Exhibit 10.3

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.

WARRANT

To Purchase Shares of the Common Stock of

PANACOS PHARMACEUTICALS, INC.

Dated as of June 28, 2007 (the “Effective Date”)

WHEREAS, Panacos Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
has entered into a Loan and Security Agreement of even date herewith (the “Loan
Agreement”) with Hercules Technology Growth Capital, Inc., a Maryland
corporation (the “Warrantholder”);

WHEREAS, the Company desires to grant to Warrantholder, in consideration for,
among other things, the financial accommodations provided for in the Loan
Agreement, the right to purchase shares of its Common Stock pursuant to this
Warrant Agreement (the “Warrant”);

NOW, THEREFORE, in consideration of the Warrantholder executing and delivering
the Loan Agreement and providing the financial accommodations contemplated
therein, and in consideration of the mutual covenants and agreements contained
herein, the Company and Warrantholder agree as follows:

SECTION 1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

For value received, the Company hereby grants to the Warrantholder, and the
Warrantholder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase, from the Company, the
Shares (as defined below,) at a purchase price of $3.71 per share (as adjusted
from time to time pursuant to the terms hereof, the “Exercise Price”). The
number and Exercise Price of such shares are subject to adjustment as provided
in Section 8. As used herein, the following terms shall have the following
meanings:

“Act” means the Securities Act of 1933, as amended.

“Charter” means the Company’s Restated Certificate of Incorporation, as may be
amended from time to time.

“Common Stock” means the Company’s common stock, $0.01 par value per share, and
any other stock or securities for which the Common Stock may be exchanged.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Merger Event” means a merger or consolidation involving the Company in which
the Company is not the surviving entity, or in which the outstanding shares of
the Company’s capital stock are otherwise converted into or exchanged for shares
of capital of another entity, or a sale by the Company of all or substantially
all of its assets.

 

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“Purchase Price” means, with respect to any exercise of this Warrant, an amount
equal to the Exercise Price as of the relevant time multiplied by the number of
shares of Common Stock requested to be exercised under this Warrant pursuant to
such exercise.

“Qualifying Merger Event” means a Merger Event in which the sole consideration
received by the Company’s stockholders consists of (i) cash or cash equivalents,
(ii) shares of the acquiring, successor or surviving entity’s stock where
(a) such entity is then subject to the reporting requirements of Section 13 or
Section 15(d) of the Exchange Act, and (b) the class and series of stock or
other security of the acquiror that would be received by Warrantholder in
connection with such Merger Event were Warrantholder to exercise this Warrant on
or prior to the closing thereof is listed for trading on a national securities
exchange or approved for quotation on a national automated inter-dealer
quotation system, or (iii) a combination of the consideration described in
(i) and (ii).

“Registration Date” means the date that is 90 days from the Effective Date.

“SEC” means the Securities and Exchange Commission.

“Shares” means 646,900 shares of Common Stock, subject to adjustment from time
to time as provided herein.

SECTION 2. TERM OF THE AGREEMENT.

Except as otherwise provided for herein, the term of this Warrant and the right
to purchase Common Stock as granted herein (the “Warrant”) shall commence on the
Effective Date and shall be exercisable for a period ending upon the earlier to
occur of (i) five (5) years from the Effective Date; or (ii) the closing of a
Qualifying Merger Event.

SECTION 3. EXERCISE OF THE PURCHASE RIGHTS.

(a) Exercise. The purchase rights set forth in this Warrant are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2, by tendering to the
Company at its principal office the original of this Warrant together with a
notice of exercise in the form attached hereto as Exhibit I (the “Notice of
Exercise”), duly completed and manually executed. Promptly upon receipt of the
Notice of Exercise and the payment of the Purchase Price in accordance with the
terms set forth below, and in no event later than five (5) days thereafter, the
Company shall issue to the Warrantholder a certificate for the number of shares
of Common Stock purchased and shall execute the acknowledgment of exercise in
the form attached hereto as Exhibit II (the “Acknowledgment of Exercise”)
indicating the number of shares of Common Stock which remain subject to future
purchases, if any.

The Purchase Price may be paid at the Warrantholder’s election either (i) by
cash or check, or (ii) by surrender of all or a portion of the Warrant for
shares of Common Stock to be exercised under this Warrant and, if applicable, an
amended Warrant representing the remaining number of shares purchasable
hereunder, as determined below (“Net Issuance”). If the Warrantholder elects the
Net Issuance method, the Company will issue Common Stock in accordance with the
following formula:

 

X =   Y(A-B)       A

 

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Where:    X = the number of shares of Common Stock to be issued to the
Warrantholder.

Y = the number of shares of Common Stock requested to be exercised under this
Warrant.

A = the fair market value of one (1) share of Common Stock at the time of
issuance of such shares of Common Stock.

B = the Exercise Price.

For purposes of the above calculation, current fair market value of Common Stock
shall mean with respect to each share of Common Stock:

(i)

(A) f the Common Stock is traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices over a five (5) day
period ending three days before the day the current fair market value of the
securities is being determined; or

(B) if the Common Stock is traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices quoted on the
NASDAQ or other relevant quotation system over the five (5) day period ending
three days before the day the current fair market value of the securities is
being determined;

(ii) if at any time the Common Stock is not listed on any securities exchange or
quoted in the NASDAQ Global Market or the over-the-counter market, the current
fair market value of Common Stock shall be the product of (x) the highest price
per share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as most recently determined in good faith by its
Board of Directors and (y) the number of shares of Common Stock into which each
share of Common Stock is convertible at the time of such exercise, unless the
Company shall become subject to a Merger Event, in which case the fair market
value of Common Stock shall be deemed to be the per share value received by the
holders of the Company’s Common Stock on a common equivalent basis pursuant to
such Merger Event.

Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant representing the remaining number of shares purchasable
hereunder. All other terms and conditions of such amended Warrant shall be
identical to those contained herein, including, but not limited to the Effective
Date hereof.

(b) Exercise Prior to Expiration. To the extent this Warrant is not previously
exercised as to all Common Stock subject hereto, and if the fair market value of
one share of the Common Stock is greater than the Exercise Price then in effect,
this Warrant shall be deemed automatically exercised pursuant to Section 3(a)
(even if not surrendered) immediately before its expiration or earlier
termination. For purposes of such automatic exercise, the fair market value of
one share of the Common Stock upon such expiration or earlier termination shall
be determined pursuant to Section 3(a). To the extent this Warrant or any
portion thereof is deemed automatically exercised pursuant to this Section 3(b),
the Company agrees to promptly notify the Warrantholder of the number of shares
of Common Stock, if any, the Warrantholder is to receive by reason of such
automatic exercise.

 

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SECTION 4. RESERVATION OF SHARES.

During the term of this Warrant, the Company will at all times have authorized
and reserved a sufficient number of shares of its Common Stock to provide for
the exercise of the rights to purchase Common Stock as provided for herein.

SECTION 5. NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of this Warrant, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effect.

SECTION 6. NO RIGHTS AS SHAREHOLDER/STOCKHOLDER.

This Warrant does not entitle the Warrantholder to any voting rights or other
rights as a shareholder/stockholder of the Company prior to the exercise of this
Warrant.

SECTION 7. WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant. Warrantholder’s initial address, for purposes
of such registry, is set forth below Warrantholder’s signature on this Warrant.
Warrantholder may change such address by giving written notice of such changed
address to the Company.

SECTION 8. ADJUSTMENT RIGHTS.

The Exercise Price and the number of shares of Common Stock purchasable
hereunder are subject to adjustment, as follows:

(a) Merger Event. If at any time there shall be Merger Event, then, as a part of
such Merger Event, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive, upon exercise of this Warrant, the
number of shares of common stock or other securities or property of the
successor corporation resulting from such Merger Event that would have been
issuable if Warrantholder had exercised this Warrant immediately prior to the
Merger Event. In any such case, appropriate adjustment (as determined in good
faith by the Company’s Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Warrantholder after the Merger Event to the end that the provisions of this
Warrant (including adjustments of the Exercise Price and number of shares of
Common Stock purchasable) shall be applicable in their entirety, and to the
greatest extent possible. Without limiting the foregoing, in connection with any
Merger Event that is not a Qualifying Merger Event, upon the closing thereof,
the successor or surviving entity shall assume the obligations of this Warrant.
In connection with a Merger Event and upon Warrantholder’s written election to
the Company, the Company shall cause this Warrant to be exchanged for the
consideration that Warrantholder would have received if Warrantholder chose to
exercise its right to have shares issued pursuant to the Net Issuance provisions
of this Warrant without actually exercising such right, acquiring such shares
and exchanging such shares for such consideration.

(b) Reclassification of Shares. Except as set forth in Section 8(a), if the
Company at any time shall, by combination, reclassification, exchange or
subdivision of securities or otherwise, change the Common Stock into the same or
a different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the Common Stock which was subject to the purchase rights under this Warrant
immediately prior to such combination, reclassification, exchange, subdivision
or other change.

(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Common Stock, (i) in the case of a subdivision, the
Exercise Price shall be

 

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proportionately decreased, and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be proportionately increased, or (ii) in the
case of a combination, the Exercise Price shall be proportionately increased,
and the number of shares of Common Stock issuable upon the exercise of this
Warrant shall be proportionately decreased.

(d) Stock Dividends. If the Company at any time while this Warrant is
outstanding and unexpired shall:

(i) pay a dividend with respect to the Common Stock payable in Common Stock,
then the Exercise Price shall be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Exercise Price in effect immediately
prior to such date of determination by a fraction (A) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (B) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution; or

(ii) make any other distribution with respect to Common Stock, except any
distribution specifically provided for in any other clause of this Section 8,
then, in each such case, provision shall be made by the Company such that the
Warrantholder shall receive upon exercise or conversion of this Warrant a
proportionate share of any such distribution as though it were the holder of the
Common Stock as of the record date fixed for the determination of the
stockholders of the Company entitled to receive such distribution.

(e) Notice of Adjustments. If: (i) the Company shall declare any dividend or
distribution upon its stock, whether in stock, cash, property or other
securities (assuming Warrantholder consents to a dividend involving cash,
property or other securities); (ii) the Company shall offer for subscription
prorata to the holders of its Common Stock any additional shares of stock of any
class or other securities or rights; (iii) there shall be any Merger Event;
(iv) the Company shall sell, lease, license or otherwise transfer all or
substantially all of its assets; or (v) there shall be any voluntary
dissolution, liquidation or winding up of the Company; then, in connection with
each such event, the Company shall send to the Warrantholder: (A) at least ten
(10) days’ prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution,
subscription rights (specifying the date on which the holders of Common Stock
shall be entitled thereto) or for determining rights to vote in respect of such
Merger Event, dissolution, liquidation or winding up; and (B) in the case of any
such Merger Event, sale, lease, license or other transfer of all or
substantially all assets, dissolution, liquidation or winding up, at least ten
(10) days’ prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such Merger Event, dissolution, liquidation or winding up).

Each such written notice shall set forth, in reasonable detail, (i) the event
requiring the notice, and (ii) if any adjustment is required to be made, (A) the
amount of such adjustment, (B) the method by which such adjustment was
calculated, (C) the adjusted Exercise Price (if the Exercise Price has been
adjusted), and (D) the number of shares subject to purchase hereunder after
giving effect to such adjustment, and shall be given by first class mail,
postage prepaid, or by reputable overnight courier with all charges prepaid,
addressed to the Warrantholder at the address for Warrantholder set forth in the
registry referred to in Section 7.

 

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(f) Timely Notice. Failure to timely provide such notice required by subsection
(e) above shall entitle Warrantholder to retain the benefit of the applicable
notice period notwithstanding anything to the contrary contained in any
insufficient notice received by Warrantholder.

SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a) Reservation of Common Stock. The Common Stock issuable upon exercise of the
Warrantholder’s rights has been duly and validly reserved and, when issued in
accordance with the provisions of this Warrant, will be validly issued, fully
paid and non-assessable, and will be free of any taxes, liens, charges or
encumbrances of any nature whatsoever; provided, that the Common Stock issuable
pursuant to this Warrant may be subject to restrictions on transfer under state
and/or federal securities laws. The Company has made available to the
Warrantholder true, correct and complete copies of its Charter and current
bylaws. The issuance of certificates for shares of Common Stock upon exercise of
this Warrant shall be made without charge to the Warrantholder for any issuance
tax in respect thereof, or other cost incurred by the Company in connection with
such exercise and the related issuance of shares of Common Stock; provided, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer and the issuance and delivery of any certificate in a name other
than that of the Warrantholder.

(b) Due Authority. The execution and delivery by the Company of this Warrant and
the performance of all obligations of the Company hereunder, including the
issuance to Warrantholder of the right to acquire the Shares, have been duly
authorized by all necessary corporate action on the part of the Company. The
Loan Agreement and this Warrant: (1) are not inconsistent with the Company’s
Charter or current bylaws; (2) do not contravene any law or governmental rule,
regulation or order applicable to it; and (3) do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage, contract
or other instrument to which it is a party or by which it is bound. The Loan
Agreement and this Warrant constitute legal, valid and binding agreements of the
Company, enforceable in accordance with their respective terms.

(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant.

(d) Issued Securities. All issued and outstanding shares of Common Stock have
been duly authorized, validly issued and are fully paid and nonassessable, and
all outstanding shares of Common Stock and other securities of the Company were
issued in full compliance with all applicable federal and state securities laws,
except where non-compliance with such laws would not have a material adverse
effect on the Company. Under the Company’s Charter, no stockholder of the
Company has preemptive rights to purchase new issuances of the Company’s capital
stock.

(e) Insurance. As set forth in the Loan Agreement, the Company has in full force
and effect insurance policies insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated.

(f) Other Commitments to Register Securities. Except as set forth in this
Warrant or as evidenced by registration statements currently on file with the
SEC, the Company is not, pursuant to the terms of any other agreement currently
in existence, under any obligation to register under the Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.

 

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(g) Exempt Transaction. Subject to the accuracy of the Warrantholder’s
representations in Section 10, the issuance of the Common Stock upon exercise of
this Warrant will constitute a transaction exempt from (i) the registration
requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and
(ii) the qualification requirements of the applicable state securities laws.

(h) Rule 144 Reporting. With a view to making available to Warrantholder the
benefits of certain rules and regulations of the SEC which may permit the sale
of the shares of Common Stock issuable hereunder by Warrantholder to the public
without registration, the Company agrees at all times to:

(i) make and keep public information available, as those terms are understood
and defined in SEC Rule 144;

(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and

(iii) so long as Warrantholder holds this Warrant and/or any shares of Common
Stock issued hereunder, to furnish to Warrantholder forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144, and of the Act and the Exchange Act, a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as Warrantholder may reasonably
request in complying with any rule or regulation of the SEC allowing
Warrantholder to sell any such securities without registration.

(i) Registration of Warrant Shares.

(i) Shelf Registration. The Company intends to issue the Warrant and the Shares
to the Warrantholder in registered form using the Company’s existing universal
shelf registration statement (Reg. No. 333-128135) (the “Existing Registration
Statement”). In furtherance of this course of action, the Company will file a
prospectus supplement pursuant to Rule 424(b) under the Act with the SEC within
two (2) business days of the Effective Date reflecting such issuance, unless
such registration statement is unavailable for such purpose, in which case the
Company will issue the Warrant and the Shares in unregistered form and will file
a Registration Statement on Form S-3 to register the resale of the Shares (the
“S-3 Registration Statement”). If the Company is required to issue the Warrant
and the Shares in unregistered form the Company shall, within sixty (60) days
following the Effective Date hereof, file a registration statement on the
appropriate form with the SEC covering the resale of the Shares issuable
hereunder by the Warrantholder (the “New Registration Statement”). The Existing
Registration Statement, the S-3 registration Statement and the New Registration
Statement are referred to hereinafter collectively as the “Registration
Statement.” The Registration Statement shall register the Shares for resale by
Warrantholder on a delayed or continuous basis pursuant to Rule 415 under the
Act. The Company shall use its best efforts to cause the Registration Statement
to become effective by the Registration Date, and thereafter shall use its best
efforts to keep the Registration Statement continuously effective under the Act
in order to permit the prospectus included therein to be lawfully delivered by
Warrantholder until the date on which Warrantholder can lawfully sell the Shares
pursuant to Rule 144 under the Act (the “Effectiveness Period”); provided, that,
except as provided below with respect to any Blackout Period (as defined below),
the Company shall be deemed not to have used its best efforts to keep the
Registration Statement effective during the requisite period if it voluntarily
takes any action or omits to take any action, the taking or omission of which
would result in Warrantholder not being able to offer and sell the Shares under
the Registration Statement during

 

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that period, unless such action or omission is required by applicable law;
provided, further, that the Company shall not be required to amend or supplement
the Registration Statement, any related prospectus or any document incorporated
therein by reference in the event that, and for a period (a “Blackout Period”)
not to exceed, until the end of the Effectiveness Period, an aggregate of ninety
(90) days if (x) an event occurs and is continuing as a result of which the
Registration Statement, any related prospectus or any document incorporated
therein by reference as then amended or supplemented would, in the Company’s
good faith judgment, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made not misleading, and (y)(1)
the Company determines in good faith that the disclosure of such event at such
time would have a material adverse effect on the business, operations or
prospects of the Company or (2) the disclosure otherwise relates to a pending
material business transaction which has not yet been publicly disclosed.

(ii) Registration Procedure.

(1) The Company shall cause the Registration Statement and the related
prospectus and any amendments or supplements thereto, as of the effective date
of the Registration Statement, (subject to paragraph (i) above), at all times
during the Effectiveness Period (A) to comply in all material respects with the
applicable requirements of the Securities Act and the rules and regulations of
the SEC and (B) not to contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

(2) The Company shall give prompt written notice to Warrantholder:

(A) on the date(s) when the Registration Statement or any post-effective
amendments thereto have become effective;

(B) of the issuance by the SEC of any stop order suspending the effectiveness of
the Registration Statement or the initiation or threatening of any proceedings
for that purpose;

(C) of the receipt by the Company or its legal counsel of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose;

(D) of the happening of any event that requires the Company to make changes in
the Registration Statement or prospectus in order to make the statements therein
not misleading;

(E) of the commencement and termination of any Blackout Period; and

(F) ten (10) days prior to the end of the Effectiveness Period.

(3) The Company shall use its best efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible time.

 

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(4) Upon the occurrence of any event contemplated by clauses (2)(D) or (E) of
this subsection 9(i)(ii), the Company shall promptly prepare a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus or file any other required document so that, as thereafter delivered
to Warrantholder, the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and will contain the current information required by the Act.

(5) The Company shall register or qualify the Shares under the securities or
blue sky laws of such states of the United States as Warrantholder reasonably
requests and do any and all other acts or things necessary or advisable to
enable such exercise in such jurisdictions; provided that the Company shall not
be required to (A) qualify to do business in any jurisdiction where it is not
then so qualified or (B) take any action which would subject it to general
service of process or to taxation in any jurisdiction where it is not then so
subject.

(6) The Company shall bear all expenses incurred by it in connection with the
performance of its obligations under this Section 9(i), other than underwriting
discounts and commissions, if any.

(7) The Company shall deliver to the Warrantholder, without charge, a reasonable
number of copies of the Registration Statement and the related prospectus and
any post-effective amendments thereto, including financial statements and
schedules, and all exhibits (including those, if any, incorporated by
reference).

(8) The Company shall at its sole expense cause all Shares covered by the
Registration Statement to be listed, or approved for quotation, at all times
during the Effectiveness Period on each securities exchange and/or inter-dealer
quotation system on which similar securities issued by the Company are listed or
approved for quotation.

(iii) Indemnification.

(1) The Company will indemnify Warrantholder and each of its officers,
directors, affiliates, employees and representatives, and each person
controlling such Warrantholder within the meaning of the Act, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in the Registration Statement and any
post-effective amendment thereto and any prospectus or other document incident
thereto and any registration or qualification materials filed under any
applicable state securities or blue sky law, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, or any violation or
alleged violation by the Company of the Act and the rules and regulations
thereunder, the Exchange Act and the rules and regulations thereunder, and any
state securities or blue sky law applicable to the Company or any rule or
regulation promulgated any such state law and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse Warrantholder, each of its officers,
directors, affiliates, employees and representatives, and each person
controlling such Holder, within a reasonable amount of time after incurred for
any and all reasonable legal and other fees, costs and expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 9(i)(iii)(1) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld or delayed); and provided further, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by Warrantholder specifically for use therein.

 

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(2) Warrantholder will indemnify the Company, each of its directors and
officers, affiliates, employees and representatives, and each person who
controls the Company within the meaning of the Act, against all claims, losses,
expenses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in the Registration Statement and any post-effective amendment
thereto and any prospectus or other document incident thereto and any
registration or qualification materials filed under any applicable state
securities or blue sky law, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such
directors, officers, partners, and persons for any reasonable legal or any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Registration Statement,
prospectus, or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by
Warrantholder specifically for use therein; provided, however, that the
indemnity agreement contained in this subsection 9(i)(iii)(2) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or action
if such settlement is effected without the consent of Warrntholder, (which
consent shall not be unreasonably withheld or delayed); and provided further,
that the total amount for which Holder shall be liable under this subsection
9(i)(iii)(2) shall not in any event exceed the aggregate proceeds received by
Warrantholder from the sale of Shares pursuant to such registration.

(3) Each party entitled to indemnification under this subsection 9(i)(iii) (the
“Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party’s expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

(4) The provisions of this subsection 9(i)(iii) shall survive any expiration or
termination of this Warrant.

 

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SECTION 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

This Warrant has been entered into by the Company in reliance upon the following
representations and covenants of the Warrantholder:

(a) Investment Purpose. This Warrant and the Common Stock issuable upon exercise
of the Warrantholder’s rights contained herein will be acquired for investment
and not with a view to the re-sale or distribution of any part hereof or thereof
in violation of applicable federal and state securities laws, and the
Warrantholder has no present intention of selling or engaging in any public
distribution of the same except pursuant to a registration or exemption.

(b) Private Issue. The Warrantholder understands (i) that the Common Stock
issuable upon exercise of this Warrant is not registered under the Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company’s reliance on
such exemption is predicated on the representations set forth in this
Section 10.

(c) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.

(d) Risk of No Registration. The Warrantholder understands that if a
registration statement under the Act covering this Warrant and/or the Shares
issuable hereunder is not in effect when it desires to sell (i) the rights to
purchase Common Stock pursuant to this Warrant or (ii) the Common Stock issuable
upon exercise of the right to purchase, it may be required to hold such
securities for an indefinite period. The Warrantholder also understands that any
sale of (A) its rights hereunder to purchase Common Stock or (B) Common Stock
issued or issuable hereunder which might be made by it in reliance upon Rule 144
under the Act may be made only in accordance with the terms and conditions of
that Rule.

(e) Accredited Investor. Warrantholder is an “accredited investor” within the
meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in
effect.

(f) Inside Information. The Warrantholder understands that it may be restricted
from trading in the Common Stock or other securities of the Company as a result
of the Warrantholder’s contractual right to information arising in connection
with the Loan Agreement. As such, the Company will assist the Warrantholder in
determining what public information exists about the Company, but Warrantholder
assumes sole responsibility for conforming its trading activity with all
applicable laws, rules and regulations.

SECTION 11. TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the holder hereof (except for transfer taxes) upon surrender of this
Warrant properly endorsed. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed in blank,
shall be deemed negotiable, and that the holder hereof, when this Warrant shall
have been so endorsed and its transfer recorded on the Company’s books, shall be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant. The transfer of this Warrant shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the “Transfer Notice”), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer. Until the Company receives
such Transfer Notice, the Company may treat the registered owner hereof as the
owner for all

 

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purposes. Notwithstanding any provision hereof or any legend hereon or on any
certificate evidencing any shares of Common Stock issued hereunder to the
contrary, the Company shall not require an opinion of counsel in connection with
any transfer by Warrantholder of this Warrant or of any such shares to any
affiliate of Warrantholder who is an “accredited investor” as defined in
Regulation D promulgated under the Act.

SECTION 12. MISCELLANEOUS.

(a) Effective Date. The provisions of this Warrant shall be construed and shall
be given effect in all respects as if it had been executed and delivered by the
Company on the date hereof. This Warrant shall be binding upon any successors or
assigns of the Company.

(b) Remedies. In the event of any default hereunder, the non-defaulting party
may proceed to protect and enforce its rights either by suit in equity and/or by
action at law, including but not limited to an action for damages as a result of
any such default, and/or an action for specific performance for any default
where Warrantholder will not have an adequate remedy at law and where damages
will not be readily ascertainable.

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

(d) Additional Documents. The Company, upon execution of this Warrant, shall
provide the Warrantholder with certified resolutions with respect to the
representations, warranties and covenants set forth in Sections 9(a) through
9(d), 9(f) and 9(g).

(e) Attorney’s Fees. In any litigation, arbitration or court proceeding between
the Company and the Warrantholder relating hereto, the prevailing party shall be
entitled to reasonable attorneys’ fees and expenses and all costs of proceedings
incurred in enforcing this Warrant. For the purposes of this Section 12(e),
reasonable attorneys’ fees shall include without limitation fees incurred in
connection with the following: (i) contempt proceedings; (ii) discovery;
(iii) any motion, proceeding or other activity of any kind in connection with an
insolvency proceeding; (iv) garnishment, levy, and debtor and third party
examinations; and (v) post-judgment motions and proceedings of any kind,
including without limitation any activity taken to collect or enforce any
judgment.

(f) Severability. In the event any one or more of the provisions of this Warrant
shall for any reason be held invalid, illegal or unenforceable, the remaining
provisions of this Warrant shall be unimpaired, and the invalid, illegal or
unenforceable provision shall be replaced by a mutually acceptable valid, legal
and enforceable provision, which comes closest to the intention of the parties
underlying the invalid, illegal or unenforceable provision.

(g) Notices. Except as otherwise provided herein, any notice, demand, request,
consent, approval, declaration, service of process or other communication that
is required, contemplated, or permitted under this Warrant or with respect to
the subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given, delivered, and received upon the earlier of: (i) the
first business day after transmission by facsimile or hand delivery or deposit
with an overnight express service or overnight mail delivery service; or
(ii) the third calendar day after deposit in the United States mail, with proper
first class postage prepaid (provided, that any Advance Request shall not be
deemed received until Warrantholder’s actual receipt thereof), and shall be
addressed to the party to be notified as follows:

If to Warrantholder:

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer and Manuel Henriquez

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

Telephone: 650-289-3060

 

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With a copy to:

Riemer & Braunstein LLP

Attn : David A. Ephraim, Esq.

Three Center Plaza

Boston, MA 02108

Facsimile: 617-880-3456

Telephone: 617-523-9000

If to the Company:

Panacos Pharmaceuticals, Inc

Attention: Chief Financial Officer

134 Coolidge Avenue

Watertown, MA 02472

Facsimile: 617-542-2241

Telephone: 617-926-1551

With a copy to:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Attn : William T. Whelan, Esq.

One Financial Center

Boston, MA 02111

Facsimile: 617-542-2241

Telephone: 617-542-6000

or to such other address as each party may designate for itself by like notice.

(h) Entire Agreement; Amendments. This Warrant constitutes the entire agreement
and understanding of the parties hereto in respect of the subject matter hereof,
and supersede and replace in their entirety any prior proposals, term sheets,
letters, negotiations or other documents or agreements, whether written or oral,
with respect to the subject matter hereof. None of the terms of this Warrant may
be amended except by an instrument executed by each of the parties hereto.

(i) Headings. The various headings in this Warrant are inserted for convenience
only and shall not affect the meaning or interpretation of this Warrant or any
provisions hereof.

(j) No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Warrant. In the event an ambiguity or question
of intent or interpretation arises, this Warrant shall be construed as if
drafted jointly by the parties hereto and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Warrant.

(k) No Waiver. No omission or delay by Warrantholder at any time to enforce any
right or remedy reserved to it, or to require performance of any of the terms,
covenants or provisions

 

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hereof by the Company at any time designated, shall be a waiver of any such
right or remedy to which Warrantholder is entitled, nor shall it in any way
affect the right of Warrantholder to enforce such provisions thereafter.

(l) Survival. All agreements, representations and warranties contained in this
Warrant or in any document delivered pursuant hereto shall be for the benefit of
Warrantholder and shall survive the execution and delivery of this Warrant and
the expiration or other termination of this Warrant.

(m) Governing Law. This Warrant has been negotiated and delivered to
Warrantholder in the Commonwealth of Massachusetts, and shall have been accepted
by Warrantholder in the Commonwealth of Massachusetts. Delivery of Common Stock
to Warrantholder by the Company under this Warrant is due in the Commonwealth of
Massachusetts. This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

(n) Consent to Jurisdiction and Venue. All judicial proceedings arising in or
under or related to this Warrant may be brought in any state or federal court of
competent jurisdiction located in the Commonwealth of Massachusetts. By
execution and delivery of this Warrant, each party hereto generally and
unconditionally: (a) consents to personal jurisdiction in Suffolk County,
Commonwealth of Massachusetts; (b) waives any objection as to jurisdiction or
venue in Suffolk County, Commonwealth of Massachusetts; (c) agrees not to assert
any defense based on lack of jurisdiction or venue in the aforesaid courts; and
(d) irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Warrant. Service of process on any party hereto in any
action arising out of or relating to this Warrant shall be effective if given in
accordance with the requirements for notice set forth in Section 12(g), and
shall be deemed effective and received as set forth in Section 12(g). Nothing
herein shall affect the right to serve process in any other manner permitted by
law or shall limit the right of either party to bring proceedings in the courts
of any other jurisdiction.

(o) Mutual Waiver of Jury Trial. Because disputes arising in connection with
complex financial transactions are most quickly and economically resolved by an
experienced and expert person and the parties wish applicable state and federal
laws to apply (rather than arbitration rules), the parties desire that their
disputes be resolved by a judge applying such applicable laws. EACH OF THE
COMPANY AND WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY
JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM
OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY THE COMPANY AGAINST
WARRANTHOLDER OR ITS ASSIGNEE OR BY WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE
COMPANY. This waiver extends to all such Claims, including Claims that involve
Persons other than the Company and Warrantholder; Claims that arise out of or
are in any way connected to the relationship between the Company and
Warrantholder; and any Claims for damages, breach of contract, specific
performance, or any equitable or legal relief of any kind, arising out of this
Warrant.

(p) Judicial Reference. In the event Claims are to be resolved by arbitration,
either party may seek from a court of competent jurisdiction identified in
Section 12(n), any prejudgment order, writ or other relief and have such
prejudgment order, writ or other relief enforced to the fullest extent permitted
by law notwithstanding that all Claims are otherwise subject to resolution by
binding arbitration.

(q) Counterparts. This Warrant and any amendments, waivers, consents or
supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.

 

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(r) Specific Performance. The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to Warrantholder by
reason of the Company’s failure to perform any of the obligations under this
Warrant and agree that the terms of this Warrant shall be specifically
enforceable by Warrrantholder. If Warrantholder institutes any action or
proceeding to specifically enforce the provisions hereof, any person against
whom such action or proceeding is brought hereby waives the claim or defense
therein that Warrantholder has an adequate remedy at law, and such person shall
not offer in any such action or proceeding the claim or defense that such remedy
at law exists.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be executed
by its officers thereunto duly authorized as of the Effective Date.

 

COMPANY:

  PANACOS PHARMACEUTICALS, INC.   By:  

/s/ Peyton J. Marshall

  Title:  

Executive Vice President and CFO

WARRANTHOLDER:

  HERCULES TECHNOLOGY GROWTH CAPITAL, INC.   By:  

/s/ K. Nicholas Martitsch

  Title:  

Associate General Counsel

 

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EXHIBIT I

NOTICE OF EXERCISE

 

To: [                                         ]

 

(1) The undersigned Warrantholder hereby elects to purchase [            ]
shares of the Common Stock of [                        ], pursuant to the terms
of the Warrant dated the [    ] day of [            ,         ] (the “Warrant”)
between [                        ] and the Warrantholder, and [CASH PAYMENT:
tenders herewith payment of the Purchase Price in full, together with all
applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to
Section 3(a) of the Warrant to effect a Net Issuance.]

 

(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.

 

 

(Name)

 

(Address)

WARRANTHOLDER: HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

 

By:  

 

Title:  

 

Date:  

 

 

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EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

The undersigned [                                         ], hereby acknowledge
receipt of the “Notice of Exercise” from Hercules Technology Growth Capital,
Inc., to purchase [        ] shares of the Common Stock of
[                                         ], pursuant to the terms of the
Warrant, and further acknowledges that [            ] shares remain subject to
purchase under the terms of the Warrant.

 

COMPANY:

  [                                         ]   By:  

 

  Title:  

 

  Date:  

 

 

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EXHIBIT III

TRANSFER NOTICE

(To transfer or assign the foregoing Warrant execute this form and supply
required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby transferred and assigned to

 

 

       

(Please Print)

 

whose address is  

 

       

 

       

 

 

Dated:

 

 

   

Holder’s Signature:

 

 

    Holder’s Address:  

 

   

 

  Signature Guaranteed:  

 

 

NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

 

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