Document:

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                                                                  EXHIBIT 10.16

                                 [LETTERHEAD]

                       MASTER LOAN AND SECURITY AGREEMENT

     Master Loan and Security Agreement No. S6880 Dated August 25, 1998

FINOVA Technology Finance, Inc. ("we," "us" or "FINOVA") is willing to make a
loan (the "Loan") to Kosan Bioscience, Inc. ("you" or "Borrower") under the
terms and conditions contained in this Master Loan and Security Agreement (this
"Master Agreement"). The Loan will be secured by the Collateral described in any
schedule to this Agreement (a "Schedule"). The Collateral also includes any
replacement parts, additions and accessories that you may add to the Collateral,
as well as any proceeds of sale, lease or rental of the Collateral. We may treat
any Schedule as a separate loan and security agreement containing all of the
provisions of this Loan and Security Agreement.

1.       THE CREDIT

We may make the Loan in more than one advance (an "Advance", each of which shall
be evidenced by a "Schedule"). All of the Schedules, taken together, will make
up the Loan. We will only make the Loan to you if all the conditions in this
Master Agreement have been met to our satisfaction. We will rely on your
representations and warranties, contained in this Master Agreement, in making
the Loan. The terms of this Agreement will each apply to the Loan.

-    USE OF PROCEEDS. You will use the proceeds of the Loan to pay for the
     Collateral. We may pay the Supplier (whom you have chosen) of the
     Collateral directly from the Loan proceeds. The Supplier will deliver
     the Collateral to you at your expense. You will properly install the
     Collateral at your expense at the location(s) indicated in the Schedule.
     If you have already paid for the Collateral, we will pay the Loan proceeds
     to you or to another person that you may designate in writing.

-    NOTES. Your obligation to repay the Loan and to pay interest on the Loan
     will be evidenced by Notes. Each Note will be dated the date of the
     Schedule to which the Advance evidenced by the Note is related.

-    TERM. The Term of each Schedule (and the related Advance) begins upon the
     date that we make payment for the Collateral covered under each Schedule
     (the "Closing Date"). The Term continues until you fully perform all of
     your obligations under this Agreement and each Schedule and the related
     Note(s). If the Collateral is not delivered, installed and accepted by you
     by the date indicated in the Schedule, we may terminate this Agreement and
     the Schedule as to the Collateral that was not delivered, installed and
     accepted by giving you 10 days written notice of termination. Any advance
     Loan payment you may have paid us is nonrefundable, even if the Term never
     starts or if we rightfully terminate this Agreement or the Schedule.

-    LOAN ACCOUNT. We will keep a loan account on our books and records (which
     are computerized) for the Loan. We will

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     record all payments of principal and interest in the loan account. Unless
     the entries in the loan account are clearly in error, the loan account will
     definitively indicate the outstanding principal balance and accrued
     interest on the Loan. We may send you loan account statements from time to
     time or upon your request.

-    PAYMENTS. The scheduled loan payments (the "Payments") are indicated on the
     Schedule. The Payments are payable periodically as specified on the
     Schedule from time to time (for example, monthly). The Schedule also
     indicates whether the Payments are payable "in advance" or "in arrears."
     You agree that you owe us the total of all of these Payments over the Term
     of the Schedule.

-    FIRST PAYMENT. The first Payment is due at the beginning of the Term or at
     a later date that we agree to in writing. Subsequent Payments are due on
     the thirtieth day of each successive period (except the next following
     period if Payments are payable in arrears) until you pay us in full all of
     the Payments and any other charges or expenses you owe us.

-    INTEREST. Prior to maturity of a Schedule, you will pay us interest on each
     Schedule at the Interest Rate indicated in the Schedule. "Maturity" means
     the scheduled maturity or any earlier date on which we accelerate the Loan.
     The Payment amount indicated in the Schedule includes interest at this
     Interest Rate. Interest is calculated in advance using a year of 360 days
     with twelve months of 30 days.

-    DEFAULT INTEREST RATE. After Maturity of the Loan you will pay us interest
     at a rate of four (4%) percent per year above the Interest Rate. This is
     referred to as the "Default Rate."

-    INTERIM PAYMENT. If an Advance is made on a day other than the thirtieth or
     thirty-first day of a period, you will also pay us an interim Payment on
     the first Payment date. The interim Payment will be for the period from the
     beginning of the Term until the twenty-ninth day of the period in which the
     Advance is made, unless the Advance is made on the thirty-first day of a
     period. If the Advance is made on the thirty-first day of a period, the
     interim Payment will be for the period from the beginning of the Term
     through and including the twenty-ninth day of the next following period.
     The Interim Payment will be calculated the same way as the regular Payments
     but pro rata on a daily basis for the number of days for which the interim
     Payment is due.

-    USURY. You and we intend to obey the law. If the Interest Rate charged
     would exceed the maximum legal rate, you will only have to pay the maximum
     legal rate. You do not have to pay any excess interest over and above the
     maximum legal rate of interest. However, if it later becomes legal for you
     to pay all or part of any excess interest, you will then pay it to us upon
     our request.

-    PAYMENT DETAILS. You will make all payments due under this Master Agreement
     by 12:00 P.M., Connecticut time, on the day they are due. You will make all
     payments in US Dollars (US$) in immediately available funds. We do not have
     to make or give "presentment, demand, protest or notice" to get paid. You
     waive "presentment, demand, protest and notice."

-    APPLICATION OF PAYMENTS. Each payment under this Master Agreement is to be
     applied in the following order: first, to any fees, costs, expenses and
     charges you may owe us; second, to any interest due; and third to the
     principal balance.

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-    PREPAYMENT. You may not prepay the Loan, in whole or in part, unless this
     is specifically permitted by Exhibit A to this Agreement. If prepayment is
     permitted by Exhibit A to this Master Agreement, you will give us at least
     30 days advance written notice of prepayment. You will pay us the
     prepayment premium indicated in the Schedule(s). You will also pay us all
     accrued and unpaid interest through the date of prepayment, as well as all
     outstanding fees, costs, expenses and charges then due. Of course, you will
     also pay the entire outstanding principal balance of the Loan. Once you
     give us a notice of prepayment, that notice is final and irrevocable. If we
     accelerate the Loan following an Event of Default, you will also owe us a
     prepayment premium calculated as if the Loan were prepaid on the date of
     acceleration. If no prepayment is permitted, the premium due upon
     acceleration will be five (5%) percent of the outstanding principal
     balance.

-    YOUR OBLIGATION TO PAY US ALL PAYMENTS IS ABSOLUTE AND UNCONDITIONAL. YOU
     ARE NOT EXCUSED FROM MAKING THE PAYMENTS, IN FULL, FOR ANY REASON. YOU
     AGREE THAT YOU HAVE NO DEFENSE FOR FAILURE TO MAKE THE PAYMENTS AND YOU
     WILL NOT MAKE ANY COUNTERCLAIMS OR SETOFFS TO AVOID MAKING THE PAYMENTS.

2.       SECURITY INTEREST

-    You grant us a security interest in the Collateral. The Collateral secures
     the full and timely payment and performance of all of your obligations to
     us and to FINOVA Capital Corporation under this Master Agreement and any
     other agreement, loan or lease that you may have with us or FINOVA Capital
     Corporation (the "Obligations"). You also grant us a security interest in
     any additional collateral identified in any Schedule. Any additional
     collateral is considered to be "Collateral" and it secures all of the
     Obligations.

-    If we request, you will put labels supplied by us stating "PROPERTY OF
     FINOVA" on the Collateral where they are clearly visible.

-    You give us permission to add to this Master Agreement or any Schedule the
     serial numbers and other information about the Collateral.

-    You give us permission to file this Master Agreement or a Uniform
     Commercial Code financing statement, at your expense, in order to perfect
     our security interest in the Collateral. You also give us permission to
     sign your name on the Uniform Commercial Code financing statements where
     this is permitted by law.

-    You will pay our cost to do searches for other filings or judgments against
     you or your affiliates. You will also pay any filing, recording or stamp
     fees or taxes resulting from filing this Agreement or a Uniform Commercial
     Code financing statement. You will also pay our fees in effect from time to
     time for documentation, administration and Termination of this Master
     Agreement.

-    At your expense, you will defend our first priority security interest in
     the Collateral against, and keep the Collateral free of, any legal process,
     liens, other security interests, attachments, levies and executions. You
     will give us immediate written notice of any legal process, liens,
     attachments, levies or executions, and you will indemnify us against any
     loss that results to us from these causes.

-    You will notify us at least 15 days before you change the address of your
     principal executive office.

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-    You will promptly sign and return additional documents that we may request
     in order to protect our first priority security interest in the Collateral.

-    The Collateral is personal property and will remain personal property. You
     will not incorporate it into real estate and will not do anything that will
     cause the Collateral to become part of real estate or a fixture without
     lender's prior consent.

3.       CONDITIONS OF LENDING

-    See our Commitment Letter to you dated August 24, 1998, which you and we
     consider to be a part of this Master Agreement. The terms and conditions of
     the Commitment Letter continue following the making of the first Advance.
     However, if there is a conflict between the terms and conditions of this
     Master Agreement, any Schedule or any Note and the terms and conditions of
     the Commitment Letter, then you and we agree that the terms and conditions
     of this Agreement, the Schedules and the Notes control over the Commitment
     Letter terms and conditions.

-    Before we disburse any proceeds of any Advance, we also require the
     following:

-    That no payment is past due to us under any other agreement, loan or lease
     that you or any guarantor have with us or with FINOVA Capital Corporation.

-    That you are complying with all terms of this Agreement.

-    That we have received all the documents we requested, including the signed
     Schedule, Note and Delivery and Acceptance Certificate.

-    That there has been no material adverse change in your financial condition,
     business, operations or prospects, or that of any guarantor, from the
     financial condition that you disclosed to us in your application for
     credit.

4.       REPRESENTATIONS AND WARRANTIES

You represent and warrant to us as follows:

-    All financial information and other information that you or any guarantor
     have given us is true and complete. You or any guarantor have not failed to
     tell us anything that would make the financial information misleading.
     There has been no material adverse change in your financial condition,
     business, operations or prospects, or the financial condition of any
     guarantor, from the financial condition that you disclosed to us in your
     application for credit.

-    You have supplied us with information about the Collateral. You promise to
     us that the amount of our Advance as to each item of Collateral is no more
     than the fair and usual price for this kind of Collateral, taking into
     account any discounts, rebates and allowances that you or any affiliate of
     yours may have been given for the Collateral.

-    You have complied with all "environmental laws" and will continue to comply
     with all "environmental laws." No "hazardous substances" are used,
     generated, treated, stored or disposed of by you or at your properties
     except in compliance with all environmental laws. "Environmental laws" mean
     all federal, state or local environmental laws and regulations, including
     the following laws: CERCLA, RCRA, Hazardous Materials Transport Act and The
     Federal Water Pollution Control Act. "Hazardous substances" means all
     hazardous or toxic wastes, materials or substances, as defined in the
     environmental laws, as well as oil, flammable substances, asbestos that is
     or could become friable, urea formaldehyde insulation, polychlorinated
     biphenyls and radon gas.

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-    You have taken all action necessary to assure that there will be no
     material adverse change to your business by reason of the advent of the
     year 2000, including without limitation that all computer-based systems,
     embedded microchips and other processing capabilities effectively recognize
     and process dates after April 1, 1999.

5.       COVENANTS

You agree to do the following things (or not to do the following things if so
stated) until full payment of all amounts due to us under this Agreement, the
Schedules and the Notes:

CARE, USE, LOCATION AND ALTERATION OF THE COLLATERAL

-    You will make sure that the Collateral is maintained in good operating
     condition, and that it is serviced, repaired and overhauled when this is
     necessary to keep the Collateral in good operating condition. All
     maintenance must be done according to the Supplier's or Manufacturer's
     requirements or recommendations. All maintenance must also comply with any
     legal or regulatory requirements.

-    You will maintain service logs for the Collateral and permit us to inspect
     the Collateral, the service logs and service reports. You give us
     permission to make copies of the service logs and service reports.

-    We will give you prior notice if we, or our agent, want to inspect the
     Collateral or the service logs or service reports. We may inspect it during
     regular business hours. You will pay our travel, meals and lodging costs to
     inspect the Collateral, but only for one inspection per year. If we find
     during an inspection that you are not complying with this Master Agreement,
     you will pay our travel, meals and lodging costs, our salary costs, and the
     costs and fees of our agents for reinspection. You will promptly cure any
     problems with the Collateral that are discovered during our inspection.

-    You will use the Collateral only for business purposes. You will obey all
     legal and regulatory requirements in your use of the Collateral.

-    You will make all additions, modifications and improvements to the
     Collateral that are required by law or government regulation. Otherwise,
     you will not alter the Collateral without our written permission. You will
     replace all worn, lost, stolen or destroyed parts of the Collateral with
     replacement parts that are as good or better than the original parts. The
     new parts will become subject to our security interest upon replacement.

-    You will not remove the Collateral from the location indicated in the
     Schedule without our written permission

YEAR 2000 COMPLIANT

-    You shall take all action necessary to assure that there will be no
     material adverse change to your business by reason of the advent of the
     year 2000, including without limitation that all computer-based systems,
     embedded microchips and other processing capabilities effectively recognize
     and process dates after April 1, 1999. At our request, you shall provide to
     us assurance reasonably acceptable to us that your computer-based systems,
     embedded microchips and other processing capabilities are year 2000
     compatible.

RISK OF LOSS

-    You have the complete risk of loss or damage to the Collateral. Loss or
     damage to the Collateral will not relieve you of your obligation to make
     the Payments.

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-    If any Collateral is lost or damaged, you have two choices (although if you
     are in default under this Master Agreement, we and not you will have the
     two choices). The choices are:

(1)  Repair or replace the damaged or lost Collateral so that, once again, the
     Collateral is in good operating condition and we have a perfected first
     priority security interest in it.

(2)  Pay us the casualty value specified in Exhibit B attached. Once you have
     paid us this amount and any other amount that you may owe us, we will
     release our security interest in the damaged or lost Collateral and you (or
     your insurer) may keep the Collateral for salvage purposes, on an "AS IS,
     WHERE IS" basis.

INSURANCE

-    Until you have made all Payments to us under this Master Agreement, the
     Schedules and the Notes, you will keep the Collateral insured. The amount
     of insurance, the coverage, and the insurance company must be acceptable to
     us.

-    If you do not provide us with written evidence of insurance that is
     acceptable to us, we may buy the insurance ourselves, at your expense. You
     will promptly pay us the cost of this insurance. We have no obligation to
     purchase any insurance. Any insurance that we purchase will be our
     insurance, and not yours.

-    Insurance proceeds may be used to repair or replace damaged or lost
     Collateral or to pay us the present value of the Payments, as provided
     above.

-    You appoint us as your "attorney-in-fact" to make claims under the
     insurance policies, to receive payments under the insurance policies, and
     to endorse your name on all documents, checks or drafts relating to
     insurance claims for Collateral.

TAXES

-    You will pay all sales, use, excise, stamp, documentary and ad valorum
     taxes, license, recording and registration fees, assessments, fines,
     penalties and similar charges imposed on the ownership, possession, use,
     lease or rental of the equipment or on the Loan.

-    You will pay all taxes (other than our federal or state net income taxes)
     imposed on you or on us regarding the Payments.

-    You will reimburse us for any of these taxes that we pay or advance.

-    You will file and pay for any personal property taxes on the Collateral.

FINANCIAL STATEMENTS

-    During the Term you will promptly give copies of any filings you make with
     the Securities and Exchange Commission (SEC). You and any guarantor will
     also provide us with the following financial statements:

-    Quarterly balance sheet and statements of earnings and cash flow - within
     45 days after the end of your first three fiscal quarters in each fiscal
     year. These will be certified by the chief financial officer.

-    Annual balance sheet and statements of earnings and cash flow - within 90
     days after the end of each fiscal year. These will be audited by
     independent auditors acceptable to FINOVA. Their audit report must be
     unqualified.

These financial statements will be prepared according to generally accepted
accounting principles, consistently applied.

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All financial statements and SEC filings that you or any guarantor provide us
will be true and complete. They will not fail to tell us anything that would
make them misleading.

6.       DEFAULTS

-    You are in default if any of the following happens:

-    You do not pay us, when it is due, any Payment or other payment that you
     owe us under this Master Agreement, any Schedule, Note or that you owe
     under any other agreement, loan or lease that you have with us or with
     FINOVA Capital Corporation.

-    Any of the financial information that you give us is not true and complete,
     or you fail to tell us anything that would make the financial information
     misleading.

-    You do something you are not permitted to do, or you fail to do anything
     that is required of you, under this Master Agreement, any Schedule or any
     other lease, loan or other financial arrangement that you have with us.

-    An event of default occurs for any other lease, loan or obligation of yours
     (or any guarantor) that exceeds $25,000.

-    You or any guarantor file bankruptcy, or involuntary bankruptcy is filed
     against you or any guarantor.

-    You or any guarantor are subject to any other insolvency proceeding other
     than bankruptcy (for example, a receivership action or an assignment for
     the benefit of creditors).

-    Without our permission, you or any guarantor sell all or a substantial part
     of its assets, merge or consolidate, or a majority of your voting stock or
     interests (or any guarantor's voting stock or interests) is transferred.

-    There is a material adverse change in your financial condition, business,
     operations or prospects, or that of any guarantor, from the condition that
     you disclosed to us in your application for credit.

REMEDIES, DEFAULT INTEREST, LATE FEES

If you are in default we may exercise one or more of our "remedies." Each of our
remedies is independent. We may exercise any of our remedies, all of our
remedies or none of our remedies. We may exercise them in any order we choose.
Our exercise of any remedy will not prevent us from exercising any other remedy
or be an "election of remedies." If we do not exercise a remedy, or if we delay
in exercising a remedy, this does not mean that we are forgiving your default or
that we are giving up our right to exercise the remedy. Our remedies allow us to
do one or more of the following:

-    "Accelerate" the Loan balance under any or all Notes. This means that we
     may require you to immediately pay us all Payments for the entire Term for
     any or all Schedules.

-    Require you to immediately pay us all amounts that you are required to pay
     us for the entire Term of any other agreements, loans or leases that you
     have with us.

-    Sue you for all payments and other amounts you owe us plus the Prepayment
     Premium (see Section 1 above).

-    Require you at your expense to assemble the Collateral at a location we
     request in the United States of America.

-    Remove and repossess the Collateral from where it is located, without
     demand or notice, or make the Collateral inoperable. We have your
     permission to remove any physical obstructions to removal of the

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     Collateral. We may also disconnect and separate all Collateral from other
     property. No court order, court hearing or "legal process" will be required
     for us to repossess the Collateral. You will not be entitled to any damages
     resulting from removal or repossession of the Collateral. We may use, ship,
     store, repair or lease any Collateral that we repossess. We may sell any
     repossessed Collateral at private or public sale. You give us permission to
     show the Collateral to buyers at your location free of charge during normal
     business hours. If we do this, we do not have to remove the Collateral from
     your location. If we repossess the Collateral and sell it, we will give you
     credit for the net sale price, after subtracting our costs of repossessing
     and selling the Collateral. If we rent the Collateral to somebody else, we
     will give you credit for the net rent received, after subtracting our costs
     of repossessing and renting the Collateral, but the credit will be
     discounted to present value using a discount rate equal to the Default
     Rate. The credit will be applied against what you owe us under this Master
     Agreement, the Schedules, the Notes and any other agreements, loans or
     leases that you have with us. If the credit exceeds the amount you owe
     under this Master Agreement, the Schedule, the Notes and any other
     agreements, loans or leases that you have with us, we will refund the
     amount of the excess to you.

-    Return conditions: Following an Event of Default, at our request you will
     return the Collateral, freight and insurance prepaid by you, to us at a
     location we request in the United States of America. It will be returned in
     good operating condition, as required by Section 5 above. The Collateral
     will not be subject to any liens when it is returned. All advertising
     insignia will be removed and the finish will be painted or blended so that
     nobody can see that advertising insignia used to be there.

-    You will pack or crate the Collateral for shipping in the original
     containers, or comparable ones. You will do this carefully and follow all
     recommendations of the Supplier and the Manufacturer as to packing or
     crating.

-    You will also return to us the plans, specifications, operating manuals,
     software documentation, discs, warranties and other documents furnished by
     the Manufacturer or Supplier. You will also return to us all service logs
     and service reports, as well as all written materials that you may have
     concerning the maintenance and operation of the Collateral.

-    At our request, you will provide us with up to 60 days free storage of the
     Collateral at your location, and will let us (or our agent) have access to
     the Collateral in order to inspect it and sell it.

-    You will pay us what it costs us to repair the Collateral if you do not
     return it in the required condition.

You will also pay us for the following:

-    All our expenses of enforcing our remedies. This includes all our expenses
     to repossess, store, ship, repair and sell the Collateral.

-     Our reasonable attorney's fees and expenses.

-    Default interest on everything you owe us from the date of your default to
     the date on which we are paid in full at the Default Rate.

You realize that the damages we could suffer as a result of your default are
very uncertain. This is why we have agreed with you in advance on the Default
Rate to be used in calculating the payments you will owe us if you default. You
agree that, for these reasons, the payments you will owe us if you default are
"agreed" or "liquidated" damages. You understand that

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these payments are not "penalties" or "forfeitures."

LATE FEES. You will pay us a late fee whenever you pay any amount that you owe
us more than ten (10) days after it is due. You will pay the late fee within one
month after the late Payment was originally due. The late fee will be six (6%)
percent of the late Payment. If this exceeds the highest legal amount we can
charge you, you will only be required to pay the highest legal amount. The late
fee is intended to reimburse us for our collection costs that are caused by late
Payment. It is charged in addition to all other amounts you are required to pay
us, including Default Interest.

7.       EXPENSES AND INDEMNITIES

PERFORMING YOUR OBLIGATIONS IF YOU DO NOT

If you do not perform one or more of your obligations under this Master
Agreement or a Schedule or Note, we may perform it for you We will notify you in
writing at least ten (10) days before we do this. We do not have to perform any
of your obligations for you. If we do choose to perform them, you will pay us
all of our expenses to perform the obligations. You will also reimburse us for
any money that we advance to perform your obligations, together with interest at
the Default Rate on that amount. These will be additional "Payments" that you
will owe us and you will pay them at the same time that your next Payment is
due.

-    You will indemnify us, defend us and hold us harmless for any and all
     claims, expenses and attorney's fees concerning or arising from the
     Collateral, this Agreement, or any Schedule or Note, or your breach of any
     representation or warranty. It includes any claims concerning the
     manufacture, selection, delivery, possession, use, operation or return of
     the Collateral.

-    This obligation of yours to indemnify us continues even after the Term is
     over.

8.       MISCELLANEOUS

WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS AGREEMENT, ANY SCHEDULE, ANY
NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE PERSON TO WHOM WE ASSIGN IS
CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT HAVE ANY OF OUR OBLIGATIONS UNDER
THIS MASTER AGREEMENT. YOU WILL NOT BE ABLE TO RAISE ANY DEFENSE, COUNTERCLAIM
OR OFFSET AGAINST ASSIGNEE.

AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE COLLATERAL SO LONG AS
YOU ARE NOT IN DEFAULT.

UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO
LEASE OR RENT THE COLLATERAL OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR
WRITTEN PERMISSION.

WE DID NOT MANUFACTURE OR SUPPLY THE COLLATERAL. WE ARE NOT A DEALER IN THE
COLLATERAL. INSTEAD, YOU CHOSE THE COLLATERAL.

WE DO NOT MAKE ANY WARRANTY AS TO THE COLLATERAL. WE DO NOT MAKE ANY WARRANTY AS
TO "MERCHANTABILITY" OR "SUITABILITY" OR "FITNESS FOR A PARTICULAR PURPOSE" OR
"NONINFRINGEMENT" OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT.

WE WILL NOT BE RESPONSIBLE FOR LOSS, DAMAGE, OR INJURY TO YOU OR ANYBODY ELSE AS
A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN

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THE COLLATERAL UNDER "STRICT LIABILITY" LAWS OR ANY OTHER LAWS.

WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
LOSS OF PROFITS OR GOODWILL.

If the Collateral is unsatisfactory, you will continue to pay us all Payments
and other amounts you are required to pay us. You must seek repair or
replacement of the equipment solely from the Manufacturer or Supplier and not
from us. Neither the Manufacturer nor the Supplier is our "agent," so they
cannot speak for us and they are not allowed to make any changes in this Master
Agreement or any Schedule or Note, or give up any of our rights.

ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF PROCESS,
WAIVER OF JURY TRIAL.

THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.

THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF
ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN WHICH OUR
OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS OR CONDITIONS OF THIS
MASTER AGREEMENT OCCURRED AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WILL
BE ORDERED. HOWEVER, IF THIS MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA
LAW, IT WILL INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED.

YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA
COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL
JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT MARICOPA COUNTY,
ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE."

WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH PROCESS
IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR ADDRESS
INDICATED AFTER YOUR SIGNATURE BELOW.

YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.

NOTICES. We may give you written notice in person, by mail, by overnight
delivery service, or by fax. Notice will be send to your address below your
signature. Mail notice will be effective three (3) days after we mail it with
prepaid postage to the address stated. Overnight delivery notice requires a
receipt and tracking number. Fax notice requires a receipt from the sending
machine showing that it has been sent to your fax number and received.

                                      -10-
<PAGE>

You may give us notice the same way that we may give you notice.

This Master Agreement benefits our successors and assigns. This Master Agreement
benefits only those successors and assigns of yours that we have approved in
writing.

This Master Agreement binds your successors and assigns. This Master Agreement
binds only those successors and assigns of ours that clearly assume our
obligations in writing.

TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT

This Master Agreement, all of the Schedules and the Notes and the Commitment
Letter are together the entire agreement between you and us concerning the
Collateral.

Only an employee of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Loan or any Schedule or Note on our behalf, and this
must be in writing. Only he or she may give up any of our rights, and this must
be in writing. If more than one person is the Borrower under this Agreement,
then each of you is jointly and severally liable for your obligations under this
Master Agreement.

This Master Agreement is only for your benefit and for our benefit, as well as
our successors and assigns. It is not intended to benefit any other person.

If any provision in this Master Agreement is unenforceable, then that provision
must be deleted. Only unenforceable provisions are to be deleted. The rest of
this Master Loan Agreement will remain as written.

PUBLICITY. We may make press releases and publish a tombstone announcing this
transaction and its total amount. You may not publicize this transaction in any
way without our prior written consent.

LENDER:                                            BORROWER:

FINOVA TECHNOLOGY FINANCE INC.                     KOSAN BIOSCIENCES, INC.
10 WATERSIDE DRIVE                                 1450 ROLLINS ROAD
FARMINGTON, CT 06032-3065                          BURLINGAME, CA 94010

BY: /s/ Linda A. Moschitto                         BY: /s/ Daniel V. Santi
   ------------------------                           -------------------------
PRINTED NAME: Linda A. Moschitto                   PRINTED NAME: DANIEL V. SANTI
             --------------------                               ----------------

TITLE: Director - Contract Administration          TITLE:    Chairman
      --------------------------------------             ------------

FAX NUMBER: (860) 676-1814                         Taxpayer ID# 94321-7016

DATE ACCEPTED: 9/24/98                             FAX NUMBER: (650) 343-2931

                                                   DATED:   9/18/98

                                      -11-
<PAGE>

STATE OF CALIFORNIA
COUNTY OF SAN MATEO

         I acknowledge that DANIEL V. SANTI, who stated that he is CHAIRMAN
of the Borrower named above, signed this Master Loan and Security Agreement in
my presence today: 09/18/98. He acknowledged to me that his signature on this
Master Loan and Security Agreement was authorized by a valid resolution or other
valid authorization from Borrower's board of directors or other governing body.

                                                     /s/ Kenneth E. Constantino
                                                     ---------------------------
                                                      Notary Public

[SEAL]

                                      -12-
<PAGE>

                                    EXHIBIT A

                               Prepayment Schedule

                                       To

                  Master Loan and Security Agreement No. S6880

The Prepayment premium shall be determined by multiplying the outstanding
principal balance of the Loan by the percentage amount shown below which
corresponds with the month during the Term in which the prepayment is to be
made:

<TABLE>
<CAPTION>
                        Month of term                   Percentage Amount
                        -------------                   -----------------
                        <S>                             <C>
                        1 through 24                     No Prepayment

                        25 through 36                         2.75%

                        37 through 48                         1.50%
</TABLE>

                                              Borrower (initial) /s/ [INITIALS]
                                                                --------
                                              Lender (initial)
                                                              ----------

<PAGE>

                                    EXHIBIT B

                             Casualty Value Schedule

                                       To

                  Master Loan and Security Agreement No. S6880

The Casualty Value for the Collateral (or any item thereof) shall be determined
by multiplying the outstanding principal balance of the Loan by the percentage
amount shown below which corresponds with the month during the Term in which the
determination is to be made:

<TABLE>
<CAPTION>
                         Month of Term                  Percentage Amount
                         -------------                  -----------------
                         <S>                            <C>
                         1 through 12                         4.25%

                         13 through 24                        3.25%

                         25 through 36                        2.75%

                         37 through 48                        1.50%

                                              Borrower (initial) /s/ [INITIALS]
                                                                ----------
                                              Lender (initial)
                                                               -----------
</TABLE><PAGE>

                                  EXHIBIT 10.17

<PAGE>

                                                              [LETTERHEAD]

August 24, 1998                     REVISION #2
                                    -----------

Mr. Michael Ostrach
Vice President - Corporate Development
Kosan Biosciences, Inc.
1450 Rollins Road
Burlingame, CA 94010

Dear Mr. Ostrach:

Subject to all the terms and conditions hereof and receipt by us of all
documents requested by us, in form and substance satisfactory to us and our
counsel, we are prepared to enter into the following loan transaction (the
"Loan").

BORROWER OR "YOU":                  Kosan Biosciences, Inc.

LENDER OR "WE" OR "US":             FINOVA Technology Finance, Inc.

TERM OF LOANS:                      48 consecutive months

MAXIMUM LOAN AMOUNT:                $2,000,000 in one or more advances (each an
                                    "Advance") to finance your purchase of
                                    certain laboratory, office and production
                                    equipment and tenant improvements acceptable
                                    to us (the "Equipment"), plus softcosts
                                    related thereto not to exceed 20% of the
                                    amount of each Advance.

                                    Not more than $773,116 in Advances may be
                                    made unless and until receipt by us of
                                    confirmation of a signed collaboration
                                    agreement (in form and substance acceptable
                                    to us) with Johnson & Johnson (or another
                                    entity acceptable to us) which will provide
                                    an aggregate of no less than $6,000,000 of
                                    projected revenue. The initial Advance of
                                    $484,116, plus $289,000 for a Varian NMR
                                    when delivered and accepted shall comprise
                                    the $773,116 total above referenced.

COLLATERAL:                         The due  payment  and  performance  of all
                                    of your present and future obligations to us
                                    shall be secured by a first and only
                                    perfected security interest in and to all of
                                    the Equipment, together with all proceeds
                                    of, and accessions and additions to,
                                    substitutions for, and all replacements of,
                                    any of the foregoing, whether cash or
                                    non-cash, including, but not limited to,
                                    insurance proceeds (collectively, the
                                    "Collateral")

COLLATERAL LOCATION:                Burlingame, CA

ANTICIPATED CLOSING DATES:          August 1998 through June 30, 1999

CLOSING DATE:                       The date on which all conditions to the Loan
                                    for the Initial Advance and all future
                                    Advances are satisfied by you and the Loan
                                    proceeds are disbursed to you or to other
                                    persons at your

                                       1
<PAGE>

                                    direction. The Initial Advance and all
                                    further Advances shall be evidenced by one
                                    or more promissory notes (each a "Note").
                                    Each Advance shall not be less than $100,000
                                    secured by delivered and accepted Equipment.
                                    No Closing Dates shall occur after June 30,
                                    1999.

MONTHLY LOAN PAYMENTS:              Each Note shall be payable in 48 consecutive
                                    monthly payments of principal and interest
                                    each equal to 2.332% of the Advance, subject
                                    to adjustment, payable monthly in advance,
                                    and followed by one payment equal to 12.5%
                                    of the Advance. The first Monthly Loan
                                    Payment shall be payable on the Closing Date
                                    of each Advance.

ADJUSTMENT TO MONTHLY
LOAN PAYMENTS:                      If, on the second  business  day  preceding
                                    the Closing Date for each Advance, the
                                    highest yield for four-year U.S. Treasury
                                    Notes as published in THE WALL STREET
                                    JOURNAL is greater than the yield on June
                                    23, 1998, the first 48 Monthly Loan Payments
                                    shall be increased to reflect such change in
                                    yield. The yield as of June 23, 1998 was
                                    5.56%. As of the Closing Date for each
                                    Advance, the Monthly Loan Payments shall be
                                    fixed for the entire term.

INTERIM PAYMENTS:                   In addition to the  Monthly  Loan  Payments,
                                    interim payments shall accrue for each day
                                    from each Closing Date until the
                                    twenty-ninth day of the same month (27th day
                                    of the month of each Advance in the case of
                                    February) unless the Advance is made on the
                                    thirtieth or thirty-first day of a month. If
                                    the Closing Date is the thirty-first day of
                                    a month, the interim payment shall accrue
                                    from the Closing Date until the twenty-ninth
                                    day of the next following month. If the
                                    Closing Date is the thirtieth day of a
                                    month, there shall be no interim payment.
                                    The interim payment for each day shall be
                                    1/30 of the adjusted interest rate
                                    multiplied by the amount of the Advance and
                                    shall be payable on the Closing Date.

DOCUMENTATION:                      All documentation  shall be prepared and
                                    reviewed by us or our counsel and shall be
                                    in form and substance satisfactory to us and
                                    our counsel in our and our counsel's sole
                                    and absolute discretion, and shall include,
                                    without limitation, the Notes, a loan and
                                    security agreement, the Letter of Credit (if
                                    required), landlord and mortgagee's waivers
                                    and consents, assignments, insurance
                                    policies, UCC Financing Statements, and such
                                    other documents or other agreements and as
                                    we and our counsel deem appropriate
                                    (collectively, the "Loan Documents").

LETTER OF CREDIT,
OTHER LOAN PROVISIONS
AND COVENANTS:                      A.      LOAN  PROVISIONS.  The Loan
                                            Documents shall include the usual
                                            provisions and covenants in our loan
                                            agreements, cross default and cross
                                            collateralization provisions to all
                                            your Loans, and such other or
                                            different provisions and covenants
                                            that are customarily included in
                                            agreements of this kind.

                                       2
<PAGE>

                                    B.      MINIMUM CASH REQUIREMENT; LETTER OF
                                            CREDIT. You shall at all times
                                            maintain a minimum of unrestricted
                                            cash or cash equivalents of at least
                                            $5,000,000 (the "Minimum Cash
                                            Requirement").

                                            In the event you at any time fail to
                                            maintain the Minimum Cash
                                            Requirement, you shall open an
                                            Irrevocable Letter of Credit, in
                                            form and substance satisfactory to
                                            us, issued by a Bank satisfactory to
                                            us, in our favor as beneficiary (the
                                            "Letter of Credit") , or provide us
                                            as Collateral cash or cash
                                            equivalents, acceptable to us, in an
                                            amount equal to fifty (50%) percent
                                            of the then current outstanding
                                            principal balance of the Loan. The
                                            failure to provide the Letter of
                                            Credit or other Collateral shall be
                                            an event of default. At month
                                            twenty-four of the initial Loan, we
                                            will review your current financial
                                            condition and future outlook.
                                            Following the review, we may in our
                                            sole discretion, reduce or waive the
                                            Minimum Cash Requirement for the
                                            remainder of the term of the Loans.

                                    C.      INSURANCE. The Loan Documents shall
                                            provide for you, at all times to
                                            procure and maintain, or cause to be
                                            procured and maintained, policies of
                                            insurance, in such form, of such
                                            type and with insurers satisfactory
                                            to us.

                                    D.      FINANCIAL  REPORTING.  You shall
                                            deliver to us or cause to be
                                            delivered to us your quarterly
                                            financial statements within 45 days
                                            following the end of each respective
                                            fiscal quarter and annual financial
                                            statements for you within 90 days
                                            following the end of each respective
                                            fiscal year. All annual financial
                                            statements shall be prepared in
                                            accordance with GAAP and be audited
                                            by a reputable firm of certified
                                            public accountants acceptable to us,
                                            and shall be accompanied by a
                                            certificate executed by such
                                            certified public accountants to the
                                            effect that you have complied with
                                            all covenants contained in the Loan
                                            Documents and there are no events of
                                            default thereunder ("Compliance
                                            Certificate"). All quarterly
                                            financial statements may be
                                            internally prepared in accordance
                                            with GAAP, and accompanied by a
                                            Compliance Certificate executed by
                                            the respective chief financial
                                            officer.

                                    E.      ADDITIONAL REPRESENTATIONS. It shall
                                            be a condition precedent to the
                                            closing of each Advance that no
                                            payment due us is past due, whether
                                            as a lessee, a borrower, a guarantor
                                            or in some other capacity; that the
                                            you are in compliance with the
                                            provisions of this Commitment; that
                                            all information requested by us and

                                       3
<PAGE>

                                            all documentation then required by
                                            our counsel has been received by us,
                                            including resolutions of your Board
                                            of Directors authorizing the
                                            transactions contemplated by this
                                            Commitment; that you are not in
                                            default under any material contract
                                            to which you are a party or by which
                                            it or your property is bound; that
                                            there has not been any material
                                            adverse change or threatened
                                            material adverse change in your
                                            financial or other condition,
                                            business, operations, properties,
                                            assets or prospects since December
                                            31, 1997 or from the written
                                            information that has been supplied
                                            to us by you or any manufacturer of
                                            the Equipment prior to the date of
                                            this Commitment; that there shall be
                                            no actual or threatened conflict
                                            with, or violation of, any
                                            regulatory statute, standard or rule
                                            relating to you, your present or
                                            future operations, or the Equipment,
                                            the violation of which would have a
                                            material adverse effect on your
                                            financial condition; and that we
                                            receive an opinion of your counsel
                                            satisfactory to us.

                                            All information supplied by you
                                            shall be correct in all material
                                            respects and shall not omit any
                                            statement necessary to make the
                                            information supplied not be
                                            misleading. There shall be no
                                            material breach of the
                                            representations and warranties by
                                            you in the Loan Documents. The
                                            representations shall include that
                                            the cost of each item of the
                                            Equipment does not exceed the fair
                                            and usual price for like quantity
                                            purchases of such item and reflects
                                            all discounts, rebates and
                                            allowances for the Equipment given
                                            to you or any of your affiliate by
                                            you by the manufacturer, supplier or
                                            anyone else including, without
                                            limitation, discounts for
                                            advertising, prompt payment, testing
                                            or other services.

FEES AND EXPENSES:                  You shall be responsible for our reasonable
                                    fees and expenses in connection with the
                                    transaction, including UCC filing, due
                                    diligence search fees and the expenses of
                                    our counsel to respond to any requested
                                    modifications or changes to the Lender's
                                    standard documentation. We shall use our
                                    best efforts to notify you when the Fees and
                                    Expenses reach $1,500; however, our failure
                                    to do so is not intended to limit the fees
                                    and expenses set forth herein.

COMMITMENT FEE:                     Simultaneously with the acceptance of this
                                    Commitment, you shall pay us a
                                    non-refundable Commitment Fee of $20,000.
                                    The $20,000 Application Fee, previously paid
                                    shall be applied towards the Commitment Fee.
                                    The Commitment Fee shall be first applied to
                                    the Fees and Expenses due hereunder. Any
                                    remainder shall be applied to the second
                                    Monthly Loan Payment due under each Advance
                                    on a pro-rata basis.

                                    In the event that we are unable to receive
                                    confirmation of a signed collaboration
                                    agreement (in form and substance acceptable
                                    to us) with Johnson & Johnson (or another
                                    entity acceptable to us) which will provide
                                    an aggregate of no less than

                                       4
<PAGE>

                                    $6,000,000 of projected revenue, we will
                                    credit the unused portion of the Commitment
                                    Fee to your account within thirty days of
                                    your written request to us.

SURVIVAL:                           This Commitment Letter shall survive the
                                    closing. However, if there is any conflict
                                    between the terms and conditions of the Loan
                                    Documents and those of this Commitment
                                    Letter, the Loan Documents shall control.

This Commitment and the Closing of the transaction contemplated herein are
subject, amongst other things, to receipt by us, in form and substance
satisfactory to us and our counsel, at or prior to Closing, of:

         (i)      all documentation and other requirements set forth herein
                  including but not limited to the Loan Documents and other
                  requirements set forth herein and as may be required by our
                  counsel; and

         (ii)     our receipt, in form and substance satisfactory to us, of all
                  financial and credit information requested by us, (including,
                  but not limited to, your audited financial statements for the
                  year ended 1997), which reflects no material adverse change in
                  your or condition, business, financial or otherwise; and

         (iii)    evidence that the Equipment is owned by you, free and clear of
                  all liens and encumbrances; and

         (iv)     a completed year 2000 compliance form satisfactory to us; and

         (v)      evidence of such insurance required by us, written by insurers
                  and in amounts satisfactory to us; and

         (vi)     such opinions of your counsel, certificates, waivers,
                  releases, Uniform Commercial Code Financing Statements, due
                  diligence searches, and further documents as may be required
                  by us or our counsel.

In addition to all other conditions and requirements set forth herein, this
Commitment and the closing of the transaction contemplated hereunder shall be
subject, in our sole judgment, that there be no material adverse change in your
financial, business or other condition. This Commitment is not assignable
without our prior written consent. We reserve the right to cancel this
Commitment in the event you or any of your officers, employees, agents or
representatives has made any misrepresentation to us or has withheld any
information from us with regard to the transaction contemplated hereby.

As used in this Commitment, the terms "satisfactory to us" or "acceptable to us"
or "satisfactory to our counsel" or "acceptable to our counsel" or terms of
similar import mean satisfactory or acceptable to us or our counsel in our or
its sole judgment and discretion.

This Commitment and the Loan Documents shall be governed by the laws of the
State of Arizona. Any dispute arising under this Commitment shall be litigated
by you only in any federal or state court located in the State of Arizona, or
any state court located in Maricopa

                                       5
<PAGE>

County, Arizona; and you hereby irrevocably submit to the personal jurisdiction
of such courts and waive any objection that may exist as to venue or convenience
of such forums. Nothing contained herein shall preclude us from commencing any
action in any court having jurisdiction thereof.

In the event that the Initial Advance does not close prior to December 31, 1998
because of your failure to satisfy the conditions for the closing, or because of
a material adverse change in your financial, business or other condition, this
Commitment shall terminate and we shall have no liability to you and we shall
retain, as earned, the Commitment Fee.

In the event we fail to complete this transaction and such failure is not
because of your inability to satisfy all the conditions for closing or a
material adverse change in your financial, business or other condition, our
liability shall be limited to a return of the Commitment Fee, less Fees and
Expenses due hereunder.

Please execute the copy of this letter acknowledging your acceptance of the
terms hereof and return it to us. If a copy of this Commitment is not executed
and returned by you by August 28, 1998, this offer shall be deemed withdrawn.
This Commitment supersedes, replaces and terminates all previous proposals
and/or agreements including, but not limited to, our proposal dated June 23,
1998 which shall be null and void.

Should you have any questions, please call me. If you wish to accept this
Commitment, please sign and return the enclosed duplicate letter to the
undersigned by August 28, 1998.

                                     Sincerely,

                                     FINOVA TECHNOLOGY FINANCE, INC.

                                     By       /s/ Linda A. Moschitto
                                       -----------------------------------------
                                              Linda A. Moschitto
                                              Director - Contract Administration

Accepted this 25 day of August, 1998

KOSAN BIOSCIENCES, INC.

By:  /s/ Michael Ostrach
   -----------------------------------------
     Michael Ostrach
     Vice President - Corporate Development

                                       6

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