Document:

Exhibit 10.7

 

LOAN
AND SECURITY AGREEMENT

 

THIS
LOAN AND SECURITY AGREEMENT (the “Agreement”) dated September 27, 2005 by
and among OXFORD FINANCE CORPORATION (“Oxford”), SILICON VALLEY BANK, a
California-chartered bank, with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054 (“SVB”) (SVB and the Oxford each
individually a “Lender”, and collectively the “Lenders”), and TORREYPINES
THERAPEUTICS, INC., a Delaware corporation, whose address is 11085 N.
Torrey Pines Road, Suite 300, La Jolla, California 92037 (“Borrower”)
provides the terms on which Lenders shall lend to Borrower and Borrower shall
repay Lenders. The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall
be construed following GAAP. Calculations and determinations must be made
following GAAP. The term “financial statements” includes the notes and
schedules. The terms “including” and “includes” always mean “including (or
includes) without limitation,” in this or any Loan Document. Capitalized terms
in this Agreement shall have the meanings as set forth in Section 13.
All other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the Code, to the extent such terms are defined
therein.

 

2                                         LOANS AND TERMS OF PAYMENT

 

2.1                               Promise
to Pay.

 

Borrower hereby unconditionally promises to pay Lenders
the unpaid principal amount of all Credit Extensions hereunder with all
interest, fees and finance charges due thereon as and when due in accordance
with this Agreement.

 

2.1.1                     Growth Capital Loan Facility.

 

(a)                                  Availability. Subject to
the terms and conditions of this Agreement, Lenders agree, severally and not
jointly, to lend to Borrower from time to time prior to the Growth Capital Commitment Termination Date, advances (each a “Growth
Capital Advance” and collectively the “Growth Capital Advances”) in an
aggregate amount not to exceed the Growth Capital Loan Commitment according to each Lender’s pro rata share of the Growth
Capital Loan Commitment (based upon the respective Growth Capital Commitment Percentage of each Lender). When repaid, the
Growth Capital Advances may not be
re-borrowed. Lenders’ obligation to lend hereunder shall terminate on the
earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the
Growth Capital Commitment Termination Date. Each
Growth Capital Advance shall be in the amount of Five Million Dollars ($5,000,000).
Subject to the satisfaction of the terms and conditions set forth in this
Agreement, there shall be two (2) Growth Capital Advances, the Tranche A
Growth Capital Advance and the Tranche B Growth Capital Advance.

 

(b)                                 Borrowing
Procedure. To obtain a Growth Capital Advance, Borrower must
notify Lenders by facsimile or telephone by 12:00 p.m. Pacific Time seven (7) Business
Days prior to the date the Growth Capital Advance is to be made. If such
notification is by telephone, Borrower must promptly confirm the notification
by delivering to Lenders a completed Payment/Advance Form in the form attached
as Exhibit B. In addition, a Note payable to each Lender in the form of Exhibit D

 

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must be signed by a
Responsible Officer or designee. On the Growth Capital Funding Date, each
Lender shall credit and/or transfer (as applicable) to Borrower’s deposit
account, an amount equal to its Growth Capital Commitment Percentage multiplied
by the amount of the Growth Capital Advance; provided, however, Lenders may disburse
the applicable portion of the Tranche A Growth Capital Advance directly to
Comerica Bank and GE Capital to satisfy the conditions precedent listed in Sections
3.1 (d) and (e). Each Lender may make Growth Capital Advances
under this Agreement based on instructions from a Responsible Officer or his or
her designee or without instructions if the Growth Capital Advances are
necessary to meet Obligations which have become due. Each Lender may rely
on any telephone notice given by a person whom such Lender believes is a
Responsible Officer or designee. Borrower shall indemnify each Lender for any
loss Lender suffers due to such reliance.

 

2.2                               Termination
of Commitment to Lend.

 

Each
Lender’s obligation to lend the undisbursed portion of the Obligations shall
terminate if, in such Lender’s sole discretion made in good faith, there has
been a material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) of Borrower or the prospect of
repayment of the Obligations, or there has been any material adverse deviation
by Borrower from the most recent business plan of Borrower presented to and
accepted by Lenders prior to the execution of this Agreement.

 

2.3                               Repayment
of Credit Extensions on Growth Capital Advances.

 

(a)                                  Principal and
Interest Payments on Payment Dates.

 

(i)                                     Tranche A Growth
Capital Advance. For the Tranche A Growth Capital Advance, Borrower shall make monthly payments of interest
only commencing on the first Business Day of the month following the month in
which the Growth Capital Funding Date occurs (or commencing on the Growth
Capital Funding Date if the Growth Capital Funding Date is the first Business
Day of the month) with respect to the Tranche A Growth Capital Advance and continuing thereafter on the first Business Day
of each successive calendar month (each a “Growth Capital Interest Only Payment Date”) during the Growth Capital Interest Only
Period. Commencing on the Growth Capital Amortization Date, Borrower shall make
thirty-six (36) equal monthly payments of principal and interest which would
fully amortize the outstanding Tranche A Growth Capital Advance as of the Growth
Capital Amortization Date over the Growth Capital Repayment Period
(individually, the “Growth Capital Scheduled Payment”, and collectively, “Growth
Capital Scheduled Payments”) and on the first
Business Day of each successive month and continuing thereafter during the
Growth Capital Repayment Period on the first Business Day of each successive
calendar month (each a “Growth Capital Scheduled Payment Date”). All unpaid
principal and accrued interest is due and payable in full on the Growth Capital
Maturity Date with respect to the Tranche A Growth Capital Advance.

 

(ii)                                  Tranche B
Growth Capital Advance. For the Tranche B Growth Capital Advance, commencing on the first Business Day of the month
following the month in which the Growth Capital Funding Date occurs (or
commencing on the Growth Capital Funding Date if the Growth Capital Funding
Date is the first Business Day of the month) and continuing thereafter on each
Growth Capital Scheduled Payment Date, Borrower shall make thirty-six (36)
equal monthly payments of principal and interest which would fully amortize the
outstanding Tranche B Growth Capital Advance. All unpaid principal and accrued
interest is due and payable in full on the Growth Capital Maturity Date with
respect to the Tranche B Growth Capital Advance.

 

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(iii)                               A Growth
Capital Advance may only be prepaid in accordance with Sections 2.3(c) and
2.3(d). Each Growth Capital Interest Only Payment Date and each Growth
Capital Scheduled Payment Date are sometimes referred to as a “Growth Capital Payment Date.”

 

(iv)                              Payments
received as to a Growth Capital Advance after 12:00 noon Pacific time are considered
received at the opening of business on the next Business Day.

 

(b)                                 Interest Rate.

 

(i)                                     Growth Capital Advances. Borrower
shall pay interest on each Growth Capital Payment Date on the unpaid principal
amount of each Growth Capital Advance until the Growth Capital Advance has been
paid in full, at the fixed rate equal to six and sixty-five hundredths percent
(6.65%)  per annum in excess of the
Treasury Rate as of the date of the Growth Capital Funding Date, determined by Lenders
for each Growth Capital Advance. Interest is computed on the basis of a 360 day
year of twelve 30-day months.

 

(ii)                                  Default Rate. Any amounts
outstanding under the Growth Capital Advances during the continuance of an
Event of Default shall bear interest at a per annum rate equal to five percent
(5%) per annum above the highest rate otherwise applicable to such Growth
Capital Advance (the “Default Rate”).

 

(c)                                  Mandatory
Prepayment Upon an Acceleration. If the Growth Capital
Advances are accelerated following the occurrence of an Event of Default or
otherwise, Borrower shall immediately pay to Lenders an amount equal to the sum
of:  (i) all outstanding principal
plus accrued interest, (ii) the Prepayment Fee, plus (iii) all other
sums, if any, that shall have become due and payable hereunder, including
interest at the Default Rate with respect to any past due amounts.

 

(d)                                 Permitted
Prepayment of Loans. Borrower shall have the option to prepay all, but
not less than all, of a Growth Capital Advance advanced by Lenders under this Agreement
if more than twelve (12) months have elapsed since the applicable Growth
Capital Funding Date, provided Borrower (i) provides written notice to
Lenders of its election to prepay the Growth Capital Advance at least thirty
(30) days prior to such prepayment, and (ii) pays, on the date of such
prepayment (A) all outstanding principal plus accrued interest, (B) the
Prepayment Fee (except as provided in Section 7.2 or Section 7.3),
plus (C) all other sums, if any, that shall have become due and payable
hereunder, including interest at the Default Rate with respect to any past due
amounts. Borrower shall
have the option to prepay all, but not less than all, of the Growth Capital
Advances advanced by Lenders under this Agreement, if Lenders do not give the
consent described in Section 7.2 or Section 7.3 without
paying the Prepayment Fee, provided Borrower (i) provides written notice
to Lenders of its election to so prepay, and (ii) pays, on the date of
such prepayment (A) all outstanding principal plus accrued interest, plus (B) all
other sums, if any, that shall have become due and payable hereunder, including
interest at the Default Rate with respect to any past due amounts.

 

(e)                                  ACH Payments. Borrower
shall separately set up an ACH payment structure in favor of Oxford and SVB,
satisfactory to Oxford and SVB.

 

2.4                               Fees.

 

Borrower
will pay to Lenders:

 

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(a)                                  Loan Fee. A fully
earned, non-refundable Loan Fee of $20,000 (“Loan Fee”) (to be shared between
SVB and the Oxford pursuant to their respective Growth Capital Commitment
Percentages) has been paid to Lenders.

 

(b)                                 Lenders
Expenses. All Lenders Expenses (including reasonable attorneys’ fees and reasonable
expenses for documentation and negotiation of this Agreement not exceeding
$10,000 incurred through the Effective Date), when due.

 

(c)                                  Prepayment Fee. The
Prepayment Fee, as defined herein, if and when applicable.

 

3                                         CONDITIONS OF LOANS

 

3.1                               Conditions
Precedent to Initial Credit Extension.

 

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

 

(a)                                  this Agreement;

 

(b)                                 a certificate
of the Secretary of Borrower with respect to articles, by-laws, incumbency and
resolutions authorizing the execution and delivery of this Agreement;

 

(c)                                  Perfection
Certificate by Borrower;

 

(d)                                 Borrower shall have delivered a payoff
letter from Comerica Bank in substance satisfactory to Lenders in the form of
Exhibit E;

 

(e)                                  Borrower shall have delivered a payoff
letter from GE Capital in substance satisfactory to Lenders in the form of
Exhibit E duly executed and delivered by Borrower;

 

(f)                                    a Warrant to
Purchase Stock in favor of SVB in substance satisfactory to SVB in the form of
Exhibit F and a Warrant to Purchase Stock in favor of Oxford in
substance satisfactory to Oxford in the form of Exhibit G duly
executed and delivered by Borrower;

 

(g)                                 financing
statement (Form UCC-1);

 

(h)                                 Account Control
Agreement (Comerica Bank);

 

(i)                                     insurance
certificate;

 

(j)                                     payment of the
fees and Lenders Expenses then due specified in Section 2.4 hereof;

 

(k)                                  Certificate of
Foreign Qualification (if applicable);

 

(l)                                     Certificate of
Good Standing/Legal Existence; and

 

(m)                               such other
documents, and completion of such other matters, as Lenders may reasonably
deem necessary or appropriate.

 

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3.2                               Conditions
Precedent to all Credit Extensions.

 

The
obligations of Lenders to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

 

(a)                                  timely receipt of any Payment/Advance
Form.

 

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

 

(c)                                  the
representations and warranties in Section 5 shall be materially
true on the date of the Payment/Advance Form and on the effective date of
each Credit Extension and no Event of Default shall have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower’s representation and warranty on that date that the representations
and warranties in Section 5 remain materially true.

 

4                                         CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security
Interest. Borrower
hereby grants to each Lender, to secure the payment and performance in full of
all of the Obligations and the performance of each of Borrower’s duties under
the Loan Documents, a continuing security interest in, and pledges and assigns
to each Lender the Collateral, wherever located, whether now owned or hereafter
acquired or arising, and all proceeds and products thereof. Borrower warrants
and represents that the security interest granted herein shall be a first
priority security interest in the Collateral. SVB may place a “hold” on
any certificates of deposit or deposit or investment accounts pledged as
Collateral to secure cash management services, corporate business credit cards
or letters of credit separately issued or supplied by SVB under separate
agreements between SVB and Borrower.

 

Borrower agrees
that any disposition of the Collateral in violation of this Agreement, by
either the Borrower or any other Person, shall be deemed to violate the rights
of the Lenders under the Code. If the Agreement is terminated, Lenders’ lien
and security interest in the Collateral shall continue until Borrower fully
satisfies its Obligations. If Borrower shall at any time, acquire a commercial
tort claim, Borrower shall promptly notify Lenders in a writing signed by
Borrower of the brief details thereof and grant to Lenders in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory
to Lenders.

 

Upon the indefeasible payment in full in cash of all
Obligations under this Agreement and the termination of any obligation of any
Lender to make Credit Extensions hereunder, Lenders shall execute and deliver
to Borrower, at Borrower’s sole cost and expense, all documents and instruments
as shall be reasonably necessary to evidence termination of the security
interest in the Collateral created hereunder, including a UCC-3 Termination
Statement.

 

4.2                               Authorization
to File Financing Statements.

 

Borrower
hereby authorizes Lenders to file financing statements, without notice to
Borrower, with all appropriate jurisdictions, in order to perfect or protect Lenders’
interest or rights hereunder.

 

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5                                         REPRESENTATIONS AND WARRANTIES

 

Borrower
represents and warrants to each Lender 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. In connection with
this Agreement, the Borrower delivered to Lenders a certificate signed by the
Borrower and entitled “Perfection Certificate”. The Borrower represents and
warrants to each Lender that: (a) the Borrower’s exact legal name is that
indicated on the Perfection Certificate and on the signature page hereof; (b) the
Borrower is an organization of the type, and is organized in the jurisdiction,
set forth in the Perfection Certificate; (c) the Perfection Certificate
accurately sets forth the Borrower’s organizational identification number or
accurately states that the Borrower has none; (d) the Perfection
Certificate accurately sets forth the Borrower ‘s place of business, or, if
more than one, its chief executive office as well as the Borrower’s mailing
address if different, and (e) all other information set forth on the
Perfection Certificate pertaining to the Borrower is accurate and complete. If
the Borrower does not now have an organizational identification number, but
later obtains one, Borrower shall forthwith notify the Lenders of such
organizational identification number.

 

The
execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s organizational documents, 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.

 

Borrower
has good title to the Collateral, free of Liens except Permitted Liens. Borrower
has no deposit account, other than the deposit accounts with SVB and deposit
accounts described in the Perfection Certificate delivered to Lenders in
connection herewith. 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. The Collateral is not in the possession of any third party bailee (such
as a warehouse). Except as hereafter disclosed to the Lenders in writing by
Borrower, none of the components of the Collateral shall be maintained at
locations other than as provided in the Perfection Certificate. In the event
that Borrower, after the date hereof, intends to store or otherwise deliver any
portion of the Collateral to a bailee, then Borrower will first receive the
written consent of Lenders and such bailee must acknowledge in writing that the
bailee is holding such Collateral for the benefit of Lenders. All Inventory is
in all material respects of good and marketable quality, free from material
defects. Borrower is the sole owner of the Intellectual Property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. To Borrower’s knowledge, each Patent is valid and enforceable and no part of
the Intellectual Property has been judged invalid or unenforceable, in whole or
in part, and no claim has been made that any part of the Intellectual
Property violates the rights of any third party, except to the extent such
claim could not reasonably be expected to cause a Material Adverse Change.

 

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5.3                               Litigation.

 

Except
as shown in the Perfection Certificate, there are no actions or proceedings
pending or, to the knowledge of Borrower’s Responsible Officers, threatened by
or against Borrower or any Subsidiary in which an adverse decision could
reasonably be expected to cause a Material Adverse Change.

 

5.4                               No
Material Deterioration in Financial Statements.

 

All
consolidated financial statements for Borrower, and any Subsidiary, delivered
to Lenders fairly present in all material respects Borrower’s consolidated financial
condition and Borrower’s consolidated results of operations. There has not been
any material deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Lenders.

 

5.5                               Solvency.

 

The
fair salable value of Borrower’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; 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. 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 make such declarations, notices or filings would
not reasonably be expected to cause a Material Adverse Change.

 

5.7                               Subsidiaries.

 

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 any Lender (taken together with all
such written certificates and written statements given to any Lender) contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained in the certificates or statements
not misleading, it being recognized by Lenders that the projections and
forecasts provided by Borrower 

 

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in good faith and based upon reasonable assumptions are not viewed as
facts and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected or forecasted
results.

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower
shall do all of the following for so long as any Lender has an obligation to make any Credit
Extension, or there are outstanding Obligations:

 

6.1                               Government
Compliance.

 

Borrower
shall maintain its and all Subsidiaries’ legal existence and good standing as a
Registered Organization and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to have a material
adverse effect on Borrower’s business or operations. Borrower shall comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower’s business or operations.

 

6.2                               Financial
Statements, Reports, Certificates.

 

(a)                                  Borrower shall
deliver to Lenders:  (i) as soon as
available, but no later than thirty (30) days after the last day of each month,
a company prepared consolidated balance sheet and income statement covering
Borrower’s consolidated operations during the period certified by a Responsible
Officer and in a form reasonably acceptable to Lenders; (ii) as soon
as available, but no later than one hundred eighty (180) days after the last
day of Borrower’s fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting
firm reasonably acceptable to Lenders; (iii) annual financial projections
approved by Borrower’s Board of Directors consistent in form and detail
with those provided to Borrower’s venture capital investors as soon as
available, but no later than sixty (60) days after Board approval;  (iv) in the event that the Borrower’s
stock becomes publicly held, within five (5) days of filing, copies of or
electronic links to (in the case of electronic links being provided to Lenders,
Borrower shall still be required to submit to Lenders the applicable compliance
certificate in the form of Exhibit C) of all statements,
reports and notices made available to Borrower’s security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission; (v) a prompt report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000.00) or more; and (vi) budgets, sales projections,
operating plans or other financial information reasonably requested by Lenders.

 

(b)                                 Within thirty (30) days after the last
day of each month, Borrower shall deliver to Lenders with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in the form of
Exhibit C.

 

(c)                                  Borrower shall
deliver to Lenders any Redemption Requests (as defined in Borrower’s Fourth
Amended and Restated Certificate of Incorporation, as it may be amended
from time to time) as soon as available, but no later than ten (10) days
after Borrower has received such Redemption Request.

 

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6.3                               Inventory;
Returns.

 

Borrower
shall keep all Inventory in good and marketable condition, free from material
defects. Returns and allowances between Borrower and its account debtors shall
follow Borrower’s customary practices as they exist at the Effective Date. Borrower
must promptly notify Lenders of all returns, recoveries, disputes and claims,
which involve more than $50,000.

 

6.4                               Taxes.

 

Borrower
shall make, and cause each Subsidiary to make, timely payment of all material
federal, state, and local taxes or assessments (other than taxes and
assessments which Borrower is contesting in good faith, with adequate reserves
maintained in accordance with GAAP) and will deliver to Lenders, on demand,
appropriate certificates attesting to such payments.

 

6.5                               Insurance.

 

Borrower
shall keep its business and the Collateral insured for risks and in amounts
standard for companies in Borrower’s industry and location and as Lenders may reasonably
request. Insurance policies shall be in a form, with companies, and in amounts
that are satisfactory to Lenders. All property policies shall have a lender’s
loss payable endorsement showing each Lender as an additional loss payee and
waive subrogation against Lenders, and all liability policies shall show, or
have endorsements showing, each Lender as an additional insured. All policies
(or the loss payable and additional insured endorsements) shall provide that
the insurer must give Lenders at least thirty (30) days notice before
canceling, amending, or declining to renew its policy. At Lenders’ request,
Borrower shall deliver certified copies of policies and evidence of all premium
payments. Proceeds payable under any policy shall, at Lenders’ option, be
payable to Lenders on account of the Obligations. Notwithstanding the
foregoing, (a) so long as no Event of Default has occurred and is
continuing, Borrower shall have the option of applying the proceeds of any
casualty policy toward the replacement or repair of destroyed or damaged
property; provided that any such replaced or repaired property (i) shall
be of equal or like value as the replaced or repaired Collateral and (ii) shall
be deemed Collateral in which Lenders have been granted a first priority
security interest, and (b) after the occurrence and during the continuance
of an Event of Default, all proceeds payable under such casualty policy shall,
at the option of Lenders, be payable to Lenders on account of the Obligations. If
Borrower fails to obtain insurance as required under this Section 6.5
or to pay any amount or furnish any required proof of payment to third persons
and Lenders, Lenders may make all or part of such payment or obtain
such insurance policies required in this Section 6.5, and take any
action under the policies Lenders deem prudent.

 

6.6                               Accounts.

 

(a)                                  Intentionally
omitted.

 

(b)                                 Borrower shall
identify to Lenders, in writing, any bank or securities account opened by
Borrower with any institution other than SVB. In addition, for each such
account that the Borrower at any time opens or maintains, Borrower shall, at
the Lenders’ request and option, pursuant to an agreement in form and
substance acceptable to the Lenders cause the depository bank or securities
intermediary to agree that such account is the collateral of Lenders pursuant
to the terms hereunder. The provisions of the previous sentence shall not apply
to deposit accounts exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of the Borrower’s
employees.

 

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6.7                               Intellectual
Property.

 

Borrower
shall:  (i) protect, defend and
maintain the validity and enforceability of the Intellectual Property; (ii) promptly
advise Lenders in writing of material infringements of the Intellectual
Property; and (iii) not allow any Intellectual Property material to the
Borrower’s business to be abandoned, forfeited or dedicated to the public
without Lenders’ written consent.

 

6.8                               Further
Assurances.

 

Borrower
shall execute any further instruments and take further action as Lenders reasonably
request to perfect or continue Lenders’ security interest in the Collateral or
to effect the purposes of this Agreement.

 

6.9                               Right to Invest.

 

Borrower hereby grants to Lenders or their respective
Affiliates a right (but not an obligation) to invest up to $1,000,000 in the
Financing Shares (as defined below) sold in Borrower’s next Subsequent
Financing on the same terms, conditions and pricing offered to its investors. Lenders
shall split the right to invest up to $1,000,000 in accordance with their
respective Growth Capital Commitment Percentages, but if one Lender (or its
Affiliates) elects not to invest its full amount, the other Lender (or its
Affiliates) may elect to invest such remaining additional amount. Borrower
agrees that it shall notify Lenders promptly upon the execution by Borrower of
a term sheet or letter of intent setting forth the terms and conditions of such
equity financing and in any event within five (5) Business Days of such
execution. “Subsequent
Financing” means Borrower’s next round of private equity financing after the
Effective Date in which Borrower receives, in the aggregate, at least $3,000,000
of net proceeds (excluding any bridge debt financing except to the extent
actually converted to equity in Borrower). Notwithstanding the foregoing, if
Borrower’s board of directors makes a good faith determination that the
participation by Lenders in such next round of equity financing would be
seriously detrimental to Borrower, then the Lenders shall not be permitted to
invest in such equity financing. The rights granted to Lenders under this Section 6.9
shall terminate upon the earlier to occur of the following: (i) a sale of
substantially all of Borrower’s assets, (ii) the initial public offering
of Common Stock of Borrower, or (iii) a Liquidation Event (as defined in
Borrower’s Certificate of Incorporation, as it may be amended from time to
time). “Financing Shares” means shares of Borrower’s capital stock sold to
investors in the Subsequent Financing.

 

7                                         NEGATIVE COVENANTS

 

Borrower
shall not do any of the following without the Lenders’ prior written consent for so long as any Lender has an obligation
to make Credit Extensions or there are any outstanding Obligations:

 

7.1                               Dispositions.

 

Convey, sell, lease,
transfer or otherwise dispose of (collectively a “Transfer”), or permit any of
its Subsidiaries to Transfer, all or any part of its business or property,
except for Transfers (i) of Inventory in the ordinary course of business; (ii) of
worn-out or obsolete Equipment; (iii) of licenses and similar arrangements
for the use of the Intellectual Property of Borrower or its Subsidiaries in the
ordinary course of business, (iv) the licensing of components of the Intellectual
Property in connection with joint ventures and corporate collaborations in the
ordinary course of business; or (v) such other Transfers not to exceed
$50,000 in the aggregate in any fiscal year.

 

10

 

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

 

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 thereto, or
have a material change in its ownership (other than by the sale of Borrower’s
equity securities in a public offering or to venture capital investors so long
as Borrower identifies to Lenders the venture capital investors prior to the
closing of the investment), or a material change in management; provided,
however, if Lenders do not consent to such material change in ownership or
material change in management, then Borrower may prepay all of the
Obligations without payment of the Prepayment Fee. Borrower shall not, without
at least thirty (30) days prior written notice to Lenders: (i) relocate
its chief executive office, or add any new offices or business locations,
including warehouses (unless such new offices or business locations contain
less than Five Thousand Dollars ($5,000) in Borrower’s assets or property), or (ii) change
its jurisdiction of organization, or (iii) change its organizational
structure or type, or (iv) change its legal name, or (v) change any
organizational number (if any) assigned by its jurisdiction of organization.

 

7.3                               Mergers
or Acquisitions.

 

Merge
or consolidate, or permit any of its Subsidiaries to merge or consolidate, with
any other Person, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person;
provided, however, if Lenders do not consent to such a transaction, then
Borrower may prepay all of the Obligations without payment of the
Prepayment Fee. A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.

 

7.4                               Indebtedness.

 

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

 

7.5                               Encumbrance.

 

Create,
incur, or allow any Lien on any of its property, or assign or convey any right
to receive income, including the sale of any Accounts, or permit any of its Subsidiaries
to do so, except for Permitted Liens, or permit any Collateral not to be
subject to the first priority security interest granted herein. The Collateral may also
be subject to Permitted Liens. Except as permitted under Section 7.1,
Borrower shall not sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber, or enter into any agreement, document,
instrument or other arrangement (except with or in favor of Lenders) with any
Person which directly or indirectly prohibits or has the effect of prohibiting
Borrower from selling, transferring, assigning, mortgaging, pledging, leasing,
granting a security interest in or upon, or encumbering any of Borrower’s
Intellectual Property.

 

7.6                               Distributions;
Investments.

 

(i) Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments
or mergers or acquisitions permitted by Section 7.3 above , or permit
any of its Subsidiaries to do so; or (ii) pay any dividends or make any
distribution or payment or redeem, retire or purchase any
capital stock except (a) dividends and distributions payable solely in
capital stock of Borrower and (b) repurchases of stock from former
employees, consultants or directors of Borrower under the terms of applicable
repurchase agreements in an aggregate amount not to exceed $50,000 in the
aggregate in any fiscal year, provided that no Event of Default has occurred,
is continuing or would exist after giving effect to any such repurchase.

 

11

 

7.7                               Transactions
with Affiliates.

 

Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower’s business,
upon fair and reasonable terms that are no less favorable to Borrower than
would be obtained in an arm’s length transaction with a non-affiliated Person.

 

7.8                               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 without Lenders’ 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 or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower’s business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.

 

7.10                        Indebtedness Payments.

 

(i) Prepay,
redeem, purchase, defease or otherwise satisfy in any manner prior to the
scheduled repayment thereof any Indebtedness for borrowed money (other than
amounts due under this Agreement or due any Lender or as specifically required
under Sections 3.1 (d) and (e)) or lease obligations, (ii) amend,
modify or otherwise change the terms of any Indebtedness for borrowed money or
lease obligations so as to accelerate the scheduled repayment thereof or (iii) repay
any notes to officers, directors or shareholders, except as permitted pursuant
to any subordination agreement entered into with Lenders.

 

8                                         EVENTS OF DEFAULT

 

Any
one of the following is an Event of Default:

 

8.1                               Payment
Default.

 

Borrower
fails to pay any of the Obligations within three (3) days after their due
date. During the additional period the failure to cure the default shall not constitute
an Event of Default (but no Credit Extension shall be made during such cure
period).

 

8.2                               Covenant
Default.

 

(a)                                  If Borrower
fails to perform any obligation under Sections 6.2 or 6.7 or
violates any of the covenants contained in Section 7 of this
Agreement, or

 

(b)                                 If Borrower
fails or neglects to perform, keep, or observe any other material term,
provision, condition, covenant, or agreement contained in this Agreement, in
any of the Loan 

 

12

 

Documents, or in any other
present or future agreement between Borrower and any Lender and as to any
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within ten (10) days after
the occurrence thereof; provided, however, that if the default cannot by its
nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrower be cured within such ten (10) day period, and such
default is likely to be cured within a reasonable time, then Borrower shall
have an additional reasonable period (which shall not in any case exceed thirty
(30) days after the end of such ten (10) day period) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Credit
Extensions will be made during such cure period).

 

8.3                               Material Adverse Change. A Material Adverse Change
occurs.

 

8.4                               Attachment.

 

(i)                                     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 ten (10) days; (ii) the service of process upon the
Borrower seeking to attach, by trustee or similar process, any funds of the
Borrower on deposit with any Lender, or any entity under the
control of any Lender (including a subsidiary); (iii) Borrower is
enjoined, restrained, or prevented by court order from conducting a
material part of its business; (iv) a judgment or other claim becomes
a Lien on a material portion of Borrower’s assets; or (v) a notice of
lien, levy, or assessment is filed against any of Borrower’s assets by any
government agency and not paid within ten (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 shall be
made during the cure period).

 

8.5                               Insolvency.

 

(i)                                     Borrower is
unable to pay its debts (including trade debts) as they mature;
(ii) Borrower begins an Insolvency Proceeding; or (iii) an Insolvency
Proceeding is begun against Borrower and not dismissed or stayed within forty-five
(45) days (but no Credit Extensions shall be made before any Insolvency
Proceeding is dismissed).

 

8.6                               Other
Agreements.

 

If
there is a default in any agreement to which Borrower is a party with a third
party or parties resulting in a right by such third party or parties, whether
or not exercised, to accelerate the maturity of any Indebtedness in an amount
in excess of One Hundred Thousand Dollars ($100,000) or that could result in a Material
Adverse Change.

 

8.7                               Judgments.

 

If
a judgment or judgments for the payment of money in an amount, individually or
in the aggregate, of at least Two Hundred Thousand Dollars ($200,000) shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a
period of ten (10) days (provided that no Credit Extensions will be made
prior to the satisfaction or stay of such judgment).

 

13

 

8.8                               Misrepresentations.

 

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

 

8.9                               Guaranty.

 

(i)                                     Any guaranty of
any Obligations terminates or ceases for any reason to be in full force; or (ii) any
Guarantor does not perform any obligation under any guaranty of the
Obligations; or (iii) any material misrepresentation or material
misstatement exists now or later in any warranty or representation in any
guaranty of the Obligations or in any certificate delivered to Lenders in
connection with the guaranty; or (iv) any circumstance described in Sections
8.3, 8.4, 8.5, or 8.8 occurs to any Guarantor, or (v) the liquidation,
winding up, termination of existence, or insolvency of any Guarantor.

 

8.10                        Intentionally
Deleted.

 

8.11                        Lien
Priority.

 

There
is a material impairment in the priority of any Lender’s security interest in
the Collateral.

 

9                                         RIGHTS AND REMEDIES

 

9.1                               Rights
and Remedies.

 

When
an Event of Default occurs and continues Lenders 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 Lenders);

 

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

 

(c)                                  Settle or
adjust disputes and claims directly with account debtors for amounts, on terms
and in any order that Lenders consider advisable and notify any Person owing
Borrower money of Lenders’ security interest in such funds and verify the
amount of such account. Borrower shall collect all payments in trust for Lenders
and, if requested by Lenders, immediately deliver the payments to Lenders in
the form received from the account debtor, with proper endorsements for
deposit;

 

(d)                                 Make any
payments and do any acts it considers necessary or reasonable to protect their
security interest in the Collateral. Borrower shall assemble the Collateral if Lenders
request and make it available as Lenders designate. Lenders 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 Lenders a license to enter and occupy any of its
premises, without charge, to exercise any of Lenders’ rights or remedies;

 

14

 

(e)                                  Apply to the
Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by any Lender 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. Lenders are hereby granted a non-exclusive,
royalty-free license or other right to use, without charge, Borrower’s labels,
patents, copyrights, mask works, rights of use of any name, trade secrets,
trade names, trademarks, service marks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Lenders’
exercise of their rights under this Section, Borrower’s rights under all
licenses and all franchise agreements inure to Lenders; and

 

(g)                                 Place a “hold”
on any account maintained with any Lender and/or deliver a notice of exclusive
control, any entitlement order, or other directions or instructions pursuant to
any control agreement or similar agreements providing control of any Collateral
(except with respect to any certificates of deposit or deposit or investment
accounts pledged as Collateral to secure cash management services, corporate
business credit cards or letters of credit separately issued or supplied by SVB
under separate agreements between SVB and Borrower, Lenders agree not to take
any of the actions described in this clause (g) unless an Event of Default
has occurred and is continuing);

 

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

 

(i)                                     exercise all
rights and remedies and dispose of the Collateral according to the Code.

 

9.2                               Power
of Attorney.

 

Borrower
hereby irrevocably appoints each Lender as its lawful attorney-in-fact, to be
effective upon the occurrence and during the continuance of an Event of
Default, 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) settle and adjust disputes and claims about the Accounts
directly with account debtors, for amounts and on terms such Lender determines
reasonable; (iv) make, settle, and adjust all claims under Borrower’s
insurance policies; and (v) transfer the Collateral into the name of such Lender
or a third party as the Code permits. Borrower hereby appoints each Lender as
its lawful attorney-in-fact 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 until all Obligations have been
satisfied in full and Lenders are under no further obligation to make Credit
Extensions hereunder. Each Lender’s foregoing appointment as Borrower’s
attorney in fact, and all of such Lender’s rights and powers, coupled with an
interest, are irrevocable until all Obligations have been fully repaid and
performed and Lenders’ obligation to provide Credit Extensions terminates.

 

9.3                               Accounts,
Notification and Collection.

 

In the event that an Event of Default occurs and is continuing, Lenders
may notify any Person owing Borrower money of Lenders’ security interest
in the funds and verify and/or collect the amount of the Account. After the
occurrence of an Event of Default, any amounts received by Borrower shall be
held in trust by Borrower for Lenders, and, if requested by Lenders, Borrower
shall immediately deliver such receipts to Lenders in the form received
from the account debtor, with proper endorsements for deposit.

 

15

 

9.4                               Lenders
Expenses

 

Any
amounts paid by Lenders as provided herein are Lenders Expenses and are
immediately due and payable and shall bear interest at the then applicable rate
and be secured by the Collateral. No payments by Lenders shall be deemed an
agreement to make similar payments in the future or Lenders’ waiver of any
Event of Default.

 

9.5                               Lenders’
Liability for Collateral.

 

So long as Lenders comply
with their obligations, if any, under the Code, neither Lender shall in any way
or manner be liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or damage to the Collateral; (c) any
diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of
loss, damage or destruction of the Collateral.

 

9.6                               Remedies
Cumulative.

 

Lenders’
rights and remedies under this Agreement, the Loan Documents, and all other
agreements are cumulative. Lenders have all rights and remedies provided under
the Code, by law, or in equity. Lenders’ exercise of one right or remedy is not
an election, and Lenders’ waiver of any Event of Default is not a continuing
waiver. Lenders’ delay is not a waiver, election, or acquiescence. No waiver
hereunder shall be effective unless signed by each Lender and then is only
effective for the specific instance and purpose for which it was given.

 

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 Lenders on which Borrower is liable.

 

10                                  NOTICES

 

Notices
or demands by any party about this Agreement must be in writing and personally
delivered or sent by an overnight delivery service, or by certified mail,
postage prepaid, return receipt requested, or by telefacsimile at the addresses
listed below. A party may change its notice address by written notice to the
other party.

 

	
   

  	
  If to Borrower:

  	
  TorreyPines Therapeutics, Inc.

  
	
   

  	
   

  	
  11085 N. Torrey Pines Road, Suite 300

  
	
   

  	
   

  	
  La Jolla, CA 92037

  
	
   

  	
   

  	
  Attn: Craig Johnson, Chief Financial Officer

  
	
   

  	
   

  	
  Fax: (858) 623-5666

  
	
   

  	
   

  	
   

  
	
   

  	
  If to SVB:

  	
  Silicon Valley Bank

  
	
   

  	
   

  	
  4442 Eastgate Mall, Suite 110

  
	
   

  	
   

  	
  San Diego, California 92121

  
	
   

  	
   

  	
  Attn: Susan L. Worsham

  
	
   

  	
   

  	
  Fax: (858) 622-1424

  

 

16

 

	
   

  	
  If to Oxford:

  	
  Oxford Finance Corporation

  
	
   

  	
   

  	
  133 N. Fairfax Street

  
	
   

  	
   

  	
  Alexandria, VA 22314

  
	
   

  	
   

  	
  Attn: Michael J. Altenburger, Chief Financial
  Officer

  
	
   

  	
   

  	
  Telephone: (703) 519-4900

  
	
   

  	
   

  	
  Facsimile: (703) 519-5225

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Oxford Finance Corporation

  
	
   

  	
   

  	
  1674 Foothill Park Court

  
	
   

  	
   

  	
  Lafayette, CA 94549

  
	
   

  	
   

  	
  Attn: Kevin May

  
	
   

  	
   

  	
  Telephone: (925) 932-7034

  
	
   

  	
   

  	
  Facsimile: (925) 932-7035

  

 

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 Lenders each submit to the exclusive jurisdiction of the State and
Federal courts in California and Borrower accepts jurisdiction of the courts
and venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, THE
LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH THE LENDERS
DEEM NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO
OTHERWISE ENFORCE THE LENDERS’ RIGHTS AGAINST THE BORROWER OR ITS PROPERTY.

 

BORROWER
AND LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL
OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR 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. Borrower may not assign this Agreement or any rights or
Obligations under it without Lenders’ prior written consent which may be
granted or withheld in Lenders’ discretion. Lenders have the right, without the
consent of or notice to Borrower, to sell, transfer, assign, negotiate, or
grant participation in all or any part of, or any interest in, Lenders’
obligations, rights and benefits under this Agreement, the Loan Documents or
any related agreement, including, without limitation, an assignment to any
Affiliate or related party.

 

17

 

12.2                        Indemnification.

 

Borrower
hereby indemnifies, defends and holds Lenders and their respective officers,
employees, and agents harmless 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 Lenders Expenses incurred, or paid by Lenders from, following, or
consequential to transactions between Lenders and Borrower (including
reasonable attorneys’ fees and expenses), except as to (a) and (b) for
losses caused by a Lender’s gross negligence or willful misconduct.

 

12.3                        Attorneys’
Fees, Costs and Expenses.

 

In any action or proceeding between Borrower and any Lender 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.

 

12.4                        Right
of Set-Off.

 

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

 

12.5                        Time of
Essence.

 

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

 

12.6                        Severability
of Provision.

 

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

 

12.7                        Amendments
in Writing, Integration.

 

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

 

18

 

12.8                        Counterparts.

 

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

 

12.9                        Survival.

 

All
covenants, representations and warranties made in this Agreement continue in
full force while any Obligations remain outstanding. The obligations of
Borrower to indemnify any Lender, including without limitation Section 12.2,
shall survive until the statute of limitations with respect to such claim or
cause of action shall have run. The obligations of Borrower under Section 6.9,
shall survive until they are, by their terms, no longer operative.

 

12.10                 Confidentiality.

 

In
handling any confidential information of Borrower or any of Borrower’s
Affiliates, each Lender shall exercise the same degree of care that it
exercises for its own proprietary information, but disclosure of information may be
made: (i) to a Lender’s subsidiaries or affiliates in connection with their
business with Borrower; (ii) to prospective transferees or purchasers of
any interest in the Credit Extensions (provided, however, such Lender shall use
commercially reasonable efforts in obtaining such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (iii) as required
by law, regulation, subpoena, or other order, (iv) as required in
connection with a Lender’s examination or audit; and (v) as Lenders consider
appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in a Lender’s possession when disclosed to Lenders, or becomes part of
the public domain after disclosure to Lenders through no fault of Lenders; or (b) is
disclosed to a Lender by a third party, if Lenders do not know that the third
party is prohibited from disclosing the information.

 

12.11                 Effective
Date.

 

Notwithstanding
anything set forth in this Agreement or any Loan Document to the contrary, this
Agreement and all of the Loan Documents shall not be effective until the date
on which each Lender execute this Agreement as indicated on the signature page to
this Agreement.

 

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, as such definition may be amended from time to time
according to the Code.

 

“Affiliate” 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.

 

19

 

“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 SVB is closed.

 

“Code” is the Uniform Commercial Code as adopted in California
as amended and in effect from time to time.

 

“Collateral” is any and all properties,
rights and assets of the Borrower granted by the Borrower to Lenders or arising
under the Code, now, or in the future, described on Exhibit A.

 

“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.

 

“Credit Extension” is each Growth Capital Advance or any other extension of credit by any Lender
for Borrower’s benefit made pursuant to this Agreement.

 

“Dollars” and “$” each means
the lawful currency of the United States.

 

“Effective Date” is the date Lenders
execute this Agreement and as indicated on the signature page hereof.

 

“Equipment” is all present and future
machinery, equipment, tenant improvements, furniture, fixtures, vehicles,
tools, parts and attachments in which Borrower has any interest.

 

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

 

“Equity Condition” means the closing, after the Effective
Date, of one or more sales by Borrower of its capital stock with aggregate
gross cash proceeds of at least Twenty Million Dollars ($20,000,000).

 

“GAAP” is generally accepted accounting principles.

 

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

 

20

 

“Growth Capital Amortization Date” means: (a) for the
Tranche A Growth Capital Advance, May 1, 2006, and (b) for the
Tranche B Growth Capital Advance, its Growth Capital Funding Date.

 

“Growth
Capital Commitment
Percentage” means: (i) thirty
five percent (35%) with respect to SVB, and sixty five percent (65%) with
respect to Oxford.

 

“Growth Capital Commitment Termination Date” is: (a) for the Tranche A Growth Capital Advance,
September 30, 2005, and (b) for the Tranche B Growth Capital Advance,
March 31, 2006.

 

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

 

“Growth Capital Interest Only Period” means, for the Tranche A Growth Capital
Advance, the period of time commencing on its Growth Capital Funding Date
through the day before its Growth Capital Amortization Date. There will be no
Growth Capital Interest Only Period for the Trance B Growth Capital Advance.

 

“Growth
Capital Loan Commitment” is (a) Five Million Dollars ($5,000,000)
through September 30, 2005, plus (b) an additional Five Million
Dollars ($5,000,000) if and only if the Tranche B Closing Condition is met on
or before March 31, 2006.

 

“Growth Capital Maturity Date” is: for the Tranche A Growth
Capital Advance, the earliest of (a) April 1, 2009, (b) the
occurrence of an Event of Default and acceleration of the Obligations as a
consequence thereof, or (c) at Lenders’ election, seven (7) days before
a Redemption Date (as defined in Borrower’s Fourth Amended and Restated
Certificate of Incorporation, as amended from time to time); and for the
Tranche B Growth Capital Advance, the earliest of (x) the 36th Growth Capital
Scheduled Payment Date for the Tranche B Growth Capital Advance, (y) the
occurrence of an Event of Default and acceleration of the Obligations as a
consequence thereof, or (c) at Lenders’ election, seven (7) days
before a Redemption Date (as defined in Borrower’s Fourth Amended and Restated
Certificate of Incorporation, as amended from time to time).

 

“Growth
Capital Payment
Date” is defined in Section 2.3(a)(iii).

 

“Growth
Capital Repayment
Period” is a period of
time equal to thirty six (36) consecutive months commencing on the applicable
Growth Capital Amortization Date.

 

“Guarantor” is any present or future guarantor of the
Obligations.

 

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

 

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

 

21

 

“Intellectual Property” is:

 

(a)                                  Copyrights,
Trademarks, Patents, Know-How and Mask Works including amendments, renewals,
extensions;

 

(b)                                 All
licenses or other rights to use and all license fees and royalties from the use
of the intellectual property rights in (a) above and (c) and (d) below;

 

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

 

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

 

(e)                                  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 in (a), (b), (c) and (d) above;

 

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

 

 “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.

 

“Know-How” means all ideas, inventions, scientific
information, procedures, instructions, techniques, designs, formulas, methods,
data, technical information (including toxicological, pharmaceutical,
non-clinical, clinical and medical data, health registration data and marketing
data), processing specifications, pricing studies and market evaluation
materials and all intellectual property rights therein owned, licensed or
sublicensed by Borrower.

 

“Lenders Expenses” are all audit fees and
expenses and reasonable costs or expenses (including reasonable attorneys’ fees
and expenses) for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including appeals or Insolvency Proceedings).

 

“Letter-of-Credit Right” means a right to payment or performance
under a letter of credit, whether or not the beneficiary has demanded or is at
the time entitled to demand payment or performance.

 

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

 

22

 

“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 Guarantor for the benefit of Lenders 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” is: (i) a material impairment in the
perfection or priority of Lenders’ security interest in the Collateral or in
the value of such Collateral; (ii) a material adverse change in the
business, operations, or condition (financial or otherwise) of the Borrower; or
(iii) a material impairment of the prospect of repayment of any portion of
the Obligations.

 

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

 

“Obligations” are debts, principal, interest, fees, Prepayment
Fee, Lenders Expenses, and other amounts Borrower owes either of the Lenders now
or later under or in connection with this Agreement, including cash management
services, letters of credit and foreign exchange contracts, if any and
including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Lenders.

 

“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, until the Equity Condition occurs:

 

(a)                                  Borrower’s
indebtedness to Lenders under this Agreement or the Loan Documents;

 

(b)                                 Indebtedness existing on the Effective
Date and shown on the Perfection Certificate, including any existing
Indebtedness to any Lender;

 

(c)                                  Indebtedness secured by Permitted Liens
other than those Liens described in clauses (c) and (g) of the
definition of Permitted Liens;

 

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

 

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

 

“Permitted Indebtedness” is, if and after the Equity Condition occurs:

 

(a)                                  Borrower’s
indebtedness to Lenders under this Agreement or the Loan Documents;

 

(b)                                 Indebtedness
existing on the Effective Date and shown on the Perfection Certificate,
including any existing Indebtedness to any Lender;

 

(c)                                  Subordinated
Debt;

 

23

 

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

 

(e)                                  Indebtedness
secured by Permitted Liens;

 

(f)                                    Indebtedness of
Borrower to any Subsidiary and Contingent Obligations of any Subsidiary with
respect to obligations of Borrower (provided that the primary obligations are
not prohibited hereby), and Indebtedness of any Subsidiary to any other
Subsidiary and Contingent Obligations of any Subsidiary with respect to
obligations of any other Subsidiary (provided that the primary obligations are
not prohibited hereby);

 

(g)                                 Other
Indebtedness not otherwise permitted by Section 7.4 not exceeding
$50,000 in the aggregate outstanding at any time; and

 

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

 

“Permitted Investments” are:

 

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

 

(b)                                 (i)  marketable direct obligations
issued or unconditionally guaranteed by the United States or its agency or any
state maturing within 1 year from its acquisition, (ii) commercial paper
maturing no more than 1 year after its creation and having the highest rating
from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc.,
(iii) SVB’s certificates of deposit issued maturing no more than 1 year
after issue, (iv) any other Investments administered through the Lenders; (v) any
other Investments administered through the Lenders; and (vi) any
Investments permitted by Borrower’s investment policy, as amended from time to
time, provided that such investment policy (and any such amendment thereto) has
been approved by Lenders;

 

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

 

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

 

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

 

24

 

(f)                                    Joint ventures or strategic alliances (in
the ordinary course of Borrower’s business) consisting of the non-exclusive
licensing of technology, the development of technology or the providing of
technical support, provided that any cash investments by Borrower do not exceed
$50,000 in the aggregate in any fiscal year, provided that no such cash
investment may be made if an Event of Default is then occurring or would
otherwise upon the making thereof;

 

(g)                                 Investments pursuant to or arising under
currency agreements or interest rate agreements entered into in the ordinary
course of business;

 

(h)                                 Investments consisting of deposit
accounts and securities accounts of Borrower, subject to the compliance by
Borrower with the covenant set forth in Section 6.6 hereof;

 

(i)                                     Investments of Subsidiaries in or to
other Subsidiaries of Borrower and Investments by Borrower in Subsidiaries not
to exceed $ 50,000 in the aggregate in any fiscal year, provided that no
Investments by Borrower in Subsidiaries may be made if an Event of Default
is then occurring or would otherwise upon the making thereof; and

 

(j)                                     Other
Investments not otherwise permitted by Section 7.6 not exceeding
$50,000 in the aggregate outstanding at any time.

 

“Permitted Liens” are:

 

(a)                                  Liens existing
on the Effective Date and shown on the Perfection Certificate or arising under
this Agreement or other Loan Documents, including Liens in favor of either
Lender;

 

(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 Lenders’ security
interests;

 

(c)                                  Purchase money
Liens (and including
for purposes of this clause Liens incurred in connection with capital leases) (i) on
Equipment acquired or held by Borrower 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)                                 Leases or
subleases and licenses or sublicenses granted in the ordinary course of
Borrower’s business;

 

(e)                                  materialmen’s, mechanic’s, repairmen’s,
employee’s or other like Liens arising in the ordinary course of business and
which are not delinquent;

 

(f)                                    banker’s liens, rights of setoff and
similar Liens incurred on deposits made in the ordinary course of business
subject to Borrower’s compliance with Section 6.6 hereof;

 

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

 

(h)                                 Liens in favor of other financial
institutions arising in connection with Borrower’s deposit accounts or
securities accounts held at such institutions to secure payment of fees and
similar costs and expenses subject to Borrower’s compliance with Section 6.6
hereof;

 

25

 

(i)                                     Liens to secure payment of worker’s
compensation, employment insurance, old age pensions or other social security
obligations of Borrower in each case arising in the ordinary course of business
of Borrower;

 

(j)                                     easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and similar charges or
encumbrances affecting real property not constituting a material adverse effect
on the business or condition (financial or otherwise) of Borrower or otherwise
materially impairing the conduct of Borrower’s business; and

 

(k)                                  Liens incurred
in the extension, renewal or refinancing of the indebtedness secured by Liens
described above, but any extension, renewal or replacement Lien must be limited
to the property encumbered by the existing Lien and the then outstanding
principal amount of the indebtedness may not increase.

 

“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.

 

“Prepayment Fee” shall be, for each Growth Capital Advance, an
amount equal to: (1) if the prepayment date is on or before one (1) year
after the Growth Capital Funding Date, four percent (4.0%) of the outstanding
principal balance as of the prepayment date, (2) if the prepayment date is
more than one (1) year after the Growth Capital Funding Date, but on or
before two (2) years after the Growth Capital Funding Date, three percent
(3.0%) of the outstanding principal balance as of the prepayment date, and (3) if
the prepayment date is more than two (2) years after the Growth Capital
Funding Date, two percent (2.0%) of the outstanding principal balance as of the
prepayment date, The “Prepayment Fee” for Growth Capital Advances shall be the
sum of all of the “Prepayment Fees” for each Growth Capital Advance.

 

“Proceeds” has the meaning described in the Code as in effect
from time to time.

 

“Registered Organization” means an organization organized solely under the law
of a single state or the United States and as to which the state or the United
States must maintain a public record showing the organization to have been
organized.

 

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

 

“Subordinated Debt” is debt incurred by Borrower subordinated to
Borrower’s debt to Lenders (pursuant to a subordination agreement entered into
between the Lenders, the Borrower and the subordinated creditor), on terms
acceptable to Lenders.

 

“Subsidiary” is any Person, corporation,
partnership, limited liability company, joint venture, 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.

 

“Supporting Obligation” means a Letter-of-Credit Right,
secondary obligation or obligation of a secondary obligor or that supports the
payment or performance of an account, chattel paper, a document, a general
intangible, an instrument or investment property.

 

26

 

“Trademarks” are trademark and service mark rights, registered
or not, applications to register and registrations and like protections, and
the entire goodwill of the business of the owner or licensee of such trademark
and service mark rights connected with the trademarks and service mark rights.

 

“Tranche
B Closing Condition” means the occurrence of one of the following on or
before March 31, 2006: (a) the completion of the first Phase I trial
for NGX 267 along with protocol submission for a second NGX 267 Phase I trial,
or (b) the initiation of the Phase II migraine trial for NGX424.

 

“Treasury
Rate” means the U.S.
Treasury note yield to maturity for a 36-month term as quoted in the Wall
Street Journal on the applicable Growth Capital Advance Funding Date.

 

(Signatures are on the following page)

 

27

 

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

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  
	
   

  	
  TORREYPINES THERAPEUTICS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Craig
  Johnson

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Craig
  Johnson

  	
   

  
	
   

  	
   

  	
  Title:

  	
  CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LENDERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  OXFORD FINANCE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/Michael Altenburger

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael J. Altenburger

  	
   

  
	
   

  	
   

  	
  Title:
  

  	
  Manager

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SILICON
  VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/Susan
  L. Worsham

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Susan
  L. Worsham

  	
   

  
	
   

  	
   

  	
  Title:
  

  	
  Deal
  Team Leader

  	
   

  
							

 

Effective
as of September 27, 2005

 

28

 

EXHIBIT A

 

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

 

All
goods, equipment, inventory, contract rights or rights to payment of money,
license agreements, franchise agreements, general intangibles (including
payment intangibles), accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible
or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property, financial assets, whether now
owned or hereafter acquired, wherever located; all Supporting Obligations and
any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and Proceeds thereof.

 

All Letter-Of-Credit
Rights (whether or not the letter of credit is evidenced by a writing); and

 

All Borrower’s Books
relating to the foregoing and any and all claims, rights and interests in any
of the above and all substitutions for, additions, attachments, accessories,
accessions and improvements to and replacements, products, proceeds and
insurance proceeds of any or all of the foregoing.

 

The Collateral does not
include:

 

 (a)                               Intellectual Property. Notwithstanding the foregoing,
the Collateral shall include all accounts, license and royalty fees and other
revenues, proceeds, or income arising out of or relating to any of the foregoing
Intellectual Property. To the extent a court of competent jurisdiction holds
that a security interest in any Intellectual Property is necessary to have a
security interest in any accounts, license and royalty fees and other revenues,
proceeds, or income arising out of or relating to any of the foregoing
Intellectual Property, then the Collateral shall, effective as of the Effective
Date, include the Intellectual Property, to the extent necessary to permit
perfection of the Lenders’ security interest in such accounts, license and
royalty fees and other revenues, proceeds, or income arising out of or relating
to any of the Intellectual Property.

 

(b)                                 any contract, instrument or chattel paper in
which the Borrower has any right, title or interest if and to the extent any
such contract, instrument or chattel paper includes a provision containing a
restriction on assignment such that the creation of a security interest in the
right, title or interest of Borrower therein would be prohibited and would, in
and of itself, cause or result in a default thereunder enabling another person
party to such contract, instrument or chattel paper to enforce any remedy with
respect thereto (provided that the foregoing exclusion shall not apply if (i) such
prohibition has been waived or such person has otherwise consented to the
creation hereunder of a security interest in such contract, instrument or
chattel paper or (ii) such prohibition would be rendered ineffective
pursuant to Sections 9-407(a) or 9-408(a) of the Code, as applicable
and as then in effect in any relevant jurisdiction, or any other applicable law
(including the federal bankruptcy code) or principles of equity; provided
further that immediately upon the ineffectiveness, lapse or termination of any
such provision, the Collateral shall include, and Borrower shall be deemed to
have granted a security interest in, all its rights, title and interest in and
to such contract, instrument or chattel paper as if such provision had never
been in effect; and provided further that the foregoing exclusion shall in no
way be construed so as to limit, impair or otherwise affect Lenders’
unconditional continuing security interest in and to all rights, title and
interests of Borrower in or to any payment obligations or other rights to
receive monies due or to become due under any such 

 

29

 

contract,
instrument or chattel paper and in any such monies and other proceeds of such
contract, instrument or chattel paper), or

 

(c)  more than 65% of the total combined voting
power of all classes of stock entitled to vote the shares of capital stock of
any Subsidiary of Borrower not incorporated or organized under the laws of one
of the States or jurisdictions of the United States.

 

30

 

EXHIBIT B

 

Loan Payment/Advance Request Form

 

	
  Fax To:                   

  	
   

  	
  Date:

  

 

LOAN PAYMENT:

 

	
   

  	
  (Borrower)

  
	
   

  	
   

  
	
  From Account #

  	
  To Account #

  
	
  (Deposit Account #)

  	
  (Loan Account #)

  
	
   

  	
   

  
	
  Principal
  $

  	
  and/or Interest $

  
			

 

All
Borrower’s representation and warranties in the Loan and Security Agreement are
true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:

 

	
  Authorized Signature:

  	
  Phone Number:

  

 

LOAN ADVANCE:

 

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

 

	
  From Account #

  	
  To Account #

  
	
  (Loan Account #)

  	
  (Deposit Account #)

  

 

Amount of Advance $

 

All Borrower’s representation and warranties in the Loan and Security
Agreement are true, correct and complete in all material respects on the date
of the telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:

 

	
  Authorized
  Signature:

  	
  Phone
  Number:

  

 

OUTGOING WIRE REQUEST

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

 

Deadline for same day processing is 12:00pm, P.S.T.

 

	
  Beneficiary Name:

  	
  Amount of Wire: $

  
	
   

  	
   

  
	
  Beneficiary Bank:

  	
  Account Number:

  

 

City and State:

 

Beneficiary Bank Transit (ABA) #:                                                    Beneficiary
Bank Code (Swift, Sort, Chip, etc.):

 

	
   

  	
  (For International Wire Only)

  

 

31

 

	
  Intermediary Bank:

  	
  Transit (ABA) #:

  

 

 

For Further Credit to:

 

Special Instruction:

 

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

 

	
  Authorized Signature: 

  	
  2nd Signature (If Required): 

  
	
   

  	
   

  
	
  Print Name/Title:

  	
  Print Name/Title:

  
	
   

  	
   

  
	
  Telephone #

  	
  Telephone #

  

 

32

 

EXHIBIT C

COMPLIANCE
CERTIFICATE

 

	
  TO:

  	
   

  	
  SILICON VALLEY BANK and OXFORD FINANCE CORPORATION

  
	
  FROM:

  	
   

  	
  TORREYPINES THERAPEUTICS, INC.

  

 

The undersigned authorized officer of TORREYPINES
THERAPEUTICS, INC. certifies that under the terms and
conditions of the Loan and Security Agreement among Borrower and Lenders (the “Agreement”),
(i) Borrower is in complete 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. Attached are the required documents supporting the certification. In
addition, the undersigned certifies that (1) Borrower and each Subsidiary have
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 and (ii) no liens has been levied or claims
made against Borrower or any of its Subsidiaries relating to unpaid
employee payroll or benefits which Borrower has not previously notified in
writing to Lenders. The Officer certifies that these are prepared in accordance
with 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

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly financial statements with CC

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Annual (CPA Audited)

  	
   

  	
  FYE within 180 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Annual projections

  	
   

  	
  FYE within 60 days of Board approval

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  10-Q, 10-K and 8-K

  	
   

  	
  Within 5 days after filing with SEC

  	
   

  	
  Yes

  	
   

  	
  No

  

 

	
  Comments Regarding Exceptions: See Attached.

  	
  LENDER USE ONLY

  
	
   

  	
  Received by:

  	
   

  	
   

  
	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
  Sincerely,

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  Title

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance
  Status:       Yes
          No

  
	
  Date

  	
   

  	
   

  
												

 

33

 

EXHIBIT D

 

FORM OF GROWTH CAPITAL ADVANCE NOTE

SECURED PROMISSORY NOTE

 

	
  $                                    

  	
  Dated: [Date]

  

 

 

FOR VALUE RECEIVED, the undersigned, TORREYPINES
THERAPEUTICS, INC., a Delaware corporation (“Borrower”), HEREBY
PROMISES TO PAY to the order of [LENDER] 
(“Lender”) the principal amount of             
Dollars ($          ) or such
lesser amount as shall equal the outstanding principal balance of the Growth
Capital Advance made to Borrower by Lender pursuant to the Loan Agreement (defined
below), and to pay all other amounts due with respect to the Growth Capital
Advance on the dates and in the amounts set forth in the Loan Agreement. (Capitalized
terms, unless defined in this Note, shall have the meaning given such
capitalized term in the Loan Agreement.)

 

Interest on the principal amount of this Note from
the date of this Note shall accrue at      % per annum
based on a 360-day year of twelve 30-day months or, if applicable, the Default
Rate. [Borrower shall make payments of accrued interest only on the outstanding
principal amount of the Growth Capital Advance on the first Business Day of
each month (“Payment Date”), commencing           ,
2005, through and including          
1, 2006.]  Commencing on       
1, 2006, and continuing [on consecutive Payment Dates][on the first Business
Day of each month (“Payment Date”)] thereafter, Borrower shall make to
Lender thirty six (36) equal payments of principal and accrued interest on the
then outstanding principal amount in the amount of         
Dollars ($        ).

 

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

 

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

 

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

 

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

 

Borrower shall pay all reasonable fees and expenses,
including, without limitation, reasonable attorneys’ fees and costs, incurred
by Lenders in the enforcement or attempt to enforce 

 

34

 

any
of Borrower’s obligations hereunder not performed when due. This Note shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of California.

 

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

 

	
   

  	
  TORREYPINES THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

35

 

LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL

 

	
  Date

  	
   

  	
  Principal

  Amount

  	
   

  	
  Interest Rate

  	
   

  	
  Scheduled

  Payment

  Amount

  	
   

  	
  Notation By

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

36

 

EXHIBIT E

Form of Payoff Letter

 

This PAYOFF AGREEMENT (this “Agreement”)
is dated as of [Date] and is by and between TorreyPines Therapeutics, Inc.
(“Borrower”) and [Comerica
Bank/GECapital] (“Lender”).

 

This Agreement will confirm that all loans made by
Lender to Borrower have been satisfied in full by Lender’s receipt of the
Payoff Amount (as defined below) in immediately available funds on or before
[Date]. The “Payoff Amount” shall equal as of
[Date], [       Dollars ($        )]
and shall increase at the rate of [       Dollars
($        )] per day after [Date].
Borrower shall pay Lender the Payoff Amount via wire transfer as follows:

 

[INSERT WIRE INSTRUCTIONS]

 

Upon Lender’s receipt of the Payoff Amount by wire
transfer on or before [Date], Lender releases (without recourse,
representation, or warranty) all liens and security interests in respect of all
assets of Borrower or otherwise created as security for any of Borrower’s
obligations to Lender and Lender authorizes Borrower or any third party to file
UCC Termination Statements to terminate all UCC Financing Statements in Lender’s
favor with respect to Borrower and such security for the Obligations, and
Lender will sign and deliver to Borrower such documents and take such other
actions, at Borrower’s expense, as Borrower shall reasonably request to
terminate all of Lender’s liens and security interests in respect of all assets
of the Borrower and such security for Borrower’s obligations to Lender.

 

This Agreement becomes effective upon the execution
and delivery of this Agreement by all of the parties hereto. This Agreement may be
executed in any number of identical counterparts, any set of which signed by
all of the parties hereto shall be deemed to constitute a complete, executed
original for all purposes. This Agreement constitutes and contains the entire
agreement of Borrower and Lender with respect to its subject matter, and supersedes
any and all prior agreements, correspondence and communications.

 

IN
WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be executed
as of the day and year first above written.

 

	
  [LENDER]

  	
   

  	
  TORREYPINES THERAPEUTICS,

  
	
   

  	
   

  	
  INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
									

 

37

 

EXHIBIT F

Form of SVB Warrant

 

38

 

EXHIBIT G

Form of Oxford Warrant

 

39Exhibit 10.8

 

TORREYPINES THERAPEUTICS, INC.

2000 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

 

Pursuant
to your Stock Option Grant Notice (“Grant Notice”)
and this Stock Option Agreement, TorreyPines Therapeutics, Inc. (the “Company”) has granted you an option
under its 2000 Equity Incentive Plan, as amended (the “Plan”),
to purchase the number of shares of the Company’s Common Stock indicated in
your Grant Notice at the exercise price indicated in your Grant Notice. Defined
terms not explicitly defined in this Stock Option Agreement but defined in the
Plan shall have the same definitions as in the Plan.

 

The
details of your option are as follows:

 

1.                                      VESTING. Subject to the limitations contained herein, your option will vest as
provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.

 

2.                                      NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to
your option and your exercise price per share referenced in your Grant Notice may be
adjusted from time to time for Capitalization Adjustments, as provided in the
Plan.

 

3.                                      EXERCISE PRIOR TO VESTING (“EARLY EXERCISE”). If permitted in your Grant Notice (i.e., the “Exercise
Schedule” indicates that “Early Exercise” of your option is permitted) and
subject to the provisions of your option, you may elect at any time that
is both (i) during the period of your Continuous Service and (ii) during
the term of your option, to exercise all or part of your option, including
the nonvested portion of your option; provided, however, that:

 

(a)                                  a partial exercise of your option shall be deemed
to cover first vested shares of Common Stock and then the earliest vesting
installment of unvested shares of Common Stock;

 

(b)                                  any shares of Common Stock so purchased from
installments that have not vested as of the date of exercise shall be subject
to the purchase option in favor of the Company as described in the Company’s form of
Early Exercise Stock Purchase Agreement;

 

(c)                                  you shall enter into the Company’s form of
Early Exercise Stock Purchase Agreement with a vesting schedule that will
result in the same vesting as if no early exercise had occurred; and

 

(d)                                  if
your option is an incentive stock option, then, as provided in the Plan, to the
extent that the aggregate Fair Market Value (determined at the time of grant)
of the shares of Common Stock with respect to which your option plus all other
incentive stock options you hold are exercisable for the first time by you
during any calendar year (under all plans of the Company and its Affiliates)
exceeds one hundred thousand dollars ($100,000), your option(s) or 

 

1

 

portions
thereof that exceed such limit (according to the order in which they were
granted) shall be treated as nonstatutory stock options.

 

4.                                      METHOD OF PAYMENT. Payment of the exercise price is due in full
upon exercise of all or any part of your option. You may elect to
make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice,
which may include one or more of the following:

 

(a)                                  In the Company’s sole discretion at the time your
option is exercised and provided that at the time of exercise the Common Stock
is publicly traded and quoted regularly in The Wall Street Journal,
pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board that, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds.

 

(b)                                  Provided that at the time of exercise the Common
Stock is publicly traded and quoted regularly in The Wall Street
Journal, by delivery of already-owned shares of Common Stock either
that you have held for the period required to avoid a charge to the Company’s
reported earnings (generally six months) or that you did not acquire, directly
or indirectly from the Company, that are owned free and clear of any liens,
claims, encumbrances or security interests, and that are valued at Fair Market
Value on the date of exercise. “Delivery” for these purposes, in the sole
discretion of the Company at the time you exercise your option, shall include
delivery to the Company of your attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the
foregoing, you may not exercise your option by tender to the Company of
Common Stock to the extent such tender would violate the provisions of any law,
regulation or agreement restricting the redemption of the Company’s stock.

 

5.                                      WHOLE SHARES. You may exercise your option only for whole shares of Common
Stock.

 

6.                                      SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of
Common Stock issuable upon such exercise are then registered under the
Securities Act or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act. The exercise of your
option must also comply with other applicable laws and regulations governing
your option, and you may not exercise your option if the Company
determines that such exercise would not be in material compliance with such
laws and regulations.

 

7.                                      TERM. You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the Date
of Grant and expires upon the earliest of
the following:

 

(a)                                  three (3) months after the termination of
your Continuous Service for any reason other than your Disability or death,
provided that if during any part of such three- (3-) month period your
option is not exercisable solely because of the condition set forth in the 

 

2

 

preceding paragraph relating to “Securities Law
Compliance,” your option shall not expire until the earlier of the Expiration
Date or until it shall have been exercisable for an aggregate period of three (3) months
after the termination of your Continuous Service;

 

(b)                                  twelve (12) months after the termination of your
Continuous Service due to your Disability;

 

(c)                                  eighteen (18) months after your death if you die
either during your Continuous Service or within three (3) months after
your Continuous Service terminates;

 

(d)                                  the Expiration Date indicated in your Grant
Notice; or

 

(e)                                  the day before the tenth (10th) anniversary of
the Date of Grant.

 

If
your option is an incentive stock option, note that, to obtain the federal
income tax advantages associated with an “incentive stock option,” the Code
requires that at all times beginning on the date of grant of your option and
ending on the day three (3) months before the date of your option’s
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an “incentive
stock option” if you continue to provide services to the Company or an
Affiliate as a Consultant or Director after your employment terminates or if
you otherwise exercise your option more than three (3) months after the
date your employment terminates.

 

8.                                      EXERCISE.

 

(a)                                  You may exercise the vested portion of your
option (and the unvested portion of your option if your Grant Notice so
permits) during its term by delivering a Notice of Exercise (in a form designated
by the Company) together with the exercise price to the Secretary of the
Company, or to such other person as the Company may designate, during
regular business hours, together with such additional documents as the Company may then
require.

 

(b)                                  By exercising your option you agree that, as a
condition to any exercise of your option, the Company may require you to
enter into an arrangement providing for the payment by you to the Company of
any tax withholding obligation of the Company arising by reason of (1) the
exercise of your option, (2) the lapse of any substantial risk of
forfeiture to which the shares of Common Stock are subject at the time of exercise,
or (3) the disposition of shares of Common Stock acquired upon such
exercise.

 

(c)                                  If your option is an incentive stock option, by
exercising your option you agree that you will notify the Company in writing
within fifteen (15) days after the date of any disposition of any of the shares
of the Common Stock issued upon exercise of your option that occurs within two (2) years
after the date of your option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of your option.

 

(d)                                  By exercising your option you agree that the
Company (or a representative of the underwriter(s)) may, in connection with the
first underwritten registration of the offering 

 

3

 

of any securities of the Company under the Securities
Act, require that you not sell, dispose of, transfer, make any short sale of,
grant any option for the purchase of, or enter into any hedging or similar
transaction with the same economic effect as a sale, any shares of Common Stock
or other securities of the Company held by you, for a period of time specified
by the underwriter(s) (not to exceed one hundred eighty (180) days) following
the effective date of the registration statement of the Company filed under the
Securities Act. You further agree to execute and deliver such other agreements
as may be reasonably requested by the Company and/or the underwriter(s)
that are consistent with the foregoing or that are necessary to give further
effect thereto. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to your shares of Common Stock until
the end of such period. The underwriters of the Company’s stock are
intended third party beneficiaries of this Section 8(d) and shall
have the right, power and authority to enforce the provisions hereof as though
they were a party hereto.

 

9.                                      TRANSFERABILITY. Your option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you. Notwithstanding
the foregoing, by delivering written notice to the Company, in a form satisfactory
to the Company, you may designate a third party who, in the event of your
death, shall thereafter be entitled to exercise your option.

 

10.                               RIGHT OF FIRST REFUSAL.

 

(a)                                  Shares of Common Stock that you acquire upon
exercise of your option are subject to any right of first refusal that may be
described in the Company’s bylaws in effect at such time the Company elects to
exercise its right.

 

(b)                                  If there is no right of first refusal described
in the Company’s bylaws in effect at such time the Company elects to exercise
its right, then you may not validly transfer (as hereinafter
defined) any shares of Common Stock that
you acquire upon exercise of your option, or any interest in such
shares, unless such transfer is solely for cash consideration and is made in
compliance with the following provisions (the Company’s “Right
of First Refusal”):

 

(i)                                    Before
there can be a valid transfer of any shares or any interest therein, the record
holder of the shares to be transferred (the “Offered
Shares”) shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the proposed
transferee, the cash price offered for the Offered Shares by the proposed
transferee and the other terms and conditions of the proposed transfer. The
date such notice is mailed shall be hereinafter referred to as the “notice date,” and the record holder
of the Offered Shares shall be hereinafter referred to as the “Offeror.”  If, from time to time, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of your option, then in such event any and all new, substituted or
additional securities to which you are entitled by reason of your ownership of
the shares acquired upon exercise of your option shall be immediately subject
to the Company’s Right of First Refusal with the same force and effect as the
shares subject to the Company’s Right of First Refusal immediately before such
event.

 

4

 

(ii)                                For
a period of thirty (30) calendar days after the notice date, the Company shall
have the option to purchase all (but not less than all) of the Offered Shares
at the purchase price and on the terms set forth in subsection 10(b)(iii).
The Company may exercise its Right of First Refusal by mailing (by
registered or certified mail) written notice of exercise of its Right of First
Refusal to the Offeror prior to the end of said thirty (30) days. The Company may assign
its rights hereunder.

 

(iii)                            The
price at which the Company may purchase the Offered Shares pursuant to the
exercise of its Right of First Refusal shall be the cash price offered for the
Offered Shares by the proposed transferee (as set forth in the notice required
under subsection 10(b)(i). The Company’s notice of exercise of its Right
of First Refusal shall be accompanied by full payment for the Offered Shares
and, upon such payment by the Company, the Company shall acquire full right,
title and interest to all of the Offered Shares.

 

(iv)                               If,
and only if, the option given pursuant to subsection 10(b)(ii) is not
exercised, the transfer proposed in the notice given pursuant to subsection 10(b)(i) may take
place; provided, however, that such transfer must, in all respects, be exactly
as proposed in said notice except that such transfer may not take place
either before the tenth (10th) calendar day after the expiration of said 30-day
option exercise period or after the ninetieth (90th) calendar day after the
expiration of said 30-day option exercise period, and if such transfer has not
taken place prior to said ninetieth (90th) day, such transfer may not take
place without once again complying with subsection 10(b).

 

(v)                                   As
used in this subsection 10(b), the term “transfer”
means any sale, encumbrance, pledge, gift or other form of disposition or
transfer of shares of the Company’s stock or any legal or equitable interest
therein; provided, however,
that the term “transfer” does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
subsection 10(b).

 

(vi)                               None
of the shares of the Company’s stock purchased on exercise of your option shall
be transferred on the Company’s books nor shall the Company recognize any such
transfer of any such shares or any interest therein unless and until all
applicable provisions of this subsection 10(b) have been complied
with in all respects. The certificates of stock evidencing shares of stock
purchased on exercise of your option shall bear an appropriate legend referring
to the transfer restrictions imposed by this subsection 10(b).

 

(vii)                           The Company’s Right of First Refusal shall expire
on the first date upon which any security of the Company is listed (or
approved for listing) upon notice of issuance on any securities exchange or
designated (or approved for designation) upon notice of issuance as a national
market security on an interdealer quotation system if such securities exchange
or interdealer quotation system has been certified in accordance with the
provisions of Section 25100(o) of the California Corporate Securities Law
of 1968.

 

11.                               RIGHT OF REPURCHASE. To the extent provided in the Company’s bylaws
as amended from time to time, the Company shall have the right to repurchase
all or any part of the shares of Common Stock you acquire pursuant to the
exercise of your option.

 

5

 

12.                               OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service
contract, and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or
an Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

 

13.                               WITHHOLDING OBLIGATIONS.

 

(a)                                  At the time you exercise your option, in whole or
in part, or at any time thereafter as requested by the Company, you hereby
authorize withholding from payroll and any other amounts payable to you, and
otherwise agree to make adequate provision for (including by means of a “cashless
exercise” pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.

 

(b)                                  Upon your request and subject to approval by the
Company, in its sole discretion, and compliance with any applicable conditions
or restrictions of law, the Company may withhold from fully vested shares
of Common Stock otherwise issuable to you upon the exercise of your option a
number of whole shares of Common Stock having a Fair Market Value, determined
by the Company as of the date of exercise, not in excess of the minimum amount
of tax required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred,
to accelerate the determination of such tax withholding obligation to the date
of exercise of your option. Notwithstanding the filing of such election, shares
of Common Stock shall be withheld solely from fully vested shares of Common
Stock determined as of the date of exercise of your option that are otherwise
issuable to you upon such exercise. Any adverse consequences to you arising in
connection with such share withholding procedure shall be your sole
responsibility.

 

(c)                                  You may not exercise your option unless the
tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly,
you may not be able to exercise your option when desired even though your
option is vested, and the Company shall have no obligation to issue a
certificate for such shares of Common Stock or release such shares of Common
Stock from any escrow provided for herein.

 

14.                               NOTICES. Any notices provided for in your option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
last address you provided to the Company.

 

6

 

15.                               GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of
the Plan, the provisions of which are hereby made a part of your option,
and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant
to the Plan. In the event of any conflict between the provisions of your option
and those of the Plan, the provisions of the Plan shall control.

 

7

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