Document:

Exhibit
10.28

 

 

 

LOAN AGREEMENT

 

THIS
LOAN AGREEMENT dated as of  October 15, 2008
between ISIS PHARMACEUTICALS, INC., a Delaware
Corporation (together with its successors and permitted assigns, “Borrower”),
and RBS ASSET FINANCE, INC., a New
York corporation (together with its successors and assigns, “Lender”).

 

R ECITALS:

 

WHEREAS, Borrower
desires to obtain one or more Loans from Lender in an aggregate principal
amount not to exceed the Maximum Principal Amount, which Loans are to be
secured by the Collateral;

 

NOW, THEREFORE,
for good and valuable consideration, receipt of which is hereby acknowledged,
and in consideration of the premises contained in this Agreement, Lender and
Borrower agree as follows:

 

ARTICLE I:  DEFINITIONS AND ACCOUNTING TERMS

 

Section 1.01.  Defined Terms.  The following terms shall have the following
meanings for all purposes of this Loan Agreement:

 

“Agreement” means this Loan
Agreement, as amended, supplemented, restated or otherwise modified from time
to time in accordance with the terms hereof.

 

“Borrower’s State” has the meaning ascribed
to such term in Schedule I hereto.

 

“Business Day” means any day on which
Lender is open for business and is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in Chicago,
Illinois.

 

“Change of Control” means a change in
control of Borrower or any Guarantor, including, without limitation, a change
in control resulting from direct or indirect transfers of voting stock or
partnership, membership or other ownership interests, whether in one or a
series of transactions.  “Control” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of Borrower or any Guarantor, and a
Change of Control shall occur if any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) acquires, after the date of this Agreement, the beneficial
ownership directly or indirectly, of 50% or more of the voting power of the
total outstanding stock or other ownership interests of Borrower or any
Guarantor.

 

“Closing Date” means with respect to each
Loan, the date that the proceeds of such Loan are disbursed to, or on behalf
of, Borrower.

 

“Closing Fee” has the meaning ascribed to
such term in Schedule I hereto.

 

“Collateral” means the property described
on each Collateral Schedule, which property shall be acceptable to Lender, in
its sole discretion, and any other assets of Borrower, any Guarantor or any
other Person that are subject to a Lien in favor of Lender pursuant to any Loan
Document.

 

“Collateral Schedule” means each schedule
describing Collateral attached to and referencing a Note or Notes and executed
by Borrower and Lender.

 

“Commitment” means Lender’s obligation to
make Loans to Borrower pursuant to Section 2.01 in an amount not to exceed
the Maximum Principal Amount.

 

“Commitment Termination Date” means the
earliest of (a) the date on which the aggregate Original Principal Amount
of all Loans equals the Maximum Principal Amount, (b) the Scheduled
Commitment Termination Date, (c) the date that an Event of Default
described in subsection (i) of Section 7.01 occurs or (d) the
date on which Lender elects to terminate the Commitment following (i) an
Event of Default or (ii) the occurrence of a material adverse change in
the business, assets or financial condition or prospects of Borrower or any
Guarantor.

 

“Default” means any Event of Default or any
condition, occurrence or event that, after notice or lapse of time or both,
would constitute an Event of Default.

 

“Default Rate” has the meaning ascribed to
such term in Section 2.05(c).

 

“Environmental Laws” means all federal,
state, local, or foreign law (including any common law, consent decrees and
administrative orders), statute, regulation, or ordinance (in each case, as
amended from time to time) regulating, permitting,

 

 

prohibiting or
otherwise restricting the placement, discharge, release, generation, treatment
or disposal upon or into any environmental media of any substance, pollutant,
contaminant or waste that is now or hereafter classified or considered to be
hazardous or toxic.

 

“Event of Default” has the meaning assigned
to such term in Section 7.01.

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

 

“Financial Statements” has the meaning
ascribed to such term in Schedule I hereto.

 

“Fixed Rate” has the
meaning ascribed to such term in Schedule I hereto.

 

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

 

“Guarantor” means each guarantor of the
Obligations.

 

“Guaranty” means one or more instruments by
which a Guarantor guarantees the Obligations, in form and substance acceptable
to Lender.

 

“Indebtedness” means (a) all items of
indebtedness or liability which in accordance with GAAP or federal tax law
would be included in determining total liabilities as shown on the liabilities
side of a balance sheet, (b) indebtedness secured by any mortgage, pledge,
lien or security interest existing on property owned by Borrower, whether or
not the indebtedness secured thereby shall have been assumed and (c) guaranties
and endorsements (other than for purposes of collection in the ordinary course
of business) by Borrower and other contingent obligations of Borrower in
respect of, or to purchase or otherwise acquire, indebtedness of others.

 

“Interim Interest Date” has the meaning
ascribed to such term in Schedule I hereto.

 

“Interim Interest Payment Date” has the
meaning ascribed to such term in Schedule I hereto.

 

“Lien” means any security interest,
mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or otherwise), charge against or interest in property to secure
payment of a debt or performance of an obligation or other priority or
preferential arrangement of any kind or nature whatsoever.

 

“Loan” means a loan from Lender to Borrower
pursuant to this Agreement.

 

“Loan Documents” means, collectively, this
Agreement, each Note, each Loan Request, any Guaranty and each other instrument
or document executed or delivered by Borrower pursuant to or in connection with
this Agreement and the other Loan Documents, including, without limitation, any
instrument or agreement given to evidence or further secure the Obligations.

 

“Loan Request” means a Loan Request, duly
executed by an authorized officer of Borrower, in form and substance acceptable
to Lender.

 

“Material Adverse Effect” means a material
adverse effect on (a) the business, assets, operations, properties or
condition (financial or otherwise) of Borrower or any Guarantor, (b) the
ability of Borrower to perform or pay its Obligations or any Indebtedness in
the amount of $10,000,000.00 or more in accordance with the terms thereof, (c) the
ability of any Guarantor to perform its, his or her obligations under a
Guaranty, (d) Lender’s Lien on the Collateral or the priority of such
Lien, or (e) the validity or enforceability of any Loan Document or the
rights and remedies available to Lender under any Loan Document.

 

“Maximum Principal Amount” has the meaning
ascribed to such term in Schedule I hereto.

 

“Moody’s” means Moody’s Investor Services, Inc. or any
successor thereto.

 

“Note” has the meaning ascribed to such
term in Section 2.02.

 

“Notice Address” has the meaning ascribed
to such term in Schedule I hereto.

 

“Obligations” means, subject to Section 8.10(c),
the obligations to make the payment of all indebtedness evidenced by the Notes,
together with all extensions, renewals, amendments and modifications thereof
and the payment of all other Indebtedness and other sums owed under, and the
payment and the performance of all obligations and covenants contained in the
Loan Documents, in each case whether now existing or hereafter incurred, direct
or indirect, absolute or contingent, and due or to become due, together with
all fees and expenses (including, without limitation, all attorneys’ fees and
expenses) incurred by Lender in connection with the collection or enforcement
of any of the Obligations.

 

“Organizational Documents” has the meaning
ascribed to such term in Schedule I hereto.

 

“Original Principal Amount” means the
aggregate principal balance of each Loan as of the Closing Date for such Loan.

 

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“Payment Date” has the meaning ascribed to
such term in Schedule I hereto.

 

“Permitted Liens” means any of the
following:  (a) Liens (other than
Liens relating to Environmental Laws) for taxes, assessments or other
governmental charges not yet due and payable, (b) statutory Liens of
landlords, carriers, warehousemen, mechanics, materialmen and other similar
Liens imposed by law, which are incurred in the ordinary course of business for
sums  that are not delinquent, (c) Liens
in favor of Lender, and (d) Liens explicitly identified in any Loan
Document as “permitted liens.”

 

“Person” means any natural person,
corporation, partnership, limited liability company, firm, association, trust,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.

 

“Prepayment Fee” means with respect to each
Loan, the prepayment fee described in the related Note.

 

“S&P”
means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
or any successor thereto.

 

“Scheduled Commitment Termination Date” has
the meaning ascribed to such term in Schedule I hereto.

 

“Stated Maturity Date” means, with respect
to each Loan, the scheduled maturity date described in the related Note.

 

“UCC” means the Uniform Commercial Code as
from time to time in effect in the State of New York.

 

Section 1.02.  Rules of Construction.  The singular form of any word used herein,
including the terms defined in Section 1.01 hereof, shall include the
plural, and vice versa.  The use herein
of a word of any gender shall include correlative words of all genders.  Unless otherwise specified, references to
Articles, Sections and other subdivisions of this Agreement are to the
designated Articles, Sections and other subdivision of this Agreement as
originally executed.  The words “hereof,”
“herein,” “hereunder” and words of similar import refer to this Agreement as a
whole.  The headings or titles of the
several articles and sections shall be solely for convenience of reference and
shall not affect the meaning, construction or effect of the provisions hereof.

 

Section 1.03.  Accounting and Financial Determinations.  Unless otherwise specified, all accounting
terms used herein or in any other Loan Document shall be interpreted, all
accounting determinations and computations hereunder or thereunder shall be
made, and all financial statements required to be delivered hereunder or
thereunder shall be prepared in accordance with GAAP consistently applied.  In the event that GAAP changes during the
term of this Agreement such that the financial covenants contained herein would
then be calculated in a different manner or with different components, Borrower
and Lender shall amend such provisions of this Agreement in such respects as
necessary to conform the financial covenants as criteria for evaluating the
financial condition of Borrower or a Guarantor, as applicable, to substantially
the same criteria as were effective prior to such change in GAAP.

 

ARTICLE II:  THE LOANS

 

Section 2.01.  Loans.

 

(a)           Commitment. 
Lender hereby agrees, subject to the terms and conditions of this
Agreement, to make one or more Loans to Borrower from time to time during the
period from the date hereof to the Commitment Termination Date in the aggregate
Original Principal Amount not to exceed the Maximum Principal Amount (the “Commitment”).  Not more than one Loan shall be funded in any
calendar month, and each Loan shall be in an Original Principal Amount of at
least $250,000.  The Original Principal
Amount of each Loan shall reduce, dollar for dollar, the remaining available
amount under the Commitment, and any amount funded may not be reborrowed after
being repaid.  The Commitment shall
terminate automatically and without any further action on the Commitment
Termination Date.  Borrower’s obligation
to repay a Loan shall commence, and interest shall begin to accrue, on the
Closing Date of such Loan.

 

(b)           Loan Request. 
By delivering a duly completed and executed Loan Request to Lender, on a
Business Day, Borrower may irrevocably request that a Loan be made on the
Closing Date specified in such Loan Request (which date shall be at least two
Business Days but no more than 10 Business Days after the date of delivery to
Lender of such Loan Request).  On such
Closing Date, subject to the terms and conditions contained herein, Lender
shall disburse the Original Principal Amount specified in such Loan Request to,
or on behalf of, Borrower to the accounts or entities specified in such Loan
Request.  Such Loan Request shall specify
the applicable Closing Date, the Original Principal Amount of such Loan and the
applicable disbursement instructions. 
Borrower agrees that the proceeds of all Loans shall be used solely for
the purposes described in such Loan Request.

 

Section 2.02.  Note.  Each Loan made by Lender under this Agreement
shall be evidenced by, and repaid with interest in accordance with, a single
promissory note of Borrower in form and substance acceptable to Lender, duly
completed, in the principal amount of the Original Principal Amount of such Loan,
dated as of the Closing Date for such Loan, made payable to Lender or order,
and maturing on the Stated Maturity Date of such Loan or such earlier date
pursuant to an acceleration hereunder (the “Note”).

 

3

 

Section 2.03.  Scheduled Payments.  On each Payment Date, Borrower shall pay the
aggregate scheduled principal and interest payments owed with respect to each
Loan as set forth in the Notes and any prepayment as provided in Section 2.04;
provided, however, on the Stated Maturity Date or date of acceleration of a
Loan, Borrower shall repay in full the aggregate then outstanding principal
amount of such Loan plus all accrued and unpaid interest thereon and all other
amounts owed hereunder or under any other Loan Document related to such Loan.

 

All amounts required to
be paid by Borrower hereunder shall be paid in lawful money of the
United States of America in immediately available funds to the following
account, or to such other account as designated by Lender to Borrower in
writing:

 

Clearing
Bank:  RBS Citizens, N.A.

ABA:  241070417

Beneficiary:  RBS Asset Finance Customer Payments

Account:  450000-157-2

Borrower:  ISIS Pharmaceuticals, Inc.

 

Any payment
received after 3:00 p.m. New York time will be deemed to be received on
the next succeeding Business Day. 
Whenever any payment to be made hereunder shall be stated to be due on a
day which is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or the fees hereunder, as the case may
be.  All payments shall be applied first
to accrued interest and then to principal.

 

Section 2.04. 
Prepayments.

 

(a)           Voluntary Prepayments.  Prior to the Stated Maturity Date, Borrower
may, from time to time on any Payment Date, make a voluntary prepayment of
principal outstanding under the Loans; provided, however, that (a) no Loan
may be prepaid in part but, instead, if principal outstanding thereunder is
prepaid at all, the entire principal balance outstanding thereunder shall be
prepaid in full; (b) all such voluntary prepayments shall require notice
on or before the date that is 30 calendar days in advance of any prepayment of
the Loans; and (c) in connection with each such voluntary prepayment,
Borrower shall pay all accrued interest on the outstanding principal amount of
the Loan or Loans prepaid, all other amount owed under any Loan Document and,
except as otherwise provided in any Loan Document, the aggregate Prepayment Fee
for the Loan or Loans prepaid, which shall not be refundable.

 

(b)           Mandatory Prepayment Upon Acceleration.  Upon any acceleration of any Loan pursuant to
Section 7.02, Borrower shall immediately repay all (or if only a portion
is accelerated thereunder, such portion of) the Loans then outstanding,
including accrued and unpaid interest thereon, plus the aggregate Prepayment
Fee for all such Loans and all other amounts owed under the Loan Documents.

 

Section 2.05.  Interest Provisions.

 

(a)           Interest on the outstanding principal
amount of each Loan shall accrue at a rate per annum equal to the Fixed Rate
for such Loan.  Interest shall be
computed on the basis of a 360-day year consisting of 12 30-day months. On the
Interim Interest Payment Date for a Loan, Borrower shall pay interest accruing
on such Loan from the applicable Closing Date through and including the last
day of the calendar month immediately preceding the applicable Interim Interest
Date.  Interest accruing on each Loan on
and after the Interim Interest Date for such Loan shall be payable on each
Payment Date or the date of prepayment, as applicable.

 

(b)           Any payment under a Loan Document
that is not paid by Borrower on the due date thereof shall, to the extent
permissible by law, bear a late charge equal to the lesser of three cents
($.03) per dollar of the delinquent amount or the lawful maximum, and Borrower
shall be obligated to pay the same immediately upon receipt of Lender’s written
invoice therefor.

 

(c)           Upon the occurrence and during
the continuation of any Event of Default or after acceleration, Borrower shall
pay interest (i) with respect to all Loans at a rate per annum equal to
the rate otherwise in effect plus an additional 3% per annum and (ii) with
respect to all other Obligations of Borrower to Lender at a rate per annum
equal to the highest Fixed Rate then in effect plus an additional 3% per annum
(each such rate, a “Default Rate”).

 

(d)           The obligations of Borrower hereunder
and under the Notes and the other Loan Documents shall be subject to the
limitation that payments of interest to Lender, plus any other amounts paid to
Lender in connection herewith and therewith, shall not be required to the
extent (but only to the extent) that contracting for and receiving such payment
by Lender would be contrary to the provisions of any law applicable to Lender
limiting the highest rate of interest which may be contracted for, charged or
received by Lender, and in such event Borrower shall pay such Lender interest
and other amounts at the highest rate permitted by applicable law.

 

Section 2.06.  Payments Absolute.  The
obligations of Borrower to pay interest and principal required under this Article II
and to make other payments under the Loan Documents and to perform and observe
the covenants and agreements contained

 

4

 

herein
and therein shall be absolute and unconditional in all events, without
abatement, diminution, deduction, setoff or defense for any reason, including,
without limitation, any failure of the Collateral to be delivered, installed or
constructed, as applicable, any defects, malfunctions, breakdowns or
infirmities in the Collateral or any accident, condemnation, destruction or
unforeseen circumstances.  Notwithstanding
any dispute between Borrower and Lender or any other person, Borrower shall
make all payments under the Loan Documents when due and shall not withhold any
payments pending final resolution of such dispute, nor shall Borrower assert
any right of set-off or counterclaim against its obligation to make such
payments required under the Loan Documents.

 

ARTICLE III:  CONDITIONS TO LOANS

 

Lender’s agreement
to make the Loans to Borrower hereunder and to disburse the proceeds thereof
shall be subject to the condition precedent that Lender shall have received, on
or prior to the applicable Closing Date (or by such other time as may be
specified herein with respect thereto), all of the following, each in form and
substance satisfactory to Lender:

 

(a)           This Agreement and all other Loan
Documents, properly executed on behalf of Borrower, and each of the exhibits
and schedules hereto and thereto properly completed.

 

(b)           The respective Note, properly
executed on behalf of Borrower.

 

(c)           A Loan Request for each such Loan,
duly completed and properly executed on behalf of Borrower.

 

(d)           A certificate of the Secretary or an
Assistant Secretary of Borrower, certifying as to (i) the resolutions of
the board of directors of Borrower, authorizing the execution, delivery and performance
of this Agreement, the Note, the other Loan Documents and any related
documents, (ii) the Organizational Documents of Borrower, (iii) the
signatures of the officers or agents of Borrower authorized to execute and
deliver this Agreement, the Note, the other Loan Documents and other
instruments, agreements and certificates on behalf of Borrower, and (iv) no
Default or event or circumstance that could reasonably be likely to have a
Material Adverse Effect has occurred.

 

(e)           Current certified copies of the
Organizational Documents of Borrower.

 

(f)            A Certificate of Good Standing
issued as to Borrower by the Secretary of the State of the state of Borrower’s
organization (or once Borrower has provided a Certificate of Good Standing, a
confirmation from a reputable filing service in the applicable jurisdiction
that such Good Standing Certificate is still in effect) not more than 30 days
prior to the Closing Date.

 

(g)           A Certificate of Qualification issued
as to Borrower by the Secretary of the State of the state where the Collateral
is or will be located  (or once Borrower
has provided a Certificate of Qualification, a confirmation from a reputable
filing service in the applicable jurisdiction that such Certificate of
Qualification is still in effect) not more than 30 days prior to the Closing
Date.

 

(h)           [Intentionally Omitted]

 

(i)            [Intentionally Omitted]

 

(j)            [Intentionally Omitted]

 

(k)           [Intentionally Omitted]

 

(l)            Certificates of the insurance
required hereunder, containing a lender’s loss payable clause in favor of
Lender.

 

(m)          [ Intentionally Omitted]

 

(n)           Current searches of appropriate
filing offices showing that (i) no state or federal tax liens have been
filed and remain in effect against Borrower, and (ii) no financing
statements have been filed and remain in effect against Borrower relating to
the Collateral except those financing statements filed by Lender.

 

(o)           Payment of the Closing Fee and, if
any, all of Lender’s other fees, commissions and expenses in connection with
the funding of each Loan.

 

(p)           [Intentionally Omitted]

 

(q)           Any other documents or items
reasonably required by Lender.

 

ARTICLE IV:  REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER

 

Borrower
represents, warrants and covenants for the benefit of Lender, as of the date
hereof and each Closing Date, as follows:

 

5

 

(a)           Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. 
Borrower is in good standing and is duly licensed or qualified to
transact business in each jurisdiction where the nature of its business
requires such qualification, except for those jurisdictions in which the
failure to qualify could not reasonably be expected to have a Material Adverse
Effect.  Borrower’s exact legal name is
as set forth on the execution page hereof.

 

(b)           Borrower has full power and authority and holds all requisite
governmental licenses, permits and other approvals to (i) enter into and
perform its obligations under this Agreement, the Note and each other Loan
Document to which it is a party and to own its property, (ii) use the
Collateral and (iii) conduct its business substantially as currently
conducted by it, except as to clause (iii) where the failure to hold
such licenses, permits and approvals could not reasonably be expected to have a
Material Adverse Effect.

 

(c)           This Agreement, the Note and the
other Loan Documents to which it is a party have been duly authorized, executed
and delivered by Borrower and constitute legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms, except to the extent limited by bankruptcy, reorganization or other laws
of general application relating to or effecting the enforcement of creditors’
rights.

 

(d)           The execution and
delivery of this Agreement, the Note and the other Loan Documents, the
consummation of the transactions contemplated hereby and thereby and the
fulfillment of the terms and conditions hereof and thereof do not and will not
violate any law, rule, regulation or order, conflict with or result in a breach
of any of the terms or conditions of any Organizational Document of Borrower or
of any corporate restriction or of any agreement or instrument to which
Borrower is now a party and do not and will not constitute a default under any
of the foregoing or result in the creation or imposition of any liens, charges
or encumbrances of any nature upon any of the property or assets of Borrower
other than Liens in favor of Lender.

 

(e)           The authorization, execution,
delivery and performance of this Agreement, the Note and the other Loan
Documents by Borrower do not require submission to, approval of, or other
action by any governmental authority or agency, except for such action that has
been duly obtained or taken and is in full force and effect.

 

(f)            Assuming the timely filing with the
Secretary of State of Borrower’s State of UCC-1 financing statements showing
Borrower as the “debtor” thereunder and Lender as the “secured party”
thereunder and containing a description of the Collateral substantially similar
to the description of the Collateral contained in the respective Collateral
Schedules, each of the Loan Documents that purports to create a security
interest creates a valid first priority Lien on the Collateral subject only to
Permitted Liens, securing the payment and performance of the Obligations.

 

(g)           Except as disclosed by Borrower in
its filings with the SEC that are available to the public, there is no action,
suit, proceeding, claim, inquiry or investigation, at law or in equity, before
or by any court, regulatory agency, public board or body pending or, to the
best of Borrower’s knowledge, threatened against or affecting Borrower or any
Guarantor, challenging Borrower’s or any Guarantor’s authority to enter into
this Agreement, the Note or any of the other Loan Documents or any other action
wherein an unfavorable ruling or finding would adversely affect the
enforceability of this Agreement, the Note or any of the other Loan Documents,
or could reasonably be expected to have a Material Adverse Effect.

 

(h)           Borrower has good title to all of the
Collateral, in each case free and clear of all Liens except for Permitted
Liens.

 

(i)            Borrower is in compliance with all
laws, rules, regulations and orders of governmental authorities applicable to
it and its properties except to the extent the non-compliance with which could
not reasonably be expected to have a Material Adverse Effect.

 

(j)            Borrower has heretofore furnished to
Lender the Financial Statements and those statements fairly present the
financial condition of Borrower and such Guarantor, if any, on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with GAAP.  Since the date of the most recent financial
statements, there has been no material adverse change in the business,
properties or financial condition or prospects of Borrower or any Guarantor.  Except as disclosed in the Financial Statements
or the notes thereto and for the items previously disclosed in writing by
Borrower to Lender, neither Borrower nor any Guarantor, as of each Closing
Date, has or will have any liabilities, contingent or otherwise, that could
reasonably be expected to have a Material Adverse Effect.

 

(k)           Borrower has filed, and will pay, all
federal, state and local tax returns which are required to be filed by it, and
Borrower has paid or caused to be paid to the respective taxing authorities all
taxes as shown on said returns or on any assessment received by it to the
extent such taxes have become due, except any such taxes or charges which are
being

 

6

 

diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP have been
set aside on its books.

 

(l)            For purposes of Section 9-307
of the UCC, Borrower is and will remain located in the Borrower’s State.  Borrower’s residence for federal income tax
purposes is located at its Notice Address specified in Schedule I.  Borrower has authorized Lender to file
financing statements that are sufficient when filed to perfect the security
interests created pursuant to this Agreement and the other Loan Documents.  When such financing statements are filed in
the offices noted therein, Lender will have a valid and perfected security
interest in the Collateral that constitutes personal property, subject to no
other Lien other than Permitted Liens.

 

(m)          All factual information heretofor or
contemporaneously furnished by or on behalf of Borrower or any Guarantor in
writing to Lender for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all other such factual information
hereafter furnished by or on behalf of Borrower or any Guarantor to Lender will
be, true and correct in every material respect on the date as of which such
information is dated or certified, and such information is not, or shall not
be, as the case may be, incomplete by omitting to state any material fact
necessary to make such information not misleading.

 

(n)           None of Borrower or any Guarantor is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying “margin stock.”  None of the proceeds of any Loan will be used
for the purpose of, or be made available by Borrower or any Guarantor in any
manner to any other Person to enable or assist such Person in, directly or
indirectly purchasing or carrying “margin stock”.  Terms for which meanings are provided in
F.R.S. Board Regulation T, U or X or any regulations substituted therefor, as
from time to time in effect, are used in this Section with such meanings.

 

(o)           None of Borrower or any Guarantor is
an “investment company” nor a “company controlled by an investment company”
within the meaning of the Investment Company Act of 1940, as amended, or a “holding
company,” or a “subsidiary company” of a “holding company,” or an “affiliate”
of a “holding company” or of a “subsidiary company” of a “holding company,”
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.

 

ARTICLE V:  SECURITY INTEREST

 

This Agreement is
intended to constitute a security agreement within the meaning of the UCC.  To secure the payment and performance of the
Obligations, Borrower hereby grants to Lender a security interest constituting
a first Lien on the Collateral.  Borrower
hereby authorizes, and ratifies any previous authorization for, Lender to file
UCC financing statements and any amendments thereto describing the Collateral
and containing any other information required by the applicable UCC.  Borrower authorizes Lender, and hereby grants
Lender a power of attorney (which is coupled with an interest), to file
financing statements and amendments thereto securing the Collateral and
containing any other information required by the applicable UCC and all proper
terminations of the filings of other secured parties with respect to the
Collateral, in such form and substance as Lender, in its sole discretion, may
determine.  Until the later of the
Scheduled Commitment Termination Date or the date there is no outstanding
Indebtedness under the Notes, Borrower hereby waives any right that Borrower
may have to file with the applicable filing officer, and agrees that it will
not file or authorize the filing of, any financing statement, amendment,
termination or other record pertaining to the Collateral and/or Lender’s
interest therein, except as authorized by Lender in writing.

 

ARTICLE VI:  COVENANTS

 

Section 6.01.  Affirmative Covenants.  So long as any Loan shall remain unpaid,
Borrower will comply, and shall cause each Guarantor to comply, with the
following requirements unless waived by Lender in writing:

 

(a)           Financial Statements.  Borrower shall deliver to Lender for Borrower
and each Guarantor respectively: (i) as soon as practicable, and in any
event within 45 days after the end of each fiscal quarter (other than the last
fiscal quarter), unaudited financial statements including in each instance,
balance sheets, income statements, and statements of cash flow, on a
consolidated and consolidating basis, as appropriate, and separate profit and
loss statements as of and for the quarterly period then ended and for the
fiscal year to date, prepared in accordance with GAAP, and certified by
Borrower’s chief financial officer or such Guarantor’s chief financial officer,
as applicable, to be true and correct, (ii) as soon as practicable, and in
any event within 90 days after the end of each fiscal year, annual audited
financial statements, including balance sheets, income statements and
statements of cash flow for the fiscal year then ended, on a consolidated and
consolidating basis, as appropriate, which have been prepared by the
independent accountants of Borrower or such Guarantor, as applicable, in
accordance with GAAP and (iii) as soon as practicable, any certifications
required by the Securities and Exchange Commission of the United States (the “SEC”)
or by securities laws applicable to Borrower and each Corporate Guarantor
concerning financial statements of Borrower or such Corporate Guarantor, as
applicable.  Such audited financial
statements shall be accompanied by the independent accountant’s opinion, which
opinion shall be in form generally recognized as “unqualified.”  Borrower shall be deemed to have complied
with the foregoing requirements

 

7

 

with respect to Borrower and/or any Guarantor, as
applicable, if such entity files Forms 10-K and 10-Q with the SEC that are
publicly available within the time frames set forth above.

 

(b)           [Intentionally Omitted]

 

(c)           Notices. 
Borrower shall deliver to Lender each of the following:

 

(i)            as soon as possible and in any event
within three Business Days after the occurrence of a Default, an Event of
Default or an event which could reasonably be expected to result in a Material
Adverse Effect, a statement of Borrower setting forth reasonably detailed
information regarding such Default, Event of Default or event and the action
that Borrower has taken and proposes to take with respect thereto;

 

(ii)           promptly after the commencement
thereof, notice in writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting Borrower or any Guarantor which
seek a monetary recovery against Borrower or any Guarantor in excess of
$10,000,000;

 

(iii)          promptly upon knowledge thereof,
notice of any loss, theft or destruction of or material damage to, or and any
action, suit or proceeding relating to, Collateral having a value in excess of
$250,000;

 

(iv)          promptly after the amending thereof,
copies of any and all amendments to any of its Organizational Documents
(provided Borrower shall be deemed to have complied with the foregoing
requirements with respect to Borrower if Borrower discloses such amendments by
filing a Form 8-K with the SEC that is publicly available within the times
frames set forth above);

 

(v)           promptly upon knowledge thereof,
notice of the violation by Borrower of any law or court order applicable to
Borrower, which violation could reasonably be expected to have a Material
Adverse Effect.

 

(d)           Compliance with Laws.  Borrower shall comply in all material
respects with all governmental rules and regulations and all other
applicable laws and court orders, including, without limitation, all
Environmental Laws.

 

(e)           Maintenance of Properties.  Borrower shall, at its own expense, maintain,
preserve, protect and keep the Collateral in good repair, working order and
condition in compliance with all applicable laws, rules, regulations and the
requirements of all applicable insurance policies, and make necessary and
proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times and shall maintain
in full force and effect all rights, franchises, permits, licenses, trademarks,
tradenames, approvals, authorizations, leases and contracts necessary to carry
on its business as presently or proposed to be conducted where the failure to
so maintain the same could reasonably be expected to have a Material Adverse
Effect.  Borrower will not make any
material alterations, modifications or additions to the Collateral which cannot
be removed without materially damaging the functional capabilities or economic
value of the Collateral unless Lender has provided its prior written consent.

 

(f)            Insurance. 
Borrower shall, at its own expense, procure and maintain continuously in
effect: (i) public liability insurance for personal injuries, death or
damage to or loss of property arising out of or in any way relating to the
Collateral, and (ii) insurance against such hazards as Lender may
reasonably require, in each case in amounts reasonably acceptable to Lender.  All insurance policies required by this Section shall
be taken out and maintained with insurance companies reasonably acceptable to
Lender.  Borrower shall provide written
notice to Lender of any cancellation or material revision of coverage under any
such insurance at least 30 days before the cancellation or revision becomes
effective.  No insurance shall be subject
to any co-insurance clause.  Borrower
shall cause Lender to be named as loss payee on all insurance policies relating
to any Collateral and shall cause Lender to be named as additional insured
under all liability policies, in each case pursuant to appropriate endorsements
in form and substance satisfactory to Lender. 
Such insurance shall not be affected by any unintentional act or
negligence or representation or warranty on the part of Borrower or other owner
of the policy or the property described in such policy.  Prior to each Closing Date, Borrower shall
deposit with Lender evidence satisfactory to Lender of such insurance and, at
least 10 days prior to the expiration thereof, Borrower will promptly notify
Lender, if such insurance is cancelled (but no later than 30 days following
such cancellation.  At Lender’s request,
Borrower shall provide Lender evidence reasonably satisfactory to Lender of
such insurance.  Borrower shall provide
or cause to be provided to Lender and to its insurance consultant (or any
agent, officer or employee of Lender) such other information relating to its
insurance coverage as may be reasonably requested by Lender.

 

(g)           Books and Records; Inspections.  Borrower will keep books and records that
accurately reflect all of its material business affairs and transactions.  Borrower will, and will cause each Guarantor
to, permit Lender or any of its representatives (including outside auditors),
upon reasonable advance written notice and at reasonable times (not to exceed
two Business Days) and intervals (which intervals, so long as no Default or
Event of Default exists, shall not exceed more than one visit in any 12 month period,
but if a Default or Event of Default exists, shall be unlimited), to visit all
of its offices, to discuss its financial matters with its officers and to
reasonably examine (and, at the expense of

 

8

 

Borrower, copy extracts from) books or other corporate
records (including computer records), provided however, if an Event of  Default exist Lender shall not be required to
provide any such advance written notice to Borrower.

 

(h)           Perfection of Liens.  Borrower shall take such action as may be
necessary or as Lender may request in order to perfect and protect Lender’s
Lien on the Collateral.

 

(i)            Title. 
Borrower will at all times protect and defend, at its own cost and
expense, its title from and against all claims, liens and legal processes of
creditors of Borrower (other than Lender), and keep all Collateral free and
clear of all such claims, liens and processes other than Permitted Liens.

 

Section 6.02.  Negative Covenants.  So long as the Loan shall remain unpaid,
Borrower agrees that:

 

(a)           Liens. 
Borrower will not create, incur or suffer to exist any mortgage, deed of
trust, pledge, lien, security interest, assignment or transfer in, on or of any
of the Collateral except for Permitted Liens.

 

(b)           Fundamental Changes.  Borrower will not, without Lender’s prior
written consent, enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or, other than in
the ordinary course of its business, convey, sell assign, lease, transfer, or
otherwise dispose of, in one transaction or series of transactions, all or any
substantial part of its property or assets; provided, however, that
notwithstanding the foregoing, Borrower may enter into a merger or
consolidation or convey, sell assign, lease, transfer, or otherwise dispose of,
in one transaction or series of transactions, all or any substantial part of
its property or assets without Lender’s prior written consent if the surviving
or acquiring entity in such transaction (i) (A) shall be organized
and existing under the laws of the United States or any state thereof, or (B) shall,
both before and after giving effect to such transaction, have assets in the
United States of $100,000,000.00 or more, (ii) shall promptly execute and
deliver to Lender an agreement reasonably satisfactory to Lender pursuant to
which such entity assumes and agrees to be fully liable for all of Borrower’s
obligations under the Loan Documents, and (iii) (A) shall have it’s
senior unsecured debt rated by S&P and Moody’s, and (B) such senior
unsecured debt shall be rated at least BBB by S&P and at least Baa2 by
Moody’s, and, in such case, after giving effect to such transaction, no other
Default or Event of Default shall exist.

 

(c)           Sale of Collateral.  Borrower will not (in each case in one
transaction or series of related transactions) sell, transfer, lease,
contribute or otherwise convey or dispose of, or grant options, warrants or
other rights with respect to, or agree to do any of the foregoing with respect
to, all or any part of the Collateral.

 

(d)           Location or Name Changes.  Borrower will not change its location for
purposes of Section 9-307 of the UCC or its name in any manner that could
make any financing statement filed in connection with any Loan Document
seriously misleading within the meaning of Section 9-506 of the UCC or any
similar statute, unless it shall have given Lender at least 30 days’ prior
written notice thereof.

 

(e)           Replacement Cash Collateral.  At any time during the term hereof, Borrower
shall be permitted to deposit with and pledge to Lender (or one of its
affiliates), as security for the Obligations, cash or cash equivalents in a sum
equal to the principal amount of the Loans outstanding from time to time, plus
the unused portion of the Maximum Principal Amount all on terms and conditions
reasonably satisfactory to Lender and Borrower. 
In the event Borrower pledges such cash collateral with Lender (or one
of its affiliates) on terms and conditions satisfactory to Lender, then Lender
shall release its security interest in the Collateral; provided, however, that
Lender shall not be obligated to release its security interest in the
Collateral prior to the expiration of the applicable period described in Section 547
of the United State Bankruptcy Code (11 U.S.C. §547) or any other similar law
or regulation or any successor to any such law for avoiding (or otherwise
setting aside) the cash collateral pledge.

 

Section 6.03.  Indemnity.

 

(a)           Whether or not covered by insurance,
Borrower hereby assumes responsibility for and agrees to reimburse Lender, its
affiliates and its and their respective officers, directors, employees and
agents (individually and collectively, the “Indemnified Parties”) for
and will indemnify, defend and hold the Indemnified Parties harmless from and
against all liabilities, obligations, losses, damages, penalties, claims,
suits, actions, proceedings, judgments, awards, amounts paid in settlements,
obligations, debts, diminutions in value, fines, penalties, charges, fees,
costs and expenses (including reasonable attorneys’ fees and expenses) of
whatsoever kind and nature, imposed on, incurred by or asserted against any
Indemnified Party that in any way relate to or arise out of any of the Loan
Documents, the transactions contemplated thereby or the Collateral, including,
without limitation (collectively, the “Losses”), (i) the selection,
manufacture, construction, acquisition, acceptance or rejection of the
Collateral, (ii) the ownership of the Collateral, (iii) the delivery,
installation, lease, possession, maintenance, use, condition, return or
operation of the Collateral, (iv) the condition of the Collateral sold or
otherwise disposed of after possession by Borrower, (v) any patent or
copyright infringement, (vi) any act or omission on the part of Borrower,
Guarantor or any of its or their officers, employees,

 

9

 

agents, contractors, lessees, licensees or invitees, (vii) any
misrepresentation or inaccuracy in any representation or warranty of Borrower
or any Guarantor, or a breach of Borrower or any Guarantor of any of its
covenants or obligations under any of the Loan Documents, (viii) any
claim, loss, cost or expense involving alleged damage to the environment
relating to the Collateral, including, without limitation, investigation,
removal, cleanup and remedial costs, (ix) any personal injury, wrongful
death or property damage arising under any statutory or common law or tort law
theory, including, without limitation, damages assess for the maintenance of a
private or public nuisance or for the conducting of an abnormally dangerous
activity on or near the Collateral, (x) any past, present or threatened,
in writing, injury to, or destruction of, the Collateral, including, without
limitation, costs to investigate and assess such injury or damage and (xi) any
administrative process or proceeding or judicial or other similar proceeding (including,
without limitation, any alternative dispute resolution process and any
bankruptcy proceeding) in any way connected with any matter addressed in any of
the Loan Documents; provided however, that Borrower shall not be required to
indemnify, defend or hold harmless any Indemnified Party from and against
Losses to the extent arising from Indemnified Party’s gross negligence or
willful misconduct.

 

(b)           An Indemnified Party shall provide
prompt written notice to Borrower of a possible indemnification claim after the
Indemnified Party receives notice of the claim, provided however, that the
failure of an Indemnified Party to provide prompt written notice to Borrower
shall not release Borrower from any obligations under this Section except
to the extent Borrower is materially prejudiced by such failure.  If any action or proceeding be commenced, to
which action or proceeding one or more of the Indemnified Parties are made a
party by reason of the execution or performance of this Agreement or any other
Loan Document, or in which it becomes necessary to defend or uphold the Lien of
this Agreement, all sums paid by the Indemnified Parties, for the expense of
any litigation to prosecute or defend the rights and Lien created hereby or
otherwise, shall be paid by Borrower to such Indemnified Parties, as the case
may be, as hereinafter provided. 
Borrower will pay and save the Indemnified Parties harmless against any
and all liability with respect to any intangible personal property tax or
similar imposition of any state or any subdivision or authority thereof now or
hereafter in effect, to the extent that the same may be payable by the
Indemnified Parties in respect of this Agreement or any Obligation.

 

(c)           All amounts payable to Indemnified
Parties under this Section shall be deemed Obligations secured by this
Agreement and shall be payable immediately upon demand.  In case any action, suit or proceeding is
brought against one or more of the Indemnified Parties by reason of any such
occurrence, Borrower, upon request of such Indemnified Parties, will, at
Borrower’s expense, resist and defend such action, suit or proceeding or cause
the same to be resisted or defended by counsel designated by Borrower, which
counsel shall be reasonably acceptable to Lender, and Borrower shall have full
power to litigate, compromise or settle the same on behalf of the Indemnified
Parties in its sole discretion; provided that (i) Borrower
shall have acknowledged in writing its obligation to fully indemnify such
Indemnified Parties in respect of such action, suit or proceeding prior to
assuming the defense thereof, (ii) Borrower shall keep such Indemnified
Parties fully apprised of the status of such action, suit or proceeding and
shall provide such Indemnified Parties with all information with respect to
such action, suit or proceeding as such Indemnified Parties shall reasonably
request, (iii) each such Indemnified Party, at its own expense, may
participate in any action, suit or proceeding controlled by Borrower and (iv) no
such settlement shall include an admission of an omission or misconduct of an
Indemnified Party without the prior written consent of such Indemnified
Party.  In connection with any claim for
indemnification hereunder by an Indemnified Party, such Indemnified Party shall
cooperate in good faith with Borrower. 
Notwithstanding anything in this Section  to the contrary, Borrower
shall not be entitled to control and assume, or continue, the defense of, or
compromise or settle, any action, suit or proceeding if (A) an Event of
Default shall have occurred and be continuing, (B) in the reasonable
opinion of such Indemnified Parties, such action, suit or proceeding will
involve any material danger of the sale, forfeiture or loss of, or creation of
any Lien on any Collateral, (C) in the reasonable opinion of such
Indemnified Parties, there exists an actual or potential conflict of interests,
(D) such claim or liability involves the risk of criminal sanctions or
liability to any such Indemnified Party or (E) such proceeding involves
claims against an Indemnified Party not fully indemnified by Borrower or which
Borrower and the Indemnified Parties have been unable to sever such claims from
the indemnified claim(s).  In the
circumstances described in clauses (A) through (E), such Indemnified
Parties shall be entitled to control or defend such action, suit or proceeding
at the expense of Borrower; provided, however, that no Indemnified Party shall
be permitted to settle or compromise any action, suit or proceeding without the
prior written consent of Borrower, which consent shall not be unreasonably
withheld, conditioned or delayed. 
Borrower may in any event participate in all such actions, suits or
proceedings at its own expense.  Nothing
herein contained shall be deemed to require an Indemnified Party to contest any
liability, charge, loss, obligation, claim, damage, penalty, cause of action,
suit, cost, expense or judgment or assume control of or defend any action, suit
or proceeding with respect thereto. The obligations of Borrower under this Section shall
survive the termination of this Agreement and not be merged with any applicable
judgment.  If and to the extent that the
foregoing undertaking may be unenforceable for any reason, Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Losses that is permissible under applicable law.

 

10

 

Section 6.04. 
Performance by Lender. 
If Borrower at any time fails to perform or observe any of the covenants
or agreements contained in this Agreement, Lender may, but need not, with
notice to Borrower, perform or observe such covenant on behalf and in the name,
place and stead of Borrower (or, at Lender’s option, in Lender’s name) and may,
but need not, take any and all other actions which Lender may reasonably deem
necessary to cure or correct such failure (including, without limitation, the
payment of taxes, the satisfaction of security interests, liens or
encumbrances, the performance of obligations owed to account debtors or other
obligors, the procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and the endorsement
of instruments), and Borrower shall thereupon pay to Lender on demand the
amount of all moneys expended and all costs and expenses (including reasonable
attorneys’ fees and legal expenses) incurred by Lender in connection with or as
a result of the performance or observance of such agreements or the taking of
such action by Lender, together with interest thereon from the date expended or
incurred at the lesser of the highest Default Rate then in effect or the
highest rate permitted by law.

 

ARTICLE VII:  EVENTS OF DEFAULT

 

Section 7.01.  Events of Default.  Each of the following events or occurrences
shall constitute an “Event of Default”:

 

(a)           Borrower shall default in the payment
of any Obligation when due and such failure continues for 10 calendar days;

 

(b)           Any representation or warranty of
Borrower made in any Loan Document or any other writing or certificate
furnished by or on behalf of Borrower pursuant to any Loan Document is or shall
be incorrect when made in any material respect;

 

(c)           Borrower shall fail to perform any of
its obligations under Section 6.01(c), 6.01(f), 6.01(i) or 6.02(a);

 

(d)           Borrower shall default in the due
performance and observance of any other agreement contained herein or in any
other Loan Document (other than items set forth elsewhere in this Section 7.01),
and such default shall continue unremedied for a period of 30 days after
Borrower has actual knowledge thereof or has received notice by Lender thereof;

 

(e)           The occurrence of an event of default
or a breach or default, after the passage of all applicable notice and cure or
grace periods provided therefor, under any other Loan Document or any other
agreement between or among Borrower or any Guarantor and Lender or any of its
affiliates;

 

(f)            The occurrence of a default or an
event of default (however defined) under any instrument, agreement or other
document evidencing or relating to, and the acceleration of, any indebtedness
or other monetary obligation of Borrower or any Guarantor having a principal
amount (including, without limitation, the amount of any outstanding letters of
credit), individually or in the aggregate, in excess of $10,000,000;

 

(g)           (i) Any judgment or order for
the payment of money (not paid or fully covered by insurance maintained in
accordance with the requirements of this Agreement and as to which the relevant
insurance company has acknowledged coverage) in excess of $10,000,000 shall be
rendered against Borrower or any Guarantor, which judgment or order is not,
within thirty (30) days after entry thereof, bonded or stayed pending appeal,
or (ii) any such judgment or order (not paid or fully covered by insurance
maintained in accordance with the requirements of this Agreement and as to
which the relevant insurance company has acknowledged coverage) becomes a
final, unappealable judgment or order;

 

(h)           The occurrence of any Change in
Control unless the Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) acquiring such control, or the Person with control of such
Person, (i) shall have it’s senior unsecured debt rated by S&P and
Moody’s, and (ii) such senior unsecured debt shall be rated at least BBB
by S&P and at least Baa2 by Moody’s, and the Person that has such senior
unsecured debt ratings shall have executed and delivered to Lender a guaranty
of all of Borrower ‘s obligations and liabilities under the Loan Documents,
which guaranty shall be in form and substance satisfactory to Lender;

 

(i)            Borrower or any Guarantor shall be
or become insolvent, or admit in writing its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or Borrower or any
Guarantor shall apply for or consent to the appointment of any receiver,
trustee or similar officer for it or for all or any substantial part of its
property; or such receiver, trustee or similar officer shall be appointed
without the application or consent of Borrower or any Guarantor (and such
involuntary appointment is not dismissed or stayed within 30 days); or Borrower
or any Guarantor shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating
to it under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against Borrower or any
Guarantor (and such involuntary proceeding is not dismissed or stayed within 30
days; or

 

(j)            Any Loan Document or any Lien
granted thereunder shall (except in accordance with its terms), in whole or in
part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of

 

11

 

Borrower; Borrower or 
any Guarantor or any other Person shall, directly or indirectly, contest
in any manner the effectiveness, validity, binding nature or enforceability of
any Loan Document or any Lien granted thereunder; or any Lien securing (or
required to secure) any Obligation shall, in whole or in part, cease to be a
first priority perfected Lien subject only to Permitted Liens.

 

(k)           At any time Borrower shall be a
guarantor of obligations under such Loan Agreement, an of Event of Default
shall exist under and as defined in that certain Loan Agreement of even date
herewith between Lender and IBIS BIOSCIENCES, INC.

 

(l)            [Intentionally Omitted]

 

Section 7.02.  Remedies.  (a)  Following the occurrence of an
Event of Default described in subsection (i) of Section 7.01, all of
the outstanding principal amount of the Loans and other Obligations shall be
due and payable and the Commitment (if not theretofore terminated) shall
terminate, whereupon the full unpaid amount of such Loans and other Obligations
which shall be so declared due and payable shall be and become immediately due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which are hereby expressly waived by Borrower, and, as the
case may be, the Commitment shall terminate.

 

(b)  Following the
occurrence of any Event of Default and subject to subsection (a) of this
Section, Lender may exercise, at its option, concurrently, successively or in
any combination, all rights and remedies of a secured party in, to and against
the Collateral granted by the UCC or otherwise available at law or in equity,
including, without limitation:

 

(i)            by notice to Borrower, declare all
or any portion of the outstanding principal amount of the Loans and other
Obligations to be due and payable and/or the Commitment (if not theretofore
terminated) to be terminated, whereupon the full unpaid amount of such Loans
and other Obligations which shall be so declared due and payable shall be and
become immediately due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower, and/or, as the case may be, the Commitment shall terminate;

 

(ii)           recover all fees and expenses
(including, without limitation, reasonable attorneys’ fees) in connection with
the lawful collection or enforcement of the Obligations, which fees and
expenses shall constitute additional Obligations of Borrower hereunder;

 

(iii)          take immediate and exclusive
possession of the Collateral, which constitutes personal property, or any part
thereof, with or without any court order or other process of law and enter the
premises where such Collateral is located and remove the same therefrom, or
require Borrower to assemble and package such Collateral and make it available
to Lender for its possession at a place designated by Lender;

 

(iv)          sell, lease, sublease, hold or
otherwise dispose of all or any part of the Collateral and hold, maintain,
preserve and prepare the Collateral for sale until disposed of;

 

(v)           [Intentionally Omitted]

 

(vi)          sue for specific performance of any
Obligation or recover damages for breach thereof; and

 

(vii)         exercise any one or more of the
remedies available under any Loan Document.

 

Section 7.03.  Use of Proceeds.  Any proceeds received by Lender in exercising
the rights and remedies specified in Section 7.02 shall be first applied
to pay the costs and expenses, including, without limitation, reasonable
attorneys’ fees and expenses, incurred by Lender as a result of an Event of
Default.  Any proceeds remaining after
payment of such costs and expenses shall be applied to the satisfaction of the
Obligations as determined by Lender in its sole discretion and, unless Lender
accepts the Collateral in full or partial satisfaction of the Obligations, any
excess proceeds after satisfaction of all Obligations shall be paid to
Borrower.

 

ARTICLE VIII:  MISCELLANEOUS PROVISIONS

 

Section 8.01. 
Waivers, Amendments. 
No provision of this Agreement or any of the other Loan Documents shall
be deemed waived or amended except by a written instrument setting forth the
matter waived or amended and signed by the party against which enforcement of
such waiver or amendment is sought. 
Waiver of any matter shall not be deemed a waiver of the same or any
other matter on any future occasion.  No
notice to or demand on Borrower in any case shall entitle it to any notice or
demand in similar or other circumstances.

 

Section 8.02.  Notices.  All notices, certificates, requests, demands
and other formal communications provided for hereunder or under any Loan
Document shall be in writing and shall be (a) personally delivered or (b) sent
by overnight courier of national reputation, and shall be deemed to have been
given on (i) the date received if personally delivered and (ii) the
next Business Day if sent by overnight courier. 
All communications shall be addressed to the party to whom notice is
being given at its

 

12

 

Notice Address.  If notice to Borrower of any intended disposition
of the Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in this Section) at least 10 calendar days prior
to the date of intended disposition or other action.  The parties acknowledge and agree that
routine or informal communications may be conducted by email, in addition to
the means set forth above.

 

Section 8.03.  Severability.  Any provision of this Agreement or any other
Loan Document which is invalid, illegal or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such invalidity, illegality or unenforceability without invalidating the
remaining provisions of this Agreement or such Loan Document or affecting the
validity, legality or enforceability of such provision in any other
jurisdiction.

 

Section 8.04.  Execution in Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute one and the same document.

 

Section 8.05.  Further Assurance and Corrective
Instruments.  Borrower hereby agrees that it will, from
time to time, execute, acknowledge and deliver or authorize, as applicable, or
cause to be executed, acknowledged and delivered or authorized, such further
acts, instruments, conveyances, transfers and assurances and take such other
actions, as Lender reasonably deems necessary or advisable for the
implementation, correction, confirmation or perfection of this Agreement or the
other Loan Documents and any rights of Lender hereunder or thereunder.

 

Section 8.06.  Time of the Essence.  Time is of the essence with respect to the performance by Borrower of the
Obligations.

 

Section 8.07. 
Entire Agreement.  This Agreement and the other
Loan Documents constitute the entire agreement between Lender and
Borrower.  There are no other
understandings, agreements, representations or warranties, written or oral,
between Lender and Borrower with respect to the subject matter of this
Agreement and the other Loan Documents.

 

Section 8.08.  Governing Law.  THIS AGREEMENT AND THE NOTES SHALL EACH BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.

 

Section 8.09.  Successors and Assigns; Assignments by Lender.  This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of Lender except as permitted under Section 6.02(b).  Lender may assign, in whole or in part, its
rights under this Agreement.  Upon any
assignment by Lender of its entire right and interest under the Loan Documents,
Lender shall automatically be relieved, from and after the date of such
assignment, of any liability for the performance of any obligation of Lender
therein.

 

Section 8.10.  Assignments and Participations.  Borrower acknowledges and agrees that a
material inducement to Lender’s willingness to complete the transactions
contemplated by the Loan Documents is that Lender may, at any time, complete an
assignment or participation with respect to any Loan Document or any or all of
the servicing rights with respect thereto. 
In connection with any such assignment or participation:  (a) Borrower agrees to cooperate in good
faith with Lender, including, without limitation, providing such documents,
financial information and other information (“Information”) reasonably
requested by Lender or any entity involved with respect to such assignment or
participation;  (b) Borrower
consents to Lender’s providing the Information, including any other information
that Lender may now have or hereafter acquire with respect to Borrower or the
Collateral to any entity involved with respect to such assignment or
participation;  and (c) Notwithstanding
anything to the contrary in any Loan Document, in the event that Lender assigns
a Note, (i) the related Loan shall be deemed a separate loan that includes
and incorporates each term and condition in this Agreement and the other Loan
Documents related thereto, (ii) the term “Obligations” as used herein and
in the Loan Documents with respect to any assignee shall mean only the
Indebtedness and obligations evidenced by or related to the Notes held by the
assignee and (iii) the term Collateral as used herein and in the Loan
Documents with respect to such assignee shall mean only the Collateral
described on the Collateral Schedules that specifically refer to the Notes held
by such assignee.

 

Section 8.11.  Waiver of
Jury Trial.  LENDER AND BORROWER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE LOAN
DOCUMENTS, ANY DEALINGS BETWEEN LENDER AND BORROWER RELATING TO THE SUBJECT
MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY LOAN DOCUMENT,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LENDER AND
BORROWER.  BORROWER ACKNOWLEDGES
AND AGREES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER ENTERING
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.  THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED
IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT
BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY

 

13

 

TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT, ANY LOAN DOCUMENT, OR TO ANY OTHER DOCUMENT OR AGREEMENT RELATING TO
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED
TRANSACTION.  IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

Section 8.12.  Forum Selection and Consent to Jurisdiction.  BORROWER AND LENDER HEREBY IRREVOCABLY SUBMIT
TO THE JURISDICTION OF ANY FEDERAL OR LOCAL COURT LOCATED IN THE CITY OF
CHICAGO, ILLINOIS, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREUNDER OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL MAY BE
FOUND.  BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY
SUCH LITIGATION AS SET FORTH ABOVE. 
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF ILLINOIS.  BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND
ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.  TO THE EXTENT THAT BORROWER HAS
OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT FROM
ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO
JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

Section 8.13.  Waiver of Certain Claims.  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER AND EACH GUARANTOR SHALL NOT ASSERT, AND HEREBY WAIVES, ANY CLAIM
AGAINST LENDER 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, ANY LOAN DOCUMENT OR ANY AGREEMENT OR
INSTRUMENT CONTEMPLATED THEREBY, ANY LOAN OR THE USE OF THE PROCEEDS THEREOF.

 

[REMAINDER OF PAGE INTENTIONALLY BLANK; EXECUTION PAGE
FOLLOWS.]

 

14

 

 

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

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ B. Lynne
  Parshall

  
	
   

  	
  Name

  	
  B. Lynne
  Parshall

  
	
   

  	
  Title

  	
  COO &
  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  RBS ASSET
  FINANCE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Cynthia
  Prince

  
	
   

  	
  Name

  	
  Cynthia Prince

  
	
   

  	
  Title

  	
  Vice President

  

 

[EXECUTION
PAGE OF LOAN AGREEMENT]

 

 

 

SCHEDULE
I

 

The following terms shall have the following meanings:

 

“Borrower’s State”
means Delaware.

 

“Closing Fee”
— Not applicable

 

“Financial Statements”
means the audited financial statement of Borrower and each Guarantor for their
fiscal years ended December 31, 2007 and the unaudited financial statement
of Borrower and each Guarantor and for the quarter ended June 30, 2008.

 

“Fixed Rate”
means, with respect to each Loan and each Note, a rate per annum equal to the
sum of (i) the notional rate per annum for a fixed rate payer under a 3
year interest rate swap on the day that is two Business Days prior to the
applicable Closing Date plus (ii) (a) 3.85% or (b) such
other amount as Lender may specify, which rate will be set forth in such Note.

 

“Interim Interest
Date” means, with respect to each Loan and each Note, the interim
interest date described in such Note.

 

“Interim Interest
Payment Date” means, with respect to each Loan and each Note, the
interim interest date described in such Note.

 

“Maximum Principal
Amount” means $9,400,000.00.

 

“Notice Address”
means with respect to Borrower or Lender, as applicable, the following address,
or such other address as such party may designate in writing to the other
party:

 

	
  If to Borrower:

  	
   

  	
  Isis
  Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  Attention: Chief
  Financial Officer

  
	
   

  	
   

  	
  1896 Rutherford Road

  
	
   

  	
   

  	
  Carlsbad, CA 92008

  
	
   

  	
   

  	
  Telephone No.:   760 603-2469

  
	
   

  	
   

  	
  Facsimile No.:  760 918-3592

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  w/copy to General
  Counsel (fax: 760 268-4922

  
	
   

  	
   

  	
   

  
	
  If to Lender:

  	
   

  	
  RBS Asset
  Finance, Inc.

  
	
   

  	
   

  	
  71 S. Wacker Drive,
  Suite 2800

  
	
   

  	
   

  	
  Chicago, IL  60606

  
	
   

  	
   

  	
  Telephone No.:  (312) 777-3500

  
	
   

  	
   

  	
  Facsimile No.:  (312) 777-4001

  

 

“Organizational
Documents” means (i) with respect to Borrower, the articles of
incorporation and by-laws of Borrower and (ii) with respect to each
Corporate Guarantor, the articles of incorporation and by-laws/certificate of
formation and limited liability company/operating agreement] of such Guarantor.

 

“Payment Date”
means the first Business Day of each calendar month.

 

“Scheduled
Commitment Termination Date” means March 31, 2009.EXHIBIT 10.35

 

REGULUS THERAPEUTICS LLC

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into effective as of December 29,
2008 by and between Regulus Therapeutics LLC, a Delaware limited liability
corporation (the “Company”), and
Kleanthis G. Xanthopoulos, Ph.D. (the “Executive”).  The Company and the Executive are hereinafter
collectively referred to as the “Parties”, and
individually referred to as a “Party”.

 

The
Company desires assurance of the association and services of the Executive in
order to retain the Executive’s experience, skills, abilities, background and
knowledge, and is willing to engage the Executive’s services on the terms and
conditions set forth in this Agreement.

 

The
Parties previously entered into a letter agreement dated November 30, 2007
(the “Prior Agreement”) and desire to
terminate and replace the Prior Agreement with this Agreement, except as set
forth herein.

 

The
Executive desires to be in the employ of the Company, and is willing to accept
such employment on the terms and conditions set forth in this Agreement.

AGREEMENT

 

In consideration of the foregoing recitals and the mutual promises and
covenants herein contained, and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:

 

1.                                      EMPLOYMENT.

 

1.1          Term.  The term of
this Agreement shall begin on the date first set forth above (the “Effective Date”), and shall continue until terminated in
accordance with Section 4 herein.

 

1.2          Title.  The Executive shall have the title of Chief
Executive Officer of the Company and shall serve in such other capacity or
capacities as the Board of Directors of the Company (the “Board”)
may from time to time prescribe, but only as consistent with the customary duties
of a Chief Executive Officer.  During the
term of this Agreement, unless otherwise agreed by the Parties, the Executive
shall also serve as a member of the Board. 
Upon termination of the Executive’s employment with the Company, for any
reason or no reason, the Executive shall immediately resign as a member of the
Board.

 

1.3          Duties.  The Executive shall report
to the Board and shall do and perform all reasonable services, acts or things
necessary or advisable to manage and conduct the business of the Company and
which are normally associated with the position of Chief Executive Officer,
consistent with the bylaws of the Company and as required by the Board.

 

1

 

1.4          Location.  The Executive shall perform services pursuant
to this Agreement at the Company’s offices located in Carlsbad, California, or
at any other place at which the Company maintains an office; provided, however,
that (i) the Company will not relocate the offices that are the primary
location at which the Executive performs services pursuant to this Agreement by
more than thirty miles from the then current location without the Executive’s
prior written consent and (ii) the Company may from time to time require
the Executive to travel temporarily to other locations in connection with the
Company’s business.

 

2.                                      LOYAL AND
CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.

 

2.1          Loyalty.  During the Executive’s employment by the
Company the Executive shall devote the Executive’s full business energies, interest,
abilities and productive time to the proper and efficient performance of the
Executive’s duties under this Agreement.

 

2.2          Covenant not to Compete.  Except with the prior written consent of the
Board, the Executive will not, while employed by the Company, or during any
period during which the Executive is receiving compensation or any other
consideration from the Company, including, but not limited to, severance pay
pursuant to Section 4.1.3  herein, engage in competition with the Company  and/or any of its affiliates,
subsidiaries, or joint ventures currently existing or which shall be
established during the Executive’s employment by the Company (collectively, “Affiliates”) either directly or indirectly, in any manner or
capacity, as adviser, principal, agent, affiliate, promoter, partner, officer,
director, employee, stockholder, owner, co-owner, consultant, or member of any
association or otherwise, in any phase of the business of developing,
manufacturing and marketing of products or services which are in the same field
of use or which otherwise compete with the products or services or proposed
products or services of the Company or any of its Affiliates.

 

2.3          Agreement not to
Participate in Company’s Competitors.  During his employment by the Company, the
Executive agrees not to acquire, assume or participate in, directly or
indirectly, any position, investment or interest known by the Executive to be
adverse or antagonistic to the Company, its business or prospects, financial or
otherwise or in any company, person or entity that is, directly or indirectly,
in competition with the business of the Company or any of its Affiliates.  Ownership by the Executive, as a passive
investment, of less than 2% of the outstanding shares of capital stock of any
corporation with one or more classes of its capital stock listed on a national
securities exchange or in the over-the-counter market shall not constitute a
breach of this paragraph.

 

3.                                      COMPENSATION
OF THE EXECUTIVE.

 

3.1          Base Salary.  The Company shall pay the Executive a base
salary of $420,000 per year (the “Base Salary”),
less payroll deductions and all required withholdings, payable in regular
bi-weekly payments or otherwise in accordance with Company policy.  Such Base Salary shall be prorated for any
partial year of employment on the basis of a 365-day fiscal year.

 

2

 

3.2          Discretionary
Bonuses.  In addition
to the Base Salary, the Executive will be eligible to receive a yearly
discretionary merit bonus (with a base percentage factor of forty percent
(40%)) in accordance with the Company’s Executive Bonus Plan to be established
by the Company based upon the Executive’s performance, as determined by the
Board in its sole discretion, against fundamental objectives to be mutually
agreed upon by the Executive and the Board. 
Any bonus that is earned by the Executive under the Executive Bonus
Plan, or any other bonus plan approved by the Board, shall be paid to the
Executive no later than the March 15 of the year immediately following the
year in which such bonus was earned.

 

3.3          Stock Options.  The Company agrees that it will grant to the Executive,
pursuant to the terms of the Company’s 2009 Equity Incentive Plan (the “Plan”) to be established by the Company following the
Company’s conversion to a Delaware corporation, stock options to purchase
shares of the Common Stock of the Company (each an “Option”
and collectively, the “Options”)
representing five percent (5%) of the shares of capital stock of the Company
outstanding following the Series A Preferred Stock Financing of the
Company (which is expected to occur in the first fiscal quarter of 2009)
determined on a fully-diluted, as converted to Common Stock basis, including
shares reserved for issuance pursuant to the Plan.  Such Options shall include an “early-exercise”
feature, which will allow the Executive to exercise the Options with respect to
some or all of the unvested shares and such unvested shares shall thereafter be
subject to a repurchase option in favor of the Company, which repurchase option
shall lapse in accordance with the stated vesting of such unvested
Options.  To the maximum extent possible,
the Options shall be “incentive stock options” as such term is defined in Section 422
of the Internal Revenue Code of 1986, as amended (the “Code”).  The purchase price of the shares issuable
upon exercise of the Options shall be equal to the fair market value per share of the
Company’s Common Stock on the date of grant, as determined in good faith by the
Board based on a valuation performed by a qualified independent appraiser
using a traditional appraisal methodology.  The Options will be subject to vesting over a
period of four (4) years following the grant date, with 1/4th of the shares subject to such
Options vesting on the one (1) year anniversary of the grant date and 1/48th of the shares
subject to such Options vesting on a monthly basis thereafter until all the
shares subject to such Options are vested on the fourth anniversary of the
grant date, in each case only so long as the Executive remains continuously
employed by the Company.  In the event of
a Change in Control (as defined below), regardless of termination of the
Executive’s employment, the vesting of the Options set forth in Section 3.3
hereof shall accelerate and vest in full. 
The terms and vesting of the Options will be more fully set forth in the
Plan and shall be subject to the Company’s standard form of stock option
agreement.

 

3.4          Changes to
Compensation.  It is
anticipated that the Executive will be considered on an annual basis for merit
increases in base compensation consistent with performance and market trends
but subject to Board approval in its sole discretion.  Subject to Section 4.1.3 below, the
Executive’s compensation may be changed from time to time in the Company’s sole
discretion based upon Board approved changes to the Company’s operating plan
after considering relevant business conditions.

 

3

 

3.5          Employment Taxes.  All of the Executive’s compensation and
payments under this Agreement shall be subject to customary withholding taxes
and any other employment taxes as are commonly required to be collected or
withheld by the Company.

 

3.6          Benefits.  The Executive shall, in accordance with
Company policy and the terms of the applicable plan documents, be eligible to
participate in benefits under any executive benefit plan or arrangement which
may be in effect from time to time and made available to the Company’s
executive or key management employees.

 

3.7          Vacations and Holidays.  The Executive shall be entitled to receive
three (3) weeks of paid vacation during each calendar year, and shall be
entitled to paid holidays in accordance with the Company’s policies.

 

4.                                      TERMINATION.

 

4.1          Termination By the Company.  The Executive’s employment with the Company
may be terminated under the following conditions:

 

4.1.1       Termination for Death or
Disability.  The Executive’s employment with the Company
shall terminate effective upon the date of the Executive’s death or Complete Disability (as defined below).  If the Executive’s employment shall be
terminated by death or Complete Disability, the Company shall pay to the
Executive, and/or the Executive’s heirs, the Executive’s Base Salary and
accrued and unused vacation benefits earned through the date of termination at
the rate in effect at the time of termination, less standard deductions and
withholdings, and the Company shall thereafter have no further obligations to
the Executive and/or the Executive’s heirs under this Agreement.

 

4.1.2       Termination by the Company For
Cause.  The Company may terminate the Executive’s
employment under this Agreement for Cause
(as defined below) or the Executive may resign his employment under this
Agreement without Good Reason (as defined below).  If the Executive’s employment shall be
terminated by the Company for Cause or by the Executive without Good Reason,
the Company shall pay the Executive’s Base Salary and accrued and unused
vacation benefits earned through the date of termination at the rate in effect
at the time of termination, less standard deductions and withholdings, and the
Company shall thereafter have no further obligations to the Executive under
this Agreement.

 

4.1.3       Termination By The Company
Without Cause Or By The Executive With Good Reason. 
If the Company (or its successor) terminates the Executive’s employment
without Cause, or if the Executive terminates his employment for Good Reason,
then the Company shall pay the Executive’s Base Salary and accrued and unused
vacation benefits earned through the date of termination at the rate in effect
at the time of termination, less standard deductions and withholdings.  In addition, subject to the Executive’s
delivery to the Company of a release and waiver of claims in the form attached
hereto as Exhibit A within the applicable
time period set forth therein, but in no event later than forty-five (45) days
following termination of Executive’s employment, and permitting such Release
and Waiver to become

 

4

 

fully effective in
accordance with its terms, (the date Executive’s Release becomes fully
effective, the “Release Effective Date”), the Company shall provide the Executive
with the following benefits hereunder, as applicable (the “Severance
Benefits”):

 

4.1.3.1          If the Executive’s termination occurs
prior to and not within one month of a Change of Control, the Executive shall
be entitled to 18 months of his Base Salary
in effect as of the termination date (ignoring any reduction in salary that is
the basis for a the Executive’s termination of employment for Good Reason),
less required deductions and withholdings, paid in the form of salary
continuation on the Company’s standard payroll dates following termination;
provided, however, no such payments will be made prior to the Release Effective
Date, and on the first regular payroll date following the Release Effective
Date, the Company will pay the Executive in a lump sum the amount of the salary
continuation he would have otherwise received on and prior to such date but for
the delay due to the Release, with the balance paid thereafter on the original
schedule.

 

4.1.3.2          If the Executive’s termination occurs
within one month of, or within 12 months following, the effective date of a
Change in Control, the Executive shall be
entitled to 24 months of his Base Salary in effect as of the termination date
(ignoring any reduction in salary that is the basis for a Good Reason
Resignation) and two times the maximum amount of the discretionary bonus
payable for the then-current year as if all milestones or other performance
targets had been achieved, less required
deductions and withholdings, paid in the form of a lump sum on the first
regular payroll date following the Release Effective Date.

 

4.1.3.3          The Company shall pay the premiums (the “COBRA Premiums”) for group health plan continuation coverage
(i.e., medical, dental and vision insurance) under Title X of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
under the same plans available to active Company employees and under
the same rules, restrictions and regulations applicable thereto for up to 18 months following the Executive’s employment
termination date or until the Executive becomes eligible for group health
insurance coverage through a new employer or otherwise cease to be eligible for
COBRA coverage, whichever occurs first; provided, that the Executive timely elects
continued group health coverage under COBRA and otherwise qualifies for
continued coverage.  COBRA premium payments extending past 18
months following the Executive’s separation from service, to the extent subject
to Section 409A (as defined below), shall be made in compliance with Section 409A.

 

4.1.3.4          The vesting of the Options set forth in Section 3.3
hereof shall accelerate and vest in full.

 

4.2          Termination by Mutual Agreement of the Parties.  The Executive’s employment pursuant to this
Agreement may be terminated at any time upon mutual agreement, in writing, of
the Parties.  Any such termination of
employment shall have the consequences specified in such writing.

 

4.3          Survival of Certain Provisions.  Sections 2.2, 5 and 17 shall survive the
termination of this Agreement.

 

5

 

4.4          Definitions.  For purposes of this Agreement:

 

4.4.1       “Cause” shall
have the meaning defined in the Plan.

 

4.4.2       “Change of Control”
shall mean the occurrence of any one (1) or more of the following
events:  (i) any person (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) becomes the owner, directly or indirectly, of securities
of the Company representing more than fifty percent (50%) of the combined
voting power of the Company’s then outstanding securities (other than in
connection with a transaction involving the issuance of securities by the
Company the principal purpose of which is to raise capital for the Company)
other than Isis Pharmaceuticals, Inc. or Alnylam Pharmaceuticals; (ii) there
is consummated a merger, consolidation or similar transaction to which the
Company is a party and the stockholders of the Company immediately prior
thereto do not own outstanding voting securities representing more than fifty
percent (50%) of the combined outstanding voting power of the surviving entity
immediately following such merger, consolidation or similar transaction or more
than fifty percent (50%) of the combined outstanding voting power of the parent
of the surviving entity immediately following such merger, consolidation or
similar transaction; (iii) there is consummated a sale, lease exclusive
license or other disposition of all or substantially all of the consolidated
assets of the Company and its subsidiaries, other than a sale, lease or other
disposition of all or substantially all of the consolidated assets of the
Company and its subsidiaries to an entity more than fifty percent (50%) of the
combined voting power of which is owned immediately following such disposition
by the stockholders of the Company immediately prior thereto or (iv) prior
to December 31, 2009, any of (i), (ii), or (iii) occur with respect
to Isis Pharmaceuticals, Inc. or Alnylam Pharmaceuticals.

 

4.4.3       “Complete Disability” shall mean the
inability of the Executive to perform the Executive’s duties under this
Agreement because the Executive has become permanently disabled within the
meaning of any policy of disability income insurance covering employees of the
Company then in force.  In the event the
Company has no policy of disability income insurance covering employees of the
Company in force when the Executive becomes disabled, the term Complete Disability shall mean the
inability of the Executive to perform the Executive’s duties under this
Agreement by reason of any incapacity, physical or mental, which the Board,
based upon medical advice or an opinion provided by a licensed physician
acceptable to the Board, determines to have incapacitated the Executive from
satisfactorily performing all of the Executive’s usual services for the Company
for a period of at least 120 consecutive days or 150 days in total during any
12 month period (whether or not consecutive). 
Based upon such medical advice or opinion, the determination of the
Board shall be final and binding and the date such determination is made shall
be the date of such Complete Disability for purposes of this Agreement.

 

4.4.4       “Good Reason” for the Executive to terminate the Executive’s
employment hereunder shall mean the occurrence of any of the following events
without the Executive’s consent; provided however, that any resignation by the
Executive due to any of the following conditions shall only be deemed for Good
Reason if: (i) the Executive gives the Company written notice of the
intent to terminate for Good Reason within ninety (90) days following the first
occurrence of the condition(s) that the Executive believes constitutes
Good

 

6

 

Reason,
which notice shall describe such condition(s); (ii) the Company fails to
remedy, if remediable, such condition(s) within thirty (30) days following
receipt of the written notice (the “Cure Period”)
of such condition(s) from the Executive; and (iii) Executive actually
resigns his employment within the first fifteen (15) days after expiration of
the Cure Period:

 

4.4.4.1          a material
breach of this Agreement with the Executive by the Company;

 

4.4.4.2          a material
reduction by the Company of the Executive’s Base Salary as initially set forth
herein or as the same may be increased from time to time;

 

4.4.4.3          a material
reduction in the Executive’s authority, duties or responsibilities; or

 

4.4.4.4          the Company relocates the facility that
is the Executive’s principal place of business with the Company to a location
that requires an increase in the Executive’s one-way driving distance by
more than 30 miles.

 

5.                                      CONFIDENTIAL
AND PROPRIETARY INFORMATION; NONSOLICITATION.

 

5.1          As a condition
of employment the Executive agrees to abide by the Employee Confidential
Information and Inventions Agreement entered into between the Company and the
Executive as referenced in the Prior Agreement.

 

5.2          While employed
by the Company and for one year thereafter, the Executive agrees that in order
to protect the Company’s trade secrets and confidential and proprietary
information from unauthorized use, the Executive will not, either directly or
through others, solicit or attempt to solicit any employee, consultant or
independent contractor of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent
contractor to or for any other person or business entity.

 

6.                                      ASSIGNMENT
AND BINDING EFFECT.

 

This Agreement shall be
binding upon and inure to the benefit of the Executive and the Executive’s
heirs, executors, personal representatives, assigns, administrators and legal
representatives.  Because of the unique
and personal nature of the Executive’s duties under this Agreement, neither
this Agreement nor any rights or obligations under this Agreement shall be
assignable by the Executive.  This
Agreement shall be binding upon and inure to the benefit of the Company and its
successors, assigns and legal representatives.

 

7.                                      CHOICE OF
LAW.

 

This
Agreement shall be construed and interpreted in accordance with the internal
laws of the State of California.

 

7

 

8.                                      INTEGRATION.

 

This
Agreement, including Exhibit A and
the Employee Confidential Information and Inventions Agreement referenced in Section 5.1,
contains the complete, final and exclusive agreement of the Parties relating to
the terms and conditions of the Executive’s employment and the termination of
the Executive’s employment, and supersedes all prior and contemporaneous oral
and written employment agreements or arrangements between the Parties including
the Prior Agreement except as indicated herein.

 

9.                                      AMENDMENT.

 

This
Agreement cannot be amended or modified except by a written agreement signed by
the Executive and the Chief Executive Officer of the Company as directed by the
Board.

 

10.                               WAIVER.

 

No
term, covenant or condition of this Agreement or any breach thereof shall be
deemed waived, except with the written consent of the Party against whom the
wavier is claimed, and any waiver or any such term, covenant, condition or
breach shall not be deemed to be a waiver of any preceding or succeeding breach
of the same or any other term, covenant, condition or breach.

 

11.                               SEVERABILITY.

 

The
finding by a court of competent jurisdiction of the unenforceability, invalidity
or illegality of any provision of this Agreement shall not render any other
provision of this Agreement unenforceable, invalid or illegal.  Such court shall have the authority to modify
or replace the invalid or unenforceable term or provision with a valid and
enforceable term or provision which most accurately represents the Parties’ intention with respect to the
invalid or unenforceable term or provision.

 

12.                               INTERPRETATION;
CONSTRUCTION.

 

The
headings set forth in this Agreement are for convenience of reference only and
shall not be used in interpreting this Agreement.  This Agreement has been drafted by legal
counsel representing the Company, but the Executive has been encouraged to
consult with, and have consulted with, the Executive’s own independent counsel
and tax advisors with respect to the terms of this Agreement.  The Parties acknowledge that each Party and
its counsel has reviewed and revised, or had an opportunity to review and
revise, this Agreement, and any rule of construction to the effect that
any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.

 

8

 

13.                               REPRESENTATIONS
AND WARRANTIES.

 

The
Executive represents and warrants that the Executive is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that the Executive’s
execution and performance of this Agreement will not violate or breach any
other agreements between the Executive and any other person or entity.

 

14.                               COUNTERPARTS;
FACSIMILE.

 

This
Agreement may be executed in two counterparts, each of which shall be deemed an
original, all of which together shall contribute one and the same
instrument.  Facsimile signatures shall
be treated the same as original signatures.

 

15.                               LITIGATION
COSTS.

 

Should
any claim be commenced between the Parties or their personal representatives
concerning any provision of this Agreement or the rights and duties of any
person in relation to this Agreement, the Party prevailing in such action shall
be entitled, in addition to such other relief as may be granted to a reasonable
sum as and for that Party’s attorney’s fees in such action.

 

16.                               TRADE
SECRETS.

 

It
is the understanding of both the Company and the Executive that the Executive
shall not divulge to the Company and/or its subsidiaries any confidential
information or trade secrets belonging to others, including the Executive’s
former employers, nor shall the Company and/or its Affiliates seek to elicit
from the Executive any such information. 
Consistent with the foregoing, the Executive shall not provide to the
Company and/or its Affiliates, and the Company and/or its Affiliates shall not
request, any documents or copies of documents containing such information.

 

17.                               ADVERTISING
WAIVER.

 

The
Executive agrees to permit the Company and/or its Affiliates, and persons or
other organizations authorized by the Company and/or its Affiliates, to use,
publish and distribute advertising or sales promotional literature concerning
the products and/or services of the Company and/or its Affiliates, or the
machinery and equipment used in the provision thereof, in which the Executive’s
name and/or pictures of the Executive taken in the course of the Executive’s
provision of services to the Company and/or its Affiliates, appear.  The Executive hereby waives and releases any
claim or right the Executive may otherwise have arising out of such use,
publication or distribution.  The Company
agrees that, following termination of the Executive’s employment, it will not
create any new such literature containing the Executive’s name and/or pictures
without the Executive’s prior written consent.

 

9

 

18.                               APPLICATION
OF SECTION 409A.

 

Notwithstanding
anything to the contrary set forth herein, any Severance Benefits that
constitute “deferred compensation” within the meaning of Section 409A of
the Code and the regulations and other guidance thereunder and any state law of
similar effect (“Section 409A”) shall not
commence in connection with the Executive’s termination of employment unless
and until the Executive has also incurred a “separation from service” (as such
term is defined in Treasury Regulation Section 1.409A-1(h)) (“Separation From Service”), unless the Company reasonably
determines that such amounts may be provided to the Executive without causing
the Executive to incur the additional 20% tax under Section 409A.

 

It
is intended that each installment of the Severance Benefit payments provided
for in this Agreement is a separate “payment” for purposes of Treasury
Regulation Section 1.409A-2(b)(2)(i). 
For the avoidance of doubt, it is intended that payments of the
Severance Benefits set forth in this Agreement satisfy, to the greatest extent
possible, the exemptions from the application of Section 409A provided
under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and
1.409A-1(b)(9).  However, if the Company
(or, if applicable, the successor entity thereto) determines that the Severance
Benefits constitute “deferred compensation” under Section 409A and the
Executive is, on the termination of service, a “specified employee” of the
Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of
the Code, then, solely to the extent necessary to avoid the incurrence of the
adverse personal tax consequences under Section 409A, the timing of the
Severance Benefit payments shall be delayed until the earlier to occur of: (i) the
date that is six months and one day after the Executive’s Separation From
Service, or (ii) the date of the Executive’s death (such applicable date,
the “Specified Employee Initial Payment Date”)
and the Company (or the successor entity thereto, as applicable) shall (A) pay
to the Executive a lump sum amount equal to the sum of the Severance Benefit
payments that the Executive would otherwise have received through the Specified
Employee Initial Payment Date if the commencement of the payment of the
Severance Benefits had not been so delayed pursuant to this Section and (B) commence
paying the balance of the Severance Benefits in accordance with the applicable
payment schedules set forth in this Agreement.

 

19.                               PARACHUTE
PAYMENTS.

 

Except as otherwise
provided in an agreement between the Executive and the Company, if any payment
or benefit the Executive would receive from the Company or otherwise in
connection with a Change of Control (“Payment”) would
(i) constitute a “parachute payment” within the meaning of Section 280G
of the Code, and (ii) but for this sentence, be subject to the excise tax
imposed by Section 4999 of the Code (the “Excise Tax”),
then such Payment shall be equal to the Reduced Amount (as defined herein). The
“Reduced Amount” shall be either (x) the
largest portion of the Payment that would result in no portion of the Payment
being subject to the Excise Tax, or (y) the largest portion, up to and
including the total, of the Payment, whichever amount, after taking into
account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all
computed at the highest applicable marginal rate), results in the Executive’s
receipt, on an after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax.  If a

 

10

 

reduction in payments or
benefits constituting “parachute payments” is necessary so that the Payment
equals the Reduced Amount, reduction shall occur in the following order: (1) reduction
of cash payments; (2) cancellation of accelerated vesting of equity awards
other than stock options; (3) cancellation of accelerated vesting of stock
options; and (4) reduction of other benefits paid to the Executive.  If acceleration of vesting of compensation
from the Executive’s equity awards is to be reduced, such acceleration of
vesting shall be cancelled in the reverse order of the date of grant.

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

11

 

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

 

	
  REGULUS
  THERAPEUTICS LLC

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ John Maraganore.

  	
   

  
	
   

  	
   

  
	
  Name:

  	
  John Maraganore, Ph.D.

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Chairman of the Board

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Kleanthis G.
  Xanthopoulos, Ph.D.

  	
   

  
	
  KLEANTHIS
  G. XANTHOPOULOS, PH.D.

  	
   

  
				

 

 

[Signature Page to Employment
Agreement]

 

 

EXHIBIT A

 

RELEASE
AND WAIVER OF CLAIMS

 

In consideration of the
payments and other benefits set forth in Section 4 of the Employment
Agreement dated December 29, 2008, to which this form is attached (the “Employment Agreement”), I, Kleanthis G. Xanthopoulos,
Ph.D., hereby furnish Regulus Therapeutics LLC (the “Company”)
with the following release and waiver (“Release and Waiver”).

 

In exchange for the
consideration provided to me by the Employment Agreement that I am not
otherwise entitled to receive, I hereby generally and completely release the
Company and its directors, officers, employees, shareholders, partners, agents,
attorneys, predecessors, successors, parent and subsidiary entities, insurers,
affiliates, and assigns from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related to events,
acts, conduct, or omissions occurring prior to my signing this Release and
Waiver.  This general release includes,
but is not limited to: (1) all claims arising out of or in any way related
to my employment with the Company or the termination of that employment; (2) all
claims related to my compensation or benefits from the Company, including, but
not limited to, salary, bonuses, commissions, vacation pay, expense
reimbursements, severance pay, fringe benefits, stock, stock options, or any
other ownership interests in the Company; (3) all claims for breach of
contract, wrongful termination, and breach of the implied covenant of good
faith and fair dealing; (4) all tort claims, including, but not limited
to, claims for fraud, defamation, emotional distress, and discharge in
violation of public policy; and (5) all federal, state, and local
statutory claims, including, but not limited to, claims for discrimination,
harassment, retaliation, attorneys’ fees, or other claims arising under the
federal Civil Rights Act of 1964 (as amended), the federal Americans with
Disabilities Act of 1990, the federal Age Discrimination in Employment Act of
1967 (as amended) (“ADEA”), and
the California Fair Employment and Housing Act (as amended).

 

I also acknowledge that I
have read and understand Section 1542 of the California Civil Code which
reads as follows:  “A general
release does not extend to claims which the creditor does not know or suspect
to exist in his favor at the time of executing the release, which if known by
him must have materially affected his settlement with the debtor.”  I hereby expressly waive and relinquish all rights and
benefits under that section and any law of any jurisdiction of similar effect
with respect to any claims I may have against the Company.

 

I acknowledge that, among
other rights, I am waiving and releasing any rights I may have under ADEA, that
this Release and Waiver is knowing and voluntary, and that the consideration
given for this Release and Waiver is in addition to anything of value to which
I was already entitled as an executive of the Company.  If I am 40 years of age or older upon
execution of this Release and Waiver, I further acknowledge that I have been
advised, as required by the Older Workers Benefit Protection Act, that:  (a) the release and waiver granted
herein does not relate to claims under the ADEA which may arise after this
Release and Waiver is executed; (b) I should consult with an attorney
prior to executing this Release and Waiver; (c) I have 21 days in which to
consider this Release and Waiver (although I may choose voluntarily to execute
this Release and Waiver earlier); (d) I have seven days following the
execution of this Release and Waiver to revoke my consent to this Release and
Waiver; and (e) this Release and Waiver shall not be effective until the
eighth day after I execute this Release and Waiver and the revocation period
has expired.

 

I acknowledge my
continuing obligations under my Employee Confidentiality and Inventions Assignment
Agreement a copy of which is attached hereto (the “CIAA”).  Pursuant to the CIAA, I understand that among
other things, I must not use or disclose any confidential or proprietary
information of the Company and I must immediately return all Company property
and documents (including all embodiments of proprietary information) and all
copies thereof in my possession or control. 
I understand and agree that my right to the severance pay I am receiving
is in exchange for my agreement to the terms of this Release and Waiver and is
contingent upon my continued compliance with my CIAA.

 

This Release and
Waiver, including the CIAA, constitutes the complete, final and exclusive
embodiment of the entire agreement between the Company and me with regard to
the subject matter hereof.  I am not
relying on any promise or representation by the Company that is not expressly
stated herein.  This Release and Waiver
may only be modified by a writing signed by both me and a duly authorized
officer of the Company.

 

	
  Date:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  KLEANTHIS G. XANTHOPOULOS

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