its sole
      discretion.

    


     (j)    
 Dispositions.
      No
      Borrower will, without
      the prior written consent of Lender, which consent is in Lender’s sole and
      absolute discretion, convey, sell, lease, transfer or otherwise dispose of
      (collectively, “Transfer”) all or any part of the Collateral, except for
      Transfers (1)
      in
      connection with Permitted Liens; and (2) in
      the case of Collateral other than Financed Equipment, in connection with the
      formation and operation of strategic alliances, partnerships and collaborative
      arrangements related to the development, marketing, sales and distribution
      of
      any Borrower’s product candidates, and of non-exclusive licenses for the use of
      the property of Borrower in the ordinary course of business.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

     (k)    
[Reserved].

    


     (l)    
 Liens.
      Each
      Borrower shall maintain the Collateral free from all claims, Liens and legal
      processes of creditors of such Borrower other than the security interest granted
      to Lender under this Agreement and (1) Liens for fees, taxes, or other
      governmental charges of any kind which are not yet delinquent or are being
      contested in good faith by appropriate proceedings which suspend the collection
      thereof (provided, however, that such proceedings do not involve any substantial
      danger of the sale, forfeiture or loss of the Collateral or any interest
      therein); (2) inchoate Liens of landlords, mechanics, materialmen, laborers,
      employees or suppliers and similar Liens arising by operation of law incurred
      by
      such Borrower in the ordinary course of business for sums that are not yet
      delinquent or are being contested in good faith by negotiations or by
      appropriate proceedings which suspend the collection thereof (provided, however,
      that such contest does not involve any substantial danger of the sale,
      forfeiture or loss of the Collateral or any interest therein); (3) Liens arising
      out of any judgments or awards against such Borrower which have been adequately
      bonded to protect Lender’s interests or with respect to which a stay of
      execution has been obtained pending an appeal or a proceeding for review; and
      (4) Liens existing on the date hereof and described in Schedule 6(l). Each
      Borrower shall notify Lender immediately upon receipt of notice of any Lien,
      attachment or judicial proceeding affecting the Collateral in whole or in
      part.

    


     (m)    [Reserved].

    


     (n)     Anti-Terrorism
      Laws.
      Lender
      hereby notifies each Borrower that pursuant to the requirements of
      Anti-Terrorism Laws, and Lender’s policies and practices, Lender is required to
      obtain, verify and record certain information and documentation that identifies
      such Borrower, and its principals, which information includes the name and
      address of such Borrower and its principals and such other information that
      will
      allow Lender to identify such party in accordance with Anti-Terrorism Laws.
      No
      Borrower will, or will permit any of its subsidiaries to, directly or
      indirectly, knowingly enter into any operative documents or material contracts
      with any Blocked Person or any Person listed on the OFAC Lists. Each Borrower
      shall immediately notify Lender if such Borrower has knowledge that such
      Borrower becomes a Blocked Person or becomes listed on the OFAC Lists or
      (a) is convicted on, (b) pleads nolo
      contendere
      to,
      (c) is indicted on, or (d) is arraigned and held over on charges
      involving money laundering or predicate crimes to money laundering. No Borrower
      will, or will permit any subsidiaries to, directly or indirectly,
      (i) conduct any business or engage in any transaction or dealing with any
      Blocked Person, including, without limitation, the making or receiving of any
      contribution of funds, goods or services to or for the benefit of any Blocked
      Person, (ii) deal in, or otherwise engage in any transaction relating to,
      any property or interests in property blocked pursuant to Executive Order
      No. 13224, any similar executive order or other Anti-Terrorism Law, or
      (iii) engage in or conspire to engage in any transaction that evades or
      avoids, or has the purpose of evading or avoiding, or attempts to violate,
      any
      of the prohibitions set forth in Executive Order No. 13224 or other
      Anti-Terrorism Law.

    


     (o)     Further
      Assurances.
      Each
      Borrower shall promptly and duly execute and deliver to Lender such further
      documents, instruments and assurances and take such further action as Lender
      may
      from time to time reasonably request in order to carry out the intent and
      purpose of this Agreement and to establish and protect the rights and remedies
      created or intended to be created in favor of Lender hereunder; including,
      without limitation, the execution and delivery of any document reasonably
      required, and payment of all necessary costs to record such documents (including
      payment of any documentary or stamp tax), to perfect and maintain perfected
      the
      security interest granted under this Agreement.

    


    7.    Default.
      A
      default
      shall be deemed to have occurred hereunder (“Default”) upon the occurrence of
      any of the following:  

    


     (a)     Payment
      Default.
      (1)
      Non-payment of an
      installment of principal and/or interest due under the Promissory Note on the
      applicable payment date; or (2) non-payment of any other Obligation within
      five (5) days after it is due; provided that any non-payment caused by a failure
      of Lender to process an ACH payment under an ACH Agreement shall not constitute
      a Payment Default until five (5) days after Borrower shall receive from Lender
      a
      request in writing to initiate such payment;

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

     (b)     Covenant
      Default.
      (1)
      Breach by any Borrower of any covenant, condition or agreement set forth in
      Section 5 above; or (2) breach by any Borrower of any other covenant, condition
      or agreement under this Agreement or any of the other Financing Documents that
      continues for thirty (30) days after Lender’s written notice to such Borrower
      (but such notice and cure period will not be applicable unless such breach
      is
      curable by practical means within such notice period);

    


     (c)     Other
      Agreements.
      A
      payment or other default by any Borrower under any loan, lease, guaranty or
      other financial obligation to Lender or its Affiliates which default entitles
      Lender or its Affiliates to exercise remedies; or a payment or other default
      by
      any Borrower under the Pharmabio Indebtedness or any other material loan, lease,
      guaranty or other financial obligation to any third party if
      the
      effect of the default is to give such third party a right, whether or not
      exercised, to accelerate the maturity of any Indebtedness in an amount in excess
      of Five Hundred Thousand Dollars ($500,000) or that could have a Material
      Adverse Effect; 

    


     (d)     Misrepresentations.
      An
      inaccuracy in any representation or breach of warranty by any Borrower
      (including any false or misleading representation or warranty) in any financial
      statement or Financing Document, including any omission
      of any material contingent or unliquidated liability or claim against such
      Borrower;
      

    


     (e)     Insolvency.
      The
      failure by any Borrower generally to pay its debts as they become due or its
      admission in writing of its inability to pay the same, or the commencement
      of
      any bankruptcy, insolvency, receivership or similar proceeding by or against
      such Borrower or any of its properties or business (unless, if involuntary,
      the
      proceeding is dismissed within forty-five (45) days of the filing thereof)
      or
      the rejection of this Agreement or any other Financing Document in any such
      proceeding; 

    


     (f)     Attachment.
      (1) Any
      Collateral is attached seized, levied on, or comes into possession of a trustee
      or receiver; (2) any Borrower is enjoined, restrained, or prevented by court
      order from conducting any substantial part of its business; or (3) a notice
      of
      Lien, levy, or assessment is filed against any Collateral by any government
      agency;

    


     (g)    Judgments.
      One or
      more judgments or orders for the payment of money (not paid or in amounts
      exceeding insurance coverage maintained in accordance with the requirements
      of
      this Agreement and as to which the relevant insurance company has acknowledged
      coverage) aggregating in excess of $300,000 shall be rendered against any
      Borrower and either (1) enforcement proceedings shall have been commenced
      by any creditor upon any such judgments or orders, or (2) there shall be
      any period of thirty (30) consecutive days during which a stay of enforcement
      of
      any such judgments or orders, by reason of a pending appeal, bond or otherwise,
      shall not be in effect; 

    


     (h)     Dissolution.
      Any
      Borrower shall cease to do business as a going concern, liquidate, or dissolve;
      or sell, transfer, or otherwise dispose of all or substantially all of its
      assets or property; 

    


     (i)      Material
      Adverse Change.
      Any
      fact,
      event or circumstance that has or that could reasonably be expected to result
      in
      a Material Adverse Effect occurs;

    


     (j)     
Guaranty.
      Any
      guaranty of any Obligations terminates or ceases for any reason to be in full
      force and effect; any guarantor of the Obligations (“Guarantor”) does not
      perform any obligation or covenant under any guaranty of the Obligations; there
      occurs a default or anticipatory repudiation under any guaranty executed in
      connection with this Agreement; any circumstance described in Sections 6(c)
      through (i) occurs with respect to any Guarantor; or the death, liquidation,
      winding up, or termination of existence of any Guarantor;

    


     (k)     PharmaBio
      Indebtedness.
      Principal Borrower pays any portion of the Pharmbio Indebtedness prior to the
      due date thereof, without Lender’s prior written consent, unless Principal
      Borrower has cash (immediately following such repayment) sufficient to cover
      Principal Borrower’s publicly disclosed cash burn rate for the immediately
      following twelve (12) months; or

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

     (l)     
      Surfaxin
      License.
      The
      License Agreement shall have been terminated or expired, or cease to be in
      full
      force and effect for the benefit of Principal Borrower.

    


    8.    Remedies.
      

    


     (a)     Upon
      the
      occurrence of a Default hereunder, Lender may, at its option, declare this
      Agreement to be in default with respect to any or all of the Promissory Notes,
      and at any time thereafter may do any one or more of the following, all of
      which
      are hereby authorized by Borrowers:

    


    (1)         increase
      the Interest Rate under the Note to the Default Rate, declare all Obligations
      due under the Promissory Note and Financing Documents to be immediately due
      and
      payable including all accrued but unpaid interest, prepayment fees, and any
      other amounts due under the Financing Documents, exercise any and all rights
      and
      remedies of a secured party under the UCC in effect in the State of New York
      at
      the date of this Agreement and in addition to those rights, at its sole
      discretion, may require Borrowers (at Borrowers’ sole expense) to forward
      promptly any or all of the Collateral to Lender at such location as shall
      reasonably be required by Lender, or enter upon the premises where any such
      Collateral is located (without obligation for rent) and take immediate
      possession of and remove the Collateral by summary proceedings or otherwise,
      all
      without liability from Lender to Borrowers for or by reason of such entry or
      taking of possession, whether for the restoration of damage to property caused
      by such taking or otherwise;

    


    (2)    subject
      to any right of Borrowers to redeem the Collateral, sell, lease or otherwise
      dispose of any or all of the Collateral in a commercially reasonable manner
      at
      public or private sale with notice to Borrowers (the parties agreeing that
      ten
      (10) days’ prior written notice shall constitute adequate notice of such sale)
      at such price as it may deem best, for cash, credit, or otherwise, with the
      right of Lender to purchase and apply the proceeds:

    


    First,
      to the
      payment of all expenses and charges, including the expenses of any sale, lease
      or other disposition, the expenses of any taking, reasonable attorneys’ fees,
      court costs and any other expenses incurred or advances made by Lender in the
      protection of its rights or the pursuance of its remedies, and to provide
      adequate indemnity to Lender against all taxes and Liens which by law have,
      or
      may have, priority over the rights of Lender to the monies so received by Lender
      (provided that amounts held by Lender as indemnity against taxes are applied
      to
      the payment of such taxes);

    


    Second,
      to the
      payment of all fees, costs, indemnities, liabilities, obligations and expenses
      incurred by or owing to Lender with respect to this Agreement, the other
      Financing Documents or the Collateral;

    


    Third,
      to the
      payment of the Obligations; and

    


    Fourth,
      to the
      payment of any surplus thereafter remaining to Borrower or to whosoever may
      be
      entitled thereto;

    


    and
      in
      the event that the proceeds are insufficient to pay the amounts specified in
      clauses “First”, “Second”, and “Third” above, Lender may collect such deficiency
      from Borrowers; and

    


    (3)     Lender
      may exercise any other right or remedy available to it under this Agreement,
      the
      Promissory Note, any guaranty hereof or Applicable Law, or proceed by
      appropriate court action to enforce the terms hereof or to recover damages
      for
      the breach hereof or to rescind this Agreement in whole or in part.

    


     (b)    Borrowers
      shall be liable for any and all unpaid additional sums due hereunder or under
      the Promissory Note, before, after or during the exercise of any of the
      foregoing remedies; for all reasonable legal fees and other reasonable costs
      and
      expenses incurred in connection with the enforcement, assertion, default or
      preservation of Lender’s rights and remedies under this Agreement or the other
      Financing Documents. No remedy referred to in this Section is intended to be
      exclusive, but each shall be cumulative, and shall be in addition to any other
      remedy referred to above or otherwise available at law or in equity, and may
      be
      exercised concurrently or separately from time to time. Borrowers hereby waive
      any and all existing or future claims to any offset against the sums due
      hereunder or under the Promissory Note and agree to make the payments regardless
      of any offset or claim which may be asserted by Borrowers or on their behalf
      in
      connection with this Agreement. The failure of Lender to
      exercise, or delay in the exercise of, the rights granted hereunder upon any
      Default by Borrowers shall not constitute a waiver of any such right upon the
      continuation or recurrence of any such Default. Lender may take or release
      other
      security; may release any party primarily or secondarily liable for the
      Obligations; may grant extensions, renewals or indulgences with respect to
      the
      Obligations and may apply any other security therefor held by it to the
      satisfaction of the Obligations without prejudice to any of its rights
      hereunder.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

     (c)    The
      occurrence of a Default with respect to any Promissory Note shall, at the sole
      discretion of Lender (as set forth in a written declaration to Borrowers),
      constitute a Default with respect to any or all of the other Promissory Notes.
      Notwithstanding anything to the contrary set forth herein, Lender or its
      assignee(s) (as applicable) may exercise all rights and remedies hereunder
      or
      under a Promissory Note independently with respect to each Promissory Note
      and/or with respect to the Collateral collateralizing such Promissory
      Note.

    


    (d) Lender
      is
      hereby granted an irrevocable, non-exclusive, royalty-free license or other
      right to use, without charge, Borrowers’ labels, mask works, rights of use of
      any name, any other Intellectual Property and advertising matter, and any
      similar property as it pertains to the Collateral, in completing production
      of,
      advertising for sale, and selling any Collateral and, in connection with
      Lender’s exercise of its rights under this Agreement, Borrowers’ rights under
      all licenses and all franchise agreements inure to Lender’s
      benefit.

    


    9.    Lender’s
      Right to Perform for Borrowers.
      If
      Borrowers fail to perform or comply with any of its agreements contained herein,
      Borrowers and Lender agree that Lender shall have the right, but shall not
      be
      obligated, to effect such performance or compliance, and the amount of any
      out-of-pocket expenses and other reasonable expenses of Lender thereby incurred,
      together with interest thereon (calculated from the date Lender makes demand
      for
      payment thereof from Borrower) at the Default Rate, shall be due and payable
      by
      Borrowers upon demand. Borrowers hereby irrevocably, authorize Lender to file
      UCC statements in connection with the Collateral, and further appoint Lender
      as
      Borrowers’ attorney-in-fact (which power shall be deemed coupled with an
      interest) to execute, endorse and deliver any deed, conveyance, assignment
      or
      other instrument in writing as may be required to vest in Lender any right,
      title or power which by the terms hereof are expressed to be conveyed to or
      conferred upon Lender, including, documents and checks or drafts relating to
      or
      received in payment for any loss or damage under the policies of insurance
      required by the provisions of Section 5(d) hereof, but only to the extent that
      the same relates to the Collateral. If Borrowers fail to perform any obligation
      hereunder or under any other Financing Document, Lender itself may, but shall
      not be obligated to, cause such obligation to be performed at Borrowers’
expense. Lender is further authorized by Borrowers to make expenditures from
      time to time which Lender, in its reasonable business judgment, deems necessary
      or desirable to (a) preserve or protect the Collateral, or any portion
      thereof, and/or (b) enhance the likelihood of, or maximize the amount of,
      repayment of the Loan and other Obligations. Borrowers hereby agree to reimburse
      Lender on demand for any and all costs, liabilities and obligations incurred
      by
      Lender pursuant to this Section 9. Lender hereby agrees to indemnify Lender
      upon
      demand for any and all costs, liabilities and obligations incurred by Lender
      pursuant to this Section 9. 

    


    10.           
      Miscellaneous.

     

     (a)    Entire
      Agreement; Captions.
      This
      Agreement and the other Financing Documents constitute the entire agreement
      between the parties with respect to the subject matter hereof and shall not
      be
      amended or altered in any manner except pursuant to Section 10(n) below. All
      representations, warranties, and covenants of Borrowers contained herein or
      made
      pursuant hereto shall survive closing and continue throughout the term hereof
      and until the Obligations are satisfied in full. The provisions of Sections
      7,
      9, and 10 shall survive the payment of the Obligations and any termination
      of
      this Agreement and
      any
      judgment with respect to any Obligations, including any final foreclosure
      judgment with respect to any Security Document, and no unpaid or unperformed,
      current or future, Obligations will merge into any such judgment. Any provision
      of this Agreement or of any instrument or document executed pursuant hereto
      which is prohibited or unenforceable in any jurisdiction shall, as to such
      jurisdiction, be ineffective to the extent of such prohibition or
      unenforceability without invalidating the remaining provisions hereof or
      thereof, and any such prohibition or unenforceability in any jurisdiction shall
      not invalidate or render unenforceable such provision in any other jurisdiction.
      To the extent permitted by applicable law, Borrowers hereby waive any provision
      of law which renders any provision hereof or thereof prohibited or unenforceable
      in any respect. The captions in this Agreement are for convenience of reference
      only and shall not define or limit any of the terms or provisions hereof.
The
      Usury
      Savings Provisions set forth in the Note are incorporated herein and in all
      Financing Documents for all purposes. 

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

     (b)    Counterparts;
      Facsimile Signatures; Other Electronic Transmissions.
      This
      Agreement and all other Financing Documents may be executed in multiple
      counterparts which together shall constitute one agreement, and any notices
      to
      be given pursuant to this Agreement, may be executed and delivered by facsimile
      or other electronic transmission (i.e. PDF format) all with the same force
      and
      effect as if the same was a fully executed and delivered original counterpart.
      The original counterparts of this Agreement and all Financing Documents shall
      be
      delivered by Borrowers, promptly after execution and failure to so deliver,
      at
      Lender’s option, shall be a Default, but failure to deliver shall in no way
      limit or negate enforceability of any Financing Document.

    


     (c)    Notices.
      All
      notices (excluding billings and communications in the ordinary course of
      business) hereunder shall be in writing, personally delivered, sent by overnight
      courier service, sent by facsimile telecopier, or sent by certified mail, return
      receipt requested, addressed to the other party at its respective address stated
      below the signature of such parties or at such other addresses as such parties
      shall from time to time designate in writing to the other parties; and shall
      be
      effective from the date of receipt.

    


     (d)    Assignments;
      Participations; Replacement of Lender.
      This
      Agreement shall inure to the benefit of Lender, its successors and assigns,
      and
      shall be binding upon the successors of Borrowers. The rights and obligations
      of
      Borrowers under this Agreement may not be assigned or delegated. Lender reserves
      the right to sell, assign, transfer, negotiate or grant participations (the
      foregoing, collectively “Assign”) in all or any part of, or any interest in,
      Lender’s rights and obligations hereunder, in the Promissory Notes, in the
      Collateral and/or the Obligations held by it to others at any time and from
      time
      to time; and Lender may, subject to Section 10(j) below, disclose to any such
      purchaser, assignee, transferee or participant (the “Participant”), or potential
      Participant, this Agreement and all information, reports, financial statements
      and documents executed or obtained in connection with this Agreement which
      Lender now or hereafter may have relating to the Loan, Borrowers, or the
      business of Borrowers. Notwithstanding anything to the contrary in this Section
      9(d), so long as no Default shall have occurred and be continuing, (i)
      Borrowers’ obligations under this Agreement shall be solely with respect to
      Lender and Borrowers shall not be required to make payment or deliver notices,
      reports or financial statements to, communicate with or otherwise perform its
      obligations hereunder with reference to, any Participants of Lender, (ii) Lender
      shall be solely responsible for the administration of Participants’ records and
      any and all payments and communications to which Participants may be entitled
      as
      a result of any Assignment by Lender, and (iii) if Lender shall Assign all
      of
      its rights and interest under this Agreement, Lender shall designate a
      successor, which shall assume Lender’s obligations to any Participants and, so
      long as no Default shall have occurred and be continuing, Borrowers shall be
      obligated solely with respect to such successor, which shall act as agent for
      and on behalf of any other Participants

    


     (e)    NEW
      YORK LAW GOVERNS; WAIVER OF JURY TRIAL.
      THIS
      AGREEMENT AND ALL OTHER RELATED INSTRUMENTS AND DOCUMENTS AND THE RIGHTS AND
      OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, IN ALL RESPECTS,
      BE
      GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
      OF
      NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE),
      INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS
      OF
      THE LOCATION OF THE COLLATERAL.

    


     The
      parties agree that any action or proceeding arising out of or relating to this
      Agreement may be commenced in any state or Federal court of competent
      jurisdiction in the Borough of Manhattan, New York County, New York and each
      party submits to the jurisdiction of such court and agrees that a summons and
      complaint commencing an action or proceeding in any such court shall be properly
      served and shall confer personal jurisdiction if served personally or by
      certified mail to it at its address designated pursuant hereto, or as otherwise
      provided under the laws of the State of New York.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

     BORROWERS
      HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH ANY BORROWER
      OR
      LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS AGREEMENT
      OR THE PROMISSORY NOTE. BORROWERS AUTHORIZE LENDER TO FILE THIS PROVISION WITH
      THE CLERK OR JUDGE OF ANY COURT HEARING SUCH CLAIM. THIS WAIVER IS KNOWINGLY,
      WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND BORROWERS HEREBY ACKNOWLEDGE
      THAT
      NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
      THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
      BORROWERS FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING
      OF
      THIS AGREEMENT AND THE PROMISSORY NOTE AND IN THE MAKING OF THIS WAIVER BY
      LEGAL
      COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY
      TO
      DISCUSS THIS WAIVER WITH COUNSEL.

    


     (f)    
Lender
      Expenses.
      Borrower agrees to reimburse Lender for all reasonable legal, audit and
      appraisal fees and all other reasonable out-of-pocket charges and expenses
      incurred by Lender (including the fees and expenses of Lender’s counsel,
      advisors and consultants) in connection with the negotiation, preparation,
      legal
      review and execution of each of the Financing Documents, provided that the
      aggregate amount of such reimbursements for fees and expenses through the
      Closing Date shall not exceed, in the aggregate, Fifty Thousand Dollars
      ($50,000). In addition, Borrowers shall pay all such fees and expenses
      associated with any amendments, modifications and terminations to the Financing
      Documents following closing. 

     

     (g)     Indemnification.
      Borrowers hereby indemnify and agree to defend (with counsel reasonably
      acceptable to Lender) and hold harmless Lender and its shareholders, directors,
      partners, officers, agents and employees (collectively in the singular,
“Indemnitee”) from and against any liability, loss, cost, expense (including
      reasonable attorneys’ fees and expenses of counsel), claim, damage, suit, action
      or proceeding ever suffered or incurred by any Indemnitee or in which an
      Indemnitee may ever be or become involved (whether as a party, witness or
      otherwise) (1) arising from any Borrower’s failure to observe, perform or
      discharge any of its covenants, obligations, agreements or duties under the
      Financing Documents, (2) arising from the breach of any of the
      representations or warranties contained in any Financing Document,
      (3) arising by reason of this Agreement, the other Financing Documents or
      the transactions (other than between or among Lender and any Participant)
      contemplated hereby or thereby, or (4) relating to claims of any Person (other
      than Lender and any Participants) with respect to the Collateral; provided,
      however, Borrower shall not be liable under this Section 10(g) to the extent
      such loss is solely related to an Indemnitee’s gross negligence or willful
      misconduct. Notwithstanding any contrary provision in this Agreement, the
      obligations of Borrowers under this Section 10(g) shall survive the payment
      in full of the Obligations and the termination of this Agreement.

    


     (h)     Waiver
      of Consequential and Other Damages.
      To the
      fullest extent permitted by applicable law, Borrower shall not assert, and
      Borrower hereby waives, any claim against any Indemnitee on any theory of
      liability, for special, indirect, consequential or punitive damages (as opposed
      to direct or actual damages) arising out of, in connection with, or as a result
      of this Agreement, any other Financing Document or any agreement or instrument
      contemplated hereby or thereby, the transactions contemplated hereby or thereby,
      the Loan or the use of the proceeds thereof.

    


     (i)    
 Joint
      and Several Liability.
      Borrowers are defined collectively to include all Persons named as one of the
      Borrowers herein; provided, however, that any references herein to “any
      Borrower”, “each Borrower” or similar references, shall be construed as a
      reference to each individual Person named as one of the Borrowers herein. Each
      Person so named shall be jointly and severally liable for all of the obligations
      of Borrowers under this Agreement. Each Borrower, individually, expressly
      understands, agrees and acknowledges, that the credit facilities would not
      be
      made available on the terms herein in the absence of the collective credit
      of
      all of the Persons named as the Borrowers herein, the joint and several
      liability of all such Persons, and the cross-collateralization of the collateral
      of all such Persons. Accordingly, each Borrower, individually acknowledges
      that
      the benefit to each of the Persons named as one of the Borrowers as a whole
      constitutes reasonably equivalent value, regardless of the amount of the credit
      facilities actually borrowed by, advanced to, or the amount of collateral
      provided by, any individual Borrower. In addition, each entity named as one
      of
      the Borrowers herein hereby acknowledges and agrees that all of the
      representations, warranties, covenants, obligations, conditions, agreements
      and
      other terms contained in this Agreement shall be applicable to and shall be
      binding upon and measured and enforceable individually against each Person
      named
      as one of the Borrowers herein as well as all such Persons when taken
      together.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

     (j)    
 Confidentiality.
      Lender
      shall hold all non-public information regarding the Borrower and its business
      identified as such by Borrower and obtained by Lender pursuant to the
      requirements hereof (“Confidential Information”) in accordance with Lender’s
      customary procedures for handling information of such nature, except that
      disclosure of such information may be made (1) to its agents, employees,
      subsidiaries, affiliates, attorneys, auditors, professional consultants, rating
      agencies, insurance industry associations and portfolio management services,
      (2) to prospective transferees or purchasers of any interest in the Loan,
provided,
      however,
      that
      any such Persons shall have entered into a confidentiality and non-disclosure
      agreement with Lender, (3) as required by Law, subpoena, judicial order or
      similar order and in connection with any litigation, (4) to an examiner,
      auditor or investigator as may be required in connection with the examination,
      audit or similar investigation of such Person, and (5) to a Person that is
      a trustee, investment advisor, collateral manager, servicer, noteholder or
      secured party in a Securitization (as hereinafter defined) in connection with
      the administration, servicing and reporting on the assets serving as collateral
      for such Securitization. For the purposes of this Section, “Securitization”
shall mean a public or private offering by Lender or any Affiliate of Lender
      or
      their respective successors and assigns, of securities which represent an
      interest in, or which are collateralized, in whole or in part, by the Loan.
      Confidential information shall include only such information identified as
      such
      at the time provided Lender shall not include information that either:
      (A) is in the public domain, or becomes part of the public domain after
      disclosure to such Person through no fault of such Person, or (B) is
      disclosed to such Person by a Person other than Borrower, provided,
      however,
      such
      discloser does not have actual knowledge that such Person is prohibited from
      disclosing such information. The obligations of Lender under this
      Section 10(j) shall supersede and replace the obligations of Lender under
      any confidentiality agreement in respect of this financing executed and
      delivered by Lender prior to the date hereof.

    


     (k)    Customer
      Identification- USA Patriot Act Notice; OFAC and Bank Secrecy
      Act.
      Lender
      hereby notifies Borrowers and Guarantor that pursuant to the requirements of
      the
      USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001)
      (the “Act”), and Lender’s policies and practices, Lender is required to obtain,
      verify and record certain information and documentation that identifies each
      Borrower, which information includes the name and address of each Borrower
      and
      such other information that will allow Lender to identify each Borrower and
      Guarantor in accordance with the Act. In addition, each Borrower shall (1)
      ensure that no Person who owns a controlling interest in or otherwise controls
      any Borrower or any subsidiary of any Borrower is or shall be listed on the
      Specially Designated Nationals and Blocked Person List or other similar lists
      maintained by the Office of Foreign Assets Control (“OFAC”), the Department of
      the Treasury or included in any Executive Orders, (2) not use or permit the
      use
      of the proceeds of the Loan to violate any of the foreign asset control
      regulations of OFAC or any enabling statute or Executive Order relating thereto,
      and (3) comply, and cause any of its subsidiaries to comply, with all applicable
      Bank Secrecy Act (“BSA”) laws and regulations, as amended.

    


     (l)     No
      Use
      of Merrill Lynch Name.
      No
      Borrower will directly or indirectly publish, disclose or otherwise use in
      any
      advertising or promotional material, or press release or interview, the name,
      logo or any trademark of Lender, Merrill Lynch & Co., Inc., or any of its or
      their affiliates. Notwithstanding the foregoing, Lender understands and
      acknowledges that Borrower intends to issue a press release announcing the
      execution of this Agreement, in such form as is reasonably acceptable to Lender,
      will file a Form 8-K with the Securities and Exchange Commission, to which
      will
      be attached the press release and copies of the material Financing Documents,
      and will take such other actions, including discussing the closing of the Loan
      in stockholder conference calls, as Borrower shall deem necessary or appropriate
      to comply with Borrower’s disclosure obligations under the federal securities
      laws.

    


     (m)
         Time. Time
      is
      of the essence in each Borrower’s performance under this Agreement and all other
      Financing Documents. 

    


     (n)     Amendments
      and Waivers.
      No
      provision of this Agreement or any other Financing Document may be amended,
      waived or otherwise modified unless such amendment, waiver or other modification
      is in writing and is signed or otherwise approved by Borrowers, and
      Lender.

    


    11.    Reserved.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

    12.    Definitions
      and Rules of Construction.
      The
      following terms when used in this Agreement or in the other Financing Documents
      have the following meanings: 

    


     “Accounts”
means
      collectively (a) any right to payment of a monetary obligation, whether or
      not earned by performance, (b) without duplication, any “account” (as
      defined in the UCC), any accounts receivable (whether in the form of payments
      for services rendered or goods sold, rents, license fees or otherwise), any
      “health-care-insurance receivables” (as defined in the UCC), any “payment
      intangibles” (as defined in the UCC) and all other rights to payment and/or
      reimbursement of every kind and description, whether or not earned by
      performance, (c) all accounts, “general intangibles” (as defined in the
      UCC), Intellectual Property, rights, remedies, guarantees, “supporting
      obligations” (as defined in the UCC), “letter-of-credit rights” (as defined in
      the UCC) and security interests in respect of the foregoing, all rights of
      enforcement and collection relating to the foregoing, all books and records
      evidencing or related to the foregoing, and all rights under the Financing
      Documents in respect of the foregoing, (d) all information and data
      compiled or derived by any Borrower or to which any Borrower is entitled in
      respect of or related to the foregoing, and (e) all proceeds of any of the
      foregoing.

    


     “Affiliate”
      means,
      with respect to any Person (a) any Person that directly or indirectly
      controls such Person, (b) any Person which is controlled by or is under
      common control with such controlling Person, and (c) each of such Person’s
      (other than, with respect to Lender, Lender’s) officers or directors (or Persons
      functioning in substantially similar roles) and the spouses, parents,
      descendants and siblings of such officers, directors or other Persons. As used
      in this definition, the term “control” of a Person means the possession,
      directly or indirectly, of the power to vote five percent (5%) or more of any
      class of voting securities of such Person or to direct or cause the direction
      of
      the management or policies of a Person, whether through the ownership of voting
      securities, by contract or otherwise.

    


     “Applicable
      Law”
or
      “Law”:
      any
      law, rule, regulation, ordinance, order, code, common law, interpretation,
      judgment, directive, decree, treaty, injunction, writ, determination, award,
      permit or similar norm or decision of any Governmental Authority and
      “Anti-Terrorism
      Laws”
means
      any Laws relating to terrorism or money laundering, including Executive Order
      No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the
      Laws comprising or implementing the Bank Secrecy Act, and the Laws administered
      by OFAC.

    
 

     “Blocked
      Person”
means
      any Person: (a) listed in the annex to, or is otherwise subject to the
      provisions of Change of Control, Executive Order No. 13224, (b)  owned
      or controlled by, or acting for or on behalf of, any Person that is listed
      in
      the annex to, or is otherwise subject to the provisions of, Executive Order
      No. 13224, (c)  with which Lender is prohibited from dealing or
      otherwise engaging in any transaction by any Anti-Terrorism Law, (d)  that
      commits, threatens or conspires to commit or supports “terrorism” as defined in
      Executive Order No. 13224, or (v) that is named a “specially
      designated national” or “blocked person” on the most current list published by
      OFAC or other similar list or is named as a “listed person” or “listed entity”
on other lists made under any Anti-Terrorism Law.

    


     “Business
      Day”
      shall
      mean any day other than a Saturday, a Sunday, and any day on which the New
      York
      Stock Exchange is authorized by law or other governmental action to
      close.

    


     “Collateral”
      means
      (a)
      at all times prior to the Collateral Modification Date, the property listed
      on
      Schedule 1-A attached hereto (provided, however, that the property listed on
      Annex A attached hereto shall not be deemed a part of the Collateral until
      Lender funds the initial advance under the Loan), and (b) commencing on the
      Collateral Modification Date (provided that no Default has occurred and is
      continuing at such time) and at all times thereafter, the property listed on
      Schedule 1-B attached hereto.

    


     “Collateral
      Modification Date”
      means of
      the earlier to occur of (a) the receipt by the Principal Borrower of the FDA
      Approval or (b) the Principal Borrower has maintained, over a continuous
      twelve-month period ending on or after March 31, 2008, measured at the end
      of
      each calendar quarter, a minimum cash balance equal to the Principal Borrower’s
      projected cash requirements for the following twelve-month period.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

    “Collateral
      Schedule”,
      with
      respect to each Equipment Advance, means a schedule, in substantially the form
      attached to this Agreement as Exhibit 2, describing the Financed Equipment
      acquired with the proceeds of the Loan, now or hereafter executed in connection
      with such Equipment Advance and the Promissory Note.

    


    “Debt”
of
      a
      Person means at any date, without duplication, (a) all obligations of such
      Person for borrowed money, (b) all obligations of such Person evidenced by
      bonds, debentures, notes or other similar instruments, (c) all obligations
      of such Person to pay the deferred purchase price of property or services,
      except trade accounts payable arising and paid on a timely basis and in the
      ordinary course of business, (d) all capital leases of such Person,
      (e) all non-contingent obligations of such Person to reimburse any bank or
      other Person in respect of amounts paid under a letter of credit, banker’s
      acceptance or similar instrument, (f) all equity securities of such Person
      subject to repurchase or redemption otherwise than at the sole option of such
      Person, (g) all obligations secured by a Lien on any asset of such Person,
      whether or not such obligation is otherwise an obligation of such Person,
      (h) ”earnouts”, purchase price adjustments, profit sharing arrangements,
      deferred purchase money amounts and similar payment obligations or continuing
      obligations of any nature of such Person arising out of purchase and sale
      contracts, (i) all Debt of others guaranteed by such Person, (j) off-balance
      sheet liabilities and/or pension plan liabilities of such Person, (k)
      obligations arising under non-compete agreements, and (l) obligations arising
      under bonus, deferred compensation, incentive compensation or similar
      arrangements, other than those arising in the ordinary course of business.
      Without duplication of any of the foregoing, Debt of Borrowers shall include
      any
      and all Loans.

    


    “Draw
      Period”
is
      the
      period of time from the date hereof through the earlier to occur of (a) May
      31, 2008, or (b) a Default; provided, however, that if a Default has not
      occurred and is not continuing as of May 31, 2008 and the full amount of the
      Loan has not been advanced prior to such date then Lender shall consider, on
      a
      best efforts basis, extending the Draw Period by an additional six months.
      The
      Draw Period shall not be deemed to be extended beyond May 31, 2008 unless Lender
      provides written notice of such extension to Borrowers.

     

    “Eligible
      Equipment”
is
      the
      following to the extent it complies with all of Borrower’s representations and
      warranties to Lender, is acceptable to Lender in all respects, is located at
      a
      location of Borrower listed in Borrower’s Schedule and identified on the
      applicable Collateral Schedule, or such other location of which Lender has
      approved in writing, and is subject to a first priority Lien in favor of Lender:
      (a) equipment financed in connection with the GECC Debt, (b) new laboratory
      and
      manufacturing equipment and (c) Other Equipment.

    


    “Eligible
      Market”
      means
      any national securities exchange, the NASDAQ Global Select Market, the NASDAQ
      Global Market or the NASDAQ Capital Market.

    


    “Environmental
      Law”
      shall
      mean any present or future federal, foreign, state or local law, ordinance,
      order, rule or regulation and all judicial, administrative and regulatory
      decrees, judgments and orders, pertaining to health, industrial hygiene, the
      use, disposal or transportation of Hazardous Substances, environmental
      contamination, or pertaining to the protection of the environment, including,
      but not limited to, the Comprehensive Environmental Response, Compensation,
      and
      Liability Act (“CERCLA”) (42 U.S.C. §9601 et seq.),
      the
      Hazardous Material Transportation Act (49 U.S.C. §1801 et seq.),
      the
      Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
      the
      Resource Conservation and Recovery Act (42 U.S.C. §6901 et seq.),
      the
      Clean Air Act (42 U.S.C. §7401 et seq.),
      the
      Toxic Substances Control Act (15 U.S.C. § 2601 et seq.),
      the
      Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §1361 et seq.),
      the
      Occupational Safety and Health Act (19 U.S.C. §651 et seq.),
      the
      Hazardous and Solid Waste Amendments (42 U.S.C. §2601 et seq.),
      as
      these laws have been or may be amended or supplemented, and any successor
      thereto, and any analogous foreign, state or local statutes, and the rules,
      regulations and orders promulgated pursuant thereto.

    


    “Equipment
      Line”
      means
      the lesser of (a) Twelve Million Five Hundred Thousand Dollars ($12,500,000)
      or
      (b) an amount equal to (i) Five Million Dollars ($5,000,000), plus (ii) the
      proceeds of the Loan used to pay off the GECC Debt , plus (iii) the applicable
      New Capital Availability Increase Amount.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

    “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as the same may be amended,
      modified or supplemented from time to time, and any successor statute thereto,
      and any and all rules or regulations promulgated from time to time
      thereunder.

    


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

    


    “FDA
      Approval”
      means
      approval from the United States Food and Drug Administration of Principal
      Borrower’s New Drug Application to market Surfaxin® for the prevention of
      respiratory distress syndrome in premature infants.

    


    “Financing
      Documents”
      has the
      meaning set forth in Section 1(c) of this Agreement.

    


    “Financed
      Equipment” means,
      with respect to an Equipment Advance, each and every item of Eligible
      Equipment
      financed
      by such Equipment Advance.

    


    “GECC
      Payoff Equipment Advance”
      means
      the Equipment Advance for which the proceeds are used to repay the GECC
      Debt.

    


    “Governmental
      Authority”
      means
      any federal, state, county, municipal, regional or other governmental authority,
      agency, board, body, instrumentality or court, in each case, whether domestic
      or
      foreign.

    


    “Hard
      Costs” means
      the
      costs of all Eligible Equipment other than Other Equipment.

    


    “Hard
      Cost Equipment Advance”
      means an
      Equipment Advance the proceeds of which are used to finance the purchase of
      Hard
      Costs.

    


    “Hazardous
      Substances”
      shall
      mean and include hazardous substances as defined in CERCLA; oil of any kind,
      petroleum products and their by-products, including, but not limited to, sludge
      or residue; asbestos containing materials; polychlorinated biphenyls; any and
      all other hazardous or toxic substances; hazardous waste, as defined in CERCLA;
      medical waste; infectious waste; those substances listed in the United States
      Department of Transportation Table (49 C.F.R. §172.101); explosives; radioactive
      materials; and all other pollutants, contaminants and other substances regulated
      or controlled by the Environmental Laws and any other substance that requires
      special handling in its collection, storage, treatment or disposal under the
      Environmental Laws.

    


    “Intellectual
      Property”
means,
      with respect to any Person, (a) all patents, patent applications and like
      protections, including improvements divisions, continuation, renewals, reissues,
      extensions and continuations in part of the same, trademarks, trade names,
      trade
      styles, trade dress, service marks, logos and other business identifiers and,
      to
      the extent permitted under applicable law, any applications therefore, whether
      registered or not, and the goodwill of the business of such Person connected
      with and symbolized thereby, copyright rights, copyright applications, copyright
      registrations and like protections in each work of authorship and derivative
      works, whether published or unpublished, technology, know-how and processes,
      operating manuals, trade secrets, rights to unpatented inventions and all
      applications therefore and (b) all licenses therefore of any of the foregoing,
      used in or necessary for the conduct of business by such Person and all claims
      for damages by way of any past, present or future infringement of any of the
      foregoing, including without limitation the license of Surfaxin.

    


    “LIBOR
      Rate”
means
      a
      rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
      equal
      to (a) the rate of interest which is identified and normally published by
      Bloomberg Professional Service Page BBAM 1 as the offered rate for loans in
      United States dollars for the period of one (1) month under the caption British
      Bankers Association LIBOR Rates as of 11:00 a.m. (London time) as adjusted
      on a daily basis and effective on the second full Business Day after each such
      day (unless such date is not a Business Day, in which event the next succeeding
      Business Day will be used); divided
      by
      (b) the sum of one minus
      the
      daily average during the preceding month of the aggregate maximum reserve
      requirement (expressed as a decimal) then imposed under Regulation D of the
      Board of Governors of the Federal Reserve System (or any successor thereto)
      for
“Eurocurrency Liabilities” (as defined therein). If Bloomberg Professional
      Service (or another nationally-recognized rate reporting source acceptable
      to
      Lender) no longer reports the LIBOR or Lender determines in good faith that
      the
      rate so reported no longer accurately reflects the rate available to Lender
      in
      the London Interbank Market or if such index no longer exists or if
      Page BBAM 1 no longer exists or accurately reflects the rate available to
      Lender in the London Interbank Market, Lender may select a comparable
      replacement index or replacement page, as the case may be.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    

      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

    

     

    “License
      Agreement” means
      the
      Sublicense Agreement dated October 28, 1996 among Johnson & Johnson and
      Ortho Pharmaceuticals Corporation, as licensors, and the Principal Borrower
      (as
      successor to Acute Therapeutics, Inc.), as licensee.

    


    “Lien”
means,
      with
      respect to any asset, any mortgage, lien, pledge, charge, security interest
      or
      encumbrance of any kind, or any other type of preferential arrangement that
      has
      the practical effect of creating a security interest, in respect of such
      asset.

    


    “Material
      Adverse Effect” shall
      mean (1) a materially adverse effect on the business, condition (financial
      or
      otherwise), operations, performance or properties of any Borrower, or (2) any
      impairment of the ability of any Borrower to perform its obligations under
      or to
      remain in compliance with the Financing Documents.

    


    “Merrill
      Lynch”
means
      Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services
      Inc., and its successors.

    


    “New
      Capital Availability Increase Amount” means
      an
      amount equal to One Million Dollars ($1,000,000) for each Ten Million Dollars
      ($10,000,000) of new capital raised by the Principal Borrower from and after
      the
      date of this Agreement in connection with a stock offering, business development
      partnerships or similar financings. 

    


    “Other
      Equipment”
is
      leasehold improvements, intangible property such as computer software and
      software licenses, equipment specifically designed or manufactured for
      Borrowers, other intangible property, limited use property and other similar
      property and soft costs approved by Lender, including taxes, shipping, warranty
      charges, freight discounts and installation expenses which are incurred by
      a
      Borrower in connection with the purchase of Eligible Equipment financed by
      a
      Hard Cost Equipment Advance.

    


    “Other
      Equipment Advance”
means
      an Equipment Advance the proceeds of which are used to finance Other
      Equipment.

    


    “Participant”
      has the
      meaning set forth in Section 10(d)(iii).

    


    “Person”
means
      any individual, corporation, partnership, joint venture, or other legal entity
      or a governmental authority, whether employed, hired, affiliated, owned,
      contracted with, or otherwise related or unrelated to Lender
      or
      Borrowers.

    


    “Pharmabio
      Indebtedness” is
      all
      Indebtedness owed by Borrower to Pharmabio Development, Inc.

    


    “Security
      Document”
means
      this Agreement and any other agreement, document or instrument executed
      concurrently herewith or at any time hereafter pursuant to which one or more
      Credit Parties or any other Person either (a) guarantees payment or performance
      of all or any portion of the Obligations, and/or (b) provides, as security
      for
      all or any portion of the Obligations, a Lien on any of its assets in favor
      of
      Lender, as any or all of the same may be amended, supplemented, restated or
      otherwise modified from time to time.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

       

      
        Exhibit
          10.1

         

        
          	  	
                  EXECUTION
                    COPY

                


        

      

       

    

    “Term
      of the Equipment Advance”
      shall
      mean, with respect to each Hard Cost Equipment Advance, thirty-six (36) months;
      with respect to each Other Equipment Advance, twenty-four (24) months; and
      with
      respect to the GECC Payoff Equipment Advance, twenty-seven (27) months.


    


    “UCC”
or
      “Uniform
      Commercial Code”:
      the
      Uniform Commercial Code as in effect in the State of New York or in any other
      applicable jurisdiction; and any reference to an article or section thereof
      shall mean the corresponding article or section (however termed) of any such
      applicable version of the Uniform Commercial Code.

    


    The
      following terms when used herein or in any of the Financing Documents shall
      be
      construed as follows: (a) “herein,”
      “hereof,”
      “hereunder,”
etc.:
      in, of, under, etc. this Agreement or such other Financing Document in which
      such term appears (and not merely in, of, under, etc. the section or provision
      where the reference occurs); (b) “including”:
      means
      including without limitation unless such term is followed by the words “and
      limited to,” or similar words; and (c) “or”:
      at
      least one, but not necessarily only one, of the alternatives enumerated. Any
      defined term used in the singular preceded by “any” indicates any number of the
      members of the relevant class. Any Financing Document or other agreement or
      instrument referred to herein means such agreement or instrument as supplemented
      and amended from time to time. Any reference to Lender,
      a
Lender
      or
      Borrower shall include their successors and permitted assigns. Any reference
      to
      an Applicable Law shall also mean such Law as amended, superseded or replaced
      from time to time.

    


    [REMAINDER
      OF THIS PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.1

       

      
        	  	
                EXECUTION
                  COPY

              


      

       

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Credit and Security
      Agreement to be duly executed as of the day and year first above
      written.

    


    
      	
              LENDER:

            	
              BORROWER:

            
	
              MERRILL
                LYNCH CAPITAL, A DIVISION

              OF
                MERRILL LYNCH BUSINESS

              FINANCIAL
                SERVICES INC.

               

            	
              DISCOVERY
                LABORATORIES, INC.

               

               

               

            
	
              By:   
                       

              
                Name:      

                Title:        

              

            	
              By:   
                       

              Name:      

              Title: 
                      

            
	 	 
	
              Address:

               

              222
                North LaSalle Street, 16th
                Floor

              Chicago,
                Illinois 60601

              Attn:
                Account Manager for MLC-HCF

              Discovery
                Laboratories transaction

              Facsimile:1-866-231-8408

              Email:
                MLC_HCF-ABL1@ml.com

               

            	
              Address:

               

              2600
                Kelly Road, Suite 100

              Warrington,
                Pennsylvania 18976-3622

              Facsimile:
                ______________________________

              Form
                of Organization: corporation

              Jurisdiction
                of 

              Organization:
                Delaware

              Organizational
                No.:2315242

              Federal
                Employer Identification No.:94-3171943

               

            
	
              With
                copies to:

               

              Merrill
                Lynch Capital

              222
                N. LaSalle Street, 16th
                Floor

              Chicago,
                Illinois 60601

              Attn:
                Group Senior Transaction Attorney, Healthcare Finance

              Facsimile
                Number: (312) 499-3245

               

              Merrill
                Lynch Capital

              7700
                Wisconsin Ave., Suite 400

              Bethesda,
                Maryland 20814

              Attn:
                Group Senior Transaction Attorney, Healthcare Finance

              Facsimile
                Number: (866) 341-9053

               

            	
              Discovery
                Laboratories, Inc.

              2600
                Kelly Road, Suite 100

              Warrington,
                Pennsylvania 18976-3622

              Attention:
                General Counsel

              Facsimile:
                (215) 448-9557

            


    

    

      [Signature
        Page to Credit Agreement]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      	      Exhibit
              1 (Form of Promissory Note)


    

    


    [see
      attached]

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    
      	      Schedule
              1-A (Collateral)


    

     

    [see
      attached]

    


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      	      Schedule
              1-A (Collateral)


    

    


    SCHEDULE
      1-A

    


    COLLATERAL

    


    The
      Collateral consists of all of each Borrower’s right,
      title and interest in and to the following, whether now owned or hereafter
      created, acquired or arising:

    


    All
      property listed on any collateral schedule now or in the future annexed to
      or
      made a part of this Agreement;

    


    All
      property listed on Annex 1 attached hereto;
      provided, however, that Lender’s Lien on and security interest in, upon and to
      the property
      listed on Annex 1 attached hereto shall
      not
      arise until the funding of the GECC Payoff Equipment Advance;

    


    All
      Intellectual Property and all Proceeds, including Cash Proceeds and Noncash
      Proceeds, of such Intellectual Property; provided,
      however,
      for the
      purposes hereof, the term “Collateral” shall not include any license, Contract
      or agreement to which any Borrower is a party or any of its rights or interests
      thereunder to the extent, but only to the extent, that such a grant would,
      under
      the terms of such license, Contract or agreement or otherwise, result in a
      breach of the terms of, or constitute a default under any license, Contract
      or
      agreement to which any Borrower is a party (other than to the extent that any
      such term would be rendered ineffective pursuant to the UCC or any other
      applicable law (including the Bankruptcy Code, 11 U.S.C. Sec. 362(a)) or
      principles of equity; provided, that immediately upon the ineffectiveness,
      lapse
      or termination of any such provision, the Collateral shall include, and
      Borrowers shall be deemed to have granted a security interest in, all such
      rights and interests as if such provision had never been in effect;
      and

    


    All
      of
      each Borrower’s claims, rights and interests in any of the above and all
      substitutions and exchanges for, additions, attachments, accessories, accessions
      and improvements to and replacements, products and insurance and other Proceeds
      of any and all of the foregoing.

    


    Notwithstanding
      the foregoing, upon the payment in full of (a) all principal, accrued interest
      and other amounts due in connection with any Hard Cost Equipment Advance,
      including, without limitation, any applicable prepayment fee, and (b) all
      principal, accrued interest and other amounts due in connection with any Other
      Equipment Advances made in conjunction with such Hard Cost Equipment Advance,
      including, without limitation, any applicable prepayment fee, and provided
      that
      no Default has occurred and is continuing, all Financed Equipment financed
      by
      such Hard Cost Equipment Advance shall no longer be included in the
      Collateral.

    


    Definitions:

    


    “Cash
      Proceeds”; “Noncash Proceeds”; Software”; shall each have the meaning set forth
      in the UCC.

    


    “Contracts”
      shall mean contracts, agreements, commitments, understandings and arrangements
      creating or related to Intellectual Property between any Borrower and one or
      more other parties, or under or with respect to which any Borrower has
      rights.

    


    “Copyrights”
      shall mean, collectively, all copyrights (whether such copyrights are statutory
      or common law, whether established or registered in the United States or any
      other country or any political subdivision thereof, whether registered or
      unregistered and whether published or unpublished) and all copyright
      registrations and applications, and in each case, whether now owned or hereafter
      created or acquired, together with any and all (i) rights and privileges
      arising under applicable law with respect to the use of such copyrights,
      (ii) reissues, renewals, continuations and extensions thereof, (iii)
      income, fees, royalties, damages, claims and payments now or hereafter due
      or
      payable with respect thereto, including, without limitation, damages and
      payments for past, present or future infringements thereof, (iv) rights
      corresponding thereto throughout the world and (v) rights to sue for past,
      present or future infringements thereof.

    


    “Credit
      Agreement” means that certain Credit and Security Agreement dated as of May 21,
      2007 among Borrowers and Lender.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

      	      Schedule
              1-A (Collateral)


    

    


    “Financed
      Equipment” has the meaning set forth in the Credit Agreement.

    


    “Hard
      Cost Equipment Advance” has the meaning set forth in the Credit
      Agreement.

    


    “Intellectual
      Property” means, with respect to any Person, all Patents, Patent applications
      and like protections, including improvements divisions, continuation, renewals,
      reissues, extensions and continuations in part of the same, Trademarks, to
      the
      extent permitted under applicable law, any applications therefore, whether
      registered or not, and the goodwill of the business of such Person connected
      with and symbolized thereby, Copyrights and like protections in each work of
      authorship and derivative works, whether published or unpublished, technology,
      Know-How and processes, operating manuals, trade secrets, rights to unpatented
      inventions and all applications and licenses therefore, used in or necessary
      for
      the conduct of business by such Person and all claims for damages by way of
      any
      past, present or future infringement of any of the foregoing.

    


    “Know-How”
      shall mean all know-how and other information, including, without limitation,
      ideas, discoveries, inventions, data, techniques, specifications, processes,
      procedures, manufacturing and technical information, results from experiments
      and tests, instructions, methods, formulae, designs, plans, sketches, records,
      confidential analyses, interpretations of information, and trade secrets, or
      any
      similar items, in any media form, whether or not tangible, including, without
      limitation, any paper or electronic form.

    


    “Other
      Equipment Advance” has the meaning set forth in the Credit
      Agreement.

    


    “Patents”
      shall mean all of the following whether now owned or hereafter acquired:
      (a) all patents of the United States or any other country, all
      registrations and recordings thereof, and all applications for patents of the
      United States or any other country, including registrations, recordings and
      pending applications in the United States Patent and Trademark Office or any
      other country, (b) all reissues, continuations, divisions,
      continuations-in-part, renewals or extensions thereof, and the inventions
      disclosed or claimed therein, including the right to make, use or sell the
      inventions disclosed or claimed therein and (c) all income, fees, royalties,
      damages, claims and payments now or hereafter due or payable with respect
      thereto, including, without limitation, damages and payments for past, present
      or future infringements thereof.

    


    “Person”
      means any individual, corporation, partnership, joint venture, or other legal
      entity or a governmental authority, whether employed, hired, affiliated, owned,
      contracted with, or otherwise related or unrelated to Lender or any
      Borrower.

    


    “Proceeds”
      shall mean, collectively, all “proceeds,” as such term is defined in the UCC,
      and in any event shall include, without limitation, any consideration received
      from the sale, exchange, license, lease or other disposition of any asset or
      property that constitutes Collateral, any value received as a consequence of
      the
      possession of any Collateral and any payment received from any insurer or other
      person or entity as a result of the destruction, loss, theft, damage or other
      involuntary conversion of whatever nature of any asset or property that
      constitutes Collateral, and shall include (a) any claim against any third
      party for (and the right to sue and recover for and the rights to damages or
      profits due or accrued arising out of or in connection with) (i) past,
      present or future infringement of any Patent now or hereafter owned,
      (ii) past, present or future infringement or dilution of any Trademark now
      or hereafter owned or injury to the goodwill associated with or symbolized
      by
      any Trademark now or hereafter owned, (iii) past, present or future infringement
      of any Copyright now or hereafter owned and (b) any and all other amounts
      from time to time paid or payable under or in connection with any of the
      Collateral.

    


    “Trademarks”
      shall mean all of the following whether now owned or hereafter acquired:
      (a) all trademarks, service marks, trade names, corporate names, company
      names, business names, fictitious business names, trade styles, trade dress,
      logos, other source or business identifiers, designs and general intangibles
      of
      like nature, all registrations and recordings thereof, and all registration
      and
      recording applications filed in connection therewith, including registrations
      and registration applications in the United States Patent and Trademark Office,
      any State of the United States or any similar offices in any other country
      or
      any political subdivision thereof, and all extensions or renewals thereof,
      (b)
      all income, fees, royalties, damages, claims and payments now or hereafter
      due
      or payable with respect thereto, including, without limitation, damages and
      payments for past, present or future infringements thereof, (c) all
      goodwill associated therewith or symbolized thereby, and (d) all other
      assets, rights and interests that uniquely reflect or embody such
      goodwill.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	      Schedule
              1-A (Collateral)


    

     

    “UCC”
      means the Uniform Commercial Code as in effect in the State of New York or
      in
      any other applicable jurisdiction; and any reference to an article or section
      thereof shall mean the corresponding article or section (however termed) of
      any
      such applicable version of the Uniform Commercial Code.

     

    References
      to capitalized terms that are not defined herein, but are defined in the UCC,
      shall have the meanings given them in the UCC.

    


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	      Schedule
              1-B (Collateral)


    

    


    SCHEDULE
      1-B

    


    COLLATERAL

    


    The
      Collateral consists of all of each Borrower’s right,
      title and interest in and to the following, whether now owned or hereafter
      created, acquired or arising:

    


    All
      property listed on any collateral schedule now or in the future annexed to
      or
      made a part of this Agreement;

    


    All
      property listed on Annex 1 attached hereto; and

    


    All
      of
      each Borrower’s claims, rights and interests in any of the above and all
      substitutions and exchanges for, additions, attachments, accessories, accessions
      and improvements to and replacements, products and insurance and other Proceeds
      of any and all of the foregoing.

    


    Notwithstanding
      the foregoing, upon the payment in full of (a) all principal, accrued interest
      and other amounts due in connection with any Hard Cost Equipment Advance,
      including, without limitation, any applicable prepayment fee, and (b) all
      principal, accrued interest and other amounts due in connection with any Other
      Equipment Advances made in conjunction with such Hard Cost Equipment Advance,
      including, without limitation, any applicable prepayment fee, and provided
      that
      no Default has occurred and is continuing, all Financed Equipment financed
      by
      such Hard Cost Equipment Advance shall no longer be included in the
      Collateral.

    


    Definitions:

    


    “Credit
      Agreement” means that certain Credit and Security Agreement dated as of May 21,
      2007 among Borrowers and Lender.

    


    “Financed
      Equipment” has the meaning set forth in the Credit Agreement.

    


    “Hard
      Cost Equipment Advance” has the meaning set forth in the Credit
      Agreement.

    


    “Other
      Equipment Advance” has the meaning set forth in the Credit
      Agreement.

    


    “Proceeds”
      shall mean, collectively, all “proceeds,” as such term is defined in the UCC,
      and in any event shall include, without limitation, any consideration received
      from the sale, exchange, license, lease or other disposition of any asset or
      property that constitutes Collateral, any value received as a consequence of
      the
      possession of any Collateral and any payment received from any insurer or other
      person or entity as a result of the destruction, loss, theft, damage or other
      involuntary conversion of whatever nature of any asset or property that
      constitutes Collateral, and shall include any and all other amounts from time
      to
      time paid or payable under or in connection with any of the
      Collateral.

    


    “UCC”
      means the Uniform Commercial Code as in effect in the State of New York or
      in
      any other applicable jurisdiction; and any reference to an article or section
      thereof shall mean the corresponding article or section (however termed) of
      any
      such applicable version of the Uniform Commercial Code.

     

    References
      to capitalized terms that are not defined herein, but are defined in the UCC,
      shall have the meanings given them in the UCC.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	      Annex
              1 (Collateral)




    


    


    ANNEX
      1

    


    [see
      attached]