Document:

Exhibit 10.42

THIS WARRANT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES
LAWS.  NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO,
(ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF A
NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.

SUNESIS
PHARMACEUTICALS, INC.

WARRANT TO
PURCHASE SHARES

OF SERIES PREFERRED STOCK

THIS CERTIFIES THAT, for
value received, OXFORD FINANCE CORPORATION and its assignees are entitled to
subscribe for and purchase that number of the fully paid and nonassessable
shares of Series Preferred Stock (as adjusted pursuant to Section 4
hereof, the “Shares”) of SUNESIS PHARMACEUTICALS, INC. a Delaware corporation
(the “Company”), as is determined pursuant to the next paragraph hereof at the
price per share as is determined pursuant to the next paragraph hereof  (such price and such other price as shall
result, from time to time, from the adjustments specified in Section 4 hereof
is herein referred to as the “Warrant Price”), subject to the provisions and
upon the terms and conditions hereinafter set forth.  As used herein, (a) the term “Series
Preferred” shall mean the Company’s Series C Preferred Stock or, if the Company
completes a Qualified Financing (as defined below) with an effective price per
share (on a common stock equivalent basis) less than $4.80, the type of stock
sold in such Qualified Financing and any stock into or for which such Series
Preferred Stock may hereafter be converted or exchanged, and after the
conversion of the Series Preferred Stock to Common Stock shall mean the Company’s
Common Stock, (b) the term “Date of Grant” shall mean August 25,  2005, and (c) the term “Other Warrants”
shall mean any other warrants issued by the Company in connection with the
transaction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of or in lieu of this Warrant.  The term “Warrant” as used herein shall be
deemed to include Other Warrants unless the context clearly requires otherwise.

                The Warrant Price
shall be the lower of (i) $4.80 and (ii) the lowest effective price per share
(on a common stock equivalent basis and taking into account any securities
issued together with the preferred stock) at which shares of the Company’s
convertible preferred stock are sold in a Qualified Financing.  A “Qualified Financing” shall mean the sale,
after the Date of Grant and prior to the earlier to occur of (A) the exercise
of this Warrant or (B) a Public Offering, of the convertible preferred stock of
the Company to purchasers which include venture capital investors in an
aggregate cash amount not less than $10,000,000.  The number of shares for which this Warrant
is exercisable shall equal the sum of (a) the nearest whole number determined
by dividing $200,000 by the Warrant Price plus (b) if and only if, the Company
shall have borrowed Loan A (as defined in that certain Venture Loan and
Security Agreement by and among the Company, Horizon Technology Funding Company
LLC (“Horizon”) and Oxford Finance Corporation (“Oxford”) dated on or about the
Date of Grant (the “Loan Agreement”)), the nearest whole number determined by
dividing $100,000 by

 

 

the Warrant Price plus (c) if and only if, the
Company shall have borrowed Loan B (as defined in the Loan Agreement), the
nearest whole number determined by dividing $100,000 by the Warrant Price.

1.     Term.  The purchase right represented by this
Warrant is exercisable, in whole or in part, at any time and from time to time
from the Date of Grant until the tenth (10th) anniversary of the Date of Grant.

2.     Method
of Exercise; Payment; Issuance of New Warrant.  Subject to Section 1 hereof, the
purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time, at the election of the
holder hereof, by (a) the surrender of this Warrant (with the notice of exercise
substantially in the form attached hereto as Exhibit A-1 duly completed
and executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check, or by wire transfer to an account
designated by the Company (a “Wire Transfer”) of an amount equal to the then
applicable Warrant Price multiplied by the number of Shares then being
purchased; (b) if in connection with a registered public offering of the
Company’s securities, the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A-2 duly completed and executed)
at the principal office of the Company together with notice of arrangements
reasonably satisfactory to the Company for payment to the Company either by
certified or bank check or by Wire Transfer from the proceeds of the sale of
shares to be sold by the holder in such public offering of an amount equal to
the then applicable Warrant Price per share multiplied by the number of Shares
then being purchased; or (c) exercise of the “net issuance” right provided
for in Section 10.2 hereof.  The person
or persons in whose name(s) any certificate(s) representing shares of Series
Preferred shall be issuable upon exercise of this Warrant shall be deemed to
have become the holder(s) of record of, and shall be treated for all purposes
as the record holder(s) of, the shares represented thereby (and such shares
shall be deemed to have been issued) immediately prior to the close of business
on the date or dates upon which this Warrant is exercised.  In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so purchased
shall be delivered to the holder hereof as soon as practicable and in any event
within thirty (30) days after such exercise and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as practicable and
in any event within such thirty-day period; provided, however, at such time as
the Company is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, if requested by the holder of this Warrant, the
Company shall use reasonable efforts to cause its transfer agent to deliver the
certificate representing Shares issued upon exercise of this Warrant to a
broker or other person (as directed by the holder exercising this Warrant)
within the time period required to settle any trade made by the holder after
exercise of this Warrant.

3.     Stock
Fully Paid; Reservation of Shares. 
All Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance pursuant to the terms and
conditions herein, be fully paid and nonassessable, and free from all
preemptive rights and taxes, liens and charges with respect to the issue
thereof.  During the period within which
the rights represented by this Warrant may be exercised, the Company will at
all times have authorized, and reserved for the 

2

 

purpose of the issue upon exercise of the purchase
rights evidenced by this Warrant, a sufficient number of shares of its Series
Preferred to provide for the exercise of the rights represented by this Warrant
and a sufficient number of shares of its Common Stock to provide for the
conversion of the Series Preferred into Common Stock.

4.     Adjustment
of Warrant Price and Number of Shares. 
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:

(a)           Reclassification
or Merger.  In case of any
reclassification or change of securities of the class issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is the acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as
the case may be, shall duly execute and deliver to the holder of this Warrant a
new Warrant (in form and substance reasonably satisfactory to the  holder of this Warrant), so that the holder
of this Warrant shall have the right to receive upon exercise of this Warrant,
at a total purchase price equal to that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Series
Preferred theretofore issuable upon exercise of this Warrant, the kind and
amount of shares of stock, other securities, money and property receivable upon
such reclassification, change, merger or sale by a holder of the number of
shares of Series Preferred then purchasable under this Warrant.  Any new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4.  The
provisions of this Section 4(a) shall similarly apply to successive
reclassifications, changes, mergers and sales.

(b)           Subdivision
or Combination of Shares.  If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its outstanding shares of Series Preferred, the Warrant
Price shall be proportionately decreased and the number of Shares issuable
hereunder shall be proportionately increased in the case of a subdivision and
the Warrant Price shall be proportionately increased and the number of Shares
issuable hereunder shall be proportionately decreased in the case of a
combination.

(c)           Stock
Dividends and Other Distributions. 
If the Company at any time while this Warrant is outstanding and
unexpired shall (i) pay a dividend with respect to Series Preferred
payable in Series Preferred, then the Warrant Price shall be adjusted, from and
after the date of determination of shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(A) the numerator of which shall be the total number of shares of Series
Preferred outstanding immediately prior to such dividend or distribution, and
(B) the denominator of which shall be the total number of shares of Series
Preferred outstanding immediately after such 

3

 

dividend
or distribution; or (ii) make any other distribution with respect to
Series Preferred (except any distribution specifically provided for in
Sections 4(a) and 4(b)), then, in each such case, provision shall be made
by the Company such that the holder of this Warrant shall receive upon exercise
of this Warrant a proportionate share of any such dividend or distribution as
though it were the holder of the Series Preferred (or Common Stock issuable
upon conversion thereof) as of the record date fixed for the determination of
the shareholders of the Company entitled to receive such dividend or
distribution.

(d)           Adjustment
of Number of Shares.  Upon each
adjustment in the Warrant Price, the number of Shares of Series Preferred
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.

(e)           Antidilution
Rights.  The other antidilution
rights applicable to the Shares of Series Preferred purchasable hereunder are
set forth in the Company’s Certificate of Incorporation, as amended through the
Date of Grant (the “Charter”).  Such antidilution
rights shall not be restated, amended, modified or waived in any manner (i) that
is adverse to the holder hereof and (ii) that results in different treatment
for the Holder with respect to the Shares than for other holders of Series
Preferred without such Holder’s prior written consent.  The Company shall promptly provide the holder
hereof with any restatement, amendment, modification or waiver of the Charter
promptly after the same has been made.

5.     Notice
of Adjustments.  Whenever the Warrant
Price or the number of Shares purchasable hereunder shall be adjusted pursuant
to Section 4 hereof, the Company shall make a certificate signed by its
chief financial officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated, and the Warrant Price and the number of Shares
purchasable hereunder after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (without regard to Section 13
hereof, by first class mail, postage prepaid) to the holder of this
Warrant.  In addition, whenever the
conversion price or conversion ratio of the Series Preferred shall be adjusted,
the Company shall make a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
and the conversion price or ratio of the Series Preferred after giving effect
to such adjustment, and shall cause copies of such certificate to be mailed
(without regard to Section 13 hereof, by first class mail, postage
prepaid) to the holder of this Warrant. Whenever the Warrant Price or the
number of Shares purchasable hereunder shall be adjusted pursuant to the
occurrence of a Qualified Financing, the Company shall make a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated, and the Warrant Price and the number of Shares
purchasable hereunder after giving effect to such adjustment, and shall cause
copies of such 

4

 

certificate to be mailed (without regard to
Section 13 hereof, by first class mail, postage prepaid) to the holder of
this Warrant.

6.     Fractional
Shares.  No fractional shares of
Series Preferred will be issued in connection with any exercise hereunder, but
in lieu of such fractional shares the Company shall make a cash payment
therefor based on the fair market value of the Series Preferred on the date of
exercise as reasonably determined in good faith by the Company’s Board of
Directors.

7.     Compliance
with Act; Disposition of Warrant or Shares of Series Preferred.

(a)           Compliance
with Act.  The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, and the shares of
Series Preferred to be issued upon exercise hereof and any Common Stock issued
upon conversion thereof are being acquired for investment and that such holder
will not offer, sell or otherwise dispose of this Warrant, or any shares of
Series Preferred to be issued upon exercise hereof or any Common Stock issued
upon conversion thereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the “Act”) or any
applicable state securities laws.  Upon
exercise of this Warrant, unless the Shares being acquired are registered under
the Act and any applicable state securities laws or an exemption from such
registration is available, the holder hereof shall confirm in writing that the
shares of Series Preferred so purchased (and any shares of Common Stock issued
upon conversion thereof) are being acquired for investment and not with a view
toward distribution or resale in violation of the Act and shall confirm such
other matters related thereto as may be reasonably requested by the
Company.  This Warrant and all shares of
Series Preferred issued upon exercise of this Warrant and all shares of Common
Stock issued upon conversion thereof (unless registered under the Act and any
applicable state securities laws) shall be stamped or imprinted with a legend
in substantially the following form:

“THE SECURITIES EVIDENCED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. 
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES.”

Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated.  In
addition, in connection with the issuance of this Warrant, the holder
specifically represents to the Company by acceptance of this Warrant as
follows:

(1)           The
holder is aware of the Company’s business affairs and financial condition, and
has acquired information about the Company sufficient to reach an informed and
knowledgeable decision to acquire this Warrant. 
The holder is acquiring this Warrant for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
“distribution” thereof in violation of the Act.

5

 

(2)           The
holder understands that this Warrant has not been registered under the Act in
reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of the holder’s investment intent as
expressed herein.

(3)           The
holder further understands that this Warrant must be held indefinitely unless
subsequently registered under the Act and qualified under any applicable state
securities laws, or unless exemptions from registration and qualification are
otherwise available.  The holder is aware
of the provisions of Rule 144, promulgated under the Act.

(4)           The
holder is an “accredited investor” as such term is defined in Rule 501 of
Regulation D promulgated under the Act.

(b)           Disposition
of Warrant or Shares.    This Warrant
and any shares of Series Preferred acquired pursuant to the exercise or
conversion of this Warrant may be transferred only pursuant to a registration
statement filed under the Securities Act of 1933, as amended, or an exemption
from such registration.  Subject to such
restrictions, the Company shall transfer this Warrant from time to time upon
the books to be maintained by the Company for that purpose, upon surrender
thereof for transfer properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of counsel to
the effect that such transfer is exempt from the registration requirements of
the Securities Act of 1933, as amended, to establish that such transfer is
being made in accordance with the terms hereof, and a new Warrant shall be
issued to the transferee and the surrendered Warrant shall be cancelled by the
Company.  Each certificate representing
this Warrant or the shares of Series Preferred thus transferred (except a
transfer pursuant to Rule 144 or 144A) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless such legend is not required in order to ensure compliance
with such laws.  The Company may issue
stop transfer instructions to its transfer agent in connection with such
restrictions.

(c)           Applicability
of Restrictions.  Neither any
restrictions of any legend described in this Warrant nor the requirements of
Section 7(b) above shall apply to any transfer of, or grant of a security
interest in, this Warrant (or the Series Preferred or Common Stock obtainable
upon exercise thereof) or any part hereof (i) to a partner of the holder
if the holder is a partnership or to a member of the holder if the holder is a
limited liability company, (ii) to a partnership of which the holder is a
partner or to a limited liability company of which the holder is a member, or
(iii) to any affiliate of the holder if the holder is a corporation; provided,
however, in any such transfer, if applicable, the transferee shall on
the Company’s request agree in writing to be bound by the terms of this Warrant
as if an original holder hereof.

8.     Rights
as Shareholders; Information.  No
holder of this Warrant, as such, shall be entitled to vote or receive dividends
or be deemed the holder of Series Preferred or any other securities of the
Company which may at any time be issuable upon the exercise hereof for any
purpose, nor shall anything contained herein be construed to confer upon the holder
of this Warrant, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any 

6

 

matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. 
Notwithstanding the foregoing, the Company will transmit to the holder
of this Warrant such information, documents and reports as are generally
distributed to the holders of any class or series of the securities of the
Company concurrently with the distribution thereof to the shareholders.

9.             Registration
Rights.  The Holder shall become a
party to the Eighth Amended and Restated Investor Rights Agreement, dated as of
August 30, 2004 and as amended through the Date of Grant (the “Investor Rights
Agreement), by and among the Company and the other parties listed on the
signature pages thereto.  The Common
Stock of the Company obtained upon conversion of the Series Preferred shall be “Registrable
Securities” under the Investor Rights Agreement.

10.   Additional
Rights.

10.1         Acquisition
Transactions.  The Company shall
provide the holder of this Warrant with at least twenty (20) days’ written
notice prior to closing thereof of the terms and conditions of any of the
following transactions (to the extent the Company has notice thereof):
(i) the sale, lease, exchange, conveyance or other disposition of all or
substantially all of the Company’s property or business, or (ii) its
merger into or consolidation with any other corporation (other than a
wholly-owned subsidiary of the Company), or any transaction (including a merger
or other reorganization) or series of related transactions, in which more than
50% of the voting power of the Company is disposed of.

10.2         Right to Convert
Warrant into Stock:  Net Issuance.

(a)           Right
to Convert.  In addition to and
without limiting the rights of the holder under the terms of this Warrant, the
holder shall have the right to convert this Warrant or any portion thereof (the
“Conversion Right”) into shares of Series Preferred as provided in this Section
10.2 at any time or from time to time during the term of this Warrant.  Upon exercise of the Conversion Right with
respect to a particular number of shares subject to this Warrant (the “Converted
Warrant Shares”), the Company shall deliver to the holder (without payment by
the holder of any exercise price or any cash or other consideration) that
number of shares of fully paid and nonassessable Series Preferred as is
determined according to the following formula:

X =   B - A  

Y

Where:   X =                                                                   the number of shares of Series Preferred
that shall be issued to holder

Y =                                                                  the fair market value of one share of
Series Preferred

A =                                                                the aggregate Warrant Price of the
specified number of Converted Warrant Shares immediately prior to the exercise
of the Conversion 

7

 

Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price)

B =                                                                  the aggregate fair market value of the
specified number of Converted Warrant Shares (i.e.,
the number of Converted Warrant Shares multiplied by
the fair market value of one Converted Warrant Share)

No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to
the holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined).  For purposes of Section 10 of this
Warrant, shares issued pursuant to the Conversion Right shall be treated as if
they were issued upon the exercise of this Warrant.

(b)           Method
of Exercise.  The Conversion Right
may be exercised by the holder by the surrender of this Warrant at the
principal office of the Company together with a written statement (which may be
in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the
holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to this Warrant which are being surrendered (referred
to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise
of the Conversion Right.  Such conversion
shall be effective upon receipt by the Company of this Warrant together with
the aforesaid written statement, or on such later date as is specified therein
(the “Conversion Date”), and, at the election of the holder hereof, may be made
contingent upon the closing of the sale of the Company’s Common Stock to the
public in a public offering pursuant to a Registration Statement under the Act
(a “Public Offering”).  Certificates for
the shares issuable upon exercise of the Conversion Right and, if applicable, a
new warrant evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the holder within thirty (30) days following the Conversion Date.

(c)           Determination
of Fair Market Value.  For purposes
of this Section 10.2, “fair market value” of a share of Series Preferred
(or Common Stock if the Series Preferred has been automatically converted into
Common Stock) as of a particular date (the “Determination Date”) shall mean:

(i)    If the
Conversion Right is exercised in connection with and contingent upon a Public
Offering, and if the Company’s Registration Statement relating to such Public
Offering (“Registration Statement”) has been declared effective by the
Securities and Exchange Commission, then the initial “Price to Public”
specified in the final prospectus with respect to such offering.

(ii)   If the
Conversion Right is not exercised in connection with and contingent upon a
Public Offering, then as follows:

8

 

(A)          If traded on a securities exchange,
the fair market value of the Common Stock shall be deemed to be the average of
the closing prices of the Common Stock on such exchange over the five trading
days immediately prior to the Determination Date, and the fair market value of
the Series Preferred shall be deemed to be such fair market value of the Common
Stock multiplied by the number of shares of Common Stock into which each share
of Series Preferred is then convertible;

(B)           If traded on the Nasdaq Stock Market
or other over-the-counter system, the fair market value of the Common Stock
shall be deemed to be the average of the closing bid prices of the Common Stock
over the five trading days immediately prior to the Determination Date, and the
fair market value of the Series Preferred shall be deemed to be such fair
market value of the Common Stock multiplied by the number of shares of Common
Stock into which each share of Series Preferred is then convertible; and

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

In making a determination
under clauses (A) or (B) above, if on the Determination Date, five trading days
had not passed since the closing of the Company’s Public Offering, then the
fair market value of the Common Stock shall be the average closing prices or
closing bid prices, as applicable, for the shorter period beginning on and
including the date of the Public Offering and ending on the trading day prior
to the Determination Date (or if such period includes only one trading day the
closing price or closing bid price, as applicable, for such trading day).  If closing prices or closing bid prices are
no longer reported by a securities exchange or other trading system, the
closing price or closing bid price shall be that which is reported by such
securities exchange or other trading system at 4:00 p.m. New York City time on
the applicable trading day.

10.3         Exercise Prior to
Expiration.  To the extent this
Warrant is not previously exercised as to all of the Shares subject hereto, and
if the fair market value of one share of the Series Preferred is greater than
the Warrant Price then in effect, this Warrant shall be deemed automatically
exercised pursuant to Section 10.2 above (even if not surrendered)
immediately before its expiration.  For
purposes of such automatic exercise, the fair market value of one share of the
Series Preferred upon such expiration shall be determined pursuant to
Section 10.2(c).  To the extent this
Warrant or any portion thereof is deemed automatically exercised pursuant to
this Section 10.3, the Company agrees to promptly notify the holder hereof
of the number of Shares, if any, the holder hereof is to receive by reason of
such automatic exercise.

11.   Representations
and Warranties.  The Company
represents and warrants to the holder of this Warrant as follows:

(a)           This
Warrant has been duly authorized and executed by the Company and is a valid and
binding obligation of the Company enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and the rules of law or principles at equity governing
specific performance, injunctive relief and other equitable remedies.

9

 

(b)           The
Shares have been duly authorized and reserved for issuance by the Company and,
when issued in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable and free from preemptive rights.

(c)           The
rights, preferences, privileges and restrictions granted to or imposed upon the
Series Preferred and the holders thereof are as set forth in the Charter, and
on the Date of Grant, each share of the Series Preferred represented by this
Warrant is convertible into one share of Common Stock.

(d)           The
shares of Common Stock issuable upon conversion of the Shares have been duly
authorized and reserved for issuance by the Company and, when issued in
accordance with the terms of the Charter will be validly issued, fully paid and
nonassessable.

(e)           The
execution and delivery of this Warrant are not, and the issuance of the Shares
upon exercise of this Warrant in accordance with the terms hereof will not be,
inconsistent with the Company’s Charter or by-laws, do not and will not
contravene any law, governmental rule or regulation, judgment or order
applicable to the Company, and do not and will not conflict with or contravene
any provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument of which the Company is a party or by which it is
bound or require the consent or approval of, the giving of notice to, the
registration or filing with or the taking of any action in respect of or by,
any Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby.

(f)            There
are no actions, suits, audits, investigations or proceedings pending or, to the
knowledge of the Company, threatened against the Company in any court or before
any governmental commission, board or authority which, if adversely determined,
could have a material adverse effect on the ability of the Company to perform
its obligations under this Warrant.

(g)           The
number of shares of Common Stock of the Company outstanding on the date hereof,
on a fully diluted basis (assuming the conversion of all outstanding
convertible securities and the exercise of all outstanding options and
warrants), does not exceed 54,000,000 shares.

12.   Modification
and Waiver.  This Warrant and any
provision hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the same
is sought.

13.   Notices.  Any notice, request, communication or other
document required or permitted to be given or delivered to the holder hereof or
the Company shall be delivered, or shall be sent by certified or registered
mail, postage prepaid, to each such holder at its address as shown on the books
of the Company or to the Company at the address indicated therefor on the
signature page of this Warrant.

10

 

14.   Binding
Effect on Successors.  This Warrant
shall be binding upon any corporation succeeding the Company by merger, consolidation
or acquisition of all or substantially all of the Company’s assets, and all of
the obligations of the Company relating to the Series Preferred issuable upon
the exercise or conversion of this Warrant shall survive the exercise,
conversion and termination of this Warrant and all of the covenants and
agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.

15.   Lost
Warrants or Stock Certificates.  The
Company covenants to the holder hereof that, upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant or stock certificate, the Company
will make and deliver a new Warrant or stock certificate, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

16.   Descriptive
Headings.  The descriptive headings
of the various Sections of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. 
The language in this Warrant shall be construed as to its fair meaning
without regard to which party drafted this Warrant.

17.   Governing
Law.  This Warrant shall be construed
and enforced in accordance with, and the rights of the parties shall be
governed by, the laws of the State of Delaware.

18.   Survival
of Representations, Warranties and Agreements.  All representations and warranties of the
Company and the holder hereof contained herein shall survive the Date of Grant,
the exercise or conversion of this Warrant (or any part hereof) or the
termination or expiration of rights hereunder. 
All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.

19.   Remedies.  In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited
to, an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.

20.   No
Impairment of Rights.  The Company
will not, by amendment of its Charter or through any other means, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant against impairment.

21.   Severability.  The invalidity or unenforceability of any
provision of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.

11

 

22.   Recovery
of Litigation Costs.  If any legal
action or other proceeding is brought for the enforcement of this Warrant, or
because of an alleged dispute, breach, default, or misrepresentation in
connection with any of the provisions of this Warrant, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys’
fees and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.

23.   Entire
Agreement; Modification.  This
Warrant constitutes the entire agreement between the parties pertaining to the
subject matter contained in it and supersedes all prior and contemporaneous
agreements, representations, and undertakings of the parties, whether oral or
written, with respect to such subject matter.

12

 

The Company has caused this Warrant to be duly executed and delivered
as of the Date of Grant specified above.

 

	
   

  	
  SUNESIS PHARMACEUTICALS, INC.

  
	
   

  	
  By:

  	
  /s/ Eric Bjerkholt

  
	
   

  	
  Name:

  	
  Eric Bjerkholt

  
	
   

  	
  Title:

  	
  Senior Vice President,
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  341 Oyster Point
  Boulevard

  
	
   

  	
   

  	
  South San Francisco, CA
  94080

  
	
   

  	
   

  	
   

  
				

 

13

 

EXHIBIT A-1

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             The undersigned hereby:

o                                    elects to purchase________ shares of
[Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full, or

o                                    elects to exercise its net issuance
rights pursuant to Section 10.2 of the attached Warrant with respect
to________Shares of [Series Preferred Stock] [Common Stock].

2.             Please issue a
certificate or certificates representing ________ shares in the name of the undersigned
or in such other name or names as are specified below:

 

	
   

  
	
  (Name)

   

  
	
   

  
	
  (Address)

  

3.             The undersigned
represents that the aforesaid shares are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection
with, the distribution thereof and that the undersigned has no present
intention of distributing or reselling such shares, all except as in compliance
with applicable securities laws.

 

	
   

  	
   

  
	
   

  	
  (Signature)

  

                                

(Date)

 

 

EXHIBIT
A-2

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             Contingent upon and
effective immediately prior to the closing (the “Closing”) of the Company’s
public offering contemplated by the Registration Statement on Form S___,
filed________, 200__, the undersigned hereby:

o            elects
to purchase________shares of [Series Preferred Stock] [Common Stock] of the
Company (or such lesser number of shares as may be sold on behalf of the
undersigned at the Closing) pursuant to the terms of the attached Warrant, or

o            elects
to exercise its net issuance rights pursuant to Section 10.2 of the
attached Warrant with respect to________Shares of [Series Preferred Stock]
[Common Stock].

2.             Please deliver to
the custodian for the selling shareholders a stock certificate representing
such________shares.

3.             The undersigned has instructed the
custodian for the selling shareholders to deliver to the Company $________or,
if less, the net proceeds due the undersigned from the sale of shares in the
aforesaid public offering.  If such net proceeds
are less than the purchase price for such shares, the undersigned agrees to
deliver the difference to the Company prior to the Closing.

 

 

	
   

  	
   

  
	
   

  	
  (Signature)

  

                                                

(Date)Exhibit 10.2

 

AMENDMENT NUMBER ONE TO FINANCING AGREEMENT

 

This AMENDMENT NUMBER ONE TO
FINANCING AGREEMENT (this “Amendment”), dated as of October 18,
2004, is entered into by and among MATTRESS
FIRM, INC., a Delaware corporation (the “Borrower”), MATTRESS HOLDING CORP., a Delaware
corporation (“Parent”), each Subsidiary of the Parent listed as a “Guarantor”
on the signature pages hereto (together with the Parent, each a “Guarantor”
and collectively, jointly and severally, the “Guarantors”), the lenders
from time to time party hereto (each a “Lender” and collectively, the “Lenders”),
ABLECO FINANCE LLC, a Delaware
limited liability company (“Ableco”), as collateral agent for the
Lenders (in such capacity, together with any successor collateral agent, the “Collateral
Agent”), and Abelco as administrative agent, the “Administrative Agent”
and together with the Collateral Agent, each an “Agent” and
collectively, the “Agents”).

 

W
I T N E S S E T H

 

WHEREAS, Borrower, Parent, Guarantors, Administrative Agent, Collateral
Agent, and the Lenders are parties to that certain Financing Agreement, dated
as of March 31, 2004 (as amended, restated, supplemented or otherwise
modified from time to time, the “Financing Agreement”);

 

WHEREAS, Borrower has requested that the Agents and the Lenders agree
to amend the Financing Agreement as set forth herein; and

 

WHEREAS, subject to the satisfaction of the conditions set forth
herein, the Agents and the Lenders are willing to so amend the Financing
Agreement pursuant to the terms set forth herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.                                      DEFINITIONS

 

Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them in the Financing Agreement, as amended
hereby.

 

2.                                      AMENDMENTS
TO FINANCING AGREEMENT

 

(a)                                  The
first paragraph of the “Recitals” to the Financing Agreement hereby is amended
and restated in its entirety to read as follows:

 

“The Borrower has asked the Lenders to extend credit to the Borrower
consisting of (a) a term loan designated as “Term Loan A” in the aggregate
principal amount of $5,958,333.32, (b) a term loan designated as “Term
Loan B” in the aggregate principal amount of $4,000,000, and (c) a
revolving credit facility in an aggregate amount not to exceed $6,000,000 at
any time outstanding.  The proceeds of
the term loans and the loans made under the revolving credit facility shall be
used to repay

 

 

existing indebtedness of the Borrower, for general working capital
purposes of the Borrower and the Guarantors, and to pay fees and expenses
related to this Agreement.  The Lenders
are severally, and not jointly, willing to extend such credit to the Borrower
subject to the terms and conditions hereinafter set forth.”

 

(b)                                 Section 1.01
of the Financing Agreement hereby is amended by adding the following defined
terms in proper alphabetical order or amending and restating the following
definitions in their entirety, as the case may be:

 

“Commitments” means, with respect to each Lender, such Lender’s
Revolving Credit Commitment, Term Loan A Commitment and Term Loan B Commitment.

 

“First Amendment” means that certain Amendment Number One to
Financing Agreement, dated as of October 18, 2004, among Borrower, Parent,
Guarantors, Administrative Agent, Collateral Agent and Lenders.

 

“First Amendment Effective Date” means the date, if ever, that
all of the conditions set forth in Section 4 of the First Amendment
shall be satisfied (or waived by the Collateral Agent in its sole discretion).

 

“First Amendment Fee” has the meaning specified in Section 2.06(b)
hereof.

 

“Letter Agreement” means the letter agreement dated as of October 18,
2004, duly executed and delivered by Agent, Lenders, Borrower, the Guarantors,
Subco, Solunet Holding Corp., and the agent and lenders under that certain
Financing Agreement dated as of March 31, 2004 by and among Subco, the
lenders from time to time party thereto, and Ableco, as collateral and
administrative agent thereunder.

 

“Loan” means the Term Loan A, the Term Loan B or any Revolving
Loan made by an Agent or a Lender to the Borrower pursuant to Article II
hereof.

 

“Loan Document” means this Agreement, the Bailee Agency
Agreement, the Disbursement Agreement, any Guaranty, any Security Agreement,
any Pledge Agreement, any Mortgage, any UCC Filing Authorization Letter, the
Intercompany Subordination Agreement, the Trademark Security Agreement, the
Letter Agreement and any other agreement, instrument, and other document
executed and delivered pursuant hereto or thereto or otherwise evidencing or
securing any Loan or any other Obligation.

 

“Obligations” means all present and future indebtedness,
obligations, and liabilities of each Loan Party to the Agents and the Lenders,
or any of them, under the Loan Documents, whether or not the right of payment
in

 

2

 

respect of such claim is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, disputed, undisputed, legal, equitable, secured,
unsecured, and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 9.01.  Without limiting the generality of the
foregoing, the Obligations of each Loan Party under the Loan Documents include
(a) the obligation to pay principal, interest (including the Term Loan B
PIK Amount), charges, expenses, fees, attorneys’ fees and disbursements,
indemnities and other amounts payable by such Person under the Loan Documents
(including any portion thereof that accrues after the commencement of an
Insolvency Proceeding, whether or not allowed or allowable in whole or in part
as a claim in any such Insolvency Proceeding), and (b) the obligation of
such Person to reimburse any amount in respect of any of the foregoing that any
Agent or any Lender (in its sole discretion) may elect to pay or advance on
behalf of such Person.

 

“Pro Rata Share” means:

 

(a)                                  with
respect to a Lender’s obligation to make Revolving Loans and receive payments
of interest, fees, and principal with respect thereto, the percentage obtained
by dividing (i) such Lender’s Revolving Credit Commitment, by
(ii) the Total Revolving Credit Commitment, provided, that, if the
Total Revolving Credit Commitment has been reduced to zero, the numerator shall
be the aggregate unpaid principal amount of such Lender’s Revolving Loans
(including Collateral Agent Advances) and the denominator shall be the
aggregate unpaid principal amount of all Revolving Loans (including Collateral
Agent Advances),

 

(b)                                 with
respect to a Lender’s obligation to make the Term Loan A and receive payments
of interest, fees, and principal with respect thereto, the percentage obtained
by dividing (i) such Lender’s Term Loan A Commitment, by (ii) the
Total Term Loan A Commitment, provided that if the Total Term Loan A
Commitment has been reduced to zero, the numerator shall be the aggregate
unpaid principal amount of such Lender’s portion of the Term Loan A and the
denominator shall be the aggregate unpaid principal amount of the Term Loan A,

 

(c)                                  with
respect to a Lender’s obligation to make the Term Loan B and receive payments
of interest (including the Term Loan B PIK Amount), fees, and principal with
respect thereto, the percentage obtained by dividing (i) such Lender’s
Term Loan B Commitment, by (ii) the Total Term Loan B Commitment, provided
that if the Total Term Loan B Commitment has been reduced to zero, the
numerator shall be the aggregate unpaid principal amount of such Lender’s
portion of the Term Loan B (excluding the Term Loan B PIK Amount) and the
denominator

 

3

 

shall be the aggregate unpaid principal amount of the Term Loan B
(excluding the Term Loan B PIK Amount); and

 

(d)                                 with
respect to all other matters (including, without limitation, the
indemnification obligations arising under Section 10.05), the
percentage obtained by dividing (i) the sum of such Lender’s Revolving
Credit Commitment and the unpaid principal amount of such Lender’s portion of
the Term Loans (excluding the Term Loan B PIK Amount), by (ii) the sum of
the Total Revolving Credit Commitment and the aggregate unpaid principal amount
of the Term Loans (excluding the Term Loan B PIK Amount), provided,
that, if such Lender’s Revolving Credit Commitment shall have been reduced to
zero, such Lender’s Revolving Credit Commitment shall be deemed to be the
aggregate unpaid principal amount of such Lender’s Revolving Loans (including
Collateral Agent Advances) and if the Total Revolving Credit Commitment shall
have been reduced to zero, the Total Revolving Credit Commitment shall be
deemed to be the aggregate unpaid principal amount of all Revolving Loans
(including Collateral Agent Advances).

 

“Sealy Subordinated Debt Documents” means the notes,
instruments, and other documents entered into by the Loan Parties in connection
with the incurrence of the Sealy Subordinated Debt, including the Subordinated
Note.

 

“Subordinated Note” means that certain Second Amended and
Restated Secured Senior Subordinated Promissory Note dated as of March 31,
2004 in the principal amount of $17,000,000.00 by Borrower in favor of Subco,
as amended by Amendment Number One to Second Amended and Restated Secured
Senior Subordinated Promissory Note dated as of June 1, 2004 and as
further amended by Amendment Number Two to Second Amended and Restated Secured
Senior Subordinated Promissory Note dated as of October 18, 2004.

 

“Term Loan A” means, collectively, the loans made by the Term
Loan A Lenders to the Borrower pursuant to Section 2.01(a)(ii).

 

“Term Loan A Commitment” means, with respect to each Term Loan A
Lender, the commitment of such Term Loan A Lender to make its portion of the
Term Loan A to the Borrower in the amount set forth in Schedule C-l
hereto, as the same may be terminated or reduced from time to time in
accordance with the terms of this Agreement.

 

“Term Loan A Lender” means a Lender with a Term Loan A
Commitment or a Term Loan A.

 

4

 

“Term Loan A Obligations” means any Obligations with respect to
the Term Loan A (including without limitation, the principal thereof, the
interest thereon, and the fees and expenses specifically related thereto).

 

“Term Loan B” means, collectively, the loans made by the Term
Loan B Lenders to the Borrower on the First Amendment Effective Date pursuant
to Section 2.0l(a)(iii).

 

“Term Loan B Commitment” means, with respect to each Term Loan B
Lender, the commitment of such Term Loan B Lender to make its portion of the
Term Loan B to the Borrower in the amount set forth in Schedule C-l
hereto, as the same may be terminated or reduced from time to time in
accordance with the terms of this Agreement.

 

“Term Loan B Lender” means a Lender with a Term Loan B
Commitment or a Term Loan B.

 

“Term Loan B Obligations” means any Obligations with respect to
the Term Loan B (including without limitation, the principal thereof, the
interest thereon, and the fees and expenses specifically related thereto).

 

“Term Loan B PIK Amount” means as of any date of determination
the amount of all interest accrued with respect to the Term Loan B that has
been paid-in-kind by being added to the principal balance of the Term Loan B in
accordance with Section 2.04(c).

 

“Term Loan Lenders” means, collectively, the Term Loan A Lenders
and the Term Loan B Lenders.

 

“Term Loans” means, collectively, the Term Loan A and the Term
Loan B.

 

“Total Term Loan A Commitment” means $5,958,333.32, which amount
is the sum of the amounts of the Lenders’ Term Loan A Commitments.

 

“Total Term Loan B Commitment” means $4,000,000.00, which amount
is the sum of the amounts of the Lenders’ Term Loan B Commitments.

 

“Total Term Loan Commitment” means the sum of the amounts of the
Total Term Loan A Commitment and the Total Term Loan B Commitment.

 

(c)                                  Section 1.01
of the Financing Agreement hereby is amended by deleting the following defined
terms in their entirety:  “Term Loan
Commitment” and “Term Loan Obligations”.

 

5

 

(d)                                 Section 2.01(a)
of the Financing Agreement hereby is amended by (i) deleting the final
occurrence of “and” in clause (i) thereof, (ii) deleting clause (ii) therein in
its entirety and replacing it with the following new clause (ii), and (iii)
adding the following new clause (iii) thereto:

 

“(ii)                            each
Term Loan A Lender severally agrees to make its portion of the Term Loan A to
the Borrower on the Effective Date, in an aggregate principal amount equal to
the amount of such Lender’s Term Loan A Commitment; and

 

(iii)                               each
Term Loan B Lender severally agrees to make its portion of the Term Loan B to
the Borrower on the First Amendment Effective Date, in an aggregate principal
amount equal to the amount of such Lender’s Term Loan B Commitment.”

 

(e)                                  Section 2.01(b)(ii)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“(ii)                            The
aggregate principal amount of the Term Loan A made on the Effective Date shall
not exceed the Total Term Loan A Commitment. 
The aggregate principal amount of the Term Loan B made on the First
Amendment Effective Date shall not exceed the Total Term Loan B
Commitment.  Any principal amount of the
Term Loans that is repaid or prepaid may not be reborrowed.”

 

(f)                                    The
second sentence of Section 2.02(a) of the Financing Agreement
hereby is amended by deleting the words “with respect to the Term Loans, on the
Effective Date” and replacing them with the words “with respect to the Term
Loan A, on the Effective Date, and with respect to the Term Loan B, on the
First Amendment Effective Date.”

 

(g)                                 Section 2.03(b)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“The outstanding principal of the Term Loan A shall be repayable in
twenty-four (24) consecutive monthly installments, on the first day of each
month commencing on April 1, 2005, consisting of (i) twelve (12)
consecutive monthly installments, each in an amount equal to $35,049.02,
followed by (ii) twelve (12) consecutive monthly installments, each in an
amount equal to $61,335.78.  The
outstanding principal of all Loans, including the Revolving Loans, the Term
Loan A and the Term Loan B (inclusive of any Term Loan B PIK Amount), shall be
due and payable in full on the Final Maturity Date.”

 

(h)                                 Section 2.04
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

6

 

“Section 2.04  Interest

 

(a)                                  Term
Loan A and Revolving Loans.  Except
as provided in Section 2.04(d) below, the Term Loan A and any
Revolving Loan shall bear interest on the principal amount thereof from time to
time outstanding, from the date of the making of the Loans until such principal
is repaid, at a rate per annum equal to the Reference Rate plus
4.75 percentage points.

 

(b)                                 Term
Loan B.  Except as provided in Sections
2.04(c) and (d) below, the Term Loan B shall bear interest on the principal
amount thereof from time to time outstanding (inclusive of any Term Loan B PIK
Amount), from the date of the making of the Term Loan B (or, in the case of any
Term Loan B PIK Amount, from the date such Term Loan B PIK Amount is added to
the principal balance of the Term Loan B) until such principal is repaid, at a
rate per annum equal to 13.00%.

 

(c)                                  PIK
Interest.  In addition to any other
interest provided for in this Agreement, the Term Loan B (inclusive of any Term
Loan B PIK Amount) shall bear additional interest on the amount thereof
outstanding from time to time from the First Amendment Effective Date (or, in
the case of any Term Loan B PIK Amount, from the date such Term Loan B PIK
Amount is added to the principal balance of the Term Loan B) until such
principal is repaid, at a per annum rate of 4.00% to be paid-in-kind (in the
absence of an election by Borrower to pay all or part of such interest in cash)
by being added to the principal balance of the Term Loan B (inclusive of
any Term Loan B PIK Amount theretofore so added); provided, however,
that Borrower shall pay in cash the outstanding principal balance of Term Loan
B, including the Term Loan B PIK Amount, on the Final Maturity Date pursuant to
Section 2.03(b).

 

(d)                                 Default
Interest.  To the extent permitted by
law, upon the occurrence and during the continuance of an Event of Default, the
principal of, and all accrued and unpaid interest on, all Loans, fees,
indemnities, or any other Obligations of the Loan Parties under this Agreement
and the other Loan Documents, shall bear interest, from the date such Event of
Default occurred until the date such Event of Default is cured or waived in writing
in accordance herewith, at a rate per annum equal at all times to the
Post-Default Rate.

 

(e)                                  Interest
Payment.  Interest on each Loan
(other than interest on the Term Loan B which accrues pursuant to Section 2.04(c))
shall be payable monthly, in arrears, on the first day of each month,
commencing on the first day of the month following the month in which such Loan
is made and at maturity (whether upon demand, by acceleration or
otherwise).  Interest on the Term Loan B
which accrues pursuant to Section 2.04(c)

 

7

 

shall be payable monthly, in arrears, on the first day of each month,
to be paid-in-kind (in the absence of an election by Borrower to pay all or
part of such interest in cash) by being added to the principal balance of the
Term Loan B in accordance with Section 2.04(c).  Interest at the Post-Default Rate shall be
payable on demand.  The Borrower hereby
authorizes the Administrative Agent to, and the Administrative Agent may, from
time to time, charge the Loan Account pursuant to Section 4.02 with
the amount of any interest payment due hereunder.

 

(f)                                    General.  All interest shall be computed on the basis
of a year of 360 days for the actual number of days, including the first day
but excluding the last day, elapsed.”

 

(i)                                     Section 2.05(a)(ii)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“(ii)                            The
Total Term Loan A Commitment shall terminate upon the making of the Term Loan A
in the aggregate principal amount of the Total Term A Loan Commitment.  The Total Term Loan B Commitment shall
terminate upon the making of the Term Loan B in the aggregate principal amount
of the Total Term B Loan Commitment.”

 

(j)                                     Section 2.05(b)(ii)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“(ii)                            Term
Loan A.  The Borrower may, upon at
least 5 Business Days prior written notice to the Administrative Agent, prepay
without penalty or premium the principal of Term Loan A, in whole or in part.  Each prepayment made pursuant to this Section 2.05(b)(ii)
shall be accompanied by the payment of accrued interest to the date of such
payment on the amount prepaid.  Each such
prepayment shall be applied against the remaining installments of principal due
on the Term Loan A in the inverse order of maturity.”

 

(k)                                  Section 2.05
of the Financing Agreement hereby is amended by adding the following new Section 2.05(b)(iii)
immediately after Section 2.05(b)(ii) as follows:

 

“(iii)                         Term
Loan B.  The Borrower may, upon at
least 5 Business Days prior written notice to the Administrative Agent, prepay
without penalty or premium the principal of Term Loan B, in whole or in part,
so long as the Revolving Loan Obligations have been paid in full and the
Revolving Credit Commitment has been terminated, the Term Loan A Obligations
have been paid in full, and the obligations under the Subordinated Note up to
the Outstanding Designated Loan Amount (as defined therein) have been paid in
full.  Each prepayment made pursuant to this
Section 2.05(b)(iii) shall be accompanied by the payment of accrued
and

 

8

 

unpaid interest that is required to be paid in cash to the date of such
payment on the amount prepaid.”

 

(l)                                     Section 2.05(c)(iv)
of the Financing Agreement hereby is amended by deleting the words “(as in
effect on the Effective Date)” and replacing them with the words “(as in effect
on the First Amendment Effective Date).”

 

(m)                               Section 2.05(c)(v)
of the Financing Agreement hereby is amended by deleting the words “(as in
effect on the Effective Date)” and replacing them with the words “(as in effect
on the First Amendment Effective Date).”

 

(n)                                 Section 2.05(c)(vi)
of the Financing Agreement hereby is amended by deleting the words “(as in
effect on the Effective Date)” and replacing them with the words “(as in effect
on the First Amendment Effective Date).”

 

(o)                                 Section 2.05(d)(i)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“Each prepayment of the Loans made pursuant to subsections (c)(iv),
(c)(v), and (c)(vi) above shall be applied, first, to the Term Loan A until
paid in full, second, to the Revolving Loans until paid in full, third, as a
payment to Subco on behalf of Borrower, ratably to pay the Sealy Subordinated
Debt under Subordinated Note up to the Outstanding Designated Loan Amount (as
defined in the Subordinated Note) until paid in full in accordance with its
terms, fourth, to the Term Loan B until paid in full, and fifth as a payment to
Subco, ratably to pay the remaining Sealy Subordinated Debt under Subordinated
Note until paid in full in accordance with its terms; provided, that any
prepayment of the Loans pursuant to subsection (c)(vi) from
Extraordinary Receipts on account of proceeds of insurance or casualty
proceeds, to the extent that such Extraordinary Receipts relate to Eligible
Inventory, shall be applied first to the Revolving Loans until paid in full,
second to the Term Loan A until paid in full, third, as a payment to Subco on
behalf of Borrower, ratably to pay the Sealy Subordinated Debt under
Subordinated Note up to the Outstanding Designated Loan Amount (as defined in
the Subordinated Note) in accordance with its terms, fourth, to the Term Loan B
until paid in full, and fifth as a payment to Subco, ratably to pay the
remaining Sealy Subordinated Debt under Subordinated Note until paid in full in
accordance with its terms.  Each such
prepayment of the Term Loan A shall be applied against the remaining
installments of principal of the Term Loan A in the inverse order of their
maturity.  Each prepayment of the
Revolving Loans pursuant to the foregoing application of payments provision
(other than pursuant to the proviso set forth in the first sentence of this subsection (d)(i))
shall also reduce the Total Revolving Credit Commitment by an equivalent amount
and a reserve shall be imposed against the Borrowing Base in an equivalent
amount.”

 

9

 

(p)                                 Section 2.05(e)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“(e)                            Interest
and Fees.  Any prepayment made
pursuant to this Section 2.05 shall be accompanied by accrued and
unpaid interest that is required to be paid in cash on the principal amount
being prepaid to the date upon which such prepayment is credited to Borrower’s
account pursuant to Section 4.02.”

 

(q)                                 Section 2.06(b)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“(b)                           First
Amendment Fee.  On or prior to the
First Amendment Effective Date, the Borrower shall pay to the Administrative
Agent solely for its own account and not for the account of any Lender, a
non-refundable amendment fee (the “First Amendment Fee”) equal to
$40,000.

 

(r)                                    Section 2.06(d)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“Anniversary Fee.  The
Borrower shall pay to the Administrative Agent for the ratable benefit solely
of the Revolving Loan Lenders and the Term Loan A Lenders (but not any other
Lender) in accordance with their Pro Rata Shares with respect to the Revolving
Credit Commitments and the Term Loan A, a non-refundable anniversary fee (the “Anniversary
Fee”) equal to $163,854.16, which shall be fully earned on the Effective Date
and payable on each anniversary of the Effective Date occurring prior to the
date on which all Obligations are paid in full in cash and all Commitments have
been terminated.”

 

(s)                                  Section 4.04(b)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“After the occurrence and during the continuance of an Event of
Default, the Administrative Agent may, and upon the direction of the Required
Lenders shall, apply all payments in respect of any Obligations and all
proceeds of the Collateral, subject to the provisions of this Agreement,
(i) first, ratably to pay the Obligations in respect of any fees,
expense reimbursements, indemnities and other amounts then due to the Agents
until paid in full; (ii) second, ratably to pay any fees and indemnities
then due to the Revolving Loan Lenders until paid in full; (iii) third,
ratably to pay interest due in respect of the Revolving Loans and Collateral
Agent Advances until paid in full; (iv) fourth, ratably to pay principal
of the Revolving Loans and Collateral Agent Advances until paid in full;
(v) fifth, ratably to pay any fees and indemnities then due to the
Term Loan A Lenders until paid in full; (vi) sixth, ratably to pay
interest due in respect of the Term Loan A until paid in full; (vii) seventh,
ratably to pay

 

10

 

principal of the Term Loan A until paid in full, (viii) eighth,
as a payment to Subco on behalf of Borrower, ratably to pay the Sealy
Subordinated Debt under Subordinated Note up to the Outstanding Designated Loan
Amount (as defined in the Subordinated Note) until paid in full in accordance
with its terms, (ix) ninth, ratably to pay any fees and indemnities then
due to the Term Loan B Lenders until paid in full; (x) tenth,
ratably to pay interest due in respect of the Term Loan B until paid in full;
(xi) eleventh, ratably to pay principal (inclusive of any Term Loan PIK
Amount) of the Term Loan B until paid in full, (xii) twelfth, to the
ratable payment of all other Obligations then due and payable, and (xiii) thirteenth,
as payment to Subco, ratably to pay the remaining Sealy Subordinated Debt under
Subordinated Note until paid in full in accordance with its terms.

 

(t)                                    Section 6.01(t)
of the Financing Agreement hereby is amended and restated in its entirety as
follows:

 

“(t)                              Use
of Proceeds.  The proceeds of the
Loans shall be used (a) in the case of the Term Loan A and the initial
Revolving Loans, to refinance the Existing Debt, (b) to pay fees and expenses
in connection with the transactions contemplated hereby, and (c) to fund
working capital of the Borrower and the Guarantors.”

 

(u)                                 Schedule C-l
of the Financing Agreement hereby is replaced in its entirety with Schedule C-l
attached hereto and incorporated herein by this reference.

 

3.                                      REPRESENTATIONS
AND WARRANTIES.  Each Loan Party
hereby represents and warrants to each Agent and each Lender as follows:

 

(a)                                  It
has the requisite power and authority to execute and deliver this Amendment and
to perform its obligations hereunder and under the Loan Documents to which it
is a party.  The execution, delivery, and
performance by it of this Amendment and the performance by it of each Loan
Document to which it is a party (i) have been duly approved by all necessary
action and no other proceedings are necessary to consummate such transactions;
and (ii) are not in contravention of (A) any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court or
governmental authority binding on it, (B) the terms of its organizational
documents, or (C) any provision of any contract or undertaking to which it is a
party or by which any of its properties may be bound or affected;

 

(b)                                 This
Amendment has been duly executed and delivered by each Loan Party.  This Amendment and each Loan Document is the
legal, valid and binding obligation of each Loan Party, enforceable against
such Loan Party in accordance with its terms, and is in full force and effect
except as such validity and enforceability is limited by the laws of insolvency
and bankruptcy, laws affecting creditors’ rights and principles of equity
applicable hereto;

 

(c)                                  No
injunction, writ, restraining order, or other order of any nature prohibiting,
directly or indirectly, the consummation of the transactions contemplated
herein has been issued

 

11

 

and remains in force by any Governmental Authority against any Loan
Party, either Agent or any Lender;

 

(d)                                 No
Default or Event of Default has occurred and is continuing on the date hereof
or as of the date of the effectiveness of this Amendment; and

 

(e)                                  The
representations and warranties in the Financing Agreement and the other Loan
Documents are true and correct in all material respects (except that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof) on and as of the date hereof, as though made on such date (except to
the extent that such representations and warranties relate solely to an earlier
date).

 

4.                                      CONDITIONS
PRECEDENT TO AMENDMENT

 

The satisfaction of each of the following shall constitute conditions
precedent to the effectiveness of this Amendment and each and every provision
hereof:

 

(a)                                  Collateral
Agent shall have received this Amendment, duly executed and delivered by the
parties hereto, and the same shall be in full force and effect.

 

(b)                                 Collateral
Agent shall have received the letter agreement dated of even date herewith,
duly executed and delivered by Agent, Lenders, Borrower, the Guarantors, Subco,
Solunet Holding Corp. and the agent and lenders under that certain Financing
Agreement dated as of March 31, 2004 by and among Subco, the lenders from
time to time party thereto, and Ableco, as collateral and administrative agent
thereunder, and the same shall be in full force and effect.

 

(c)                                  Collateral
Agent shall have received that certain Amendment Number One to Financing
Agreement, dated of even date herewith, duly executed and delivered by Subco,
the lenders from time to time party thereto, and Ableco, as collateral and
administrative agent thereunder, and the same shall be in full force and
effect.

 

(d)                                 Collateral
Agent shall have received Amendment Number Two to the Subordinated Note, in
form and substance satisfactory to Agents, duly executed and delivered by the
Borrower and Subco, and the same shall be in full force and effect.

 

(e)                                  Collateral
Agent shall have received that certain participation agreement dated as of October 18,
2004, duly executed and delivered by Ableco and SCSF Mattress Firm II, LLC, a
Delaware limited liability company, and the same shall be in full force and
effect.

 

(f)                                    Collateral
Agent shall have received a copy of the unanimous written consent of the board
of directors or board of managers (as applicable) of each Loan Party, certified
as of the First Amendment Effective Date by an Authorized Officer thereof, (A)
authorizing the borrowings hereunder and the transactions contemplated by this
Amendment, (B) authorizing the execution, delivery and performance by such Loan
Party of this Amendment and the execution and delivery of the other documents
to be delivered by such Loan Party in connection herewith.

 

12

 

(g)                                 No
injunction, writ, restraining order, or other order of any nature prohibiting,
directly or indirectly, the consummation of the transactions contemplated
herein shall have been issued and remain in force by any Governmental Authority
against any Loan Party, either Agent, or any Lender.

 

5.                                      GOVERNING
LAW.  THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.

 

6.                                      ENTIRE
AMENDMENT; EFFECT OF AMENDMENT. 
This Amendment, and the terms and provisions hereof, constitute the
entire agreement among the parties pertaining to the subject matter hereof and
supersedes any and all prior or contemporaneous amendments relating to the
subject matter hereof.  Except for the
amendments to the Financing Agreement expressly set forth in Section 2
hereof or in the Letter Agreement, the Financing Agreement and other Loan
Documents shall remain unchanged and in full force and effect.  To the extent any terms or provisions of this
Amendment conflict with those of the Financing Agreement or other Loan
Documents, the terms and provisions of this Amendment shall control.  This Amendment is a Loan Document.  The amendments set forth herein are limited
to the specifics hereof, shall not apply with respect to any facts or
occurrences other than those on which the same are based, shall not excuse
future non-compliance with the Financing Agreement or the other Loan Documents,
and shall not operate as a consent to or waiver of any further or other matter,
under the Loan Documents.

 

7.                                      COUNTERPARTS;
TELECOPY EXECUTION.  This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and any of the parties
hereto may execute this Amendment by signing any such counterpart.  Delivery of an executed counterpart of this
Amendment by telecopy shall be equally as effective as delivery of an original
executed counterpart of this Amendment. 
Any party delivering an executed counterpart of this Amendment by
telecopy also shall deliver an original executed counterpart of this Amendment,
but the failure to deliver an original executed counterpart shall not affect
the validity, enforceability, and binding effect of this Amendment.

 

8.                                      MISCELLANEOUS.

 

(a)                                  Upon
the effectiveness of this Amendment, each reference in the Financing Agreement
to “this Agreement”, “hereunder”, “herein”, “hereof” or words of like import
referring to the Financing Agreement shall mean and refer to the Financing
Agreement as amended by this Amendment.

 

(b)                                 Upon
the effectiveness of this Amendment, each reference in the Loan Documents to
the “Financing Agreement”, “thereunder”, “therein”, “thereof” or words of like
import referring to the Financing Agreement shall mean and refer to the
Financing Agreement as amended by this Amendment.

 

(c)                                  The
Agents and the Lenders hereby reserve all remedies, powers, rights, and
privileges that the Agents and the Lenders may have under the Financing Agreement
or the other

 

13

 

Loan
Documents, at law (including under the Code), in equity, or otherwise; and (b)
all terms, conditions, and provisions of the Financing Agreement and the other
Loan Documents are and shall remain in full force and effect and, except as
expressly provided herein, nothing herein shall operate as a consent to or a
waiver, amendment, or forbearance in respect of any matter (including any Event
of Default whether presently existing or subsequently occurring) or any other
right, power, or remedy of the Agents or the Lenders under the Financing
Agreement and the other Loan Documents. 
No delay on the part of the Agents and the Lenders in the exercise of
any remedy, power, right or privilege shall impair such remedy, power, right,
or privilege or be construed to be a waiver of any default, nor shall any
partial exercise of any such remedy, power, right or privilege preclude further
exercise thereof or of any other remedy, power, right or privilege.

 

14

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the date first written above.

 

	
   

  	
  BORROWER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MATTRESS FIRM, INC.,

  	
   

  
	
   

  	
  a Delaware
  corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim R.
  Black

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jim R. Black

  
	
   

  	
   

  	
  Title:

  	
  CFO

  
						

 

 

[SIGNATURE PAGE TO AMENDMENT
NUMBER ONE

TO FINANCING AGREEMENT (MFI)]

 

 

	
   

  	
  GUARANTORS:

  
	
   

  	
   

  	
   

  
	
   

  	
  MATTRESS HOLDING CORP.,

  
	
   

  	
  a Delaware
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim R.
  Black

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jim R. Black

  
	
   

  	
   

  	
  Title:

  	
  Treasurer
  & Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  MATTRESS FIRM INVESTMENT

  
	
   

  	
  MANAGEMENT, INC.,

  
	
   

  	
  an Arizona
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marc J.
  Leder

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Marc J.
  Leder

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  FESTRO, INC.,

  
	
   

  	
  a Texas
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim R.
  Black

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jim R. Black

  
	
   

  	
   

  	
  Title:

  	
  Treasurer
  & Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  TEAMEXCEL MANAGEMENT COMPANY,

  
	
   

  	
  a Texas
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim R.
  Black

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jim R. Black

  
	
   

  	
   

  	
  Title:

  	
  Treasurer
  & Secretary

  
					

 

 

[SIGNATURE PAGE TO AMENDMENT
NUMBER ONE

TO FINANCING AGREEMENT (MFI)]

 

 

	
   

  	
  MATTRESS FIRM OPERATING, LTD.,

  
	
   

  	
  a Texas
  limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Festro,
  Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim R.
  Black

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jim R. Black

  
	
   

  	
   

  	
  Title:

  	
  Treasurer
  & Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  MATTRESS VENTURE INVESTMENT

  
	
   

  	
  MANAGEMENT, LLC,

  
	
   

  	
  an Arizona
  limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marc J.
  Leder

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Marc J.
  Leder

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  FESTRO II, LLC,

  
	
   

  	
  a Texas
  limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim R.
  Black

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jim R. Black

  
	
   

  	
   

  	
  Title:

  	
  Treasurer
  & Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  THE MATTRESS VENTURE, L.P.,

  
	
   

  	
  a Texas
  limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Festro
  II, LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim R.
  Black

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jim R. Black

  
	
   

  	
   

  	
  Title:

  	
  Treasurer
  & Secretary

  
					

 

 

[SIGNATURE PAGE TO AMENDMENT
NUMBER ONE

TO FINANCING AGREEMENT (MFI)]

 

 

	
   

  	
  COLLATERAL AGENT AND

  
	
   

  	
  ADMINISTRATIVE AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  ABLECO FINANCE LLC,

  
	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel
  Wolf

  	
   

  
	
   

  	
   

  	
  Name: Daniel
  Wolf

  
	
   

  	
   

  	
  Title: SVP

  
	
   

  	
   

  	
   

  
	
   

  	
  LENDERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  ABLECO FINANCE LLC,

  
	
   

  	
  a Delaware
  limited liability company,

  
	
   

  	
  on behalf of
  itself and its affiliate assigns

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel
  Wolf

  	
   

  
	
   

  	
   

  	
  Name: Daniel
  Wolf

  
	
   

  	
   

  	
  Title: SVP

  

 

 

[SIGNATURE PAGE TO AMENDMENT
NUMBER ONE

TO FINANCING AGREEMENT (MFI)]

 

 

SCHEDULE C-1

 

Lenders and Lenders’ Commitments

 

	
  LENDER

  	
   

  	
  REVOLVING

  CREDIT

  COMMITMENT

  	
   

  	
  TERM LOAN A

  COMMITMENT

  	
   

  	
  TERM LOAN B

  COMMITMENT

  	
   

  	
  TOTAL

  COMMITMENT

  	
   

  
	
  Ableco
  Finance LLC and its affiliate assigns

  	
   

  	
  $

  	
  6,000,000

  	
   

  	
  $

  	
  5,958,333.32

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  $

  	
  15,958,333.32

  	
   

  
	
  All Lenders

  	
   

  	
  $

  	
  6,000,000

  	
   

  	
  $

  	
  5,958,333.32

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  $

  	
  15,958,333.32

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}]]