Loan and Security Agreement dated March 27, 2003



  
 Exhibit 10.8

  

  
 LOAN AND SECURITY AGREEMENT 
  
 By and Between 
  
 THRESHOLD PHARMACEUTICALS, INC. 
  
 And 
  
 SILICON VALLEY
BANK 
  

  









  
 TABLE OF CONTENTS

  

					
	 	  	 	  	Page


	1.	  	ACCOUNTING AND OTHER TERMS	  	1
			
	2.	  	LOAN AND TERMS OF PAYMENT	  	1
			
	 	  	 2.2      Interest Rate, Payments
	  	3
	 	  	 2.3      Fees
	  	3
			
	3.	  	CONDITIONS OF LOANS	  	3
			
	 	  	 3.1      Conditions Precedent to Initial Credit Extension
	  	3
	 	  	 3.2      Conditions Precedent to all Credit Extensions
	  	4
			
	4.	  	CREATION OF SECURITY INTEREST	  	4
			
	 	  	 4.1      Grant of Security Interest
	  	4
			
	5.	  	REPRESENTATIONS AND WARRANTIES	  	4
			
	 	  	 5.1      Due Organization and Authorization
	  	4
	 	  	 5.2      Collateral
	  	4
	 	  	 5.3      Litigation
	  	4
	 	  	 5.4      No Material Adverse Change in Financial Statements
	  	5
	 	  	 5.5      Solvency
	  	5
	 	  	 5.6      Regulatory Compliance
	  	5
	 	  	 5.7      Subsidiaries
	  	5
	 	  	 5.8      Full Disclosure
	  	5
			
	6.	  	AFFIRMATIVE COVENANTS	  	6
			
	 	  	 6.1      Government Compliance
	  	6
	 	  	 6.2      Financial Statements, Reports, Certificates
	  	6
	 	  	 6.3      Inventory; Returns
	  	6
	 	  	 6.4      Taxes
	  	7
	 	  	 6.5      Loss; Destruction; or Damage
	  	7
	 	  	 6.6      Insurance
	  	7
	 	  	 6.7      Primary Accounts
	  	8
	 	  	 6.8      Registration of Intellectual Property Rights
	  	8
	 	  	 6.9      Further Assurances
	  	8

  

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	7.	  	 NEGATIVE COVENANTS
	  	8
			
	 	  	 7.1      Dispositions
	  	8
	 	  	 7.2      Changes in Business, Ownership, Management or Business Locations
	  	9
	 	  	 7.3      Mergers or Acquisitions
	  	9
	 	  	 7.4      Indebtedness
	  	9
	 	  	 7.5      Encumbrance
	  	9
	 	  	 7.6      Distributions; Investments
	  	9
	 	  	 7.7      Transactions with Affiliates
	  	9
	 	  	 7.8      Subordinated Debt
	  	10
	 	  	 7.9      Compliance
	  	10
			
	8.	  	 EVENTS OF DEFAULT
	  	10
			
	 	  	 8.1      Payment Default
	  	10
	 	  	 8.2      Covenant Default
	  	10
	 	  	 8.3      Material Adverse Change
	  	10
	 	  	 8.4      Attachment
	  	11
	 	  	 8.5      Insolvency
	  	11
	 	  	 8.6      Other Agreements
	  	11
	 	  	 8.7      Judgments
	  	11
	 	  	 8.8      Misrepresentations
	  	11
			
	9.	  	BANK’S RIGHTS AND REMEDIES	  	11
			
	 	  	 9.1      Rights and Remedies
	  	11
	 	  	 9.2      Power of Attorney
	  	12
	 	  	 9.3      Accounts Collection
	  	12
	 	  	 9.4      Bank Expenses
	  	13
	 	  	 9.5      Bank’s Liability for Collateral
	  	13
	 	  	 9.6      Remedies Cumulative
	  	13
	 	  	 9.7      Demand Waiver
	  	13
			
	10.	  	NOTICES	  	13
			
	11.	  	CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER	  	13
			
	12.	  	GENERAL PROVISIONS	  	14
			
	 	  	 12.1    Successors and Assigns
	  	14
	 	  	 12.2    Indemnification
	  	14
	 	  	 12.3    Time of Essence
	  	14
	 	  	 12.4    Severability of Provision
	  	14
	 	  	 12.5    Amendments in Writing, Integration
	  	14
	 	  	 12.6    Counterparts
	  	15
	 	  	 12.7    Survival
	  	15
	 	  	 12.8    Confidentiality
	  	15
	 	  	 12.9    Attorneys’ Fees, Costs and Expenses
	  	15
			
	13.	  	DEFINITIONS	  	15
			
	 	  	 13.1    Definitions
	  	15

  

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 This LOAN AND SECURITY AGREEMENT
dated March 27, 2003, between SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and THRESHOLD PHARMACEUTICALS, INC, a Delaware corporation (“Borrower”), whose address is 951 Gateway
Boulevard, Suite 3A, South San Francisco, California 94080, provides the terms on which Bank will lend to Borrower and Borrower will repay Bank. The parties agree as follows: 
  
 1. ACCOUNTING AND OTHER TERMS. 
  
 Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be
made following GAAP. The term “financial statements” includes the notes and schedules. The terms “including” and “includes” always mean “including (or includes) without limitation,” in this or any Loan
Document. 
  
 2. LOAN AND TERMS OF
PAYMENT 
  
 2.1.1 Credit Extensions.

  
 Borrower will pay Bank the unpaid principal amount of all
Credit Extensions and interest on the unpaid principal amount of the Credit Extensions. 
  

	2.1.2	Equipment Advances. 

  
 (a) Subject to the terms and conditions of this Agreement, Bank agrees to lend to Borrower, from time to time prior to the Equipment Availability End
Date, equipment advances (each an “Equipment Advance” and collectively the “Equipment Advances”) in an aggregate amount not to exceed the Committed Equipment Line. Each Equipment Advance may not exceed 100% of the Original Stated
Cost (except for the portion of the first Equipment advance relating to Other Equipment, which may be used for general corporate or working capital purposes). When repaid, the Equipment Advances may not be re-borrowed. The proceeds of each Equipment
Advance will be used solely to reimburse Borrower for the purchase of Eligible Equipment purchased within 90 days of such Equipment Advance (except for the portion of the first Equipment advance relating to Other Equipment, which may be used for
general corporate or working capital purposes). Each Equipment Advance shall be considered a promissory note evidencing the amounts due hereunder for all purposes. Bank’s obligation to lend hereunder shall terminate on the earlier of (i) the
occurrence and continuance of an Event of Default, or (ii) the Equipment Availability End Date. For purposes of this Section, the minimum amount of each Equipment Advance is $100,000 except for the last Equipment Advance which may be for a lesser
amount and the maximum number of Equipment Advances that will be made is 6. 
  
 (b) To obtain an Equipment Advance, Borrower must notify Bank (the notice is irrevocable) by facsimile no later than 12:00 noon Pacific time 1 Business Day before the day on which the Equipment Advance is to be made.
The notice shall be in the form of Exhibit B (Payment/Advance Form) and must be signed by a Responsible Officer or designee and include a copy of the invoice for the Equipment being financed (except for the portion of the first Equipment advance
relating to Other Equipment, which may be used for general corporate or 

  

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working capital purposes). Equipment Advances shall only be made on the first day of each month unless otherwise approved by Bank. 
  
 (c) Borrower will make equal monthly payments in advance of principal and
interest for each Equipment Advance (collectively, “Scheduled Equipment Payments”), on the Funding Date (provided that if the Funding Date is not the first Business Day of the month, then Borrower shall make an interim payment as set forth
below) and on each first Business Day of the month following the Funding Date with respect to such Equipment Advance and continuing thereafter during the Repayment Period on the first Business Day of each calendar month (each a “Payment
Date”) in an amount equal to the Loan Factor multiplied by the Loan Amount for such Equipment Advance as of such Payment Date. The full principal amount shall fully amortize over the Repayment Period. All unpaid principal and accrued interest
is due and payable in full on the last Payment Date with respect to such Equipment Advance. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. An Equipment Advance may only be
prepaid in accordance with Section 2.1.2 (h). 
  
 (d) If the date
of funding of an Equipment Advance is a date other than the first of the month, then, on that date Borrower will make an interim payment in an amount equal to the product of: (A) the quotient of: (i) the product of: (y) the amount of the Equipment
Advance, multiplied by (z) a rate of interest equal to the Prime Rate plus 2%; divided by (ii) 360; multiplied by (B) the actual number of days (including the Funding Date) between the Funding Date and the first Business Day of the immediately
following month. 
  
 (e) On the Equipment Advance Maturity Date
with respect to each Equipment Advance, Borrower will pay, in addition to the unpaid principal and accrued interest and all other amounts due on such date with respect to such Equipment Advance, an amount equal to the Final Payment. 
  
 (f) If any Financed Equipment is subject to an Event of Loss and Borrower is
required to or elects to prepay the Equipment Advance with respect to such Financed Equipment pursuant to Section 6.5, then such Equipment Advance shall be prepaid to the extent and in the manner provided in such section. 
  
 (g) Bank’s obligation to lend the undisbursed portion of the Committed
Equipment Line will terminate if, in Bank’s reasonable discretion, there has been a Material Adverse Change. 
  
 (h) Each Equipment Advance may be prepaid in whole (solely in whole), without premium or penalty provided that: (i) no Event of Default has occurred and
is continuing, (ii) Borrower provides Bank with at least five (5) days prior written notice, (iii) each such prepayment is in a minimum amount of $10,000; and (iv) Borrower pays Bank with respect to such Equipment Advance: (x) all outstanding
principal; (y) all accrued and unpaid interest as well as any other amounts that have become due and payable as of the date of the prepayment; and (z) the Final Payment with respect to the Equipment Advance being prepaid. If the Equipment Advances
are accelerated following the occurrence and continuation of an Event of Default or otherwise, then Borrower will immediately pay to Bank (i) all unpaid Scheduled 

  

 2 








 
Equipment Payments (including principal and interest) with respect to each Equipment Advance, (ii) all remaining Scheduled Equipment Payments (including
principal and unpaid interest and the Final Payment) (iii) all accrued unpaid interest, including the default rate of interest, to the date of the prepayment, and (iv) all other sums, if any, that shall have become due and payable with respect to
each Equipment Advance. 
  
 2.2 Interest Rate,
Payments. 
  
 (a) Interest Rate. Each Equipment Advance shall
accrue interest on the outstanding principal balance at a fixed per annum rate determined as of the date of the applicable Funding Date equal to the greater of: (i) the Treasury Note Rate as of the applicable Funding Date plus 3% or (ii) 5.50%; and
(which rate shall remain fixed for the term of the relevant Equipment Advance). After an Event of Default, Obligations accrue interest at 5 percent above the rate effective immediately before the Event of Default. Interest is computed on a 360 day
year for the actual number of days elapsed. 
  
 (b) Bank may debit
any of Borrower’s deposit accounts including Account Number 3300317303 for principal and interest payments owing or any amounts Borrower owes Bank. Bank will notify Borrower when it debits Borrower’s accounts. These debits are not a
set-off. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional
fees or interest accrue. 
  
 2.3 Fees.

  
 Borrower will pay: 
  
 (a) Commitment Fee. Borrower shall pay Bank a commitment fee in the amount of
$5,000, provided that if the Loan Documents are executed on or before March 21, 2003, the commitment fee shall be refunded to Borrower. 
  
 (b) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and reasonable expenses) incurred through and after the date of this
Agreement, are payable when due. 
  
 3.
CONDITIONS OF LOANS 
  
 3.1 Conditions
Precedent to Initial Credit Extension. 
  
 Bank’s
obligation to make the initial Credit Extension is subject to the condition precedent that it receive the agreements, documents and fees it requires. 
  

 3 








 3.2 Conditions Precedent to all Credit Extensions. 
  
 Bank’s obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following: 
  
 (a) timely
receipt of any Payment/Advance Form; and 
  
 (b) the
representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Credit Extension and no Event of Default may have occurred and be continuing, or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties of Section 5 remain true in all material respects. 
  
 4. CREATION OF SECURITY INTEREST 
  
 4.1 Grant of Security Interest. 
  
 Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance of each of Borrower’s duties under the Loan Documents. Any security interest will be a first priority security interest in the Collateral. If this Agreement is
terminated, Bank’s lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations. 
  
 5. REPRESENTATIONS AND WARRANTIES 
  

Borrower represents and warrants as follows: 
  
 5.1 Due Organization and Authorization. 
  

Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. 
  
 The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s formation documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in
which the default could reasonably be expected to cause a Material Adverse Change. 
  
 5.2 Collateral. 
  
 Borrower has good title to the Collateral subject to the liens and security interests granted to Bank hereunder. 
  
 5.3 Litigation. 
  
 Except as shown in the Schedule, there are no actions or proceedings pending
or, to the knowledge of Borrower’s Responsible Officers and legal counsel, threatened by or against Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change. 
  

 4 








 5.4 No Material Adverse Change in Financial Statements. 
  
 All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations. There has not been any material deterioration in Borrower’s consolidated
financial condition since the date of the most recent financial statements submitted to Bank. 
  
 5.5 Solvency. 
  
 The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 
  

5.6 Regulatory Compliance. 
  
 Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor
Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrower’s or any Subsidiary’s properties or assets has been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all
required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations
of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a
Material Adverse Change. 
  
 5.7
Subsidiaries. 
  
 Borrower does not own any stock,
partnership interest or other equity securities except for Permitted Investments. 
  
 5.8 Full Disclosure. 
  
 No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading. It being recognized
by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results 

  

 5 








 
during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results. 
  
 6. AFFIRMATIVE COVENANTS 
  
 Borrower will do all of the following: 
  
 6.1 Government Compliance. 
  
 Borrower will maintain its and all Subsidiaries’ legal existence and
good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to cause a material adverse effect on Borrower’s business or operations. Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could reasonably be expected to have a material adverse effect on Borrower’s business or operations or
would reasonably be expected to cause a Material Adverse Change. 
  
 6.2 Financial Statements, Reports, Certificates. 
  
 (a) Borrower will deliver to Bank: (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s
consolidated operations during the period, in a form and certified by a Responsible Officer acceptable to Bank; (ii) as soon as available, but no later than 120 days after the last day of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) as soon as available but no later than
45 days after fiscal year end, Borrower’s financial projections for the upcoming fiscal year approved by Borrower’s Board of Directors and in form and substance reasonably satisfactory to Bank (iv) a prompt report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $150,000 or more; and (v) budgets, sales projections, operating plans or other financial information Bank reasonably
requests. 
  
 (b) Within 30 days after the last day of each
month, Borrower will deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in the form of Exhibit C. 
  

(c) Bank has the right to audit Borrower’s Collateral at Borrower’s expense, but the audits will be conducted no more often than every six
months unless an Event of Default has occurred and is continuing. 
  
 6.3 Inventory; Returns. 
  
 Borrower will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors will follow Borrower’s customary practices. Borrower must promptly notify
Bank of all returns, recoveries, disputes and claims, that involve more than $100,000. 
  

 6 








 6.4 Taxes. 
  
 Borrower will make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or
assessments unless contested in good faith with adequate reserves under GAAP and will deliver to Bank, on demand, appropriate certificates attesting to the payment. 
  
 6.5 Loss; Destruction; or Damage. 
  
 Borrower will bear the risk of the Financed Equipment being lost, stolen, destroyed, or damaged. If during the term of this
Agreement any item of Financed Equipment is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason for a period equal to at least the remainder of the term of this
Agreement (an “Event of Loss”), then in each case, Borrower: 
  
 (a) Prior to the occurrence of an Event of Default, at Borrower’s option, will (i) pay to Bank on account of the Obligations all accrued interest to the date of the prepayment, plus all outstanding principal plus the Final Payment, in
each case with respect to such Financial Equipment related to the Event of Loss; or (ii) repair or replace any Financed Equipment subject to an Event of Loss provided the repaired or replaced Financed Equipment is of equal or like value to the
Financed Equipment subject to an Event of Loss and provided further that Bank has a first priority perfected security interest in such repaired or replaced Financed Equipment. 
  
 (b) During the continuance of an Event of Default, on or before the Payment Date after such Event of Loss for each such item
of Financed Equipment subject to such Event of Loss, Borrower will, at Bank’s option, pay to Bank an amount equal to the sum of: (i) all accrued and unpaid Scheduled Equipment Payments (with respect to such Financed Equipment Advance related to
the Event of Loss) due prior to the next such Payment Date, (ii) all Regularly Scheduled Equipment Payments (including principal and interest), (iii) the Final Payment, plus (iv) all other sums, if any, that shall have become due and payable,
including interest at the Default Rate with respect to any past due amounts. 
  
 (c) On the date of receipt by Bank of the amount specified above with respect to each such item of Financed Equipment subject to an Event of Loss, this Agreement shall terminate as to such Financed Equipment. If any
proceeds of insurance or awards received from governmental authorities are in excess of the amount owed under this Section 6.5, Bank shall promptly remit to Borrower the amount in excess of the amount owed to Bank. 
  
 6.6 Insurance. 
  
 Borrower will keep its business and the Collateral insured for risks and in
amounts, as customary for businesses in Borrower’s industry and locale; provided, however, that insurance coverages shall be substantially similar to the coverage maintained by Borrower as of the Closing Date (to be determined
by Bank). Insurance policies will be in a form, with companies, and in amounts that are satisfactory to Bank in Bank’s reasonable discretion. All property policies will have a lender’s loss payable endorsement showing Bank as an
additional loss payee and all liability policies will show the Bank as an additional insured and provide that 

  

 7 








 
the insurer must give Bank at least 20 days notice before canceling its policy. At Bank’s request, Borrower will deliver certified copies of policies
and evidence of all premium payments. 
  
 6.7 Primary Accounts. 
  
 Borrower will maintain
its primary depository and operating accounts with Bank. In addition, Borrower shall maintain at Bank or one of Bank’s affiliates unrestricted cash and cash equivalents in an amount equal to the lesser of: (i) 85% of Borrower’s total cash
and cash equivalents (as measured by Borrower’s reporting due hereunder), or (ii) $10,000,000. 
  
 6.8 Registration of Intellectual Property Rights. 
  
 Borrower will, as it deems necessary and in accordance with its customary practice, register with the United States Patent
and Trademark Office or the United States Copyright Office its Intellectual Property within 30 days of the date of this Agreement, and additional Intellectual Property rights developed or acquired including revisions or additions with any product
before the sale or licensing of the product to any third party. 
  
 Borrower will, as it deems necessary and in accordance with its customary practices, (i) protect, defend and maintain the validity and enforceability of the Intellectual Property and promptly advise Bank in writing of material infringements
and (ii) not allow any Intellectual Property deemed to be material by the Borrower to be abandoned, forfeited or dedicated to the public without Bank’s written consent. 
  
 6.9 Further Assurances. 
  
 Borrower will execute any further instruments and take further action as Bank reasonably requests to perfect or continue
Bank’s security interest in the Collateral or to effect the purposes of this Agreement. 
  
 7. NEGATIVE COVENANTS 
  
 Borrower will not do any of the following without Bank’s prior written consent, which will not be unreasonably withheld: 
  
 7.1 Dispositions. 
  
 Convey, sell, lease, transfer or otherwise dispose of (collectively
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course of business and exclusive licenses limited in duration, territory and industry and approved by Borrower’s Board of Directors; or (iii) of worn-out or obsolete
Equipment (other than Financed Equipment). 
  

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 7.2 Changes in Business, Ownership, Management or Business Locations. 

 
 Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership or management (other than the sale of Borrower’s equity securities in a public offering or to venture capital
investors approved by Bank) of greater than 25%. Borrower will not, without at least 30 days prior written notice, relocate its chief executive office or add any new offices or business locations. 
  
 7.3 Mergers or Acquisitions. 
  
 Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would
result from such action during the term of this Agreement and (ii) such transaction would not result in a decrease of more than 25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. 
  
 7.4 Indebtedness. 
  
 Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness. 
  
 7.5 Encumbrance. 
  
 Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral
not to be subject to the first priority security interest granted here, subject to Permitted Liens. 
  
 7.6 Distributions; Investments. 
  
 Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock except (a) dividends and distributions solely in the capital stock of Borrower and (b) repurchases of stock from former
employees or directors of Borrower under the terms of applicable repurchase or stock option plans or agreements in an aggregate amount not to exceed $100,000 in any one fiscal year, so long as no Event of Default has occurred, is continuing or would
exist after giving effect to such repurchases. 
  
 7.7 Transactions with Affiliates. 
  
 Directly or
indirectly enter into or permit any material transaction with any Affiliate except transactions that are in the ordinary course of Borrower’s business, on terms less favorable to Borrower than would be obtained in an arm’s length
transaction with a non-affiliated Person. 
  

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 7.8 Subordinated Debt. 
  
 Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt without Bank’s prior written consent. 
  
 7.9 Compliance. 
  
 Become an “investment company” or a company controlled by an “investment company,” under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on
Borrower’s business or operations or would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 
  
 8. EVENTS OF DEFAULT 
  
 Any one of the following is an Event of Default: 
  
 8.1 Payment Default. 
  
 If Borrower fails to pay any of the Obligations within 3 days after their due date. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extension will be made during the cure period); 
  
 8.2 Covenant Default. 
  
 If Borrower does not perform any obligation in Section 6 or violates any covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement between Borrower and Bank and as to any default under a term, condition or covenant that can be cured, has not cured the default within 10 days after it occurs, or if
the default cannot be cured within 10 days or cannot be cured after Borrower’s attempts within 10 day period, and the default may be cured within a reasonable time, then Borrower has an additional period (of not more than 30 days) to attempt to
cure the default. During the additional time, the failure to cure the default is not an Event of Default (but no Credit Extensions will be made during the cure period); 
  
 8.3 Material Adverse Change. 
  
 If there (i) occurs a material adverse change in the business operations, or condition (financial or otherwise) of the
Borrower; or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) is a material impairment of the value or priority of Bank’s security interests in the Collateral. 
  

 10 








 8.4 Attachment. 
  
 If any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or
receiver and the attachment, seizure or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material
portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within 10 days after Borrower receives notice. These are not Events of Default if
stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period); 
  
 8.5 Insolvency. 
  
 If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or
stayed within 45 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed); 
  
 8.6 Other Agreements. 
  
 If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding
$150,000 or that could cause a Material Adverse Change; 
  
 8.7 Judgments. 
  
 If a
money judgment(s) in the aggregate of at least $100,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be made before the judgment is stayed or satisfied); 
  
 8.8 Misrepresentations. 
  
 If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document; or 
  
 9. BANK’S RIGHTS AND REMEDIES 

 
 9.1 Rights and Remedies. 
  
 When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following: 
  
 (a) Declare all
Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); 
  

 11 








 (b) Stop advancing money or extending credit for Borrower’s benefit under this Agreement or under
any other agreement between Borrower and Bank; 
  
 (c) Make any
payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower will assemble the Collateral if Bank requires and make it available as Bank designates. Bank may enter premises where the
Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Upon and during the
continuance of an Event of Default, Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies; 
  
 (d) Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or
for the credit or the account of Borrower; 
  
 (e) Ship, reclaim,
recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Upon and during the continuance of an Event of Default, Bank is granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower’s labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit; and 
  
 (f) Dispose of the Collateral according to the Code. 
  
 9.2 Power of Attorney. 
  
 Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower’s name on any checks or other forms of payment or security; (ii) make, settle, and adjust all claims under Borrower’s insurance policies with respect to the
Collateral; and (iii) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign Borrower’s name on any documents necessary to perfect or continue the perfection of any
security interest regardless of whether an Event of Default has occurred. Bank’s appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates. 
  
 9.3 Accounts Collection. 
  
 When an Event of Default occurs and continues, Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper endorsements for deposit. 
  

 12 








 9.4 Bank Expenses. 
  
 If Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of
the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default. 
  
 9.5 Bank’s Liability for Collateral. 
  
 If Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping
of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction
of the Collateral. 
  
 9.6 Remedies
Cumulative. 
  
 Bank’s rights and remedies under this
Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of any
Event of Default is not a continuing waiver. Bank’s delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given.

  
 9.7 Demand Waiver. 
  
 Borrower waives demand, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. 
  
 10. NOTICES 
  
 All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this
Agreement. A party may change its notice address by giving the other party written notice. 
  
 11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER 
  
 California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California. 
  

 13 








 BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

  
 12. GENERAL PROVISIONS 

 
 12.1 Successors and Assigns. 
  
 This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights under it without Bank’s prior written consent which may be granted or withheld in Bank’s discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits under this Agreement. 
  
 12.2 Indemnification. 
  
 Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses), except in each case, for obligations, demands, claims, liabilities and losses caused by Bank’s gross negligence or willful misconduct. 
  
 12.3 Time of Essence. 
  
 Time is of the essence for the performance of all obligations in this
Agreement. 
  
 12.4 Severability of
Provision. 
  
 Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision. 
  
 12.5 Amendments in Writing, Integration. 
  

All amendments to this Agreement must be in writing and signed by Borrower and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan
Documents. 
  

 14 








 12.6 Counterparts. 
  
 This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, are an original, and all taken together, constitute one Agreement. 
  
 12.7 Survival. 
  
 All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of
Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run. 
  
 12.8 Confidentiality. 
  
 In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure
of information may be made (i) to Bank’s subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans, (iii) as required by law, regulation, subpoena, or
other order, (iv) as required in connection with Bank’s examination or audit and (v) as Bank considers appropriate exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the
information. 
  
 12.9 Attorneys’ Fees,
Costs and Expenses. 
  
 In any action or proceeding between
Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys’ fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled.

  
 13. DEFINITIONS 
  
 13.1 Definitions. 
  
 In this Agreement: 
  
 “Accounts” are all existing and later arising accounts,
contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing. 
  
 “Affiliate” of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and 

  

 15 








 
each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s
managers and members. 
  
 “Bank Expenses” are all
audit fees and expenses and reasonable costs and expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings).

  
 “Borrower’s Books” are all
Borrower’s books and records including ledgers, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information.

  
 “Business Day” is any day that is not a
Saturday, Sunday or a day on which the Bank is closed. 
  
 “Closing Date” is the date of this Agreement. 
  
 “Code” is the California Uniform Commercial Code. 
  
 “Collateral” is the property described on Exhibit A. 
  
 “Committed Equipment Line” is a Credit Extension of up to $1,000,000 provided that Borrower must utilize $300,000 to finance Other
Equipment on the Closing Date, failure to borrow the above referenced $300,000 on the Closing Date shall result in the Committed Equipment Line being reduced automatically to $700,000. 
  
 “Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that
Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person
is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or
other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement. 
  
 “Copyrights” are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work,
whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held. 
  
 “Credit Extension” is each Equipment Advance or any other extension of credit by Bank for Borrower’s benefit. 
  

 16 








 “Eligible Equipment” is laboratory equipment, computer hardware, office equipment,
furniture, and Other Equipment located at one of Borrower’s locations within the United States. 
  
 “Equipment” is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest. 
  
 “Equipment Advance” is defined in Section 2.1.2. 
  
 “Equipment Advance Maturity Date” is, with respect to each Equipment Advance, the last day of the Repayment Period for such Equipment Advance, or if earlier, the date of acceleration of such Equipment
Advance by Bank following an Event of Default. 
  
 “Equipment Availability End Date” is December 31, 2003, provided, however, that should Borrower receive $4,000,000 or more in cash from third party equity financing or grants on or before December 30, 2003,
then the Equipment Availability End Date shall be March 31, 2004. 
  
 “ERISA” is the Employment Retirement Income Security Act of 1974, and its regulations. 
  
 “Event of Loss” is defined in Section 6.5. 
  
 “Final Payment” is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest)
due on the Equipment Advance Maturity Date for such Equipment Advance equal to the Loan Amount for such Equipment Advance multiplied by the Final Payment Percentage. 
  
 “Final Payment Percentage” is for each Equipment Advance, 5.25%. 
  
 “Financed Equipment” is Equipment financed with an Equipment
Advance. 
  
 “Funding Date” is the date an
Equipment Advance is made. 
  
 “GAAP” is
generally accepted accounting principles. 
  
 “Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes,
bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations. 
  
 “Insolvency Proceeding” are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or
insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. 
  

 17 








 “Intellectual Property” is: 
  
 (a) Copyrights, Trademarks, and Patents, including amendments, renewals,
extensions, and all licenses or other rights to use and all license fees and royalties from the use; 
  
 (b) Any trade secrets and any intellectual property rights in computer software and computer software products now or later existing, created, acquired or
held; 
  
 (c) All design rights which may be available to Borrower
now or later created, acquired or held; 
  
 (d) Any claims for
damages (past, present or future) for infringement of any of the rights above, with the right, but not the obligation, to sue and collect damages for use or infringement of the intellectual property rights above; 
  
 All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments. 
  
 “Inventory”
is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a
contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on
any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. 
  
 “Investment” is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person. 
  
 “Lien”
is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. 
  
 “Loan Amount” is the aggregate amount of the Equipment Advance. 
  
 “Loan Documents” are, collectively, this Agreement, any note, or notes executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated. 
  
 “Loan Factor” is the percentage which results from amortizing the Equipment Advance over the Repayment Period, using the rate of interest
set forth in Section 2.2(a) as the interest rate. 
  
 “Material Adverse Change” is defined in Section 8.3. 
  
 “Obligations” are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including cash management services, letters of credit and foreign exchange contracts, if
any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank. 
  

 18 








 “Original Stated Cost” is (i), the original cost to the Borrower of the item of new
Equipment net of any and all freight, installation, tax or (ii) the fair market value assigned to such item of used Equipment by mutual agreement of Borrower and Bank at the time of making of the Equipment Advance. 
  
 “Other Equipment” means software, fixtures or general
corporate or working capital expenses, provided, however, that Other Equipment shall be financed solely with the initial Equipment Advance made on the Closing Date and shall equal $300,000. Bank shall not finance Other Equipment after
the Closing Date or in an amount of less than $300,000. 
  
 “Patents” are patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same. 
  
 “Payment Date” is defined in Section 2.1.2(c). 

 
 “Permitted Indebtedness” is: 
  
 (a) Borrower’s indebtedness to Bank under this Agreement or any other
Loan Document; 
  
 (b) Indebtedness existing on the Closing Date
and shown on the Schedule; 
  
 (c) Subordinated Debt; 

 
 (d) Indebtedness to trade creditors incurred in the ordinary course of
business; and 
  
 (e) Indebtedness secured by Permitted Liens.

  
 (f) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided that the primary obligations are not prohibited hereby), and Indebtedness of any Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary with
respect to obligations of any other Subsidiary (provided that the primary obligations are not prohibited hereby); 
  
 (g) Other Indebtedness not otherwise permitted by Section 7.4 not exceeding $100,000 in the aggregate outstanding at any time; and 
  
 (h) Indebtedness consisting of accrued dividends, if any, on Borrower’s
stock.” 
  
 “Permitted Investments” are:

  
 (a) Investments shown on the Schedule and existing on the
Closing Date; and 
  
 (b) (i) marketable direct obligations issued
or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest 

  

 19 








 
rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., and (iii) Bank’s certificates of deposit issued
maturing no more than 1 year after issue; 
  
 (c) Investments
consisting of Borrower’s accounts receivable in the ordinary course of business; 
  
 (d) Investments consisting of loans to employees, officers or directors relating to (i) the purchase of equity securities of Borrower or its Subsidiaries pursuant to Borrower’s employee stock purchase plans or
agreements or (ii) Borrower’s compensation or relocation plans or agreements, each as approved in good faith by Borrower’s board of directors in an aggregate amount not to exceed $100,000 in any one fiscal year; 
  
 (e) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; 
  
 (f) Investments in other entities in connection with acquisitions, joint
ventures or other strategic transactions which are otherwise permitted under this Agreement, provided that (A) no Event of Default has occurred which is continuing or would exist after giving effect to such Investment and (B) the consideration paid
by Borrower in exchange for such Investments consists solely of (i) equity interests of the Borrower or its Subsidiaries, (ii) licenses, sublicenses, leases or subleases in the ordinary course of business, and/or (iii) technical or scientific
support or services; 
  
 (g) Investments of Subsidiaries in
or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed $150,000 in the aggregate; and 
  
 (h) Other Investments aggregating no more than $100,000 at any time.” 
  
 “Permitted Liens” are: 
  
 (a) Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents;

  
 (b) Liens for taxes, fees, assessments or other government
charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank’s security interests; 
  
 (c) Purchase money Liens (i) on Equipment acquired or held by Borrower or its
Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; 
  
 (d) Licenses or sublicenses granted in the ordinary course of Borrower’s
business and any interest or title of a licensor or under any license or sublicense; 
  

 20 








 (e) Leases or subleases granted in the ordinary course of Borrower’s business, including in
connection with Borrower’s leased premises or leased property; 
  
 (f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness may not increase; 
  
 (g) Liens in favor of Bank hereunder; 
  
 (h) Liens
arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.7; 
  
 (i) Liens in favor of other financial institutions arising in connection with Borrower’s accounts held at such institutions; 
  
 (j) Liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons or entities imposed without action of such parties, provided that the payment thereof is not yet required; 
  
 (k) Liens incurred or deposits made in the ordinary course of Borrower’s business in connection with worker’s compensation, unemployment
insurance, social security and other like laws; 
  
 (l) easements,
reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances affecting real property not interfering in any material respect with the ordinary conduct of Borrower’s business; and

  
 (m) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with the importation of goods. 
  
 “Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust,
unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency. 
  

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate. 
  
 “Repayment Period” is 36 months. 
  
 “Responsible Officer” is each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller of Borrower. 
  
 “Schedule” is any attached schedule of exceptions. 
  
 “Scheduled Equipment Payments” is defined in Section 2.1.2. 
  

 21 








 “Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s
indebtedness owed to Bank and which is reflected in a written agreement in a manner and form acceptable to Bank and approved by Bank in writing. 
  
 “Subsidiary” is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person. 
  
 “Tangible Net Worth” is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus, (i) any amounts
attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, Patents, trade and service marks and names, Copyrights and research and development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities. 
  
 “Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt
allowed to be paid, but excluding all other Subordinated Debt. 
  
 “Trademarks” are trademark and servicemark rights, registered or not, applications to register and registrations and like protections, and the entire goodwill of the business of Assignor connected with the trademarks.

  
 “Treasury Note Rate” is the U.S. Treasury
note yield to maturity for a term equal to 36 months as quoted in The Wall Street Journal on the Funding Date. 
  

			
	 BORROWER:

	
	 THRESHOLD PHARMACEUTICALS, INC.,
 a Delaware corporation

		
	 By:
	 	 /s/ Janet I. Swearson

	 	 	

	 Title:
	 	 Chief Financial Officer


  

			
	 BANK:

	
	 SILICON VALLEY BANK

		
	 By:
	 	 /s/ Peter Scott

	 	 	

	 Title:
	 	 SVP


  

 22 








 EXHIBIT A 
  
 The Collateral consists of all of Borrower’s right, title and interest in and to the following: 
  
 All of Borrower’s equipment financed with proceeds of this Loan and
Security Agreement as listed on Schedule A attached hereto; and 
  
 All Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. 
  

 23 








 EXHIBIT B 
  

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM 
  
 DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.M., P.S.T. 
  

					
	TO: CENTRAL CLIENT SERVICE DIVISION	  	 	  	DATE:
                                       
 
			
	FAX#: (408) 496-2426	  	 	  	TIME:                     

  

			
	FROM:	  	Threshold Pharmaceuticals, Inc.
	 	  	CLIENT NAME (BORROWER)


			
		
	REQUESTED BY:	  	 
	 	 	

	 	  	AUTHORIZED SIGNER’S NAME


			
		
	AUTHORIZED SIGNATURE:	  	 
	 	 	



			
		
	PHONE NUMBER:	  	 
	 	 	



							
				
	FROM ACCOUNT #	  	 	  	TO ACCOUNT #	  	 
	 	 	
	 	 	 	



					
			
	REQUESTED TRANSACTION TYPE	  	 	  	REQUESTED DOLLAR AMOUNT
			
	PRINCIPAL INCREASE (ADVANCE)	  	 	  	$                                      
                                        
      
	PRINCIPAL PAYMENT (ONLY)	  	 	  	$                                      
                                        
      
	INTEREST PAYMENT (ONLY)	  	 	  	$                                      
                                        
      
	PRINCIPAL AND INTEREST (PAYMENT)	  	 	  	$                                      
                                        
      


			
		
	OTHER INSTRUCTIONS:	  	 
	 	 	

	 
	

	
	 All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material
respects on the date of the telephone request for and Advance confirmed by this Borrowing Certificate; but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of
that date.
 BANK USE ONLY

		
	TELEPHONE REQUEST:	  	 
	
	The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me.


					
			
	 	 	 	  	 
	
	 	 	 	

	Authorized Requester	 	 	  	Phone #
			
	 	 	 	  	 
	
	 	 	 	

	Received By (Bank)	 	 	  	Phone #


									
			
	 	 	 	  	 
	 	 	
	 	 
	 	 	Authorized Signature (Bank)	  	 

  

 24 








 EXHIBIT C 
 COMPLIANCE CERTIFICATE 
  

			
	TO:	  	 SILICON VALLEY BANK
 3003 Tasman Drive
 Santa Clara, CA 95054

		
	FROM:	  	 THRESHOLD PHARMACEUTICALS, INC.
 951 Gateway
Boulevard
 Suite 3A
 South San Francisco, CA
94080


  
 The undersigned
authorized officer of Threshold Pharmaceuticals, Inc. (“Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending                      with all required covenants except as noted below and (ii) all representations and
warranties in the Agreement are true and correct in all material respects on this date. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. 
  
 Please indicate compliance status by circling Yes/No under “Complies” column. 
  

							
	 Reporting Covenant

	  	 Required

	  	 Complies


	Monthly financial statements + CC	  	Monthly within 30 days	  	Yes	  	No
	Annual (Audited)	  	FYE within 120 days	  	Yes	  	No

  

					
	Comments Regarding Exceptions: See Attached.	  	 	  	BANK USE ONLY
			
	 	  	 	  	 Received by: ________________________________________

	Sincerely,	  	 	  	AUTHORIZED SIGNER
			
	THRESHOLD PHARMACEUTICALS, INC.	  	 	  	Date: ______________________________________________
			
	 	  	 	  	Verified: ___________________________________________
	 	  	 	  	AUTHORIZED SIGNER
	
	 	 	 	 
	 SIGNATURE
	  	 	  	 
	 	  	 	  	 Date: ______________________________________________

	 	  	 	  	 
	
	 	 	 	 
	TITLE	  	 	  	Compliance Status:
                                        
            Yes     No
			
	 	  	 	  	 
	
	 	 	 	 
	 Date
	  	 	  	 

  

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 CORPORATE BORROWING RESOLUTION 
  

							
	Borrower:	  	 Threshold Pharmaceuticals, Inc.
 951 Gateway
Boulevard
 Suite 3A
 South San Francisco, CA
94080
	  	Bank:	  	 Silicon Valley Bank
 3003 Tasman
Drive
 Santa Clara, CA 95054-1191


  
 I, the Secretary or Assistant
Secretary of Threshold Pharmaceuticals, Inc. (“Borrower”), CERTIFY that Borrower is a corporation existing under the laws of the State of Delaware. 
  
 I certify that at a meeting of Borrower’s Directors (or by other authorized corporate action) duly held the following
resolutions were adopted. 
  
 It is resolved that any one of the following
officers of Borrower, whose name, title and signature is below: 
  

					
	 NAMES

	  	POSITIONS

	  	ACTUAL SIGNATURES


	___________________________________	  	_________________________________	  	_________________________________
	___________________________________	  	_________________________________	  	_________________________________
	___________________________________	  	_________________________________	  	_________________________________
	___________________________________	  	_________________________________	  	_________________________________

  
 may act for Borrower and: 

 
 Borrow Money. Borrow money from Silicon Valley Bank (“Bank”). 

 
 Execute Loan Documents. Execute any loan documents Bank requires. 
  
 Grant Security. Grant Bank a security interest in any of Borrower’s
assets. 
  
 Negotiate Items. Negotiate or discount all drafts, trade
acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds. 
  
 Letters of Credit. Apply for letters of credit from Bank. 
  
 Issue Warrants. Issue warrants for Borrower’s stock. 
  
 Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or
agreement that waive Borrowers right to a jury trial) they think necessary to effectuate these Resolutions. 
  
 Further resolved that all acts authorized by these Resolutions and performed before they were adopted are ratified. These Resolutions remain in effect and Bank may rely on them until Bank receives written
notice of their revocation. 
  

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 I certify that the persons listed above are Borrower’s officers with the titles and signatures shown
following their names and that these resolutions have not been modified are currently effective. 
  
 CERTIFIED TO AND ATTESTED BY: 
  

					
	 X
	  	 	  	 
	 	 	
	 	 
	 	  	*Secretary or Assistant Secretary	  	 
			
	 X
	  	 	  	 
	 	 	
	 	 

 *NOTE: In case the Secretary or other certifying officer is designated by the foregoing resolutions as one of the
signing officers, this resolution should also be signed by a second Officer or Director of Borrower. 
  

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