LOAN AND SECURITY AGREEMENT

Security Agreement

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HERCULES TECHNOLOGY GROWTH CAPITAL, INC | PANACOS PHARMACEUTICALS, INC

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Title: LOAN AND SECURITY AGREEMENT
Governing Law: Massachusetts Date: 8/7/2007
Industry: Biotechnology and Drugs Law Firm: Mintz Levin Sector: Healthcare

LOAN AND SECURITY AGREEMENT, Parties: hercules technology growth capital inc , panacos pharmaceuticals inc

EXHIBIT 10.2

REDACTED VERSION

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT is made and dated as of June 28, 2007 and is entered into by and between PANACOS PHARMACEUTICALS, INC., a Delaware corporation, and each of its subsidiaries, (hereinafter collectively referred to as the “Borrower”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation (“Lender”).

RECITALS

A. Borrower has requested Lender to make available to Borrower a loan in an aggregate principal amount of up to Twenty Million Dollars ($20,000,000.00); and

B. Lender is willing to make the loan on the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, Borrower and Lender agree as follows:

DEFINITIONS AND RULES OF CONSTRUCTION

1.1 Unless otherwise defined herein, the following capitalized terms shall have the following meanings:

“Account Control Agreement(s)” means any agreement entered into by and among the Lender, Borrower and a third party bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or Investment Property and which is intended to perfect Lender’s security interest in any of the Collateral.

“Advance” means any funds advanced under this Agreement.

“Advance Date” means the funding date of any Advance.

“Advance Request” means a request for an Advance submitted by Borrower to Lender in substantially the form of Exhibit A .

“Agreement” means this Loan and Security Agreement, as the same may from time to time be amended, modified, supplemented or restated from time to time in accordance with the terms hereof.

“Assignee” shall have the meaning given to it in Section 11.13.

“Borrower Products” means all products, software, service offerings, technical data or technology currently being designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, software, service offerings, technical data or technology that have been sold, licensed or distributed by Borrower since its incorporation.

“Cash” means all cash and liquid funds.

“Claims” shall have the meaning given to it in Section 11.10.

“Closing Date” means the date of this Agreement.

“Collateral” means the property described in Section 3.

Portions of this Exhibit were omitted, as indicated by [****], and have been filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

“Commitment Fee” means Forty-Five Thousand Dollars ($45,000.00), which fee is due to Lender on or prior to the Closing Date, and shall be deemed fully earned on such date regardless of the early termination of this Agreement.

“Confidential Information” has the meaning given to it in Section 11.12.

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business or obligations incurred in the ordinary course of business in connection with contract research agreements and long-term manufacturing agreements. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Copyrights” means all registered copyrights held pursuant to the laws of the United States, any State thereof, or of any other country. “Copyrights” does not include any Excluded Intellectual Property.

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit.

“End of Term Payment” is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) equal to the aggregate of the original principal amount of Advances made multiplied by the End of Term Payment Percentage.

“End of Term Payment Percentage” is one and one half of one percent (1.50%).

“Event of Default” has the meaning given to it in Section 9.

“Excluded Intellectual Property” means all Intellectual Property owned by V.I. Technologies as of March 10, 2005 (prior to the merger with Borrower) and all non-provisional, reissue, continuation, divisional, and continuation-in-part applications and patents issuing therefrom, together with all foreign counterparts thereof.

“Extension Event” occurs when Lender receives, prior to [*******], evidence, [*******] to [*******] in [*******], that [*******] of the [*******]: (i) [*******] data [*******] using [*******] from any [*******] of the [*******] defined as [*******] (a) [*******] or [*******] or [*******] in [*******] in [*******], or (b) [*******] of [*******] ([*******]); (ii) [*******] of a [*******] in a [*******] with a [*******] of [*******] suitable [*******]; (iii) either (a) [*******] of a [*******] for [*******], or (b) [*******] is [*******] for [*******] and [*******] is [*******] by [*******] that it is [*******] with a [*******]; and (iv) [*******] receives[*******] in the [*******] in [*******] through the [*******],[*******] and/or [*******].

“Facility Charge” means one percent (1.0%) of the Maximum Loan Amount.

“Financial Statements” has the meaning given to it in Section 7.1.

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

“Indebtedness” means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.

“Intellectual Property” means all Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; Borrower’s applications therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith. Intellectual Property shall not include Excluded Intellectual Property.

“Interest Rate” means for any day, the prime rate as reported in The Wall Street Journal plus 2.95%.

“Investment” means any beneficial ownership of (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person.

“Joinder Agreements” means for each Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G .

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

“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction.

“Loan” means the Advance or Advances made under this Agreement.

“Loan Documents” means this Agreement, the Notes, Account Control Agreements, Joinder Agreements, the Warrant, and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated. “Loan Documents” shall not include the right to invest letter agreement referenced in Section 8.1.

“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets, or condition (financial or otherwise) of Borrower taken as a whole; or (ii) the ability of Borrower to perform the Secured Obligations in accordance with the terms of the Loan Documents, or the ability of Lender to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Lender’s Liens on the collateral or the priority of such Liens. Either (a) the failure of Borrower to achieve an Extension Event, or (b) the failure of any nonclinical or clinical trial to demonstrate the desired safety, bioavailability or efficacy of any biologic or drug, shall not, in each case, in and of if itself, constitute a Material Adverse Effect.

“Maturity Date” means January 3, 2011; provided, however, if the Extension Event occurs on or prior to [*****], then the Maturity Date shall mean July 1, 2011.

“Maximum Loan Amount” means Twenty Million Dollars ($20,000,000.00).

“Maximum Rate” shall have the meaning assigned to such term in Section 2.5.

“Morgan Stanley Account” is a certain account maintained by Borrower with Morgan Stanley, provided that such account may only be used for purposes of directors or employees exercising stock options to purchase shares of Borrower.

“Next Event” means the closing of Borrower’s subsequent equity financing which first becomes effective after the Closing Date.

“Note” means a Promissory Note in substantially the form of Exhibit B .

“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.

“Patents” means all letters patent of, or rights corresponding thereto, in the United States or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States or any other country. “Patents” does not include Excluded Intellectual Property.

“Permitted Indebtedness” means: (a) Indebtedness of Borrower in favor of Lender arising under this Agreement or any other Loan Document; (b) Indebtedness existing on the Closing Date and disclosed in Schedule 1A ; (c) Indebtedness of up to Two Million Dollars ($2,000,000.00) outstanding at any time secured by a lien described in clause (vi) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness; (d) Indebtedness to trade creditors incurred in the ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (e) Indebtedness that also constitutes a Permitted Investment; (f) unsecured Indebtedness of up to $1,000,000 in the aggregate, including in connection with Borrower’s financing the payment of insurance premiums; and (g) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investment” means: (a) Investments existing on the Closing Date disclosed in Schedule 1B; (b) Investments made in accordance with Borrower’s Investment Policy as in effect as of the date hereof as attached hereto as part of Schedule 1B, which Investment Policy shall not be changed in any material respect without the prior approval of Lender, such approval not to be unreasonably withheld or delayed; (c) Repurchases of stock from former employees, directors, or consultants of Borrower under the terms of applicable repurchase agreements at the original issuance price of such securities in an aggregate amount not to exceed $250,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases; (d) Investments accepted in connection with Permitted Transfers; (e) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (f) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not affiliates, in the ordinary course

of business, provided that this subparagraph (f) shall not apply to Investments of Borrower in any Subsidiary; (g) additional Investments that do not exceed $250,000 in the aggregate; (h) prepaid expenses and travel advances made in the ordinary course of business; (i) Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the nonexclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $100,000 in the aggregate in any fiscal year; and (j) Investments consisting of an acquisition by Borrower or any Subsidiary of all or substantially all of the capital stock or assets of another Person where the purchase price (including any Indebtedness assumed in connection with such acquisition) does not exceed $2,000,000, so long as (i) no Event of Default has occurred and is continuing or would exist after giving effect to any such Investment, and (ii) after any such Investment, Borrower is the surviving legal entity. Notwithstanding the foregoing, Permitted Investments shall not include any Investments made by Borrower in Panacos Limited after the Closing Date in excess of $500,000 in the aggregate.

“Permitted Liens” means any and all of the following: (i) Liens existing on the Closing Date disclosed in Schedule 1C ; (ii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided , that Borrower maintains adequate reserves therefor in accordance with GAAP; (iii) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like Persons arising in the ordinary course of Borrower’s business and imposed without action of such parties; provided, that the payment thereof is not yet required; (iv) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (v) the following deposits or letters of credit, to the extent made in the ordinary course of business: deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or environmental liens) or surety or appeal bonds, or to secure security deposits, indemnity, performance or other similar bonds; (vi) purchase money liens and liens in connection with capital leases on Equipment securing Indebtedness permitted in clause (vi) of “Permitted Indebtedness”; (vii) Liens created under the Loan Documents; (viii) Liens and other encumbrances on real property that do not materially detract from its value; (ix) leasehold interests in leases or subleases and non-exclusive licenses granted in the ordinary course of business and not interfering in any material respect with the business of Borrower; and (x) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (i) through (ix) above; provided, that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase.

“Permitted Transfers” means (i) sales of Inventory in the normal course of business, (ii) licenses and similar arrangements for the use of Intellectual Property in the ordinary course of business, (iii) dispositions of worn-out obsolete Equipment, (iv) other transfers of property in an aggregate amount of up to $500,000, provided that such property does not make up a core or critical part of Borrower’s business, or (v) transfers of drugs or drug materials in connection with development activities in the ordinary course of business.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.

“Preferred Stock” means at any given time any equity security issued by Borrower that has any rights, preferences or privileges senior to Borrower’s common stock.

“Prepayment Charge” shall have the meaning assigned to such term in Section 2.7.

“Prepayment Event” means any (i) reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of Borrower or any Subsidiary, (ii) sale or exchange of outstanding shares (or similar transaction or series of related transactions) of Borrower or any Subsidiary in which the holders of Borrower or Subsidiary’s outstanding shares immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain shares representing at least more than fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Borrower or Subsidiary is the surviving entity, (iii) sale or exchange of outstanding shares (or similar transaction or series of related transactions) of Borrower or any Subsidiary in which the shares issued after the Closing Date would entitle the holders thereof to 30% or more of the proceeds that would be distributed to holders of Preferred Stock assuming that proceeds available for distribution are sufficient only to provide a distribution to holders of Preferred Stock; (iv) sale, lease, license (other than licenses in the ordinary course of business) or transfer of any substantial part of the assets of Borrower or any Subsidiary; or (v) acquisition by Borrower or any Subsidiary of all or substantially all of the capital stock or assets of another Person where the purchase price (including any Indebtedness assumed in connection with such acquisition) is $2,000,000 or greater, provided however, that in all cases a Subsidiary may be merged into Borrower or into another Subsidiary without constituting a “Prepayment Event.”

“Receivables” means (i) all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter of credit, and Letter of Credit Rights, and (ii) all customer lists, software, and business records related thereto.

“SBA” shall have the meaning assigned to such term in Section 7.14.

“SBIC” shall have the meaning assigned to such term in Section 7.14.

“Secured Obligations” means Borrower’s obligation to repay to Lender the Loan and all Advances (whether or not evidenced by any Note), together with all principal, interest, fees, costs, professional fees and expenses, or other liabilities or obligations for monetary amounts owed by Borrower to Lender however arising, including the indemnity and insurance obligations in Section 6 and including such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization by or against Borrower, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties of any kind or nature, present or future, in each case, arising under this Agreement, the Notes, or any of the other Loan Documents (other than the Warrant), as the same may from time to time be amended, modified, supplemented or restated, whether or not such obligations are partially or fully secured by the value of Collateral.

“Subsidiary” means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls 50% or more of the outstanding voting securities, including each entity listed on Schedule 1 hereto.

“Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Trademarks” means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof. “Trademarks” does not include the Excluded Intellectual Property.

“UCC” means the Uniform Commercial Code as the same is, from time to time, in effect in the Commonwealth of Massachusetts; provided , that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the Commonwealth of Massachusetts, then the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. Unless otherwise defined herein or in the other Loan Documents, terms that are defined in the UCC and used herein or in the other Loan Documents shall, unless the context indicates otherwise, have the meanings given to them in the UCC.

“Unused Line Fee” shall have the meaning assigned to such term in Section 2.1.

“Warrant” means the warrant entered into in connection with the Loan.

1.2 Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement. Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP, consistently applied.

THE LOAN

1.3 Advances . Subject to the terms and conditions of this Agreement, Lender will make one Advance to Borrower in an aggregate amount of $10,000,000 on the Closing Date (“Tranche A”). In addition, as of the Closing Date and until September 30, 2007, Borrower shall request additional Advances in an aggregate amount up to $10,000,000 (“Tranche B”). The aggregate outstanding Advances shall be equal to the Maximum Loan Amount. In the event that the full $10,000,000 is not advanced in Tranche B due to actions or inaction of Borrower, Borrower shall pay to Lender a fee equal to five percent (5.0%) of the portion of the $10,000,000 not advanced (the “Unused Line Fee”), which Unused Line Fee shall be immediately due and payable.

1.4 Advance Request . To obtain an Advance, Borrower shall complete, sign and deliver an Advance Request and Note to Lender. Lender shall fund the Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Advance is satisfied as of the requested Advance Date.

1.5 Interest . The principal balance of each Advance shall bear interest thereon from the Advance Date, precomputed at the Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days in each month. The Interest Rate for each Advance will be fixed on the date of that Advance, and will apply to that Advance for so long as it is outstanding, including during the period of amortization.

1.6 Payment . Borrower will pay interest on each Advance on the first day of each month, beginning the month after the Advance Date. Borrower shall repay the aggregate principal balance that is outstanding on July 1, 2008 in thirty (30) equal monthly installments of principal and interest beginning on July 1, 2008 and continuing on the first business day of each month thereafter; provided, however, if the Extension Event occurs on or prior to [*****], then Borrower shall repay the aggregate principal balance that is outstanding on October 1, 2008 in thirty-three (33) equal monthly installments of principal and interest beginning October 1, 2008 and continuing on the first business day of each month thereafter. The entire principal balance and all accrued but unpaid interest hereunder, shall be due and payable on the Maturity Date. Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense.

1.7 Maximum Interest . Notwithstanding any provision in this Agreement, the Notes, or any other Loan Document, it is the parties’ intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under the laws of the Commonwealth of Massachusetts shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the “Maximum Rate”). If a court of competent jurisdiction shall finally determine that Borrower has actually paid to Lender an amount of interest in excess of the amount that would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess interest actually paid by Borrower shall be applied as follows: first , to the payment of principal outstanding on the Notes; second , after all principal is repaid, to the payment of Lender’s accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third , after all Secured Obligations are repaid, the excess (if any) shall be refunded to Borrower.

1.8 Default Interest . In the event any payment is not paid on the scheduled payment date, an amount equal to five percent (5%) of the past due amount shall be payable on demand; provided, however, for one (1) month per year, such fee shall not be due and payable if any payment is not made on the scheduled payment date so long as such payment is made within ten (10) calendar days after the applicable scheduled payment date. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.3 plus five percent (5%) per annum. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.3 or Section 2.6, as applicable; provided, however, for one (1) month per year, such interest shall not be added to principal and shall not bear interest on interest if such payment is not made when due hereunder so long as such payment is made within five (5) calendar days after the applicable due date.

1.9 Prepayment . At its option, upon five (5) business days prior written notice to Lender, Borrower may prepay, in whole or in part, the outstanding Advances by paying all accrued interest on the principal portion of the Advance amount being prepaid, together with a prepayment charge equal to the following percentage of the Advance amount being prepaid: if such Advance amount is prepaid in the first sixteen (16) months following the Closing Date, 5%; after sixteen (16) months but prior to thirty-two (32) months, 3%; and thereafter, 1% (each, a “Prepayment Charge”). Borrower agrees that the Prepayment Charge is a reasonable calculation of Lender’s lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances. Borrower shall prepay the outstanding amount of all principal and accrued interest and the Prepayment Charge upon a Prepayment Event.

1.10 Fees . Borrower shall pay to Lender:

(a) Facility Fee . The fully earned, non-refundable Facility Fee on the Closing Date;

(b) Commitment Fee . The fully earned, non-refundable Commitment Fee, which Lender acknowledges has previously been paid by Borrower to Lender;

(c) End of Term Payment . The End of Term Payment, which is due on the earlier of (a) the Maturity Date or (b) the acceleration of the Advances;

(d) Prepayment Charge . The Prepayment Charge, if and when due hereunder; and

(e) Unused Line Fee . The Unused Line Fee, if and when due hereunder.

SECURITY INTEREST

1.11 As security for the prompt, complete and indefeasible payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower grants to Lender a security interest in all of Borrower’s personal property now owned or hereafter acquired, including the following: (collectively, the “Collateral”): (a) Receivables; (b) Equipment; (c) Fixtures used in the business or trade of Borrower which constitute personal property (but specifically excluding leasehold improvements); (d) General Intangibles; (e) Accounts; (f) Inventory; (g) Investment Property; (h) Deposit Accounts; (i) Cash; (j) Goods and other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; and (k) to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing, provided that Collateral does not include Intellectual Property, but does include any proceeds arising out of the disposition of Intellectual Property. Notwithstanding the foregoing, Collateral shall not include any Equipment subject to a Lien described in clause (vi) of the definition of Permitted Liens, provided that (i) the financing documents in connection with such Lien restrict Borrower from granting Lender a security interest in such Equipment, and (ii) such Equipment shall be deemed to be Collateral as soon as the applicable lender no longer has a Lien in such Equipment.

CONDITIONS PRECEDENT TO LOAN

The obligations of Lender to make the Loan hereunder are subject to the satisfaction by Borrower of the following conditions:

1.12 Initial Advance . On or prior to the Closing Date, Borrower shall have delivered to Lender the following:

(a) executed originals of the Loan Documents, Account Control Agreements (provided that an Account Control Agreement will not be required for the Morgan Stanley Account), a legal opinion of Borrower’s counsel, and all other documents and instruments reasonably required by Lender to effectuate the transactions contemplated hereby or to create and perfect the Liens of Lender with respect to all Collateral, in all cases in form and substance reasonably acceptable to Lender;

(b) certified copy of resolutions of Borrower’s board of directors evidencing approval of (i) the Loan and other transactions evidenced by the Loan Documents; and (ii) the Warrant and transactions evidenced thereby;

(c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower;

(d) a certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect;

(e) payment of the Facility Charge and reimbursement of Lender’s current expenses reimbursable pursuant to Section 11.11, which amounts may be deducted from the initial Advance; and

(f) such other documents as Lender may reasonably request.

1.13 All Advances . On each Advance Date:

(a) Lender shall have received (i) an Advance Request for the relevant Advance as required by Section 2.2, and a Note, each duly executed by Borrower’s Chief Executive Officer or Chief Financial Officer, and (ii) any other documents Lender may reasonably request.

(b) The representations and warranties set forth in this Agreement and in Section 5 and in the Warrant shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

(c) Borrower shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred and be continuing.

(d) Each Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section and as to the matters set forth in the Advance Request.

1.14 No Default . As of the Closing Date and each Advance Date, (i) no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default and (ii) no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower represents, warrants and agrees that:

1.15 Corporate Status . Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect. Borrower’s present name, former names (if any), locations, place of formation, tax identification number, organizational identification number and other information are correctly set forth in Exhibit C .

1.16 Collateral . Borrower owns all right, title and interest in and to the Collateral and the Intellectual Property (or, with respect to Intellectual Property, has rights to use), free of all Liens whatsoever, except for Permitted Liens. Borrower has the full power and authority to grant and convey to Lender a Lien in the Collateral as security for the Secured Obligations, free of all other Liens other than Permitted Liens.

1.17 Consents . Borrower’s execution, delivery and performance of the Notes, this Agreement and all other Loan Documents, and Borrower’s execution of the Warrant, (i) have been duly authorized by all necessary corporate action of Borrower, (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s Certificate of Incorporation or bylaws, (iv) do not violate in any material respect any, law, regulation, order, injunction, judgment, decree or writ to which Borrower is subject and (v) except as described on Schedule 5.3 , do not violate any contract or agreement or require the consent or approval of any other Person. The individual or individuals executing the Loan Documents and the Warrant are duly authorized to do so.

1.18 Material Adverse Effect . No event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing, and Borrower is not aware of any event likely to occur that is reasonably expected to result in a Material Adverse Effect.

1.19 Actions Before Governmental Authorities . Except as described on Schedule 5.5 , there are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of Borrower, overtly threatened against or affecting Borrower or any business, property or rights of Borrower (i) which involve any Loan Document or (ii) as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, would reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect.

1.20 Laws . Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse Effect. Borrower is not in default in any manner under any provision of any indenture or other agreement, contract or instrument evidencing indebtedness, or any other material agreement, contract or instrument to which it is a party or by which it or any of its properties or assets are or may be bound and for which such default would reasonably be expected to result in a Material Adverse Effect.

1.21 Information Correct . No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to Lender in connection with any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading.

1.22 Tax Matters . Except as described on Schedule 5.8 , (a) Borrower has filed all federal, state and local tax returns that it is required to file, (b) Borrower has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns, and (c) Borrower has paid or fully reserved for any tax assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings).

1.23 Intellectual Property Claims . Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property. Except as described on Schedule 5.9 , each of the material Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property that is owned by Borrower has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect. Exhibit D is a true, correct and complete list of each of Borrower’s Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (other than shrink-wrap software licenses and other licenses which if terminated could not reasonably be expected to result in a Material Adverse Effect), together with application or registration numbers, as applicable, owned by Borrower or any Subsidiary. Borrower is not in material breach of, nor has Borrower failed to perform any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrower’s knowledge, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder.

1.24 Intellectual Property . Except as described on Schedule 5.10 and to Borrower’s knowledge, Borrower’s Intellectual Property constitutes all rights used in or necessary in the operation or conduct of Borrower’s business as currently conducted and proposed to be conducted by Borrower. Without limiting the generality of the foregoing, Borrower has the right to freely transfer, license or assign Intellectual Property without condition, restriction or payment of any kind to any third party, and Borrower owns or has the right to use, pursuant to valid licenses, all software development tools, library functions, compilers and all other third-party software and other items that are used in the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products.

1.25 Borrower Products . Except as described on Schedule 5.11 , no Intellectual Property owned by Borrower or Borrower Product has been or is subject to any actual or, to the knowledge of Borrower, threatened litigation, proceeding (including any proceeding in the United States Patent and Trademark Office or any corresponding foreign office or agency) or outstanding decree, order, judgment, settlement agreement or stipulation that restricts in any manner Borrower’s use, transfer or licensing thereof or that may affect the validity, use or enforceability thereof. There is no decree, order, judgment, agreement, stipulation, arbitral award or other provision entered into in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership interest in any future Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products. There is no outstanding or, to the knowledge of Borrower, threatened, dispute or disagreement of which Borrower is aware with respect to any contract, license or agreement between Borrower and any third party related to the Intellectual Property. Borrower has not received any written notice or claim, or, to the knowledge of Borrower, oral notice or claim, challenging or questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning the ownership in any licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of legal or beneficial ownership with respect thereto nor, to Borrower’s knowledge, is there a reasonable basis for any such claim. To Borrower’s knowledge, neither Borrower’s use of its Intellectual Property nor the production and sale of Borrower Products infringes the intellectual property or other rights of others.

1.26 Financial Accounts . Schedule 5.12 and Exhibit E are a true, correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such exhibit correctly identifies the name, address and telephone number of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

1.27 Employee Loans . Other than travel advances made in the ordinary course of business, Borrower has no outstanding loans to any employee, officer or director of the Borrower nor has Borrower guaranteed the payment of any loan made to an employee, officer or director of the Borrower by a third party.

INSURANCE; INDEMNIFICATION

1.28 Coverage . So long as there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks customarily insured against in Borrower’s line of business. Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement found in Section 6.3. Borrower must maintain a minimum of Two Million Dollars ($2,000,000.00) of commercial general liability insurance for each occurrence. Borrower has and agrees to maintain a minimum of $5,000,000 of directors and officers’ insurance for each occurrence, and $10,000,000 in the aggregate. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral that constitutes tangible personal property, insuring against all risks of physical loss or damage howsoever caused, in an amount not less than the full replacement cost of the Collateral that constitutes tangible personal property. Borrower shall also carry and maintain a fidelity insurance policy in an amount not less than $250,000.

1.29 Certificates . Borrower shall deliver to Lender certificates of insurance that evidence Borrower’s compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2. Borrower’s insurance certificate shall state Lender is an additional insured for commercial general liability and fidelity insurance, and a loss payee for all risk property damage insurance, subject to the insurer’s approval, a loss payee for property insurance and additional insured for liability insurance for any future insurance that Bor

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