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Exhibit 10.16  

THIS
WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO. 

 
 

PREFERRED STOCK PURCHASE WARRANT    

	Warrant No.	 	 
	 	Number of Shares: a maximum of 300,578

Series D Preferred Stock

Subject to determination as set for the below

 
 

ANACOR PHARMACEUTICALS, INC.    
    
    Effective as of June 30, 2006    
    
    Void after June 30, 2013    

        1.    Issuance.    This Preferred Stock Purchase Warrant (the
"Warrant") is issued to LIGHTHOUSE CAPITAL PARTNERS V, L.P. by ANACOR
PHARMACEUTICALS, INC., a Delaware corporation (hereinafter with its successors called the "Company"). 

        2.    Purchase Price; Number of Shares.    

        (a)   The registered holder of this Warrant (the "Holder"), is entitled upon
surrender of this Warrant with the subscription form annexed hereto duly executed, at the principal office of the Company, to purchase from the Company, at a price per share of $1.73 (the
"Purchase Price"), up to a maximum of 300,578 fully paid and nonassessable shares of the Company's Series D Preferred Stock, $0.001 per share par
value (the "Preferred Stock"). Commencing on the date hereof, 150,289 (the "Exercise Quantity") of
shares of Preferred Stock are immediately available for purchase hereunder. 

        (b)   On the Commitment Termination Date, or such earlier termination of this Warrant in accordance with the terms hereof, the
Exercise Quantity shall automatically be increased by such additional number of shares as is equal to (A) 3.25% of the amount of Aggregate Advances funded under the Loan Agreement, if any,
divided by (B) the Purchase Price, rounded down to the nearest whole number. 

In
addition to other terms which may be defined herein, the following terms, as used in this Warrant, shall have the following meanings: 

	(i)
	"Aggregate Advances" means the aggregate original dollar amount of Advances made under the Loan Agreement, whether such
Advances are outstanding or prepaid, at the time of any scheduled adjustment to the Exercise Quantity.

	(ii)
	"Loan Agreement" means that certain Loan and Security Agreement No. 5251 dated June 30, 2006 between the
Company and Lighthouse Capital Partners V, L.P.. 

Any
term not defined herein shall have the meaning as set forth in the Loan Agreement. 

Until
such time as this Warrant is exercised in full or expires, the Purchase Price and the securities issuable upon exercise of this Warrant are subject to adjustment as hereinafter provided. The
person or persons in whose name or names any certificate representing shares of Preferred Stock is issued 

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hereunder
shall be deemed to have become the holder of record of the shares represented thereby as at the close of business on the date this Warrant is exercised with respect to such shares, whether
or not the transfer books of the Company shall be closed. 

        3.    Payment of Purchase Price.    The Purchase Price may be paid
(i) in cash or by check, (ii) by the surrender by the Holder to the Company of any promissory notes or other obligations issued by the Company, with all such notes and obligations so
surrendered being credited against the Purchase Price in an amount equal to the principal amount thereof plus accrued interest to the date of surrender, or (iii) by any combination of the
foregoing. 

        4.    Net Issue Election.    The Holder may elect to receive, without
the payment by the Holder of any additional consideration, shares of Preferred Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the
Company, with the net issue election notice annexed hereto duly executed, at the principal office of the Company. Thereupon, the Company shall issue to the Holder such number of fully paid and
nonassessable shares of Preferred Stock as is computed using the following formula: 

	X=	 	Y(A – B)
 A

	

where:	
 	

X =	
 	

the number of shares of Preferred Stock to be issued to the Holder pursuant to this Section 4.
	

 	
 	

Y =	
 	

the number of shares of Preferred Stock covered by this Warrant in respect of which the net issue election is made pursuant to this Section 4.
	

 	
 	

A =	
 	

the Fair Market Value (defined below) of one share of Preferred Stock, as determined at the time the net issue election is made pursuant to this Section 4.
	

 	
 	

B =	
 	

the Purchase Price in effect under this Warrant at the time the net issue election is made pursuant to this Section 4.

        "Fair Market Value" of a share of Preferred Stock (or fully paid and nonassessable shares of the Company's common stock, $0.001 par value
(the "Common Stock") if the Preferred Stock has been automatically converted into Common Stock) as of the date that the net issue election is made (the
"Determination Date") shall mean: 

          (i)  If the net issue election is made in connection with and contingent upon the closing of the sale of the Company's Common
Stock to the public in a public offering pursuant to a Registration Statement under the 1933 Act (a "Public Offering"), and if the Company's
Registration Statement relating to such Public Offering ("Registration Statement") has been declared effective by the Securities and Exchange
Commission, then the initial "Price to Public" specified in the final prospectus with respect to such offering multiplied by the number of shares of Common Stock into which each share of Preferred
Stock is then convertible. 

         (ii)  If the net issue election is not made in connection with and contingent upon a Public Offering, then as follows: 

        (a)   If traded on a securities exchange or the Nasdaq National Market, the fair market value of the Common Stock shall be
deemed to be the average of the closing or last reported sale prices of the Common Stock on such exchange or market over the five day period ending five trading days prior to the Determination Date,
and the fair market 

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value
of the Preferred Stock shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Preferred Stock is then
convertible; 

        (b)   If otherwise traded in an over-the-counter market, the fair market value of the Common Stock
shall be deemed to be the average of the closing ask prices of the Common Stock over the five day period ending five trading days prior to the Determination Date, and the fair market value of the
Preferred Stock shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Preferred Stock is then convertible; and 

        (c)   If there is no public market for the Common Stock, then fair market value shall be determined in good faith by the
Company's Board of Directors. 

        5.    Partial Exercise.    This Warrant may be exercised in part, and
the Holder shall be entitled to receive a new warrant, which shall be dated as of the date of this Warrant, covering the number of shares in respect of which this Warrant shall not have been
exercised. 

        6.    Fractional Shares.    In no event shall any fractional share of
Preferred Stock be issued upon any exercise of this Warrant. If, upon exercise of this Warrant in its entirety, the Holder would, except as provided in this  Section 6, be entitled to receive a
fractional share of Preferred Stock, then the Company shall issue the next lower number of full shares of
Preferred Stock and shall pay to the Holder a cash amount equal to the Fair Market Value (as of the date of exercise) of such fractional share of Preferred Stock. 

        7.    Expiration Date; Automatic Exercise.    This Warrant shall
expire at the close of business on June 30, 2013, and shall be void thereafter (the "Expiration Date"). Notwithstanding the term of this Warrant
fixed pursuant to this Section 7, and provided Holder has received advance written notice of at least ten (10) days and has not earlier
exercised this Warrant, and provided this Warrant has not been assumed by the successor entity (or parent thereof), upon the consummation of a Merger (as defined below), this Warrant shall
automatically be exercised pursuant to Section 4 hereof, without any action by Holder. "Merger"
means: (i) a sale of all or substantially all of the Company's assets to an Unaffiliated Entity (as defined below), or (ii) the merger, consolidation or acquisition of the Company with,
into or by an Unaffiliated Entity (other than a merger or consolidation for the principle purpose of changing the domicile of the Company or a bona fide round of preferred stock equity financing),
that results in
the transfer of fifty percent (50%) or more of the outstanding voting power of the Company. "Unaffiliated Entity" means any entity that is owned or
controlled by parties who own less than twenty percent (20%) of the combined voting power of the voting securities of the Company immediately prior to such merger, consolidation or acquisition.
Notwithstanding the foregoing, in the event that any outstanding warrants to purchase equity securities of the Company are assumed by the successor entity of a Merger (or parent thereof), this Warrant
shall also be similarly assumed. The Company agrees to promptly give the Holder written notice of any proposed Merger and written notice of termination of any proposed Merger. Notwithstanding anything
to the contrary in this Warrant, the Holder may rescind any exercise of its purchase rights after a notice of termination of the proposed Merger if the exercise of this Warrant occurred after the
Company notified the Holder that the Merger was proposed or if the exercise was otherwise precipitated by such proposed Merger, provided, however that such rescission right must be exercised within
thirty (30) days of receipt of such written notice of termination of the proposed Merger. In the event of such rescission, this Warrant will continue to be exercisable on the same terms and
conditions. 

        8.    Reserved Shares; Valid Issuance.    The Company covenants that
it will at all times from and after the date hereof reserve and keep available such number of its authorized shares of Preferred Stock and Common Stock free from all preemptive or similar rights
therein, as will be sufficient to permit, respectively, the exercise of this Warrant in full and the conversion into shares of Common 

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Stock
of all shares of Preferred Stock receivable upon such exercise. The Company further represents that such shares as may be issued pursuant to such exercise and/or conversion will, upon issuance,
be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. 

        9.    Stock Splits and Dividends.    If after the date hereof the
Company shall subdivide the Preferred Stock, by split-up or otherwise, or combine the Preferred Stock, or issue additional shares of Preferred Stock in payment of a stock dividend on the
Preferred Stock, the number of shares of Preferred Stock issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination, and the Purchase Price shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased
in the case of a combination. 

        10.    Adjustments for Diluting Issuances.    The other antidilution
rights applicable to the Preferred Stock and the Common Stock of the Company are set forth in the Amended and Restated Certificate of Incorporation, as amended from time to time (the
"Articles"), a true and complete copy in its current form which is attached hereto as Exhibit A.
Such rights shall not be restated, amended or modified in any manner which affects the Holder differently than the holders of Preferred Stock without such Holder's prior written consent. The Company
shall promptly provide the Holder hereof with any restatement, amendment or modification to the Articles promptly after the same has been made. 

        11.    Reclassifications.    If after the date hereof the Company
shall enter into any Reorganization (as hereinafter defined), then, as a condition of such Reorganization, lawful provisions shall be made, and duly executed documents evidencing the same from the
Company or its successor shall be delivered to the Holder, so that the Holder shall thereafter have the right to purchase, at a total price not to exceed that payable upon the exercise of this Warrant
in full, the kind and amount of shares of stock and other securities and property receivable upon such Reorganization by a holder of the number of shares of Preferred Stock which might have been
purchased by the Holder immediately prior to such Reorganization, and in any such case appropriate provisions shall be made with respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment of the Purchase Price and the number of shares issuable hereunder and the provisions relating to the net issue election)
shall thereafter be applicable in relation to any shares of stock or other securities and property thereafter deliverable upon exercise hereof. For the purposes of this  Section 11, the term
"Reorganization" shall include any reclassification, capital reorganization
(other than as a result of a subdivision, combination or stock dividend provided for in Section 9 hereof). 

        12.    Certificate of Adjustment.    Whenever the Purchase Price is
adjusted, as herein provided, the Company shall promptly deliver to the Holder a certificate of the Company's chief financial officer setting forth the Purchase Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. 

        13.    Notices of Record Date, Etc.    In the event of: 

        (a)   any taking by the Company of a record of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase, sell or otherwise acquire or dispose of any shares of stock of any class or any
other securities or property, or to receive any other right; 

        (b)   any reclassification of the capital stock of the Company, capital reorganization of the Company, consolidation or merger
involving the Company, or sale or conveyance of all or substantially all of its assets; or 

        (c)   any voluntary or involuntary dissolution, liquidation or winding-up of the Company; 

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then
in each such event the Company will provide or cause to be provided to the Holder a written notice thereof. Such notice shall be provided at least ten (10) business days prior to the date
specified in such notice on which any such action is to be taken. 

        14.    Representations, Warranties and Covenants.    This Warrant is
issued and delivered by the Company and accepted by each Holder on the basis of the following representations, warranties and covenants made by the Company: 

        (a)   The Company has all necessary authority to issue, execute and deliver this Warrant and to perform its obligations
hereunder. This Warrant has been duly authorized issued, executed and delivered by the Company and is the valid and binding obligation of the Company, enforceable in accordance with its terms. 

        (b)   The shares of Preferred Stock issuable upon the exercise of this Warrant have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable. 

        (c)   The issuance, execution and delivery of this Warrant do not, and the issuance of the shares of Preferred Stock upon the
exercise of this Warrant in accordance with the terms hereof will not, (i) violate or contravene the Company's Articles or by-laws, or any law, statute, regulation, rule, judgment
or order applicable to the Company, (ii) violate, contravene or result in a breach or default under any contract, agreement or instrument to which the Company is a party or by which the Company
or any of its assets are bound or (iii) require the consent or approval of or the filing of any notice or registration with any person or entity, except for filings required under California
securities laws. 

        (d)   As long as this Warrant is, or any shares of Preferred Stock issued upon exercise of this Warrant or any shares of Common
Stock issued upon conversion of such shares of Preferred Stock are, issued and outstanding, the Company will provide to the Holder the financial information described in the Loan Agreement. 

        (e)   As of June 15, 2006 hereof, the authorized capital stock of the Company consists of (i) 51,150,000 shares
of Common Stock, of which 6,051,283 shares are issued and outstanding and 300,578 shares are reserved for issuance upon the exercise of this Warrant with respect to Common Stock and the conversion of
the Preferred Stock into Common Stock if this Warrant is exercised with respect to Preferred Stock, and (ii) 4,228,329 shares of Series A-1 Preferred Stock, of which
4,228,329 are issued and outstanding shares; (iii) 1,198,046 shares of Series A-2 Preferred Stock, of which 1,198,046 are issued and outstanding shares (iv) 3,339,341
shares of Series B Preferred Stock, of which 3,339,341 are issued and outstanding shares; (v) 28,089,885 shares of Series C Preferred Stock, of which 28,089,885 are issued and
outstanding shares and (vi) 3,400,000 shares of Series D Preferred Stock, of which 2,930,500 are issued and outstanding shares. Attached hereto as  Exhibit Bis a capitalization
table summarizing the capitalization of the Company. At the request of Holder, not more than once per calendar
quarter, the Company will provide Holder with a current capitalization table indicating changes, if any, to the number of outstanding shares of common stock and preferred stock. 

        15.    Registration Rights.    The Company has entered into an Amended
and Restated Investors' Rights Agreement in the form attached hereto as Exhibit C. 

        16.    Amendment.    The terms of this Warrant may be amended,
modified or waived only with the written consent of the Holder. 

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        17.    Representations and Covenants of the Holder.    This Warrant
has been entered into by the Company in reliance upon the following representations and covenants of the Holder, which by its execution hereof the Holder hereby confirms: 

        (a)    Investment Purpose.    The right to acquire Preferred Stock or
the Preferred Stock issuable upon exercise of the Holder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Holder
has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. 

        (b)    Accredited Investor.    Holder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 

        (c)    Private Issue.    The Holder understands (i) that the
Preferred Stock issuable upon exercise of the Holder's rights contained herein is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the
representations set forth in this Section 17. 

        (d)    Financial Risk.    The Holder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment. 

        (e)    Legends.    The Holder understands that the Securities, and any
securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: 

          (i)  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." 

         (ii)  Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented
by the certificate so legended. 

        (f)    Lock-up Agreement.    In
connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such offering of the Company's securities, the Holder agrees not to
sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever acquired (other than those included in the
registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days or such longer period as may be required
by the underwriters to comply with NASD Rule 2711) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement
reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 

        The
obligations described in this Section 17(f) shall apply only if all executive officers and directors of the Company, and all 1%
and greater security holders (on a basis assuming full conversion and exercise of all convertible or exercisable securities) enter into similar agreements. If the Company or the underwriter of any
public offering of the Company's securities waives or terminates any standoff or lockup restrictions imposed on any holder of securities of the Company, 

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then
such waiver or termination shall be granted to all Holders subject to standoff or lockup restrictions pro rata based on the number of shares of
Common Stock beneficially held by such holder and the Holders. From and after the date of this Warrant, the Company shall use its best efforts to ensure that all holders of capital stock of the
Company agree to be bound by terms substantially similar to those set forth in this Section 17(f). 

        18.    Notices, Transfers, Etc.    

         (a)  Any notice or written communication required or permitted to be given to the Holder may be given by certified mail or
delivered to the Holder at the address most recently provided by the Holder to the Company. 

         (b)  Subject to compliance with applicable federal and state securities laws, this Warrant may be transferred by the Holder
with respect to not less than 25% of the number of the shares of Preferred Stock purchasable hereunder, provided that the transferee is not a competitor of the Company and provided further that the
transferee agrees to be bound by all of the terms and conditions of this Warrant, including, with limitations the representations and covenants contained in  Section 17. Upon surrender of this
Warrant to the Company, together with the assignment notice annexed hereto duly executed, for transfer of this
Warrant as an entirety by the Holder, the Company shall issue a new warrant of the same denomination to the assignee. Upon surrender of this Warrant to the Company, together with the assignment hereof
properly endorsed, by the Holder for transfer with respect to a portion of the shares of Preferred Stock purchasable hereunder, the Company shall issue a new warrant to the assignee, in such
denomination as shall be requested by the Holder hereof, and shall issue to such Holder a new warrant covering the number of shares in respect of which this Warrant shall not have been transferred.
Any purported transfer in violation of this Section 18(b) shall be void. 

         (c)  In case this Warrant shall be mutilated, lost, stolen or destroyed, the Company shall issue a new warrant of like tenor
and denomination and deliver the same (i) in exchange and substitution for and upon surrender and cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost, stolen or
destroyed, upon receipt of an affidavit of the Holder or other evidence reasonably satisfactory to the Company of the loss, theft or destruction of such Warrant 

        19.    No Impairment.    The Company will not,
by amendment of its Articles or through any reclassification, capital reorganization, consolidation, merger, sale or conveyance of assets, dissolution, liquidation, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance of performance of any of the terms of this Warrant. 

        20.    Governing Law.    The provisions and terms of this Warrant
shall be governed by and construed in accordance with the internal laws of the State of California without giving effect to its principles regarding conflicts of laws. 

        21.    Successors and Assigns.    This Warrant shall be binding upon
the Company's successors and assigns and shall inure to the benefit of the Holder's successors, legal representatives and permitted assigns. 

        22.    Business Days.    If the last or appointed day for the taking
of any action required or the expiration of any rights granted herein shall be a Saturday or Sunday or a legal holiday in California, then such action may be taken or right may be exercised on the
next succeeding day which is not a Saturday or Sunday or such a legal holiday. 

        23.    Qualifying Public Offering.    If the Company shall effect a
firm commitment underwritten public offering of shares of Common Stock which results in the conversion of the Preferred Stock into Common Stock pursuant to the Company's Articles in effect immediately
prior to such offering, then, effective upon such conversion, this Warrant shall change from the right to purchase shares of 

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Preferred
Stock to the right to purchase shares of Common Stock, and the Holder shall thereupon have the right to purchase, at a total price equal to that payable upon the exercise of this Warrant in
full, the number of shares of Common Stock which would have been receivable by the Holder upon the exercise of this Warrant for shares of Preferred Stock immediately prior to such conversion of such
shares of Preferred Stock into shares of Common Stock, and in such event appropriate provisions shall be made with respect to the rights and interest of the Holder to the end that the provisions
hereof (including, without limitation, the provisions for the adjustment of the Purchase Price and of the number of shares purchasable upon exercise of this Warrant and the provisions relating to the
net issue election) shall thereafter be applicable to any shares of Common Stock deliverable upon the exercise hereof. 

        24.    Value.    The Company and the Holder agree that the value of
this Warrant on the date of grant is $100. 

	 	 	ANACOR PHARMACEUTICALS, INC.
	

 	
 	

By:	
 	

/s/ LUCY DAY

	

 	
 	

Name:	
 	

Lucy O. Day
	

 	
 	

Title:	
 	

CFO

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Subscription    
    

	To:	 	 	 	 
	 	 	
	 	 
	

Date:	
 	

 	
 	

 
	 	 	
	 	 
	

The undersigned hereby subscribes for                        shares of Preferred Stock covered by this Warrant. The certificate(s)
for such shares shall be issued in the name of the undersigned or as otherwise indicated below:
	

 
 Signature	
 	

 
	

 
 Name for Registration	
 	

 
	

 
 Mailing Address	
 	

 

1

  

 
 

Net Issue Election Notice    
    

	To:	 	 
	 	 	 	Date:	 	 

	

The undersigned hereby elects under Section 4 to surrender the right to purchase shares of Preferred Stock pursuant to this Warrant. The certificate(s) for such shares issuable upon such net issue
election shall be issued in the name of the undersigned or as otherwise indicated below:
	

 
 Signature	
 	

 	
 	

 	
 	

 
	

 
 Name for Registration	
 	

 	
 	

 	
 	

 
	

 
 Mailing Address	
 	

 	
 	

 	
 	

 

1

 
 
 

Assignment    
    

        For value received                        hereby
sells, assigns and transfers unto

 

[Please print or typewrite name and address of Assignee] 

the within Warrant, and does hereby irrevocably constitute and appoint                        its attorney to transfer the within
Warrant on the books of the within named Company with full power of
substitution on the premises. 

	Dated:	 	 
	 	 
	

 
 Signature	
 	

 
	

 
 Name for Registration	
 	

 
	

In the Presence of:	
 	

 
	

 
	
 	

 

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PREFERRED STOCK PURCHASE WARRANT

ANACOR PHARMACEUTICALS, INC. Effective as of June 30, 2006 Void after June 30, 2013

Subscription

Net Issue Election Notice

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   Exhibit 10.17  

LOAN AND SECURITY AGREEMENT  

        THIS LOAN AND SECURITY AGREEMENT NO. 5251 (this
"Agreement") is entered into as of June 30, 2006, by and between LIGHTHOUSE CAPITAL PARTNERS V,
L.P. ("Lender") and ANACOR PHARMACEUTICALS, INC., a Delaware corporation
("Borrower") and sets forth the terms and conditions upon which Lender will lend and Borrower will repay money. In consideration of the mutual covenants
herein contained, the parties agree as follows: 

1.    DEFINITIONS AND CONSTRUCTION  

        1.1    Definitions.    Initially capitalized terms used and not
otherwise defined herein are defined in the California Uniform Commercial Code ("UCC"). 

        "ACH" means the Automated Clearing House electronic funds transfer system. 

        "Advance" means a Loan advanced by Lender to Borrower hereunder. 

        "Basic Rate" means a variable per annum rate of interest equal to the Index plus the
Interest Margin which shall be subject to adjustment as provided in the Loan Agreement. On and after the Loan Commencement Date the Basic Rate shall be fixed and not subject to any further
adjustments. 

        "Borrower's Books" means all of Borrower's books and records, including records concerning Collateral, Borrower's assets, liabilities,
business operations or financial condition, on any media, and the equipment containing such information. 

        "Collateral" means: (i) all property in which Lender now has or hereafter obtains a
security interest or which is listed on any UCC-1 naming Borrower as Debtor in any capacity and Lender or an affiliate of Lender as Secured Party including  Exhibit A attached hereto; and
(ii) all products and proceeds of the foregoing, including
proceeds of insurance and proceeds of proceeds. 

        "Commitment" means $8,000,000, such Commitment availability subject to Borrower closing a Preferred Stock Financing and the issuance of a
Warrant to Lender as set forth in Section 6.8 hereof. 

        "Commitment Fee" means $10,000. 

        "Commitment Termination Date" means the earliest to occur of (i)
(a) October 1, 2006, if Borrower has not drawn at least $2,500,000 by such date, or (b) April 1, 2007; (ii) any Default or
Event of Default, (iii) for any Advances, the date at which any 2 of the persons currently serving as either Chief Executive Officer, Chief Financial
Officer or a Senior Vice-President of the Borrower cease to be involved in the management of Borrower; or (iv) the date on which any 2 of Rho Venture Partners; Venrock Partners;
Aberdare Ventures or Care Capital cease to have a representative on Borrower's Board of Directors. 

        "Control Agreement" means an agreement substantially in the form of Exhibit I or
otherwise acceptable to Lender. 

        "Default" means any event that with the passing of time or the giving of notice or both would become an Event of Default. 

        "Default Rate" means the lesser of 18% per annum or the highest rate permitted by applicable law. 

        "Disclosure Schedule" means the schedule attached as Schedule 1 hereto. 

        "Event of Default" is defined in Section 8. 

        "Funding Date" means any date on which an Advance is made to or on account of Borrower hereunder. 

1

 

        "Indebtedness" means (i) all indebtedness for borrowed money or the deferred purchase of
property or services, (ii) all obligations evidenced by notes, bonds, debentures or similar instruments,  (iii) all capital lease obligations, and
(iv) all contingent obligations, including guaranties and
obligations of reimbursement or respecting letters of credit. 

        "Incumbency Certificate" means the document in the form of Exhibit E. 

        "Index" means the prevailing variable Prime Rate of annual interest as quoted from time to time in the western edition of the Wall Street
Journal. 

        "Interest Margin" means 2% per annum. 

        "Lender's Expenses" means all reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, modification, administration, or enforcement of the Loan or Loan Documents, or the exercise or preservation of any rights or remedies by Lender, whether or not suit is
brought; provided, however, that Lender's Expenses for the preparation and negotiation of the initial set of Loan Documents shall not exceed $10,000.
Lender will apply deposits received before the date hereof, if any, towards Lender's Expenses. 

        "Lien" means any lien, security interest, pledge, bailment, lease, mortgage, hypothecation, conditional sales and title retention
agreement, charge, claim, or other encumbrance. 

        "Loan" means all of the Advances, however evidenced, and all other amounts due or to become due hereunder. 

        "Loan Commencement Date" means January 1, 2008. 

        "Loan Documents" means, collectively, this Agreement, the Warrant, the Notes and all other documents, instruments and agreements entered
into between Borrower and Lender in connection with the Loan, all as amended or extended from time to time. 

        "Negative Pledge Agreement" means an agreement in the form of Exhibit H. 

        "Note" means a Secured Promissory Note in the form of Exhibit B. 

        "Notice of Borrowing" means the form attached as Exhibit D. 

        "Obligations" means all Loans, debt, principal, interest, fees, charges, Lender's Expenses and other amounts, obligations, covenants, and
duties owing by Borrower to Lender of any kind or description (whether pursuant to the Loan Documents or otherwise (with the exception of the Warrant), and whether or not for the payment of money),
whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including any of the same obtained by Lender by assignment or otherwise, and all
amounts Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. 

        "Permitted Indebtedness" means: (i) the Loan;  (ii) unsecured trade debt incurred in the ordinary course of Borrower's
business; (iii) Indebtedness
secured by clause (ii) of Permitted Liens; and (iv)Subordinated Debt. 

        "Permitted Liens" means: (i) Liens in favor of Lender;  (ii) Liens disclosed in the Disclosure Schedule; (iii) Liens for taxes, fees, assessments or other
governmental charges or levies not delinquent or being contested in good faith by appropriate proceedings, that do not jeopardize Lender's interest in any Collateral; and  (iv) Liens to secure payment of
worker's compensation, employment insurance, old age pensions or other social security obligations of Borrower on which
Borrower is current and are in the ordinary course of its business; provided none of the same diminish or impair Lender's rights and remedies respecting the Collateral. 

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        "Preferred Stock Financing" means Borrower's Series D Preferred Stock financing with gross proceeds to Borrower of at least
$5,000,000 and at a pre-money valuation not to exceed $86,000,000. 

        "Regulated Substance" means any substance, material or waste the use, generation, handling, storage, treatment or disposal of which is
regulated by any local or state government authority, including any of the same designated by any authority as hazardous, genetic, cloning, fetal, or embryonic. 

        "Responsible Officer" means each person as authorized by the board of directors of Borrower as set forth on the Incumbency Certificate. 

        "Subordinated Debt" means Indebtedness of Borrower, lead by its existing investors in an amount not to exceed $5,000,000 that is
subordinated in both security and right of payment to the Obligations on terms and conditions satisfactory to Lender as evidenced by a subordination agreement between Lender and the provider(s) of
such Subordinated Debt. 

        "Term" means the period from and after the date hereof until the full, final and indefeasible payment and performance of all Obligations. 

        "Warrant" means the Warrant in favor of Lender and its affiliates to purchase securities of Borrower substantially in the form of  Exhibit C to be issued in
accordance with Section 6.8 hereof. 

        1.2    Interpretation.    References to "Articles," "Sections,"
"Exhibits," and "Schedules" are to articles, sections, exhibits and schedules herein and hereto unless otherwise indicated. "Hereof," "herein" and "hereunder" refer to this Agreement as a whole.
"Including" is not limiting. All accounting and financial computations shall be computed in accordance with generally accepted accounting principles consistently applied
("GAAP"). "Or" is not necessarily exclusive. All interest computation shall be based on a 360-day year and actual days elapsed. 

2.    THE LOANS  

        2.1    Commitment.    Subject to the terms hereof, Lender will make
Advances to Borrower up to the principal amount of the Commitment, on or before the Commitment Termination Date. Notwithstanding anything in the Loan Documents to the contrary, Lender's obligation to
make any Advances or to lend the undisbursed portion of the Commitment shall terminate on the Commitment Termination Date. Repaid principal of the Advances may not be re-borrowed. 

        2.2    The Advances.    A Note setting forth the specific terms of
repayment will evidence each Advance. No Advance will be made for less than $500,000, unless less than $500,000 remains available under the
Commitment for borrowing. Absence of a Note evidencing any portion of the Loan shall not impair Borrower's obligation to repay it to Lender. 

        2.3    Terms of Payment, Repayment.    

        (a)    Repayment.    Borrower shall repay the principal and pay
interest on each Advance on the terms set forth in the applicable Note. Amounts not paid when due hereunder or under the Note shall bear interest at the Default Rate. If a court of competent
jurisdiction determines that Lender has received payments that, if interest, would exceed the maximum lawfully permitted, Lender will instead apply such money to fees and expenses and then to early
prepayment of principal. 

        (b)    ACH.    All payments due to Lender must be, at Lender's option,
paid to Lender in cash or through ACH. Borrower shall execute and deliver the ACH Authorization Form substantially in the form of Exhibit G. If
the ACH payment arrangement is terminated for any reason, Borrower shall make all payments due to Lender at Lender's address specified in  Section 11. 

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        (c)    Default Rate.    While an Event of Default has occurred and is
continuing, interest on the Loan shall be increased to the Default Rate. Lender's failure to charge or accrue interest at the Default Rate during the existence of a Default shall not be deemed a
waiver by Lender of its right or claim thereto. 

        (d)    Date.    Whenever any payment due under the Loan Documents is
due on a day other than a business day, such payment shall be made on the next succeeding business day, and such extension of time shall be included in the computation of interest or fees, as the case
may be. 

        2.4    Fees.    Borrower shall pay to Lender the following: 

        (a)    Commitment Fee.    The Commitment Fee, which has been
previously paid by Borrower, and shall be applied by Lender to Lender's Expenses and other Obligations. 

        (b)    Late Fee.    On demand, a late charge on any sums due hereunder
that are not paid when due, in an amount equal to 2% of the past due amount, payable on demand. 

        (c)    Lender's Expenses.    When requested, all Lender's Expenses.
Lender's Expenses not paid when due shall bear interest as principal at the Default Rate. 

3.    CONDITIONS OF ADVANCES; PROCEDURE FOR REQUESTING ADVANCES  

        3.1    Conditions Precedent to any and all Advances.    The obligation
of Lender to make any Advances is subject to each and every of the following conditions precedent in form and substance satisfactory to Lender in its sole discretion:  (i) this Agreement, a Note
evidencing the Advance, the Warrant, and all other UCC financing statements, and other documents required or as
specified herein have been duly authorized, executed and delivered; (ii) no Default or Event of Default has occurred and is continuing;  (iii) delivery of a
Notice of Borrowing with respect to the proposed Advance; (iv) Lender's security
interests in the Collateral are valid and first priority, except for Permitted Liens; (v) Borrower shall have opened a new account
#14994-19632 with Bank of America and Lender shall have received a signed Control Agreement for such account and any other new accounts with said institution; and  (vi) all such other items as Lender may
reasonably deem necessary or appropriate have been delivered or satisfied. The extension of an Advance prior to
the receipt by Lender of any of the foregoing shall not constitute a waiver by Lender of Borrower's obligation to deliver such item. 

        3.2    Procedure for Making Advances.    For any Advance, Borrower
shall provide Lender an irrevocable Notice of Borrowing at least 10 business days prior to the desired Funding Date and Lender shall only be required to make Advances hereunder based upon written
requests which comply with the terms and exhibits of this Loan Agreement (as the same may be amended from time to time), and which are submitted and signed by a Responsible Officer. Borrower shall
execute and deliver to Lender a Note and such other documents and instruments as Lender may reasonably require for each Advance made. 

4.    CREATION OF SECURITY INTEREST  

        4.1    Grant of Security Interest.    Borrower grants to Lender a
valid, first priority, continuing security interest in all present and future Collateral in order to secure prompt, full, faithful and timely payment and performance of all Obligations. 

        4.2    Inspections.    While any Obligations remain outstanding,
Lender shall have the right upon reasonable prior notice to inspect Borrower's Books, including computer files, and to make copies, and to test, inspect and appraise the Collateral, in order to verify
any matter relating to Borrower or the Collateral. 

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        4.3    Authorization to File Financing Statements.    Borrower
irrevocably authorizes Lender at any time and from time to time to file in any jurisdiction any financing statements and amendments that: (i) name
Collateral as collateral thereunder, regardless of whether any particular Collateral falls within the scope of the UCC; (ii) contain any other
information required by the UCC for sufficiency or filing office acceptance, including organization identification numbers; and (iii) contain such
language as Lender determines helpful in protecting or preserving rights against third parties. Borrower ratifies any such filings made prior to the date hereof. 

5.    REPRESENTATIONS AND WARRANTIES  

        Borrower represents, warrants and covenants as follows: 

        5.1    Due Organization and Qualification.    Borrower is a
corporation duly formed, existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be so qualified or in which the Collateral is located, except for states other than California and Delaware as to which any
failure so to qualify would not reasonably be expected to have a material adverse effect on Borrower or any of the Collateral. 

        5.2    Authority.    Borrower has all corporate power and authority,
and has taken all actions, and has obtained all third party consents necessary to execute, deliver, and perform the Loan Documents. 

        5.3    Disclosure Schedule.    All information on the Disclosure
Schedule is true, correct and complete. 

        5.4    Authorization; Enforceability.    The execution and delivery
hereof, the granting of the security interest in the Collateral, the incurring of the Obligations, the execution and delivery of all Loan Documents and the consummation of the transactions herein and
therein contemplated have been duly authorized by all necessary action by Borrower. The Loan Documents constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their
terms, except as enforceability may be limited by bankruptcy or similar laws relating to enforcement of creditors' rights generally. 

        5.5    Name and Location.    Borrower has not done business under any
name other than that specified on the signature page hereof or as set forth on the Disclosure Schedule. The chief executive office, principal place of business, and the place where Borrower maintains
its records concerning the Collateral is set forth in Section 11. The Collateral is presently located at the address(es) set forth in  Section 11
and on the Disclosure Schedule. 

        5.6    Litigation.    All actions or proceedings pending or threatened
by or against Borrower before any court or administrative agency are set forth on the Disclosure Schedule.

        5.7    Financial Statements.    All financial statements fairly
represent the financial condition of the Borrower. All statements respecting Collateral that have been or may hereafter be delivered by Borrower to Lender are true, complete and correct in all
material respects for the periods indicated. 

        5.8    Solvency.    Borrower is solvent and able to pay its debts
(including trade debts) as they come due. 

        5.9    Taxes.    Borrower has filed and will file all required tax
returns, and has paid and will pay all taxes it owes other than where the failure to comply would not reasonably be expected to have an adverse effect on Borrower. 

        5.10    Rights; Title to Assets.    Borrower possesses and owns all
necessary assets, rights, trademarks, trade names, copyrights, patents, patent rights, franchises and licenses which it needs to conduct its business as now operated or proposed to be operated.
Borrower has good title to its assets, free and clear of any Liens, except for Permitted Liens. 

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        5.11    Full Disclosure.    No written representation, warranty or
other statement made by Borrower in any Loan Document, certificate or statement furnished to Lender contains any untrue statement of a material fact or omits to state a material fact necessary in
order to make the statements contained in such certificates or statements not misleading. 

        5.12    Regulated Substances.    To its knowledge, Borrower complies
and will comply with all laws respecting Regulated Substances in all material respects. 

        5.13    Reaffirmation.    Each Notice of Borrowing will constitute  (i) a warranty and representation
in favor of Lender that there does not exist any Default and (ii)
subject to any amended Disclosure Schedule delivered to Lender or any other written disclosure required to be sent to Lender pursuant to the terms hereof, a reaffirmation as of the date thereof of all
of the representations and warranties contained in this Agreement and the Loan Documents, provided, however, and notwithstanding any provision in this
Agreement to the contrary, if any such amended Disclosure Schedule contains any matter which could reasonably be expected to have a material adverse effect on Borrower or the Collateral, Lender's
obligation to make Advances to Borrower hereunder shall be suspended during the pendency of any such material adverse effect condition. 

6.    AFFIRMATIVE COVENANTS  

        Borrower covenants and agrees that it shall do all of the following: 

        6.1    Good Standing and Compliance.    Borrower shall maintain all
governmental licenses, rights and agreements necessary for its operations or business and comply in all material respects with all statutes, laws, ordinances and government rules and regulations to
which it is subject. 

        6.2    Financial Statements, Reports, Certificates.    Borrower shall
deliver to Lender: (i) as soon as prepared, and no later than 30 days after the end of each calendar month, a balance sheet, income statement and
cash flow statement covering Borrower's operations during such period; (ii) as soon as prepared, but no later than 180 days after the end of the
fiscal year, audited financial statements prepared in accordance with GAAP, together with an opinion that such financial statements fairly present Borrower's financial condition by an independent
public accounting firm reasonably acceptable to Lender; (iii)promptly upon notice thereof, a report of any legal or administrative action pending or
threatened against Borrower which is likely to result in liability to Borrower in excess of $50,000; and (iv) such other financial information as Lender
may reasonably request from time to time. Financial statements delivered pursuant to subsections (i) and  (ii) above shall be accompanied by a certificate
signed by a Responsible Officer (each an "Officer's
Certificate") in the form of Exhibit F.  

        6.3    Notice of Defaults.    Reasonably
promptly after discovering any Default or Event of Default, deliver an Officer's Certificate setting forth the facts relating to or giving rise thereto, and the Borrower's proposed action with respect
thereto. 

        6.4    Use; Maintenance.    Borrower, at its expense, shall  (i) maintain the Collateral in good
condition, reasonable wear and tear excepted, and will comply in all material respects with all laws, rules and
regulations regarding use and operation of the Collateral and (ii) repair or replace any lost or damaged Collateral, other than Collateral that is
obsolete or worthless at the time of loss or damage or that Borrower determines in good faith is not necessary or useful in the conduct of its business. 

        6.5    Insurance.    Borrower, at its own expense, shall maintain
insurance in amounts and coverages reasonably satisfactory to Lender. Each insurance policy shall: (i) name Lender loss payee or additional insured, as
appropriate, (ii)provide for insurer's waiver of its right of subrogation against Lender and Borrower,  (iii) provide that such insurance shall not be
invalidated by any action of, or breach of warranty by, Borrower and waive set-off,
counterclaim or offset against Lender, (iv) be primary without a right of contribution of Lender's insurance, if any, or any obligation on the part of
Lender to pay 

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premiums
of Borrower, and (v) require the insurer to give Lender at least 30 days prior written notice of cancellation. Borrower shall furnish
all certificates of insurance required by Lender. 

        6.6    Loss Proceeds.    So long as no Event of Default has occurred
and is continuing, any proceeds of insurance on or condemnation of Collateral shall, at Borrower's election and so long as Lender's security interest in such proceeds remains first priority, be used
either to repair or replace such Collateral or otherwise applied to the purchase or acquisition of property useful to Borrower's business. 

        6.7    Further Assurances.    At any time and from time to time,
Borrower shall execute and deliver such further instruments and take such further action as Lender may reasonably request to effect the intent and purposes hereof, to perfect and continue perfected
and of first priority Lender's security interests in the Collateral, and to effect and maintain ACH payment arrangements. 

        6.8    Preferred Stock Financing.    Borrower shall provide Lender
with evidence reasonably satisfactory to Lender of the closing of the Preferred Stock Financing. Within 10 days of the closing of the Preferred Stock Financing, Borrower shall issue Lender a
Warrant to purchase such number of shares of preferred stock as sold in such Preferred Stock Financing initially equal to $260,000 divided by the price per share paid by investors in such Preferred
Stock Financing. The purchase price per share of preferred stock purchasable under the Warrant shall be the price per share paid by the investors in the Preferred Stock Financing. The number of shares
purchasable under the Warrant shall be subject to increase based on Advances made under the Commitment as set forth in the Warrant. 

7.    NEGATIVE COVENANTS  

        Borrower will not do any of the following: 

        7.1    Location of Collateral.    Change its chief executive office or
principal place of business or remove, except in the ordinary course of Borrower's business, the Collateral or Borrower's Books from the premises listed in  Section 11 without giving 30 days
prior written notice to Lender. 

        7.2    Extraordinary Transactions.    Enter into any transaction not
in the ordinary course of Borrower's business as presently conducted or as proposed to be conducted in Borrower's business plan, including the sale, lease, license or other disposition of its assets,
other than (i) sales of inventory in the ordinary course of Borrower's business; and (ii) licenses of
Borrower's intellectual property assets (a) entered into in the ordinary course of Borrower's business as presently conducted or (b) as proposed to be conducted in Borrower's business
plan, including, for example, licenses of intellectual property rights related to AN0128 or AN2690. The parties hereto agree that strategic partnerships that do not involve a transfer of a material
portion of Borrower's assets shall be deemed to be in the "ordinary course of business" for purposes of this Agreement. 

        7.3    Restructure.    Make any material change in Borrower's
financial structure or business operations (other than through the sale of preferred stock to equity investors); or suspend operation of Borrower's business. 

        7.4    Liens.    Create, incur, assume or suffer to exist any Lien of
any kind with respect to any of its property, whether now owned or hereafter acquired, except for Permitted Liens. 

        7.5    Indebtedness.    Create, incur, assume or suffer to exist any
Indebtedness, other than Permitted Indebtedness. 

        7.6    Distributions.    Pay any dividends or distributions, or
redeem or purchase, any capital stock, except for repurchases of capital stock from departing employees or directors, under repurchase agreements approved by the Borrower's Board of Directors. 

        7.7    Transactions with Affiliates.    Directly or indirectly enter
into any transaction with any affiliate which is on terms less favorable to Borrower than would be obtained in an arm's length 

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transaction
with a non-affiliated entity; provided, any such transaction shall not be a breach of this  Section 7.7 if approved by a disinterested majority of the
Borrower's Board of Directors. 

        7.8    Compliance.    (i) Become an "investment company" under the
Investment Company Act of 1940 or extend credit to purchase or carry margin stock; (ii) fail to meet the minimum funding requirements of ERISA;  (iii)
permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; (iv) fail to
comply with the Federal Fair Labor Standards Act; or (v) violate any other material law or material regulation, in each case unless such event, failure
or violation would not have a material adverse effect on Borrower or the Collateral. 

        7.9    UCC Effectiveness.    Change its name, jurisdiction of
organization, or take any other action that could render Lender's financing statements misleading under the UCC, without giving Lender 30 days advance written notice. 

        7.10    Deposit and Securities Accounts.    Maintain any deposit
accounts or accounts holding securities owned by Borrower except accounts in which Lender has obtained a perfected first priority security interest. Notwithstanding the foregoing, Lender shall not
have a perfected security interest in Borrower's accounts #0117120009 and # W89-080560 with Bank of America and Bank of America Securities, respectively, listed on the Disclosure Schedule,  provided, however, Borrower shall close such accounts within 120 days from the date hereof. 

8.    EVENTS OF DEFAULT  

        Any one or more of the following shall constitute an Event of Default by Borrower hereunder: 

        8.1    Payment.    Borrower fails to pay when due and payable in
accordance with the Loan Documents any portion of the Obligations, or cancels an ACH payment or transfer Lender has initiated in conformity with the terms hereof provided,
however, that an Event of Default shall not occur on account of a failure to pay due solely to an administrative or operational error if Borrower had the funds to make the
payment when due and makes the payment the business day following Borrower's knowledge of such failure to pay. 

        8.2    Certain Covenant Defaults.    Borrower fails to perform any
obligation under Section 6.5 or 6.6, or violates any of the covenants contained in  Section 7.

        8.3    Other Covenant Defaults.    Borrower fails or neglects to
perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement, in any of the other Loan Documents, or in any other present or future agreement
between Borrower and Lender and has failed to cure such failure within 15 days after its occurrence. 

        8.4    Attachment.    Any material portion of Borrower's assets is
attached, seized, subjected to a government levy, lien, writ or distress warrant, or comes into the possession of any trustee or receiver and the same is not returned, removed, waived, stayed,
discharged or rescinded within 10 days. 

        8.5    Other Agreements.    There is a default in any agreement to
which Borrower is a party resulting in a right by a third party, whether or not exercised, to accelerate the maturity of any Indebtedness, in an
amount greater than $100,000; provided that in the event Borrower in good faith disputes whether a default has occurred under such agreement and has
adequate reserves, there shall not be an Event of Default under this Section until the earlier of actual exercise by the third party of such right to accelerate or 30 days after such default. 

        8.6    Judgments.    One or more judgments for an aggregate of at
least $100,000 is rendered against Borrower and remains unsatisfied and unstayed for more than 30 days. 

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        8.7    Injunction.    Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct any material part of its business affairs, or if a judgment or other claim becomes a Lien upon any material portion of Borrower's assets. 

        8.8    Misrepresentation.    Any representation, statement, or report
made to Lender by Borrower was false or misleading when made in any material respect. 

        8.9    Enforceability.    Lender's ability to enforce its rights
against Borrower or any Collateral is impaired in any material respect, or Borrower asserts that any Loan Document is not a legal, valid and binding obligation of Borrower enforceable in accordance
with its terms. 

        8.10    Involuntary Bankruptcy.    An involuntary bankruptcy case
remains undismissed or unstayed for 30 days or, if earlier, an order granting the relief sought is entered. 

        8.11    Voluntary Bankruptcy or Insolvency.    Borrower commences a
voluntary case under applicable bankruptcy or insolvency law, consents to the entry of an order for relief in an involuntary case under any such law, or consents or is subject to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian or other similar official of Borrower or any substantial part of its property, or makes an assignment for the benefit of
creditors, or fails generally or admits in writing to its inability to pay its debts as they become due, or takes any corporate action in furtherance of any of the foregoing. 

        8.12    Merger, Sale or Change of Control.    The occurrence of  (i) a merger of Borrower with another
entity (whether or not the Borrower is the "surviving entity") whereby the shareholders of Borrower immediately
prior to such merger own less than 50% of the outstanding voting securities of Borrower immediately after such merger; (ii) the sale (in one or a series
of related transactions) of all or substantially all of Borrower's assets; or (iii) any transaction (or series of related transactions) other
than a transaction that is a bona fide equity financing with the primary purpose of raising capital for Borrower, whereby the shareholders of Borrower immediately prior to such transaction(s) own less
than 50% of the outstanding voting securities of Borrower immediately after such transaction(s), and in each case such acquirer or resulting entity (including, Borrower, if Borrower is the resulting
or surviving entity) fails to either: (a) pay off the Obligations in cash at the closing of the acquisition, merger or sale or  (b) provide an unconditional,
 unlimited guaranty or reaffirmation of the Obligations in form and substance reasonably satisfactory to Lender and is of a
credit quality acceptable to Lender. 

9.    LENDER'S RIGHTS AND REMEDIES  

        9.1    Rights and Remedies.    Upon the occurrence and continuance of
any Event of Default, Lender may, at its election, without notice of election and without demand, do any one or more of the following, all of which are authorized by Borrower:  (i) accelerate and declare
the Loan and all Obligations immediately due and payable; (ii) make such
payments and do such acts as Lender considers necessary or reasonable to protect its security interest in the Collateral, with such amounts becoming Obligations bearing interest at the Default Rate;  (iii) exercise any and all other rights and remedies available under the UCC or otherwise; (iv) require
Borrower to assemble the Collateral at such places as Lender may designate; (v) enter premises where any Collateral is located, take, maintain
possession of, or render unusable the Collateral or any part of it; (vi) without notice to Borrower, set off and recoup against any portion of the
Obligations; (vii) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral, in connection
with which Borrower hereby grants Lender a license to use without charge Borrower's premises, labels, name, trademarks, and other property necessary to complete, advertise, and sell any Collateral;
and (viii) sell the Collateral at one or more public or private sales. 

        9.2    Power of Attorney in Respect of the Collateral.    Borrower
hereby irrevocably appoints Lender (which appointment is coupled with an interest) its true and lawful attorney in fact with full 

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power
of substitution, for it and in its name to, upon and during the continuation of an Event of Default: (i) ask, demand, collect, receive, sue for,
compound and give acquittance for any and all Collateral with full power to settle, adjust or compromise any claim, (ii) receive payment of and endorse
the name of Borrower on any items of Collateral, (iii) make all demands, consents and waivers, or take any other action with respect to, the Collateral,  (iv) file any claim or take any other action, in Lender's or Borrower's name, which Lender may reasonably deem appropriate to protect its rights in the
Collateral, or (v) otherwise act with respect to the Collateral as though Lender were its outright owner. 

        9.3    Charges.    If Borrower fails to pay any amounts required
hereunder to be paid by Borrower to any third party, Lender may at its option pay any part thereof and any amounts so paid including Lender's
Expenses incurred shall become Obligations, immediately due and payable, bearing interest at the Default Rate, and secured by the Collateral. Any such payments by Lender shall not constitute an
agreement to make similar payments or a waiver of any Event of Default. 

        9.4    Remedies Cumulative.    Lender's rights and remedies under the
Loan Documents and all other agreements with Borrower shall be cumulative. Lender shall have all other rights and remedies as provided under the UCC, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or
acquiescence. 

        9.5    Application of Collateral Proceeds.    Lender will apply
proceeds of sale, to the extent actually received in cash, in the manner and order it determines in its sole discretion, and as prescribed by applicable law. 

10.    WAIVERS; INDEMNIFICATION  

        10.1    Waivers.    Without limiting the generality of the other
waivers made by Borrower herein, to the maximum extent permitted under applicable law, Borrower hereby irrevocably waives all of the following: (i) any
right to assert against Lender as a defense, counterclaim, set-off or crossclaim, any defense (legal or equitable), set-off,
counterclaim, crossclaim and/or other claim (a) which Borrower may now or at any time hereafter have against any party liable to Lender in any way or manner, or (b) arising directly or
indirectly from the present or future lack of perfection, sufficiency, validity and/or enforceability of any Loan Document, or any security interest;  (ii) presentment, demand and notice of presentment,
dishonor, notice of intent to accelerate, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all accounts, documents, instruments, chattel paper and guaranties at any time held by Lender on which Borrower may in any way be liable and
hereby ratifies and confirms whatever Lender may do in this regard; (iii) the benefit of all marshalling, valuation, appraisal and exemption laws;  (iv) the
right, if any, to require Lender to (a) proceed against any person liable for any of the Obligations as a condition to or before
proceeding hereunder; or (b) foreclose upon, sell or otherwise realize upon or collect or apply any other property, real or personal, securing any of the Obligations, as a condition to, or
before proceeding hereunder; (v) any demand for possession before the commencement of any suit or action to recover possession of Collateral; and  (vi) any
requirement that Lender retain possession and not dispose of Collateral until after trial or final judgment.
 

        10.2    Lender's Liability for Collateral.    Subject to the
applicable provisions of the UCC, Lender shall not in any way or manner be liable or responsible for: (i) the safekeeping of any Collateral;  (ii) any loss
or damage thereto occurring or arising in any manner or fashion from any cause; (iii) any
diminution in the value thereof; or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person or entity
whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. Lender will have no responsibility for taking any steps to preserve rights against any parties
respecting any Collateral. Lender's powers hereunder are conferred 

10

 

solely
to protect its interest in the Collateral and do not impose any duty to exercise any such powers. None of Lender or any of its officers, directors, employees, agents or counsel will be liable
for any action lawfully taken or omitted to be taken hereunder or in connection herewith (excepting gross negligence or willful misconduct), nor under any circumstances have any liability to Borrower
for lost profits or other special, indirect, punitive, or consequential damages. Lender retains any documents delivered by Borrower only for its purposes and for such period as Lender, at its sole
discretion, may determine necessary, after which time Lender may destroy such records without notice to or consent from Borrower. 

        10.3    Indemnification.    Borrower shall, on an after tax basis,
defend, indemnify, and hold Lender and each of its officers, directors, employees, counsel, partners, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses or disbursements (including Lender's Expenses and reasonable attorney's fees and the allocated cost of in-house counsel) of any kind or nature whatsoever with respect to
the execution, delivery, enforcement, performance and administration of this Agreement and any other Loan Documents, or the transactions contemplated hereby and thereby, with respect to noncompliance
with laws or regulations respecting Regulated Substances, government secrecy or technology export, or any Lien not created by Lender or right of another against any Collateral, even if the Collateral
is foreclosed upon or sold pursuant hereto, and with respect to any investigation, litigation or proceeding before any agency, court or other governmental authority relating to this Agreement or the
Advances or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified
Liabilities"); provided, that Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. The obligations in this Section shall survive the Term. At the election of any Indemnified Person,
Borrower shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person, at the sole cost and expense of Borrower. All amounts owing under this Section shall be paid
within 30 days after written demand. 

11.    NOTICES  

        All notices shall be in writing and personally delivered or sent by certified mail, postage prepaid, return receipt requested, or by confirmed facsimile, at the
respective addresses set forth below: 

	If to Borrower:	 	If to Lender:
	

Anacor Pharmaceuticals, Inc.

1060 E. Meadow Circle

Palo Alto, California 94303

Attention: Chief Financial Officer

FAX: (650) 739-0139	
 	

Lighthouse Capital Partners V, LP

500 Drake's Landing Road

Greenbrae, California 94904

Attention: Contract Administrator

FAX: (415) 925-3387

12.    GENERAL PROVISIONS  

        12.1    Successors and Assigns.    This Agreement shall bind and inure
to the benefit of the parties' respective successors and permitted assigns. Borrower may not assign any rights hereunder without Lender's prior written consent, which consent may be granted or
withheld in Lender's reasonable sole discretion. Lender shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participations in all or any part of
any Loan Document. 

        12.2    Time of Essence.    Time is of the essence for the performance
of all Obligations. 

        12.3    Severability of Provisions.    Each provision hereof shall be
severable from every other provision in determining its legal enforceability. 

11

 

        12.4    Entire Agreement.    This Agreement and each of the other Loan
Documents dated as of the date hereof, taken together, constitute and contain the entire agreement between Borrower and Lender with
respect to their subject matter and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral. This Agreement
is the result of negotiations between and has been reviewed by the Borrower and Lender as of the date hereof and their respective counsel; accordingly,
this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against Borrower or Lender. This Agreement may only be modified with the
written consent of Lender. Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Borrower in any one case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. 

        12.5    Reliance by Lender.    All covenants, agreements,
representations and warranties made herein by Borrower shall, notwithstanding any investigation by Lender, be deemed to be material to and to have been relied upon by Lender. 

        12.6    No Set-Offs by Borrower.    All sums payable by
Borrower pursuant to this Agreement or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction
of any manner whatsoever. 

        12.7    Counterparts.    This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same original instrument. 

        12.8    Survival.    All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. 

        12.9    No Original Issue Discount.    Borrower and Lender acknowledge
and agree that the Warrant is part of an investment unit within the meaning of Section 1273(c)(2) of the Internal Revenue Code, which includes the Loan. Borrower and Lender further agree as
between them, that the fair market value of the Warrant is $100 and that, pursuant to Treas. Reg. § 1.1273-2(h), $100 of the issue price of the investment unit will be
allocable to the Warrant and the balance shall be allocable to the Loans. Borrower and Lender agree to prepare their federal income tax returns in a manner consistent with the foregoing and, pursuant
to Treas. Reg. § 1.1273, the original issue discount on the Loan shall be considered to be zero. 

        12.10    Relationship of Parties.    The relationship between Borrower
and Lender is, and at all times shall remain, solely that of a borrower and lender. Lender is not a partner or joint venturer of Borrower; nor shall Lender under any circumstances be deemed to be in a
relationship of confidence or trust or have a fiduciary relationship with Borrower or any of its affiliates, or to owe any fiduciary duty to Borrower or any of its affiliates. Lender does not
undertake or assume any responsibility or duty to Borrower or any of its affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform any of them of any matter in
connection with its or their property, the Loans, any Collateral or
the operations of Borrower or any of its affiliates. Borrower and each of its affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection,
supervision, exercise of judgment or supply of information undertaken or assumed by Lender in connection with such matters is solely for the protection of Lender and neither Borrower nor any affiliate
is entitled to rely thereon. 

        12.11    Confidentiality.    Lender and Borrower agree that, except
with the prior written permission of the other party, the parties shall at all times hold in confidence and trust and not use or disclose any confidential information provided or learned by such party
in connections with it's rights under the Loan Documents. Notwithstanding the foregoing, the parties may disclose any confidential information 

12

 

of
the other party provided to or learned by such party in connection with such rights to the minimum extent necessary (i) in connection with the
enforcement of this Agreement or rights under this Agreement or the Loan Documents; (ii) as required by any court or other governmental body,  provided that
such party provides the other party with prompt notice of such court order or requirement to enable the party to seek a protective order
or otherwise to prevent or restrict such disclosure; (iii) to legal counsel or such party; (iv) to
comply with applicable law; or (v) with respect to financial information concerning the Borrower, to Lender's limited and general partners in accordance
with Lender's customary investment reporting practices. 

        12.12    Choice of Law and Venue; Jury Trial
Waiver.    THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF BORROWER AND LENDER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF SAN FRANCISCO,
STATE OF CALIFORNIA. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY
ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. 

	
ANACOR PHARMACEUTICALS, INC.	
 	

LIGHTHOUSE CAPITAL PARTNERS V, L.P.
	

 	
 	

 	
 	

BY:	
 	

LIGHTHOUSE MANAGEMENT PARTNERS V, L.L.C., its general partner
	

By:	
 	

/s/ LUCY DAY
	
 	

By:	
 	

/s/ THOMAS CONNEELY

	

Name:	
 	

Lucy O. Day
	
 	

Name:	
 	

Thomas Conneely

	

Title:	
 	

CFO
	
 	

Title:	
 	

Vice President

13

 

	Exhibit A	 	Collateral Description
	Exhibit B	 	Form of Note
	Exhibit C	 	Form of Preferred Stock Warrant
	Exhibit D	 	Form of Notice of Borrowing
	Exhibit E	 	Form of Incumbency Certificate
	Exhibit F	 	Form of Officers Certificate
	Exhibit G	 	ACH Authorization
	Exhibit H	 	Form of Negative Pledge Agreement
	Exhibit I	 	Control Agreement

14

  

 
 

EXHIBIT A    
    
    COLLATERAL    
    

        This FINANCING STATEMENT and SECURITY AGREEMENT covers all of Debtor's interests in all of the following types or items of property, wherever located and whether
now owned or hereafter acquired, and Debtor hereby grants Secured Party a security interest therein as collateral for the payment and performance of all present and future indebtedness, liabilities,
guarantees and obligations of Debtor to Secured Party, howsoever arising. Debtor agrees that said security interest may be enforced by Secured Party in accordance with the terms of all security and
other agreements between Secured Party and Debtor, the California Uniform Commercial Code, or both, and that this document shall be fully effective as a security agreement, even if there is no other
security or other agreement between Secured Party or Debtor: 

        All
assets of the Debtor; all personal property of Debtor; 

        All
"accounts", "general intangibles", "chattel paper", "contract rights", "documents", "instruments", "deposit accounts", "inventory", "farm products", "fixtures" and "equipment", as
such terms are defined in Division 9 of the California Uniform Commercial Code in effect on the date hereof; 

        All
general intangibles of every kind, including without limitation, federal, state and local tax refunds and claims of all kinds; all rights as a licensee or any kind; all customer
lists, telephone numbers, and purchase orders, and all rights to purchase, lease sell, or otherwise acquire or deal with real or personal property and all rights relating thereto; 

        All
returned and repossessed goods and all rights as a seller of goods; all collateral securing any of the foregoing; all deposit accounts, special and general, whether on deposit with
Secured Party or others; 

        All
life and other insurance policies, claims in contract, tort or otherwise, and all judgments now or hereafter arising therefrom; 

        All
right, title and interest of Debtor, and all of Debtor's rights, remedies, security and liens, in, to and in respect of all accounts and other collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, and all guarantees and other contracts of
suretyship with respect to any accounts and other collateral, and all deposits and other security for any accounts and other collateral, and all credit and other insurance; 

        All
notes, drafts, letters of credit, contract rights, and things in action; all drawings, specifications, blueprints and catalogs; and all raw materials, work in process, materials used
or consumed in Debtor's business, goods, finished goods, returned goods and all other goods and inventory of whatsoever kind or nature, any and all wrapping, packaging, advertising and shipping
materials, and all documents relating thereto, and all labels and other devices, names and marks affixed or to be affixed thereto for purposes of selling or identifying the same or the seller or
manufacturer thereof; 

        All
inventory, raw materials and work in progress wherever located; all present and future claims against any supplier of any of the foregoing, including claims for defective goods or
overpayments to or undershipments by suppliers; all proceeds arising from the lease or rental of any of the foregoing; INVENTORY RETURNED BY DEBTOR TO ITS SUPPLIERS SHALL REMAIN SUBJECT TO SECURED
PARTY'S SECURITY INTEREST; 

        All
equipment and fixtures, NONE OF WHICH THE DEBTOR IS AUTHORIZED TO SELL, LEASE OR OTHERWISE DISPOSE OF WITHOUT THE WRITTEN CONSENT OF SECURED PARTY, including without limitation all
machinery, machine tools, motors, controls, parts, vehicles, 

1

 

workstations,
tools, dies, jigs, furniture, furnishings and fixtures; and all attachments, accessories, accessions and property now or hereafter affixed to or used in connection with any of the
foregoing, and all substitutions and replacements for any of the foregoing; all warranty and other claims against any vendor or lessor of any of the foregoing; 

        All
investment property; 

        All
books, records, ledger cards, computer data and programs and other property and general intangibles at any time evidencing or relating to any or all of the foregoing; and 

        All
cash and non-cash products and proceeds of any of the foregoing, in whatever form, including proceeds in the form of inventory, equipment or any other form of personal
property,
including proceeds of proceeds and proceeds of insurance, and all claims by Debtor against third parties for loss or damage to, or destruction of, or otherwise relating to, any or all of the
foregoing. 

        NOTICE—PURSUANT
TO AN AGREEMENT BETWEEN DEBTOR AND SECURED PARTY, DEBTOR HAS AGREED NOT TO FURTHER ENCUMBER THE COLLATERAL DESCRIBED HEREIN, THE FURTHER ENCUMBERING OF WHICH
MAY CONSTITUTE THE TORTIOUS INTERFERENCE WITH SECURED PARTY'S RIGHTS BY SUCH ENCUMBRANCER. IN THE EVENT THAT ANY ENTITY IS GRANTED A SECURITY INTEREST IN DEBTOR'S ACCOUNTS, CHATTEL PAPER, GENERAL
INTANGIBLES OR OTHER ASSETS CONTRARY TO THE ABOVE, THE SECURED PARTY ASSERTS A CLAIM TO ANY PROCEEDS THEREOF RECEIVED BY SUCH ENTITY. 

        Notwithstanding
any of the foregoing, this Financing Statement and Security Agreement does not cover any of Debtor's interests in, and the Collateral shall not under any circumstance
include, and no security interest is granted in, Debtor's Intellectual Property, including, without limitation, any and all property of the Debtor that is subject to, listed in or otherwise described
in the Negative Pledge Agreement dated June 30, 2006 between the Secured Party and the Debtor. "Intellectual Property" means, collectively, all
rights, priorities and privileges of the Debtor relating to intellectual property, in any medium, of any kind or nature whatsoever, now or hereafter owned or acquired or received by Debtor, or in
which Debtor now holds or hereafter acquires or receives any right or interest, whether arising under United States, multinational or foreign laws or otherwise, and shall include, in any event, all
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, trade secrets, internet domain names (including any right related to the registration thereof), proprietary or
confidential information, mask works, sources object or other programming codes, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge,
know-how, software, data base, data, skill, expertise, recipe, experience, process, models, drawings, materials or records. Notwithstanding the foregoing, Intellectual Property as defined
above does not include accounts, accounts receivable, royalties, licensing fees, contract rights, proceeds, or other revenue obtained or owed from or on account of the licensing or other exploitation
of Intellectual Property, 

2

 

none
of which are excluded, and all of which are included as collateral in the security interest granted by Debtor to Secured Party. 

	"DEBTOR"	 	"SECURED PARTY"
	
ANACOR PHARMACEUTICALS, INC.,	
 	
LIGHTHOUSE CAPITAL PARTNERS V, L.P.
	a Delaware corporation	 	BY:	 	LIGHTHOUSE MANAGEMENT PARTNERS V, L.L.C.,

its general partner
	By:	 	 
	 	 	 	 
	Name:	 	 
	 	By:	 	 

	Title:	 	 
	 	Name:	 	 

	 	 	 	 	Title:	 	 

3

  

 
 

EXHIBIT B    
    

[                        ]

 
 

SECURED PROMISSORY NOTE    
    

        THIS SECURED PROMISSORY NOTE (this "Note") is made
                        , 200    , by ANACOR PHARMACEUTICALS, INC. ("Borrower") in favor of
LIGHTHOUSE CAPITAL PARTNERS V, L.P. (collectively with its assigns, "Lender"). Initially capitalized
terms used and not otherwise defined herein are defined in that certain Loan and Security Agreement No. 5251 between Borrower and Lender dated June 30, 2006 (the
"Loan Agreement"). 

        FOR VALUE RECEIVED, Borrower promises to pay in lawful money of the United States, to the order of Lender, at 500 Drake's Landing Road,
Greenbrae, California 94904, or such other place as Lender may from time to time designate ("Lender's Office"), the principal sum of
$                        
(the "Advance"), including interest on the unpaid balance and all other amounts due or to become due hereunder according to the terms hereof and of the Loan Agreement. 

        "Basic Rate" means a variable per annum rate of interest equal to the Index plus the
Interest Margin which shall be subject to adjustment as provided in the Loan Agreement. On and after the Loan Commencement Date, the Basic Rate shall be fixed and not subject to any further
adjustments. 

        "Final Payment" means 9.5% of the Advance. 

        "Index" means the prevailing variable Prime Rate of annual interest as quoted from time to time in the western edition of the Wall Street
Journal. 

        "Interest Margin" means 2% per annum. 

        "Loan Commencement Date" means January 1, 2008. 

        "Maturity Date" means the last day of the Repayment Period, or if earlier, the date of prepayment under the Note. 

        "Payment Date" means the first day of each calendar month. 

        "Prepayment Fee" means (i) 3% of the outstanding principal amount being prepaid if such
prepayment is made in calendar year 2006 or 2007; (ii) 2% of the outstanding principal amount being prepaid if such prepayment is made in calendar year
2008, or (iii) 1% of the outstanding principal amount being prepaid if such prepayment is made in calendar year 2009 or thereafter. 

        "Repayment Period" means the period beginning on the Loan Commencement Date and continuing for 30 calendar months. 

        1.    Repayment.    Borrower shall pay principal and interest due
hereunder from the Funding Date, until this Note is paid in full, on each Payment Date pursuant to the terms of the Loan Agreement and this Note. Prior to the Loan Commencement Date, Borrower shall
pay to Lender, monthly in advance on each Payment Date, interest calculated using the Basic Rate prevailing on the first business day of such calendar month. Beginning on the Loan Commencement Date
and on each Payment Date thereafter during the Repayment Period, Borrower shall make equal installments of principal and interest in advance, calculated at the Basic Rate. On the Maturity Date,
Borrower shall pay, in addition to all unpaid principal and interest outstanding hereunder, the Final Payment. 

        2.    Interest.    Interest not paid when due will, to the maximum
extent permitted under applicable law, become part of principal, at Lender's option, and thereafter bear like interest as principal. All interest computation shall be based on a 360-day
year and actual days elapsed. All Obligations not paid when due shall bear interest at the Default Rate unless waived in writing by Lender. All amounts paid 

1

 

hereunder
will be applied to the Obligations in Lender's discretion and as provided in the Loan Agreement. 

        3.    Voluntary Prepayment.    Borrower may prepay the Note if and
only if Borrower pays to Lender (i) the outstanding principal amount of this Note and any unpaid accrued interest;  (ii) the Final Payment; (iii) the Prepayment Fee; and  (iv) all other sums, if any, that shall have become due and payable hereunder with respect to this Note. 

        4.    Collateral.    This Note is secured by the Collateral. 

        5.    Waivers.    Borrower, and all guarantors and endorsers of this
Note, regardless of the time, order or place of signing, hereby waive notice, demand, presentment, protest, and notices of every kind, presentment for the purpose of accelerating maturity, diligence
in collection, and, to the fullest extent permitted by law, all rights to plead any statute of limitations as a defense to any action on this Note. 

        6.    Choice of Law; Venue.    THIS NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF BORROWER AND LENDER HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA. BORROWER AND LENDER EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE. EACH PARTY FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  

        7.    Miscellaneous.    THIS
NOTE MAY BE MODIFIED ONLY BY A WRITING SIGNED BY BORROWER AND LENDER. Each provision hereof is severable from every other provision hereof and of the Loan Agreement when
determining its legal enforceability. Sections and subsections are titled for convenience, and not for construction. "Hereof," "herein," "hereunder," and similar words refer to this Note in its
entirety. "Or" is not necessarily exclusive. "Including" is not limiting. The terms and conditions hereof inure to the benefit of and are binding upon the parties' respective permitted successors and
assigns. This Note is subject to all the terms and conditions of the Loan Agreement. 

        IN WITNESS WHEREOF, Borrower has caused this Note to be executed by a duly authorized officer as of the day and year first above written. 

	

 	
 	
ANACOR PHARMACEUTICALS, INC.
	

 	
 	

By:	
 	

 

	

 	
 	

Name:	
 	

 

	

 	
 	

Title:	
 	

 

2

  

 
 

EXHIBIT D    
    
    NOTICE OF BORROWING    
    

                    ,            

Lighthouse
Capital Partners V, L.P.

500 Drake's Landing Road

Greenbrae, CA 94904-3011 

        Ladies
and Gentlemen: 

        Reference
is made to the Loan and Security Agreement No. 5251 dated as of June 30, 2006 (as it has been and may be amended from time to time, the
"Loan Agreement," initially capitalized terms used herein as defined therein), between LIGHTHOUSE CAPITAL PARTNERS V,
L.P. and ANACOR PHARMACEUTICALS, INC. (the "Company") 

        The
undersigned is the President and CEO of the Company, and hereby irrevocably requests an Advance under the Loan Agreement, and in that connection certifies as follows: 

        1.     The
amount of the proposed Advance is $                        . The business day of the proposed Advance
is                        . 

        2.     The
Loan Commencement Date for this Advance shall be January 1, 2008. 

        3.     As
of this date, no Event of Default, or event which with notice or the passage of time would constitute an Event of Default, has occurred and is continuing, or will
result from the making of the proposed Advance, and the representations and warranties of the Company contained in Section 5 of the Loan
Agreement are true and correct in all material respects, except as set forth in the Disclosure Schedule and any updates thereto delivered on or before the date hereof. 

        4.     No
event that could reasonably be expected to have a material adverse effect on the ability of Borrower to fulfill its obligations under the Loan Agreement has occurred
since the date of the most recent financial statements, submitted to you by the Company. 

        The
Company agrees to notify you promptly before the funding of the Advance if any of the matters to which I have certified above shall not be true and correct on the Funding Date. 

	

 	
 	

Very truly yours,
	

 	
 	
ANACOR PHARMACEUTICALS, INC.
	

 	
 	

By:	
 	

 

	

 	
 	

Name:	
 	

Lucy O. Day

	

 	
 	

Title:	
 	

CFO

1

  

 
 

EXHIBIT E    
    
    INCUMBENCY CERTIFICATE    
    

        The undersigned, Lucy O. Day, hereby certifies that: 

        1.     He/She is the duly elected and acting Chief Financial Officer of ANACOR
PHARMACEUTICALS, INC., a Delaware corporation (the "Company"). 

        2.     That on the date hereof, each person listed below holds the office in the Company indicated opposite his or her name and
that the signature appearing thereon is the genuine signature of each such person: 

	NAME
	 	OFFICE
	 	SIGNATURE

	David Perry	 	Chief Executive Officer	 	 

	

Lucy O. Day	
 	

Chief Financial Officer	
 	

 

        3.     Attached hereto as Exhibit A is a true and correct copy of the
Certificate of Incorporation of the Company, as amended, as in effect as of the date hereof. 

        4.     Attached hereto as Exhibit B is a true and correct copy of the
Bylaws of the Company, as amended, as in effect as of the date hereof. 

        5.     Attached hereto as Exhibit C is a copy of the resolutions of the
Board of Directors of the Company authorizing and approving the Company's execution, delivery and performance of a loan facility with Lighthouse Capital Partners V, L.P. 

        IN
WITNESS WHEREOF, the undersigned has executed this Incumbency Certificate on June    , 2006. 

	

 	
 	

 	
 	

 
	

 	
 	
ANACOR PHARMACEUTICALS, INC.
	

 	
 	

By:	
 	

 

	

 	
 	

Name:	
 	

Lucy O. Day

	

 	
 	

Title:	
 	

Chief Financial Officer

        I,
the Chief Executive Officer of the Company, do hereby certify that Lucy Day is the duly qualified, elected and acting Chief Financial Officer of the Company and that the above
signature is his or her genuine signature. 

        IN
WITNESS WHEREOF, the undersigned has executed and delivered this Incumbency Certificate on June    , 2006. 

	

 	
 	

 	
 	

 
	

 	
 	
ANACOR PHARMACEUTICALS, INC.
	

 	
 	

By:	
 	

 

	

 	
 	

Name:	
 	

David Perry

	

 	
 	

Title:	
 	

Chief Executive Officer

1

  

 
 

EXHIBIT F    
    
    OFFICER'S CERTIFICATE    
    

        The undersigned, to induce LIGHTHOUSE CAPITAL PARTNERS V, L.P.
("Lender"), to extend or continue financial accommodations to ANACOR PHARMACEUTICALS, INC., a
Delaware corporation (the "Borrower") pursuant to the terms of that certain Loan and Security Agreement dated June 30, 2006 (the
"Loan Agreement"), hereby certifies that on the date hereof: 

	1.
	I am the duly elected and acting Chief Financial Officer of Borrower.

	2.
	I am a Responsible Officer as that term is defined in the Loan Agreement.

	3.
	The information submitted herewith is in fact what it purports to be.

	4.
	The information delivered herewith is true, correct and complete.

	5.
	Borrower is currently able to meet its obligations as they come due.

	6.
	I understand that Lender is relying upon the truthfulness, accuracy and completeness hereof in connection with the Loan Agreement.

	7.
	I will advise you if it comes to my attention that, as of the date hereof, the information submitted herewith was not in fact true,
correct and complete. 

        IN
WITNESS WHEREOF, the undersigned has executed this Officer's Certificate on                        . 

	

 	
 	
ANACOR PHARMACEUTICALS, INC.
	

 	
 	

By:	
 	

 

	

 	
 	

Name:	
 	

Lucy O. Day

	

 	
 	

Title:	
 	

CFO

1

  

 
 

EXHIBIT G    
    
    AUTHORIZATION FOR AUTOMATIC PAYMENT    
    

        The undersigned ANACOR PHARMACEUTICALS, INC. ("Borrower")
authorizes LIGHTHOUSE CAPITAL PARTNERS V, L.P. and any and all affiliated funds (collectively, "Lender")
and the bank / financial institution ("Bank") named below to initiate variable debit and/or credit entries to Borrower's deposit, checking or
savings accounts as designated below and to cause funds transfers to an account of Lender as payment of any and all amounts due under the Loan and Security Agreement between Borrower and Lender dated
June 30, 2006 (the "Loan Agreement"). 

        1.     Lender is hereby authorized to initiate variable debit and/or credit transactions and resulting funds transfers in
Borrower's designated accounts with respect to amounts calculated by Lender to be due and owing to Lender by Borrower periodically under the Loan Agreement. Borrower consents to all such debit and/or
credit transactions and resulting funds transfers and hereby authorizes Lender to take all such actions as may be required by Bank with respect to such transactions. Borrower acknowledges and agrees
that such credit and/or debit entries may be made in amounts due under the Loan Agreement in order to cause timely payments as required by the terms of the Loan Agreement. 

        2.     Borrower hereby authorizes Lender to release to Bank all information concerning Borrower that may be necessary or
desirable for Bank to investigate or recover any erroneous funds transfers that may occur. 

        3.     Borrower acknowledges and agrees that all such debit and/or credit transactions and funds transfers are intended to be
made through an Automated Clearing House system and in compliance with the NACHA Rules and in compliance with Bank's security procedures. 

        4.     Borrower represents and warrants that the account information set forth below is accurate and complete and that each of
the account(s) set forth below is a business account maintained in Borrower's name and for Borrower's account. 

        This
Consent shall be effective as of June 30, 2006 and shall remain in effect until the Loan Agreement has been terminated. Any cancellation by Borrower of this consent shall
(i) be made in writing and (ii) delivered to Bank and Lender in such time as to afford Bank and Lender a reasonable opportunity to act on said cancellation. 

	Bank of America

	(Name of Borrower's Bank)
	

530 Lytton Avenue,	
 	

Palo Alto,	
 	

CA	
 	

94301
	

	(Address of Bank)	 	(City)	 	(State)	 	(Zip Code)
	

Bank Routing Number	
 	

 	
 	

 	
 	

 
	

	 	 	(between these symbols "/:" ":/" on bottom left of check)
	

Account Number:	
 	

 	
 	

(checking)	
 	

 
	 	 	
	 	 

Copy of a voided check is attached to this form  

	Borrower Name:	 	ANACOR PHARMACEUTICALS, INC.	 	 
	

Borrower Address:	
 	

1060 E. Meadow Circle	
 	

 
	 	 	Palo Alto, CA 94303	 	 
	Authorized by:	 	 
	 	 
	 	 	Its: CFO
	 	 

1

  

 
 

EXHIBIT H    
    
    NEGATIVE PLEDGE AGREEMENT    
    

        THIS NEGATIVE PLEDGE AGREEMENT is made as of June 30, 2006, by and between ANACOR
PHARMACEUTICALS, INC. ("Borrower") and LIGHTHOUSE CAPITAL PARTNERS V,
L.P. ("Lender"). 

        In
consideration of the Loan and Security Agreement between the parties of proximate date herewith (the "Loan Agreement"), Borrower agrees
as follows: 

        Except
as otherwise permitted in the Loan Agreement, Borrower shall not sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of Borrower's
intellectual property, including, without limitation, the following: 

        (a)   Any and all copyright rights, copyright applications, copyright registration and like protection in each work or
authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held
(collectively, the "Copyrights"); 

        (b)   Any and all trade secrets, and any and all intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held; 

        (c)   Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held; 

        (d)   All patents, patent applications and like protections, including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the same, including, without limitation, the patents and patent applications (collectively, the
"Patents"); 

        (e)   Any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same
and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks (collectively, the
"Trademarks"); 

        (f)    Any and all claims for damages by way of past, present and future infringements of any of the rights included above, with
the right, but not the obligation, to sue for an collect such damages for said use or infringement of the intellectual property rights identified above; 

        (g)   Any and all licenses or other rights to use any of the Copyrights, Patents or Trademarks and all license fees and
royalties arising from such use to the extent permitted by such license or rights 

        (h)   Any and all amendments, extensions, renewals and extensions of any of the Copyrights, Patents or Trademarks; and 

        (i)    Any and all proceeds and products of the foregoing, including, without limitation, all payments under insurance or any
indemnity or warranty payable in respect of any of the foregoing. 

        Notwithstanding
the foregoing, nothing herein shall be deemed to prevent or prohibit Borrower from licensing its intellectual property to third parties in the ordinary course of business
or as set forth in Section 7.2 of the Loan Agreement. 

        It
shall be an Event of Default under the Loan Agreement if there is a breach of any term of this Negative Pledge Agreement.    Borrower agrees to properly execute all
documents reasonably required by Lender in order to fulfill the intent and purposes hereof. 

	ANACOR PHARMACEUTICALS, INC.	 	LIGHTHOUSE CAPITAL PARTNERS V, L.P.
	

By:	
 	

 
	
 	

By:	
 	
LIGHTHOUSE MANAGEMENT PARTNERS V, L.L.C., its general partner
	

Name:	
 	

Lucy O. Day
	
 	

By:	
 	

 

	

Title:	
 	

CFO
	
 	

Name:	
 	

 

	 	 	 	 	Title:	 	 

1

  

 
 

EXHIBIT I    
    
    CONTROL AGREEMENT    
    

[In
form and substance acceptable to Lender in its reasonable discretion] 

1

QuickLinks

EXHIBIT A COLLATERAL

EXHIBIT B

SECURED PROMISSORY NOTE

EXHIBIT D NOTICE OF BORROWING

EXHIBIT E INCUMBENCY CERTIFICATE

EXHIBIT F OFFICER'S CERTIFICATE

EXHIBIT G AUTHORIZATION FOR AUTOMATIC PAYMENT

EXHIBIT H NEGATIVE PLEDGE AGREEMENT

EXHIBIT I CONTROL AGREEMENT

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