Exhibit 10.4

SECURED PROMISSORY NOTE

 

$4,000,000.00    Advance Date: May 31, 2006    Maturity Date: October 1, 2009

FOR VALUE RECEIVED, TRANSORAL PHARMACEUTICALS, INC., a Delaware corporation, for
itself and each of its Subsidiaries (the “Borrower”) hereby promises to pay to
the order of Hercules Technology Growth Capital, Inc., a Maryland corporation or
the holder of this Note (the “Lender”) at 525 University Avenue, Suite 700, Palo
Alto, CA 94301 or such other place of payment as the holder of this Secured
Promissory Note (this “Promissory Note”) may specify from time to time in
writing, in lawful money of the United States of America, the principal amount
of Four Million Dollars ($4,000,000.00) or such other principal amount as Lender
has advanced to Borrower, together with interest at a rate equal to the prime
rate as reported in the Wall Street Journal as of the date hereof, plus
2.69% per annum based upon a year consisting of 360 days, with interest computed
daily based on the actual number of days in each month.

This Promissory Note is the Note referred to in, and is executed and delivered
in connection with, that certain Loan and Security Agreement dated April 21,
2006, by and between Borrower and Lender (as the same may from time to time be
amended, modified or supplemented in accordance with its terms, the “Loan
Agreement”), and is entitled to the benefit and security of the Loan Agreement
and the other Loan Documents (as defined in the Loan Agreement), to which
reference is made for a statement of all of the terms and conditions thereof.
All payments shall be made in accordance with the Loan Agreement. All terms
defined in the Loan Agreement shall have the same definitions when used herein,
unless otherwise defined herein. An Event of Default under the Loan Agreement
shall constitute a default under this Promissory Note. Reference to the Loan
Agreement shall not affect or impair the absolute and unconditional obligation
of the Borrowers to pay all principal and interest and premium, if any, under
this Promissory Note upon demand or as otherwise provided herein

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

 

BORROWER FOR ITSELF AND

ON BEHALF OF ITS SUBSIDIARIES:

    TRANSORAL PHARMACEUTICALS, INC.       By:   /s/ Illegible       Title:  
CEO/President

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TransOral Pharmaceuticals, Inc.

ADVANCE REQUEST

 

To:    Lender:    Date:    May 11, 2006    Hercules Technology Growth Capital,
Inc.          525 University Avenue, Suite 700          Palo Alto, CA 94301   
      Facsimile: 650-473-9194      

TRANSORAL PHARMACEUTICALS, INC. (“Borrower”) hereby requests from Hercules
Technology Growth Capital, Inc. (“Lender”) an Advance in the amount of Four
Million Dollars ($4,000,000.00) on May 31, 2006 (the “Advance Date”) pursuant to
the Loan and Security Agreement between Borrower and Lender (the “Agreement”).
Capitalized words and other terms used but not otherwise defined herein are used
with the same meanings as defined in the Agreement.

Please:

 

  (a) Issue a check payable to Borrower                     ¨

or

 

  (b) Wire Funds to Borrower’s account                   x

 

Bank:    Comerica Bank    333 W. Santa Clara Street    San Jose, CA 95113 ABA
Number:    121137522 Account Number:    1892563980 Account Name:    TransOral
Pharmaceuticals, Inc.

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

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

300 Tamal Plaza, Suite 220 Corte Madera, California 94925

(415) 945-5420 • Fax (415) 927-2240 • www.transoral.com

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

Executed as of May 11, 2006.

 

BORROWER:   TRANSORAL PHARMACEUTICALS, INC. SIGNATURE:   /s/ Thomas P. Soloway
TITLE:   Chief Financial Officer NAME:   Thomas P. Soloway

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ATTACHMENT TO ADVANCE REQUEST

Dated: May 11, 2006

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

 

Name:    TransOral Pharmaceuticals, Inc. Type of organization:    Corporation
State of organization:    Delaware Organization file number:    3478309

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

Chief Executive Office, Principal Place of Business, and Location of Collateral:

300 Tamal Plaza, Suite 220, Corte Madera, CA 94925 through May 19, 2006.

Beginning May 19, 2006, its chief executive office will be located at 1003 West
Cutting Blvd., Suite 110, Point Richmond, CA, 94804

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DEPOSIT ACCOUNT

CONTROL AGREEMENT

This Deposit Account Control Agreement (this “Agreement”) is entered into as of
March 28, 2006, by and among TransOral Pharmaceuticals, Inc., (“Customer”).
Hercules Technology Growth Capital, Inc., (“Secured Party”), and COMERICA BANK
(“Bank”), with reference to the following facts:

A. Customer maintains the Deposit Account (as defined below) at Bank’s San Jose
Airport Parkway Branch (the “Banking Office”).

B. Customer has granted Secured Party a security interest in the Deposit Account
and all funds now or at any time hereafter held in the Deposit Account.

C. Secured Party, Customer and Bank have agreed to enter into this Agreement to
provide for the control of the Deposit Account by Secured Party and to perfect
Secured Party’s security interests in the Deposit Account (as each such term is
defined below).

NOW, THEREFORE, in consideration of the mutual promises and covenants, contained
herein the parties hereto mutually agree as follows.

ARTICLE 1 - DEFINITIONS

1.01 Definitions. As used in this Agreement, the following terms shall have the
following meanings:

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.

“Code” means the California Uniform Commercial Code, as amended and supplemented
from time to time, and any successor statute.

“Deposit Account” means Customer’s deposit account (as such term is defined in
the Code) with Bank, number 1892563980.

“Notice of Exclusive Control” means written notice to Bank which states that an
event of default has occurred and is continuing under the document, instrument
or agreement pursuant to which Customer has granted the security interest in the
Deposit Account to Secured Party, and that on the basis thereof, Secured Party
is exercising exclusive control over the Deposit Account.

“Order” means any instruction issued by any person with respect to the
disposition of any funds contained in the Deposit Account.

1.02 Construction. Any reference herein to any document includes any and all
alterations, amendments, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Secured Party, whether
under any rule of construction or otherwise. This Agreement has been reviewed by
each of the parties hereto, and their respective counsel. This Agreement shall
be construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of Customer and Secured
Party.

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ARTICLE 2 - CONTROL

2.01 No Withdrawals or Payments After Receipt of Notice of Exclusive Control.
Anything contained in Section 2.03 to the contrary notwithstanding, Customer
hereby absolutely, irrevocably and unconditionally authorizes and instructs Bank
that, promptly upon receipt of a Notice of Exclusive Control by Bank at the
Banking Office, Bank shall:

(a) neither accept nor comply with any Order from Customer for the payment of
any funds from the Deposit Account to any third person nor permit Customer to
withdraw any funds in the Deposit Account without the specific prior written
consent of Secured Party;

(b) comply with all Orders originated by Secured Party concerning the Deposit
Account and all other requests or instructions from Secured Party regarding
disposition and/or delivery of funds contained in the Deposit Account, without
further consent or direction from Customer and without regard to any
inconsistent or conflicting Orders given to Bank by Customer within two
(2) Business Days; and

(c) anything contained in the foregoing to the contrary notwithstanding, Secured
Party hereby agrees that before it attempts to give Bank any Orders concerning
the Account, Secured Party shall deliver to the Banking Office such
documentation as Bank may from time to time reasonably request to evidence the
authority of those partners, officers, employees or agents whom Secured Party
may designate to give Orders.

2.02 Priority of Lien. Bank hereby acknowledges and agrees that:

(a) Bank has received notice of the existence of the security interest of
Secured Party in the Deposit Account, and recognizes the security interest
granted to Secured Party by Customer;

(b) all of Bank’s present and future rights against the Deposit Account are
subordinate to Secured Party’s security interest therein; provided, however,
that Secured Party hereby acknowledges and agrees that nothing herein
subordinates or waives, and that Bank expressly reserves, all of its present and
future rights (whether described as rights of setoff, banker’s lien, security
interest, chargeback or otherwise, and whether available to Bank under the law
or under any other agreement between Bank and Customer concerning the Deposit
Account, or otherwise) with respect to: (a) items deposited to the Deposit
Account and returned unpaid, whether for insufficient funds or for any other
reason, and without regard to the timeliness of return of any such items or the
occurrence or timeliness of any drawee’s notice of non-payment of such items;
(b) ACH entries credited to the Deposit Account and later reversed, whether for
insufficient funds or for any other reason, and without regard to the timeliness
of such entries’ reversal; (c) chargebacks to the Deposit Account of credit card
transactions; (d) erroneous entries to the Deposit Account; (e) overdrafts on
the Deposit Account, (f) claims of breach of the transfer or presentment
warranties made to Bank pursuant to the Code in connection with items deposited
to the Deposit Account; (g) any lien arising in connection with any loan or
other credit relationship between Customer and Bank; and (h) Bank’s usual and
customary charges for services rendered in connection with the Deposit Account;
and

(c) Except as otherwise required by law, Bank shall not enter into any agreement
with any third party relating to the Deposit Account or agree that it will
comply with any Orders concerning the Deposit Account originated by any such
third party without the prior written consent of Secured Party and Customer.

2.03 Control of Deposit Account. At all times during the effectiveness of this
Agreement, Customer hereby absolutely, irrevocably and unconditionally
instructs, and Bank hereby agrees, that:

(a) Bank shall comply with any Orders or other instructions concerning the
Deposit Account from Secured Party without further consent by Customer.

 

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(b) Bank shall not comply with any Orders or other instructions concerning the
Deposit Account, from any third party without the prior written consent of
Secured Party and Customer.

(c) Except as otherwise provided in Sections 2.01 and 2.02, prior to the receipt
of a Notice of Exclusive Control by Bank at the Banking Office, Bank shall
accept and execute Orders from Customer with respect to the payment or
withdrawal of any funds from the Deposit Account or the payment of any funds in
the Deposit Account to Customer.

2.04 Bank’s Representations, Warranties and Acknowledgments.

(a) Bank represents and warrants to Secured Party that:

(i) the Deposit Account has been established and is maintained with Bank at the
Banking Office solely in Customer’s name as recited above;

(ii) any balances in the Deposit Account are valid and binding obligations of
Bank;

(iii) Bank has no knowledge of any claim to, security interest in or lien upon
the Deposit Account, except the security interests in favor of Secured Party and
Bank’s liens securing fees and charges, as described in Section 2.02 hereof;

(iv) Bank has not entered into any agreement with any third party regarding the
Deposit Account or agreed that it will comply with any Orders concerning the
Deposit Account originated by any such third party.

2.05 Agreements of Bank and Customer. Bank and Customer agree that:

(a) Bank shall send copies of all statements relating to the Deposit Account
simultaneously to Customer and to Secured Party;

(b) Bank may disclose to Secured Party such other information concerning the
Account as Secured Party may from time to time request; provided, however, that
Bank shall have no obligation to disclose to Secured Party any information which
Bank does not ordinarily make available to its depositors; and

(c) Bank shall use reasonable efforts to promptly notify Secured Party and
Customer if any other party asserts any claim to, security or property interest
in or lien upon the Deposit Account.

2.06 Bank’s Responsibility. Anything contained in the foregoing to the contrary
notwithstanding:

(a) Except for permitting a withdrawal in violation of Section 2.01, Bank shall
not be liable to Secured Party for complying with Orders from Customer that are
received by Bank before Bank receives and has a reasonable opportunity to act on
Notice of Exclusive Control and any contrary Order from Secured Party.

(b) Bank shall not be liable to Customer for complying with Orders originated by
Secured Party, even if Customer notifies Bank that Secured Party is not legally
entitled to issue Orders, unless Bank takes the action after it is served with
an injunction, restraining order, or other legal process enjoining it from doing
so, issued by a court of competent jurisdiction, and had a reasonable
opportunity to act on the injunction, restraining order or other legal process.

 

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(c) This agreement does not create any obligation of Bank except for those
expressly set forth in this Agreement. In particular, Bank need not investigate
whether the Secured Party is entitled under Secured Party’s agreements with
Customer to give Orders. Bank may rely on notices and communications it believes
are given by the appropriate party.

(d) Bank will not have any liability to Customer or Secured Party for claims,
losses, liabilities or damages suffered or incurred by Customer or Secured Party
as a result of or in connection with this agreement except to the extent such
losses, liabilities and damages directly result from Bank’s gross negligence or
willful misconduct.

(e) In no event shall Bank have any liability to Customer or Secured Party for
any consequential, special, punitive or indirect loss or damage whether or not
any claim for such damages is based on tort or contract or Bank knew or should
have known the likelihood of such damages in any circumstances.

2.07 Indemnity.

(a) Customer shall indemnify and hold harmless Bank, its officers, directors,
employees, and agents against any and all claims, liabilities, demands, damages
and expenses arising out of this Agreement (including reasonable attorneys’ fees
and disbursements and the reasonable estimate of the allocated costs and
expenses of in-house legal counsel and staff), except to the extent the claims,
liabilities, or expenses are caused by Bank’s gross negligence or willful
misconduct. Customer shall indemnify Secured Party for any indemnity obligations
Secured Party owes to Bank under this Agreement.

(b) Secured Party shall indemnify and hold harmless Bank, its officers,
directors, employees, and agents against any and all claims, liabilities,
demands, damages and expenses arising out of this Agreement (including
reasonable attorneys’ fees and disbursements and the reasonable estimate of the
allocated costs and expenses of in-house legal counsel and staff), except to the
extent the claims, liabilities, or expenses are caused by Bank’s gross
negligence or willful misconduct; provided, however, that in no event shall the
Secured Party be liable for any special, consequential, exemplary damages, or
lost profits.

2.08 Termination, Survival.

(a) This Agreement shall terminate:

(i) immediately upon receipt by the Bank at the Banking Office of written notice
from Secured Party expressly stating that Secured Party is terminating this
Agreement;

(ii) immediately upon receipt by the Bank at the Banking Office of written
notice from Secured Party expressly stating that Secured Party’s security
interest in the Deposit Account has terminated; or

(iii) thirty (30) days after the receipt by Secured Party and Customer of
written notice from Bank stating that it is terminating this Agreement;

(b) Sections 2.06, “Bank’s Responsibility,” and Section 2.07, “Indemnity,” shall
survive termination of this Agreement.

 

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ARTICLE 3 - GENERAL PROVISIONS

3.01 Conflicts: Controlling Agreement. As to the matters specifically the
subject of this Agreement, in the event of any conflict between this Agreement
and any other agreement between Bank and Customer, the terms of this Agreement
shall control.

3.02 Final Agreement; Amendments and Waivers. This Agreement, together with any
other document, instrument, or agreement entered into between Customer and
Secured Party in connection therewith with respect to the subject matter
contained therein constitutes the entire understanding among each of them with
respect to the subject matter thereof. This Agreement supersedes any and all
prior oral or written agreements relating to the subject matter hereof. Any
provision of this Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the party asserted to be
bound thereby, and then such amendment or waiver shall be effective only in the
specific instance and specific purpose for which given.

3.03 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties.

3.04 Amendments, Modifications. This Agreement may be amended or modified only
in writing signed by all parties hereto.

3.05 Severability of Provisions. If any provision of this Agreement for any
reason is held to be invalid, illegal or unenforceable in any respect, that
provision shall not affect the validity, legality or enforceability of any other
provision of this Agreement.

3.06 Section Headings. Headings and numbers used to identify sections and
paragraphs of this Agreement have been set forth herein for convenience only.
Unless the contrary is compelled by the context, everything contained in each
section applies equally to this entire Agreement.

3.07 Counterparts; Facsimile Execution. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by facsimile
shall be equally as effective as delivery of a manually executed counterpart of
this Agreement. Any party delivering an executed counterpart of this Agreement
by facsimile also shall deliver a manually executed counterpart of this
Agreement but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement.

3.08 Notices. All notices, requests and demands which any party is required or
may desire to give to any other party under any provision of this Agreement must
be in writing (unless otherwise specifically provided) and delivered to each
party at the following address:

 

Customer    TransOral Pharmaceuticals, Inc.    300 Tamal Plaza, Suite 220   
Corte Madera, CA 94925    Fax. No. (415) 927-2240    Attn: Chief Financial
Officer Secured Party:    Hercules Technology Growth Capital, Inc.    525
University Avenue    Palo Alto, CA 94301    Fax. No. (650) 479-9194    Attn:
Chief Legal Officer

 

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Bank:       Comerica Bank    Technology & Life Sciences Division    Five Palo
Alto Square    3000 El Camino Real, Suite 800    Palo Alto, CA 94306    Fax. No.
(650) 213-1710    Attn: Brian Zacharias    With a Copy To:    Comerica Bank   
75 East Trimble Road    San Jose, CA 95131    FAX: (408) 556-5091    Attn:
Manager

or to such other address or facsimile number as any party may designate by
written notice to all other parties. Each such notice, request and demand shall
be deemed given or made as follows: (i) if sent by hand delivery, upon delivery;
(ii) if sent by facsimile, upon receipt; provided, however, that in either case,
receipt by Bank of any Notice of Exclusive Control shall not be deemed to have
occurred until the Bank delivers written notification (by email, fax or hard
copy) confirming receipt to the Secured Party. Bank shall attempt in good faith
to deliver written notification confirming receipt to the Secured Party promptly
following Bank’s actual receipt of the Notice of Exclusive Control.

3.09 Governing Law. This Agreement shall be deemed to have been made in the
state of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
state of California, without regard to principles regarding the conflicts or
choice of law.

3.10 WAIVER OF JURY TRIAL. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL
BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN
CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE
UNDERSIGNED PARTIES.

(a) In the event the Jury Trial Waiver set forth above is not enforceable, the
parties elect to proceed under this Judicial Reference Provision.

(b) With the exception of the items specified in clause (c), below, any
controversy, dispute or claim (each, a “Claim”) between the parties arising out
of or relating to this Agreement or any other document, instrument or agreement
between the undersigned parties (collectively in this Section, the “Loan
Documents”), will be resolved by a reference proceeding in California in
accordance with the provisions of Sections 638 et seq. of the California Code of
Civil Procedure (“CCP”), or their successor sections, which shall constitute the
exclusive remedy for the resolution of any Claim, including whether the Claim is
subject to the reference proceeding. Except as otherwise provided in the Loan
Documents, venue for the reference proceeding will be in the Superior Court in
the County where the real property involved in the action, if any, is located or
in a County where venue is otherwise appropriate under applicable law (the
“Court”).

 

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(c) The matters that shall not be subject to a reference are the following:
(i) nonjudicial foreclosure of any security interests in real or personal
property, (ii) exercise of selfhelp remedies (including, without limitation,
set-off), (iii) appointment of a receiver and (iv) temporary, provisional or
ancillary remedies (including, without limitation, writs of attachment, writs of
possession, temporary restraining orders or preliminary injunctions). This
Agreement does not limit the right of any party to exercise or oppose any of the
rights and remedies described in clauses (i) and (ii) or to seek or oppose from
a court of competent jurisdiction any of the items described in clauses
(iii) and (iv). The exercise of, or opposition to, any of those items does not
waive the right of any party to a reference pursuant to this Agreement.

(d) The referee shall be a retired Judge or Justice selected by mutual written
agreement of the parties. If the parties do not agree within ten (10) days of a
written request to do so by any party, then, upon request of any party, the
referee shall be selected by the Presiding Judge of the Court (or his or her
representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would
result if ex parte relief is not granted.

(e) The parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested, subject to change in
the time periods specified herein for good cause shown, to (i) set the matter
for a status and trial-setting conference within fifteen (15) days after the
date of selection of the referee, (ii) if practicable, try all issues of law or
fact within one hundred twenty (120) days after the date of the conference and
(iii) report a statement of decision within twenty (20) days after the matter
has been submitted for decision.

(f) The referee will have power to expand or limit the amount and duration of
discovery. The referee may set or extend discovery deadlines or cutoffs for good
cause, including a party’s failure to provide requested discovery for any reason
whatsoever. Unless otherwise ordered based upon good cause shown, no party shall
be entitled to “priority” in conducting discovery, depositions may be taken by
either party upon seven (7) days written notice, and all other discovery shall
be responded to within fifteen (15) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding.

(g) Except as expressly set forth in this Agreement, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter, except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making
such a request shall have the obligation to arrange for and pay the court
reporter. Subject to the referee’s power to award costs to the prevailing party,
the parties will equally share the cost of the referee and the court reporter at
trial.

(h) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, enter equitable orders that will be binding
on the parties and rule on any motion which would be authorized in a court
proceeding, including without limitation motions for summary judgment or summary
adjudication. The referee shall issue a decision at the close of the reference
proceeding which disposes of all claims of the parties that are the subject of
the reference. Pursuant to CCP § 644, such decision shall be entered by the
Court as a judgment or an order in the same manner as if the action had been
tried by the Court and any such decision will be final, binding and conclusive.
The parties reserve the right to appeal from the final judgment or order or from
any appealable decision or order entered by the referee. The parties reserve the
right to findings of fact, conclusions of laws, a written statement of decision,
and the right to move for a new trial or a different judgment, which new trial,
if granted, is also to be a reference proceeding under this provision.

 

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(i) If the enabling legislation which provides for appointment of a referee is
repealed (and no successor statute is enacted), any dispute between the parties
that would otherwise be determined by reference procedure will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
or Justice, in accordance with the California Arbitration Act §1280 through
§1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery set forth above shall apply to any such arbitration proceeding.

(j) THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS
RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY
A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE
MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY
TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

3.11 Attorney Costs. The prevailing party in any proceeding conducted in
accordance with the provisions of Section 3.10 hereof or any other action
arising out of this Agreement shall be reimbursed by the non-prevailing party(s)
thereto for all costs and expenses, including reasonable attorneys’ fees (to
include outside counsel fees and all allocated costs of the prevailing party’s
in-house counsel), expended or incurred by the prevailing party in connection
therewith, in addition to any other remedy or recovery awarded by the court.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth in the first paragraph hereof.

 

CUSTOMER:     TransOral Pharmaceuticals, Inc.       By:   /s/ Glenn A. Oclassen
      Name:   Glenn A. Oclassen       Title:   CEO & President SECURED PARTY:  
  Hercules Technology Growth Capital, Inc.       By:   /s/ Illegible       Name:
  Illegible       Title:   Chief Legal Officer BANK:     COMERICA BANK       By:
  /s/ Illegible       Name:   Illegible       Title:   V.P.

 

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State Street Bank and Trust Company

1200 Crown Colony Drive

Quincy, MA 02169

ATTENTION: Kevin J. Hughes

 

  Re: TransOral Pharmaceuticals, Inc.

Dear Mr. Hughes:

All terms not defined herein but defined in the Uniform Commercial Code, as in
effect from time to time in the Commonwealth of Massachusetts (the “UCC”), shall
have the meanings given to such terms in Articles 8 and 9 of the UCC.

For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, (a) TransOral Pharmaceuticals, Inc., a
Delaware corporation (the “Borrower”), (b) Capital Advisors Group (the
“Investment Manager”), (c) Hercules Growth Technology Capital, (the “Lender”)
and (d) STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company (the
“Securities Intermediary”), intending to be legally bound, do hereby agree as
follows:

 

1. Establishment of Account.

The Securities Intermediary hereby confirms that a certain account (Account No.
DE2275) (the “Account”), identified in the books of the Securities Intermediary
in the name of the Borrower, has been established with and is held by the
Securities Intermediary. The Account is an account to which financial assets may
be credited in accordance with this Agreement.

 

2. Acknowledgement of Security Interest.

The Borrower and Securities Intermediary are parties to one or more agreements
governing or relating to the establishment and administration of the Account
(referred to herein, collectively if more than one, as the “Custodial
Agreement”). The Securities Intermediary hereby acknowledges that the Borrower
has notified the Securities Intermediary that the Borrower has granted to the
Lender a security interest in the Borrower’s rights and interests in and to the
Account and all entitlements to any and all securities, investment property and
other financial assets which are now or hereafter may be deposited in and
credited to the Account, and in all cash balances that are credited to the
Account from time to time, and in all proceeds of any of the foregoing
(collectively, the “Account Assets”). The initial Account Assets as of the close
of business on March 31, 2006, are listed on Exhibit A hereto and incorporated
herein by reference.

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State Street Bank and Trust Company

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3. Account Control.

3.1 Borrower Control.

(i) Unless and until the Securities Intermediary receives written notice from
the Lender directing the Securities Intermediary that the Lender is exercising
its right to exclusive control over the Account, which notice is substantially
in the form attached hereto as Exhibit B (a “Notice of Exclusive Control”), or
if all previous Notices of Exclusive Control have been revoked or rescinded in
writing by the Lender, the Borrower (or, until the Investment Manager’s receipt
of notice from the Lender that it is exercising exclusive control over the
Account, the Investment Manager pursuant to the Custodial Agreement) shall be
entitled to exercise all rights with respect to, and to direct the Securities
Intermediary with respect to, the Account and the Account Assets, including, but
not limited to, the investment and re-investment of the Account Assets and the
Securities Intermediary shall be entitled to deal with the Borrower (or the
Investment Manager pursuant to the Custodial Agreement) as the sole and absolute
owner thereof, including without limitation the sale, liquidation, purchase,
trading, transfer, delivery, withdrawal, release or payment of any Account
Assets, including any cash balances.

(ii) The Securities Intermediary shall have no responsibility or liability to
the Lender for settling trades of financial assets carried in the Account at the
direction of and in accordance with the instructions of the Borrower or the
Investment Manager given in accordance with the Custodial Agreement, or for
complying with entitlement orders concerning any Account Assets from the
Borrower, if received by the Securities Intermediary prior to receipt of a
Notice of Exclusive Control from the Lender.

3.2 Control by Lender.

(i) Upon receipt by the Securities Intermediary of a Notice of Exclusive
Control, the Securities Intermediary shall thereafter follow only the
instructions of the Lender with respect to the Account and the Account Assets,
and shall comply with any entitlement order (within the meaning of
Section 8-102(a)(8) of the UCC) received from the Lender, without further
consent of the Borrower or any other person, and notwithstanding any demand or
notice to the contrary from the Borrower.

(ii) The Securities Intermediary shall be authorized to follow the instruction
or any entitlement order of the Lender pursuant to this Section 3.2 with respect
to the Account and the Account Assets in all respects and shall be entitled to
deal with the Lender as though the Lender were the sole and absolute owner of
the Account and Account Assets, including without limitation with respect to the
sale, liquidation, purchase, delivery, trading, transfer, withdrawal, release or
payment of any Account Assets, including any cash balances credited to the
Account.

(iii) The Securities Intermediary shall have no responsibility or liability to
the Borrower for complying with a Notice of Exclusive Control or complying with
entitlement orders concerning any Account Assets originated by the Lender. The

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State Street Bank and Trust Company

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Securities Intermediary shall have no duty to investigate or make any
determination as to whether a default or an event of default exists under any
credit agreement between the Borrower and the Lender, and the Securities
Intermediary shall comply with a Notice of Exclusive Control whether or not the
Borrower may allege that no such default or event of default exists.

(iv) Concurrently with notifying the Securities Intermediary that it is
exercising or rescinding its right of exclusive control over the Account, the
Lender shall also provide written notice to the Investment Manager of such
exercise or rescission.

 

4. Lender Security Interest.

This Agreement is intended by the Borrower and Lender to grant “control” of the
Account Assets to the Lender for purposes of perfection of the Lender’s security
interest in the Account Assets pursuant to Article 8 and Article 9 of the UCC.
Notwithstanding the foregoing, the Securities Intermediary makes no
representation with respect to and shall have no responsibility for the
sufficiency of this Agreement for such purpose.

 

5. Indemnification.

In addition to the indemnities set forth in the Custodial Agreement, the
Borrower hereby agrees to indemnify and hold the Securities Intermediary
harmless from and against all liabilities, obligations, losses, damages, claims,
costs and expenses (including without limitation attorney’s fees and costs)
which may be asserted against or incurred or suffered by the Securities
Intermediary arising out of this Agreement or the performance of the Securities
Intermediary’s agreements or duties hereunder, or as a consequence of any action
or omission by the Securities Intermediary pursuant to the terms of this
Agreement (except for such claims which have been determined by a court of
competent jurisdiction to have resulted from the Securities Intermediary’s
willful misconduct or gross negligence). The Lender agrees to indemnify and hold
the Securities Intermediary harmless from and against any and all liabilities,
obligations, losses or claims which may arise as a result of the Securities
Intermediary acting in accordance with any notice, instruction, direction or
advice received from the Lender pursuant to the terms of this Agreement (except
for such claims which have been determined by a court of competent jurisdiction
to have resulted from the Securities Intermediary’s willful misconduct or gross
negligence). THE SECURITIES INTERMEDIARY SHALL NOT BE LIABLE IN ANY EVENT TO ANY
PERSON, INCLUDING ANY PARTY HERETO, FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES WHICH ANY PERSON OR PARTY MAY INCUR OR SUFFER IN CONNECTION WITH THIS
LETTER AGREEMENT, REGARDLESS OF WHETHER THE SECURITIES INTERMEDIARY KNEW OF THE
LIKELIHOOD OF SUCH LOSS OR DAMAGE. This paragraph shall survive termination of
this Agreement and the satisfaction or termination of the Lender’s interest in
the Account.

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State Street Bank and Trust Company

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6. Force Majeure.

The Securities Intermediary shall not be liable for delays or errors occurring
by reason of circumstances beyond the control of the Lender, including, without
limitation, acts of civil, military, or banking authorities, national
emergencies, market disorder, labor difficulties, fire, flood or other
catastrophes, acts of God, terrorism, insurrection, war, riots, failure of
transportation or equipment, or failure of vendors, communication or power
supply. In no event shall the Securities Intermediary be liable to any person
for consequential damages, exemplary damages, special damages, indirect damages,
or lost profits, even if the Securities Intermediary has been advised of the
possibility or likelihood of such damages. The provisions of this paragraph
shall survive termination of this Agreement and the Lender’s interest in the
Account.

 

7. Duties of Securities Intermediary; No Implied Obligations.

(i) The Securities Intermediary shall have no duties, obligations,
responsibilities or liabilities with respect to the Account or the Account
Assets except as and to the extent expressly set forth in this Agreement and the
Custodial Agreement, and no implied duties of any kind shall be read into this
Agreement against the Securities Intermediary.

(ii) Except for the rights of control in favor of the Lender agreed to herein,
nothing herein shall be deemed to modify, limit, restrict, amend or supersede
the terms of the Custodial Agreement, and Securities Intermediary shall remain
entitled to all of the rights, indemnities, powers, immunities and protections
in its favor under the Custodial Agreement. The Securities Intermediary does not
herein waive or agree to subordinate, and the Securities Intermediary hereby
expressly reserves, any lien, security interest and rights of offset which it is
granted or to which it is entitled under the Custodial Agreement and/or
applicable law.

(iii) Without limiting the generality of the foregoing, in no instance shall the
Securities Intermediary be under any obligation to take any action to preserve,
protect or exercise rights in the Account Assets (except to the extent that may
be expressly required by the terms of the Custodial Agreement). It is understood
that the Securities Intermediary shall have at no time any responsibility
(a) for determining the value of the Account Assets, (b) for any market decline
in the value of the Account Assets or (c) for notifying any person of any such
decline in market value of the Account Assets.

(iv) The Lender hereby expressly acknowledges that the Account may include
Account Assets in the nature of securities entitlements in favor of the
Securities Intermediary in one or more securities accounts at one or more
underlying securities intermediaries in which or through which underlying
assets, or entitlements thereto, are held or credited (including without
limitation, with respect to federal book-entry securities, a “security
entitlement” within the meaning of applicable federal book-entry regulations).
The Securities Intermediary shall have no liability for the actions or omissions
of, or any errors or omissions in the records of, any such underlying securities
intermediary.

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State Street Bank and Trust Company

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(v) All securities and investment property now or hereafter held in the Account
shall be treated as “financial assets” within the meaning of Section 8-102(a)(9)
of the UCC.

(vi) The parties hereto acknowledge that no “security entitlement” under the UCC
shall exist with respect to any financial asset held in the Account which is
registered in the name of the Borrower, payable to the order of the Borrower or
specially indorsed to the Borrower (each such asset an “Identified Security”),
except to the extent such Identified Security has been specially indorsed by the
Borrower to the Securities Intermediary or in blank. The parties further
acknowledge and agree that any such Identified Securities received by it and
credited to the Account from time to time shall (so long as so credited to the
Account and so long as this Agreement remains in effect) be held by the
Securities Intermediary (directly or through a Sub-Custodian, as defined below,
as applicable) for the benefit of the Lender, not in its capacity as a
“securities intermediary” (as defined in the UCC), but in its capacity as a
custodial agent under and subject to the terms of this Agreement.

(vii) For avoidance of doubt, the Lender hereby acknowledges that any Account
Assets issued outside the United States (“Foreign Security System Assets”) and
held in the Account, which are held by the Securities Intermediary, a
sub-custodian within the Securities Intermediary’s network of sub-custodians
(each a “Sub-Custodian”) or a depository or book-entry system for the central
handling of securities and other financial assets in which the Securities
Intermediary or the Sub-Custodian are participants (each, a “Securities System”)
may not permit the Borrower to have a security entitlement under the UCC with
respect to such Foreign Security System Assets (and such property shall be
deemed for purposes of this Agreement not to be a financial asset held within
the Account).

(viii) The Securities Intermediary shall not change the name or the account
number of the Account without the prior written consent of the Borrower and the
Lender.

 

8. Standard of Care.

8.1 Custodial Agreement. In no event shall the Securities Intermediary be liable
for its failure to perform under the terms of this Agreement, except to the
extent that the Securities Intermediary has acted with gross negligence or
willful misconduct. The Securities Intermediary shall not be responsible for the
sufficiency of this Agreement or the arrangement contemplated hereby to create,
cause to attach or perfect, any security interest in favor of the Lender.

8.2 No Implied Duties. The Securities Intermediary shall have no
responsibilities, obligations or duties other than those expressly set forth in
this Agreement and the Custodial Agreement, and no implied duties,
responsibilities or obligations shall be read into this Agreement against the
Securities Intermediary; without limiting the generality of the foregoing, the
Securities Intermediary shall have no duty to preserve, exercise or enforce
rights in the Account Assets (against prior parties or otherwise).

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State Street Bank and Trust Company

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8.3 Borrower Instruction. As between the Borrower and the Securities
Intermediary, except as may be otherwise expressly stated herein, the
liabilities of each to the other shall be governed by the provisions of the
Custodial Agreement. Instructions from a Borrower’s Authorized Representative
given in accordance with the terms of the Custodial Agreement to the Securities
Intermediary hereunder shall also constitute Proper Instructions (as defined in
the Custodial Agreement) under the Custodial Agreement. Upon the Investment
Manager’s receipt from the Lender of the Lender’s exercise of exclusive control
over the Account, the Borrower acknowledges that the Investment Manager shall
have no responsibility for investing and reinvesting the Account Assets, until
such time as written notice of the Lender’s revocation of such exclusive control
is received by the Investment Manager.

8.4. Lender Instruction. Notwithstanding any provision contained herein or in
any other document or instrument to the contrary, the Securities Intermediary
shall not be liable for any action taken or omitted to be taken at the
instruction of the Lender, or any action otherwise taken or omitted to be taken
under, in connection with, or pursuant to the terms of this Agreement, except
for in the case of (and to the extent of) the Securities Intermediary’s own
gross negligence or willful misconduct.

8.5 Certain Immunities and Protections. In no event shall the Securities
Intermediary be liable for indirect, special, punitive or consequential damages
of any kind, even if advised of the possibility of such damages. Without
limiting the generality of the foregoing, and notwithstanding any provision to
the contrary contained herein, the Securities Intermediary:

(i) may in any instance where the Securities Intermediary reasonably determines
that it lacks authority to take or refrain from taking certain action, or as to
the requirements of this Agreement under any circumstance before it, delay or
refrain from taking action unless and until it has received appropriate
instructions hereunder; provided, however, that under no circumstances shall
this clause (i) be construed as requiring the Securities Intermediary to obtain
the consent of the Borrower in order to comply with any entitlement order
originated by the Lender hereunder;

(ii) may consult with legal counsel, independent public accountants, or other
experts selected by it in good faith, and shall not be liable for any action
taken or omitted to be taken in good faith in accordance with the advice of such
experts;

(iii) will have no duty to ascertain or inquire as to the performance or
observance by the Borrower of any of the terms, conditions or covenants of this
Agreement, or as to the terms of (or the Borrower’s or Lender’s compliance with)
any credit agreement or related security agreement between the Borrower and
Lender, or to inspect the property, books or records of the Borrower;

(iv) except for the representations of the Securities Intermediary set forth in
Section 10, will not be responsible for the due execution, legality, validity,
enforceability, genuineness, effectiveness or sufficiency of this Agreement;

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(v) will not incur any liability by acting or not acting in reliance upon any
notice, consent, certificate, statement or other instrument or writing
reasonably believed by it to be genuine and to be signed or sent by the proper
party or parties;

(vi) will not incur liability for any notice, consent, certificate, statement,
wire instruction, telecopy, or other writing which is delayed, canceled or
changed without the actual knowledge of the Securities Intermediary;

(vii) shall not be deemed to have or be charged with notice or knowledge of any
fact or matter unless a written notice thereof has been received by the
Securities Intermediary at the address designated in (or as subsequently
designated pursuant to) this Agreement;

(viii) shall not be required by any provision of this Agreement to expend or
risk the Securities Intermediary’s own funds, or to take any action (including
but not limited to the institution or defense of legal proceedings) which in its
reasonable judgment could cause it to incur or suffer any significant expense or
liability (including but not limited to reasonable attorneys’ fees and
disbursements), unless and until security or indemnity in form and amount
reasonably satisfactory to the Securities Intermediary shall have been provided
therefore;

(ix) shall not incur any liability for acts or omissions of any domestic or
foreign depository, securities intermediary or book-entry system for the central
handling of financial assets (except to the extent provided in the Custodial
Agreement, if applicable); and

(x) except as expressly set forth herein, shall not be responsible for the
title, validity or genuineness of any Account Asset carried in the Account at
any time or times.

 

9. Compliance with Legal Process and Judicial Orders.

The Securities Intermediary shall have no responsibility or liability to the
Borrower or to the Lender or to any other person or entity for acting in
accordance with any judicial or arbitral process, order, writ, judgment or
decree relating to the Account Assets subject to this Agreement notwithstanding
that such order or process is subsequently modified, vacated or otherwise
determined to have been without legal force or effect.

 

10. Representations and Warranties; Covenants.

10.1 General Representations. Each of the parties to this Agreement represents
and warrants to the other parties to this Agreement as follows:

(i) it is duly organized and existing under the laws of the jurisdiction of its
organization with full power and authority to execute and deliver this Agreement
and to perform all of the duties and obligations to be performed by it under
this Agreement; and

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State Street Bank and Trust Company

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(ii) this Agreement has been duly authorized, executed and delivered by it, and
constitutes its valid, legal and binding obligation enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application relating to
or affecting the enforcement of creditors’ rights in general or by general
principles of equity whether considered in a proceeding at law or equity.

10.2 Securities Intermediary Representations. The Securities Intermediary
represents, warrants, covenants, agrees and confirms, as of the date hereof, and
at all times until the termination of this Agreement:

(i) that in the ordinary course of its business the Securities Intermediary
maintains securities accounts for others, and that it is acting in that capacity
with respect to the Account;

(ii) that there are to its knowledge no other agreements entered into between
the Securities Intermediary and the Borrower with respect to the Account except
for this Agreement, the Custodial Agreement and any related fee agreement, funds
transfer agreement and data access agreement;

(iii) that the Securities Intermediary has not entered into, and until the
termination of this Agreement will not enter into, any agreement (other than the
Custodial Agreement) with any other person or entity relating to the Account or
the Account Assets under which it has agreed to comply with entitlement orders
(as defined in of the UCC) of such other person or entity; and

(iv) that the Securities Intermediary has not entered into, and until the
termination of this Agreement will not enter into, any agreement with the
Borrower or any other person or entity, purporting to revoke, limit or condition
the agreement of the Securities Intermediary set forth in this Agreement to
comply with entitlement orders of the Lender, as set forth herein, without the
Lender’s express written consent.

10.3 Notice of Third Party Claims. If the Securities Intermediary receives
written notice that any person or entity asserts a lien, encumbrance or adverse
claim (including any writ, garnishment, judgment, warrant of attachment,
execution or similar process) against the Account, the Securities Intermediary
will undertake reasonable efforts promptly to notify the Lender and the Borrower
thereof (but shall have no liability in the event of any delay or failure on its
part to do so).

10.4. The Investment Manager is executing this Agreement for the purpose of
acknowledging (i) receipt of this Agreement and (ii) knowledge of its terms and
conditions.

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11. Further Agreements.

11.1 Settlement By Borrower. The Borrower agrees with the Securities
Intermediary that assets of the Borrower shall not be deposited, delivered or
held in the Account until such assets have been fully paid by the Borrower.

11.2 No Borrower Contravention of Lender Control. After the Lender has delivered
a Notice of Exclusive Control to the Securities Intermediary, unless such Notice
of Exclusive Control is revoked in writing by the Lender, the Borrower agrees
that it shall not give any instruction to the Securities Intermediary in respect
to the Account or Account Assets without the prior written consent of the
Lender.

11.3 Notice of Default. The Lender agrees that it shall, promptly after becoming
aware of the Securities Intermediary’s failure to perform or observe any term,
covenant or agreement on its part to be performed or observed hereunder, deliver
to the Borrower notice thereof setting forth in reasonable detail the
circumstances of such failure.

 

12. Access to Reports; Tax Reporting.

12.1 Information Sharing. The Borrower hereby authorizes the Securities
Intermediary to forward directly to the Lender a copy of the monthly statement
of the Account which is provided by the Securities Intermediary to the Borrower;
provided, however, that the Securities Intermediary failure not to forward a
copy of such statement to the Lender shall not give rise to any liability
hereunder.

12.2 Tax Reporting. All items of income, gain, expense and loss recognized in
the Account which the Securities Intermediary determines that it is required by
law to report to the Internal Revenue Service or any other taxing authorities
shall be reported to the Internal Revenue Service or such taxing authorities
under the name and taxpayer identification number of the Borrower.

 

13. Interpleader.

Notwithstanding any provision contained in this Agreement to the contrary, in
the event the Securities Intermediary believes, in its reasonable opinion, that
(i) a bona fide dispute exists concerning this Agreement or the disposition of
any of the Account or the Account Assets, (ii) a person or entity makes a claim
against the Account or the Account Assets, or (iii) any action under any
bankruptcy, insolvency or similar law is commenced relating to the Borrower, the
Securities Intermediary shall have the absolute right, at its election, to
petition a court of competent jurisdiction as to the appropriate action to be
taken and either deliver the Account Assets to the court in which the action is
commenced or freeze the Account pending receipt of such court direction or
order, whereupon the Securities Intermediary shall thereby be relieved from any
further liability respecting the Account and the Account Assets and shall be
held harmless by the Borrower, Investment Manager and the Bank in taking any
action or refraining from taking any action if done pursuant to any direction or
order given by such court.

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State Street Bank and Trust Company

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14. Fees and Expenses of Securities Intermediary.

14.1 Compensation. The Securities Intermediary shall be entitled to, and the
Borrower hereby agrees to pay to the Securities Intermediary, compensation in
accordance with the terms of the Custodial Agreement.

14.2 Reimbursement For Costs. In addition to the terms of the Custodial
Agreement, the Borrower hereby agrees to pay and reimburse the Securities
Intermediary for any advances, costs, expenses (including without limitation
reasonable attorney’s fees and costs) and disbursements that may be paid or
incurred by the Securities Intermediary in connection with, this Agreement or
the arrangement contemplated hereby, including any that may be incurred in
performing its duties or responsibilities pursuant to the terms of this
Agreement.

14.3 Liens. Any amounts that may be owing to the Securities Intermediary from
time to time pursuant to the terms of, or as described in, this Section 14
and/or Section 5 hereof shall be deemed to be amounts owing under the Custodial
Agreement, and shall be deemed to be secured by any lien, encumbrance and other
rights that the Securities Intermediary may have under the Custodian Agreement
and/or applicable law; and the Securities Intermediary shall be entitled to
exercise such rights and interests in accordance with the terms of the Custodial
Agreement.

14.4 Advances. Without limiting the generality of the foregoing, it is hereby
expressly acknowledged and agreed by the parties that the Securities
Intermediary (including its affiliates, subsidiaries and agents) shall not be
obligated to advance cash or investments to, for or on behalf of the Borrower;
however, if the Securities Intermediary, or its affiliates, subsidiaries or
agents, does advance cash or investments for any purpose (including but not
limited to securities settlements, foreign exchange contracts, assumed
settlement or account overdraft) for the benefit of the Borrower, or in the
event that the Securities Intermediary or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in connection
with the performance of this Agreement, except such as may arise from the
Securities Intermediary’s or its nominee’s own gross negligence, bad faith or
willful misconduct, any property at any time held pursuant to this Agreement
shall be security therefore and should the Borrower fail to repay the Securities
Intermediary promptly, the Securities Intermediary shall be entitled to utilize
available cash and to dispose of Collateral assets to the extent necessary to
obtain reimbursement.

 

15. Termination.

(a) This Agreement may be terminated by the Securities Intermediary at any time
upon not less than thirty (30) days written notice to the Borrower and the
Lender. In such event, the Borrower and the Lender shall within twenty (20) days
of such notice notify the Securities Intermediary in writing of the appointment
of a successor Securities Intermediary (including name, address, contact person
and telephone number) and shall give written instruction to the Securities
Intermediary to deliver the Account Assets to such successor Securities
Intermediary. In the event of the failure of the Borrower and Lender to give
such written notification and instruction within such twenty (20) days, the
Securities Intermediary shall be entitled to petition a court of competent
jurisdiction to appoint a successor (and otherwise to exercise its rights
pursuant to Section 13 hereof).

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(b) Upon the sooner to occur of (i) the Securities Intermediary’s receipt of
notice of the termination or release of the Lender’s claim hereunder as provided
in Section 16.2 hereof, (ii) delivery of the Account Assets to a successor
Securities Intermediary pursuant to Section 15.6(a) hereof, or (iii) the
termination of the Account in accordance with the Custodial Agreement and
distribution or application of the Account Assets in accordance with the terms
of this Agreement, this Agreement shall terminate and all obligations and duties
of the Securities Intermediary hereunder shall immediately terminate and be
discharged.

 

16. Miscellaneous.

16.1 Authorization. The Borrower hereby directs the Securities Intermediary to
comply with the terms of this Agreement.

16.2 Release of Security Interest. The Lender agrees to notify the Securities
Intermediary promptly in writing when all obligations of the Borrower to the
Lender under the credit agreement between the Borrower and Lender have been
fully paid and satisfied (and any commitment of the Lender to advance further
amounts or credit thereunder has been terminated) or the Lender otherwise no
longer claims any interest in the Account Assets, whichever is soonest; at which
time the Securities Intermediary shall have no further liabilities or
responsibilities hereunder and the Securities Intermediary’s obligations under
this Agreement shall terminate.

16.3 Notices. All notices, requests and demands to or upon the respective
parties hereto shall be in writing (including by facsimile transmission) and may
be sent by hand, or by confirmed facsimile transmission (confirmed promptly by
mailing of the original) or by telex, answer back received, or delivery by any
recognized delivery service, prepaid, or by certified or registered mail, return
receipt requested, postage prepaid, and addressed as follows, or to such other
address as any party may hereafter notify the other respective parties hereto in
writing:

 

(a)

   If to the Securities Intermediary,    then:    State Street Bank and Trust
Company       1200 Crown Colony Drive       Quincy, MA 02169       Attn: Kevin
J. Hughes – Vice President

(b)

   If to the Lender,       then:    Hercules Technology Growth Capital      
Legal Department       525 University Ave., Suite 700       Palo Alto, CA 94301
      Facsimile: 650-473-9194       Telephone: 650-289-3068       Attention:
Chief Legal Officer and Kathy Conte

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State Street Bank and Trust Company

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(c)

   If to the Borrower,    then:    TransOral Pharmaceuticals, Inc.       1003
West Cutting Blvd.       Suite 110       Pt. Richmond, CA 94804       Attn:
Glenn A. Oclassen, CEO       Phone: (415) 215-3500       Fax: (415) 215-3535

(d)

   If to the Investment Manager,    then:    Capital Advisors Group       29
Crafts Street Suite 270       Newton, MA 02458       Attn: Ben Campbell

16.4 Additional Information.

The Borrower, the Lender and the Investment Manager shall provide to the
Securities Intermediary any information or documents and execute any document or
instrument which the Securities Intermediary deem necessary or appropriate to
perform its obligations hereunder.

16.5 Amendments in Writing; Counterparts. This Agreement may be amended or
modified only in a written document signed by all of the parties hereto. This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but such counterparts together shall constitute one and
the same instrument. Any proof of this Agreement shall require production of
only one such counterpart.

16.6 Severability. If any provision of this Agreement or any portion of such
provision, or the application thereof to any person or circumstance, shall to
any extent be prohibited or held invalid or unenforceable, the remainder of this
Agreement or the remainder of such provision and the application thereof to
other persons or circumstances (other than those as to which it is prohibited or
held invalid or unenforceable) shall not be affected thereby, and each term and
provision hereof shall be valid and enforced to the fullest extent permitted by
law. To the extent permitted by law, the parties hereto waive any provision of
law which renders any such provision or the application thereof to any person or
circumstance prohibited, invalid or unenforceable in any respect.

16.7 Successors. This Agreement shall be binding upon the parties hereto and
their respective successors and assigns.

16.8 Governing Law; Jurisdiction of Securities Intermediary. Each of the parties
hereby agrees that this Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the conflict of law provisions thereof, and that the Securities
Intermediary’s jurisdiction, for purposes of Section 8- 110(e) of the UCC as it
pertains to this Agreement, the Account and the security entitlements relating
to the financial assets (including without limitation, the Account Assets)
credited to or otherwise deposited or held in the Account, shall be the
Commonwealth of Massachusetts.

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State Street Bank and Trust Company

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041102

 

16.9 Assignment. All of the terms of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns; provided, that no party may assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the other parties hereto.

16.10 Headings. Any headings appearing on this Agreement are for convenience
only and shall not affect the interpretation of any of the terms of this
Agreement.

16.11 Counterparts. This Agreement may be executed simultaneously in any number
of counterparts each of which when so executed and delivered shall be an
original but all of which shall constitute but one and the same document.

[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY]

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State Street Bank and Trust Company

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041102

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement under their
respective seals as of May 19, 2006.

 

STATE STREET BANK AND TRUST COMPANY By:   /s/ Kevin J. Hughes Name: Kevin J.
Hughes Title: Vice President Its duly authorized officer

 

TRANSORAL PHARMACEUTICALS, INC. By:   /s/ Glenn A. Oclassen Name: Glenn A.
Oclassen Title: President & Chief Executive Officer Its duly authorized officer

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC. By:   /s/ Scott Harvey Name: Scott
Harvey Title: Chief Legal Officer Its duly authorized officer

 

CAPITAL ADVISORS GROUP By:   /s/ Benjamin Campbell Name: Benjamin Campbell
Title:

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DESCRIPTION OF INITIAL SECURITIES

Exhibit A

TRANSORAL PHARMACUETICALS, INC.

PORTFOLIO

4/28/2006

 

TICKER

   % OF
HOLDINGS    

INSTRUMENT (RATING)

   INVESTMENT
AT COST    YIELD TO
MATURITY  

MMF

   16.69 %   EVERGREEN INSTITUTIONAL MMF    $ 2,887,804    4.68 %

C

   8.72 %   CITIGROUP (AA1/AA-)    $ 1,508,160    4.53 %

MBNAS

   8.72 %   MBNA CREDIT CARD MASTER NOTE TRUST (AAA/AAA)    $ 1,507,734    4.57
%

LEH

   4.37 %   LEHMAN BROTHERS (A1/A+)    $ 755,460    4.56 %

SOCNAM

   4.06 %   SOCIETE GENERALE (AA3/A+)    $ 702,114    4.99 %

CCCIT

   2.90 %   CITIBANK CREDIT CARD ISSUANCE TRUST (AAA/AAA)    $ 501,016    4.90 %

BAC

   1.45 %   MBNA AMERICA BANK (AA1/AA)    $ 251,488    4.81 %

AAB

   8.80 %   ABN AMRO(A1/A+)    $ 1,522,185    4.66 %

STI

   5.87 %   SUNTRUST BANK (Al/A)    $ 1,015,870    4.63 %

CHAMT

   2.90 %   CHASE CREDIT CARD MASTER TRUST (AAA/AAA)    $ 502,441    4.72 %

BCSFUN

   1.42 %   BARCLAYS US FUNDING (A1+/P1)    $ 244,981    4.92 %

CALYON

   4.26 %   CALYON NORTH AMERICA (A1+/P1)    $ 737,522    5.10 %

CCE

   4.31 %   COCA-COLA ENTERPRISES (A2/A)    $ 745,890    4.87 %

COMT

   1.45 %   CAPITAL ONE MASTER TRUST (AAA/AAA)    $ 250,557    4.90 %

CCE

   1.45 %   COCA-COLA ENTERPRISES (A2/A)    $ 250,238    5.04 %

LEH

   5.90 %   LEHMAN BROTHERS (A1/A+)    $ 1,020,620    4.72 %

CALYON

   2.83 %   CALYON NORTH AMERICA (A1+/P1)    $ 489,476    5.16 %

CCE

   2.33 %   COCA-COLA ENTERPRISES (A2/A)    $ 403,104    4.73 %

AIG

   5.81 %   INTERNATIONAL LEASE FINANCE (A1/AA-)    $ 1,005,060    4.95 %

COMT

   2.88 %   CAPITAL ONE MASTER TRUST (AAA/AAA)    $ 498,711    5.21 %

DE

   2.89 %   JOHN DEERE (A3/A-)    $ 500,005    5.12 %      TOTAL    $ 17,300,435
   4.77 %                   

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State Street Bank and Trust Company

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NOTICE OF EXCLUSIVE CONTROL

Exhibit B

State Street Bank and Trust Company

1200 Crown Colony Drive

Quincy, MA 02169

Attention:    Kevin J. Hughes

NOTICE OF EXCLUSIVE CONTROL

We hereby instruct you pursuant to the terms of that certain Account Control
Agreement dated as of March 31, 2003 (as from time to time amended and
supplemented, the “Control Agreement”) among the undersigned
                     (the “Lender”), Capital Advisors Group (the “Investment
Manager”),                      (together with its successors and assigns, the
“Borrower”) and you, as Securities Intermediary, that you (i) shall not follow
any instructions or entitlement orders of the Borrower in respect of the Account
or the Collateral (as each such capitalized term is defined in the Control
Agreement), and (ii) unless and until otherwise expressly instructed by the
undersigned, shall exclusively follow the entitlement orders and instructions of
the undersigned in respect to the Account or the Collateral.

 

Very truly yours, By:       Authorized Signatory cc:     Capital Advisors Group