exv10w14






Exhibit 10.14




LOAN AND SECURITY AGREEMENT




     THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of November 12, 2008 (the
“Effective Date”) between OXFORD FINANCE CORPORATION (“Oxford”), as collateral agent (the
“Collateral Agent”), Oxford, as a lender, and SILICON VALLEY BANK (“Bank”; each, of Oxford and Bank
are sometimes individually referred to as a “Lender” and collectively, as the “Lenders”), and ARDEA
BIOSCIENCES, INC., a Delaware corporation (“Borrower”), provides the terms on which Lenders shall
lend to Borrower and Borrower shall repay Lenders. The parties agree as follows:



     1 ACCOUNTING AND OTHER TERMS



     Accounting terms not defined in this Agreement shall be construed following GAAP.
Calculations and determinations must be made following GAAP. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the
Code to the extent such terms are defined therein.



     2 LOAN AND TERMS OF PAYMENT



     2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Lenders the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon and any other
amounts due hereunder as and when due in accordance with this Agreement.



     2.1.1 Growth Capital Loan Facility.



     (a) Availability. Subject to the terms and conditions of this Agreement, Lenders
agree, severally and not jointly, to lend to Borrower from time to time prior to the Growth Capital
Commitment Termination Date, advances (each, a “Growth Capital Advance” and collectively, the
“Growth Capital Advances”), according to each Lender’s pro rata share of the Growth Capital Loan
Commitment (based upon the respective Growth Capital Commitment Percentage of each Lender), in the
aggregate amount not to exceed the Growth Capital Loan Commitment When repaid, the Growth Capital
Advances may not be re-borrowed. Lenders’ obligation to lend hereunder shall terminate on the
earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the Growth Capital
Commitment Termination Date.



     (b) Repayment. For each Growth Capital Advance, Borrower shall make monthly payments
of interest only, in arrears commencing on the first day of the month following the month in which
the Growth Capital Funding Date occurs and continuing thereafter on the first day of each
successive calendar month during the Growth Capital Interest Only Period. Commencing on the Growth
Capital Amortization Date, Borrower shall make thirty-three (33) consecutive equal monthly payments
of principal and interest, in arrears which would fully amortize the outstanding Growth Capital
Advance as of the Growth Capital Amortization Date over the Growth Capital Repayment Period and
continuing thereafter during the Growth Capital Repayment Period on the first day of each
successive calendar month. All unpaid principal and accrued and unpaid interest is due and payable
in full on the Growth Capital Maturity Date with respect to such Growth Capital Advance. The
Growth Capital Advance may only be prepaid in accordance with Sections 2.1.1(c) or
2.1.1(d).



     (c) Prepayment. Borrower shall have the option to prepay all, but not less than all,
of the Growth Capital Advances advanced by Lenders under this Agreement, provided Borrower,
(a) provides written notice to Lenders of its election to prepay the Growth Capital Advances at
least five (5) days prior to such prepayment, and (b) pays, on the date of the prepayment (i) all
outstanding principal and accrued interest on the Growth Capital Advances; (ii) the Prepayment Fee
and the Growth Capital Final Payment; and (iii) all other sums, including Lenders’ Expenses, if
any, that have become due and payable hereunder with respect to the Growth Capital Advances.



     (d) Mandatory Prepayment Upon an Acceleration. If the Growth Capital Advances are
accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to
Lenders an amount equal to the sum of: (i) all outstanding principal plus accrued and unpaid
interest on the Growth Capital Advances,



 









 




(ii) the Prepayment Fee and the Growth Capital Final Payment, plus (iii) 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.




     2.2 Payment of Interest on the Credit Extensions.



          (a) Interest Rate. Subject to Section 2.2(b), the principal amount
outstanding for each Growth Capital Advance shall accrue interest, which interest shall be payable
monthly in arrears, at a fixed per annum rate equal to the greater of (i) 12.00% and (ii) 795 basis
points (7.95%) above the 3-month LIBOR as of the date that the Notes for such Growth Capital
Advance are prepared.




          (b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is five percentage
points above the rate effective immediately before the Event of Default (the “Default Rate”).
Payment or acceptance of the increased interest rate provided in this Section 2.2(b) is not
a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default
or otherwise prejudice or limit any rights or remedies of Lenders.




          (c) 360-Day Year. Interest shall be computed on the basis of a 360-day year of twelve
30-day months.




          (d) Debit of Accounts. Collateral Agent, or (but without duplication) Bank, for the
benefit of the Lenders, may debit any of Borrower’s deposit accounts, including the Designated
Deposit Account, for principal and interest payments or any other amounts Borrower owes Lenders
when due. These debits shall not constitute a set-off.




          (e) Payments. Unless otherwise provided, interest is payable monthly on the first
calendar day of each month. Payments of principal and/or interest received after 12:00 p.m.
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, as applicable, shall continue to accrue.




     2.3 Fees. Borrower shall pay to Collateral Agent:



          (a) Loan Fee. A fully earned, non-refundable loan fee of Eighty Thousand Dollars
($80,000) ((to be shared between Bank ($30,000) and Oxford ($50,000)), receipt of which hereby is
acknowledged;




          (b) Prepayment Fee. The Prepayment Fee, when due hereunder;




          (c) Growth Capital Final Payment. The Growth Capital Final Payment, when due
hereunder; and




          (d) Lenders’ Expenses. All documented Lenders’ Expenses (including reasonable
attorneys’ fees and expenses incurred in connection with the documentation and negotiation of this
Agreement) incurred through and after the Effective Date, when due.




     3 CONDITIONS OF LOANS



     3.1 Conditions Precedent to Initial Credit Extension. Lenders’ obligation to make the initial
Credit Extension is subject to the condition precedent that Lenders shall have received, in form
and substance satisfactory to Lenders, such documents, and completion of such other matters, as
Lenders may reasonably deem necessary or appropriate, including, without limitation:



          (a) duly executed original signatures to the Loan Documents to which it is a party;




          (b) a duly executed original signature to the Warrant to be issued to Oxford and a duly
executed original signature to the Warrant to be issued to Bank;




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          (c) duly executed original signatures to the Control Agreement[s];




          (d) its Operating Documents and a good standing certificate of Borrower certified by the
Secretary of State of the States of Delaware and California as of a date no earlier than thirty
(30) days prior to the Effective Date;




          (e) duly executed original signatures to the completed Borrowing Resolutions for Borrower (one
set for each Lender);




          (f) certified copies, dated as of a recent date, of financing statement searches, as Lenders
shall request, accompanied by written evidence (including any UCC termination statements) that the
Liens indicated in any such financing statements either constitute Permitted Liens or have been or,
in connection with the initial Credit Extension, will be terminated or released;




          (g) a legal opinion of Borrower’s counsel dated as of the Effective Date together with the
duly executed original signatures thereto;




          (h) two Perfection Certificate(s) executed by Borrower (one for each Lender);




          (i) evidence satisfactory to Lenders that the insurance policies required by Section
6.4 hereof are in full force and effect, together with appropriate evidence showing loss
payable and/or additional insured clauses or endorsements in favor of each Lender; and




          (j) payment of the fees and Lenders’ Expenses then due as specified in Section 2.3
hereof.




     3.2 Conditions Precedent to all Credit Extensions. Lenders’ obligations to make each Credit
Extension, including the initial Credit Extension, are subject to the following:



          (a) Borrower shall have duly executed and delivered to Collateral Agent a Payment/Advance
Form;




          (b) Borrower shall have duly executed and delivered to each Lender a Note in the amount of
such Lender’s pro rata portion of such Growth Capital Advance;




          (c) the representations and warranties in Section 5 shall be true in all material
respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension;
provided, however, that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date, and no Default or
Event of Default shall 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 in all material respects; provided, however, that
such materiality qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date shall be true, accurate
and complete in all material respects as of such date; and




          (d) in Lenders’ reasonable discretion, there has not been a Material Adverse Change.




     3.3 Covenant to Deliver.



     Borrower agrees to deliver to Lenders each item required to be delivered to any Lender under
this Agreement as a condition to any Credit Extension. Borrower expressly agrees that the
extension of a Credit Extension prior to the receipt by Lenders of any such item shall not
constitute a waiver by Lenders of Borrower’s obligation to deliver such item, and any such
extension in the absence of a required item shall be in Lenders’ sole discretion.



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     3.4 Procedures for Borrowing. To obtain a Growth Capital Advance, Borrower must notify
Collateral Agent by facsimile or telephone by 12:00 p.m. Pacific Time five (5) Business Days prior
to the date the Growth Capital Advance is to be made (except in the case of the Growth Capital
Advances to be made on or about the Effective Date, notice of which shall be provided the
Collateral Agent on or prior to the Effective Date). If such notification is by telephone,
Borrower must promptly confirm the notification by delivering to Collateral Agent a completed
Payment/Advance Form in the form attached as Exhibit B. Upon receipt of a Payment/Advance
Form, Collateral Agent shall promptly provide a copy of the same to each Lender. On the Growth
Capital Funding Date, each Lender shall credit and/or transfer (as applicable) to Borrower’s
deposit account, an amount equal to its Growth Capital Commitment Percentage multiplied by the
amount of the Growth Capital Advance. Each Lender may rely on any telephone notice given by a
person whom such Lender reasonably believes is a Responsible Officer. Borrower shall indemnify
each Lender for any loss Lender suffers due to such reliance.



     4 CREATION OF SECURITY INTEREST



     4.1 Grant of Security Interest. Borrower hereby grants Collateral Agent, for the benefit of
the Lenders, to secure the payment and performance in full of all of the Obligations, a continuing
security interest in the Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that
the security interest granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral (subject only to Permitted Liens that may have
superior priority pursuant to the terms of this Agreement). If Borrower shall acquire a commercial
tort claim (as defined in the Code), Borrower shall promptly notify Collateral Agent in a writing
signed by Borrower of the general details thereof (and further details as may be required by
Collateral Agent) and grant to Collateral Agent, for the benefit of the Lenders, in such writing a
security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance reasonably satisfactory to Collateral Agent.



     If this Agreement is terminated, Collateral Agent’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon
payment in full in cash of the Obligations (other than inchoate indemnity obligations) and at such
time as the Lenders’ obligation to make Credit Extensions has terminated, Collateral Agent shall,
at Borrower’s sole cost and expense, release its Lien in the Collateral and all rights therein
shall revert to Borrower.



     4.2 Authorization to File Financing Statements. Borrower hereby authorizes Collateral Agent
to file financing statements, without notice to Borrower, with all appropriate jurisdictions to
perfect or protect Collateral Agents’ interest or rights hereunder, including a notice that any
disposition of the Collateral, by either Borrower or any other Person, other than in accordance
with this Agreement shall be deemed to violate the rights of Collateral Agent under the Code.



     5 REPRESENTATIONS AND WARRANTIES



          Borrower represents and warrants as follows:




     5.1 Due Organization and Authorization. Borrower and each of its Subsidiaries, if any, are
duly existing and in good standing, as Registered Organizations in their respective jurisdictions
of formation and are qualified and licensed to do business and are in good standing in any
jurisdiction in which the conduct of their business or their ownership of property requires that
they be qualified except where the failure to do so could not reasonably be expected to have a
material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has
delivered to Collateral Agent a completed perfection certificate signed by Borrower (the
“Perfection Certificate”). Borrower represents and warrants that (a) Borrower’s exact legal name
is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is
an organization of the type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the Perfection Certificate
accurately sets forth Borrower’s place of business, or, if more than one, its chief executive
office as well as Borrower’s mailing address (if different than its chief executive office); (e)
Borrower (and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any organizational number assigned
by its jurisdiction; and (f) all other information set forth on the



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Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and
complete. If Borrower is not now a Registered Organization but later becomes one, Borrower shall
promptly notify Collateral Agent of such occurrence and provide Collateral Agent with Borrower’s
organizational identification number.



     The execution, delivery and performance by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with any of Borrower’s Operating
Documents, (ii) contravene, conflict with, constitute a default under or violate any material
Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by which Borrower or any
of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any
action by, filing, registration, or qualification with, or Governmental Approval from, any
Governmental Authority (except such Governmental Approvals which have already been obtained and are
in full force and effect) or are being obtained pursuant to Section 6.1(b), or (v) constitute an
event of default under any material agreement by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound in which the default
could reasonably be expected to have a material adverse effect on Borrower’s business.



     5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each
item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and
all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts
with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to
Collateral Agent in connection herewith, or of which Borrower has given Lenders notice and taken
such actions as are necessary to give Collateral Agent a perfected security interest therein.



     No Collateral in excess of $50,000 in the aggregate is in the possession of any third-party
bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral in excess of $50,000 in the aggregate shall be maintained at
locations other than as provided in the Perfection Certificate or as Borrower has given Lenders
notice pursuant to Section 7.2. In the event that Borrower, after the date hereof, intends
to store or otherwise deliver any portion of the Collateral in excess of $50,000 in the aggregate
to a bailee, then Borrower will first receive the written consent of Lenders and such bailee must
execute and deliver a bailee agreement in form and substance reasonably satisfactory to Collateral
Agent in its sole discretion.



     All Inventory is in all material respects of good and marketable quality, free from material
defects, normal wear and tear excepted.



     Borrower is the sole owner of its intellectual property, except for licenses granted to its
customers in the ordinary course of business which do not result in a legal transfer of title of
the licensed property but that may be exclusive in respects other than territory and that may be
exclusive as to territory only as to discreet geographical areas outside of the United States.
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 to Borrower’s knowledge, no claim has been made
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 have a material adverse effect on Borrower’s
business. Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound
by, any material license or other agreement with respect to which Borrower is the licensee (a) that
prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest
in such license or agreement or any other property, or (b) for which a default under or termination
of could interfere with Collateral Agent’s right to sell any Collateral. Borrower shall provide
written notice to Collateral Agent within ten (10) days of entering or becoming bound by any such
license or agreement (other than over-the-counter software that is commercially available to the
public). Borrower shall take such steps as Collateral Agent reasonably requests to obtain the
consent of, or waiver by, any person whose consent or waiver is necessary for (x) all such licenses
or agreements to be deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license or agreement,
whether now existing or entered into in the future, and (y) Collateral Agent to have the ability in
the event of a liquidation of any Collateral to dispose of such Collateral in accordance with
Collateral Agent’s rights and remedies under this Agreement and the other Loan Documents.



     5.3 Litigation. There are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than $250,000.



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     5.4 No Material Deviation in Financial Statements. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Lenders 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 Lenders.



     5.5 Solvency. The fair salable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; 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 of 1940, as amended. 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. Neither Borrower nor any of its Subsidiaries is a
“holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding
company” as each term is defined and used in the Public Utility Holding Company Act of 2005.
Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be
expected to have a material adverse effect on its business. None of Borrower’s or any of its
Subsidiaries’ 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 of its Subsidiaries
have obtained all consents, approvals and authorizations of, made all declarations or filings with,
and given all notices to, all Governmental Authorities that are necessary to continue their
respective businesses as currently conducted.



     5.7 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.



     5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower and its Subsidiaries have timely paid all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower; provided that
Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies Lenders in writing of the commencement of, and any material
development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the
governmental authority levying such contested taxes from obtaining a Lien upon any of the
Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or adjustments
proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete termination of, or
permitted the occurrence of any other event with respect to, any such plan which could reasonably
be expected to result in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.



     5.9 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as
working capital and to fund its general business requirements and not for personal, family,
household or agricultural purposes.



     5.10 Full Disclosure. No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Collateral Agent or any Lender, as of the date such
representation, warranty, or other statement was made, taken together with all such written
certificates and written statements given to Collateral Agent or any Lender, 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 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 or forecasted results).



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     6 AFFIRMATIVE COVENANTS



     Borrower shall do all of the following:



     6.1 Government Compliance.



          (a) Maintain its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s
business or operations. Borrower shall 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.




          (b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its
obligations under the Loan Documents to which it is a party and the grant of a security interest to
Collateral Agent for the ratable benefit of the Lenders, in all of its property. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Collateral Agent.




     6.2 Financial Statements, Reports, Certificates.



          (a) Deliver to each Lender: (i) within five (5) days of delivery, copies of all statements,
reports and notices made available to all of Borrower’s security holders or to any holders of
Subordinated Debt; and (ii) within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission or a link thereto on Borrower’s or another
website on the Internet; (iii) a prompt report of any legal actions pending or threatened against
Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its
Subsidiaries of $250,000 or more; and (iv) other financial information reasonably requested by
Collateral Agent.




          (b) Within forty-five (45) days after the last day of each calendar quarter, deliver to each
Lender, a duly completed Compliance Certificate signed by a Responsible Officer.




          (c) Within five (5) days prior to the execution of any license contemplated by Section 7.1(e)
hereof, deliver to each Lender a duly completed Compliance Certificate signed by a Responsible
Officer certifying, among other things, that such license satisfies the requirements of Section
7.1(e).




          (d) Allow Lenders to audit or inspect Borrower’s Collateral at Borrower’s expense. Such
audits or inspections shall be conducted no more often than once every twelve (12) months unless a
Default or an Event of Default has occurred and is continuing.




     6.3 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all
required tax returns and reports and timely pay, and require each of its Subsidiaries to timely
file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant
to the terms of Section 5.8 hereof, and shall deliver to Lenders, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their terms.



     6.4 Insurance. Keep its business and the Collateral insured for risks (other than earthquake
and flood) and in amounts standard for companies in Borrower’s industry and location and as Lenders
may reasonably request. Insurance policies shall be in a form, with companies (with an AM Best
Rating of A7 or better), and in amounts that are reasonably satisfactory to Lenders. All property
policies shall have a lender’s loss payable endorsement showing Collateral Agent, and/or its
assigns, as an additional lender loss payee and waive subrogation against Lenders, and all general
liability (product liability being excluded) and excess liability policies shall show, or have
endorsements showing, Collateral Agent, and/or its assigns, as an additional insured. All policies
insuring the Collateral (or the loss payable and additional insured endorsements) shall provide
that the insurer will endeavor to give Collateral Agent at least twenty (20) days notice before
canceling, amending, or declining to renew its policy. At Collateral Agent’s and any Lenders’
request, Borrower shall deliver Certificates of Insurance and such



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other evidence of all premium payments as Collateral Agent and or Lenders may reasonably
request. Proceeds payable under any policy insuring the Collateral shall, at Lenders’ option, be
payable to Lenders on account of the Obligations. Notwithstanding the foregoing, (a) so long as no
Event of Default has occurred and is continuing, Borrower shall have the option of applying the
proceeds of any property policy up to $100,000, in the aggregate, toward the replacement or repair
of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be
of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral
in which Collateral Agent and Lenders have been granted a first priority security interest (subject
to Permitted Liens), and (b) after the occurrence and during the continuance of an Event of
Default, all proceeds payable under such casualty policy shall, at the option of Collateral Agent,
be payable to Collateral Agent, for the ratable benefit of the Lenders, on account of the
Obligations. If Borrower fails to obtain insurance as required under this Section 6.4 or
to pay any amount or furnish any required proof of payment to third persons and Collateral Agent,
Collateral Agent may make all or part of such payment or obtain such insurance policies required in
this Section 6.4, and take any action under the policies Collateral Agent deems prudent.



     6.5 Operating Accounts.



          (a) Within 60 days of the Effective Date, transfer (if applicable) and maintain its primary
depository, operating and securities accounts with Bank or Bank’s Affiliates, which accounts shall
represent at least 85% of the dollar value of Borrower’s and Borrower’s Subsidiaries’ accounts at
all financial institutions; provided that the Growth Capital Advances shall be credited to and
maintained in the Designated Deposit Account until such time as 85% of the dollar value of
Borrower’s and Borrower’s Subsidiaries’ accounts at all financial institutions are maintained with
Bank or Bank’s Affiliates.




          (b) Provide Collateral Agent five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution other than Bank or Bank’s
Affiliates. In addition, for each Collateral Account that Borrower at any time maintains, Borrower
shall cause the applicable bank or financial institution (other than Bank) at or with which any
Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate
instrument with respect to such Collateral Account to perfect Collateral Agent’s Lien in such
Collateral Account in accordance with the terms hereunder, which Control Agreement may not be
terminated without prior written consent of the Lenders. The provisions of the previous sentence
shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower’s employees and identified to
Collateral Agent by Borrower as such.




     6.6 Protection of Intellectual Property Rights. Borrower shall: (a) use commercially
reasonable efforts to protect, defend and maintain the validity and enforceability of its
intellectual property; (b) promptly advise Lenders in writing of material infringements of its
intellectual property; and (c) not allow any intellectual property material to Borrower’s business
to be abandoned, forfeited or dedicated to the public without Lenders’ written consent.



     6.7 Litigation Cooperation. From the date hereof and continuing through the termination of
this Agreement, make available to Collateral Agent, without expense to Collateral Agent, Borrower
and its officers, employees and agents and Borrower’s books and records, to the extent that
Collateral Agent may deem them reasonably necessary to prosecute or defend any third-party suit or
proceeding instituted by or against Collateral Agent with respect to any Collateral or relating to
Borrower.



     6.8 Notices of Litigation and Default. Borrower will give prompt written notice to Collateral
Agent of any litigation or governmental proceedings pending or threatened (in writing) against
Borrower which would reasonably be expected to have a material adverse effect with respect to
Borrower. Without limiting or contradicting any other more specific provision of this Agreement,
promptly (and in any event within three (3) Business Days) upon Borrower becoming aware of the
existence of any Event of Default or event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default, Borrower shall give written notice to Collateral Agent
of such occurrence, which such notice shall include a reasonably detailed description of such Event
of Default or event which, with the giving of notice or passage of time, or both, would constitute
an Event of Default.



8









 





     6.9 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary creates or
acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Lenders of the creation
or acquisition of such new Subsidiary and take all such action as may be reasonably required by
Lenders to cause each such domestic Subsidiary to guarantee the Obligations of Borrower under the
Loan Documents and grant a continuing pledge and security interest in and to the assets of such
Subsidiary (substantially as described on Exhibit A hereto); and Borrower shall grant and pledge to
Lenders a perfected security interest in the stock, units or other evidence of ownership of each
Subsidiary (not to exceed 65% of such stock units or other evidence of ownership in the case of a
foreign Subsidiary).



     6.10 Right to Invest. Grant to each Lender (or its Affiliates) a right (but not an
obligation) to invest up to its pro rata share (based on its Growth Capital Commitment Percentage)
of the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000) in Borrower’s
first round of private equity financing occurring after the Effective Date on the same terms,
conditions and pricing offered to the lead investors in such financing. Borrower shall give
Lenders no less than five (5) Business Days’ (or such greater or lesser notice as is provided
prospective investors in such financing) prior written notice of the private equity financing which
notice shall (a) identify the principal investors participating in such private equity financing
and contain the material terms, conditions and pricing of the private equity financing, and (b) be
delivered to Lenders’ addresses set forth in Section 10 hereof. For the avoidance of
doubt, the right granted hereunder shall not apply to equity investments made solely in connection
with corporate collaborations. The right granted hereunder shall survive the termination of this
Agreement. Lenders’ costs and expenses in connection with their exercise of the rights granted
pursuant to this Section 6.10 shall not constitute “Lender’s Expenses” and shall not be
reimbursable by Borrower.



     6.11 Further Assurances. Execute any further instruments and take further action as
Collateral Agent reasonably requests to perfect or continue Lenders’ Lien in the Collateral or to
effect the purposes of this Agreement. Deliver to Collateral Agent, within ten (10) days after the
same are sent or received, copies of all correspondence, reports, documents and other filings with
any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or
Requirements of Law or that could reasonably be expected to have a material adverse effect on any
of the Governmental Approvals or otherwise on the operations of Borrower or any of its
Subsidiaries. Without limiting the foregoing, Borrower shall cause to be delivered to Collateral
Agent, within ten (10) days’ of the Effective Date, a landlord’s consent, in form and content
reasonably acceptable to Lenders, executed by Borrower’s master lessor and sublessor.



     7 NEGATIVE COVENANTS



     Borrower shall not do any of the following without Collateral Agent’s prior written consent:



     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 (a) of Inventory in the ordinary course of business; (b) of worn-out
or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of
non-exclusive licenses of Borrower’s intellectual property in the ordinary course of business, or
(e) of exclusive licenses of Borrower’s intellectual property, so long as, with respect to each
such exclusive license (other than the Valeant Rights and the Valeant Option, except as set forth
below), (i) no Default or Event of Default exists at the time of such Transfer, (ii) the license
constitutes an arms-length negotiated transaction made in connection with a corporate licensing or
collaborative arrangement the terms of which, on their face, do not provide for a sale or
assignment of any material intellectual property, (iii) Borrower delivers to each Lender, within
five (5) days prior to execution thereof, a duly completed Compliance Certificate signed by a
Responsible Officer certifying, among other things, that such license satisfies the requirements of
this Section 7.1(e), (iv) Borrower delivers to Collateral Agent copies of the final executed
documents in connection with the licensing or collaborative arrangement upon filing thereof and as
filed with the Securities and Exchange Commission and (v) all royalties, milestone payments or
other proceeds arising from any licensing or collaborative arrangement (including, without
limitation, in connection with the Valeant Rights and the Valeant Option) are paid to a deposit
account that is governed by an Account Control Agreement.



     7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or
permit any of its Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b)
liquidate or dissolve; or (c) (i) replace its Chief



9









 







Executive Officer or Chief Financial Officer without thirty (30) days prior written
notification to Lenders (unless any such officer voluntarily resigns or cause exists for (and
results in) immediate termination, in which case Borrower shall promptly notify Lenders upon
receipt of such resignation or upon such termination) or (ii) enter into any transaction or series
of related transactions in which the stockholders of Borrower immediately prior to the first such
transaction own less than 65% of the voting stock of Borrower immediately after giving effect to
such transaction or related series of such transactions (other than by the sale of Borrower’s
equity securities in a public offering or to private investors). Borrower shall not, without at
least thirty (30) days prior written notice to Lenders: (1) add any new offices or business
locations, including warehouses (unless such new offices or business locations contain in the
aggregate less than Fifty Thousand Dollars ($50,000) in Borrower’s assets or property), (2) change
its jurisdiction of organization, (3) change its organizational structure or type, (4) change its
legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of
organization.



     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. Notwithstanding the
foregoing, 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 herein (subject to Permitted Liens). Borrower shall not sell,
transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber, or enter into
any agreement, document, instrument or other arrangement (except with or in favor of Collateral
Agent) with any Person which directly or indirectly prohibits or has the effect of prohibiting
Borrower or any Subsidiary from selling, transferring, assigning, mortgaging, pledging, leasing,
granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
intellectual property, except as is otherwise permitted in Section 7.1 hereof and the definition of
“Permitted Liens” herein.



     7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.5(b) hereof.



     7.7 Distributions; Investments. (a) Directly or indirectly make any Investment other than
Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends or make
any distribution or payment or redeem, retire or purchase any capital stock provided that (i)
Borrower may pay dividends solely in common stock; and (ii) Borrower may repurchase the stock of
former employees or consultants pursuant to stock repurchase agreements so long as an Event of
Default does not exist at the time of such repurchase and would not exist after giving effect to
such repurchase, provided such repurchase does not exceed in the aggregate of $100,000 per fiscal
year.



     7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower, except for sales of equity securities and
other 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 non-affiliated Person.



     7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under
the terms of the subordination, intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof or adversely affect the subordination
thereof to Obligations owed to the Lenders.



     7.10 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 (as defined in Regulation U of the Board of
Governors of the Federal Reserve System), 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



10









 







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 permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw
from participation in, permit partial or complete termination of, or permit the occurrence of any
other event with respect to, any present pension, profit sharing and deferred compensation plan
which could reasonably be expected to result in any liability of Borrower, including any liability
to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.



     7.11 Indebtedness Payments.



          (i) Prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the
scheduled repayment thereof any Indebtedness for borrowed money or lease obligations (other than
amounts due under this Agreement or due any Lender, or otherwise consented to in writing by
Lenders), (ii) amend, modify or otherwise change the terms of any Indebtedness for borrowed money
or lease obligations so as to accelerate the scheduled repayment thereof or (iii) repay any notes
to officers, directors or shareholders.




     8 EVENTS OF DEFAULT



     Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:



     8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any
Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days
after such Obligations are due and payable (which three (3) day grace period shall not apply to
payments due on the Growth Capital Maturity Date). No Event of Default shall be deemed to have
occurred and no interest at the Default Rate shall be charged in the event that a Lender shall fail
to debit Borrower’s Designated Deposit Account while amounts necessary to make full payment of the
amounts then due hereunder are available in such account. During the cure period, the failure to
cure the payment default is not an Event of Default (but no Credit Extension will be made during
the cure period);



     8.2 Covenant Default.



          (a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3,
6.4, 6.5, or 6.10, or violates any covenant in Section 7; or




          (b) Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure the 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 period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure to cure the
default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such
cure period). Grace periods provided under this Section shall not apply, among other things, to
financial covenants or any other covenants set forth in subsection (a) above;




     8.3 Material Adverse Change. A Material Adverse Change occurs;



     8.4 Attachment.



          (a) (i) The service of process seeking to attach, by trustee or similar process, any funds of
Borrower or of any entity under control of Borrower (including a Subsidiary) on deposit with Bank
or any Bank Affiliate, or (ii) a notice of lien, levy, or assessment is filed against any of
Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are
not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the
posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any
ten (10) day cure period; and




11









 





          (b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes
into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents
Borrower from conducting any part of its business;




     8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts) as they
become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty five (45)
days (but no Credit Extensions shall be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);



     8.6 Other Agreements. There is a default in any agreement to which Borrower is a party with a
third party or parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Two Hundred
Fifty Thousand Dollars ($250,000) or that could reasonably be expected to have a material adverse
effect on Borrower’s business;



     8.7 Judgments. A judgment or judgments for the payment of money in an amount, individually or
in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) (not covered by
independent third-party insurance) shall be rendered against Borrower and shall remain unsatisfied
and unstayed for a period of ten (10) days after the entry thereof (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);



     8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation,
warranty, or other statement now or later in this Agreement, any Loan Document or in any writing
delivered to Collateral Agent and/or any Lender or to induce Collateral Agent and/or Lenders to
enter this Agreement or any Loan Document, and such representation, warranty, or other statement is
incorrect in any material respect when made;



     8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and
any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement
with Lenders, or any creditor that has signed such an agreement with Lenders breaches any terms of
such agreement;



     8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked,
rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a
full term or (b) subject to any decision by a Governmental Authority that designates a hearing with
respect to any applications for renewal of any of such Governmental Approval or that could result
in the Governmental Authority taking any of the actions described in clause (a) above, and such
decision or such revocation, rescission, suspension, modification or non-renewal (i) has, or could
reasonably be expected to have, a Material Adverse Change, or (ii) adversely affects the legal
qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal
could reasonably be expected to affect the status of or legal qualifications of Borrower or any of
its Subsidiaries to hold any Governmental Approval in any other jurisdiction.



     9 RIGHTS AND REMEDIES



     9.1 Rights and Remedies. While an Event of Default occurs and continues Collateral Agent 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
Collateral Agent or Lenders);




          (b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or
under any other agreement between Borrower and Collateral Agent and/or Lenders;




12









 





          (c) demand that Borrower (i) deposits cash with Bank in an amount equal to the aggregate
amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any
future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;




          (d) settle or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Collateral Agent considers advisable, notify any Person owing Borrower money
of Lenders’ security interest in such funds, and verify the amount of such account;




          (e) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral
if Collateral Agent requests and make it available as Collateral Agent designates. Collateral
Agent 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 Collateral Agent a
license to enter and occupy any of its premises, without charge, to exercise any of Collateral
Agent’s rights or remedies;




          (f) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Collateral Agent or Lenders owing to or for the credit or the account of Borrower;




          (g) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Collateral Agent is hereby 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 Collateral Agent’s
exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise
agreements inure to Collateral Agent for the benefit of the Lenders;




          (h) place a “hold” on any account maintained with Collateral Agent or Lenders and/or deliver a
notice of exclusive control, any entitlement order, or other directions or instructions pursuant to
any Control Agreement or similar agreements providing control of any Collateral;




          (i) demand and receive possession of Borrower’s Books; and




          (j) exercise all rights and remedies available to Collateral Agent under the Loan Documents or
at law or equity, including all remedies provided under the Code (including disposal of the
Collateral pursuant to the terms thereof).




     9.2 Power of Attorney. Borrower hereby irrevocably appoints Collateral Agent as its lawful
attorney-in-fact, exercisable only upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b)
sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account
Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Collateral Agent determines reasonable; (d) make, settle, and
adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the
Collateral into the name of Collateral Agent or a third party as the Code permits. Borrower hereby
appoints Collateral Agent as its lawful attorney-in-fact to sign Borrower’s name on any documents
necessary to perfect or continue the perfection of Lenders’ security interest in the Collateral
regardless of whether an Event of Default has occurred until all Obligations (other than inchoate
indemnity obligations) have been satisfied in full and Collateral Agent and Lenders are under no
further obligation to make Credit Extensions hereunder. Collateral Agent’s foregoing appointment
as Borrower’s attorney in fact, and all of Collateral Agent’s rights and powers, coupled with an
interest, are irrevocable until all Obligations (other than inchoate indemnity obligations) have
been fully repaid and performed and Collateral Agent’s and Lenders’ obligation to provide Credit
Extensions terminates.



13









 





     9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.4
or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to
pay under this Agreement or any other Loan Document, Collateral Agent may obtain such insurance or
make such payment, and all amounts so paid by Collateral Agent are Lenders’ Expenses and
immediately due and payable, bearing interest at the then highest applicable rate, and secured by
the Collateral. Collateral Agent will make reasonable efforts to provide Borrower with notice of
Collateral Agent obtaining such insurance at the time it is obtained or within a reasonable time
thereafter. No payments by Collateral Agent are deemed an agreement to make similar payments in
the future or Collateral Agent’s waiver of any Event of Default.



     9.4 Application of Payments and Proceeds. Unless an Event of Default has occurred and is
continuing, Lenders shall apply any funds in their possession, whether from Borrower account
balances, payments, or proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, first, to Lenders’ Expenses, including without limitation, the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Lenders in the
exercise of their rights under this Agreement; second, to the interest due upon any of the
Obligations; and third, to the principal of the Obligations and any applicable fees and other
charges, in such order as Lenders shall determine in their sole discretion. Any surplus shall be
paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Lenders
for any deficiency. If an Event of Default has occurred and is continuing, Lenders may apply any
funds in their possession, whether from Borrower account balances, payments, proceeds realized as
the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to
the Obligations in such order as Collateral Agent and Lenders shall determine in their sole
discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto;
Borrower shall remain liable to Lenders for any deficiency. If Collateral Agent, in its good faith
business judgment, directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Collateral Agent shall have the option,
exercisable at any time, of either reducing the Obligations by the principal amount of the purchase
price or deferring the reduction of the Obligations until the actual receipt by Collateral Agent of
cash therefor.



     9.5 Liability for Collateral. So long as the Collateral Agent and Lenders comply with
reasonable banking practices regarding the safekeeping of the Collateral in the possession or under
the control of the Collateral Agent and Lenders, the Collateral Agent and Lenders shall not be
liable or responsible 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 No Waiver; Remedies Cumulative. Collateral Agent’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any other Loan
Document shall not waive, affect, or diminish any right of Collateral Agent thereafter to demand
strict performance and compliance herewith or therewith. No waiver hereunder shall be effective
unless signed by Collateral Agent and then is only effective for the specific instance and purpose
for which it is given. Collateral Agent’s rights and remedies under this Agreement and the other
Loan Documents are cumulative. Collateral Agent has all rights and remedies provided under the
Code, by law, or in equity. Collateral Agent’s exercise of one right or remedy is not an election,
and Collateral Agent’s waiver of any Event of Default is not a continuing waiver. Collateral
Agent’s delay in exercising any remedy is not a waiver, election, or acquiescence.



     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
Collateral Agent on which Borrower is liable.



     10 NOTICES



     All notices, consents, requests, approvals, demands, or other communication by any party to
this Agreement or any other Loan Document must be in writing and shall be deemed to have been
validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business
Days after deposit in the U.S. mail, first class, registered or certified mail return receipt
requested, with proper postage prepaid; (b) upon transmission, when sent by facsimile transmission;
(c) one (1) Business Day after deposit with a reputable overnight courier with all



14









 







charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address, facsimile number indicated below.
Each party may change its address or facsimile number by giving the other parties written notice
thereof in accordance with the terms of this Section 10.



	 	 	 
	If to Borrower:

	 	ARDEA BIOSCIENCES, INC.
	 

	 	4939 Directors Place
	 

	 	San Diego, CA 92121
	 

	 	Attn: Chief Financial Officer
	 

	 	Tel.: (858) 652-6500
	 

	 	Fax: (858) 625-0760
	 
	 	 
	If to Bank:

	 	Silicon Valley Bank
	 

	 	4370 La Jolla Village Drive, Suite 860
	 

	 	San Diego, CA 92122
	 

	 	Attn: Mike White
	 

	 	Tel.: (858) 784-3310
	 

	 	Fax: (858) 622-1424
	 
	 	 
	If to Collateral Agent:

	 	Oxford Finance Corporation
	 

	 	133 N. Fairfax Street
	 

	 	Alexandria, VA 22314
	 

	 	Attn: Tim A. Lex, Chief Operating Officer
	 

	 	Tel.: (703) 519-4900
	 

	 	Fax: (703) 519-5225






     11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE



     California law governs the Loan Documents without regard to principles of conflicts of law.
Borrower, Collateral Agent and Lenders each submit to the exclusive jurisdiction of the State and
Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement
shall be deemed to operate to preclude Collateral Agent from bringing suit or taking other legal
action in any other jurisdiction to realize on the Collateral or any other security for the
Obligations, or to enforce a judgment or other court order in favor of Collateral Agent and
Lenders. Borrower expressly submits and consents in advance to such jurisdiction in any action or
suit commenced in any such court, and Borrower hereby waives any objection that it may have based
upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to
the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower
hereby waives personal service of the summons, complaints, and other process issued in such action
or suit and agrees that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in Section 10
of this Agreement and that service so made shall be deemed completed upon the earlier to occur of
Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage
prepaid.



     TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, COLLATERAL AGENT AND LENDERS EACH
WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF
DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.



     WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the
parties hereto agree that any and all disputes or controversies of any nature between them arising
at any time shall be decided by a reference to a private judge, mutually selected by the parties
(or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior
Court) appointed in accordance with California Code



15









 







of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the
dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in
Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.
The reference proceedings shall be conducted pursuant to and in accordance with the provisions of
California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have
the power, among others, to grant provisional relief, including without limitation, entering
temporary restraining orders, issuing preliminary and permanent injunctions and appointing
receivers. All such proceedings shall be closed to the public and confidential and all records
relating thereto shall be permanently sealed. If during the course of any dispute, a party desires
to seek provisional relief, but a judge has not been appointed at that point pursuant to the
judicial reference procedures, then such party may apply to the Santa Clara County, California
Superior Court for such relief. The proceeding before the private judge shall be conducted in the
same manner as it would be before a court under the rules of evidence applicable to judicial
proceedings. The parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to judicial
proceedings. The private judge shall oversee discovery and may enforce all discovery rules and
order applicable to judicial proceedings in the same manner as a trial court judge. The parties
agree that the selected or appointed private judge shall have the power to decide all issues in the
action or proceeding, whether of fact or of law, and shall report a statement of decision thereon
pursuant to the California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit
the right of any party at any time to exercise self-help remedies, foreclose against collateral, or
obtain provisional remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.



     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 or
obligations under it without Collateral Agent’s prior written consent (which may be granted or
withheld in Collateral Agent’s discretion). Lenders have the right, without the consent of or
notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part
of, or any interest in, Lenders’ obligations, rights, and benefits under this Agreement and the
other Loan Documents.



     12.2 Indemnification; Expenses. Borrower agrees to indemnify, defend and hold Collateral
Agent and the Lenders and their respective directors, officers, employees, agents, attorneys, or
any other Person affiliated with or representing Collateral Agent or the Lenders (each, an
“Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities
(collectively, “Claims”) asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Lenders’ Expenses incurred, or paid by
such Indemnified Person from, following, or arising from transactions between Collateral Agent,
and/or Lenders and Borrower (including reasonable attorneys’ fees and expenses), except for Claims,
Lenders’ Expenses and/or losses directly caused by an Indemnified Person’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 Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.



     12.5 Correction of Loan Documents. Lenders may fill in any blanks in this Agreement and the
other Loan Documents consistent with the agreement of the parties after consultation with Borrower,
and may correct patent errors.



     12.6 Amendments in Writing; Integration. All amendments to this Agreement must be in writing
signed by Collateral Agent, Lenders and Borrower. This Agreement and the Loan Documents represent
the entire agreement about this subject matter and supersede prior negotiations or agreements. All
prior agreements, understandings, representations, warranties, and negotiations between the parties
about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the
Loan Documents.



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     12.7 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.



     12.8 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have been satisfied. The obligation of Borrower in Section
12.2 to indemnify Collateral Agent and each Lender shall survive until the statute of
limitations with respect to such claim or cause of action shall have run.



     12.9 Confidentiality. In handling any confidential or proprietary information of Borrower,
Collateral Agent and each Lender shall exercise the same degree of care that it exercises for its
own proprietary information. Collateral Agent and each Lender shall hold in strict confidence and
will not disclose to any third party any confidential information of Borrower, except as approved
in writing by Borrower. Notwithstanding the foregoing, disclosure of information may be made: (a)
to Lenders’ and Collateral Agent’s Subsidiaries or Affiliates; (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Lenders and Collateral
Agent shall, except upon the occurrence or during the continuance of an Event of Default, obtain
such prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as
required by law, regulation, subpoena, or other order; (d) to regulators or as otherwise required
in connection with an examination or audit; and (e) as is reasonably necessary for Collateral Agent
or the Lenders to exercise remedies under the Loan Documents. Confidential information does not
include information that either: (i) is in the public domain or in Lenders’ and/or Collateral
Agent’s possession when disclosed to Lenders and/or Collateral Agent, or becomes part of the public
domain after disclosure to Lenders and/or Collateral Agent through no act or inaction by Collateral
Agent or any Lender; or (ii) is disclosed to Lenders and/or Collateral Agent by a third party that
is not prohibited from disclosing the information, if Lenders and/or Collateral Agent does not know
that the third party is prohibited from disclosing the information and does not otherwise have an
obligation of non-disclosure with respect to such information.



     Lenders and Collateral Agent may use confidential information for the development of client
databases, reporting purposes, and market analysis, so long as Lenders and the Collateral Agent do
not disclose Borrower’s identity or the identity of any person associated with Borrower unless
otherwise expressly permitted by this Agreement. The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.



     12.10 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower,
Collateral Agent and/or Lenders arising out of or relating to the Loan Documents, the prevailing
party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses
incurred, in addition to any other relief to which it may be entitled.



     12.11 Right of Set Off. Borrower hereby grants to Collateral Agent and to each Lender, a
lien, security interest and right of set off as security for all Obligations to Collateral Agent
and each Lender hereunder, whether now existing or hereafter arising upon and against all deposits,
credits, Collateral and property, now or hereafter in the possession, custody, safekeeping or
control of Collateral Agent or Lenders or any entity under the control of Collateral Agent or
Lenders (including an Collateral Agent affiliate) or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand or notice,
Collateral Agent or Lenders may set off the same or any part thereof and apply the same to any
liability or obligation of Borrower even though unmatured and regardless of the adequacy of any
other Collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE COLLATERAL AGENT TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS,
PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF
BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.



     13 DEFINITIONS



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



     “Account” is any “account” as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable and other sums owing
to Borrower.



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     “Account Debtor” is any “account debtor” as defined in the Code with such additions to such
term as may hereafter be made.



     “Affiliate” of any 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.



     “Agreement” is defined in the preamble hereof.



     “Bank” is defined in the preamble hereof.



     “Borrower” is defined in the preamble hereof.



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



     “Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such
Person’s Board of Directors and delivered by such Person to Lenders approving the Loan Documents to
which such Person is a party and the transactions contemplated thereby, together with a certificate
executed by its secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the Loan Documents to
which it is a party, (b) that attached as an exhibit to such certificate is a true, correct, and
complete copy of the resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to which it is a party,
(c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person,
together with a sample of the true signature(s) of such Person(s), and (d) that Lenders may
conclusively rely on such certificate unless and until such Person shall have delivered to Lenders
a further certificate canceling or amending such prior certificate.



     “Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.



     “Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California; provided, that, to the extent that the Code is used to define
any term herein or in any Loan Document and such term is defined differently in different Articles
or Divisions of the Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of mandatory provisions of law, any or
all of the attachment, perfection, or priority of, or remedies with respect to, Collateral Agent’s
and Lenders’ Lien on any Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions
thereof relating to such attachment, perfection, priority, or remedies and for purposes of
definitions relating to such provisions.



     “Collateral” is any and all properties, rights and assets of Borrower described on Exhibit
A.



     “Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.



     “Collateral Agent” means Oxford Finance Corporation, not in its individual capacity, but
solely in its capacity as agent on behalf of and for the benefit of the Lenders.



     “Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made.



     “Compliance Certificate” is that certain certificate in the form attached hereto as
Exhibit C.



     “Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation



18









 







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; (b) any obligations for undrawn
letters of credit for the account of that Person; and (c) 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 any guarantee or other
support arrangement.



     “Control Agreement” is any control agreement entered into among the depository institution at
which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary
at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Collateral
Agent pursuant to which Collateral Agent obtains control (within the meaning of the Code) for the
benefit of the Lenders over such Deposit Account, Securities Account, or Commodity Account.



     “Credit Extension” is any Growth Capital Advance, or any other extension of credit by Lenders
for Borrower’s benefit.



     “Default” means any event which with notice or passage of time or both, would constitute an
Event of Default.



     “Default Rate” is defined in Section 2.2(b).



     “Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.



     “Designated Deposit Account” is Borrower’s deposit account, account number 3300209385,
maintained with Bank.



     “Dollars,” “dollars” and “$” each mean lawful money of the United States.



     “Effective Date” is defined in the preamble of this Agreement.



     “Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.



     “ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.



     “Event of Default” is defined in Section 8.



     “Final Payment Percentage” is five percent (5.00%).



     “Funding Date” is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.



     “GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date of determination.



     “General Intangibles” is all “general intangibles” as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights,



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copyright applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents, trademarks, service
marks and, to the extent permitted under applicable law, any applications therefor, whether
registered or not, any trade secret rights, including any rights to unpatented inventions, payment
intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security
and other deposits, options to purchase or sell real or personal property, rights in all litigation
presently or hereafter pending (whether in contract, tort or otherwise), insurance policies
(including without limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.



     “Governmental Approval” is any consent, authorization, approval, order, license, franchise,
permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or
other act by or in respect of, any Governmental Authority.



     “Governmental Authority” is any nation or government, any state or other political subdivision
thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions
of or pertaining to government, any securities exchange and any self-regulatory organization.



     “Growth Capital Advance” or “Growth Capital Advances” is defined in Section 2.1.1(a).



     “Growth Capital Amortization Date” means April 1, 2009.



     “Growth Capital Commitment Percentage” means 37.5% with respect to Bank, and 62.5% with
respect to Oxford.



     “Growth Capital Commitment Termination Date” is November 17, 2008.



     “Growth Capital 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 earlier to occur of (a) the
Growth Capital Maturity Date, (b) the acceleration of the Growth Capital Advances, or (c) the
prepayment of the Growth Capital Advances, equal to the amount of the Growth Capital Advances
multiplied by the Final Payment Percentage.



     “Growth Capital Funding Date” is any date on which a Growth Capital Advance is made to or on
account of Borrower.



     “Growth Capital Interest Only Period” means, for each Growth Capital Advance, the period of
time commencing on its Growth Capital Funding Date through the day before the Growth Capital
Amortization Date.



     “Growth Capital Loan Commitment” is Eight Million Dollars ($8,000,000).



     “Growth Capital Maturity Date” is, for each Growth Capital Advance, the earliest of (a)
December 1, 2011, or (b) the occurrence of an Event of Default.



     “Growth Capital Repayment Period” is a period of time equal to thirty-three (33) consecutive
months commencing on the Growth Capital Amortization Date.



     “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” is any proceeding 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.



20









 





     “Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of Borrower’s custody
or possession or in transit and including any returned goods and any documents of title
representing any of the above.



     “Investment” is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to any Person.



     “Lender” is any one of the Lenders.



     “Lenders” shall mean the Persons identified in the preamble of this Agreement and each
assignee that becomes a party to this Agreement pursuant to Section 12.1.



     “Lenders’ Expenses” are all documented audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering,
defending and enforcing the Loan Documents (including, without limitation, those incurred in
connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.



     “Letter of Credit” means a standby letter of credit issued by Bank or another institution
based upon an application, guarantee, indemnity or similar agreement on the part of Bank.



     “Lien” is a claim, mortgage, lien, deed of trust, levy, charge, pledge, security interest or
other encumbrance.



     “Loan Documents” are, collectively, this Agreement, the Warrants, the Perfection Certificate,
any Note, or Notes or guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Collateral Agent and/or any Lender in connection with
this Agreement, all as amended, restated, or otherwise modified.



     “Material Adverse Change” is (a) a material impairment in the perfection or priority of
Lenders’ Lien in the Collateral or in the value of such Collateral; (b) a material adverse change
in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material
impairment of the prospect of repayment of any portion of the Obligations.



     “Note” means for each Growth Capital Advance, one of the secured promissory notes of Borrower
substantially in the form of Exhibit D.



     “Obligations” are Borrower’s obligation to pay when due any debts, principal, interest,
Lenders’ Expenses, Prepayment Fee, Final Payment, and other amounts Borrower owes Lenders now or
later, whether under this Agreement, the Loan Documents, or otherwise, including, without
limitation, all obligations relating to letters of credit (including reimbursement obligations for
drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if
any, and including interest accruing after Insolvency Proceedings begin (whether or not allowed)
and debts, liabilities, or obligations of Borrower assigned to Lenders and/or Collateral Agent, and
the performance of Borrower’s duties under the Loan Documents. Notwithstanding anything to the
contrary contained herein, the term “Obligations” shall not include obligations of Borrower under
the Warrants or any equity-related documents executed in connection with the Warrants.



     “Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in
current form, (b) if such Person is a limited liability company, its limited liability company
agreement (or similar agreement), and (c) if such Person is a partnership, its partnership
agreement (or similar agreement), each of the foregoing with all current amendments or
modifications thereto.



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     “Payment/Advance Form” is that certain form attached hereto as Exhibit B.



     “Perfection Certificate” is defined in Section 5.1.



     “Permitted Indebtedness” is:



          (a) Borrower’s Indebtedness to Lenders and Collateral Agent under this Agreement and the other
Loan Documents;




          (b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;




          (c) Subordinated Debt;




          (d) unsecured Indebtedness to trade creditors and with respect to surety bonds and similar
obligations incurred in the ordinary course of business;




          (e) Indebtedness in an aggregate principal amount not to exceed $250,000 secured by Permitted
Liens;




          (f) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business; and




          (g) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (f) above, provided that the then-outstanding principal amount
thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be.




     “Permitted Investments” are:



          (a) Investments shown on the Perfection Certificate and existing on the Effective Date;




          (b) any Investments permitted by Borrower’s investment policy, as amended from time to time,
provided that such investment policy (and any such amendment thereto) has been approved by Lenders
(which investment policy as is currently in effect on the Effective Date has been approved by
Lenders);




          (c) Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;




          (d) Investments accepted in connection with Transfers permitted by Section 7.1;




          (e) (i) Investments of Subsidiaries in or to other Subsidiaries or Borrower; and (ii)
Investments by Borrower in Subsidiaries not to exceed $100,000 in the aggregate in any fiscal year
(provided that Borrower shall not make cash Investments in Ardea Biosciences Ltd. at any time
during the term hereof);




          (f) Investments consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors
which do not exceed $100,000 in the aggregate in any year, provided that no cash loans under this
clause (ii) may be made if an Event of Default is then occurring or would otherwise occur upon the
making thereof;




          (g) Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of business; and




22









 





          (h) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary.




     Notwithstanding the foregoing, Permitted Investments shall not include, and Borrower and each
Subsidiary is prohibited from purchasing, purchasing participations in, entering into any type of
swap or other equivalent derivative transaction, or otherwise holding or engaging in any ownership
interest in any type of debt instrument, including, without limitation, any corporate or municipal
bonds with a long-term nominal maturity for which the interest rate is reset through a dutch
auction and more commonly referred to as an “auction rate security.”



     “Permitted Liens” are:



          (a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the 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 Collateral Agent’s and/or Lenders’ Liens;




          (c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment securing no more than Two Hundred Fifty Thousand Dollars
($250,000.00) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if
the Lien is confined to the property and improvements and the proceeds of the Equipment;




          (d) statutory Liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other Persons imposed without action of such parties, provided, they
have no priority over any of Collateral Agent’s and/or Lenders’ Liens and the aggregate amount of
such Liens does not at any time exceed $25,000;




          (e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,
social security and other like obligations incurred in the ordinary course of business, provided,
they have no priority over any of Collateral Agent’s and/or Lenders’ Liens and the aggregate amount
of the Indebtedness secured by such Liens does not at any time exceed $25,000;




          (f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (d), 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) leases or subleases of real property granted in the ordinary course of business, and
leases, subleases, licenses or sublicenses of property (other than real property or intellectual
property; except as otherwise expressly permitted herein) granted in the ordinary course of
Borrower’s business, if the leases, subleases, licenses and sublicenses do not prohibit
granting Collateral Agent and/or Lenders a security interest;




          (h) Liens arising from judgments, decrees or attachments in circumstances not constituting an
Event of Default under Section 8.4 or 8.7; and




          (i) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Borrower has complied
with Section 6.5 hereof.




     “Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.



     “Prepayment Fee” shall be an additional fee payable to the Collateral Agent in amount equal
to:



23









 





          (a) for a prepayment made on or prior to November 12, 2009, four percent (4%) of the principal
amount of the Growth Capital Advance prepaid; or




          (b) for a prepayment made after November 12, 2009, and on or prior to November 12, 2010, three
percent (3.0%) of the principal amount of the Growth Capital Advance prepaid; and




          (c) for a prepayment made after November 12, 2010, and on or prior to the Growth Capital
Advance Maturity Date, two percent (2.0%) of the principal amount of the Growth Capital Advance
prepaid.




     “Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made



     “Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its property is subject.



     “Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.



     “Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.



     “Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now
or hereafter indebtedness to Lenders (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Collateral Agent and Lenders entered into between
Collateral Agent, the Borrower and the other creditor), on terms acceptable to Collateral Agent and
Lenders.



     “Subsidiary” means, with respect to any Person, any Person of which more than 50% of the
voting stock or other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.



     “Transfer” is defined in Section 7.1.



     “Valeant” means Valeant Research & Development.



     “Valeant Option” means Valeant’s option for an exclusive, royalty-bearing license to certain
of Borrower’s intellectual property as more particularly described in Section 1.6 of that certain
Asset Purchase Agreement by and among Valeant, Valeant Pharmaceuticals International, Inc. and
Borrower, dated as of December 21, 2006 and appearing as an exhibit to Borrower’s Form 8-K filed
with the United States Securities Exchange Commission on December 28, 2006 (the “Valeant APA”).



     “Valeant Rights” means the right of Valeant to receive from Borrower development-based
milestone payments and sales-based royalty payments as more particularly described in Section 1.5
of the Valeant APA.



     “Warrants” are that certain Warrant to Purchase Stock dated on or about the Effective Date
executed by Borrower in favor of Bank and that certain Warrant to Purchase Stock dated on or about
the Effective Date executed by Borrower in favor of Oxford.



[Balance of Page Intentionally Left Blank]




24









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.



BORROWER:



ARDEA BIOSCIENCES, INC.




	 	 	 	 	 
	By

	 	/s/ John W. Beck
	 	 
	 

	 	 	 	 
	Name:

	 	John W. Beck	 	 
	 

	 	 	 	 
	Title:

	 	SVP Finance, Operations and CFO	 	 
	 

	 	 	 	 





COLLATERAL AGENT:



OXFORD FINANCE CORPORATION




	 	 	 	 	 
	By

	 	/s/ T. A. Lex
	 	 
	 

	 	 	 	 
	Name:

	 	T. A. Lex	 	 
	 

	 	 	 	 
	Title:

	 	COO	 	 
	 

	 	 	 	 





LENDERS:



SILICON VALLEY BANK




	 	 	 	 	 
	By

	 	/s/ Sarah Larson
	 	 
	 

	 	 	 	 
	Name:

	 	Sarah Larson	 	 
	 

	 	 	 	 
	Title:

	 	Relationship Manager	 	 
	 

	 	 	 	 





OXFORD FINANCE CORPORATION




	 	 	 	 	 
	By

	 	/s/ T. A. Lex
	 	 
	 

	 	 	 	 
	Name:

	 	T. A. Lex	 	 
	 

	 	 	 	 
	Title:

	 	COO	 	 
	 

	 	 	 	 





[Signature Page to Loan and Security Agreement]




 









 








EXHIBIT A



The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:




     All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles (except as provided below), commercial tort claims, documents, instruments (including
any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts,
certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is
evidenced by a writing), securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; 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, attachments, accessories, accessions and improvements to and
replacements, products, proceeds and insurance proceeds of any or all of the foregoing.



     Notwithstanding the foregoing, the Collateral does not include any of the following, whether
now owned or hereafter acquired, (i) any ownership interest in a foreign subsidiary which exceeds
65% of the total outstanding ownership interests in such foreign subsidiary, or (ii) any copyright
rights, copyright applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents, patent applications
and like protections, including improvements, divisions, continuations, renewals, reissues,
extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or not, and the
goodwill of the business of Borrower connected with and symbolized thereby, know-how, operating
manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of
any past, present, or future infringement of any of the foregoing; provided, however, the
Collateral shall include all Accounts, license and royalty fees and other revenues, proceeds, or
income arising out of or relating to any of the foregoing.



     Pursuant to the terms of a certain negative pledge arrangement with Collateral Agent and
Lenders, Borrower has agreed, subject to certain exceptions, not to encumber any of its copyright
rights, copyright applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents, patent applications
and like protections, including improvements, divisions, continuations, renewals, reissues,
extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or not, and the
goodwill of the business of Borrower connected with and symbolized thereby, know-how, operating
manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of
any past, present, or future infringement of any of the foregoing, without Collateral Agent’s prior
written consent.




 









 








EXHIBIT B




Loan Payment/Advance Request Form




Deadline for same day processing is Noon P.S.T.




			
	 	 	 
	Fax To:
	 	Date: _________










LOAN PAYMENT:




ARDEA BIOSCIENCES, INC.




	 	 	 	 	 	 	 
	From Account #

	 	 	 	To Account #	 	 
	 

	 	 
	 	 	 	 
	 

	 	(Deposit Account #)
	 	 	 	(Loan Account #)
	Principal $

	 	 	 	and/or Interest $	 	 
	 

	 	 
	 	 	 	 





	 	 	 	 	 	 	 
	Authorized Signature:

	 	 	 	Phone Number:	 	 
	 

	 	 
	 	 	 	 
	Print Name/Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 








 








Loan Advance:



Complete Outgoing Wire Request section below if all or a portion of the funds from this loan
advance are for an outgoing wire.




	 	 	 	 	 	 	 
	From Account #

	 	 	 	To Account #	 	 
	 

	 	 
	 	 	 	 
	 

	 	(Loan Account #)
	 	 	 	(Deposit Account #)
	 
	 	 	 	 	 	 
	Amount of Advance $
	 	 	 	 	 	 
	 

	 	 	 	 	 	 




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 request for an advance; provided, however,
that such materiality qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date shall be true, accurate
and complete in all material respects as of such date:




	 	 	 	 	 	 	 
	Authorized Signature:

	 	 	 	Phone Number:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Print Name/Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 













Outgoing Wire Request:

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, P.S.T.




	 	 	 	 	 	 	 
	Beneficiary Name:

	 	 	 	Amount of Wire: $	 	 
	 

	 	 
	 	 	 	 
	Beneficiary Lender:

	 	 	 	Account Number:	 	 
	 

	 	 
	 	 	 	 
	City and State:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 





	 	 	 	 	 	 	 
	Beneficiary Lender Transit (ABA) #:

	 	 	 	Beneficiary Lender Code (Swift, Sort, Chip, etc.):	 	 
	 

	 	 
	 	 	 	 
	 

	 	 	 	(For International Wire Only)	 	 






	 	 	 	 	 	 	 
	Intermediary Lender:

	 	 	 	Transit (ABA) #:	 	 
	 
	 	 	 	 	 	 
	For Further Credit to:
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	Special Instruction:
	 	 	 	 	 	 
	 	 	 




By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be
processed in accordance with and subject to the terms and conditions set forth in the agreements(s)
covering funds transfer service(s), which agreements(s) were previously received and executed by me
(us).




	 	 	 	 	 	 	 
	Authorized Signature:

	 	 	 	2nd Signature (if required):	 	 
	 

	 	 
	 	 	 	 
	Print Name/Title:

	 	 	 	Print Name/Title:	 	 
	 

	 	 
	 	 	 	 
	Telephone #:

	 	 	 	Telephone #:	 	 
	 

	 	 
	 	 	 	 








 









 








EXHIBIT C




COMPLIANCE CERTIFICATE




	 	 	 	 	 
	TO:

	 	OXFORD FINANCE CORPORATION, as Collateral Agent
	 	 
	Date:
	 	 	 	 
	 

	 	 	 	 
	FROM:

	 	ARDEA BIOSCIENCES, INC.	 	 






     The undersigned authorized officer of ARDEA BIOSCIENCES, INC. (“Borrower”) certifies that
under the terms and conditions of the Loan and Security Agreement between Borrower, Collateral
Agent and the Lenders (the “Agreement”), (1) Borrower is in complete compliance for the period
ending ____________with all required covenants except as noted below, (2) there are no Events
of Default, (3) all representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof; and provided, further that those representations
and warranties expressly referring to a specific date shall be true, accurate and complete in all
material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all
required tax returns and reports, and Borrower has timely paid all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted
pursuant to the terms of Section 5.8 of the Agreement, and (5) no Liens have been levied or
claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or
benefits of which Borrower has not previously provided written notification to Collateral Agent.
Attached are the required documents supporting the certification, as applicable. The undersigned
certifies that the financial statements set forth in its 10-K or 10-Q for the preceding calendar
quarter have been prepared in accordance with generally GAAP consistently applied from one period
to the next except as explained in an accompanying letter or footnotes or as permitted by the
Agreement. The undersigned 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. Capitalized terms
used but not otherwise defined herein shall have the meanings given them in the Agreement.



Please indicate compliance status by circling Yes/No under “Complies” column.***




	 	 	 	 	 
	Reporting Covenant	 	Required	 	Complies
	 
	 	 	 	 
	10-Q, 10-K and 8-K

	 	Within 5 days after filing with SEC
	 	Yes   No
	 
	 	 	 	 
	Compliance Certificate

	 	45 days after Quarter End and FYE;
Within 5 days prior to consummation
of any license, per Section 7.1(e)*
	 	Yes   No








 




			
	*	 	please note compliance with Section 7.1(e) on next page.





 









 




The following are the exceptions with respect to the certification above: (If no exceptions exist,
state “No exceptions to note.”)



 



 



 




	 	 	 	 	 	 	 
	*Section 7.1(e):	 	Complies
	 	 
	(i) No Default or Event of Default

	 	Yes
	 	No	 	 
	 
	 	 	 	 	 	 
	(ii) the license constitutes an arms-length negotiated
transaction, made in connection with a
corporate licensing or collaboration the terms of
which, on their face, do not provide for a sale
or assignment of any material intellectual property

	 	Yes
	 	No	 	 
	 
	 	 	 	 	 	 
	(iii) delivery of Compliance Certificate within 5 days
prior to execution of license

	 	Yes
	 	No	 	 
	 
	 	 	 	 	 	 
	(iv) delivery of the final executed licensing documents
in connection with the license upon filing
thereof with the Securities and Exchange Commission

	 	Yes
	 	No	 	 








ARDEA BIOSCIENCES, INC.




	 	 	 	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 








LENDERS’ USE ONLY




	 	 	 
	Received by:
	 	 
	 
	 
	 
	 	authorized signer
	 
	 	 
	Date:
	 	 
	 
	 
	 
	 	 
	Verified:
	 	 
	 
	 
	 

	 	authorized signer
	 
	 	 
	Date:
	 	 
	 
	 
	 
	 	 
	Compliance Status:
	Yes   No











 









 








EXHIBIT D




SECURED PROMISSORY NOTE




			
	 	 	 
	$_________	 	Dated: November 12, 2008






     FOR VALUE RECEIVED, the undersigned, ARDEA BIOSCIENCES, INC., a [Delaware] corporation
(“Borrower”), HEREBY PROMISES TO PAY to the order of [SILICON VALLEY BANK][OXFORD FINANCE
CORPORATION] (“Lender”) the principal amount of [___Dollars ($___)] or such lesser
amount as shall equal the outstanding principal balance of the Growth Capital Advance made to
Borrower by Lender, plus interest on the aggregate unpaid principal amount of the Growth Capital
Loan, at the rates and in accordance with the terms of the Loan and Security Agreement by and
between Borrower and Oxford Finance Corporation, as Collateral Agent, and the Lenders, including
without limitation, Silicon Valley Bank (as amended, restated, supplemented or otherwise modified
from time to time, the “Loan Agreement”). If not sooner paid, the entire principal amount and all
accrued interest hereunder and under the Loan Agreement shall be due and payable on Growth Capital
Maturity Date as set forth in the Loan Agreement



     Principal, interest and all other amounts due with respect to the Growth Capital Advance, are
payable in lawful money of the United States of America to Lender as set forth in the Loan
Agreement. The principal amount of this Note and the interest rate applicable thereto, and all
payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof,
endorsed on the grid attached hereto which is part of this Note.



     This Note is one of the Notes referred to in, and is entitled to the benefits of, the Loan and
Security Agreement, dated as of November 12, 2008, to which Borrower and Lender are parties (the
“Loan Agreement”). The Loan Agreement, among other things, (a) provides for the making of
this secured Growth Capital Advance to Borrower, and (b) contains provisions for acceleration of
the maturity hereof upon the happening of certain stated events.



     This Note may not be prepaid except as provided in the Loan Agreement. This Note and the
obligation of Borrower to repay the unpaid principal amount of the Growth Capital Advance, interest
on the Growth Capital Advance and all other amounts due Lenders under the Loan Agreement is secured
under the Loan Agreement.



     Presentment for payment, demand, notice of protest and all other demands and notices of any
kind in connection with the execution, delivery, performance and enforcement of this Note are
hereby waived.



     Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable
attorneys’ fees and costs, incurred by Lenders in the enforcement or attempt to enforce any of
Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and
construed and interpreted in accordance with, the laws of the State of California.



[Remainder of page left intentionally blank; signature page follows]




1









 








     IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers
thereunto duly authorized on the date hereof.



	 	 	 	 	 	 	 
	 	 	ARDEA BIOSCIENCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 





[Signature Page to Secured Promissory Note]




2









 








LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Principal	 	 	 	 	 	Scheduled	 	 
	Date	 	Amount	 	Interest Rate	 	Payment Amount	 	Notation By
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






3