Document:

Exhibit 10.38

 

VENTURE LOAN AND SECURITY AGREEMENT

 

 

Dated
as of August 25, 2005

 

 

by and among

 

HORIZON TECHNOLOGY FUNDING COMPANY LLC,

a Delaware limited liability company

76 Batterson Park Road

Farmington, CT 06032,

as a Lender and Agent

 

and

 

OXFORD FINANCE CORPORATION

a Delaware corporation

133 N.Fairfax Street

Alexandria, VA 22314,

as a Lender

 

 

and

 

SUNESIS PHARMACEUTICALS, INC.,

a Delaware corporation

341 Oyster Point Blvd.

South San Francisco, CA  94080

as Borrower

 

	
   

  	
   

  	
  Commitment Amount

  Loan A

  	
   

  	
  Commitment Amount Loan

  B

  	
   

  	
  Commitment Amount

  Loan C

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Horizon Technology Funding Company LLC:

  	
   

  	
  $

  	
  2,500,000.00

  	
   

  	
  $

  	
  2,500,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Oxford Finance Corporation

  	
   

  	
  $

  	
  2,500,000.00

  	
   

  	
  $

  	
  2,500,000

  	
   

  	
  $

  	
  0

  	
   

  

 

Commitment Termination Date Loan A:                                 October 15, 2005

 

Commitment Termination Date Loan B:                                   January 31, 2006

 

Commitment Termination Date Loan C:                                   May 31, 2006

 

 

This Venture Loan and
Security Agreement (this “Agreement”) is made by and among Sunesis
Pharmaceuticals, Inc., a Delaware corporation (“Borrower”); Horizon
Technology Funding Company LLC, a Delaware limited liability company (“Horizon”)
and Oxford Finance Corporation (“Oxford” and collectively with Horizon, “Lenders”);
and Horizon, as agent for Lenders hereunder (Horizon, in such capacity,
together with any successor agent appointed pursuant to this Agreement, being “Agent”).  Lenders, Agent and Borrower hereby agree as
follows:

 

AGREEMENT

 

1.                                       Definitions
and Construction.

 

1.1                           Definitions.
As used in this Agreement, the following capitalized terms shall have the
following meanings:

 

“Account
Control Agreement” means an agreement acceptable to Lenders which perfects
via control Agent’s security interest in Borrower’s deposit accounts and/or
accounts holding securities.

 

“Account
Collateral” means accounts receivable due or to become due under all
purchase orders and contracts for the sale of products or the performance of
services or both (and related general intangibles in the nature of rights to
payment) and the proceeds thereof.

 

“Affiliate”
means any Person that owns or controls directly or indirectly ten percent (10%)
or more of the stock of another entity, any Person that controls or is
controlled by or is under common control with such Persons or any Affiliate of
such Persons and each of such Person’s officers, directors, joint venturers or
partners.

 

“Agent”
has the meaning given in the preamble to this Agreement.

 

“Agreement”
means this certain Venture Loan and Security Agreement by and among Borrower,
Agent and Lenders dated as of the date on the cover page hereto (as it may from time to time be amended or
supplemented in writing signed by the Borrower, Agent and Lenders).

 

“Borrower”
has the meaning given in the preamble to this Agreement.

 

“Borrower’s
Home State” means California.

 

“Business
Day” means any day that is not a Saturday, Sunday, or other day on which
banking institutions are authorized or required to close in Connecticut or
Borrower’s Home State.

 

“Claim”
has the meaning given such term in Section 10.3 of this Agreement

 

“Code”
means the Uniform Commercial Code as adopted and in effect in the State of California,
as amended from time to time; provided  that if by reason of
mandatory provisions of law, the creation and/or perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a

 

2

 

jurisdiction other
than California, the term “Code” shall also mean the Uniform Commercial Code as
in effect from time to time in such jurisdiction for purposes of the provisions
hereof relating to such creation, perfection or effect of perfection or
non-perfection.

 

“Collateral”
has the meaning given such term in Section 4.1 of this Agreement.

 

“Commitment
Fee” has the meaning given such term in Section 2.6(b) of
this Agreement.

 

“Commitment
Termination Date” means collectively, Commitment Termination Date Loan A,
Commitment Termination Date Loan B and Commitment Termination Date Loan C.

 

“Commitment
Termination Date Loan A”, “Commitment Termination Date Loan B”, and “Commitment
Termination Date Loan C” each have the respective meanings as set forth on
the cover page of this Agreement.

 

“Commitment
Amount” means collectively, Commitment Amount Loan A, Commitment Amount
Loan B and Commitment Amount Loan C.

 

“Commitment
Amount Loan A” means, with respect to each Lender, the amount specified
opposite such Lender’s name on the cover page of this Agreement in the
column titled “Commitment Amount Loan A.”

 

“Commitment
Amount Loan B” means, with respect to each Lender, the amount specified
opposite such Lender’s name on the cover page of this Agreement in the
column titled “Commitment Amount Loan B.”

 

“Commitment
Amount Loan C” means, with respect to each Lender, the amount specified
opposite such Lender’s name on the cover page of this Agreement in the
column titled “Commitment Amount Loan C.”

 

“Default”
means any event which with the passing of time or the giving of notice or both
would become an Event of Default hereunder.

 

“Default
Rate” means the per annum rate of interest equal to five percent (5%) over
the Loan Rate, but such rate shall in no event be more than the highest rate
permitted by applicable law to be charged on commercial loans in a default
situation.

 

“Disclosure
Schedule” means Exhibit A attached hereto.

 

“Environmental
Laws” means all foreign, federal, state or local laws, statutes, common law
duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid
Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the
Toxic Substances Control Act and the Emergency Planning and Community
Right-to-Know Act.

 

“Equity
Securities” of any Person means (a) all common stock, preferred stock,
participations, shares, partnership interests, membership interests or other
equity interests in and

 

3

 

of such Person
(regardless of how designated and whether or not voting or non-voting) and (b) all
warrants, options and other rights to acquire any of the foregoing.

 

“ERISA”
has the meaning given to such term in Section 7.12 of this
Agreement.

 

“Event
of Default” has the meaning given to such term in Section 8 of
this Agreement.

 

“Funding
Certificate” means a certificate executed by a Responsible Officer of
Borrower substantially in the form of Exhibit B or such other form
as Lenders may agree to accept.

 

“Funding
Date” means any date on which a Loan is made to or on account of Borrower
under this Agreement.

 

“GAAP”
means generally accepted accounting principles as in effect in the United
States of America from time to time, consistently applied.

 

“Good
Faith Deposit” has the meaning given such term in Section 2.6(a) of
this Agreement.

 

“Governmental
Authority” means (a) any federal, state, county, municipal or foreign
government, or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal,
or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.

 

“Hazardous
Materials” means all those substances which are regulated by, or which may
form the basis of liability under, any Environmental Law, including all
substances identified under any Environmental Law as a pollutant, contaminant,
hazardous waste, hazardous constituent, special waste, hazardous substance,
hazardous material, or toxic substance, or petroleum or petroleum derived
substance or waste.

 

“Indebtedness”
means, with respect to Borrower or any Subsidiary, the aggregate amount of,
without duplication, (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (c) all obligations of such Person to
pay the deferred purchase price of property or services (excluding trade
payables aged less than one hundred eighty (180) days), (d) all capital
lease obligations of such Person, (e) all obligations or liabilities of
others secured by a Lien on any asset of such Person, whether or not such
obligation or liability is assumed, (f) all obligations or liabilities of
others guaranteed by such Person, and (g) any other obligations or
liabilities which are required by GAAP to be shown as debt on the balance sheet
of such Person.  Unless otherwise
indicated, the term “Indebtedness” shall include all Indebtedness of
Borrower and the Subsidiaries.

 

“Indemnified
Person” has the meaning given such term in Section 10.3 of this
Agreement.

 

“Intellectual
Property” means all of Borrower’s right, title and interest in and to
patents, patent rights (and applications and registrations therefor),
trademarks and service marks (and applications and registrations therefor),
inventions, copyrights, mask works (and applications and registrations
therefor), trade names, trade styles, software and computer programs, source
code, object code, trade secrets, methods, processes, know how, drawings,
specifications, descriptions,

 

4

 

and all memoranda,
notes, and records with respect to any research and development, all whether
now owned or subsequently acquired or developed by Borrower and whether in
tangible or intangible form or contained on magnetic media readable by machine
together with all such magnetic media (but not including embedded computer
programs and supporting information included within the definition of “goods”
under the Code).

 

“Investment”
means the purchase or acquisition of any capital stock, equity interest, or any
obligations or other securities of, or any interest in, any Person, or the
extension of any advance, loan, extension of credit or capital contribution to,
or any other investment in, or deposit with, any Person.

 

“Landlord
Agreement” means an agreement substantially in the form provided by Lenders
to Borrower or such other form as Lenders may agree to accept.

 

“Lender”
means individually, each of the Lenders, and “Lenders” has the meaning
given in the preamble to this Agreement.

 

“Lenders’
Expenses” means all reasonable costs or expenses (including reasonable
attorneys’ fees and expenses) incurred by Lenders and Agent in connection with
the preparation, negotiation, documentation, administration and funding of the
Loan Documents; and Agent and Lenders’ reasonable attorneys’ fees, costs and expenses
incurred in amending, modifying, enforcing or defending the Loan Documents
(including fees and expenses of appeal or review), including the exercise of
any rights or remedies afforded hereunder or under applicable law, whether or
not suit is brought, whether before or after bankruptcy or insolvency,
including without limitation all fees and costs incurred by Agent or Lenders in
connection with Agent’s or Lenders’ enforcement of its rights in a bankruptcy
or insolvency proceeding filed by or against Borrower or its Property.

 

“Lien”
means any voluntary or involuntary security interest, pledge, bailment, lease,
mortgage, hypothecation, conditional sales and title retention agreement,
encumbrance or other lien with respect to any Property in favor of any Person.

 

“Loan”
means each advance of credit to Borrower made under this Agreement.

 

“Loan
A” means the first advance of credit to Borrower under this Agreement in
the Commitment Amount Loan A.

 

“Loan
B” means the advance of credit to Borrower under this Agreement in the
Commitment Amount Loan B.

 

“Loan
C” means the advance of credit to Borrower under this Agreement in the
Commitment Amount Loan C.

 

“Loan
Documents” means, collectively, this Agreement, the Notes, the Warrants,
any Landlord Agreement, any Account Control Agreement and all other documents,
instruments and agreements entered into in connection with this Agreement, all
as amended or extended from time to time.

 

“Loan
Rate” means, with respect to each Loan, the per annum rate of interest
(based on a year of twelve 30-day months) equal to the higher of (a) 11.50 % or (b) 7.73%
plus the average

 

5

 

weekly
rate for actively traded Government securities issues adjusted to a constant
maturity of three (3) years (the “Treasury
Rate”) as published in the Federal Reserve Statistical Release H.15
(519) (the “Fed Release”), under
the heading “U.S. Government Securities Treasury Constant Maturities for three (3) Years”,
as of forty-eight (48) hours before the date of funding of such Loan.  In
the event that the Fed Release ceases to be published after the date of this
Loan Agreement, the Lenders shall select a reasonably comparable index which
shall be substituted for the Fed Release for all purposes of this Loan. The
Loan Rate shall be fixed for the term of each Loan.

 

“Maturity
Date” means, with respect to each Loan, the first day of the calendar month
which is thirty (30) months from the due date of the last interest only payment
due under the Loan as set forth in Section 2.2(a) below, or if
earlier, the date of acceleration of such Loan following an Event of Default or
the date of prepayment, whichever is applicable.

 

“Note”
means each promissory note executed by the Borrower in substantially the form
of Exhibit C attached hereto, and, collectively, “Notes”
means all such promissory notes.

 

“Obligations”
means all debt, principal, interest, fees, charges, expenses and attorneys’
fees and costs and other amounts, obligations, covenants, and duties owing by
Borrower to Agent or Lenders of any kind and description (whether pursuant to
or evidenced by the Loan Documents (other than the Warrant), or by any other
agreement between Agent and Borrower or any Lender and Borrower, and whether or
not for the payment of money), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, including
all Lenders’ Expenses.

 

“Officer’s
Certificate” means a certificate executed by a Responsible Officer
substantially in the form of Exhibit E or such other form as Lenders
may agree to accept.

 

“Payment
Date” has the meaning given such term in Section 2.2(a) of
this Agreement.

 

“Permitted
Indebtedness” means and includes:

 

(a)                                  Indebtedness
of Borrower to Lenders;

 

(b)                                 Indebtedness
of Borrower secured by Liens permitted under clause (e) of the definition
of Permitted Liens; provided the outstanding aggregate principal amount of such
Indebtedness existing on the date hereof plus the original aggregate principal
amount of such Indebtedness incurred after the date hereof does not exceed Five
Million Dollars ($5,000,000);

 

(c)                                  Indebtedness
arising from the endorsement of instruments in the ordinary course of business;

 

(d)                                 Indebtedness
existing on the date hereof and set forth on the Disclosure Schedule;

 

(e)                                  Unsecured
Indebtedness consisting of loans from strategic partners of Borrower, which are
subordinated to thee Obligations upon terms acceptable to Lenders in their
reasonable discretion, including without limitation, that no principal repayment
of such loans may be made until a date occurring after the Maturity Date; and

 

6

 

(f)                                    Indebtedness
of Borrower to Biogen-IDEC, Inc. as evidenced by a certain unsecured
Promissory Note dated as of December, 2002 in the aggregate principal sum of up
to Four Million Dollars ($4,000,000).

 

“Permitted
Investments” means and includes any of the following Investments as to
which Lenders have a perfected security interest:

 

(a)                                  Deposits
and deposit accounts with commercial banks organized under the laws of the
United States or a state thereof to the extent: (i) the deposit accounts
of each such institution are insured by the Federal Deposit Insurance
Corporation up to the legal limit; and (ii) each such institution has an
aggregate capital and surplus of not less than One Hundred Million Dollars
($100,000,000).

 

(b)                                 Investments
in marketable obligations issued or fully guaranteed by the United States and
maturing not more than one (1) year from the date of issuance.

 

(c)                                  Investments
in open market commercial paper rated at least “A1” or “P1” or higher by a
national credit rating agency and maturing not more than one (1) year from
the creation thereof.

 

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

 

(e)                                  Other
Investments aggregating not in excess of Two Hundred Fifty Thousand Dollars
($250,000) at any time.

 

“Permitted
Liens” means and includes:

 

(a)           the Lien created by this Agreement;

 

(b)           Liens for fees, taxes, levies,
imposts, duties or other governmental charges of any kind which are not yet
delinquent or which are being contested in good faith by appropriate
proceedings which suspend the collection thereof (provided  that
such appropriate proceedings do not involve any substantial danger of the sale,
forfeiture or loss of any material item of Collateral which in the aggregate is
material to Borrower and that Borrower has adequately bonded such Lien or
reserves sufficient to discharge such Lien have been provided on the books of
Borrower);

 

(c)           Liens identified on the Disclosure
Schedule;

 

(d)           carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s or other similar Liens arising in the ordinary
course of business which are not delinquent or remain payable without penalty
or which are being contested in good faith and by appropriate proceedings (provided
that such appropriate proceedings do not involve any substantial danger
of the sale, forfeiture or loss of any material item of Collateral or
Collateral which in the aggregate is material to Borrower and that Borrower has
adequately bonded such Lien or reserves sufficient to discharge such Lien have
been provided on the books of Borrower); and

 

(e)           Liens upon any equipment or other
personal property acquired by Borrower after the date hereof to secure (i) the
purchase price of such equipment or other

 

7

 

personal property,
or (ii) lease obligations or indebtedness incurred solely for the purpose
of financing the acquisition of such equipment or other personal property; provided
that (A) such Liens are confined solely to the equipment or other
personal property so acquired and the amount secured does not exceed the acquisition
price thereof, plus any “soft costs” incurred in connection therewith, and (B) no
such Lien shall be created, incurred, assumed or suffered to exist in favor of
Borrower’s officers, directors or shareholders holding five percent (5%) or
more of Borrower’s Equity Securities.

 

“Person”
means and includes any individual, any partnership, any corporation, any
business trust, any joint stock company, any limited liability company, any
unincorporated association or any other entity and any domestic or foreign
national, state or local government, any political subdivision thereof, and any
department, agency, authority or bureau of any of the foregoing.

 

“Property”
means any interest in any kind of property or asset, whether real, personal or
mixed, whether tangible or intangible.

 

“Responsible
Officer” has the meaning given such term in Section 6.3 of this
Agreement.

 

“Scheduled
Payments” has the meaning given such term in Section 2.2(a) of
this Agreement.

 

“Solvent”
has the meaning given such term in Section 5.11 of this Agreement.

 

“Subsidiary”
means any corporation or other entity of which a majority of the outstanding
Equity Securities entitled to vote for the election of directors or other
governing body (otherwise than as the result of a default) is owned by Borrower
directly or indirectly through Subsidiaries.

 

“Third
Party Equipment” has the meaning given such term in Section 4.8
of this Agreement.

 

“Transfer”
has the meaning given such term in Section 7.4 of this Agreement.

 

“Warrant”
means the separate warrant or warrants dated on or about the date hereof in
favor of the Lenders or their designees to purchase securities of Borrower.

 

1.2                                 Construction.  References in this Agreement to “Articles,” “Sections,”
“Exhibits,” “Schedules” and “Annexes” are to recitals, articles, sections,
exhibits, schedules and annexes herein and hereto unless otherwise
indicated.  References in this Agreement
and each of the other Loan Documents to any document, instrument or agreement shall
include (a) all exhibits, schedules, annexes and other attachments
thereto, (b) all documents, instruments or agreements issued or executed
in replacement thereof, and (c) such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time. 
The words “hereof,” “herein” and “hereunder” and words of similar import
when used in this Agreement or any other Loan Document shall refer to this
Agreement or such other Loan Document, as the case may be, as a whole and not
to any particular provision of this Agreement or such other Loan Document, as
the case may be.  The words “include” and
“including” and words of similar import when used

 

8

 

in this Agreement or any other Loan Document shall not be construed to
be limiting or exclusive.  Unless
otherwise indicated in this Agreement or any other Loan Document, all
accounting terms used in this Agreement or any other Loan Document shall be
construed, and all accounting and financial computations hereunder or
thereunder shall be computed, in accordance with GAAP, and all terms describing
Collateral shall be construed in accordance with the Code. The terms and information set forth on the
cover page of this Agreement are incorporated into this Agreement.

 

2.                                       Loans;
Repayment.

 

2.1                           Commitment.

 

(a)                                  The
Commitment Amount.  Subject to the
terms and conditions of this Agreement and relying upon the representations and
warranties herein set forth as and when made or deemed to be made, each Lender,
severally and not jointly (i) to lend to Borrower prior to the Commitment
Termination Date Loan A, Loan A in the amount of Commitment Amount Loan A, and (ii) to
lend to Borrower prior to the Commitment Termination Date Loan B, Loan B in the
amount of Commitment Amount Loan B. Subject to the terms and conditions of this
Agreement and relying upon the representations and warranties herein set forth
as and when made or deemed to be made, Horizon agrees to lend to Borrower prior
to the Commitment Termination Date Loan C, Loan C in the amount of Commitment
Amount Loan C.

 

(b)                                 The
Loans and the Notes. The obligation of Borrower to repay the unpaid
principal amount of and interest on each Loan made under this Agreement shall
be evidenced by a single promissory note in favor of such Lender in the form of
Exhibit C attached hereto, duly completed, executed and delivered
to such Lender dated on or about the Funding Date for such Loan and made
payable to such Lender.  Borrower hereby
authorizes each Lender to record on each Note or on its internal computerized
records, the principal amount of such Loan and of each payment of principal
received by such Lender on account of such Loan, which recordance, in the
absence of manifest error, shall be conclusive as to the outstanding principal
balance of such Loan; provided that, the failure to make such
recordation with respect to any Loan or payment shall not limit or otherwise
affect the obligations of the Borrower under this Agreement, the Notes or the
other Loan Documents.

 

(c)                                  Use
of Proceeds.  The proceeds of each
Loan shall be used solely for working capital or general corporate purposes of
Borrower.

 

(d)                                 Termination
of Commitment to Lend. 
Notwithstanding anything in the Loan Documents, each Lender’s obligation
to lend the undisbursed portion of each Commitment Amount to Borrower hereunder
shall terminate on the earlier of (i) at each Lender’s sole election, the
occurrence of any Event of Default hereunder, and (ii) the applicable Commitment
Termination Date.  Notwithstanding the
foregoing, Lender’s obligation to lend the undisbursed portion of the
Commitment Amount to Borrower shall be suspended for so long as, in Lenders’ reasonable
judgment, there has been a material adverse change in the general affairs,
results of operations or financial condition of Borrower or there has been any
material adverse deviation by Borrower from the business plan of Borrower
presented to Lender on or before the date of this Agreement.

 

9

 

2.2                           Payments.

 

(a)                                  Scheduled
Payments.  Borrower shall make monthly
payments of accrued interest only on the outstanding principal amount of each
Loan commencing on the first Business day of the second calendar month following
the Funding Date of such Loan and continuing through and including July 1,
2006; provided, that if Borrower has received cash proceeds of not less than
Forty Million Dollars ($40,000,000) from the sale of its Equity Securities, at
Borrower’s election as made in writing to Lenders not less than thirty (30)
days from the date of the receipt of such proceeds, Borrower shall make such
interest only payments through and including January 1, 2007 (in either
case, “Interest Only Period”). At the end of the Interest Only Period, Borrower
shall make thirty (30) level (mortgage-style) monthly payments of principal
plus accrued interest on the outstanding principal amount of each Loan in an
amount sufficient to fully amortize the Loan by the Maturity Date (collectively
with the payments made during the Interest Only Period, the “Scheduled
Payments”).  Borrower shall make such
Scheduled Payments commencing on the date set forth in the Note applicable to
such Loan and continuing thereafter on the first Business Day of each calendar
month (each a “Payment Date”) through the Maturity Date.  In any event, all unpaid principal and
accrued interest shall be due and payable in full on the Maturity Date.

 

(b)                                 Interim
Payment.  Unless the Funding Date for
a Loan is the first day of a calendar month, Borrower shall pay the per diem
interest (accruing at the Loan Rate from the Funding Date through the last day
of that month) payable with respect to such Loan on the first Business Day of
the next calendar month.

 

(c)                                  Payment
of Interest.  Borrower shall pay
interest on each Loan at a per annum rate of interest equal to the Loan
Rate.  All computations of interest
(including interest at the Default Rate, if applicable) shall be based on a
year of twelve 30-day months. 
Notwithstanding any other provision hereof, the amount of interest
payable hereunder shall not in any event exceed the maximum amount permitted by
the law applicable to interest charged on commercial loans.

 

(d)                                 Application
of Payments.  All payments received
by Lenders prior to an Event of Default shall be applied as follows:  (1) first, to Lenders’ Expenses then due
and owing; and (2) second to all Scheduled Payments then due and owing (provided,
however, if such payments are not sufficient to pay the whole amount
then due, such payments shall be applied first to unpaid interest at the Loan
Rate, then to the remaining amount then due). 
After an Event of Default, all payments and application of proceeds
shall be made as set forth in Section 9.7.

 

(e)                                  Late
Payment Fee.  Borrower shall pay to
Lenders a late payment fee equal to four percent (4%) of any Scheduled Payment
not paid when due.

 

(f)                                    Default
Rate.  Borrower shall pay interest at
a per annum rate equal to the Default Rate on any amounts required to be paid
by Borrower under this Agreement or the other Loan Documents (including
Scheduled Payments), payable with respect to any Loan, accrued and unpaid
interest, and any fees or other amounts which remain unpaid after such amounts
are due.  If an Event of Default has
occurred and the Obligations have been accelerated (whether automatically or by
Lender’s election), Borrower shall pay interest on the aggregate, outstanding
accelerated balance hereunder from the date of the Event of Default until all
Events of Default are cured, at a per annum rate equal to the Default Rate.

 

10

 

2.3                           Prepayments.

 

(a)                                  Mandatory
Prepayment Upon an Acceleration.  If
the Loans are accelerated following the occurrence of an Event of Default
pursuant to Section 9.1(a) hereof, then Borrower, in addition to any
other amounts which may be due and owing hereunder, shall immediately pay to
Lenders the amount set forth in Section 2.3(b) below, as if the
Borrower had opted to prepay the Loans on the date of such acceleration.

 

(b)                                 Optional
Prepayment.  Upon ten (10) Business
Days’ prior written notice to Lenders, Borrower may, at its option, at any
time, prepay all of the Loans by paying to Lenders an amount equal to (i) any
accrued and unpaid interest on the outstanding principal balance of the Loans; (ii) an
amount equal to (A) for each Loan prepaid within twelve (12) months from its
Funding Date, five (5%) percent of the then outstanding principal balance of such
Loan, or (B) for each Loan prepaid more than twelve (12) months from its
Funding Date, two (2%) percent of the then outstanding principal balance of such
Loan; (iii) the outstanding principal balance of the Loans and (iv) all
other sums, if any, that shall have become due and payable hereunder.

 

2.4                           Other
Payment Terms.

 

(a)                                  Place
and Manner.  Borrower shall make each
payment due to Lenders in lawful money of the United States.  All payments of principal, interest, fees and
other amounts payable by Borrower hereunder shall be made, in immediately
available funds, not later than 1:00 p.m. Connecticut time, on the date on
which such payment is due.  Borrower
shall make (i) payments due to Horizon via wire transfer and (ii) payments
due to Oxford by permitting Oxford to automatically
debit such payments from the Borrower’s Primary Operating Account, in
both cases as follows:

 

	
  Payments to
  Horizon:  

  	
   

  	
   

  
	
  Credit:

  	
   

  	
  Horizon Technology Funding Company LLC

  
	
  Bank Name:

  	
   

  	
  ABN Amro/LaSalle
  Bank NA CDO Trust Services

  
	
  Bank Address:

  	
   

  	
  135 South
  LaSalle Street, Suite 1625

  Chicago,
  Illinois 60603

  Attn: Greg
  Meyers, 312-904-0283

  
	
  Account No.:

  	
   

  	
  2090067 – Trust
  GL

  
	
  FFCT-Reference
  Account Number

  	
   

  	
  721771.1

  
	
  ABA Routing No.:

  	
   

  	
  071000505

  
	
  Reference:

  	
   

  	
  Sunesis Invoice
  #

  
	
  Payments to
  Oxford by Debit From:

  	
   

  	
  Borrower’s
  Primary Operating Account 

  
	
   

  	
   

  	
  Beneficiary
  Bank:

  	
  State Street
  Bank

  1200 Crown
  Colony

  Quincy, MA 02169
  

  
	
   

  	
   

  	
  ABA Number:
  011000028

  Depositor Acc.
  Title:State Street Bank

  Depositor Acc.
  Number: 17039843

  For Credit to:
  DE0530 Sunesis

  Pharmaceuticals, Inc.

  Attention:
  Rachel Bovarnick

  

 

11

 

(b)                                 Date.  Whenever any payment is due hereunder on a
day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of interest or fees, as the case may be.

 

2.5                           Procedure
for Making Loans.

 

(a)                                  Notice.  Whenever Borrower desires that Lenders make a
Loan, Borrower shall notify Lenders of the date on which Borrower desires
Lenders to make such Loan.  Borrower’s
notice shall be made at least five (5) Business Days in advance of the
desired Funding Date, unless Lenders elects at their sole discretion to allow
the Funding Date to be within five (5) Business Days of the notice.  Borrower’s execution and delivery to each Lender
of a Note shall be Borrower’s agreement to the terms and calculations
thereunder with respect to such Loan. 
Lenders’ obligation to make any Loans shall be expressly subject to the
satisfaction of the conditions set forth in Sections 3.1 and 3.2.

 

(b)                                 Loan
Rate Calculation.  Prior to each
Funding Date, Lenders shall establish the Loan Rate with respect to such Loan,
which shall be set forth in each Note to be executed by Borrower with respect
to such Loan and shall be conclusive in the absence of a manifest error.

 

(c)                                  Disbursement.
Each Lender shall disburse the proceeds of its Loan by wire transfer to
Borrower at the account specified in the Funding Certificate for such Loan.

 

2.6                           Facility
Fee; Legal, Due Diligence and Documentation Expenses.

 

(a)                                  Facility
Fee.  Borrower has delivered to Oxford
a facility fee in the amount of Seventy Five Thousand Dollars ($75,000) (the “Facility”)
which has been earned and shall be retained as earned by Lenders.

 

(b)                                 Legal,
Due Diligence and Documentation Expenses. Borrower shall pay to Lenders,
concurrently with its execution and delivery of this Agreement, Lenders’ and
Agent’s legal, due diligence and documentation expenses in connection with the
negotiation and documentation of this Agreement and the Loan Documents in an
amount not to exceed Fifteen Thousand Dollars ($15,000).

 

3.                                       Conditions
of Loan.

 

3.1                           Conditions
Precedent to Closing.  At the time of
the execution and delivery of this Agreement, Lenders shall have received, in
form and substance reasonably satisfactory to Lenders, all of the following
(unless Lenders have agreed to waive such condition or document, in which case
such condition or document shall be a condition precedent to the making of any
Loan and shall be deemed added to Section 3.2):

 

(a)                                  Loan
Agreement. This Agreement duly executed by Borrower, Agent and Lenders.

 

(b)                                 Warrant.
The Warrant to be issued to Lenders or their designees, duly executed by
Borrower.

 

12

 

(c)                                  Secretary’s
Certificate. A certificate of the secretary or assistant secretary of
Borrower with copies of the following documents attached:  (i) the certificate of incorporation and
bylaws of Borrower certified by Borrower as being complete and in full force
and effect on the date thereof, (ii) incumbency and representative
signatures, and (iii) resolutions authorizing the execution and delivery
of this Agreement and each of the other Loan Documents.

 

(d)                                 Good
Standing Certificates.  A good
standing certificate from Borrower’s state of incorporation and the state in
which Borrower’s principal place of business is located, each dated as of a
recent date.

 

(e)                                  Certificate
of Insurance.  Evidence of the
insurance coverage required by Section 6.8 of this Agreement.

 

(f)                                    Consents.  All necessary consents of shareholders and
other third parties with respect to the execution, delivery and performance of
this Agreement, the Warrant and the other Loan Documents.

 

(g)                                 Legal
Opinion.  A legal opinion of Borrower’s
counsel covering the matters set forth in Exhibit D hereto.

 

(h)                                 Account
Control Agreements.  Account Control
Agreements for all of Borrower’s deposit accounts and accounts holding
securities duly executed by all of the parties thereto, in the forms provided
by Lenders or reasonably acceptable to Lenders.

 

(i)                                     Other
Documents. Such other documents and completion of such other matters, as
Lenders may deem necessary or appropriate.

 

3.2                           Conditions
Precedent to Making a Loan. The obligation of Lender to make each Loan is
further subject to the following conditions:

 

(a)                                  No
Default. No Default or Event of Default shall have occurred and be
continuing.

 

(b)                                 Landlord
Agreements. Borrower shall have provided Lenders with a Landlord Agreement
for each location where Borrower’s books and records and the Collateral is
located (unless Borrower is the fee owner thereof).

 

(c)                                  Note.
Borrower shall have duly executed and delivered to each Lender a Note in the
amount of such Lender’s Loan.

 

(d)                                 UCC
Financing Statements.  Lenders shall
have received such documents, instruments and agreements, including UCC
financing statements or amendments to UCC financing statements, as Lenders
shall reasonably request to evidence the perfection and priority of the
security interests granted to Lender pursuant to Section 4.
Borrower authorizes Lenders to file any UCC financing statements, continuations
of or amendments to UCC financing statements they deem necessary to perfect their
security interests in the Collateral.

 

(e)                                  Funding
Certificate.  Borrower shall have duly
executed and delivered to Lenders a Funding Certificate.

 

13

 

(f)                                    Other
Documents.  Such other documents and
completion of such other matters, as Lenders may deem necessary or appropriate.

 

3.3                           Covenant
to Deliver.  Borrower agrees (not as
a condition but as a covenant) to deliver to Lenders each item required to be
delivered to Lenders as a condition to each Loan, if such Loan is
advanced.  Borrower expressly agrees that
the extension of such Loan prior to the receipt by Lenders of any such item
shall not constitute a waiver by Lenders of Borrower’s obligation to deliver
such item, and any such extension in the absence of a required item shall be in
Lenders’ sole discretion.

 

4.                                       Creation
of Security Interest.

 

4.1                           Grant
of Security Interest.  Borrower
grants to Lenders and to Agent for the ratable benefit of the Lenders, a valid,
first priority, continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt, full and
complete payment of any and all Obligations and in order to secure prompt, full
and complete performance by Borrower of each of its covenants and duties under
each of the Loan Documents (other than the Warrant). The “Collateral”
shall mean and include all right, title, interest, claims and demands of
Borrower in and to all personal property of Borrower, including without
limitation, all of the following:

 

(a)                                  All
goods (and embedded computer programs and supporting information included
within the definition of “goods” under the Code) and equipment now owned or
hereafter acquired, including, without limitation, all laboratory equipment,
computer equipment, office equipment, machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;

 

(b)                                 All
inventory now owned or hereafter acquired, including, without limitation, all
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products including such inventory as is
temporarily out of Borrower’s custody or possession or in transit and including
any returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower’s books relating
to any of the foregoing;

 

(c)                                  Except
to the extent the following are included within the definition of Intellectual
Property: all contract rights and general intangibles, now owned or hereafter
acquired, including, without limitation, goodwill, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, infringements, claims, software, computer programs, computer
disks, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payment intangibles, commercial tort claims, payments of insurance and
rights to payment of any kind;

 

(d)                                 All
now existing and hereafter arising accounts, contract rights, royalties,
license rights, license fees and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower (subject, in each case, to the
contractual rights of third parties to require funds received by Borrower to be
expended in a particular manner), whether or not earned by performance, and

 

14

 

any and all credit insurance, guaranties, and other security therefor,
as well as all merchandise returned to or reclaimed by Borrower and Borrower’s
books relating to any of the foregoing;

 

(e)                                  All
documents, cash, deposit accounts, letters of credit (whether or not the letter
of credit is evidenced by a writing), certificates of deposit, instruments,
promissory notes, chattel paper (whether tangible or electronic) and investment
property, including, without limitation, all securities, whether certificated
or uncertificated, security entitlements, securities accounts, commodity
contracts and commodity accounts, and all financial assets held in any
securities account or otherwise, wherever located, now owned or hereafter
acquired and Borrower’s books relating to the foregoing;

 

(f)                                    Any
and all claims, rights and interests in any of the above and all substitutions
for, additions and accessions to and proceeds thereof, including, without limitation,
insurance, condemnation, requisition or similar payments and proceeds of the
sale or licensing of Intellectual Property to the extent such proceeds no
longer constitute Intellectual Property; but

 

(g)                                 Notwithstanding
the foregoing, the Collateral shall not include any Intellectual Property nor
any Third Party Equipment in which Borrower has granted a Person a Lien
permitted under subsection (e) of the definition of Permitted Liens; provided,
however, that the Collateral shall include all accounts receivables,
accounts, and general intangibles that consist of rights to payment and
proceeds from the sale, licensing or disposition of all or any part, or rights
in, the foregoing (the “Rights to Payment”).  Notwithstanding the foregoing, if a judicial
authority (including a U.S. Bankruptcy Court) holds that a security interest in
the underlying Intellectual Property is necessary to have a security interest
in the Rights to Payment, then the Collateral shall automatically, and
effective as of the Closing Date, include the Intellectual Property to the
extent necessary to permit perfection of Lenders’ and Agent’s security
interests solely with respect to the Rights to Payment..

 

4.2                           After-Acquired
Property.  If Borrower shall at any
time acquire a commercial tort claim, as defined in the Code, Borrower shall
immediately notify Lenders in 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.

 

4.3                           Duration
of Security Interest.  Lenders’
security interest in the Collateral shall continue until the payment in full
and the satisfaction of all Obligations and termination of Lenders’ commitment
to fund any Loans, whereupon such security interest shall terminate.  Lenders shall, at Borrower’s sole cost and
expense, execute such further documents and take such further actions as may be
reasonably necessary to make effective the release contemplated by this Section 4.3,
including duly executing and delivering termination statements for filing in
all relevant jurisdictions under the Code.

 

4.4                           Location
and Possession of Collateral.  The
Collateral is and shall remain in the possession of Borrower at its location
listed on the cover page hereof or as set forth in the Disclosure
Schedule.  Borrower shall remain in full
possession, enjoyment and control of the Collateral (except only as may be
otherwise required by Lenders for perfection of its security interest therein)
and so long as no Event of Default has occurred, shall be entitled to manage,
operate and use the same and each part thereof with the rights and franchises
appertaining thereto, including disposing of such Collateral as provided for in
Section 7.4 which disposition,

 

15

 

if no Event of Default shall have occurred and be continuing, shall be
made free and clear of the Lenders’ lien; provided  that the
possession, enjoyment, control and use of the Collateral shall at all time be
subject to the observance and performance of the terms of this Agreement.

 

4.5                           Delivery
of Additional Documentation Required. 
Borrower shall from time to time execute and deliver to Lenders and
Agent, at the request of Lenders, all financing statements and other documents
Lenders may reasonably request, in form satisfactory to Lenders, to perfect and
continue Lenders’ and Agent’s perfected security interests in the Collateral
and in order to consummate fully all of the transactions contemplated under the
Loan Documents.

 

4.6                           Right
to Inspect.  Lenders (through any of their
officers, employees, or agents) shall have the right, upon reasonable prior
notice, from time to time during Borrower’s usual business hours, to inspect
Borrower’s books and records and to make copies thereof and to inspect, test,
and appraise the Collateral in order to verify Borrower’s financial condition
or the amount, condition of, or any other matter relating to, the Collateral.

 

4.7                           Protection
of Intellectual Property.  Borrower
shall (i) protect, defend and maintain the validity and enforceability of
its Intellectual Property material to Borrower’s business and promptly advise
Lenders in writing of material infringements, and (ii) not allow any
Intellectual Property material to Borrower’s business to be abandoned,
forfeited or dedicated to the public except in the ordinary course of business.
Lenders acknowledge that abandonment and forfeiture of Intellectual Property is
frequently effected in the ordinary course of business.

 

4.8                           Lien
Subordination.  Lenders and Agent agree
that the Liens granted to them hereunder in Third Party Equipment shall be
subordinate to the Liens of future lenders providing equipment financing and
equipment lessors for equipment and other personal property acquired by
Borrower after the date hereof (“Third Party Equipment”) or, if such
lenders prohibit the granting of Liens to other lenders, Lender shall waive its
Lien with respect to such equipment until such time as such equipment lender no
longer has a Lien; provided  that such Liens are confined solely
to the equipment so financed and the proceeds thereof and are Permitted
Liens.  Notwithstanding the foregoing,
the Obligations hereunder shall not be subordinate in right of payment to any
obligations to equipment lenders or equipment lessors and Lenders’ and Agent’s rights
and remedies hereunder shall not in any way be subordinate to the rights and
remedies of any such lenders or equipment lessors.  So long as no Event of Default has occurred,
Lenders and Agent agree to execute and deliver such agreements and documents as
may be reasonably requested by Borrower from time to time which set forth the
lien subordination described in this Section 4.8 and are reasonably
acceptable to Lenders and Agent.  Lenders
and Agent shall have no obligation to execute any agreement or document which
would impose obligations, restrictions or lien priority on Lenders or Agent which
are less favorable to Lenders or Agent than those described in this Section 4.8.

 

5.                                       Representations
and Warranties.  Except as set forth
in the Disclosure Schedule, Borrower represents and warrants as follows:

 

5.1                           Organization
and Qualification.  Borrower is a
corporation duly organized and validly existing and in good standing under the
laws of its state of incorporation and qualified and licensed to do business
in, and is in good standing in, any state in which the

 

16

 

conduct of its business or its ownership of Property requires that it
be so qualified or in which the Collateral is located, except for such states
as to which any failure to so qualify would not have a material adverse effect
on Borrower.

 

5.2                           Authority.  Borrower has all necessary power and
authority to execute, deliver, and perform in accordance with the terms
thereof, the Loan Documents to which it is a party.  Borrower has all requisite power and
authority to own and operate its Property and to carry on its businesses as now
conducted.

 

5.3                           Conflict
with Other Instruments, etc.  Neither
the execution and delivery of any Loan Document to which Borrower is a party
nor the consummation of the transactions therein contemplated nor compliance
with the terms, conditions and provisions thereof will conflict with or result
in a breach of any of the terms, conditions or provisions of the certificate of
incorporation, the by-laws, or any other organizational documents of Borrower
or any law or any regulation, order, writ, injunction or decree of any court or
governmental instrumentality or any material agreement or instrument to which
Borrower is a party or by which it or any of its Property is bound or to which
it or any of its Property is subject, or constitute a default thereunder or
result in the creation or imposition of any Lien, other than Permitted Liens.

 

5.4                           Authorization;
Enforceability.  The execution and
delivery of this Agreement, the granting of the security interest in the
Collateral, the incurring of the Loans, the execution and delivery of the other
Loan Documents to which Borrower is a party and the consummation of the
transactions herein and therein contemplated have each been duly authorized by
all necessary action on the part of Borrower. 
No authorization, consent, approval, license or exemption of, and no
registration, qualification, designation, declaration or filing with, or notice
to, any Person is, was or will be necessary to (i) the valid execution and
delivery of any Loan Document to which Borrower is a party, (ii) the
performance of Borrower’s obligations under any Loan Document, or (iii) the
granting of the security interest in the Collateral, except for filings in
connection with the perfection of the security interest in any of the
Collateral or the issuance of the Warrant. 
The Loan Documents have been duly executed and delivered and constitute
legal, valid and binding obligations of Borrower, enforceable in accordance
with their respective terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency or other similar laws of general application
relating to or affecting the enforcement of creditors’ rights or by general
principles of equity.

 

5.5                           No
Prior Encumbrances.  Borrower has
good and marketable title to the Collateral, free and clear of Liens except for
Permitted Liens. Borrower has good title and ownership of, or is licensed
under, all of Borrower’s current Intellectual Property.  Borrower has not received any communications
alleging that Borrower has violated, or by conducting its business as proposed,
would violate any proprietary rights of any other Person.  Borrower has no knowledge of any infringement
or violation by it of the intellectual property rights of any third party and
has no knowledge of any violation or infringement by a third party of any of
its Intellectual Property.  The
Collateral and the Intellectual Property constitute substantially all of the
assets and property of Borrower.

 

5.6                           Name;
Location of Chief Executive Office, Principal Place of Business and Collateral.  Borrower has not done business under any name
other than that specified on the signature page hereof.  Borrower’s jurisdiction of incorporation,
chief executive office, principal place of business, and the place where
Borrower maintains its records concerning the

 

17

 

Collateral are presently located in the state and at the address set
forth on the cover page of this Agreement. 
The Collateral is presently located at the address set forth on the cover
page hereof or as set forth in the Disclosure Schedule.

 

5.7                           Litigation.  There are no actions or proceedings pending
by or against Borrower before any court or administrative agency in which an
adverse decision could have a material adverse effect on Borrower or the
aggregate value of the Collateral. 
Borrower does not have knowledge of any such pending or threatened
actions or proceedings.

 

5.8                           Financial
Statements. All financial statements relating to Borrower or any Affiliate
that have been or may hereafter be delivered by Borrower to Lenders present
fairly in all material respects Borrower’s financial condition as of the date
thereof and Borrower’s results of operations for the period then ended.

 

5.9                           No
Material Adverse Effect.  No event
has occurred and no condition exists which could reasonably be expected to have
a material adverse effect on the financial condition, business or operations of
Borrower since December 31, 2004.

 

5.10                     Full
Disclosure.  Taken as a whole, no
representation, warranty or other statement made by Borrower in any Loan
Document (including the Disclosure Schedule), certificate or written statement
furnished to Lenders contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading. 
There is no fact known to Borrower which materially adversely affects
its ability to perform its obligations under this Agreement.

 

5.11                     Solvency,
Etc. Borrower is Solvent (as defined below)
and, after the execution and delivery of the Loan Documents and the
consummation of the transactions contemplated thereby, Borrower will be
Solvent.  “Solvent” means, with
respect to any Person on any date, that on such date (a) the fair value of
the property of such Person is greater than the fair value of the liabilities
(including, without limitation, contingent liabilities) of such Person, (b) the
present fair saleable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on
its debts as they become absolute and matured, (c) such Person does not
intend to, and does not believe that it will, incur debts or liabilities beyond
such Person’s ability to pay as such debts and liabilities mature and (d) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person’s property would constitute
an unreasonably small capital.

 

5.12                     Subsidiaries.
Borrower has no Subsidiaries.

 

5.13                     Catastrophic
Events; Labor Disputes. Neither
Borrower nor any of its properties is or has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or other casualty that could reasonably
be expected to have a  material adverse
effect on the financial condition, business or operations of Borrower.  There are no disputes presently subject to
grievance procedure, arbitration or litigation under any of the collective
bargaining agreements, employment contracts or employee welfare or incentive
plans to which Borrower is a party, and there are no strikes, lockouts, work
stoppages or slowdowns, or, to the knowledge of Borrower, jurisdictional
disputes or organizing activity occurring or threatened which could reasonably
be

 

18

 

expected to have a  material
adverse effect on the financial condition, business or operations of Borrower.

 

5.14                     Certain
Agreements of Officers, Employees and Consultants.

 

(a)                                  No
Violation. To the knowledge of Borrower, no officer, employee or consultant
of Borrower is, or is now expected to be, in violation of any term of any
employment contract, proprietary information agreement, nondisclosure
agreement, noncompetition agreement or any other material contract or agreement
or any restrictive covenant relating to the right of any such officer, employee
or consultant to be employed by Borrower because of the nature of the business
conducted or to be conducted by Borrower or relating to the use of trade
secrets or proprietary information of others, and to Borrower’s knowledge, the
continued employment of Borrower’s officers, employees and consultants does not
subject Borrower to any material liability for any claim or claims arising out
of or in connection with any such contract, agreement, or covenant.

 

(b)                                 No
Present Intention to Terminate. To the knowledge of Borrower, no officer of
Borrower, and no employee or consultant of Borrower whose termination, either
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the financial condition, business or operations of
Borrower, has any present intention of terminating his or her employment or
consulting relationship with Borrower.

 

6.                                       Affirmative
Covenants.  Borrower, until the full
and complete payment of the Obligations, covenants and agrees that:

 

6.1                           Good
Standing.  Borrower shall maintain
its corporate existence and its good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could reasonably be expected to have a material adverse
effect on the financial condition, operations or business of Borrower.  Borrower shall maintain in force all
licenses, approvals and agreements, the loss of which could reasonably be
expected to have a material adverse effect on its financial condition,
operations or business.

 

6.2                           Government
Compliance.  Borrower shall comply
with all statutes, laws, ordinances and government rules and regulations
to which it is subject, noncompliance with which could reasonably be expected
to materially adversely affect the financial condition, operations or business
of Borrower.

 

6.3                           Financial
Statements, Reports, Certificates. 
Borrower shall deliver to each Lender: (a) as soon as available,
but in any event within thirty (30) days after the end of each month, a company
prepared balance sheet, income statement and cash flow statement covering
Borrower’s operations during such period, certified, in accordance with Section 6.4
below, by Borrower’s president, treasurer or chief financial officer (each, a “Responsible
Officer”); (b) as soon as available, but in any event within one
hundred twenty (120) days after the end of Borrower’s fiscal year, audited
financial statements of Borrower prepared in accordance with GAAP, together
with an unqualified opinion on such financial statements of a nationally
recognized or other independent public accounting firm reasonably acceptable to
Lender; and (c) as soon as available, but in any event within ninety (90)
days after the end of Borrower’s fiscal year or the date of Borrower’s board of
directors’ adoption, Borrower’s operating budget and plan for the next fiscal
year; and (d) such other financial information as Lenders may

 

19

 

reasonably request from time to time. 
From and after such time as Borrower becomes a publicly reporting
company, promptly as they are available and in any event:  (x) at the time of filing of Borrower’s Form 10-K
with the Securities and Exchange Commission after the end of each fiscal year
of Borrower, the financial statements of Borrower filed with such Form 10-K;
and (y) at the time of filing of Borrower’s Form 10-Q with the
Securities and Exchange Commission after the end of each of the first three
fiscal quarters of Borrower, the financial statements of Borrower filed with
such Form 10-Q.  In addition,
Borrower shall deliver to each Lender (i) promptly upon becoming
available, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders; (ii) immediately upon
receipt of notice thereof, a report of any material legal actions pending or
threatened against Borrower or the commencement of any action, proceeding or
governmental investigation involving Borrower is commenced that is reasonably
expected to result in damages or costs to Borrower of One Hundred Fifty
Thousand Dollars ($150,000) or more; and (iii) such other financial
information as Lenders may reasonably request from time to time.

 

6.4                           Certificates
of Compliance.  Each time financial
statements are furnished pursuant to Section 6.3 above, Borrower
shall deliver to each Lender an Officer’s Certificate signed by a Responsible
Officer in the form of, and certifying to the matters set forth in Exhibit E
hereto; provided, that such Officer’s Certificate shall include
the second sentence in paragraph numbered 4 on a quarterly basis only.

 

6.5                           Notice
of Defaults.  As soon as possible,
and in any event within five (5) days after the discovery of a Default or
an Event of Default, Borrower shall provide Lenders with an Officer’s
Certificate setting forth the facts relating to or giving rise to such Default or
Event of Default and the action which Borrower proposes to take with respect
thereto.

 

6.6                           Taxes.  Borrower shall make due and timely payment or
deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law or imposed upon any Property belonging to it, and will
execute and deliver to Lenders, on demand, appropriate certificates attesting
to the payment or deposit thereof; and Borrower will make timely payment or
deposit of all tax payments and withholding taxes required of it by applicable
laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and
local, state, and federal income taxes, and will, upon request, furnish Lender
with proof satisfactory to Lenders indicating that Borrower has made such
payments or deposits; provided  that Borrower need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings which suspend the collection thereof  (provided  that such proceedings
do not involve any substantial danger of the sale, forfeiture or loss of any
material item of Collateral or Collateral which in the aggregate is material to
Borrower and that Borrower has adequately bonded such amounts or reserves
sufficient to discharge such amounts have been provided on the books of
Borrower).

 

6.7                           Use;
Maintenance. Borrower shall keep and maintain all items of equipment and
other similar types of personal property that form any significant portion or
portions of the Collateral in good operating condition and repair and shall
make all necessary replacements thereof and renewals thereto so that the value
and operating efficiency thereof shall at all times be maintained and
preserved.  Borrower shall not permit any
such material item of Collateral to become a fixture to real estate or an
accession to other personal property, without the prior written consent of
Lenders.  Borrower shall not permit any
such material item of Collateral to be operated or maintained in violation of
any applicable law, statute, rule or regulation.  With

 

20

 

respect to items of leased equipment (to the extent Lenders have any
security interest in any residual Borrower’s interest in such equipment under
the lease), Borrower shall keep, maintain, repair, replace and operate such
leased equipment in accordance with the terms of the applicable lease.

 

6.8                           Insurance.
Borrower shall keep its business and the Collateral insured for risks and in
amounts, 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 Agent
as an additional loss payee and all liability policies shall show Agent as an
additional insured and all policies shall provide that the insurer must give Agent
at least thirty (30) days notice before canceling its policy.  At any Lender’s 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 Agent on account of the Obligations.  Notwithstanding the foregoing, 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 (i) any such
replaced or repaired property (a) shall be of equal or like value as the
replaced or repaired Collateral and (b) shall be deemed Collateral in
which Lenders have been granted a first priority security interest and (ii) after
the occurrence and during the continuation of an Event of Default all proceeds
payable under such casualty policy shall, at the option of Lenders, be payable
to Agent, on account of the Obligations. 
If Borrower fails to obtain insurance as required under Section 6.8
or to pay any amount or furnish any required proof of payment to third persons
and Lenders, Lenders or Agent may make all or part of such payment or obtain
such insurance policies required in Section 6.8, and take any action under
the policies Lenders or Agent deem prudent. On or prior to the first Funding
Date and prior to each policy renewal, Borrower shall furnish to Agent
certificates of insurance or other evidence satisfactory to Lenders that
insurance complying with all of the above requirements is in effect.

 

6.9                           Security
Interest.  Assuming the proper filing
of one or more financing statement(s) identifying the Collateral with the proper
state and/or local authorities, the security interests in the Collateral
granted to Lenders and Agent pursuant to this Agreement (i) constitute and
will continue to constitute first priority security interests (except to the
extent any Permitted Liens may have a superior priority to Lenders’ and Agent’s
Lien under this Agreement) and (ii) are and will continue to be superior
and prior to the rights of all other creditors of Borrower (except to the
extent of such Permitted Liens).

 

6.10                     Further
Assurances.  At any time and from
time to time Borrower shall execute and deliver such further instruments and
take such further action as may reasonably be requested by Lenders to make
effective the purposes of this Agreement, including without limitation, the continued
perfection and priority of Lenders’ and Agent’s security interest in the
Collateral.

 

7.                                       Negative
Covenants.  Borrower, until the full
and complete payment of the Obligations, covenants and agrees that Borrower
shall not:

 

7.1                           Chief
Executive Office.  Change its name,
jurisdiction of incorporation, chief executive office, principal place of
business or any of the items set forth in Section 1 of the Disclosure Schedule without
thirty (30) days prior written notice to Lender.

 

21

 

7.2                           Collateral
Control.  Subject to its rights under
Sections 4.4 and 7.4, remove any items of Collateral from Borrower’s
facility located at the address set forth on the cover page hereof or as
set forth on the Disclosure Schedule.

 

7.3                           Liens.  Create, incur, assume or suffer to exist any
Lien of any kind upon any of Borrower’s Property, whether now owned or
hereafter acquired, except Permitted Liens.

 

7.4                           Other
Dispositions of Collateral.  Convey,
sell, lease or otherwise dispose of all or any part of the Collateral to any
Person (collectively, a “Transfer”), except for: (i) Transfers of
inventory in the ordinary course of business or (ii) Transfers of worn-out
or obsolete equipment.

 

7.5                           Distributions.  (i) Pay any dividends or make any
distributions on its Equity Securities; (ii) purchase, redeem, retire,
defease or otherwise acquire for value any of its Equity Securities (other than
repurchases pursuant to the terms of employee stock purchase plans, employee
restricted stock agreements or similar arrangements in an aggregate amount not
to exceed One Hundred Thousand Dollars ($100,000)); (iii) return any
capital to any holder of its Equity Securities as such; (iv) make any
distribution of assets, Equity Securities, obligations or securities to any
holder of its Equity Securities as such; or (v) set apart any sum for any
such purpose; provided, however, Borrower may pay dividends
payable solely in common stock.

 

7.6                           Mergers
or Acquisitions.  Without the prior
written consent of Lenders which consent shall not be unreasonably withheld or
delayed, merge or consolidate with or into any other Person or acquire all or
substantially all of the capital stock or assets of another Person.

 

7.7                           Change
in Ownership.  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 of greater than thirty-three percent (33%)
(other than by the sale by Borrower of Borrower’s Equity Securities in a public
offering or to venture capital investors so long as Borrower identifies to
Lender the venture capital investors prior to the closing of the investment).

 

7.8                           Transactions
With Affiliates. Enter into any contractual obligation with any Affiliate
or engage in any other transaction with any Affiliate except upon terms at
least as favorable to Borrower as an arms-length transaction with Persons who
are not Affiliates of Borrower.

 

7.9                           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 or permitted to be prepaid under this
Agreement) 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. Notwithstanding the foregoing, Borrower
may prepay the Indebtedness permitted under subsection (f) of the
definition of Permitted Indebtedness, if such prepayment is in connection with
an initial public offering of the Borrower’s common stock or in connection with
a private placement of the Borrower’s Equity Securities wherein Biogen-IDEC, Inc.
has purchased Equity Securities of Borrower for a purchase price of not less
than the Indebtedness being prepaid.

 

22

 

7.10                     Indebtedness.  Create, incur, assume or permit to exist any
Indebtedness except Permitted Indebtedness.

 

7.11                     Investments.  Make any Investment except for Permitted
Investments.

 

7.12                     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 Loan for that purpose; fail to
meet the minimum funding requirements of the Employment Retirement Income Security
Act of 1974, and its regulations, as amended from time to time (“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 could
reasonably be expected to cause a material adverse change, or permit any of its
Subsidiaries to do so.

 

7.13                     Maintenance
of Accounts.  (i) Maintain any
deposit account or account holding securities owned by Borrower except accounts
with respect to which Lenders and Agent are able to take such actions as they
deem necessary to obtain a perfected security interest in such accounts through
one or more Account Control Agreements; or (ii) grant or allow any other
Person (other than Lenders) to perfect a security interest in, or enter into
any agreements with any Persons (other than Lenders) accomplishing perfection
via control as to, any of its deposit accounts or accounts holding securities.

 

7.14                     Negative
Pledge Regarding Intellectual Property. 
  Sell, transfer, assign, mortgage, pledge, lease, grant a security
interest in, or encumber any of its Intellectual Property, or enter into any
agreement, document, instrument or other arrangement (except with or in favor
of Lenders) with any entity 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; provided, however, that Borrower
may grant licenses with respect to components of Borrower’s Intellectual
Property in connection with joint ventures and corporate collaborations in the
ordinary course of business, provided that any such licenses or similar
arrangements that are exclusive are (a) limited in scope, and (b) do
not amount to a sale of assets.

 

8.                                       Events
of Default.  Any one or more of the
following events shall constitute an “Event of Default” by Borrower
under this Agreement:

 

8.1                           Failure
to Pay.  If Borrower fails to pay
when due and payable or when declared due and payable in accordance with the
Loan Documents: (i) any Scheduled Payment on the relevant Payment Date or
on the relevant Maturity Date, or (ii) any other portion of the
Obligations within five (5) days after receipt of written notice from any Lender
or Agent that such payment is due.

 

8.2                           Certain
Covenant Defaults.  If Borrower fails
to perform any obligation under Section 6.8 or violates any of the
covenants contained in Section 7 of this Agreement.

 

23

 

8.3                           Other
Covenant Defaults.  If Borrower fails
or neglects to perform, keep, or observe any other material term, provision,
condition, covenant, or agreement contained in this Agreement (other than as
set forth in Sections 8.1, 8.2 or 8.4 through 8.13), in any of the other
Loan Documents and Borrower has failed to cure such default within thirty (30)
days of the occurrence of such default. 
During this thirty (30) day period, the failure to cure the default is
not an Event of Default (but no Loan will be made during the cure period).

 

8.4                           Lack
of Financial Resources.  If Lender shall have determined, in its reasonable good
faith business judgment, that (i) it
has become unlikely that Borrower
can obtain sufficient additional equity investments to satisfy the Obligations as they become due, (ii) Borrower does not have sustainable positive cash flow
and (iii) Borrower has no
other source of capital sufficient to repay all outstanding Obligations.

 

8.5                           Seizure
of Assets, Etc.  If any material
portion of Borrower’s assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or Person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged or
rescinded within ten (10) days, or if Borrower is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other claim becomes
a lien or encumbrance upon any material portion of Borrower’s assets, or if a
notice of lien, levy, or assessment is filed of record with respect to any of
Borrower’s assets by the United States Government, or any department, agency,
or instrumentality thereof, or by any state, county, municipal, or governmental
agency, and the same is not paid within ten (10) days after Borrower
receives notice thereof; provided  that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower.

 

8.6                           Service
of Process.  The delivery of a notice
of foreclosure or exclusive control to any entity holding or maintaining
Borrower’s deposit accounts or accounts holding securities by any Person (other
than a Lender) seeking to foreclose or attach any such accounts or securities
which notice, if effected, would prohibit Borrower from access to the funds or
securities in such accounts with a value of greater then One Hundred Fifty
Thousand Dollars ($150,000).

 

8.7                           Default
on Indebtedness.  One or more defaults
shall exist under any agreement with any third party or parties which consists
of the failure to pay any Indebtedness at maturity or which results in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of Indebtedness in an aggregate amount in excess of One Hundred Fifty
Thousand Dollars ($150,000) or a default shall exist under any financing
agreement with Lenders or any of Lenders’ Affiliates.

 

8.8                           Judgments.  Unless covered by insurance, which is
adequate in Lenders sole and good faith discretion, a judgment or judgments for
the payment of money in an amount, individually or in the aggregate, of at
least One Hundred Fifty Thousand Dollars ($150,000) shall be rendered against
Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days
or more.

 

24

 

8.9                           Misrepresentations.  If any material misrepresentation or material
misstatement exists now or hereafter in any warranty, representation, statement,
certification, or report made to Lenders by Borrower or any officer, employee,
agent, or director of Borrower.

 

8.10                     Breach of
Warrant.  If Borrower shall breach
any term of the Warrant.

 

8.11                     Unenforceable
Loan Document.  If any Loan Document
shall in any material respect cease to be, or Borrower shall assert that any
Loan Document is not, a legal, valid and binding obligation of Borrower
enforceable in accordance with its terms.

 

8.12                     Involuntary
Insolvency Proceeding.  If a
proceeding shall have been instituted in a court having jurisdiction in the
premises seeking a decree or order for relief in respect of Borrower in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian, trustee (or similar official) of Borrower or
for any substantial part of its Property, or for the winding-up or liquidation
of its affairs, and such proceeding shall remain undismissed or unstayed and in
effect for a period of thirty (30) consecutive days or such court shall enter a
decree or order granting the relief sought in such proceeding.

 

8.13                     Voluntary
Insolvency Proceeding.  If Borrower
shall commence a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, shall consent to the entry of an
order for relief in an involuntary case under any such law, or shall consent to
the appointment of or taking possession by a receiver, liquidator, assignee, trustee,
custodian (or other similar official) of Borrower or for any substantial part
of its Property, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or
shall take any corporate action in furtherance of any of the foregoing.

 

9.                                       Lender’s
Rights and Remedies.

 

9.1                           Rights
and Remedies.  Upon the occurrence of
any Default or Event of Default which has not been waived by Lenders, Lenders
shall not have any further obligation to advance money or extend credit to or
for the benefit of Borrower.  In
addition, upon the occurrence of an Event of Default, Lenders and Agent shall
have the rights, options, duties and remedies of a secured party as permitted
by law and, in addition to and without limitation of the foregoing, Lenders and
Agent may, at their election, without notice of election and without demand, do
any one or more of the following, all of which are authorized by Borrower:

 

(a)                                  Acceleration
of Obligations.  Declare all Obligations,
whether evidenced by this Agreement, by any of the other Loan Documents, or
otherwise, including (i) any accrued and unpaid interest, (ii) the
amounts which would have otherwise come due under Section 2.3(b)(ii) if
the Loans had been voluntarily prepaid, (iii) the unpaid principal balance
of the Loans and (iv) all other sums, if any, that shall have become due
and payable hereunder, immediately due and payable (provided  that
upon the occurrence of an Event of Default described in Section 8.12 or
8.13 all Obligations shall become immediately due and payable without any
action by Lenders or Agent);

 

(b)                                 Protection
of Collateral.  Make such payments
and do such acts as Lenders and Agent consider necessary or reasonable to
protect Lenders’ and Agent’s security

 

25

 

interest in the Collateral. 
Borrower agrees to assemble the Collateral if Lenders so require and to
make the Collateral available to Lenders as Lenders may designate.  Borrower authorizes Lenders and their
designees and agents to enter the premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any Lien which in Lenders’ determination
appears or is claimed to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith.  With respect to any of Borrower’s owned
premises, Borrower hereby grants Lenders a license to enter into possession of
such premises and to occupy the same, without charge, for up to one hundred
twenty (120) days in order to exercise any of Lenders’ rights or remedies
provided herein, at law, in equity, or otherwise;

 

(c)                                  Preparation
of Collateral for Sale.  Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Collateral.  Lenders and their agents and any purchasers
at or after foreclosure are hereby granted a non-exclusive, irrevocable,
perpetual, fully paid, royalty-free license or other right, solely pursuant to
the provisions of this Section 9.1, to use, without charge,
Borrower’s Intellectual Property, including without limitation, labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any Property of a similar
nature, now or at any time hereafter owned or acquired by Borrower or in which
Borrower now or at any time hereafter has any rights; provided  that
such license shall only be exercisable in connection with the disposition of
Collateral upon Lenders’ or Agents exercise of its remedies hereunder;

 

(d)                                 Sale
of Collateral.  Sell the Collateral
at either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including Borrower’s premises) as Lenders determine are commercially
reasonable; and

 

(e)                                  Purchase
of Collateral.  Credit bid and
purchase all or any portion of the Collateral at any public sale.

 

Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.

 

9.2                           Set
Off Right. Upon the occurrence of an Event of Default which has not been
waived by Lenders, Lenders or Agent may set off and apply to the Obligations
any and all indebtedness at any time owing to or for the credit or the account
of Borrower or any other assets of Borrower in Lenders’ or Agent’s possession
or control.

 

9.3                           Effect
of Sale. Upon the occurrence of an Event of Default which has not been
waived by Lenders, to the extent permitted by law, Borrower covenants that it
will not at any time insist upon or plead, or in any manner whatsoever claim or
take any benefit or advantage of, any stay or extension law now or at any time
hereafter in force, nor claim, take nor insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisement of the Collateral or any part thereof prior to any sale or sales
thereof to be made pursuant to any provision herein contained, or to the
decree, judgment or order of any court of competent jurisdiction; nor, after
such sale or sales, claim or exercise any right under any statute now or
hereafter made or enacted by any state or otherwise to redeem the property so
sold or any part thereof, and, to the full extent legally permitted, except as
to rights

 

26

 

expressly provided herein, hereby expressly waives for itself and on
behalf of each and every Person, except decree or judgment creditors of
Borrower, acquiring any interest in or title to the Collateral or any part
thereof subsequent to the date of this Agreement, all benefit and advantage of
any such law or laws, and covenants that it will not invoke or utilize any such
law or laws or otherwise hinder, delay or impede the execution of any power
herein granted and delegated to Lenders or Agent, but will suffer and permit
the execution of every such power as though no such power, law or laws had been
made or enacted.  Any sale, whether under
any power of sale hereby given or by virtue of judicial proceedings, shall
operate to divest all right, title, interest, claim and demand whatsoever,
either at law or in equity, of Borrower in and to the Property sold, and shall
be a perpetual bar, both at law and in equity, against Borrower, its successors
and assigns, and against any and all Persons claiming the Property sold or any
part thereof under, by or through Borrower, its successors or assigns.

 

9.4                           Power
of Attorney in Respect of the Collateral. 
Borrower does hereby authorize each Lender and Agent to file any notices
of security interests, financing statements and continuations and amendments
thereof pursuant to the Code or federal law, as may be necessary to perfect, or
to continue the perfection of Lenders’ or Agent’s security interests in the
Collateral.  Borrower does hereby
irrevocably appoint Agent (which appointment is coupled with an interest) on
the occurrence of an Event of Default, the true and lawful attorney in fact of
Borrower with full power of substitution, for it and in its name:  (a) to ask, demand, collect, receive,
receipt for, sue for, compound and give acquittance for any and all rents,
issues, profits, avails, distributions, income, payment draws and other sums in
which a security interest is granted under Section 4 with full
power to settle, adjust or compromise any claim thereunder as fully as if Agent
were Borrower itself; (b) to receive payment of and to endorse the name of
Borrower to any items of Collateral (including checks, drafts and other orders
for the payment of money) that come into Agent’s possession or under Agent’s
control; (c) to make all demands, consents and waivers, or take any other
action with respect to, the Collateral; (d) in Agent’s discretion to file
any claim or take any other action or proceedings, either in its own name or in
the name of Borrower or otherwise, which Agent may reasonably deem necessary or
appropriate to protect and preserve the right, title and interest of Lenders
and Agent in and to the Collateral; (e) endorse Borrower’s name on any
checks or other forms of payment or security; (f) sign Borrower’s name on
any invoice or bill of lading for any account or drafts against account debtors;
(g) make, settle, and adjust all claims under Borrower’s insurance
policies; (h) settle and adjust disputes and claims about the accounts
directly with account debtors, for amounts and on terms Agent determines
reasonable; (i) transfer the Collateral into the name of Lenders or Agent
or a third party as the Code permits; and (j) to otherwise act with
respect thereto as though Agent were the outright owner of the Collateral.

 

9.5                           Lender’s
Expenses.  If Borrower fails to pay
any amounts or furnish any required proof of payment due to third persons or
entities, as required under the terms of this Agreement, then Lenders or Agent
may do any or all of the following:  (a) make
payment of the same or any part thereof; or (b) obtain and maintain
insurance policies of the type discussed in Section 6.8 of this
Agreement, and take any action with respect to such policies as Lenders deem
prudent.  Any amounts paid or deposited
by Lenders or Agent shall constitute Lenders’ Expenses, shall be immediately
due and payable, shall bear interest at the Default Rate and shall be secured
by the Collateral.  Any payments made by
Lenders or Agent shall not constitute an agreement by Lenders or Agent to make
similar payments in the future or a waiver by Lenders of any Event of Default
under this Agreement.  Borrower shall pay
all reasonable fees and

 

27

 

expenses, including without limitation, Lenders’ Expenses, incurred by
Lenders or Agent in the enforcement or attempt to enforce any of the
Obligations hereunder not performed when due.

 

9.6                           Remedies
Cumulative. Lenders’ and Agent’s rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative.  Lenders and Agent shall have all other rights
and remedies not inconsistent herewith as provided under the Code, by law, or
in equity.  No exercise by Lenders or
Agent of one right or remedy shall be deemed an election, and no waiver by
Lenders or Agent of any Event of Default on Borrower’s part shall be deemed a
continuing waiver.  No delay by Lenders
or Agent shall constitute a waiver, election, or acquiescence by it.

 

9.7                           Application
of Collateral Proceeds.  The proceeds
and/or avails of the Collateral, or any part thereof, and the proceeds and the
avails of any remedy hereunder (as well as any other amounts of any kind held
by any Lender or Agent, at the time of or received by Lenders or Agent after
the occurrence of an Event of Default hereunder) shall be paid to and applied
as follows:

 

(a)                                  First,
to the payment of out-of-pocket costs and expenses, including all amounts
expended to preserve the value of the Collateral, of foreclosure or suit, if
any, and of such sale and the exercise of any other rights or remedies, and of
all proper fees, expenses, liability and advances, including reasonable legal
expenses and attorneys’ fees, incurred or made hereunder by Lenders or Agent,
including, without limitation, Lenders’ Expenses;

 

(b)                                 Second,
to the payment to Lenders of any accrued and unpaid interest, the amounts which
would have otherwise come due under Section 2.3(b)(ii), if the Loans had
been voluntarily prepaid, the principal balance of the Loans, and all other
Obligations with respect to the Loans (provided, however, if such
proceeds shall be insufficient to pay in full the whole amount so due, owing or
unpaid upon the Loans, then to the unpaid interest thereon, then to the amounts
which would have otherwise come due under Section 2.3(b)(ii) if the
Loans had been voluntarily prepaid, then to the principal balance of the Loans,
and then to the payment of other amounts then payable to Lender under any of
the Loan Documents); and

 

(c)                                  Third,
to the payment of the surplus, if any, to Borrower, its successors and assigns,
or to the Person lawfully entitled to receive the same.

 

9.8                           Reinstatement
of Rights.  If Lenders or Agent shall
have proceeded to enforce any right under this Agreement or any other Loan
Document by foreclosure, sale, entry or otherwise, and such proceedings shall
have been discontinued or abandoned for any reason or shall have been
determined adversely, then and in every such case (unless otherwise ordered by
a court of competent jurisdiction), Lenders and Agent shall be restored to their
former position and rights hereunder with respect to the Property subject to
the security interests created under this Agreement.

 

10.                                 Waivers;
Indemnification.

 

10.1                     Demand;
Protest.  Borrower waives demand,
protest, notice of protest, 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,

 

28

 

documents, instruments, chattel paper, and guarantees at any time held
by Lenders on which Borrower may in any way be liable.

 

10.2                     Lender’s
Liability for Collateral.  So long as
Lenders and Agent comply with their obligations, if any, under the Code, Lenders
and Agent shall not in any way or manner be liable or responsible for:  (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause other than Lenders’ or Agent’s gross negligence or willful misconduct; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.

 

10.3                     Indemnification
and Waiver.  Whether or not the
transactions contemplated hereby shall be consummated:

 

(a)                                  General
Indemnity. Borrower agrees upon demand to pay or reimburse Lenders and
Agent for all liabilities, obligations and out-of-pocket expenses, including
Lenders’ Expenses and reasonable fees and expenses of counsel for Lenders from
time to time arising in connection with the enforcement or collection of sums
due under the Loan Documents, and in connection with any amendment or
modification of the Loan Documents or any “work-out” in connection with the
Loan Documents.  Borrower shall
indemnify, reimburse and hold Lenders and Agent, and each of their respective
successors, assigns, agents, attorneys, officers, directors, shareholders,
servants, agents and employees (each an “Indemnified Person”) harmless
from and against all liabilities, losses, damages, actions, suits, demands,
claims of any kind and nature (including claims relating to environmental
discharge, cleanup or compliance), all costs and expenses whatsoever to the
extent they may be incurred or suffered by such Indemnified Person in
connection therewith (including reasonable attorneys’ fees and expenses),
fines, penalties (and other charges of any applicable Governmental Authority),
licensing fees relating to any item of Collateral, damage to or loss of use of
property (including consequential or special damages to third parties or
damages to Borrower’s property), or bodily injury to or death of any person
(including any agent or employee of Borrower) (each, a “Claim”),
directly or indirectly relating to or arising out of the use of the proceeds of
the Loans or otherwise, the falsity of any representation or warranty of
Borrower or Borrower’s failure to comply with the terms of this Agreement or
any other Loan Document.  The foregoing
indemnity shall cover, without limitation, (i) any Claim in connection
with a design or other defect (latent or patent) in any item of equipment or
product included in the Collateral, (ii) any Claim for infringement of any
patent, copyright, trademark or other intellectual property right, (iii) any
Claim resulting from the presence on or under or the escape, seepage, leakage,
spillage, discharge, emission or release of any Hazardous Materials on the
premises owned, occupied or leased by Borrower, including any Claims asserted
or arising under any Environmental Law, (iv) any Claim for negligence or
strict or absolute liability in tort, or (v) any Claim asserted as to or
arising under any Account Control Agreement or any Landlord Agreement; provided,
however, Borrower shall not indemnify Lenders or Agent for any liability
incurred by Lenders or Agent as a direct and sole result of Lenders’ or Agent’s
gross negligence or willful misconduct. 
Such indemnities shall continue in full force and effect,
notwithstanding the expiration or termination of this Agreement.  Upon any Lender’s or Agent’s written demand,
Borrower shall assume and diligently conduct, at its sole cost and expense, the
entire defense of such Lender or Agent, as applicable, each of its partners,
and each of their respective, agents, employees, directors, officers,
shareholders, successors and

 

29

 

assigns against any indemnified Claim described in this Section 10.3(a).  Borrower shall not settle or compromise any
Claim against or involving any Lender or Agent without first obtaining such Lender’s
or Agent’s, as applicable, written consent thereto, which consent shall not be
unreasonably withheld.

 

(b)                                             Waiver.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR ANYWHERE
ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDERS OR AGENT UNDER ANY
THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES.

 

(c)                                              Survival;
Defense.  The obligations in this Section 10.3
shall survive payment of all other Obligations pursuant to Section 12.8.  At the election of any Indemnified Person,
Borrower shall defend such Indemnified Person using legal counsel satisfactory
to such Indemnified Person in such Person’s reasonable discretion, at the sole
cost and expense of Borrower.  All
amounts owing under this Section 10.3 shall be paid within thirty
(30) days after written demand.

 

11.                                 Notices.  Unless otherwise provided in this Agreement,
all notices or demands by any party relating to this Agreement or any other
agreement entered into in connection herewith shall be in writing and (except
for financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
certified mail, postage prepaid, return receipt requested, by prepaid
nationally recognized overnight courier, or by prepaid facsimile to Borrower or
to Lenders or to Agent, as the case may be, at their respective addresses set
forth below:

 

	
  If
  to Borrower:

  	
  Sunesis
  Pharmaceuticals, Inc.

  
	
   

  	
  341 Oyster Point
  Boulevard

  
	
   

  	
  South San
  Francisco, CA 94080

  
	
   

  	
  Attention: Eric
  C. Bjerkholt

  
	
   

  	
  Fax: (650) 266-3717

  
	
   

  	
  Ph: (650) 266-3500

  
	
  If
  to Horizon or Agent:

  	
  Horizon
  Technology Funding Company LLC

  
	
   

  	
  76 Batterson Park
  Road

  
	
   

  	
  Farmington, CT 06032

  
	
   

  	
  Attention: Legal
  Department

  
	
   

  	
  Fax: (860) 676-8655

  
	
   

  	
  Ph: (860) 676-8654

  
	
   

  	
   

  
	
  If
  to Oxford:

  	
  Oxford Finance
  Corporation

  
	
   

  	
  133 N.Fairfax
  Street

  
	
   

  	
  Alexandria, VA
  22314

  
	
   

  	
  Attn: Mike
  Altenburger, Chief Financial Officer

  
	
   

  	
  Fax: (703) 519-4910

  
	
   

  	
  Ph: (703) 519-6017

  

 

30

 

The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

12.                                 General
Provisions.

 

12.1                     Successors
and Assigns.  This Agreement and the
Loan Documents shall bind and inure to the benefit of the respective successors
and permitted assigns of each of the parties; provided, however,
neither this Agreement nor any rights hereunder may be assigned by Borrower
without Lenders’ prior written consent, which consent may be granted or
withheld in Lenders’ sole discretion. 
Lenders shall have the right without the consent of or notice to
Borrower to sell, transfer, assign, negotiate, or grant participations in all
or any part of, or any interest in Lenders’ rights and benefits hereunder.  Lenders may disclose the Loan Documents and
any other financial or other information relating to Borrower or any Subsidiary
to any potential participant or assignee of any of the Loans, provided  that
such participant or assignee agrees to protect the confidentiality of such
documents and information using the same measures that it uses to protect its
own confidential information.

 

12.2                     Time of
Essence.  Time is of the essence for
the performance of all obligations set forth in this Agreement.

 

12.3                     Severability
of Provisions.  Each provision of
this Agreement shall be several from every other provision of this Agreement
for the purpose of determining the legal enforceability of any specific
provision.

 

31

 

12.4                     Entire
Agreement; Construction; Amendments and Waivers.

 

(a)                                  Entire
Agreement.  This Agreement and each
of the other Loan Documents dated as of the date hereof, taken together,
constitute and contain the entire agreement between Borrower and Lenders and
supersede any and all prior agreements, negotiations, correspondence,
understandings and communications between the parties, whether written or oral,
respecting the subject matter hereof. 
Borrower acknowledges that it is not relying on any representation or
agreement made by Lenders or any employee, attorney or agent thereof, other
than the specific agreements set forth in this Agreement and the Loan Documents.

 

(b)                                 Construction.  This Agreement is the result of negotiations
between and has been reviewed by each of Borrower, Agent and Lenders executing
this Agreement as of the date hereof and their respective counsel; accordingly,
this Agreement shall be deemed to be the product of the parties hereto, and no
ambiguity shall be construed in favor of or against Borrower, Agent or Lenders.  Borrower and Lender agree that they intend
the literal words of this Agreement and the other Loan Documents and that no
parol evidence shall be necessary or appropriate to establish Borrower’s, Agent’s
or Lenders’ actual intentions.

 

(c)                                  Amendments
and Waivers.  Any and all amendments,
modifications, discharges or waivers of, or consents to any departures from any
provision of this Agreement or of any of the other Loan Documents shall not be
effective without the written consent of Lenders.  Any waiver or consent with respect to any
provision of the Loan Documents shall be effective only in the specific
instance and for the specific purpose for which it was given.  No notice to or demand on Borrower in any
case shall entitle Borrower to any other or further notice or demand in similar
or other circumstances.  Any amendment,
modification, waiver or consent affected in accordance with this Section 12.4
shall be binding upon Lenders and on Borrower.

 

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

 

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

 

12.7                     Counterparts.  This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.

 

12.8                     Survival.  All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations or commitment to fund remain outstanding.  The obligations of Borrower to indemnify
Lenders and Agent with respect to the expenses, damages, losses, costs and
liabilities described in Section 10.3 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Lenders or Agent have run.

 

13.                                 Relationship
of Parties.  Borrower and Lenders
acknowledge, understand and agree that the relationship between Borrower, on
the one hand, and each Lender, on the other, is, and at all time shall remain
solely that of a borrower and lender. 
Lenders shall not under any

 

32

 

circumstances be construed to be a partner or a joint venturer of
Borrower or any of its Affiliates; nor shall Lenders under any circumstances be
deemed to be in a relationship of confidence or trust or a fiduciary
relationship with Borrower or any of its Affiliates, or to owe any fiduciary
duty to Borrower or any of its Affiliates. 
Lenders do not undertake or assume any responsibility or duty to
Borrower or any of its Affiliates to select, review, inspect, supervise, pass
judgment upon or otherwise inform Borrower or any of its Affiliates of any
matter in connection with its or their Property, any Collateral held by Lenders
or Agent or the operations of Borrower or any of its Affiliates.  Borrower and each of its Affiliates shall
rely entirely on their own judgment with respect to such matters, and any
review, inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by Lender in connection with such matters is solely for
the protection of Lenders and neither Borrower nor any Affiliate is entitled to
rely thereon.

 

14.                                 Confidentiality.  All information (other than periodic reports
filed by Borrower with the Securities and Exchange Commission) disclosed by
Borrower to Lenders or Agent in writing or through inspection pursuant to this
Agreement that is marked confidential shall be considered confidential.  Lenders and Agent agree to use the same
degree of care to safeguard and prevent disclosure of such confidential
information as Lenders and Agent use with their own confidential information,
but in any event no less than a reasonable degree of care. Neither Lenders nor
Agent shall disclose such information to any third party (other than to Lenders’
or Agent’s partners, attorneys, governmental regulators, or auditors, or to
Lenders’ subsidiaries and affiliates and prospective transferees and purchasers
of the Loans, all subject to the same confidentiality obligation set forth
herein or as required by law, regulation, subpoena or other order to be
disclosed) and shall use such information only for purposes of evaluation of
its investment in Borrower and the exercise of Lenders’ and Agent’s rights and
the enforcement of their remedies under this Agreement and the other Loan
Documents.  The obligations of
confidentiality shall not apply to any information that (a) was known to
the public prior to disclosure by Borrower under this Agreement, (b) becomes
known to the public through no fault of Lenders or Agent, (c) is disclosed
to Lenders or Agent by a third party having a legal right to make such
disclosure, or (d) is independently developed by Lenders or Agent.  Notwithstanding the foregoing, Lenders’ and
Agent’s agreement of confidentiality shall not apply if Lenders or Agent have
acquired indefeasible title to any Collateral or in connection with any
enforcement or exercise of Lenders’ or Agent’s rights and remedies under this
Agreement following an Event of Default, including the enforcement of Lenders’
or Agent’s security interest in the Collateral.

 

15.                                 CHOICE
OF LAW AND VENUE; JURY TRIAL WAIVER. 
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.  EACH OF BORROWER,
AGENT AND LENDERS HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN CALIFORNIA. 
BORROWER, AGENT AND LENDERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR STATUTORY CLAIMS.

 

[Remainder of page intentionally
left blank.]

 

33

 

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

 

	
   

  	
  BORROWER:

  
	
   

  	
  SUNESIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eric Bjerkholt

  	
   

  
	
   

  	
  Name: Eric Bjerkholt

  	
   

  
	
   

  	
  Title: Senior Vice President, Chief Financial
  Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
  HORIZON TECHNOLOGY FUNDING

  COMPANY LLC

  
	
   

  	
  By: Horizon Technology Finance, LLC, its

  sole member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Pomeroy, Jr.

  	
   

  
	
   

  	
  Name: Robert D. Pomeroy, Jr.

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  OXFORD FINANCE CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J. Altenburger

  	
   

  
	
   

  	
  Name: Michael J. Altenburger

  
	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  AGENT:

  
	
   

  	
  HORIZON TECHNOLOGY FUNDING

  COMPANY LLC

  
	
   

  	
  By: Horizon Technology Finance, LLC, its

  sole member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Pomeroy, Jr.

  	
   

  
	
   

  	
  Name: Robert D. Pomeroy, Jr.

  
	
   

  	
  Title: Managing Member

  
						

 

34

 

LIST OF EXHIBITS AND SCHEDULES

 

 

Exhibit A                                               Disclosure
Schedule

Exhibit B                                                 Funding
Certificate

Exhibit C                                                 Form of
Note

Exhibit D                                                Form of
Legal Opinion

Exhibit E                                                  Form of
Officer’s Certificate

 

 

EXHIBIT A

 

DISCLOSURE
SCHEDULE

 

 

EXHIBIT B

 

FUNDING CERTIFICATE

 

The undersigned, being
the duly elected and acting                                                       
of SUNESIS PHARMACEUTICALS, INC., a Delaware corporation (“Borrower”),
does hereby certify to HORIZON TECHNOLOGY FUNDING COMPANY LLC (“Horizon)
and OXFORD FINANCE CORPORATION ((“Oxford”) and collectively with
Horizon, the “Lenders”) in connection with that certain Venture Loan and
Security Agreement dated as of July    , 2005, by and among
Borrower and Lenders (the “Loan Agreement”; with other capitalized terms used
below having the meanings ascribed thereto in the Loan Agreement) that:

 

1.                                       The
representations and warranties made by Borrower in Section 5 of the
Loan Agreement and in the other Loan Documents are true and correct in all
material respects as of the date hereof, except:                                                                         .

 

2.                                       No
event or condition has occurred that would constitute a Default or an Event of
Default under the Loan Agreement or any other Loan Document.

 

3.                                       Borrower
is in compliance with the covenants and requirements contained in Sections
4, 6 and 7 of the Loan Agreement.

 

4.                                       All
conditions referred to in Section 3 of the Loan Agreement to the
making of the Loan to be made on or about the date hereof have been satisfied.

 

5.                                       No
material adverse change in the general affairs, management, results of
operations, condition (financial or otherwise) or prospects of Borrower,
whether or not arising from transactions in the ordinary course of business,
has occurred.

 

6.                                       The
proceeds for the above referenced Loan due from Horizon should be disbursed as
follows:

 

Disbursement from Horizon:

	
  Loan Amount

  	
   

  	
  $

  	
   

  
	
  Less:

  	
   

  	
   

  	
   

  
	
  Legal
  Fees

  	
   

  	
  $

  	
   

  
	
  Net Proceeds due from
  Horizon:

  	
   

  	
  $

  	
   

  

 

7.                                       The
proceeds for the above referenced Loan due from Oxford should be disbursed as
follows:

 

Disbursement from Oxford:

	
  Loan Amount

  	
   

  	
  $

  	
   

  
	
  Less:

  	
   

  	
   

  	
   

  
	
  Legal
  Fees

  	
   

  	
  $

  	
   

  
	
  Net Proceeds due from Oxford:

  	
   

  	
  $

  	
   

  

 

 

8.                                       The
aggregate net proceeds of the Loan in the amount of $                                  
shall be delivered to Borrower’s account as follows:

 

	
  Beneficiary Bank:

  	
  State Street Bank

  
	
   

  	
  1200 Crown Colony

  
	
   

  	
  Quincy, MA 02169

  
	
  ABA
  Number:

  	
  011000028

  
	
  Depositor
  Acc. Title:

  	
  State Street
  Bank

  
	
  Depositor
  Acc. Number:

  	
  17039843

  
	
  For Credit to:

  	
  DE0530 Sunesis
  Pharmaceuticals, Inc.

  
	
  Attention:

  	
  Rachel Bovarnick

  

 

 

Dated:                   ,
200  

 

	
   

  	
  BORROWER:

  
	
   

  	
  SUNESIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

EXHIBIT C

 

SECURED PROMISSORY NOTE

 

	
  $                              

  	
  Dated:  [Date]

  

 

FOR
VALUE RECEIVED, the undersigned, SUNESIS PHARMACEUTICALS, INC., a Delaware
corporation (“Borrower”), HEREBY PROMISES TO PAY to the order of [HORIZON
TECHNOLOGY FUNDING COMPANY LLC, a Delaware limited liability company/OXFORD
FINANCE CORPORATION, a             
corporation]  (“Lender”) the
principal amount of                         
Dollars ($                    )
or such lesser amount as shall equal the outstanding principal balance of the
Loan made to Borrower by Lender pursuant to the Loan Agreement (as defined
below), and to pay all other amounts due with respect to the Loan on the dates
and in the amounts set forth in the Loan Agreement.

 

Interest
on the principal amount of this Note from the date of this Note shall accrue at
the Loan Rate or, if applicable, the Default Rate.  The Loan Rate for this Note is          % per annum based on a year of twelve
30-day months.  If the Funding Date is
not the first day of the month, interim interest accruing from the Funding Date
through the last day of that month shall be paid on the first calendar day of
the next calendar month.  Borrower shall
make payments of accrued interest only on the outstanding principal amount of
the Loan on the first day of each month (“Payment Date”), commencing                     ,
200  , through and including                 ,
200   (“Initial Interest Only Period”); provided, that, if
Borrower has elected to extend the interest only payment period pursuant to Section 2.2(a) of
the Loan Agreement, Borrower shall make such interest only payments through and
including January 1, 2007 (“Extended Interest Only Period” and,
collectively with the Initial Interest Only Period, “Interest Only Period”).  Commencing on the first day of the first
calendar month following the end of the Interest Only Period, and continuing on
consecutive Payment Dates thereafter, Borrower shall make to Lender thirty (30)
level (mortgage-style) payments of principal plus accrued interest on the then
outstanding principal amount due hereunder of               
Dollars ($                ).
If not sooner paid, all outstanding amounts hereunder and under the Loan
Agreement shall become due and payable on the Maturity Date.

 

Principal,
interest and all other amounts due with respect to the Loan, 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 referred to in, and is entitled to the benefits of, the Venture Loan
and Security Agreement dated as of [Date] by and between Borrower, [Oxford
Finance Corporation/Horizon Technology Funding Company LLC] and Lender (the “Loan
Agreement”).  The Loan Agreement, among
other things, (a) provides for the making of a secured Loan 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 as set forth in Section 2.3 of the
Loan Agreement.

 

 

This
Note and the obligation of Borrower to repay the unpaid principal amount of the
Loan, interest on the Loan and all other amounts due Lender 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 Lender in the enforcement or
attempt to enforce 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.

 

Note Register; Ownership of Note.  The
ownership of an interest in this Note shall be registered on a record of
ownership maintained by Borrower or its agent. 
Notwithstanding anything else in this Note to the contrary, the right to
the principal of, and stated interest on, this Note may be transferred only if
the transfer is registered on such record of ownership and the transferee is
identified as the owner of an interest in the obligation.  Borrower shall be entitled to treat the
registered holder of this Note (as recorded on such record of ownership) as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in this Note on the part of any other
person or entity.

 

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

 

	
   

  	
  BORROWER:

  
	
   

  	
  SUNESIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

EXHIBIT D

 

ITEMS TO BE
COVERED BY OPINION OF BORROWER’S COUNSEL

 

TO BE AGREED UPON BY LENDERS AND BORROWER

 

 

EXHIBIT E

 

FORM OF OFFICER’S CERTIFICATE

 

TO:  HORIZON
TECHNOLOGY FUNDING COMPANY LLC AND OXFORD FINANCIAL CORPORATION

 

Reference is made to the
Venture Loan and Security Agreement dated as of           ,
2005 (as it may be amended from time to time, the “Loan Agreement”) by
and among SUNESIS PHARMACEUTICALS, INC. (“Borrower”), OXFORD FINANCIAL CORPORATION (“Oxford”)
and HORIZON TECHNOLOGY FUNDING COMPANY LLC (“Horizon” and collectively
with Oxford, “Lenders”).  Unless
otherwise defined herein, capitalized terms have the meanings given such terms
in the Loan Agreement.

 

                The undersigned Responsible
Officer of Borrower hereby certifies to Lenders that:

 

1.                                       No Event of Default or Default has occurred
under the Loan Agreement. (If a Default or Event of Default has occurred,
specify the nature and extent thereof and the action Borrower proposes to take
with respect thereto.)

 

2.                                       The information provided in Section 1 of
the Disclosure Schedule is currently true and accurate, except as noted
below.

 

3.                                       Borrower is in compliance with the provisions
of Sections 4, 6 and 7 of the Loan Agreement, except as noted
below.

 

4.                                       Attached herewith are the [monthly financial
statements pursuant to Section 6.3(a) of the Loan Agreement/annual
audited financial statements pursuant to Section 6.3(b) of the Loan
Agreement].  [TO BE CERTIFIED ON A
QUARTERLY BASIS: These have been prepared in accordance with GAAP and are
consistent from one period to the next except as noted below.]

 

	
  NOTES TO ABOVE CERTIFICATIONS:

  
	
   

  
	
   

  
	
   

  
	
   

  

 

	
   

  	
  BORROWER:

  
	
   

  	
  SUNESIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:Exhibit 10.39

 

SUNESIS PHARMACEUTICALS, INC.

 

AMENDMENT TO EIGHTH AMENDED AND RESTATED

INVESTOR RIGHTS AGREEMENT

 

This
Amendment (the “Amendment”) to the Eighth Amended and Restated Investor
Rights Agreement dated August 30, 2004, as amended (the “Agreement”),
is entered into as of August 25, 2005 by and among Sunesis Pharmaceuticals, Inc.,
a Delaware corporation (the “Company”), Horizon Technology Funding
Company II LLC (“Horizon II”), Horizon Technology Funding Company III
LLC (“Horizon III”), Oxford Finance Corporation (“Oxford”) and
the parties to the Agreement set forth on the signature pages hereto (the “Prior
Investors”).  The Prior Investors,
Horizon II, Horizon III and Oxford are collectively referred to hereinafter as
the “Investors” and each individually as an “Investor.”  Capitalized terms used herein without
definition have the meanings given to such terms in the Agreement.

 

RECITALS

 

A.                                   The Prior Investors hold shares of the Company’s
Warrant Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series C-1 Preferred Stock and/or Series C-2
Preferred Stock (“Shares”) and possess registration and other rights
pursuant to the Agreement;

 

B.                                     The Company proposes to issue warrants (the “Warrants”)
to purchase shares of Series C Preferred Stock to Horizon II, Horizon III and
Oxford in connection with a Venture Loan and Security Agreement, dated as of
the date hereof (the “Loan Agreement”);

 

C.                                     Horizon II, Horizon
III and Oxford have requested
that the Company extend to them registration rights, information rights and
other rights as set forth in the Agreement.

 

D.                                    Pursuant to Section 8.1 of the Agreement,
with the written consent of the Company and the record holders of more than
seventy percent (70%) of the Registrable Securities, including at least three
Investors that are not affiliated with each other, any term of the Agreement
may be amended and the obligations of the Company and the rights of the other
parties to this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely).

 

E.                                      The Prior Investors are the record holders of
more than seventy percent (70%) of the Registrable Securities, and the Company and the Prior Investors
desire to amend the Agreement to provide Horizon II, Horizon III and Oxford
with the rights pursuant to the Agreement.

 

AGREEMENT

 

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

 

 

1.                                       Status as Investor.  The
Prior Investors, the Company, Horizon II, Horizon III and Oxford hereby agree
that each of Horizon II, Horizon III and Oxford shall be considered an “Investor”
for all purposes of the Agreement, and Exhibit A of the Agreement
shall be amended to include Horizon II, Horizon III and Oxford.  The Company and the Prior Investors hereby adopt
this Amendment and acknowledge and agree that each of Horizon II, Horizon III and
Oxford shall be entitled to the rights and subject to the obligations of an “Investor”
pursuant to the Agreement.

 

2.                                       Securities Acquired by Horizon II, Horizon
III and Oxford.  The Prior Investors, the Company, Horizon II,
Horizon III and Oxford hereby agree that (i) all securities of the Company
now or hereafter acquired by Horizon II, Horizon III and Oxford upon exercise
of the Warrants shall be bound by and subject to the terms of the Agreement and
(ii) all shares of Common Stock (including all shares of Common Stock issuable
upon the conversion of shares of Preferred Stock or any other securities of the
Company now or hereafter acquired by Horizon II, Horizon III and Oxford upon
exercise of the Warrants) now or hereafter acquired by Horizon II, Horizon III and
Oxford shall constitute Registrable Securities for purposes of the Agreement.  Each of Horizon II, Horizon III and Oxford
hereby adopts the Agreement, including this Amendment, with the same force and
effect as if it were originally a party thereto.

 

3.                                       Notice.  Any notice required or
permitted by the Agreement shall be given to Horizon II, Horizon III or Oxford,
as the case may be, at the address listed on the signature pages hereto.

 

4.                                       All
other provisions of the Agreement shall remain unchanged and in full force and
effect.

 

5.                                       This
Amendment may be executed in two or more counterparts and signatures may be
delivered by facsimile, each of which shall be deemed an original and each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.

 

(Signature
Pages Follow)

 

2

 

IN
WITNESS WHEREOF, this Amendment has been executed as of the date first above
written.

 

COMPANY:

 

 

	
  SUNESIS PHARMACEUTICALS, INC.

  	
  HORIZON TECHNOLOGY FUNDING COMPANY II LLC

  
	
   

  	
  By: Horizon Technology Finance, LLC, its member and agent

  
	
   

  
	
   /s/ Daniel N Swisher, Jr.

  	
   

  	
   /s/ Robert D. Pomeroy, Jr.

  	
   

  
	
  Name:

  	
  Daniel N Swisher, Jr.

  	
  Name:

  	
  Robert D. Pomeroy, Jr.

  
	
  Title:

  	
  Chief Executive Officer

  	
  Title:

  	
  Managing Member

  
	
  Address:

  	
  341 Oyster Point Blvd.

  	
  Address: 

  	
  76 Batterson Park Road

  
	
   

  	
  South San Francisco, CA 94080

  	
   

  	
  Farmington, CT 06032

  
	
  Fax:

  	
  (650) 266-3501

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HORIZON TECHNOLOGY FUNDING COMPANY III LLC

  
	
   

  	
  By: Horizon Technology Finance, LLC, its member and agent

  
	
   

  	
   

  	
   

  
	
   

  	
   /s/ Robert D. Pomeroy, Jr.

  	
   

  
	
   

  	
  Name:

  	
  Robert D. Pomeroy, Jr.

  
	
   

  	
  Title:

  	
  Managing Member

  
	
   

  	
  Address:

  	
  76 Batterson Park Road

  
	
   

  	
   

  	
  Farmington, CT 06032

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OXFORD FINANCE CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   /s/ Michael J. Altenburger

  	
   

  
	
   

  	
  Name:

  	
  Michael J. Altenburger

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
  Address:

  	
   

  
							

 

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

 

 

	
  PRIOR INVESTORS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Biogen Idec MA, a Massachusetts corporation

  	
   

  
	
   

  
	
   

  
	
  By:

  	
     /s/
  James Deutzer

  	
   

  
	
  Name:  James Deutzer

  	
   

  
	
  Title:  Vice President and Corporate Controller

  	
   

  
				

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

 

 

	
  PRIOR INVESTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Abingworth Bioventures II
  SICAV

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
     /s/
  Geneviève Blauen

  	
   

  	
  By:

  	
     /s/
  Fernand Heim

  	
   

  
	
  Name: Geneviève Blauen

  	
  Name: Fernand Heim

  
	
  Title: Liquidator

  	
  Title: Mandatory

  
							

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

 

 

	
  PRIOR INVESTORS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Credit Suisse First Boston Equity Partners, L.P.

  	
   

  
	
   

  	
   

  
	
  By:
  Hemisphere Private Equity Partners, Ltd., its General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
     /s/
  George R. Hornig

  	
   

  	
   

  
	
  Name:
  George R. Hornig

  	
   

  
	
  Title:   Attorney-in-Fact

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Credit Suisse First Boston Equity Partners

  	
   

  
	
  (Bermuda), L.P.

  	
   

  
	
   

  	
   

  
	
  By:
  Hemisphere Private Equity Partners, Ltd., its General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
     /s/
  George R. Hornig

  	
   

  	
   

  
	
  Name:
  George R. Hornig

  	
   

  
	
  Title:
    Attorney-in-Fact

  
	
   

  
	
   

  
	
  Credit Suisse First Boston U.S. Executive

  	
   

  
	
  Advisors, L.P.

  	
   

  
	
   

  	
   

  
	
  By:
  Hemisphere Private Equity Partners, Ltd., its General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
     /s/
  George R. Hornig

  	
   

  
	
  Name:
  George R. Hornig

  
	
  Title:
    Attorney-in-Fact

  
					

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

 

 

	
  Credit Suisse First Boston Finders &

  
	
  Screeners, L.P.

  
	
   

  
	
  By:
  Merchant Capital, Inc., its General Partner

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  George R. Hornig

  	
   

  	
   

  
	
  Name:
  George R. Hornig

  
	
  Title:
    Director

  
	
   

  
	
   

  
	
  EMA Partners Fund 2000, L.P.

  
	
   

  
	
  By:
  Credit Suisse First Boston (Bermuda), Limited, its General Partner

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  George R. Hornig

  	
   

  	
   

  
	
  Name:
  George R. Hornig

  
	
  Title:
    Attorney-in-Fact

  

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

 

 

	
  PRIOR INVESTORS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Mayfield Associates Fund III

  	
   

  
	
   

  
	
  By:

  	
  Mayfield
  VIII Management, L.L.C.,

  
	
   

  	
  its
  General Partner

  
	
   

  
	
  By: 

  	
     /s/

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Mayfield IX

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Mayfield
  IX Management, L.L.C.,

  
	
   

  	
  its
  General Partner

  	
   

  
	
   

  	
   

  
	
  By: 

  	
     /s/

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
						

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

 

 

	
  PRIOR INVESTORS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Venrock Associates

  	
   

  
	
   

  	
   

  
	
  By:
  

  	
    /s/
  Anthony B. Evnin

  	
   

  
	
  Name:
  Anthony B. Evnin

  	
   

  
	
  Title:
   General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Venrock Associates II, L.P.

  	
   

  
	
   

  	
   

  
	
  By:
  

  	
    /s/
  Anthony B. Evnin

  	
   

  
	
  Name:
  Anthony B. Evnin

  	
   

  
	
  Title:
   General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Venrock Entrepreneurs Fund, L.P.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Venrock
  Management LLC

  	
   

  
	
   

  	
  its
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
    /s/
  Anthony B. Evnin

  	
   

  
	
  Name:
  Anthony B. Evnin

  	
   

  
	
  Title:
   General Partner

  	
   

  
				

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

 

 

	
  PRIOR INVESTORS:

  	
   

  
	
   

  	
   

  
	
  Warburg, Pincus Equity Partners, L.P.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Warburg
  Pincus Partners LLC,

  
	
   

  	
  its
  General Partner

  
	
   

  	
   

  
	
  By:

  	
  Warburg,
  Pincus & Co.,

  
	
   

  	
  its
  General Partner

  
	
   

  	
   

  
	
  By:
  

  	
    /s/
  Scott Arenare

  	
   

  
	
  Name:
  

  	
  Scott
  Arenare

  
	
  Title:

  	
  Partner

  
					

 

Warburg, Pincus Netherlands Equity Partners I, C.V.

 

	
  By:

  	
  Warburg
  Pincus Partners LLC,

  
	
   

  	
  its
  General Partner

  
	
   

  	
   

  
	
  By:

  	
  Warburg,
  Pincus & Co.,

  
	
   

  	
  its
  General Partner

  
	
   

  
	
  By:

  	
    /s/
  Scott Arenare

  	
   

  
	
  Name:
  

  	
  Scott
  Arenare

  
	
  Title:

  	
  Partner

  
					

 

Warburg, Pincus Netherlands Equity Partners II, C.V. (as
predecessor to Warburg Pincus Netherlands Equity Partners I, C.V.)

 

	
  By:

  	
  Warburg
  Pincus Partners LLC,

  
	
   

  	
  its
  General Partner

  
	
   

  	
   

  
	
  By:

  	
  Warburg,
  Pincus & Co.,

  
	
   

  	
  its
  General Partner

  
	
   

  	
   

  
	
  By:

  	
    /s/
  Scott Arenare

  	
   

  
	
  Name:
  

  	
  Scott
  Arenare

  
	
  Title:

  	
  Partner

  
					

 

Warburg, Pincus Netherlands Equity Partners III, C.V.

 

	
  By:

  	
  Warburg
  Pincus Partners LLC,

  
	
   

  	
  its
  General Partner

  
	
   

  	
   

  
	
  By:

  	
  Warburg,
  Pincus & Co.,

  
	
   

  	
  its
  General Partner

  
	
   

  	
   

  
	
  By:

  	
    /s/
  Scott Arenare

  	
   

  
	
  Name:

  	
  Scott
  Arenare

  
	
  Title:

  	
  Partner

  
					

 

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

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