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Exhibit 10.2    
    

 
 

Form of
  Change of Control Employment Agreements    
    

 
 

CHANGE OF CONTROL EMPLOYMENT AGREEMENT    
    

        AGREEMENT by and between Providian Financial Corporation (the "Corporation"), a Delaware corporation, and «Fname»
«Mid» «Lname» (the "Executive"), dated as of the 27th day of January, 2004. 

        The
Board of Directors of the Corporation (the "Board") has determined that it is in the best interests of the Corporation and its shareholders to assure that the Corporation, will have
the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below) of the Corporation. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control and to encourage the Executive's full
attention and dedication to the Corporation currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a
Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has authorized the Corporation to enter into, and to cause the Corporation to enter into, this Agreement. 

        IT
IS, THEREFORE, AGREED: 

        1.    Certain Definitions.    (a) The "Effective Date" shall be the first date during the "Change in Control
Period" (as defined in Section 1(b)) on which a Change in Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change in Control
occurs and if the Executive's employment with the Corporation and the affiliated companies is terminated or the Executive ceases to be an officer of the Corporation and the affiliated companies prior
to the date on which a Change in Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the
request of a third party who has taken steps reasonably calculated to effect the Change in Control or (ii) otherwise arose in connection with the Change in Control, then for all purposes of
this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. As used in this Agreement, the term
"affiliated companies" includes any company controlling, controlled by or under common control with the Corporation. 

	(b)
	The
"Change in Control Period" shall mean the period commencing on the date hereof and ending on the second anniversary of such date; provided, however, that commencing on the date
one year after the date hereof, and on each annual anniversary of such date (the date one year after the date hereof and each annual anniversary of such date, is hereinafter referred to as the
"Renewal Date"), the Change in Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Corporation shall give notice to the Executive that the Change in Control Period shall not be so extended. 

        2.    Change in Control.    For the purpose of this Agreement, a "Change in Control" shall mean: 

	(a)
	The
acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Corporation (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in
Control: (i) any acquisition directly from the Corporation, (ii) any acquisition by the Corporation, (iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled by the Corporation 

 

or
(iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or 

	(b)
	Individuals
who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or

	(c)
	Consummation
of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or the acquisition of assets of
another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior
to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

	(d)
	Approval
by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. 

        3.    Employment Period.    The Corporation hereby agrees to continue the Executive in its employ for the period
commencing on the Effective Date and ending on the earlier to occur of (i) the third anniversary of such date or (ii) unless the Executive elects to continue employment beyond the
Executive's Normal Retirement Age (as defined in the Corporation's 401 (k) Plan, as amended from time to time), the first day of the month coinciding with or next following the Executive's
Normal Retirement Age (the "Employment Period"). 

        4.    Terms of Employment.    (a) Position of
Duties.    (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) unless Executive otherwise agrees, the Executive's services shall be performed at the 

2

 

location
where the Executive was employed immediately preceding the Effective Date or at any office or location less than forty-five (45) miles from such location. 

	(ii)
	During
the Employment Period, and excluding periods of paid time off (as defined in the Corporation's benefit plans) to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Corporation and, to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use reasonable efforts to perform faithfully and efficiently such responsibilities. The Executive may (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the
Effective Date, such prior conduct of activities, and any subsequent conduct of activities similar in nature and scope shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Corporation.

	(b)
	Compensation.    (i) Base Salary.    During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base Salary") at an annual rate at least equal to 12 times the highest monthly base salary paid or payable to the Executive,
including any base salary that has been earned but deferred, by the Corporation, together with any of its affiliated companies, during the twelve-month period immediately preceding the month in which
the Effective Date occurs. The Annual Base Salary shall be paid at such intervals as the Corporation generally pays executive salaries. During the Employment Period, the Annual Base Salary shall be
reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to
other peer executives of the Corporation and its affiliates. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual
Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. 

        (ii)    Annual Bonus.    In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year
during the Employment Period, an annual bonus under the Corporation Management Incentive Plan (or any successor thereto) in cash at least equal to the highest bonus paid or payable, including by
reason of any deferral, to the Executive by the Corporation and its affiliated companies (whether in cash, stock or other property, whether such stock or property is granted under the Corporation
Management Incentive Plan (or any successor thereto) or another plan including the Corporation Stock Incentive Plan (or any successor thereto)) in respect of the three fiscal years during which the
Executive has been employed by the Corporation or its affiliated companies immediately preceding the fiscal year in which the Effective Date occurs or such lesser number of years that the Executive
has been employed by the Corporation and its affiliated companies (it being understood that such annual bonus shall not include any one-time stock or cash bonuses granted outside the
annual bonus program) (the "Annual Bonus"); provided, that for any fiscal year during such three-year or shorter period immediately
preceding the fiscal year in which the Effective Date occurs consisting of less than 12 full months or with respect to which the Executive has been employed by the Corporation or its affiliated
companies for less than 12 full months and for which the Executive shall have been eligible to receive an annual bonus, the annual bonus for such year for purposes of determining the Executive's
Annual Bonus shall be the greater of (i) the Executive's target annual bonus for such year or (ii) the actual annual bonus paid or payable, including by reason of any deferral, to the
Executive by the Corporation and its affiliated companies (whether in cash, stock or other property, whether such stock or property is 

3

 

granted
under the Corporation Management Incentive Plan (or any successor thereto) or another plan including the Corporation Stock Incentive Plan (or any successor thereto)) in respect of such fiscal
year, provided, further, that if the Executive has not been eligible to earn such a bonus for any period prior to the Effective Date, the "Annual Bonus"
shall mean the Executive's target annual bonus for the year in which the Effective Date occurs. Each such Annual Bonus shall be paid no later than 90 days following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall otherwise elect to defer the receipt of such Annual Bonus. 

        (iii)    Incentive, Savings and Retirement Plans.    During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Corporation and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Corporation and its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Corporation and its affiliated companies. Without limiting the foregoing, the annual retirement contribution payable on behalf of the Executive
during the Employment Period, as a percentage of the Executive's total compensation, shall not in any event be less than the average annual retirement contribution, as a percentage of total
compensation, paid on behalf of the Executive by the Corporation and its affiliated companies during the three years immediately preceding the Effective Date. 

        (iv)    Welfare Benefit Plans.    During the Employment Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Corporation and its affiliated
companies (including, without limitation, medical, prescription, dental, vision, disability, employee life, dependent life, and accidental death) to the extent applicable generally to other peer
executives of the Corporation and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Corporation and its affiliated companies. 

        (v)    Expenses.    During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Corporation and its affiliated companies in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other peer executives of the Corporation and its affiliated
companies. 

        (vi)    Fringe Benefits.    During the Employment Period, the Executive shall be entitled to fringe benefits in
accordance with the most favorable plans, practices, programs and policies of the Corporation and its affiliated companies in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other peer executives of the Corporation and its affiliated companies. 

        (vii)    Office and Support Staff.    During the Employment Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and to 

4

 

administrative
and other assistance, at least equal to the most favorable of the foregoing provided to the Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other peer executives of the Corporation and its affiliated companies. 

        (viii)    Paid Time Off.    During the Employment Period, the Executive shall be entitled to paid time off in
accordance with the most favorable plans, policies, programs and practices of the Corporation and its affiliated companies as in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Corporation and its affiliated
companies. 

        5.    Termination.    (a) Death or
Disability.    This Agreement shall terminate automatically upon the Executive's death. If the Corporation determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition of "Disability" set forth below), it may give the Executive written notice in accordance with Section 12(b) of
this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Corporation and its affiliated companies shall terminate effective on the
30th day after receipt of such notice (the "Disability Effective Date"), provided that, within 30 days after such receipt, the Executive shall fail to return to full-time
performance of the Executive's duties. For purposes of this Agreement, "Disability" means the absence of the Executive from the Executive's duties within the Corporation and its affiliated companies
for 180 consecutive business days as a result of the incapacity due to physical or mental illness which, after the expiration of such 180 business days, is determined to be total and permanent by a
physician selected by the Corporation or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement to acceptability not to be withheld unreasonably). 

        (b)    Cause.    The Corporation may terminate the Executive's employment for "Cause." For purposes of this Agreement,
"Cause" means (i) a willful and continuing failure to perform substantially the Executive's obligations under Section 4(a) of this Agreement (other than as a result of the Executive's
death or Disability); or (ii) conduct undertaken by the Executive which is demonstrably willful and deliberate on the Executive's part and which is intended to result in (x) substantial
personal enrichment of the Executive at the expense of the Corporation or its affiliated companies and (y) substantial injury to the Corporation or its affiliated companies; or
(iii) commission by the Executive of a felony involving the Corporation or its affiliated companies. 

        A
termination for Cause within the meaning of clause (i) or (ii) shall not take effect unless: 

        A.
the Board shall have delivered a written notice to the Executive within 30 days of its having knowledge of one of the circumstances constituting cause within the meaning of
clause (i) or (ii), stating which one of those circumstances has occurred; 

        B.
within 30 days of such notice, the Executive is permitted to respond and defend himself (along with counsel) before the Board; 

        C.
within 15 days of the date on which the Executive is given the opportunity to respond and defend himself before the Board, the Executive has not remedied such circumstance; and 

        D.
if the Executive has not remedied such circumstance as provided in subclause (C) above, the Board notifies the Executive in writing that it is terminating his employment for
Cause. 

        (c)    Good Reason.    The Executive's employment may be terminated during the Employment Period by the Executive for
Good Reason. For purposes of this Agreement, "Good Reason" means: 

	(i)
	(A)
the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting
requirements), authority, 

5

 

duties
or responsibilities as contemplated by Section 4(a) of this Agreement or (B) any other action by the Corporation or its affiliated companies which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not occurring in bad faith which is remedied by the Corporation or its
affiliated companies promptly after receipt of notice thereof given by the Executive; 

	(ii)
	any
failure by the Corporation to comply with any of the provisions of Section 4(b) of this Agreement, excluding for this purpose an isolated, insubstantial and
inadvertent failure not occurring in bad faith which is remedied by the Corporation promptly after receipt of notice thereof given by the Executive;

	(iii)
	unless
the Executive otherwise agrees, the Corporation's requiring the Executive to be based at any office or location other than that at which the Executive is based
at the Effective Date or within forty-five (45) miles of such location, except for travel reasonably required in the performance of the Executive's responsibilities;

	(iv)
	any
purported termination by the Corporation of the Executive's employment otherwise than as permitted by this Agreement;

	(v)
	any
failure by the Corporation to comply with and satisfy Section 11(c) of this Agreement provided that such successor has received at least ten days prior
written notice from the Corporation or the Executive of the requirements of Section 11(c) of this Agreement. 

        For
purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any reason pursuant to a Notice of Termination given during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. 

        (d)    Notice of Termination.    Any termination by the Corporation for Cause or by the Executive for Good Reason
shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive or the Corporation to
set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Corporation hereunder or
preclude the Executive or the Corporation from asserting such fact or circumstance in enforcing the Executive's or the Corporation's rights hereunder. 

        (e)    Date of Termination.    "Date of Termination" means (i) if the Executive's employment is terminated by
the Corporation for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Corporation other than for Cause or Disability, the Date of Termination shall be the date on which the Corporation notifies the Executive of such termination and
(iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the
case may be. 

        6.    Obligations of the Corporation upon Termination.    (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Corporation and the affiliated companies 

6

 

shall
terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: 

	(i)
	the
Corporation shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: 

        A.
the sum of (1) the Executive's Annual Base Salary through the Date of Termination, (2) the product of (x) the Annual Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the
Executive under non-qualified plans (together with any accrued interest or earnings thereon) and the value of any unused paid time off, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and 

        B.
the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary, and (y) the Executive's Annual Base Salary
multiplied by the Bonus Percentage. For purposes of this Section 6(a)(i)(B), "Bonus Percentage" shall mean the highest percentage obtained by dividing (1) the annual bonus paid or
payable, including by reason of any deferral, whether or not payable under the Corporation Management Incentive Plan (or any successor thereto) to the Executive by the Corporation and its affiliated
companies (whether in cash, stock or other property, whether such stock or property is granted under the Corporation Management Incentive Plan (or any successor thereto) or another plan including the
Corporation Stock Incentive Plan (or any successor thereto)) in respect of each of the three fiscal years during which the Executive has been employed by the Corporation or its affiliated companies
immediately preceding the fiscal year in which the Effective Date occurs or such lesser number of years that the Executive has been employed by the Corporation and its affiliated companies (it being
understood that such annual bonus shall not include any one-time stock or cash bonuses granted outside the annual bonus program); provided,
that for any fiscal year during such three-year or shorter period immediately preceding the fiscal year in which the Effective Date occurs consisting of less than 12 full months or with
respect to which the Executive has been employed by the Corporation or its affiliated companies for less than 12 full months and for which the Executive shall have been eligible to receive an annual
bonus, the annual bonus for such year shall be the greater of (A) the Executive's target annual bonus for such year or (B) the actual annual bonus paid or payable, including by reason of
any deferral, to the Executive by the Corporation and its affiliated companies (whether in cash, stock or other property, whether such stock or property is granted under the Corporation Management
Incentive Plan (or any successor thereto) or another plan including the Corporation Stock Incentive Plan (or any successor thereto)) in respect of such fiscal year,  provided, further, that if the Executive has not been eligible to earn such a bonus for any period prior
to the Effective Date, the annual bonus for purposes of this clause (1) shall mean the Executive's
target annual bonus for the year in which the Effective Date occurs, by (2) the base salary paid or payable to the Executive by the Corporation and its affiliated companies for each such year,
annualized for any fiscal year consisting of less than twelve full months or with respect to which the Executive has been employed by the Corporation or its affiliated companies for less than twelve
full months. The amount described in the first sentence of this clause B shall be paid in lieu of, and the Executive hereby waives the right to receive, any other amount of severance relating
to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, policy or arrangement of the Corporation or its affiliated
companies (it being understood that this payment shall not be in lieu of, and the Executive shall not hereby waive, any stay or retention awards or bonuses to which the Executive may be entitled
pursuant to the terms of such stay or retention awards or bonuses); and 

        C.
a separate lump-sum payment equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Executive's
Annual Base Salary multiplied by the Bonus Percentage and (3) the Retirement Contribution Percentage (which, for purposes of this 

7

 

Section 6(a)(i)(C)
shall equal the highest percentage of retirement contributions as a percentage of total compensation for all eligible employees of the Corporation and its affiliated
companies for any year beginning with the third full year prior to the Effective Date); and 

        D.
to the extent not already paid under section 6(a)(i)A above, an amount equal to the unvested portion of the qualified and non-qualified retirement contribution
account in addition to any vested amounts due under the retirement plans of the Corporation and its affiliated companies; and 

	(ii)
	for
three years after the Date of Termination, or such longer period as any plan, program, practice or policy may provide, the Corporation shall continue benefits to
the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Corporation
and its affiliated companies applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer executives of the Corporation and its affiliated companies and their families, provided, however, that if the
Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; and

	(iii)
	to
the extent not theretofore paid or provided, the Corporation shall timely pay or provide to the Executive any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive pursuant to this Agreement under any plan, program, policy or practice or contract or agreement of the Corporation and its affiliated companies
(such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"), but excluding solely purposes of this Section 6(a)(iii) amounts waived by the Executive
pursuant to the provisions of Section 6(a)(i)(B). 

        (b)    Death.    If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall
terminate without further obligations to the Executive's legal representatives under this Agreement other than for payment of the Accrued Obligations and the timely payment or provision of Other
Benefits. All Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this
Agreement to the contrary notwithstanding, the Executive's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Corporation and any of its
affiliated companies to surviving families of peer executives of the Corporation and such affiliated companies under such plans, programs, practices and policies relating to family death benefits, if
any, as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any
time on the date of Executive's death with respect to other peer executives of the Corporation and its affiliated companies and their families. 

        (c)    Disability.    If the Executive's employment is terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. All
Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Corporation and its 

8

 

affiliated
companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to
other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family,
as in effect at any time thereafter generally with respect to other peer executives of the Corporation and its affiliated companies and their families. 

        (d)    Cause; Other than for Good Reason.    If the Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further obligations other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of
any compensation previously deferred by the Executive, in each case to the extent theretofore not paid. If the Executive terminates employment during the Employment Period, excluding
a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 

        7.    Non-exclusivity of Rights.    Except as otherwise provided in Sections 6(a)(i)(B),
6(a)(ii) and 6(a)(iii) of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Corporation or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive
may have under any stock option or other agreements with the Corporation or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Corporation or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 

        8.    Full Settlement.    The Corporation's obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right
which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek other employment by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement, and, except as provided in Section 6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other
employment. The Corporation agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur in good faith as a result of any contest
(regardless of the outcome thereof) by the Corporation, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest, on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 

        9.    Certain Additional Payments by the Corporation.    

	(a)
	Anything
in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment would be subject to the Excise Tax, then the Executive shall be
entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (and any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The Corporation's obligation to make Gross-Up Payments under this
Section 9 shall not be conditioned upon the Executive's termination of employment. 

9

 

	(b)
	Subject
to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting
firm (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Corporation and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment or such earlier time as is requested by the Corporation. In no event shall the Accounting Firm be an accounting firm serving as accountant or auditor for the
individual, entity or group effecting the Change of Control. All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Corporation to the Executive within 5 days of the receipt of the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Corporation should have been made (the "Underpayment"), consistent with the
calculations required to be made hereunder. In the event the Corporation exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive.

	(c)
	The
Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the
Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than 10 business days after the Executive is informed in writing of such claim. The Executive shall
apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the
Corporation notifies the Executive in writing prior to the expiration of such period that the Corporation desires to contest such claim, the Executive shall: 

        A.
give the Corporation any information reasonably requested by the Corporation relating to such claim, 

        B.
take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by the Corporation, 

        C.
cooperate with the Corporation in good faith in order effectively to contest such claim, and 

        D.
permit the Corporation to participate in any proceedings relating to such claim; 

provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in
connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties) imposed as a
result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Corporation shall control all proceedings taken in
connection with such contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect
of such claim and may, at its sole discretion, either pay the tax claimed to the appropriate taxing authority on behalf of the Executive and direct the Executive to sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination 

10

 

before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided,
however, that, if the Corporation pays such claim and directs the Executive to sue for a refund, the Corporation shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or penalties) imposed with respect to such payment or with respect to any imputed income in connection with such
payment; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's control of the contest shall be limited to issues with respect to
which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority. 

	(d)
	If,
after the receipt by the Executive of a Gross-Up Payment or payment by the Corporation of an amount on the Executive's behalf pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with respect to such claim, the Executive shall (subject to the
Corporation's complying with the requirements of Section 9(c), if applicable) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after payment by the Corporation of an amount on the Executive's behalf pursuant to Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

	(e)
	Notwithstanding
any other provision of this Section 9, the Corporation may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other
applicable taxing authority, for the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby consents to such withholding. 

        (f)    Definitions.    The following terms shall have the following meanings for purposes of this Section 9. 

        A.
"Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax. 

        B.
A "Payment" shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive,
whether paid or payable pursuant to this Agreement or otherwise. 

        10.    Confidential Information.    (a) The Executive shall not, without the prior written consent of the
Corporation, divulge, disclose or make accessible to any other person, firm, partnership or corporation or other entity any Confidential Information (as defined in Section 10(b) below)
pertaining to the business of the Corporation or its affiliated companies except (i) while employed by the Corporation or its affiliated companies in the business of and for the benefit of the
Corporation or its affiliated companies or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the
Corporation or its affiliated companies, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order the Executive to divulge,
disclose or make accessible such information. 

	(b)
	For
the purposes of this Agreement, Confidential Information shall mean all nonpublic information concerning the business of the Corporation and its affiliated companies, including
products, customer lists, financial information and marketing plans and strategies. Confidential 

11

 

Information
does not include the information that is, or becomes, available to the public, unless such availability occurs through a breach by the Executive of the provisions of this Section. 

	(c)
	In
no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement. 

        11.    Successors.    (a) This Agreement is personal to the Executive and without the prior written consent of
the Corporation shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives. 

	(b)
	This
Agreement shall inure to the benefit of and be binding upon the Corporation and its successors.

	(c)
	Any
parent company or successor to all or substantially all of the business and/or assets of the Corporation (whether direct or indirect, by purchase, merger, consolidation or
otherwise) shall, by an agreement in form and substance satisfactory to the Executive, guarantee and agree to cause the performance of this Agreement, in each case, in the same manner and to the same
extent as the Corporation would be required to perform if no such succession had taken place. "Corporation" means the Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. 

        12.    Miscellaneous.    (a) This Agreement shall be governed by and construed in accordance with the laws of
the State of California, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 

	(b)
	All
notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows: 

	 	If to the Executive:	 	«Fname» «Mid» «Lname»

Providian Financial Corporation

201 Mission Street

San Francisco, California 94105
	 	
 If to the Corporation:	
 	

Providian Financial Corporation

201 Mission Street

San Francisco, California 94105

Attention: Vice Chairman, Human Resources

or
to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. 

	(c)
	The
invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

	(d)
	The
Corporation may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or
regulation. 

12

 

	(e)
	The
Executive's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right that the Executive may have hereunder, including
without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 5(c)(i) through 5(c)(v), shall not be deemed to be a waiver of such provision or any
other provisions hereof.

	(f)
	All
references to sections of the Code shall be deemed to refer to corresponding sections of any successor federal income tax statute.

	(g)
	This
Agreement contains the entire understanding of the Corporation and the Executive and supersedes any prior agreements between the Executive and the Corporation with respect to the
subject matter hereof, including without limitation any Change of Control Employment Agreements previously entered into by the Executive, the Corporation, and any affiliated entities of the
Corporation.

	(h)
	The
Executive and the Corporation acknowledge that the employment of the Executive by the Corporation and its affiliated companies is "at will", and, prior to the Effective Date, may
be terminated by either the Executive or the Corporation or such affiliated companies at any time, with or without cause, in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date, except as specifically provided herein, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. 

        IN
WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in
its name on its behalf, all as of the date and year first above written. 

	 	 	PROVIDIAN FINANCIAL CORPORATION
	

 	
 	

 Name: Richard A. Leweke

Title: Vice Chairman and Chief Human Resources Officer
	

 	
 	

EXECUTIVE
	

 	
 	

 Name: «Fname» «Mid» «Lname»

13

 
 

Schedule
  Change of Control Employment Agreements    
    

        Each of the executive officers of the registrant executed a Change of Control Employment Agreement dated as of January 27, 2004 and substantially identical
to the form of Change of Control Employment Agreement filed as Exhibit 10.2 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2003, except
that: 

	(a)
	the
Change of Control Employment Agreement executed by John Botcheller does not contain the following provision in Section 5(c): 

Anything
in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason pursuant to a Notice of Termination given during the 30-day period immediately
following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. 

	(b)
	the
number set forth in clause (1) in the first line in each of subparagraphs B. and C. in Section 6(a)(i) and in the first line of Section 6(a)(ii) is as
set forth below: 

	Executive Officer
 
	 	Sections 6(a)(i)B. and C. and 6(a)(ii)

	

John Botcheller	
 	

One
	

Chaomei Chen	
 	

Three
	

Susan G. Gleason	
 	

Three
	

Richard A. Leweke	
 	

Three
	

Ellen Richey	
 	

Three
	

Anthony F. Vuoto	
 	

Three
	

Warren Wilcox	
 	

Three

QuickLinks

Exhibit 10.2

Form of Change of Control Employment Agreements

CHANGE OF CONTROL EMPLOYMENT AGREEMENT

Schedule Change of Control Employment AgreementsQuickLinks
 -- Click here to rapidly navigate through this document

Exhibit 10.44  

FINAL  

 

 
 

LOAN AND SECURITY AGREEMENT    
    
    between    
    
    SILICON VALLEY BANK    
    
    and    
    
    ISIS PHARMACEUTICALS, INC.    
    
    December 15, 2003    

    $32,000,000    
    

 

   TABLE OF CONTENTS  

	 
	 	 
	 	Page

	1.	 	ACCOUNTING AND OTHER TERMS	 	1
	

2.	
 	

LOAN AND TERMS OF PAYMENT	
 	

1
	

3.	
 	

CONDITIONS OF LOANS	
 	

2
	

4.	
 	

CREATION OF SECURITY INTEREST	
 	

2
	

5.	
 	

REPRESENTATIONS AND WARRANTIES	
 	

3
	

6.	
 	

AFFIRMATIVE COVENANTS	
 	

5
	

7.	
 	

NEGATIVE COVENANTS	
 	

6
	

8.	
 	

EVENTS OF DEFAULT	
 	

8
	

9.	
 	

BANK'S RIGHTS AND REMEDIES	
 	

9
	

10.	
 	

NOTICES	
 	

10
	

11.	
 	

CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER	
 	

11
	

12.	
 	

GENERAL PROVISIONS	
 	

11
	

13.	
 	

DEFINITIONS	
 	

12

i

   
        This LOAN AND SECURITY AGREEMENT dated December 15, 2003, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and ISIS PHARMACEUTICALS, INC. ("Borrower"), whose address is 2292 Faraday Avenue, Carlsbad, CA 92008, provides the terms on which Bank will lend to Borrower and
Borrower will repay Bank. The parties agree as follows: 

1.    ACCOUNTING AND OTHER TERMS.    Accounting terms not defined in this Agreement will be construed following GAAP. Calculations
and determinations must be made following GAAP. The term "financial statements" includes the notes and schedules. The terms "including" and "includes" always mean "including (or includes) but not
limited to," in this or any Loan Document. 

2.    LOAN AND TERMS OF PAYMENT    

2.1    Credit Extensions.    

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

2.1.1    Term Loan.    

        Bank
will make a Term Loan available to Borrower in one advance. 

2.2    Reserved.    

2.3    Interest Rate, Payments.    

        (a)    Interest Rate.    The Term Loan accrues interest at a variable per annum rate equal to the greater of the Prime
Rate or four percent (4.0%); provided that, on or before the Closing Date, Borrower may
elect a fixed per annum rate of interest applicable to the Term Loan equal to the greater of the Treasury Note Rate or five and one quarter percent (5.25%); provided, further, that at any time after
the Closing Date, Borrower may elect, by written notice to Bank received by 12:00 noon Pacific time on the day such rate is to be effective, a fixed per annum rate of interest applicable to the Term
Loan equal to the then applicable variable rate plus one and one quarter (1.25) percentage points. In addition, at any time Borrower may reduce the applicable rate of interest on the Term Loan by one
quarter (0.25) of a percentage point (up to a maximum of one half (0.50) of one percentage point) for each additional $25,000,000 in excess of the amount otherwise required hereunder that Borrower
maintains in deposit and/or investment account balances at Bank or an affiliate of Bank. The variable rate of interest increases or decreases when the Prime Rate changes. After the occurrence and
during the continuance of an Event of Default, Obligations accrue interest at two (2) percentage points above the rate effective immediately before the Event of Default. Interest is computed on
a 360 day year for the actual number of days elapsed. 

        (b)    Payments.    Payments of principal and interest due on the Term Loan are payable on the 10th of each month.
Borrower will pay 60 equal installments of principal and interest (the "Term Loan Payment"). Borrower's final Term Loan Payment, due on December    , 2008, includes all outstanding Term
Loan principal and accrued interest. Bank may debit any of Borrower's deposit accounts including Account Number 3300420522 for principal and interest payments owing or any other amounts due and
payable by Borrower to Bank hereunder. Bank will promptly notify Borrower when it debits Borrower's accounts. These debits are not a set-off. Payments received after 12:00 noon Pacific
time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional
interest accrues. 

        (c)    Prepayments.    Borrower may prepay the Term Loan, in whole or in part, without penalty or premium so long as
the Term Loan bears interest at a variable rate. If the Term Loan bears interest at a fixed rate as elected by Borrower hereunder, Borrower may prepay the Term Loan in whole only, and any such
prepayment shall be made together with a prepayment fee equal to: (i) three percent (3%) of 

1

 

the
amount prepaid if prepayment is made during the first 16 months of the term of the Term Loan; (ii) two percent (2%) of the amount prepaid if prepayment is made during months 17
through 32 of the term of the Term Loan; (iii) one percent (1%) of the amount prepaid if prepayment is made during months 33 through 48 of the term of the Term Loan; and (iv) no
prepayment fee shall be payable if prepayment is made after the fourth year of the term of the Term Loan. 

2.4    Fees.    

        Borrower
will pay: 

        (a)    Bank Expenses.    All Bank Expenses (including reasonable attorneys' fees and reasonable expenses) incurred
through and after the date of this Agreement, are payable when due; provided, however, that these expenses will not exceed $15,000 so long as standard bank documents are used in this transaction. 

        (b)    Loan Fee.    On the Closing Date a loan fee equal to $75,000. The Parties acknowledge that Borrower has already
paid Bank a $20,000 deposit which shall be applied against Bank Expenses and any balance shall be applied against the loan fee. 

3.    CONDITIONS OF LOANS    

3.1    Conditions Precedent to the Term Loan.    

        Bank's
obligation to make the Term Loan is subject to the following conditions precedent: 

        (a)   Receipt
by Bank of any Payment/Advance Form with respect to the funding of the Term Loan in its entirety. 

        (b)   Receipt
by Bank of evidence of repayment, or arrangement for repayment, of Borrower's debt owing to Boehringer Ingelheim and Elan. 

        (c)   Execution
and delivery by Borrower of a Negative Pledge Agreement, in form and substance attached hereto as Exhibit D, with respect to Borrower's Intellectual
Property. 

        (d)   Receipt
by Bank of a legal opinion of Borrower's Vice President Legal and General Counsel in form and substance as attached hereto as Exhibit E. 

        (e)   Borrower
shall have established deposit and/or investment accounts at Bank or an affiliate of Bank with aggregate balances of at least the outstanding amount of the Term
Loan. 

        (f)    Satisfactory
review by Bank of the subordination provisions of the indebtedness of Borrower in connection with its Convertible Subordinated Debt. 

        (g)   The
representations and warranties in Section 5 must be materially true and no Event of Default may have occurred and be continuing, or result from the Term Loan. 

        (h)   Bank
shall receive the financial projections, information, agreements, and documents it reasonably requires. 

4.    CREATION OF SECURITY INTEREST    

4.1    Grant of Security Interest.    

        Borrower
grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower's duties under
the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations. At any time during the term hereof, if no Event of Default then exists, Borrower may elect to pledge to Bank a first
priority security interest in a certificate of deposit (the "CD") in the principal amount of at least the amount of the then outstanding 

2

 

balance
under the Term Loan, and, upon such pledge, Bank agrees that it shall immediately release its security interest in all other Collateral and will amend this Agreement to release Borrower from
the application of the covenants set forth in clause (ii) of Section 6.2(a), Sections 6.3 - 6.6, 6.8 - 6.10,
7.2 - 7.4, and 7.6 - 7.9. The CD shall thereafter constitute the sole Collateral for the remainder of the term of the Term Loan (including for
purposes of the surviving covenants under Sections 7.1 and 7.5)) and shall be maintained at a balance at all times of at least the then outstanding amount of the Term Loan. 

4.2    Contingent Cash Collateral.    

        In
the event there is a breach by Borrower of the covenant set forth in Section 6.8, Borrower shall immediately pledge and deliver to Bank a CD in the principal amount of at least
the amount of the then outstanding balance under the Term Loan. Such delivery and pledge of the CD shall be deemed to have cured the Event of Default arising from the breach of such covenant. If
Borrower shall thereafter comply with the requirement of Section 6.8 hereunder and, subject to Borrower's option to pledge the CD under Section 4.1 hereunder in lieu of the other
Collateral, if no other Event of Default shall exist, and if Bank shall at such time continue to hold a perfected, first priority security interest in the Collateral, then Bank shall release the CD to
Borrower. 

4.3    Bank Account Collateral.    

        Bank
hereby agrees that so long as no Event of Default exists, except as provided in Section 4.1 with respect to the CD, Bank's security interest in any deposit or investment
account shall not restrict Borrower's right to access and employ funds in such accounts. Bank further agrees that upon any exercise of its rights and remedies hereunder upon the occurrence and during
the continuance of an Event of Default, Bank shall exercise such rights and remedies in the following order: (i) first as to deposit and investment accounts held at Bank or an affiliate of
Bank, (ii) second as to any deposit or investment accounts held at third party financial institutions, and (iii) third as to any other Collateral secured under Section 4.1. In
addition, Bank will not exercise its rights under any control agreements issued pursuant to Section 6.10 unless an Event of Default has occurred and is continuing. 

5.    REPRESENTATIONS AND WARRANTIES    

        Borrower
represents and warrants as follows: 

5.1    Due Organization and Authorization.    

        Borrower
and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. 

        The
execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's certificate of incorporation and bylaws, nor constitute an
event of default under any Material Agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be
expected to cause a Material Adverse Change. 

5.2    Collateral; Intellectual Property.    

        Borrower
has good title to the Collateral, free of Liens except Permitted Liens. The Accounts are bona fide, existing obligations, and the service or property has been performed or
delivered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. To Borrower's knowledge, all Inventory is in all material respects of good
and serviceable quality, free from material defects. Except as disclosed pursuant to Borrower's public filings with the Securities and Exchange Commission or as would not reasonably be expected to
cause a Material 

3

 

Adverse
Change, Borrower owns, possesses, licenses or has other rights to use its Intellectual Property that is necessary for Borrower to conduct its business existing as of the Closing Date. 

5.3    Litigation.    

        Except
as shown in the Schedule, there are no actions or proceedings pending or, to the knowledge of Borrower's Responsible Officers and legal counsel, threatened by or against Borrower
or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change. 

5.4    No Material Adverse Change in Financial Statements.    

        All
consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank fairly present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. To Borrower's knowledge, there has not been any deterioration in Borrower's consolidated financial condition since the date of the most recent financial
statements submitted to Bank that could reasonably be expected to cause a Material Adverse Change. 

5.5    Solvency.    

        The
fair salable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small
capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 

5.6    Regulatory Compliance.    

        Borrower
is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act. Borrower is not engaged as one of its important activities
in
extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrower's or any Subsidiary's properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance
other than legally or the violation of which would not cause a Material Adverse Change. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. 

5.7    Subsidiaries.    

        As
of the Closing Date, Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments. 

5.8    Full Disclosure.    

        No
written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written
statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading at
the time such statement was made. It being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results. 

4

 

6.    AFFIRMATIVE COVENANTS    

        Borrower
will do all of the following: 

6.1    Government Compliance.    

        Borrower
will maintain its and all Subsidiaries' legal existence and good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure
to so qualify would reasonably be expected to cause a Material Adverse Change. Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject,
noncompliance with which could have a material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change. 

6.2    Financial Statements, Reports, Certificates.    

        (a)   Borrower
will deliver to Bank: (i) within 5 Business Days of the required filing date, copies of all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission; (ii) a prompt report of any legal actions pending against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of $1,000,000 (to the extent not covered by insurance) or more; and (iii) budgets, sales projections, operating plans or other financial information which Borrower
prepares in accordance with its past practices and which Bank reasonably requests. 

        (b)   Within
5 Business Days of the required filing dates referenced in (a)(i) above with respect to reports on Form 10-K and 10-Q,
Borrower will deliver to Bank a Compliance Certificate signed by a Responsible Officer in the form of Exhibit C. 

6.3    Inventory.    

        Borrower
will maintain its Inventory consistent with its past practices. 

6.4    Taxes.    

        Borrower
will make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments. 

6.5    Insurance.    

        Borrower
will keep its business and the Collateral insured for risks and in amounts, as reasonable and customary for a corporation of similar size and business as Borrower. Insurance
policies will be in a form, with companies, and in amounts that are reasonable and customary for a corporation of similar size and business as Borrower. All policies covering Collateral will have a
lender's loss payable endorsement showing Bank as an additional loss payee and all liability policies covering Collateral will show the Bank as an additional insured. At Bank's request, Borrower will
deliver certified copies of policies and evidence of all premium payments. 

6.6    Location of Equipment.    

        Keep
Borrower's and its Subsidiaries' Equipment only at the locations identified on Schedule 6.6 and their chief executive offices only at the locations identified on
Schedule 6.6; provided, however, that Borrower may amend Schedule 6.6 so long as such amendment occurs by written notice to Bank not less than 30 days prior to the date on which
such Equipment is moved to such new location or such chief executive office is relocated, so long as such new location is within the continental United States. 

6.7    Primary Accounts.    

        On
or before May 30, 2004, Borrower shall establish, and thereafter maintain, its primary depository and operating accounts with Bank; provided that prior to the funding of the
Term Loan Borrower shall establish, and thereafter maintain, investment and deposit accounts at Bank or affiliates of Bank with aggregate balances at least equal to the outstanding amount of the Term
Loan, and 

5

 

provided
further that between the Closing Date and May 30, 2004 Borrower shall use its best efforts to establish such other accounts with Bank. Such balances are not considered restricted. 

6.8    Financial Covenants.    

        Borrower
will maintain, as of the last day of each quarter, Liquidity of at least the greater of (a) Cash Burn for such quarter multiplied by two (2), or (b) the then
outstanding balance of the Term Loan multiplied by one and one-half (1.5). "Liquidity" is unrestricted cash on hand (and cash equivalents). "Cash Burn" is the change in Liquidity from that
as of the prior quarter end to Liquidity calculated at such quarter end, excluding such extraordinary items as Borrower may reasonably request and as Bank may approve in its reasonable discretion. 

6.9    Intellectual Property Rights.    

        Borrower
will protect, defend and maintain the validity and enforceability of its Intellectual Property to the extent necessary for Borrower to conduct its business. 

6.10    Control Agreements.    

        With
respect to deposit accounts or investment accounts maintained at financial institutions other than Bank (other than up to an aggregate of $1,000,000 maintained in financial
institutions located outside of the United States), within the later of 5 Business Days of the opening of any such deposit account or investment account or 30 days after the Closing Date,
Borrower will execute and deliver to Bank control agreements in form reasonably satisfactory to Bank in order for Bank to perfect its security interest in Borrower's deposit accounts or investment
accounts; provided, however that with respect to any account maintained at an affiliate of Bank, such a control agreement shall be executed and delivered on or before the Closing Date. 

6.11    Further Assurances.    

        Borrower
will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's security interest in the Collateral or to effect the
purposes of this Agreement. 

7.    NEGATIVE COVENANTS    

        Borrower
will not do any of the following without Bank's prior written consent, which will not be unreasonably withheld or delayed: 

7.1    Dispositions.    

        Convey,
sell, lease, transfer or otherwise dispose of (collectively "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of the Collateral, other than
(i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of worn-out or obsolete Equipment; or (iii) other Transfers of Collateral in the ordinary
course of business up to $5,000,000 per year but in no event including the CD. 

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

        Engage
in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related or ancillary thereto or issue new
equity securities in an amount greater than an aggregate of 33% of its common stock outstanding on the Closing Date, calculated on a fully diluted basis, in a single transaction or series of related
transactions (unless such transactions are approved by Borrower's stockholders) or voluntarily terminate its Chief Executive Officer or Executive Vice President and Chief Financial Officer without
cause. 

6

 

7.3    Mergers or Acquisitions.    

        Merge
or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement,
(ii) Borrower is the surviving entity after any such transaction has been consummated and (iii) such transaction would not result in a decrease of more than 25% of Borrower's Tangible
Net Worth. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. Notwithstanding the foregoing, Borrower may Transfer all or substantially all of its business to a Person
(whether by merger, consolidation, sale of stock or sale of assets) if (i) such Person has a market capitalization or Tangible Net Worth equal to or greater than $500,000,000 immediately prior
to the consummation of such transaction, and (ii) such Person assumes all rights, duties and obligations of Borrower under the Loan Documents. 

7.4    Indebtedness.    

        Create,
incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. 

7.5    Encumbrance.    

        Create,
incur, or allow any Lien on any of the Collateral, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do
so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens. 

7.6    Distributions; Investments.    

        Make
any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so. Pay any dividends or make any distribution or payment or redeem, retire
or purchase any capital stock, except for (i) repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements in an aggregate amount not
to exceed $5,000,000 in the aggregate in any fiscal year, (ii) redeeming, repaying or servicing Borrower's Convertible Subordinated Debt in accordance with the terms of such debt and
(iii) redeeming or repaying the Lilly Debt in accordance with the terms of such debt, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the
repurchases. 

7.7    Transactions with Affiliates.    

        Directly
or indirectly enter into or permit any material transaction with any Affiliate except transactions that are in the ordinary course of Borrower's business, on terms less
favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person. 

7.8    Subordinated Debt.    

        Make
or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt that would
reasonably be expected to cause a Material Adverse Change without Bank's prior written consent. 

7.9    Compliance.    

        Become
an "investment company" or a company controlled by an "investment company," under the Investment Company Act of 1940 or undertake as one of its important activities extending
credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act 

7

 

or
violate any other law or regulation, if the violation could be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 

8.    EVENTS OF DEFAULT    

        Any
one of the following is an Event of Default: 

8.1    Payment Default.    

        If
Borrower fails to pay any of the Obligations within 5 Business Days after their due date. During the additional period the failure to cure the default is not an Event of Default (but
no Credit Extension will be made during the cure period); 

8.2    Covenant Default.    

        Subject
to Section 4.1, If Borrower does not perform any obligation in Section 6 or violates any covenant in Section 7 or does not perform or observe any other
material term, condition or covenant in this Agreement, or any other Loan Documents and as to any default under a term, condition or covenant that can be cured, and has not cured the default within
30 days of the earlier of written notice thereof from Bank or Borrower's actual knowledge thereof. During the additional time, the failure to cure the default is not an Event of Default (but no
Credit Extensions will be made during the cure period); 

8.3    Material Adverse Change.    

        If
there occurs a Material Adverse Change, and if, in the determination of Bank (in its sole discretion), such Material Adverse Change is curable, Borrower has not cured the same within
30 days of the earlier of written notice thereof from Bank or Borrower's actual knowledge thereof. During the additional time, the failure to cure the default is not an Event of Default (but no
Credit Extensions will be made during the cure period); 

8.4    Attachment.    

        If
any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in
10 days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion
of Borrower's assets, or if a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency and not
paid within 10 days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during
the cure period); 

8.5    Insolvency.    

        If
Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but
no Credit Extensions will be made before any Insolvency Proceeding is dismissed); 

8.6    Other Agreements.    

        If
there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $10,000,000 or that could cause a
Material Adverse Change; provided that if such Indebtedness is owing by Borrower to a party who has entered into a technology collaboration or partnership agreement with Borrower, then such default
shall be an Event of Default hereunder only if (i) such party accelerates such Indebtedness, (ii) the accelerated amount of such Indebtedness exceeds $10,000,000, (iii) Borrower
does not have the right to pay such accelerated Indebtedness through the issuance of its capital stock, and (iv) any cash payment of such 

8

 

Indebtedness
creates an Event of Default under this Agreement by breach of a financial or other covenant hereunder. 

8.7    Judgments.    

        If
a money judgment(s) in the aggregate of at least $5,000,000 (to the extent not covered by insurance) is rendered against Borrower and is unsatisfied and unstayed for 10 days
(but no Credit Extensions will be made before the judgment is stayed or satisfied); 

8.8    Misrepresentations.    

        If
Borrower or any authorized Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement,
in any Loan Document, or in any writing delivered to Bank to induce Bank to enter this Agreement. 

9.    BANK'S RIGHTS AND REMEDIES    

9.1    Rights and Remedies.    

        Subject
to Section 4.3, When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following: 

        (a)   Declare
all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable
without any action by Bank); 

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

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

        (d)   Make
any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower will assemble the Collateral if Bank
requires and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or
compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank's rights or remedies; 

        (e)   Apply
to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) amount held by Bank owing to or for the credit or the account of
Borrower; 

        (f)    Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is granted a non-exclusive,
royalty-free license or other right to use, without charge, Borrower's Intellectual Property solely to extent required in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this Section, Borrower's rights under all licenses and all franchise agreements inure to Bank's benefit; and 

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

9.2    Power of Attorney.    

        Effective
only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name on any checks or other
forms of payment or security; (ii) sign Borrower's name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims
under Borrower's insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third 

9

 

party
as the Code permits, but only to the extent of the then current outstanding balance under the Term Loan. Bank may exercise the power of attorney to sign Borrower's name on any documents
necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred, but only after Bank has requested in writing such actions from Borrower
and Borrower has failed to promptly perform such action after such notice. Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates. 

9.3    Accounts Collection.    

        Subject
to Section 4.3, when an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with
proper endorsements for deposit. 

9.4    Bank Expenses.    

        If
Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain insurance policies required in
Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate
and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default. 

9.5    Bank's Liability for Collateral.    

        If
Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person. Borrower bears all
risk of loss, damage or destruction of the Collateral. 

9.6    Remedies Cumulative.    

        Bank's
rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given. In all cases Bank's recourse under this Agreement is limited to the extent of
the Obligations. 

9.7    Demand Waiver.    

        Borrower
waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. 

10.    NOTICES    

        All
notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by
certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving the other
party written notice. 

10

 

11.    CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER    

        California
law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in
Santa Clara County, California. 

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

12.    GENERAL PROVISIONS    

12.1    Successors and Assigns.    

        This
Agreement binds and is for the benefit of the successors and permitted assigns of each party. Unless pursuant to a transaction permitted under Section 7.3, Borrower may not
assign this Agreement or any rights under it without Bank's prior written consent which may be granted or withheld in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits under this Agreement; provided, however, that if no
Event of Default has occurred and is continuing, Bank will not sell, Transfer, negotiate or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits under
this Agreement to any of Borrower's competitors. 

12.2    Indemnification.    

        Borrower
will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other
party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or reasonable Bank Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 

12.3    Time of Essence.    

        Time
is of the essence for the performance of all obligations in this Agreement. 

12.4    Severability of Provision.    

        Each
provision of this Agreement is severable from every other provision in determining the enforceability of any provision. 

12.5    Amendments in Writing, Integration.    

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

12.6    Counterparts.    

        This
Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken
together, constitute one Agreement. 

11

 

12.7    Survival.    

        Subject
to Section 4.1, all covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of
Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run. 

12.8    Confidentiality.    

        In
handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made
(i) to Bank's subsidiaries or Affiliates in connection with their business with Borrower, (ii) to prospective transferees or
purchasers of any interest in the loans, but only pursuant to a confidentiality agreement, (iii) as required by law, regulation, subpoena, or other order, and (iv) as required in
connection with Bank's examination or audit, but only pursuant to a confidentiality agreement. Confidential information does not include information that either: (a) is in the public domain or
in Bank's possession when disclosed to Bank if not the result of Banks breach of this Agreement, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a
third party, if Bank does not know, after due inquiry, that the third party is prohibited from disclosing the information. 

12.9    Attorneys' Fees, Costs and Expenses.    

        In
any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys' fees and other
reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled. 

13.    DEFINITIONS    

13.1    Definitions.    

        In
this Agreement: 

        "Accounts" are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale
or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower
and Borrower's Books relating to any of the foregoing. 

        "Affiliate" of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by
or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and
members. 

        "Bank Expenses" are all audit fees and expenses and reasonable costs and expenses (including reasonable attorneys' fees and expenses) for
preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings and as limited by Section 12.9). 

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

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

        "Cash Burn" is defined in Section 6.8. 

        "Closing Date" is the date of this Agreement. 

        "Code" is the California Uniform Commercial Code. 

12

 

        "Collateral" is the property described on Exhibit A (unless modified pursuant to
Section 4.1). 

        "Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse
by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations
from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or
determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good
faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement. 

        "Copyrights" are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work,
whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held. 

        "Convertible Subordinated Debt" means Borrower's 51/2% Convertible Subordinated Notes due 2009. 

        "Credit Extension" is the Term Loan and any other extension of credit by Bank for Borrower's benefit. 

        "Equipment" is all present and future machinery, equipment, furniture, vehicles, tools and parts in which Borrower has any interest. 

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

        "GAAP" is United States generally accepted accounting principles. 

        "Indebtedness" is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and
other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and
(d) Contingent Obligations. 

        "Insolvency Proceeding" are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or
insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. 

        "Intellectual Property" is: 

        (a)   Copyrights,
Trademarks, Patents, and Mask Works including amendments, renewals, extensions, and all licenses or other rights to use and all license fees and royalties
from the use; 

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

        (c)   All
design rights which may be available to Borrower now or later created, acquired or held; 

        (d)   Any
claims for damages (past, present or future) for infringement of any of the rights above, with the right, but not the obligation, to sue and collect damages for use
or infringement of the intellectual property rights above; and 

        (e)   All
proceeds and products of the foregoing, including all insurance, indemnity or warranty payments. 

13

 

        "Inventory" is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or
in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other
proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. 

        "Investment" is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person. 

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

        "Liquidity" is defined in Section 6.8. 

        "Lilly Debt" means the debt of the Borrower under that certain Loan Agreement dated August 17, 2001 between Borrower and Eli Lilly
and Company. 

        "Loan Documents" are, collectively, this Agreement, any note, or notes or guaranties executed by Borrower, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated. 

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

        "Material Adverse Change" means (i) a material adverse change in the business, operations, or financial condition of the Borrower;
or (ii) a material impairment of the Borrower's ability to satisfy the Obligations; or (iii) a material impairment of the value or priority of Bank's security interests in the
Collateral. 

        "Material Agreement" means an agreement to which Borrower is a Party that (i) Borrower has filed (including by incorporation by
reference) as an exhibit to its annual report on Form 10-K or any of its quarterly reports on Form 10-Q during the fiscal year ending December 31, 2003 or
(ii) Borrower entered into with Comerica Bank (including as successor to Comerica Bank-California and/or Imperial Bank) with respect to Borrower's real property. 

        "Obligations" are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later under the Loan Documents,
including cash management services, letters of credit and foreign exchange contracts, if any and including interest accruing after Insolvency Proceedings begin. 

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

        "Permitted Indebtedness" is: 

	(a)
	Borrower's
indebtedness to Bank under this Agreement or any other Loan Document; 

        (b)   Indebtedness
existing on the Closing Date and shown on the Schedule; 

        (c)   Subordinated
Debt; 

        (d)   Indebtedness
to trade creditors incurred in the ordinary course of business; 

        (e)   Indebtedness
secured by Permitted Liens; and 

        (f)    Indebtedness
other than Indebtedness described in clauses (a) through (e) of this definition of Permitted Indebtedness, provided such Indebtedness shall
not exceed $5,000,000 in the aggregate at any given time; and 

14

 

        (g)   extensions,
refinancings and renewals of any items of Permitted Indebtedness. 

        "Permitted Investments" are: 

        (a)   Investments
shown on the Schedule and existing on the Closing Date; 

        (b)   Investments
in Borrower's Subsidiaries existing on the date hereof; 

        (c)   Investments
consisting of notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers who are not Affiliates, in the ordinary
course of business; 

        (d)   Investments,
including newly formed or acquired Subsidiaries, not otherwise permitted under Section 7.6 which do not exceed $5,000,000 in the aggregate during the
term of this Agreement; 

        (e)   Acquisitions
permitted under Section 7.3; and 

        (f)    Investments
in compliance with Borrower's Investment Policy, approved by the Audit Committee of Borrower's board of directors on September 21, 2000, or as
otherwise approved by Borrower's board of directors. 

        "Permitted Liens" are: 

        (a)   Liens
existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents; 

        (b)   Liens
for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains
adequate reserves on its Books, if they have no priority over any of Bank's security interests; 

        (c)   Purchase
money Liens (i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; 

        (d)   Licenses
or sublicenses granted in the ordinary course of Borrower's business or approved by Borrower's board of directors; 

        (e)   Leases
or subleases granted in the ordinary course of Borrower's business, including in connection with Borrower's leased premises or leased property; 

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

        (g)   Deposits
in the ordinary course of business under worker's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of
bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or environmental liens) or surety or appeal bonds, or to secure indemnity, performance or
other similar bonds; 

        (h)   Liens
in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods; 

        (i)    Liens
of materialmen, mechanics, warehousemen, carriers, artisan's or other similar Liens arising in the ordinary course of Borrower's business or by operation of law,
which are not past due or which are being contested in good faith by appropriate proceedings and for which reserves have been established in accordance with GAAP; and 

        (j)    Liens
incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (i),  but any extension, renewal or replacement Lien must be limited to the

15

 

property
encumbered by the existing Lien and the principal amount of the indebtedness may not increase; provided that Borrower may extend or refinance its existing the indebtedness secured by
Borrower's real property as of the Closing Date up to the appraised value of such real property. 

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

        "Prime Rate" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. 

        "Responsible Officer" is each of the Chief Executive Officer, the President, Executive Vice President, Chief Financial Officer and Vice
President Finance. 

        "Schedule" is any attached schedule of exceptions. 

        "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's indebtedness owed to Bank on terms reasonably satisfactory to
Bank. 

        "Subsidiary" is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned
or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person. 

        "Tangible Net Worth" is, on any date, the consolidated total assets of Borrower and its Subsidiaries  minus, without duplication, (i) any amounts attributable to
(a) goodwill, (b) intangible items such as unamortized debt discount
and expense, Patents, trade and service marks and names, Copyrights and research and development expenses except prepaid expenses, and (c) reserves not already deducted from assets,  and minus
(ii) Total Liabilities. 

        "Term Loan" is a loan of $32,000,000. 

        "Term Loan Maturity Date" is December 11, 2008. 

        "Total Liabilities" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance
sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt. 

        "Trademarks" are trademark and servicemark rights, registered or not, applications to register and registrations and like protections, and
the entire goodwill of the business of Assignor connected with the trademarks. 

        "Treasury Note Rate" is, as of the Closing Date, the per annum rate of interest (based on a year of 360 days) equal to the sum of
(a) the U.S. Treasury note yield to maturity for a term equal to 60 months as quoted in The Wall Street Journal, plus (b) 1.96 percentage points. 

	BORROWER:	 	 
	

ISIS PHARMACEUTICALS, INC.	
 	

 
	

By:	
 	

 
	
 	

 
	Title:	 	 
	 	 
	

BANK:	
 	

 
	

SILICON VALLEY BANK	
 	

 
	

By:	
 	

 
	
 	

 
	Title:	 	 
	 	 

16

   EXHIBIT A  

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

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

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

        All
contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, leases, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance, payment intangibles, and rights to payment of any kind; 

        All
now existing and hereafter arising accounts (including health-care insurance receivables), contract rights, royalties, license rights and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower; 

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

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

        All
Borrower's Books relating to the foregoing, and the computers and equipment containing said books and records, and any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof. 

        Notwithstanding
the foregoing, the Collateral shall not be deemed to include any: (a) such property that (1) is nonassignable by its terms without the consent of the
licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), or
(2) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become
part of the Collateral; (b) copyrights, copyright applications, copyright registration and like protection in each work of authorship and derivative work thereof, whether published or
unpublished, now owned or hereafter acquired; any patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same, trademarks, servicemarks and 

17

 

applications
therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized by such trademarks, any trade secret rights, including any rights to
unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damage by way of any
past, present and future infringement of any of the foregoing (collectively, the "Intellectual Property"), except that the Collateral shall include the proceeds of all the Intellectual Property that
are accounts, (i.e. accounts receivable) of Borrower, or general intangibles consisting of rights to payment, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest
in the underlying Intellectual Property is necessary to have a security interest in such accounts and general intangibles of Borrower that are proceeds of the Intellectual Property, then the
Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection of Bank's security interest in such accounts and
general intangibles of Borrower that are proceeds of the Intellectual Property; (c) interest in real property (including and any fixtures thereon, accessions thereto, and rents, issues and
profits thereof); (d) any leased equipment or equipment owned by the United States government; or (e) any equity investment interest in subsidiaries, Orasense Ltd,
Hepasense Ltd, Hybridon Inc., Antisense Therapeutics Limited (ATL), Ercole Biotech, Santaris Pharma A/S and Ocongenex Technologies Inc. 

18

   EXHIBIT B 

LOAN
PAYMENT/ADVANCE TELEPHONE REQUEST FORM 

DEADLINE
FOR SAME DAY PROCESSING IS 12:00 NOON., P.S.T. 

	TO:	 	CENTRAL CLIENT SERVICE DIVISION	 	DATE:	 	 

	

FAX #:	
 	

(408) 496-2426	
 	

TIME:	
 	

 

	 	 	 
	FROM:	 	ISIS PHARMACEUTICALS, INC.

	 	 	CLIENT NAME (BORROWER)

	REQUESTED BY:	 	 
 AUTHORIZED SIGNER'S NAME

	AUTHORIZED SIGNATURE:	 	 

	PHONE NUMBER:	 	 

	FROM ACCOUNT #	 	 
	 	TO ACCOUNT #	 	 

	REQUESTED TRANSACTION TYPE
 
	 	REQUESTED DOLLAR AMOUNT

	PRINCIPAL INCREASE (ADVANCE)	 	$	            
	PRINCIPAL PAYMENT (ONLY)	 	$	            
	INTEREST PAYMENT (ONLY)	 	$	            
	PRINCIPAL AND INTEREST (PAYMENT)	 	$	            

	OTHER INSTRUCTIONS:	 	 

	 

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

BANK
USE ONLY 

TELEPHONE REQUEST:  

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

	 
 Authorized Requester	 	 
 Phone #
	 
 Received By (Bank)	 	 
 Phone #
	 	 	 	 	 
 Authorized Signature (Bank)	 	 	 	 

19

   EXHIBIT C

COMPLIANCE CERTIFICATE  

	TO:	 	SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA 95054
	

FROM:	
 	

ISIS PHARMACEUTICALS, INC.

        The
undersigned authorized officer of ISIS PHARMACEUTICALS, INC. ("Borrower"), certifies that under the terms and conditions of the Loan and Security Agreement between Borrower
and Bank (the "Agreement"), (i) Borrower is in compliance for the period ending                        with all required
covenants except as noted below and (ii) all representations and
warranties in the Agreement are true and correct in all material respects on this date (except for those representations and warranties that expressly speak as of an earlier date, which continue to be
true and correct in all material respects, in each case as of such earlier date). Attached are the required documents supporting the certification. The Officer certifies that these are prepared in
accordance with U.S. Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not
just at the date this certificate is delivered. 

        Please indicate compliance status by circling Yes/No under "Complies" column. 

	Reporting Covenant
 
	 	Required
	 	Complies

	10-Q, 10-K and 8-K	 	Within 5 days after required SEC filing date	 	Yes	 	No

	Financial Covenant
 
	 	Required
	 	Actual
	 	Complies

	Maintain on a Quarterly Basis:	 	 	 	 	 	 	 	 
	 	Minimum Liquidity	 	$                  *	 	$                  	 	Yes	 	No

	*
	Greater
of 2 × Quarter's Cash Burn or 1.5 × Term Loan balance 

	Comments Regarding Exceptions: See Attached.	 	BANK USE ONLY	 	 
	

Sincerely,	
 	

Received by:	
 	

 
 AUTHORIZED SIGNER
	

Isis Pharmaceuticals, Inc.	
 	

 	
 	

 
	 
 SIGNATURE	 	Date:	 	 

	 	 	Verified:	 	 
 AUTHORIZED SIGNER
	 
 TITLE	 	Date:	 	 

	 
 DATE	 	Compliance Status:	 	Yes    No

20

   CORPORATE BORROWING RESOLUTION  

	Borrower:	 	Isis Pharmaceuticals, Inc.

2292 Faraday Avenue

Carlsbad, CA 92008	 	Bank:	 	Silicon Valley Bank

3003 Tasman Drive

Santa Clara, CA 95054-1191

        I, the Secretary or Assistant Secretary of ISIS PHARMACEUTICALS, INC. ("Borrower"), CERTIFY that Borrower is a corporation existing
under the laws of the State of Delaware. 

        I certify that at a meeting of Borrower's Directors (or by other authorized corporate action) duly held the following resolutions were
adopted. 

        It
is resolved that any one of the following officers of Borrower, whose name, title and signature is below: 

	NAMES
 
	 	POSITIONS
	 	ACTUAL SIGNATURES

	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

may
act for Borrower and: 

        Borrow Money.    Borrow money from Silicon Valley Bank ("Bank"). 

        Execute Loan Documents.    Execute any loan documents Bank requires. 

        Grant Security.    Grant Bank a security interest in any of Borrower's assets. 

        Negotiate Items.    Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which
Borrower has an interest and receive cash or otherwise use the proceeds. 

        Further Acts.    Designate other individuals to request advances, pay fees and costs and execute other documents or agreements
(including documents or agreement that waive Borrowers right to a jury trial) they think necessary to effectuate these Resolutions. 

        Further resolved that all acts authorized by these Resolutions and performed before they were adopted are ratified. These Resolutions
remain in effect and Bank may rely on them until Bank receives written notice of their revocation. 

        I certify that the persons listed above are Borrower's officers with the titles and signatures shown following their names and that these
resolutions have not been modified and are currently effective. 

	CERTIFIED TO AND ATTESTED BY:	 	 
	

X	
 	

 
 *Secretary or Assistant Secretary	
 	

 
	

X	
 	

 
	
 	

 

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

21

  

 
 

EXHIBIT D    
    
    NEGATIVE PLEDGE AGREEMENT    
    
    NEGATIVE PLEDGE AGREEMENT    
    

        This Negative Pledge Agreement is made as of December 15, 2003, by and between Isis Pharmaceuticals, Inc. ("Borrower"), and Silicon Valley Bank
("Bank"). 

        In
connection with, among other documents, the Loan and Security Agreement (the "Loan Documents") being concurrently executed herewith between Borrower and Bank, Borrower agrees as
follows: 

        ARTICLE
I    Except as otherwise permitted under the Loan Documents and except for (i) licenses or Transfers of Intellectual Property in the ordinary course of business
and/or (ii) other licenses or Transfers of Intellectual Property that are approved by Borrower's board of directors, 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: 

	1.1
	Any
and all copyright rights, copyright applications, copyright registrations and like protections 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;

	1.2
	All
mask works or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired;

	1.3
	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;

	1.4
	Any
and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

	1.5
	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;

	1.6
	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, including without limitation;

	1.7
	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 and collect
such damages for said use or infringement of the intellectual property rights identified above;

	1.8
	All
licenses or other rights to use any of the Copyrights, Patents, Trademarks or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such
license or rights; and

	1.9
	All
amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works. 

        ARTICLE
II    It shall be an event of default under the Loan Documents between Borrower and Bank if there is a breach of any term of this Negative Pledge Agreement. 

22

 

        ARTICLE
III    Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Documents. 

	BORROWER:	 	 
	
ISIS PHARMACEUTICALS, INC.	
 	

 
	

By:	
 	

/s/  B. LYNNE PARSHALL      
	
 	

 
	Name:	 	B. Lynne Parshall
	 	 
	Title:	 	EVP and CFO
	 	 
	
BANK:	
 	

 
	
SILICON VALLEY BANK	
 	

 
	

By:	
 	

/s/  LINDA LE BEAU      
	
 	

 
	Name:	 	Linda Le Beau
	 	 
	Title:	 	SVP
	 	 

23

   EXHIBIT E  

 OPINION OF COUNSEL  

24

QuickLinks

LOAN AND SECURITY AGREEMENT between SILICON VALLEY BANK and ISIS PHARMACEUTICALS, INC. December 15, 2003 $32,000,000

EXHIBIT D NEGATIVE PLEDGE AGREEMENT NEGATIVE PLEDGE AGREEMENT

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