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[LETTERHEAD]
CONFIDENTIAL COPY
June 18, 1997
Revised: July 16, 1997
Mr. John J. King, II
Chief Operating Officer
Rosetta Biosystems, Inc.
12040 116th Avenue NE
Kirkland, WA 98034
Dear John:
We are pleased to present the following equipment financing proposal to Rosetta
Biosystems, Inc.:
BORROWER: ROSETTA BIOSYSTEMS, INC.
LENDER: Lease Management Services, Inc.
EQUIPMENT: A master line of credit for $1 .500, 000 equipment per the
attached list, including:
GREATER THAN OR EQUAL TO $795,000 lab & scientific equipment
LESS THAN OR EQUAL TO 475,000 computers, furniture,
phone, network, & similar
LESS THAN OR EQUAL TO 230,000 leaseholds, application
software & similar
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$1,500,000
Previously-purchased and used equipment may be Included in
this line. All equipment is subject to Lender's final
approval.
TERM &
PAYMENT: OPTION 1: Forty-two (42) months at 2.630% of equipment cost,
payable monthly in advance for each loan schedule, plus a 15%
balloon at end of term. [Subject to satisfactory credit
review, the balloon may be paid over 9 months at 1,740% per
month.]
OPTION 2: Forty-eight (48) months at 2.640% of equipment cost,
payable monthly in advance for each loan schedule, plus a
$1.00 payment at end of term.
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OPTION 3: Forty-eight (48) months at 2.579% of equipment cost,
payable monthly in advance for each loan schedule, plus a 5%
balloon at end of term.
The yield in this transaction will be adjusted relative to any
increase in comparable term U.S. treasury maturities. The
payment factor for each schedule will be set at the time it is
documented and will be FIXED for the term. The payment factors
above are based on the average of the Federal Reserve 3- and
5-year treasuries (6.09%) for the week ending July11, 1997.
STRUCTURE: Secured loan, Borrower retains title and keeps depreciation.
Borrower will grant Lender a first security interest in the
equipment to be financed.
WARRANT: In consideration for this financing, Borrower shall grant to
Lender a warrant to purchase Borrower's common or preferred
stock. The warrant shall be for 2.5% of equipment cost at
Borrower's Series A price of $4.00/share. The warrant will be
for the greater of 6,250 shares or the number of shares based
pro rate on the actual amount of equipment financed. [For
example, if $1,200,000 equipment is financed, the warrant will
be for 7,500 shares (i.e. $1.2MM x 2.5% DIVIDED BY $4.00).]
The warrant may be exercised by cash or net issue and will
include standard, anti-dilution provisions. The exercise
period shall end 72 months from the date of Issue.
COVENANT: No additional collateral will be required except in the event
Borrower's unrestricted cash, excluding long-term debt, falls
below the appropriate benchmark below. In that event, Borrower
will provide to Lender a cash security deposit equivalent to
12.5% of original, aggregate equipment cost, but in no event
to exceed the remaining gross receivable.
PRE-IPO BENCHMARK: unrestricted cash, excluding long-term
debt, must be equal to the greater of $2,000,000 or 6 months'
cash needs. ["6 months' cash needs" will be defined as the
cash burn for the 3 months just completed, multiplied by a
factor of 2.3.]
POST-IPO BENCHMARK: unrestricted cash, excluding long-term
debt, must be equal to the greater of $5,000,000 or 10 months'
cash needs, ["10 months' cash needs" will be defined as the
cash burn for the 3 months just completed, multiplied by a
factor of 3.6.]
Interest will be accrued at 5.0% annually and will be paid
with the return of the deposit.
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This deposit will be released when Borrower's unrestricted
cash, excluding long-term debt recovers and is greater than
the appropriate benchmark above for at least one quarter and
continues to remain greater. (Or, will be returned immediately
if Borrower's new equity or other non-refundable cash is great
enough to clearly keep Borrower above the appropriate
benchmark for at least three quarters.)
Verification of achievement of benchmarks is to be acceptable
to Lender. Return of deposits prior to end of term Is
contingent upon receipt of all payments and financials to date
as agreed, no default under any financial obligation, and no
material adverse change.
CONTINGENCIES:
1) Standard documentation satisfactory to Borrower and
Lender.
2) Releases against this credit line are contingent upon
Borrower providing evidence of reasonable performance
against the 4/7/97 operating plan or subsequent
Board-approved plan acceptable to Lender. This credit
line, unless extended in writing, expires 7/31/98.
3) Throughout the loan term, Borrower will provide
monthly financials within 30 days of each month-end,
and annually, an audited statement within 90 days of
fiscal year end or at such time as Borrower's Board
receives the audit. All such financial statements are
to be prepared using generally accepted accounting
principles.
4) Complete equipment specifications are to be provided
to Lender before each takedown.
Invoices must be less than 45 days old OR refunded
within 45 days of credit approval.
All equipment is to be located at Borrower's Seattle
area facilities unless Lender gives prior approval to
do otherwise.
Custom equipment; upgrades to equipment to which
Lender does not have clear title or first security
interest: disposables and "soft costs" such as sales
tax, freight, and installation are excluded from this
line.
5) Subject to final approval by Lenders Credit
Committee.
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6) This is a statement of mutual intent and not an
agreement to finance. The terms set forth above are
not therefore binding until a loan agreement is
executed between Borrower and Lender for specific
items of equipment.
COMMITMENT
FEE: $10,000.00 commitment fee. This fee shall be fully credited
pro-rata to schedules as financed. All or a portion of said
fee will be forfeited if this transaction is approved by
Lender and not executed by Borrower as called for in this
proposal. However, in the event Borrower uses the line hi good
faith but does not use the entire line, then any remaining fee
will be applied to any new line agreed to by Borrower and
Lender prior to 9/30/98. The entire fee will be returned to
Borrower promptly in the event Lender fails to approve this
transaction.
If the terms of this proposal meet with your approval, please sign and return
with your commitment fee, and we will proceed. Unless previously accepted, this
proposal will expire 7/21/97.
We look forward to meeting your equipment financing needs and beginning a
mutually rewarding relationship.
Sincerely, ACCEPTED: Rosetta Biosystems, Inc.
/s/ Barbara Kaiser By: /s/ John J. King
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Barbara B. Kaiser Title: Sr. Vice President & COO
EVP/General Manager ----------------------------
Date: 7/21/97
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PRICING:
Option 1:
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Option 2: X
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Option 3:
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