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                                                                   EXHIBIT 10.32



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                           LOAN AND SECURITY AGREEMENT

                             EPOCH BIOSCIENCES, INC.


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        This LOAN AND SECURITY AGREEMENT dated as of the Effective Date, between
SILICON VALLEY BANK ("Bank"), a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at 4110 Carillon Point, Kirkland, Washington
98033, with a telefacsimile number of (425) 827-6404 and EPOCH BIOSCIENCES, INC.
("Borrower"), whose address is 21720 23rd Drive S.E., Suite 150, Bothell,
Washington 98021, with a telefacsimile number of (425) 482-5550 provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:

1       ACCOUNTING AND OTHER TERM

        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     PROMISE TO PAY.

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

2.1.1   REVOLVING ADVANCES.

        (a) Bank will make Advances not exceeding (i) the lesser of (a) the
Committed Revolving Line or (b) the Borrowing Base, minus (ii) all amounts
utilized for Cash Management Services, the amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit), and the FX Reserve.
Amounts borrowed under this Section may be repaid and reborrowed during the term
of this Agreement.

        (b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 12:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.

        (c) The Committed Revolving Line terminates on August 31, 2004 (the
"Revolving Maturity Date"), when all Advances are immediately payable.

        (d) Bank's obligation to lend the undisbursed portion of the Obligations
will terminate if, in Bank's sole discretion, there has been a material adverse
change in the general affairs, management, results of operation, condition
(financial or otherwise) or the prospect of repayment of the Obligations, or
there has been any material adverse



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deviation by Borrower from the most recent business plan of Borrower presented
to and accepted by Bank prior to the execution of this Agreement.

2.1.2   LETTERS OF CREDIT SUBLIMIT.

        Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding an amount equal to (i) the lesser of the Committed Revolving Line
or the Borrowing Base minus (ii) the outstanding principal balance of the
Advances, all amounts utilized for Cash Management Services, and the FX Reserve;
however, the face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), plus all amounts utilized for Cash Management
Services, plus the FX Reserve may not exceed $100,000. Each Letter of Credit
will have an expiry date of no later than 180 days after the Revolving Maturity
Date, but Borrower's reimbursement obligation will be secured by cash on terms
acceptable to Bank at any time after the Revolving Maturity Date if the term of
this Agreement is not extended by Bank. Borrower agrees to execute any further
documentation in connection with the Letters of Credit as Bank may reasonably
request.

2.1.3   FOREIGN EXCHANGE SUBLIMIT.

        If there is availability under the Committed Revolving Line and the
Borrowing Base, then Borrower may enter in foreign exchange forward contracts
with the Bank under which Borrower commits to purchase from or sell to Bank a
set amount of foreign currency more than one business day after the contract
date (the "FX Forward Contract"). Bank will subtract 10% of each outstanding FX
Forward Contract from the foreign exchange sublimit which is a maximum of
$100,000 (the "FX Reserve"). The total FX Forward Contracts at any one time may
not exceed 10 times the amount of the FX Reserve. The FX Reserve plus the face
amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) plus all amounts utilized for Cash Management Services may
not exceed $100,000. Bank may terminate the FX Forward Contracts if an Event of
Default occurs.

2.1.4   CASH MANAGEMENT SERVICES SUBLIMIT.

        Borrower may use up to $100,000 of the Committed Revolving Line for
Bank's Cash Management Services, which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in various cash management services agreements related to such services (the
"Cash Management Services"). Such aggregate amounts utilized for Cash Management
Services will at all times reduce the amount otherwise available to be borrowed
under the Committed Revolving Line. Any amounts Bank pays on behalf of Borrower
or any amounts that are not paid by Borrower for any Cash Management Services
will be treated as Advances under the Committed Revolving Line and will accrue
interest at the rate for Advances. The total amount outstanding for Cash
Management Services plus the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus the FX Reserve may not
exceed $100,000.

2.1.5   EQUIPMENT ADVANCES.

        (a) Subject to the terms and conditions of this Agreement, Bank agrees
to lend to Borrower, from time to time prior to June 30, 2003 (the "Equipment
Availability



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End Date"), equipment advances (each an "Equipment Advance" and collectively
the "Equipment Advances") in an aggregate amount not to exceed the Committed
Equipment Line. The initial Equipment Advance must be borrowed on or before
September 30, 2002. When repaid, the Equipment Advances may not be re-borrowed.
The proceeds of the Equipment Advances will be used solely to reimburse Borrower
for the purchase of Eligible Equipment purchased within 90 days of the Equipment
Advance; provided that the initial Equipment Advance may be used to reimburse
Borrower for the purchase of Eligible Equipment purchased on or after January 1,
2002. Each Equipment Advance shall be considered a promissory note evidencing
the amounts due hereunder for all purposes. Bank's obligation to lend under this
Section 2.1.5 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
$150,000.

        (b) To obtain an Equipment Advance, Borrower will deliver to Bank a
completed Payment/Advance Form attached as Exhibit B signed by a Responsible
Officer or his or her designee, copies of invoices for the Equipment to be
financed with the proceeds of the Equipment Advance, and such additional
information as Bank may request at least five (5) Business Days before the
proposed funding date (the "Funding Date"). If Borrower satisfies the conditions
of each Equipment Advance specified herein, Bank will disburse such Equipment
Advance by internal transfer to Borrower's deposit account with Bank. Each
Equipment Advance may not exceed 100% of the original cost to Borrower of the
Eligible Equipment. Soft Costs may not exceed 35% of the aggregate Equipment
Advances through and including such Funding Date.

        (c) Bank's obligation to lend the undisbursed portion of the Committed
Equipment Line will terminate if, in Bank's sole discretion, there has been a
material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) or the prospects of Borrower,
whether or not arising from transactions in the ordinary course of business, or
there has been any material adverse deviation by Borrower from the most recent
     business plan of Borrower presented to and accepted by Bank prior to the
execution of this Agreement.

2.2     OVERADVANCES.

        If Borrower's Obligations under Section 2.1.1, 2.1.2, 2.1.3 and 2.1.4
exceed the lesser of either (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower must immediately pay Bank the excess. If Borrower's
Obligations under Section 2.1.2, 2.1.3 and 2.1.4 exceed $100,000, Borrower must
immediately pay Bank the excess.

2.3     INTEREST RATE, PAYMENTS.

2.3.1   REVOLVING ADVANCES.

        (a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of 0.50 percentage point(s) above the Prime Rate.
After an Event of Default, Obligations accrue interest at 5 percent above the
rate effective immediately before the Event of Default. The interest rate
increases or decreases when the Prime Rate changes. Interest is computed on a
360 day year for the actual number of days elapsed.



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        (b) Payments. Interest due on the Committed Revolving Line is payable on
the 1st of each month. On the Revolving Maturity Date, Borrower will pay all
unpaid principal, accrued interest and all other amounts due with respect to the
Committed Revolving Line. Bank may debit any of Borrower's deposit accounts
including Account Number [________________] for principal and interest payments
owing or any amounts Borrower owes Bank. Bank will promptly 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.

2.3.2   EQUIPMENT ADVANCES

        (a) Interest Rate. Equipment Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.50 percentage point(s) above the
Prime Rate. After an Event of Default, Obligations accrue interest at 5 percent
above the rate effective immediately before the Event of Default. The interest
rate increases or decreases when the Prime Rate changes. Interest is computed on
a 360 day year for the actual number of days elapsed.

        (b) Payments. Each Equipment Advance is payable in 36 equal monthly
installments of principal, plus accrued interest, beginning on the 1st of each
month following such Equipment Advance and continuing until the Equipment
Maturity Date, when Borrower will pay all unpaid principal and accrued interest
and all other amounts due on such date with respect to such Equipment Advance.
Bank may debit any of Borrower's deposit accounts including Account Number
[________________] for principal and interest payments 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. Borrower may prepay the
whole or any part of any Equipment Advance without prepayment charges. All
prepayments shall be applied first to accrued interest on the Equipment Advances
and then to the outstanding principal balance of the Equipment Advances in the
inverse order of maturity.

2.4     FEES.

        Borrower will pay:

        (a) Facility Fee for the Committed Revolving Line. A fully earned,
non-refundable facility fee for the Committed Revolving Line of $1875, which
shall be paid in two equal payments of $937.50. The first payment is due on the
Closing Date and the second payment is due at such time as Borrower's
Obligations under the Committed Revolving Line equals or exceeds $375,000.

        (b) Facility Fee for the Committed Equipment Line. A fully earned,
non-refundable facility fee for the Committed Equipment Line of $5,000, which
shall be due on the Closing Date.



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        (c) Pre-Funding Exam Fee. All expenses arising out of the initial
examination of Borrower's Accounts and the initial audit of Borrower's
Collateral.

        (d) 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. Bank's obligation to make the initial Advance is further subject to
Bank's examination and approval of Borrower's Eligible Accounts and Borrower's
Collateral, as determined by the pre-funding examination and audit.

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 for each Credit
Extension; 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
in Section 5 remain true.

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. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.

        Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to further perfect or protect Bank's interest in the Collateral.

5       REPRESENTATIONS AND WARRANTIES

        Borrower represents and warrants as follows:



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5.1     DUE ORGANIZATION AND AUTHORIZATION.

        Borrower and each Subsidiary is duly existing and in valid existence
and/or good standing in its state of formation and qualified and licensed to do
business in, and in valid existence and/or 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. Borrower has not changed its state of formation
or its organizational structure or type or any organizational number (if any)
assigned by its jurisdiction of formation.

        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, free of Liens except
Permitted Liens. Borrower has no other deposit accounts, other than the deposit
accounts described in the Schedule. The Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to the
account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. The Collateral is not in the possession of any
third party bailee (such as at a warehouse). In the event that Borrower, after
the date hereof, intends to store or otherwise deliver the Collateral to such a
bailee, then Borrower will receive the prior written consent of Bank and such
bailee must acknowledge in writing that the bailee is holding such Collateral
for the benefit of Bank. Borrower has no notice of any actual or imminent
Insolvency Proceeding of any account debtor whose accounts are an Eligible
Account in any Borrowing Base Certificate. All Inventory is in all material
respects of good and marketable quality, free from material defects. Borrower is
the sole owner of the Intellectual Property which it owns. Borrower is the
licensee of certain other Intellectual Property material to its operations and
is not in default under any such licenses. In the ordinary course of Borrower's
business, Borrower has granted field-limited, exclusive licenses to certain of
its Intellectual Property and non-exclusive licenses to customers and marketing
partners. To the knowledge of Borrower, each Patent is valid and enforceable and
no part of the Intellectual Property has been judged invalid or unenforceable,
in whole or in part, and no claim has been made in writing that any part of the
Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.

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, threatened by
or against Borrower or any Subsidiary in which a likely adverse decision could
reasonably be expected to cause a Material Adverse Change.



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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 during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results).



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6       AFFIRMATIVE COVENANTS

        Borrower will do all of the following for so long as Bank has an
obligation to lend, or there are outstanding Obligations:

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 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.

        Borrower will deliver to Bank: (i) as soon as available, but no later
than 20 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 certified by a Responsible Officer and in a form acceptable to
Bank; (ii) within 10 Business Days of filing, copies of all statements, reports
and notices made available to Borrower's security holders and all reports on
Form 10-K, 10-Q, and 8-K filed with the Securities and Exchange Commission;
(iii) 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 $100,000 or more; (iv) budgets, sales projections, operating
plans or other financial information Bank reasonably requests; and (v) prompt
notice of any material change in the composition of the Intellectual Property,
including any subsequent ownership right of Borrower in or to any Copyright,
Patent or Trademark not shown in any intellectual property security agreement
between Borrower and Bank or knowledge of an event that materially adversely
affects the value of the Intellectual Property.

        (b) Within 20 days after the last day of each month during which any
Advance has been outstanding, Borrower will deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer in the form of Exhibit C, with aged
listings of accounts receivable and accounts payable.

        (c) Within 20 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 D.

        (d) Within 20 days after the last day of each month during which any
Advance has been outstanding, Borrower will deliver to Bank Borrower's monthly
investment and deposit account statements.

        (e) Within 20 days after the last day of each month during which any
Advance has been outstanding, Borrower will deliver to Bank a copy of Borrower's
Deferred Revenue general ledger report.



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        (f) Borrower will allow Bank to audit Borrower's Collateral at
Borrower's expense. The initial audit will be conducted prior to the Closing
Date, and audits thereafter will be conducted no more often than every 12
months; provided, that if an Event of Default has occurred audits may be
conducted from time to time in Bank's discretion without notice to Borrower.

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 as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.

6.4     TAXES.

        Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.

6.5     INSURANCE.

        Borrower will keep its business and the Collateral insured for risks and
in amounts standard for Borrower's industry, and as Bank may reasonably request.
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 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. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.

6.6     PRIMARY ACCOUNTS.

        Borrower will maintain its primary banking relationship with Bank, which
relationship shall include Borrower maintaining (a) operating account balances
at or through Bank representing at least 100% of all operating account balances
of Borrower at any financial institution and (a) investment account balances at
or through Bank representing at least 50% of all investment account balances of
Borrower at any financial institution. In addition to the foregoing
requirements, Borrower shall deposit in accounts at or through Bank, at least
75% of the net cash proceeds of equity financings of Borrower after the Closing
Date. After such deposit, Borrower shall be free to use such proceeds, subject
to the other conditions of the Loan Documents, excluding transfers to other
financial institutions as long as loan is outstanding.

6.7     FINANCIAL COVENANTS.

        Borrower will maintain as of the last day of each month:



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                (a) QUICK RATIO (ADJUSTED). A Quick Ratio (Adjusted) of at least
1.30 to 1.00.

                (b) TANGIBLE NET WORTH. A Tangible Net Worth of at least
$1,500,000.

6.8     REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.

        As deemed necessary by its Board of Directors (or a committee of
directors or management designated by its Board of Directors), Borrower will (i)
register with the United States Patent and Trademark Office or the United States
Copyright Office its Intellectual Property 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, and (ii)
protect, defend and maintain the validity and enforceability of the Intellectual
Property.

        Borrower will (i) promptly advise Bank in writing of material
infringements of the Intellectual Property and (ii) not allow any Intellectual
Property material to Borrower's business 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, for so long as Bank has an
obligation to lend or there are any outstanding Obligations:

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, except for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive and exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries,
subject to Section 2 of the Negative Pledge, in the ordinary course of business;
or (iii) of worn-out or obsolete Equipment.

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 (which includes diagnostic uses of its products and technology) or have
a material change in (a) its ownership of greater than 25% (other than by the
sale of Borrower's equity securities in transactions through a recognized
national exchange, in a secondary public offering or private offering to venture
capital investors, strategic investors, or institutional investors, so long as
no single institutional investor purchases more than 20% of



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Borrower's equity securities and Borrower identifies any such investors prior
to the closing of the investment); or (b) the composition of its senior
management of greater than 50% in any month. Borrower will not, without at least
30 days prior written notice, change its state of incorporation (by merger or
otherwise) or relocate its chief executive office or add any new offices or
business locations in which Borrower maintains or stores over $5,000 in
Borrower's assets or property. Borrower shall not maintain any material amount
of the Collateral at sites other than those listed on the Schedule, unless it
provides Bank at least 30 days notice thereof.

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. Borrower shall not reincorporate, or permit any of
its Subsidiaries to reincorporate.

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; NEGATIVE PLEDGE.

        (a) 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

        (b) Permit any Collateral not to be subject to the first priority
security interest granted here, subject to Permitted Liens; or

        (c) Enter into an agreement with any Person (other than Bank) to agree
not to sell, transfer, assign, mortgage, pledge, lease, grant a security
interest in, or encumber any of its property, except with respect to property
subject to purchase money security interests.

        (d) Notwithstanding the foregoing, Borrower may license rights to the
Intellectual Property subject to Section 2 of the Negative Pledge.

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.



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7.7     TRANSACTIONS WITH AFFILIATES.

        Except as set forth in the Schedule, directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.

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.

        (a) If Borrower fails to perform any obligation under Sections 6.2 or
6.7 or 6.8 or violates any of the covenants contained in Article 7 of this
Agreement; or

        (b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and



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within such reasonable time period the failure to have cured such default shall
not be deemed an Event of Default (provided that no Credit Extensions will be
made during such 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.

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 30 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 $100,000 or that could cause a Material Adverse Change;

8.7     JUDGMENTS.

        If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is not satisfied or stayed prior to the end of the
applicable period when an appeal of such judgment must be filed under applicable
law or at any time thereafter (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



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8.9     GUARANTY.

        Any guaranty of any Obligations ceases for any reason to be in full
force or any Guarantor does not perform any obligation under any guaranty of the
Obligations, or any material misrepresentation or material misstatement exists
now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to
any Guarantor.

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);

        (b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;

        (c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;

        (d) 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. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;

        (e) 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;

        (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, 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

        (g) Dispose of the Collateral according to the Code.



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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) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) 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, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. 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.

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 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.



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<PAGE>

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

        Washington 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 King County, Washington.

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 for losses caused by Bank's gross negligence or willful misconduct.



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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.

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 (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (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



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and other reasonable costs and expenses incurred, in addition to any other
relief to which it may be entitled.

13      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.

        "ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.

        "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 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.

        "BORROWING BASE" is 80% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate; provided, however, that Bank
may lower the percentage of the Borrowing Base after performing an audit of
Borrower's Collateral.

        "BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

        "CASH MANAGEMENT SERVICES" are defined in Section 2.1.4.

        "CLOSING DATE" is the Effective Date of this Agreement.

        "CODE" is the Uniform Commercial Code, as applicable.

        "COLLATERAL" is the property described on Exhibit A.

        "COMMITTED EQUIPMENT LINE" means Equipment Advances up to an aggregate
of $2,500,000.



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        "COMMITTED REVOLVING LINE" means Advances up to an aggregate outstanding
amount of $750,000.

        "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 Advance, Equipment Advance, Letter of Credit,
Exchange Contract, or any other extension of credit by Bank for Borrower's
benefit.

        "CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.

        "DEFERRED REVENUE" is all amounts received in advance (and not yet
recognized as revenue) for license fees, product purchases and contract
research.

        "EFFECTIVE DATE" is the date Bank executes this Agreement.

        "ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
but Bank may after inquiry and consultation with Borrower change eligibility
standards by giving Borrower 30 days prior notice. Unless Bank agrees otherwise
in writing, Eligible Accounts will not include:

        (a) Accounts that the account debtor has not paid within 90 days of
invoice date;

        (b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;

        (c) Credit balances over 90 days from invoice date;

        (d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed
that percentage, unless the Bank approves in writing;



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        (e) Accounts for which the account debtor does not have its principal
place of business in the United States unless the Bank approves in writing;

        (f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality, excluding
however, universities, colleges and other academic or research institutions that
are public or otherwise affiliated with a government entity;

        (g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts);

        (h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval, bill
and hold, or other terms if account debtor's payment may be conditional;

        (i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;

        (j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;

        (k) Accounts for which Bank reasonably determines after inquiry and
consultation with Borrower collection to be doubtful.

        "ELIGIBLE EQUIPMENT" is (a) general purpose computer equipment, office
equipment, manufacturing, production, test and laboratory equipment, and
furnishings located in the United States and (b) Soft Costs (subject to the
limitation set forth in Section 2.1.5). Notwithstanding the foregoing, "Eligible
Equipment" shall not include any equipment unless and until Bank holds a first,
valid, binding, perfected security interest in any such equipment.

        "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 2.1.5.

        "EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.5.

        "EQUIPMENT MATURITY DATE" is, with respect to each Equipment Advance,
the earlier of (a) the last day of the Repayment Period for such Equipment
Advance, (b) the date of acceleration of such Equipment Advance by Bank
following an Event of Default, or (c) June 30, 2006.

        "ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.



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        "FUNDING DATE" is any date on which an Equipment Advance is made to or
on account of Borrower.

        "FX FORWARD CONTRACT" is defined in Section 2.1.3.

        "FX RESERVE " is defined in Section 2.1.3.

        "GAAP" is generally accepted accounting principles.

        "GUARANTOR" is any present or future guarantor of the Obligations.

        "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.

        "INTELLECTUAL PROPERTY" is:

        (a) Copyrights, Trademarks, Patents, and Mask Works 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.



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<PAGE>

        "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.

        "LETTERS OF CREDIT" are those certain instruments issued by Bank to a
third person on behalf of Borrower guaranteeing the payment of Borrower's drafts
up to a stated amount for a stated period.

        "LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

        "LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, 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.

        "MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.

        "MATERIAL ADVERSE CHANGE" is described 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.

        "PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.

        "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.

        "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,



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<PAGE>

(ii) commercial paper maturing no more than 1 year after its creation and having
the highest 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.

        "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, if the licenses and sublicenses permit granting Bank a security
interest;

        (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.

        "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.

        "QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed trade accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.

        "QUICK RATIO (ADJUSTED)" means a ratio of (a) Quick Assets to (b)
Current Liabilities, plus, without duplication, Borrower's outstanding
Obligations, minus Deferred Revenue.

        "REPAYMENT PERIOD" as to the Equipment Advances, is 36 months.



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<PAGE>

        "RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.

        "REVOLVING MATURITY DATE" is defined in Section 2.1.1.

        "SCHEDULE" is any attached schedule of exceptions.

        "SOFT COSTS" means leasehold improvements, intangible property such as
computer software and software licenses, internally developed software,
equipment specifically designed or manufactured for borrower, other intangible
property, fixed assets located in foreign countries, limited use property and
other similar property, and taxes, shipping charges, training and installation
expenses related to the Eligible Equipment.

        "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.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.



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                                                                [Execution Copy]
<PAGE>

IN WITNESS WHEREOF, Borrower and Bank have caused this Agreement to be duly
executed by the respective, duly authorized signatories as of the date written
below.

BORROWER:

EPOCH BIOSCIENCES, INC.


By: /s/ Bert W. Hogue,
    ------------------------
    Name:  Bert W. Hogue
           -----------------
    Title: V.P. & C.F.O.
           -----------------

Date executed by Borrower:    September 16, 2002

BANK:

SILICON VALLEY BANK


By: /s/ John T. Flemming
    ------------------------
     Name: John T. Flemming
           -----------------
     Title: Vice President
           -----------------

Date executed by Bank:        September 17, 2002 (the "Effective Date")



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<PAGE>

                                    EXHIBIT A

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

        All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

        All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;

        All contract rights and general intangibles (as such definitions may be
amended from time to time according to the Code), now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;

        All now existing and hereafter arising rights to payment of any kind,
including accounts, contract rights, royalties, license rights and all other
forms of obligations owing to Borrower arising out of the sale or lease of
goods, the licensing of technology or the rendering of services by Borrower (as
such definitions may be amended from time to time according to the Code) whether
or not earned by performance, and any and all credit insurance, insurance
(including refund) claims and proceeds, guaranties, and other security therefor,
as well as all merchandise returned to or reclaimed by Borrower;

        All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, letter of credit rights, certificates of deposit, instruments
and chattel paper and electronic chattel paper now owned or hereafter acquired
and Borrower's Books relating to the foregoing;

        All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; 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.



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<PAGE>

        Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyrights, copyright applications, copyright registration and like
protection in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, trademarks, servicemarks and applications
therefor, whether registered or not, and the goodwill of the business of
Borrower connected with and symbolized by such trademarks, any trade secret
rights, including any rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; or any claims for damage by way of any past, present and
future infringement of any of the foregoing (collectively, the "Intellectual
Property"), except that the Collateral shall include the proceeds of all the
Intellectual Property including proceeds from the sale, licensing or other
disposition of the Intellectual Property and proceeds that are accounts, (i.e.
accounts receivable) of Borrower, or general intangibles consisting of rights to
payment and, if a judicial authority (including a U.S. Bankruptcy Court) holds
that a security interest in the underlying Intellectual Property is necessary to
have a security interest in such proceeds, including accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property, then the
Collateral shall automatically, and effective as of the Closing Date, include
the Intellectual Property to the extent necessary to permit perfection of Bank's
security interest in such accounts and general intangibles of Borrower that are
proceeds of the Intellectual Property.

        Borrower and Bank are parties to that certain Negative Pledge Agreement,
whereby Borrower, in connection with Bank's loan or loans to Borrower, has
agreed, among other things, not to sell, transfer, assign, mortgage, pledge,
lease, grant a security interest in, or encumber any of its Intellectual
Property, without Bank's prior written consent.



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