Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT is made and dated as of February 24, 2015 and
is entered into by and between AGILE THERAPEUTICS, INC., a Delaware corporation
(the “Borrower”), the several banks and other financial institutions or entities
from time to time parties to this Agreement (collectively, referred to as
“Lender”) and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation,
in its capacity as administrative agent for itself and the Lender (in such
capacity, the “Agent”).

 

RECITALS

 

A.                                    Borrower has requested Lender to make
available to Borrower Term Loan Advances in an aggregate principal amount of up
to Twenty-Five Million Dollars ($25,000,000) (the “Maximum Term Loan Amount”);
and

 

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

 

AGREEMENT

 

NOW, THEREFORE, Borrower, Agent and Lender agree as follows:

 

SECTION 1.  DEFINITIONS AND RULES OF CONSTRUCTION

 

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

 

“1934 Act” shall have the meaning assigned to such term in Section 2.1(e)(iii).

 

“Account Control Agreement(s)” means any agreement entered into by and among
Agent, Borrower and a third party Bank or other institution (including a
Securities Intermediary) in which Borrower maintains a Deposit Account or an
account holding Investment Property and which grants Agent a perfected first
priority security interest in the subject account or accounts.

 

“ACH Authorization” means the ACH Debit Authorization Agreement in substantially
the form of Exhibit H.

 

“ACH Failure” means the failure of the Automated Clearing House (ACH) system to
effect a transfer of the funds due to an administrative error in connection with
the institution and execution of the ACH Authorization.

 

“Advance(s)” means a Term Loan Advance.

 

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

 

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

 

“AG200-15” has the meaning given to it in the definition of Draw Period
Milestone Event.

 

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

 

“Agreement” means this Loan and Security Agreement, as amended from time to
time.

 

“Amortization Date” means (a) with respect to the First Term Loan Advance,
July 1, 2016, and (b) with respect to the Second Term Loan Advance, July 1,
2016, provided, however, if the Draw Period Milestone Event occurs, at the
written request of Borrower which must be delivered to Agent prior to July 1,
2016, the Amortization Date in the case of (a) and (b) shall mean January 1,
2017.  If the Second Term Loan Advance is drawn after June 30, 2016, but on or
prior to December 31, 2016, the Amortization Date with respect to the Second
Term Loan Advance shall mean the first (1st) Business Day of the month following
the month in which the funding date of the Second Term Loan Advance occurs.
Notwithstanding the foregoing, Lender may elect, in its sole and absolute
discretion, and based upon Lender’s then-existing underwriting criteria and
approval, to extend the Amortization Date with respect to the First Term Loan
Advance and the Second Term Loan Advance to January 1, 2017.

 

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

 

“Board” means Borrower’s board of directors.

 

“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.

 

“Business Day” means any day other than Saturday, Sunday and any other day on
which banking institutions in the State of New York are closed for business.

 

“Cap” shall have the meaning assigned to such term in Section 2.1(e)(iii).

 

“Cash” means all cash and liquid funds.

 

“Change in Control” means any (i) reorganization, recapitalization,
consolidation or merger (or similar transaction or series of related
transactions) of Borrower, sale or exchange of outstanding shares (or similar
transaction or series of related transactions) of Borrower in which the holders
of Borrower’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 more than fifty percent (50%) of the voting power of the
surviving entity of such transaction or series of related

 

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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 is
the surviving entity, or (ii) sale or issuance by Borrower of equity securities
to a Person, in a single transaction or series of related transactions not
registered under the Securities Act, which securities represent, as of
immediately following the closing (or, if there be more than one, any closing)
thereof, forty-nine percent (49%) or more of the then-outstanding total combined
voting power of Borrower, other than an issuance of equity securities in a bona
fide equity financing.

 

“Claims” has 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.

 

“Commitment Charge” means Thirty-Five Thousand Dollars ($35,000).

 

“Common Stock” means the common stock, $0.0001 par value per share, of Borrower.

 

“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.  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.

 

“Conversion Conditions” shall have the meaning assigned to such term in
Section 2.1(e)(ii).

 

“Conversion Election Notice” shall have the meaning assigned to such term in
Section 2.1(e)(i).

 

“Conversion Option” shall have the meaning assigned to such term in
Section 2.1(e)(i).

 

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“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 copyrights, whether registered or unregistered, held
pursuant to the laws of the United States, any State thereof, or of any other
country.

 

“Delivery Date” shall have the meaning assigned to such term in
Section 2.1(e)(i).

 

“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.

 

“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

 

“Draw Period” means the period commencing upon the occurrence of the Draw Period
Milestone Event and ending on the earlier to occur of (i) June 30, 2016, and
(ii) an Event of Default.  Notwithstanding the foregoing, Lender may elect, in
its sole and absolute discretion, and based upon Lender’s then-existing
underwriting criteria and approval, to (i) waive the requirement for the Draw
Period Milestone Event as a condition precedent to the Second Term Loan Advance
and (ii) extend the Draw Period to the earlier to occur of (a) December 31,
2016, and (b) an Event of Default.

 

“Draw Period Milestone Event” means confirmation by Agent, in Agent’s reasonable
discretion, after March 31, 2016, but on or prior to June 30, 2016, that
Borrower has successfully completed a pivotal clinical study of the “AG200-15”
product candidate (“AG200-15”), including, without limitation, evidence that
such study has produced data that supports the filing of a response to the
Complete Response Letter from the U.S. Food and Drug Administration (“FDA”)
relating to the new drug application filed by the Borrower with the FDA with
respect to AG200-15.

 

“End of Term Charge” shall have the meaning assigned to such term in
Section 2.5.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations promulgated thereunder.

 

“Equity Rights Letter Agreement” means the Equity Rights Letter Agreement dated
as of even date hereof by and between Lender and Borrower, as may be amended,
restated or modified from time to time.

 

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

 

“Facility Charge” means eighty-hundredths of one percent (0.80%) of the Maximum
Term Loan Amount, which is Two Hundred Thousand Dollars ($200,000).

 

“FDA” has the meaning given to it in the definition of Draw Period Milestone
Event.

 

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

 

“First Term Loan Advance” shall have the meaning assigned to such term in
Section 2.1(a).

 

“Fixed Conversion Price shall have the meaning assigned to such term in
Section 2.1(e)(i).

 

“Foreign Subsidiary” means any Subsidiary other than a Subsidiary organized
under the laws of any state within the United States.

 

“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
(excluding trade credit entered into in the ordinary course of business due
within sixty (60) days), 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.

 

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

 

“Intellectual Property” means all of Borrower’s Copyrights; Trademarks; Patents;
Licenses; trade secrets and inventions; mask works; 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.

 

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

 

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

 

“Knowledge” means the actual knowledge, after reasonable investigation, of any
officer of the Borrower.

 

“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.

 

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“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,
and any lease in the nature of a security interest.

 

“Loan” means the Advances made under this Agreement.

 

“Loan Documents” means this Agreement, the Notes (if any), the ACH
Authorization, the Account Control Agreements, the Joinder Agreements, all UCC
Financing Statements, the Warrant, the Equity Rights Letter Agreement, any
subordination agreement, 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.

 

“Material Adverse Effect” means a material adverse effect upon: (i) the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform the Secured
Obligations in accordance with the terms of the Loan Documents, or the ability
of Agent or Lender to enforce any of its rights or remedies with respect to the
Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral
or the priority of such Liens.

 

“Maximum Term Loan Amount” shall have the meaning assigned to such term in the
preamble to this Agreement.

 

“Maximum Rate” shall have the meaning assigned to such term in Section 2.3.

 

“NASDAQ” shall have the meaning assigned to such term in Section 2.1(e)(ii).

 

“Note(s)” means a promissory note or promissory notes to evidence Lender’s
Loans.

 

“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.

 

“Permitted Indebtedness” means: (i) Indebtedness of Borrower in favor of Lender
or Agent arising under this Agreement or any other Loan Document;
(ii) Indebtedness existing on the Closing Date which is disclosed in Schedule
1A; (iii) Indebtedness of up to $250,000 outstanding at any time secured by a
Lien described in clause (vii) 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; (iv) Indebtedness to trade
creditors incurred in the ordinary course of business, including Indebtedness
incurred in the ordinary course of business with corporate credit cards;
(v) Indebtedness that also constitutes a Permitted Investment; (vi) Subordinated
Indebtedness; (vii) reimbursement obligations in connection with

 

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letters of credit that are secured by cash or cash equivalents and issued on
behalf of Borrower or a Subsidiary thereof in an amount not to exceed $250,000
at any time outstanding, (viii) other Indebtedness in an amount not to exceed
$250,000 at any time outstanding, and (ix) 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: (i) Investments existing on the Closing Date which
are disclosed in Schedule 1B; (ii) (a) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing after one (1) year from the date of acquisition thereof
but no later than two (2) years from the date of acquisition thereof,
(b) commercial paper maturing after one (1) year from the date of creation
thereof but no more than two (2) years from the date of creation thereof, and
currently having a rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or Moody’s Investors Service, (c) certificates of deposit issued by
any bank with assets of at least $500,000,000 maturing after one (1) year from
the date of investment therein but no more than two (2) years from the date of
investment therein, and (d) money market accounts; (iii) 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; (iv) Investments accepted in connection
with Permitted Transfers; (v) 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;
(vi) 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 (vi) shall not
apply to Investments of Borrower in any Subsidiary; (vii) Investments consisting
of loans not involving the net transfer on a substantially contemporaneous basis
of cash proceeds to employees, officers or directors relating to the purchase of
capital stock of Borrower pursuant to employee stock purchase plans or other
similar agreements approved by Borrower’s Board; (viii) Investments consisting
of travel advances in the ordinary course of business; (ix) Investments in
newly-formed Domestic Subsidiaries, provided that each such Domestic Subsidiary
enters into a Joinder Agreement promptly after its formation by Borrower and
execute such other documents as shall be reasonably requested by Agent;
(x) Investments in Foreign Subsidiaries approved in advance in writing by Agent;
(xi) 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; (xii) any Investments permitted by Borrower’s investment policy, as
amended from time to time, provided that such investment policy (and any such
amendment thereto) has been approved in writing by Agent; and (xiii) additional
Investments that do not exceed $250,000 in the aggregate.

 

“Permitted Liens” means any and all of the following: (i) Liens in favor of
Agent or Lender; (ii) Liens existing on the Closing Date which are disclosed in
Schedule 1C; (iii) 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

 

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reserves therefor in accordance with GAAP; (iv) 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; (v) Liens arising from judgments, decrees or attachments in
circumstances which do not constitute an Event of Default hereunder; (vi) the
following deposits, 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 indemnity,
performance or other similar bonds; (vii) Liens on Equipment or software or
other intellectual property constituting purchase money Liens and Liens in
connection with capital leases securing Indebtedness permitted in clause
(iii) of “Permitted Indebtedness”;  (viii) Liens incurred in connection with
Subordinated Indebtedness; (ix) leasehold interests in leases or subleases and
licenses granted in the ordinary course of business and not interfering in any
material respect with the business of the licensor; (x) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
custom duties that are promptly paid on or before the date they become due;
(xi) Liens on insurance proceeds securing the payment of financed insurance
premiums that are promptly paid on or before the date they become due (provided
that such Liens extend only to such insurance proceeds and not to any other
property or assets); (xii) statutory and common law rights of set-off and other
similar rights as to deposits of cash and securities in favor of banks, other
depository institutions and brokerage firms; (xiii) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business so long as they do not
materially impair the value or marketability of the related property;
(xiv) Liens on cash or cash equivalents securing obligations permitted under
clause (vii) of the definition of Permitted Indebtedness; and (xv) Liens
incurred in connection with the extension, renewal or refinancing of the
Indebtedness secured by Liens of the type described in clauses (i) through
(xi) 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 ordinary course of
business, (ii) licenses and similar arrangements for the use of Intellectual
Property in the ordinary course of business and licenses that could not result
in a legal transfer of title of the licensed property but that may be exclusive
in the ordinary course of business, or (iii) dispositions of worn-out, obsolete
or surplus Equipment at fair market value in the ordinary course of business,
(iv) abandonment of Intellectual Property (including any Patents) no longer
deemed material to Borrower’s business, as determined by Borrower in the
exercise of its reasonable business judgment, and (v) other Transfers of assets
having a fair market value of not more than $250,000 in the aggregate in any
fiscal year.

 

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

 

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“Prepayment Charge” shall have the meaning assigned to such term in Section 2.4.

 

“Prime Rate” means the lesser of (i) the “prime rate” as reported in The Wall
Street Journal, and if not reported, then the prime rate most recently reported
in The Wall Street Journal, and (ii) seven and one half of one percent (7.50%).

 

“Principal Installment Payment” shall have the meaning assigned to such term in
Section 2.1(e)(i).

 

“Principal Installment Due Date” shall have the meaning assigned to such term in
Section 2.1(e)(i).

 

“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.

 

“Required Lenders” means at any time, the holders of more than 50% of the
aggregate unpaid principal amount of the Term Loan Advances then outstanding.

 

“SEC” means the Securities and Exchange Commission.

 

“Second Term Loan Advance” shall have the meaning assigned to such term in
Section 2.1(a).

 

“Secured Obligations” means Borrower’s obligations under this Agreement and any
Loan Document, including any obligation to pay any amount now owing or later
arising.

 

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

 

“Subordinated Indebtedness” means Indebtedness subordinated to the Secured
Obligations in amounts and on terms and conditions satisfactory to Agent in its
sole discretion.

 

“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.

 

“Term Commitment” means as to any Lender, the obligation of such Lender, if any,
to make a Term Loan Advance to Borrower in a principal amount not to exceed the
amount set forth under the heading “Term Commitment” opposite such Lender’s name
on Schedule 1.1.

 

“Term Loan Advance” and “Term Loan Advances” shall have the meaning assigned to
such terms in Section 2.1(a).

 

“Term Loan Interest Rate” means for any day, a floating per annum rate equal to
the greater of either (a) nine percent (9.0%), or (b) the sum of (i) nine
percent (9.0%), plus (ii) the Prime Rate minus four and one quarter of one
percent (4.25%).  The Term Loan Interest Rate will change from time to time on
the day the Prime Rate changes.

 

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“Term Loan Maturity Date” means December 1, 2018.

 

“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.

 

“UCC” means the Uniform Commercial Code as the same is, from time to time, in
effect in the State of New York 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, Agent’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 State of New York, 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.

 

“Warrant” means the Warrant Agreement dated as of even date hereof by and
between Hercules Technology Growth Capital, Inc. and Borrower, as may be
amended, restated or modified from time to time.

 

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. Unless otherwise defined herein or in the other Loan
Documents, terms that are used herein or in the other Loan Documents and defined
in the UCC shall have the meanings given to them in the UCC.

 

SECTION 2.  THE LOAN

 

2.1                               Term Loan.

 

(a)                                 Advances.  Subject to the terms and
conditions of this Agreement, Lender will severally (and not jointly) make, in
an amount not to exceed its respective Term Commitment, and Borrower may
request, one (1) Term Loan Advance in an amount of Sixteen Million Five Hundred
Thousand Dollars ($16,500,000) on the Closing Date, provided that a portion of
the proceeds of such Term Loan Advance shall be used to repay in full Borrower’s
outstanding obligations to Oxford Finance, LLC (the “First Term Loan Advance”). 
Subject to the terms and conditions of this Agreement, during the Draw Period,
Lender will severally (and not jointly) make, in an amount not to exceed its
respective Term Commitment, and Borrower may request, one (1) additional Term
Loan Advance in an amount of Eight Million Five Hundred Thousand Dollars
($8,500,000)

 

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(the “Second Term Loan Advance”).  The First Term Loan Advance and the Second
Term Loan Advance are hereinafter referred to singly as the “Term Loan Advance”
and collectively as the “Term Loan Advances.” The aggregate outstanding Term
Loan Advances shall not exceed the Maximum Term Loan Amount.  Proceeds of any
Term Loan Advance shall be deposited into an account that is subject to a first
priority perfected security interest in favor of Agent perfected by an Account
Control Agreement.

 

(b)                                 Advance Request.  To obtain a Term Loan
Advance, Borrower shall complete, sign and deliver to Agent an Advance Request
(at least five (5) Business Days before the Advance Date).  Lender shall fund
the Term Loan Advance in the manner requested by the Advance Request provided
that each of the conditions precedent to such Term Loan Advance is satisfied as
of the requested Advance Date.

 

(c)                                  Interest.  The principal balance of each
Term Loan Advance shall bear interest thereon from such Advance Date at the Term
Loan Interest Rate based on a year consisting of 360 days, with interest
computed daily based on the actual number of days elapsed.  The Term Loan
Interest Rate will float and change on the day the Prime Rate changes from time
to time.

 

(d)                                 Payment.  Borrower will pay interest on each
Term Loan Advance on the first (1st) Business Day of each month, beginning the
month after the Advance Date.  Commencing on the Amortization Date, and
continuing on the first (1st) Business Day of each month thereafter, until the
Secured Obligations are repaid, Borrower shall repay the aggregate principal
balance of Term Loan Advances that are outstanding on the day immediately
preceding the Amortization Date in equal monthly installments of principal and
interest (mortgage style) based upon an amortization schedule equal to thirty
(30) consecutive months.  The entire principal balance of the Term Loan Advances
and all accrued but unpaid interest hereunder, and all other Secured Obligations
with respect to the Term Loan Advances, shall be due and payable on Term Loan
Maturity Date.  Borrower shall make all payments under this Agreement without
setoff, recoupment or deduction and regardless of any counterclaim or defense.
Lender will initiate debit entries to Borrower’s account as authorized on the
ACH Authorization (i) on each payment date of all periodic obligations payable
to Lender under each Term Advance and (ii) out-of-pocket legal fees and costs
incurred by Agent or Lender in connection with Section 11.11 of this Agreement. 
Once repaid, a Term Loan Advance or any portion thereof may not be reborrowed.

 

(e)                                  Optional Payment in Cash or Conversion to
Common Stock of Monthly Amount or Prepayment Principal Amount.

 

(i)                                     Borrower Election for Payment in Cash or
Conversion to Common Stock.  Subject to satisfaction of the Conversion
Conditions and compliance with the other terms and conditions of this
Section 2.1(e), Borrower may elect to pay, in whole or in part, any regularly
scheduled installment of principal (a “Principal Installment Payment”) up to an
aggregate maximum amount of Three Million Dollars ($3,000,000) by converting a
portion of the principal of the Note into shares of Common Stock in lieu of
payment in cash (such option, the “Conversion

 

11

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Option”).  In order to validly exercise a Conversion Option, Borrower (A) must
deliver written notice thereof, in the form attached hereto as Exhibit I, to
Agent (a “Conversion Election Notice”) five (5) days prior to the applicable due
date of the Principal Installment Payment (the “Principal Installment Due Date”)
and (B) shall (provided that Borrower’s transfer agent is participating in the
Fast Automated Securities Transfer Program of the Depository Trust Company)
credit to Agent by no later than the first trading day following the applicable
Principal Installment Due Date (such date, the “Delivery Date”) such aggregate
number of shares of Common Stock to be issued to Lender with respect to such
Conversion Election Notice, as determined in accordance with this
Section 2.1(e) (which shares shall be free of any restrictions on transfer), by
no later than the first trading day following the applicable Delivery Date.  All
payments in respect of a Principal Installment Payment shall be made in cash,
unless (i) Borrower timely delivers a Conversion Election Notice in accordance
with the immediately preceding sentence, (ii) Borrower timely credits the shares
of Common Stock to Lender, free of restrictive legends, in accordance with this
Section 2.1(e) and (iii) the Conversion Conditions are satisfied in respect of
such payment.  A Conversion Election Notice, once delivered by Borrower, shall
be irrevocable unless otherwise agreed, in writing, by Lender.  If Borrower
elects to make a Principal Installment Payment, in whole or in part, through
conversion of such amount into shares of Common Stock, the number of such shares
of Common Stock to be issued in respect of such Principal Installment Payment
shall be equal to the number determined by dividing (x) the principal amount to
be paid in shares of Common Stock by (y) the Fixed Conversion Price.  For
purposes hereof, the “Fixed Conversion Price” shall be the price which is
fifteen percent (15.0%) higher than the applicable Exercise Price (as defined in
the Warrant); provided, however, that upon the occurrence of any stock split,
stock dividend, combination of shares or reverse stock split pertaining to the
Common Stock, the Fixed Conversion Price shall be proportionately increased or
decreased as necessary to reflect the proportionate change in the shares of
Common Stock issued and outstanding as a result of such stock split, stock
dividend, combination of shares or reverse stock split.  Any shares of Common
Stock issued pursuant to a Conversion Election Notice shall be deemed to be
issued upon conversion of the Note.

 

(ii)                                  Conversion Conditions.  Notwithstanding
the foregoing, Borrower’s right to deliver, and Lender’s obligation to accept,
shares of Common Stock in lieu of payment in cash of a Principal Installment
Payment is conditioned on the satisfaction of each of the following conditions
(the “Conversion Conditions”) as of such Delivery Date: (A) the closing price of
the shares of Common Stock as reported by Bloomberg, L.P. on the NASDAQ stock
market (the “NASDAQ”) for each of the seven (7) consecutive trading days
immediately preceding the Delivery Date shall be greater than or equal to the
Fixed Conversion Price; (B) the Common Stock issued in connection with any such
payment does not exceed twenty-five percent (25.0%) of the total trading volume
of the Common Stock for the twenty-two (22) consecutive trading days immediately
prior to and including such Delivery Date; (C) only one Conversion Election
Notice may be given in any calendar month during the amortization period;
(D) the aggregate

 

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principal amount to be paid in shares of Common Stock pursuant to
Section 2.1(e)(i) of this Agreement shall not exceed Three Million Dollars
($3,000,000); (E) the Common Stock is (and was on each of the twenty-two (22)
consecutive trading days immediately preceding such Delivery Date) quoted or
listed on the NASDAQ or other national securities exchange; (F) a registration
statement is effective and available for the resale of all of the shares of
Common Stock to be delivered on such Delivery Date, or such shares of Common
Stock are eligible for resale to the public pursuant to Rule 144 without any
limitation; (G) after giving effect to the issuance of such shares of Common
Stock to Lender, Lender would not (x) beneficially own, together with its
affiliates, Common Stock in excess of the limitations specified in subsection
(e)(iii) below and (y) have been issued shares of Common Stock pursuant to all
Conversion Election Notices in an aggregate amount in excess of the Cap, as
defined in subsection (e)(iii) below; (H) as of such Delivery Date, there is no
outstanding Event of Default and there is no breach or default that, if left
uncured, would result in an Event of Default; and (I) Borrower shall have
sufficient authorized but unissued shares of Common Stock to provide for the
issuance of the shares of Common Stock pursuant to the Conversion Election
Notice.  If any of the Conversion Conditions are not satisfied as of a Delivery
Date, Borrower shall not be permitted to pay, and Lender shall not be obligated
to accept, the Principal Installment Payment in shares of Common Stock, and
Borrower shall instead pay such principal amount in cash; provided, however,
that the Conversion Conditions set forth in clauses (A), (B), (C), (E), (F) and
(H) above may be waived by a writing executed by both Borrower and Lender.  In
the event Borrower is relying upon an effective registration statement to
satisfy clause (F) of the Conversion Conditions, each of Borrower and Lender
shall provide customary indemnification to one another with respect to such
registration statement in a form acceptable to Borrower and Lender.  By no later
than the first trading day following the Delivery Date, Borrower shall (provided
that Borrower’s transfer agent is participating in the Fast Automated Securities
Transfer Program of the Depository Trust Company) credit to Lender the shares of
Common Stock to be delivered by Borrower with respect to the portion of the
Principal Installment Payment being paid in shares of Common Stock.

 

(iii)                               Beneficial Ownership Limitation. 
Notwithstanding any provision herein to the contrary, Lender, together with its
affiliates, shall not be permitted to beneficially own a number of shares of
Common Stock (other than shares that may be deemed beneficially owned except for
being subject to a limitation analogous to the limitation contained in this
Section 2.1(e)(iii)) in excess of 9.99% of the number of shares of Common Stock
then issued and outstanding, it being the intent of Borrower and Lender that
Lender, together with its affiliates, not be deemed at any time to have the
power to vote or dispose of greater than 9.99% of the number of shares of Common
Stock issued and outstanding at any time; provided, however, that Lender shall
have the right, upon sixty-one (61) days’ prior written notice to Borrower, to
waive the 9.99% limitation of this subsection.  Notwithstanding anything
contained herein to the contrary, Borrower shall not be permitted to issue to
Lender, and Lender shall not be required to accept, shares of Common Stock
pursuant to a Conversion Election Notice if and to the extent such

 

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issuance, when taking together with all other issuances pursuant to prior
Conversion Election Notices, would result in (A) the issuance of more than
19.99% of the Common Stock outstanding as of the date of this Agreement or (B) 
Lender, together with its affiliates, beneficially owning in excess of 19.99% of
the outstanding Common Stock (each of clauses (A) and (B) are referred to herein
as the “Cap”). As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”).  For any reason at any time, upon written or oral request of
Lender, Borrower shall within one Business Day confirm orally and in writing to
Lender the number of shares of Common Stock then issued and outstanding as of
any given date.

 

(iv)                              Rule 144. With a view to making available to
Lender the benefits of Rule 144 (or its successor rule) and any other rule or
regulation of the Securities and Exchange Commission (the “SEC”) that may at any
time permit Lender to sell shares of Common Stock issued pursuant to
Section 2.1(e) of this Agreement to the public without registration, Borrower
covenants and agrees to:  (i) make and keep public information available, as
those terms are understood and defined in Rule 144, until six (6) months after
such date as all of the shares of Common Stock issued pursuant to
Section 2.1(e) of this Agreement may be sold without restriction by Lender
pursuant to Rule 144 or any other rule of similar effect; (ii) file with the SEC
in a timely manner (or obtain extensions in respect thereof and file within the
applicable grace period) all reports and other documents required of Borrower
under the 1934 Act; and (iii) furnish to Lender upon request, as long as Lender
owns any shares of Common Stock issued pursuant to Section 2.1(e) of this
Agreement, such information as may be reasonably requested in order to avail
Lender of any rule or regulation of the SEC that permits the selling of any such
shares of Common Stock without registration.

 

(v)                                 Stock Reservation.  Borrower covenants and
agrees to reserve from its duly authorized capital stock not less than the
number of shares of Common Stock that may be issuable upon payment of any
Principal Installment Payment pursuant to Section 2.1(e) of this Agreement. 
Borrower further represents, warrants and covenants that, upon issuance of any
shares of Common Stock pursuant to Section 2.1(e) of this Agreement, such shares
of Common Stock shall be validly issued, fully paid and non-assessable and free
from all preemptive or similar rights, taxes, liens and charges with respect to
the issue thereof.

 

(vi)                              Authorization.  For so long as Lender holds
any shares of Common Stock issued pursuant to Section 2.1(e) of this Agreement,
Borrower shall maintain the Common Stock’s authorization for listing on NASDAQ
(or on another national securities exchange) and Borrower shall not take any
action which would reasonably be expected to result in the delisting or
suspension of the Common Stock on NASDAQ (or other national securities exchange
on which the Common Stock is listed).

 

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2.2                               Maximum Interest.  Notwithstanding any
provision in this Agreement 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 State of New York
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 the Secured Obligations consisting of the outstanding
principal amount of the Term Loan Advances; 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.

 

2.3                               Default Interest.  In the event any payment is
not paid on the scheduled payment date, an amount equal to four percent (4%) of
the past due amount shall be payable on demand. 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 2.1(c), plus four percent (4%) 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 2.1(c) or Section 2.3, as applicable.

 

2.4                               Prepayment.  At its option upon at least seven
(7) Business Days prior notice to Agent, Borrower may prepay all, but not less
than all, of the outstanding Advances by paying the entire principal balance,
all accrued and unpaid interest thereon, together with a prepayment charge equal
to the following percentage of the Advance amount being prepaid: if such Advance
amounts are prepaid in any of the first twelve (12) months following the Closing
Date, three percent (3.0%); after twelve (12) months but on or prior to twenty
four (24) months, two percent (2.0%); and thereafter, one percent (1.0%) (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.  Upon the occurrence of a Change in Control, Borrower shall
prepay the outstanding amount of all principal and accrued interest through the
prepayment date and all unpaid Agent’s and Lender’s fees and expenses accrued to
the date of the repayment (including the End of Term Charge) together with the
applicable Prepayment Charge.  Notwithstanding the foregoing, Agent and Lender
agree to waive the Prepayment Charge if Agent and Lender (in its sole and
absolute discretion) agree in writing to refinance and redocument this Agreement
prior to the Term Loan Maturity Date and if in connection with such refinancing
and redocumentation, Agent and Lender expressly agree in writing to waive the
Prepayment Charge.

 

2.5                               End of Term Charge.  On the earliest to occur
of (i) the Term Loan Maturity Date, (ii) the date that Borrower prepays the
outstanding Secured Obligations, or (iii) the date that the Secured Obligations
become due and payable, Borrower shall pay Lender a

 

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charge equal to three and seventy hundredths of one percent (3.70%) of the
aggregate original principal amount of all Term Loan Advances extended by Lender
(the “End of Term Charge”). Notwithstanding the required payment date of such
charge, it shall be deemed earned by Lender as of the Closing Date.

 

2.6                               Notes.  If so requested by Lender by written
notice to Borrower, then Borrower shall execute and deliver to Lender (and/or,
if applicable and if so specified in such notice, to any Person who is an
assignee of Lender pursuant to Section 11.13) (promptly after Borrower’s receipt
of such notice) a Note or Notes to evidence Lender’s Loans.

 

2.7                               Pro Rata Treatment.  Each payment (including
prepayment) on account of any fee and any reduction of the Term Loan Advances
shall be made pro rata according to the Term Commitments of the relevant Lender.

 

SECTION 3.  SECURITY INTEREST

 

3.1                               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 Agent a security interest in all of
Borrower’s right, title, and interest in and to the following personal property
whether now owned or hereafter acquired (collectively, the “Collateral”): 
(a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles (other
than Intellectual Property); (e) Inventory; (f) Investment Property (but
excluding thirty-five percent (35%) of the capital stock of any Foreign
Subsidiary that constitutes a Permitted Investment); (g) Deposit Accounts;
(h) Cash; (i) Goods; and all 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 any of Borrower’s property in
the possession or under the control of Agent; and, 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, however, that the Collateral shall include all Accounts
and General Intangibles that consist of rights to payment and proceeds from the
sale, licensing or disposition of all or any part, or rights in, the
Intellectual Property (the “Rights to Payment”).  Notwithstanding the foregoing,
if a judicial authority (including a U.S. Bankruptcy Court) holds that a
security interest in the underlying Intellectual Property is necessary to have a
security interest in the Rights to Payment, then the Collateral shall
automatically, and effective as of the date of this Agreement, include the
Intellectual Property to the extent necessary to permit perfection of Agent’s
security interest in the Rights to Payment.

 

SECTION 4.  CONDITIONS PRECEDENT TO LOAN

 

The obligation of Lender to make the Term Loan Advances hereunder is subject to
the satisfaction by Borrower of the following conditions:

 

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

 

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(a)                                 executed originals of the Loan Documents,
Account Control Agreements, a legal opinion of Borrower’s counsel, and all other
documents and instruments reasonably required by Agent to effectuate the
transactions contemplated hereby or to create and perfect the Liens of Agent
with respect to all Collateral, in all cases in form and substance reasonably
acceptable to Agent;

 

(b)                                 certified copy of resolutions of Borrower’s
Board 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)                                  duly executed original signature to a
payoff letter from Oxford Finance, LLC, together with evidence (i) the Liens
securing Indebtedness owed by Borrower to Oxford Finance, LLC will be terminated
and (ii) the documents and/or filings evidencing the perfection of such Liens,
including without limitation any financing statements and/or control agreements,
have or will, concurrently with the initial Advance, will be terminated or
released;

 

(f)                                   payment of the Commitment Charge, the
Facility Charge and reimbursement of Agent’s and Lender’s current expenses
reimbursable pursuant to this Agreement, which amounts may be deducted from the
initial Advance; and

 

(g)                                  such other documents as Agent may
reasonably request.

 

4.2                               All Advances.  On each Advance Date:

 

(a)                                 Agent shall have received (i) an Advance
Request for the relevant Advance as required by Section 2.1(b), duly executed by
Borrower’s Chief Executive Officer or Chief Financial Officer, and (ii) any
other documents Agent 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.

 

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(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 4.2
and as to the matters set forth in the Advance Request.

 

4.3                               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.

 

SECTION 5.  REPRESENTATIONS AND WARRANTIES OF BORROWER

 

Borrower represents and warrants that:

 

5.1                               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, as may be updated by Borrower in a written notice
(including any Compliance Certificate) provided to Agent after the Closing Date.

 

5.2                               Collateral.  Borrower owns the Collateral and
the Intellectual Property, free of all Liens, except for Permitted Liens. 
Borrower has the power and authority to grant to Agent a Lien in the Collateral
as security for the Secured Obligations .

 

5.3                               Consents.  Borrower’s execution, delivery and
performance of the Notes(s) (if any), 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 or
Articles of Incorporation (as applicable), bylaws, or any, law, regulation,
order, injunction, judgment, decree or writ to which Borrower is subject and
(iv) except as described on Schedule 5.3, do not violate any contract or
agreement or require the consent or approval of any other Person which has not
already been obtained.  The individual or individuals executing the Loan
Documents and the Warrant are duly authorized to do so.

 

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

 

5.5                               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

 

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governmental authority now pending or, to the knowledge of Borrower, threatened
against or affecting Borrower or its property.

 

5.6                               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 agreement or
instrument evidencing Indebtedness, or any other material agreement to which it
is a party or by which it is bound.

 

5.7                               Information Correct and Current.  No
information, report, Advance Request, financial statement, exhibit or schedule
furnished, by or on behalf of Borrower to Agent 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 at the time such statement was made or deemed made. Additionally, any
and all financial or business projections provided by Borrower to Agent, whether
prior to or after the Closing Date, shall be (i) provided in good faith and
based on the most current data and information available to Borrower, and
(ii) the most current of such projections provided to Borrower’s Board.

 

5.8                               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).

 

5.9                               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, (i) to Borrower’s Knowledge, each of the
material Copyrights, Trademarks and Patents is valid and enforceable, (ii) no
material part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and (iii) no claim has been made to Borrower
that any material part of the Intellectual Property violates the rights of any
third party. 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), together with application or
registration numbers, as applicable, owned by Borrower or any Subsidiary, in
each case as of the Closing Date. 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.

 

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5.10                        Intellectual Property.  Except as described on
Schedule 5.10, Borrower has, or in the case of any proposed business, will have,
all material rights with respect to Intellectual Property 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,
and in the case of Licenses, except for restrictions that are unenforceable
under Division 9 of the UCC, Borrower has the right, to the extent required to
operate Borrower’s business, to freely transfer, license or assign Intellectual
Property without condition, restriction or payment of any kind (other than
license payments in the ordinary course of business) 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.

 

5.11                        Borrower Products.  Except as described on Schedule
5.11, no Intellectual Property owned or licensed by Borrower or any Intellectual
Property rights related to Borrower Product, which is owned or licensed by
Borrower, 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.  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 the Knowledge of
Borrower, 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.

 

5.12                        Financial Accounts.  Exhibit E, as may be updated by
Borrower in a written notice provided to Agent after the Closing Date, is 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.

 

5.13                        Employee Loans.  Borrower has no outstanding loans
to any employee, officer or director of Borrower nor has Borrower guaranteed the
payment of any loan made to an employee, officer or director of Borrower by a
third party.

 

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5.14                        Subsidiaries.  Borrower does not own any stock,
partnership interest or other securities of any Person, except for Permitted
Investments.  Attached as Schedule 1, as may be updated by Borrower in a written
notice provided after the Closing Date, is a true, correct and complete list of
each Subsidiary.

 

SECTION 6.  INSURANCE; INDEMNIFICATION

 

6.1                               Coverage.  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 $1,000,000 of commercial general liability insurance for
each occurrence and $2,000,000 in the aggregate.  Borrower has and agrees to
maintain a minimum of $2,000,000 of directors’ and officers’ insurance for each
occurrence and $5,000,000 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, insuring against all risks of physical loss or
damage howsoever caused, in an amount not less than the full replacement cost of
the Collateral, provided that such insurance may be subject to standard
exceptions and deductibles.

 

6.2                               Certificates.  Borrower shall deliver to Agent
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 Agent is an additional insured for
commercial general liability, a loss payee for all risk property damage
insurance, subject to the insurer’s approval, and a loss payee for property
insurance and additional insured for liability insurance for any future
insurance that Borrower may acquire from such insurer.  Attached to the
certificates of insurance will be additional insured endorsements for liability
and lender’s loss payable endorsements for all risk property damage insurance. 
All certificates of insurance will provide for a minimum of thirty (30) days
advance written notice to Agent of cancellation or any other change adverse to
Agent’s interests.  Any failure of Agent to scrutinize such insurance
certificates for compliance is not a waiver of any of Agent’s rights, all of
which are reserved.

 

6.3                               Indemnity.  Borrower agrees to indemnify and
hold Agent, Lender and their officers, directors, employees, agents, in-house
attorneys, representatives and shareholders (each, an “Indemnified Person”)
harmless from and against any and all claims, costs, expenses, damages and
liabilities (including such claims, costs, expenses, damages and liabilities
based on liability in tort, including strict liability in tort), including
reasonable attorneys’ fees and disbursements and other costs of investigation or
defense (including those incurred upon any appeal) (collectively,
“Liabilities”), that may be instituted or asserted against or incurred by such
Indemnified Person as the result of credit having been extended, suspended or
terminated under this Agreement and the other Loan Documents or the
administration of such credit, or in connection with or arising out of the
transactions contemplated hereunder and thereunder, or any actions or failures
to act in connection therewith, or arising out of the disposition or utilization
of the Collateral, excluding in all cases Liabilities to the extent resulting
solely from any Indemnified Person’s gross

 

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negligence or willful misconduct. Borrower agrees to pay, and to save Agent and
Lender harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all excise, sales or other similar taxes (excluding
taxes imposed on or measured by the net income of Agent or Lender) that may be
payable or determined to be payable with respect to any of the Collateral or
this Agreement.  In no event shall any Indemnified Person be liable on any
theory of liability for any special, indirect, consequential or punitive damages
(including any loss of profits, business or anticipated savings).

 

SECTION 7.  COVENANTS OF BORROWER

 

Borrower agrees as follows:

 

7.1                               Financial Reports.  Borrower shall furnish to
Agent the financial statements and reports listed hereinafter (the “Financial
Statements”):

 

(a)                                 as soon as practicable (and in any event
within 30 days) after the end of each month, unaudited interim and year-to-date
financial statements as of the end of such month (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows accompanied by a report detailing any
material contingencies (including the commencement of any material litigation by
or against Borrower) or any other occurrence that would reasonably be expected
to have a Material Adverse Effect, all certified by Borrower’s Chief Executive
Officer or Chief Financial Officer to the effect that they have been prepared in
accordance with GAAP, except (i) for the absence of footnotes, (ii) that they
are subject to normal year end adjustments, and (iii) they do not contain
certain non-cash items that are customarily included in quarterly and annual
financial statements;

 

(b)                                 as soon as practicable (and in any event
within 30 days) after the end of each calendar quarter, unaudited interim and
year-to-date financial statements as of the end of such calendar quarter
(prepared on a consolidated and consolidating basis, if applicable), including
balance sheet and related statements of income and cash flows accompanied by a
report detailing any material contingencies (including the commencement of any
material litigation by or against Borrower) or any other occurrence that would
reasonably be expected to have a Material Adverse Effect, certified by
Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that
they have been prepared in accordance with GAAP, except (i) for the absence of
footnotes, and (ii) that they are subject to normal year end adjustments;

 

(c)                                  as soon as practicable (and in any event
within one hundred fifty (150) days) after the end of each fiscal year,
unqualified audited financial statements as of the end of such year (prepared on
a consolidated and consolidating basis, if applicable), including balance sheet
and related statements of income and cash flows, and setting forth in
comparative form the corresponding figures for the preceding fiscal year,
certified by a firm of independent certified public accountants selected by
Borrower and reasonably acceptable to Agent, accompanied by any management
report from such accountants;

 

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(d)                                 as soon as practicable (and in any event
within 30 days) after the end of each month, a Compliance Certificate in the
form of Exhibit F;

 

(e)                                  promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports that Borrower has made available to holders of its capital
stock and copies of any regular, periodic and special reports or registration
statements that Borrower files with the Securities and Exchange Commission or
any governmental authority that may be substituted therefor, or any national
securities exchange; and

 

(f)                                   financial and business projections
promptly following their approval by Borrower’s Board, and in any event, within
30 days prior to the end of Borrower’s fiscal year, as well as budgets,
operating plans and other financial information reasonably requested by Agent.

 

Borrower shall not make any change in its (a) accounting policies or reporting
practices, or (b) fiscal years or fiscal quarters. The fiscal year of Borrower
shall end on December 31.

 

Notwithstanding anything to the contrary in this Section 7.1, the Borrower shall
not be required to deliver any financial statements to the Agent under clause
(b) or clause (c) above with respect to any period for which it has timely filed
its Form 10-K or Form 10-Q, as the case may be, with the SEC; provided, that
such Form 10-K or Form 10-Q, as the case may be, is publicly available on the
SEC’s website (or a similar website) within the time periods permitted by this
Section 7.1 and the Borrower promptly notifies Agent in writing (which may be by
electronic mail) of the posting of any such documents. To the extent any
documents required to be delivered pursuant to the terms hereof are included in
materials otherwise filed with the SEC, Borrower may electronically deliver such
documents by e-mailing a link to the applicable filing posted on the SEC website
currently located at http://www.sec.gov.

 

The executed Compliance Certificate may be sent via facsimile to Agent at (650)
473-9194 or via e-mail to legal@herculestech.com.  All Financial Statements
required to be delivered pursuant to clauses (a), (b) and (c) shall be sent via
e-mail to financialstatements@herculestech.com with a copy to
BJadot@herculestech.com provided, that if e-mail is not available or sending
such Financial Statements via e-mail is not possible, they shall be sent via
facsimile to Agent at: (866) 468-8916, attention Chief Credit Officer.

 

7.2                               Management Rights.  Borrower shall permit any
representative that Agent or Lender authorizes, including its attorneys and
accountants, to inspect the Collateral and examine and make copies and abstracts
of the books of account and records of Borrower at reasonable times and upon
reasonable notice during normal business hours (but in no event more than two
times in any twelve month period unless an Event of Default has occurred and is
continuing).  In addition, any such representative shall have the right to meet
with management and officers of Borrower to discuss such books of account and
records.  In addition, Agent or Lender shall be entitled at reasonable times and
intervals to consult with and advise the management and officers of Borrower
concerning significant business issues affecting Borrower.  Such consultations
shall not unreasonably interfere with Borrower’s business operations.  The
parties intend that the rights granted Agent and Lender shall

 

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constitute “management rights” within the meaning of 29 C.F.R
Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or
participation by Agent or Lender with respect to any business issues shall not
be deemed to give Agent or Lender, nor be deemed an exercise by Agent or Lender
of, control over Borrower’s management or policies.

 

7.3                               Further Assurances.  Borrower shall from time
to time execute, deliver and file, alone or with Agent, any financing
statements, security agreements, collateral assignments, notices, control
agreements, or other documents to perfect or give the highest priority to
Agent’s Lien on the Collateral.  Borrower shall from time to time procure any
instruments or documents as may be requested by Agent, and take all further
action that may be necessary or desirable, or that Agent may reasonably request,
to perfect and protect the Liens granted hereby and thereby.  In addition, and
for such purposes only, Borrower hereby authorizes Agent to execute and deliver
on behalf of Borrower and to file such financing statements, collateral
assignments, notices, control agreements, security agreements and other
documents without the signature of Borrower either in Agent’s name or in the
name of Agent as agent and attorney-in-fact for Borrower.  Borrower shall
protect and defend Borrower’s title to the Collateral and Agent’s Lien thereon
against all Persons claiming any interest adverse to Borrower or Agent other
than Permitted Liens.

 

7.4                               Indebtedness.  Borrower shall not create,
incur, assume, guarantee or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness, or prepay any Indebtedness or take any actions which impose on
Borrower an obligation to prepay any Indebtedness, except for the conversion of
Indebtedness into equity securities and the payment of cash in lieu of
fractional shares in connection with such conversion.

 

7.5                               Collateral.  Borrower shall at all times keep
the Collateral, the Intellectual Property and all other property and assets used
in Borrower’s business or in which Borrower now or hereafter holds any interest
free and clear from any legal process or Liens whatsoever (except for Permitted
Liens), and shall give Agent prompt written notice of any legal process
affecting the Collateral, the Intellectual Property, such other property and
assets, or any Liens thereon, provided however, that the Collateral and such
other property and assets may be subject to Permitted Liens except that there
shall be no Liens whatsoever on Intellectual Property (but there may be
Permitted Transfers of Intellectual Property).  Borrower shall cause its
Subsidiaries to protect and defend such Subsidiary’s title to its assets from
and against all Persons claiming any interest adverse to such Subsidiary, and
Borrower shall cause its Subsidiaries at all times to keep such Subsidiary’s
property and assets free and clear from any legal process or Liens whatsoever
(except for Permitted Liens, provided however, that there shall be no Liens
whatsoever on Intellectual Property), and shall give Agent prompt written notice
of any legal process affecting such Subsidiary’s assets. Borrower shall not
agree with any Person other than Agent or Lender not to encumber its property,
other than (i) as is otherwise permitted in the definition of “Permitted Liens”
herein and “Permitted Transfers” herein, and (ii) restrictions by reason of
customary provisions restricting assignment, subletting or other transfers
contained in leases, licenses and similar agreements entered into in the
ordinary course of business (provided that such

 

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restrictions are limited to the property or assets secured by such Liens or the
property or assets subject to such leases, licenses or similar agreements as the
case may be).

 

7.6                               Investments.  Borrower shall not directly or
indirectly acquire or own, or make any Investment in or to any Person, or permit
any of its Subsidiaries so to do, other than Permitted Investments.

 

7.7                               Distributions.  Borrower shall not, and shall
not allow any Subsidiary to, (a) repurchase or redeem any class of stock or
other equity interest other than pursuant to employee, director or consultant
repurchase plans or other similar agreements, provided, however, in each case
the repurchase or redemption price does not exceed the original consideration
paid for such stock or equity interest, or (b) declare or pay any cash dividend
or make a cash distribution on any class of stock or other equity interest,
except that a Subsidiary may pay dividends or make distributions to Borrower, or
(c) lend money to any employees, officers or directors or guarantee the payment
of any such loans granted by a third party in excess of $100,000 in the
aggregate or (d) waive, release or forgive any Indebtedness owed by any
employees, officers or directors in excess of $100,000 in the aggregate.

 

7.8                               Transfers.  Except for Permitted Transfers,
Borrower shall not voluntarily or involuntarily transfer, sell, lease, license,
lend or in any other manner convey any equitable, beneficial or legal interest
in any material portion of its assets.

 

7.9                               Mergers or Acquisitions.  Borrower shall not
merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with or into any other business organization (other than mergers or
consolidations of (a) a Subsidiary which is not a Borrower into another
Subsidiary or into Borrower or (b) a Borrower into another Borrower), or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person.

 

7.10                        Taxes.  Borrower and its Subsidiaries shall pay when
due all taxes, fees or other charges of any nature whatsoever (together with any
related interest or penalties) now or hereafter imposed or assessed against
Borrower, Agent, Lender or the Collateral or upon Borrower’s ownership,
possession, use, operation or disposition thereof or upon Borrower’s rents,
receipts or earnings arising therefrom.  Borrower shall file on or before the
due date therefor all personal property tax returns in respect of the
Collateral.  Notwithstanding the foregoing, Borrower may contest, in good faith
and by appropriate proceedings, taxes for which Borrower maintains adequate
reserves therefor in accordance with GAAP.

 

7.11                        Corporate Changes.  Neither Borrower nor any
Subsidiary shall change its corporate name, legal form or jurisdiction of
formation without twenty (20) days’ prior written notice to Agent.  Neither
Borrower nor any Subsidiary shall suffer a Change in Control. Neither Borrower
nor any Subsidiary shall relocate its chief executive office or its principal
place of business unless: (i) it has provided prior written notice to Agent; and
(ii) such relocation shall be within the continental United States.  Neither
Borrower nor any Subsidiary shall relocate any item of Collateral (other than
(x) sales of Inventory in the

 

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ordinary course of business, (y) relocations of Equipment having an aggregate
value of up to $150,000 in any fiscal year, and (z) relocations of Collateral
from a location described on Exhibit C to another location described on
Exhibit C) unless (i) it has provided prompt written notice to Agent, (ii) such
relocation is within the continental United States and, (iii) if such relocation
is to a third party bailee, it has delivered a bailee agreement in form and
substance reasonably acceptable to Agent.

 

7.12                        Deposit Accounts.  Neither Borrower nor any
Subsidiary shall maintain any Deposit Accounts, or accounts holding Investment
Property, except with respect to which Agent has an Account Control Agreement.

 

7.13                        Subsidiaries. Borrower shall notify Agent of each
Subsidiary formed subsequent to the Closing Date and, within 15 days of
formation, shall cause any such Subsidiary to execute and deliver to Agent a
Joinder Agreement.

 

7.14                        Notification of Event of Default.  Borrower shall
notify Agent immediately of the occurrence of any Event of Default.

 

7.15                        Post-Closing Deliverables.  Borrower shall deliver
to Agent, in form and substance satisfactory to Agent, (a) within two
(2) Business Days after the Closing Date, fully-executed Account Control
Agreements by and among Borrower, Agent, and Silicon Valley Bank, covering each
of Borrower’s account no. xxxx1390 and account no. xxxx0433, and (b) within
thirty (30) days after the Closing Date, endorsements to Borrower’s property and
liability policies, which endorsements shall name Agent as lender loss payee and
additional insured and provide that Agent shall receive prior notice of
cancellation of such property and liability policies.

 

SECTION 8.  RIGHT TO INVEST

 

8.1                               Lender or its assignee or nominee shall have
the right, in its discretion, to participate in any Subsequent Financing (as
defined in the Equity Rights Letter Agreement) pursuant to the terms set forth
in the Equity Rights Letter Agreement.

 

SECTION 9.  EVENTS OF DEFAULT

 

The occurrence of any one or more of the following events shall be an Event of
Default:

 

9.1                               Payments.  Borrower fails to pay any amount
due under this Agreement, the Notes, or any of the other Loan Documents on the
due date (or within three (3) Business Days of the due date, provided that such
late payment is due to an ACH Failure); or

 

9.2                               Covenants.  Borrower breaches or defaults in
the performance of any covenant or Secured Obligation under this Agreement, or
any of the other Loan Documents or any other agreement among Borrower, Agent and
Lender, and (a) with respect to a default under any covenant under this
Agreement (other than under Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, and 7.14,
and 7.15), any other Loan Document or any other agreement among Borrower, Agent
and Lender, such default continues for more than ten (10) days after the earlier
of the date on which (i) Agent or Lender has given notice of such default to

 

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Borrower and (ii) Borrower has actual knowledge of such default or (b) with
respect to a default under any of Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, and
7.14, and 7.15, the occurrence of such default; or

 

9.3                               Material Adverse Effect.  A circumstance has
occurred that would reasonably be expected to have a Material Adverse Effect; or

 

9.4                               Representations.  Any representation or
warranty made by Borrower in any Loan Document or in the Warrant shall have been
false or misleading in any material respect; or

 

9.5                               Insolvency.  Borrower (A) (i) shall make an
assignment for the benefit of creditors; or (ii) shall be unable to pay its
debts as they become due, or be unable to pay or perform under the Loan
Documents, or shall become insolvent; or (iii) shall file a voluntary petition
in bankruptcy; or (iv) shall file any petition, answer, or document seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation pertinent to such circumstances; or (v) shall seek or consent to or
acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower
or of all or any substantial part (i.e., 33-1/3% or more) of the assets or
property of Borrower; or (vi) shall cease operations of its business as its
business has normally been conducted for five (5) or more consecutive days, or
terminate substantially all of its employees; or (vii) Borrower or its directors
or majority shareholders shall take any action initiating any of the foregoing
actions described in clauses (i) through (vi); or (B) either (i) thirty (30)
days shall have expired after the commencement of an involuntary action against
Borrower seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, without such action being dismissed or all orders or
proceedings thereunder affecting the operations or the business of Borrower
being stayed; or (ii) a stay of any such order or proceedings shall thereafter
be set aside and the action setting it aside shall not be timely appealed; or
(iii) Borrower shall file any answer admitting or not contesting the material
allegations of a petition filed against Borrower in any such proceedings; or
(iv) the court in which such proceedings are pending shall enter a decree or
order granting the relief sought in any such proceedings; or (v) thirty (30)
days shall have expired after the appointment, without the consent or
acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or
of all or any substantial part of the properties of Borrower without such
appointment being vacated; or

 

9.6                               Attachments; Judgments.  Any portion of
Borrower’s assets is attached or seized, or a levy is filed against any such
assets, or a judgment or judgments is/are entered for the payment of money,
individually or in the aggregate, of at least $250,000, or Borrower is enjoined
or in any way prevented by court order from conducting any part of its business;
or

 

9.7                               Other Obligations.  The occurrence of any
default under any agreement or obligation of Borrower involving any Indebtedness
in excess of $250,000, or the occurrence of any default under any agreement or
obligation of Borrower that could reasonably be expected to have a Material
Adverse Effect.

 

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9.8                               Stop Trade.  At any time after Lender has
received shares of Common Stock pursuant to the terms set forth in
Section 2.1(e), so long as Lender has not sold such shares of Common Stock and
still holds the Warrant or any shares received upon exercise of the Warrant, an
SEC stop trade order or NASDAQ market trading suspension of the Common Stock
shall be in effect for five (5) consecutive days or five (5) days during a
period of ten (10) consecutive days, excluding in all cases a suspension of all
trading on a public market, provided that Borrower shall not have been able to
cure such trading suspension within thirty (30) days of the notice thereof or
list the Common Stock on another public market within sixty (60) days of such
notice.

 

SECTION 10.  REMEDIES

 

10.1                        General.  Upon and during the continuance of any one
or more Events of Default, (i) Agent may, at its option, accelerate and demand
payment of all or any part of the Secured Obligations together with a Prepayment
Charge and declare them to be immediately due and payable (provided, that upon
the occurrence of an Event of Default of the type described in Section 9.5, all
of the Secured Obligations shall automatically be accelerated and made due and
payable, in each case without any further notice or act), (ii) Agent may, at its
option, sign and file in Borrower’s name any and all collateral assignments,
notices, control agreements, security agreements and other documents it deems
necessary or appropriate to perfect or protect the repayment of the Secured
Obligations, and in furtherance thereof, Borrower hereby grants Agent an
irrevocable power of attorney coupled with an interest, and (iii) Agent may
notify any of Borrower’s account debtors to make payment directly to Agent,
compromise the amount of any such account on Borrower’s behalf and endorse
Agent’s name without recourse on any such payment for deposit directly to
Agent’s account.  Agent may exercise all rights and remedies with respect to the
Collateral under the Loan Documents or otherwise available to it under the UCC
and other applicable law, including the right to release, hold, sell, lease,
liquidate, collect, realize upon, or otherwise dispose of all or any part of the
Collateral and the right to occupy, utilize, process and commingle the
Collateral.  All Agent’s rights and remedies shall be cumulative and not
exclusive.

 

10.2                        Collection; Foreclosure.  Upon the occurrence and
during the continuance of any Event of Default, Agent may, at any time or from
time to time, apply, collect, liquidate, sell in one or more sales, lease or
otherwise dispose of, any or all of the Collateral, in its then condition or
following any commercially reasonable preparation or processing, in such order
as Agent may elect.  Any such sale may be made either at public or private sale
at its place of business or elsewhere.  Borrower agrees that any such public or
private sale may occur upon ten (10) calendar days’ prior written notice to
Borrower.  Agent may require Borrower to assemble the Collateral and make it
available to Agent at a place designated by Agent that is reasonably convenient
to Agent and Borrower.  The proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be applied by Agent in
the following order of priorities:

 

First, to Agent and Lender in an amount sufficient to pay in full Agent’s and
Lender’s costs and professionals’ and advisors’ fees and expenses as described
in Section 11.11;

 

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Second, to Lender in an amount equal to the then unpaid amount of the Secured
Obligations (including principal, interest, and the Default Rate interest), in
such order and priority as Agent may choose in its sole discretion; and

 

Finally, after the full, final, and indefeasible payment in Cash of all of the
Secured Obligations, to any creditor holding a junior Lien on the Collateral, or
to Borrower or its representatives or as a court of competent jurisdiction may
direct.

 

Agent shall be deemed to have acted reasonably in the custody, preservation and
disposition of any of the Collateral if it complies with the obligations of a
secured party under the UCC.

 

10.3                        No Waiver.  Agent shall be under no obligation to
marshal any of the Collateral for the benefit of Borrower or any other Person,
and Borrower expressly waives all rights, if any, to require Agent to marshal
any Collateral.

 

10.4                        Cumulative Remedies.  The rights, powers and
remedies of Agent hereunder shall be in addition to all rights, powers and
remedies given by statute or rule of law and are cumulative.  The exercise of
any one or more of the rights, powers and remedies provided herein shall not be
construed as a waiver of or election of remedies with respect to any other
rights, powers and remedies of Agent.

 

SECTION 11.  MISCELLANEOUS

 

11.1                        Severability.  Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under such law, such provision shall be ineffective only to the
extent and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.

 

11.2                        Notice.  Except as otherwise provided herein, any
notice, demand, request, consent, approval, declaration, service of process or
other communication (including the delivery of Financial Statements) that is
required, contemplated, or permitted under the Loan Documents 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 day
of transmission by facsimile or hand delivery or delivery by an overnight
express service or overnight mail delivery service; or (ii) the third calendar
day after deposit in the United States mails, with proper first class postage
prepaid, in each case addressed to the party to be notified as follows:

 

(a)                                 If to Agent:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Legal Department
Attention:  Chief Legal Officer and Mr. Bryan Jadot
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Email:  legal@herculestech.com and BJadot@herculestech.com

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Facsimile:  650-473-9194
Telephone:  650-289-3060

 

and to:

 

Christine Fera
Email: cfera@herculestech.com

 

(b)                                 If to Lender:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Legal Department
Attention:  Chief Legal Officer and Mr. Bryan Jadot
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Email:  legal@herculestech.com and BJadot@herculestech.com
Facsimile:  650-473-9194
Telephone:  650-289-3060

 

and to:

 

Christine Fera
Email: cfera@herculestech.com

 

30

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(c)                                  If to Borrower:

 

AGILE THERAPEUTICS, INC.

101 Poor Farm Road

Princeton, New Jersey, 08540

Attention:  Chief Financial Officer
Facsimile:  609-683-1855
Telephone:  609-683-1985

 

With a copy to:

 

Morgan, Lewis & Bockius LLP

502 Carnegie Center

Princeton, New Jersey 08540

Attn: Denis Segota

Facsimile: 609-919-6701

Telephone: 609-919-6600

Email: dsegota@morganlewis.com

 

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

 

11.3                           Entire Agreement; Amendments.

 

(a)                                  This Agreement and the other Loan Documents
constitute the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof and thereof, and supersede and replace in
their entirety any prior proposals, term sheets, non-disclosure or
confidentiality agreements, letters, negotiations or other documents or
agreements, whether written or oral, with respect to the subject matter hereof
or thereof (including Agent’s revised proposal letter dated January 23, 2015).

 

(b)                                 Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 11.3(b).  The
Required Lenders and Borrower party to the relevant Loan Document may, or, with
the written consent of the Required Lenders, Agent and Borrower party to the
relevant Loan Document may, from time to time, (i) enter into written
amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of Lenders or of Borrower
hereunder or thereunder or (ii) waive, on such terms and conditions as the
Required Lenders or Agent, as the case may be, may specify in such instrument,
any of the requirements of this Agreement or the other Loan Documents or any
default or Event of Default and its consequences; provided, however, that no
such waiver and no such amendment, supplement or modification shall (A) forgive
the principal amount or extend the final scheduled date of maturity of any Loan,
extend the scheduled date of any amortization payment in respect of any Term
Loan Advance, reduce the stated rate of any

 

31

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interest or fee payable hereunder, or extend the scheduled date of any payment
thereof, in each case without the written consent of each Lender directly
affected thereby; (B) eliminate or reduce the voting rights of any Lender under
this Section 11.3(b) without the written consent of such Lender; (C) reduce any
percentage specified in the definition of Required Lenders, consent to the
assignment or transfer by Borrower of any of its rights and obligations under
this Agreement and the other Loan Documents, release all or substantially all of
the Collateral or release a Borrower from its obligations under the Loan
Documents, in each case without the written consent of all Lenders; or
(D) amend, modify or waive any provision of Section 11.17 without the written
consent of Agent.  Any such waiver and any such amendment, supplement or
modification shall apply equally to each Lender and shall be binding upon
Borrower, Lender, Agent and all future holders of the Loans.

 

11.4                           No Strict Construction.  The parties hereto have
participated jointly in the negotiation and drafting of this Agreement.  In the
event an ambiguity or question of intent or interpretation arises, this
Agreement 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 Agreement.

 

11.5                           No Waiver.  The powers conferred upon Agent and
Lender by this Agreement are solely to protect its rights hereunder and under
the other Loan Documents and its interest in the Collateral and shall not impose
any duty upon Agent or Lender to exercise any such powers.  No omission or delay
by Agent or Lender at any time to enforce any right or remedy reserved to it, or
to require performance of any of the terms, covenants or provisions hereof by
Borrower at any time designated, shall be a waiver of any such right or remedy
to which Agent or Lender is entitled, nor shall it in any way affect the right
of Agent or Lender to enforce such provisions thereafter.

 

11.6                           Survival.  All agreements, representations and
warranties contained in this Agreement and the other Loan Documents or in any
document delivered pursuant hereto or thereto shall be for the benefit of Agent
and Lender and shall survive the execution and delivery of this Agreement and
the expiration or other termination of this Agreement.

 

11.7                           Successors and Assigns.  The provisions of this
Agreement and the other Loan Documents shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any).  Borrower shall not
assign its obligations under this Agreement or any of the other Loan Documents
without Agent’s express prior written consent, and any such attempted assignment
shall be void and of no effect.  Agent and Lender may assign, transfer, or
endorse its rights hereunder and under the other Loan Documents without prior
notice to Borrower, and all of such rights shall inure to the benefit of Agent’s
and Lender’s successors and assigns.

 

11.8                           Governing Law.  This Agreement and the other Loan
Documents shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York, excluding conflict of laws principles that
would cause the application of laws of any other jurisdiction.

 

32

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11.9                           Consent to Jurisdiction and Venue.  All judicial
proceedings (to the extent that the reference requirement of Section 11.10 is
not applicable) arising in or under or related to this Agreement or any of the
other Loan Documents may be brought in any state or federal court located in the
State of New York.  By execution and delivery of this Agreement, each party
hereto generally and unconditionally: (a) consents to nonexclusive personal
jurisdiction in the City of New York, borough of Manhattan, State of New York;
(b) waives any objection as to jurisdiction or venue in the City of New York,
borough of Manhattan, State of New York; (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 Agreement or the other Loan Documents.  Service of process
on any party hereto in any action arising out of or relating to this Agreement
shall be effective if given in accordance with the requirements for notice set
forth in Section 11.2, and shall be deemed effective and received as set forth
in Section 11.2.  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.

 

11.10                     Mutual Waiver of Jury Trial / Judicial Reference.

 

(a)                                  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
BORROWER, AGENT AND LENDER 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 BORROWER AGAINST AGENT,
LENDER OR THEIR RESPECTIVE ASSIGNEE OR BY AGENT, LENDER OR THEIR RESPECTIVE
ASSIGNEE AGAINST BORROWER.  This waiver extends to all such Claims, including
Claims that involve Persons other than Agent, Borrower and Lender; Claims that
arise out of or are in any way connected to the relationship among Borrower,
Agent and Lender; and any Claims for damages, breach of contract, tort, specific
performance, or any equitable or legal relief of any kind, arising out of this
Agreement, any other Loan Document.

 

(b)                                 In the event Claims are to be resolved by
judicial reference, either party may seek from a court identified in
Section 11.9, 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
judicial reference.

 

11.11                     Professional Fees.  Borrower promises to pay Agent’s
and Lender’s fees and reasonable expenses necessary to finalize the loan
documentation, including but not limited to reasonable attorneys fees, UCC
searches, filing costs, and other miscellaneous expenses. In addition, Borrower
promises to pay any and all reasonable attorneys’ and other professionals’ fees
and expenses (including fees and expenses of in-house counsel) incurred by Agent
and Lender after the Closing Date in connection with or related to:

 

33

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(a) the Loan; (b) the administration, collection, or enforcement of the Loan;
(c) the amendment or modification of the Loan Documents; (d) any waiver,
consent, release, or termination under the Loan Documents; (e) the protection,
preservation, audit, field exam, sale, lease, liquidation, or disposition of
Collateral or the exercise of remedies with respect to the Collateral; (f) any
legal, litigation, administrative, arbitration, or out of court proceeding in
connection with or related to Borrower or the Collateral, and any appeal or
review thereof; and (g) any bankruptcy, restructuring, reorganization,
assignment for the benefit of creditors, workout, foreclosure, or other action
related to Borrower, the Collateral, the Loan Documents, including representing
Agent or Lender in any adversary proceeding or contested matter commenced or
continued by or on behalf of Borrower’s estate, and any appeal or review
thereof.

 

11.12                     Confidentiality.  Agent and Lender acknowledge that
certain items of Collateral and information provided to Agent and Lender by
Borrower are confidential and proprietary information of Borrower, if and to the
extent such information either (x) is marked as confidential by Borrower at the
time of disclosure, or (y) should reasonably be understood to be confidential
(the “Confidential Information”).  Accordingly, Agent and Lender agree that any
Confidential Information it may obtain in the course of acquiring,
administering, or perfecting Agent’s security interest in the Collateral shall
not be disclosed to any other Person or entity in any manner whatsoever, in
whole or in part, without the prior written consent of Borrower, except that
Agent and Lender may disclose any such information:  (a) to its own directors,
officers, employees, accountants, counsel and other professional advisors and to
its affiliates if Agent or Lender in their sole discretion determines that any
such party should have access to such information in connection with such
party’s responsibilities in connection with the Loan or this Agreement and,
provided that such recipient of such Confidential Information either (i) agrees
to be bound by the confidentiality provisions of this paragraph or (ii) is
otherwise subject to confidentiality restrictions that reasonably protect
against the disclosure of Confidential Information; (b) if such information is
generally available to the public; (c) if required or appropriate in any report,
statement or testimony submitted to any governmental authority having or
claiming to have jurisdiction over Agent or Lender; (d) if required or
appropriate in response to any summons or subpoena or in connection with any
litigation, to the extent permitted or deemed advisable by Agent’s or Lender’s
counsel; (e) to comply with any legal requirement or law applicable to Agent or
Lender; (f) to the extent reasonably necessary in connection with the exercise
of any right or remedy under any Loan Document, including Agent’s sale, lease,
or other disposition of Collateral after default; (g) to any participant or
assignee of Agent or Lender or any prospective participant or assignee;
provided, that such participant or assignee or prospective participant or
assignee agrees in writing to be bound by this Section prior to disclosure; or
(h) otherwise with the prior consent of Borrower; provided, that any disclosure
made in violation of this Agreement shall not affect the obligations of Borrower
or any of its affiliates or any guarantor under this Agreement or the other Loan
Documents.

 

11.13                     Assignment of Rights.  Borrower acknowledges and
understands that Agent or Lender may sell and assign all or part of its interest
hereunder and under the Loan Documents to any Person or entity (an “Assignee”). 
After such assignment the term “Agent” or “Lender” as used in the Loan Documents
shall mean and include such

 

34

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Assignee, and such Assignee shall be vested with all rights, powers and remedies
of Agent and Lender hereunder with respect to the interest so assigned; but with
respect to any such interest not so transferred, Agent and Lender shall retain
all rights, powers and remedies hereby given.  No such assignment by Agent or
Lender shall relieve Borrower of any of its obligations hereunder.  Lender
agrees that in the event of any transfer by it of the Note(s)(if any), it will
endorse thereon a notation as to the portion of the principal of the Note(s),
which shall have been paid at the time of such transfer and as to the date to
which interest shall have been last paid thereon.

 

11.14                     Revival of Secured Obligations.  This Agreement and
the Loan Documents shall remain in full force and effect and continue to be
effective if any petition is filed by or against Borrower for liquidation or
reorganization, if Borrower becomes insolvent or makes an assignment for the
benefit of creditors, if a receiver or trustee is appointed for all or any
significant part of Borrower’s assets, or if any payment or transfer of
Collateral is recovered from Agent or Lender.  The Loan Documents and the
Secured Obligations and Collateral security shall continue to be effective, or
shall be revived or reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations or any transfer of Collateral to Agent,
or any part thereof is rescinded, avoided or avoidable, reduced in amount, or
must otherwise be restored or returned by, or is recovered from, Agent, Lender
or by any obligee of the Secured Obligations, whether as a “voidable
preference,” “fraudulent conveyance,” or otherwise, all as though such payment,
performance, or transfer of Collateral had not been made.  In the event that any
payment, or any part thereof, is rescinded, reduced, avoided, avoidable,
restored, returned, or recovered, the Loan Documents and the Secured Obligations
shall be deemed, without any further action or documentation, to have been
revived and reinstated except to the extent of the full, final, and indefeasible
payment to Agent or Lender in Cash.

 

11.15                     Counterparts.  This Agreement 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.

 

11.16                     No Third Party Beneficiaries.  No provisions of the
Loan Documents are intended, nor will be interpreted, to provide or create any
third-party beneficiary rights or any other rights of any kind in any Person
other than Agent, Lender and Borrower unless specifically provided otherwise
herein, and, except as otherwise so provided, all provisions of the Loan
Documents will be personal and solely among Agent, Lender and Borrower.

 

11.17                     Agency.

 

(a)                                  Lender hereby irrevocably appoints Hercules
Technology Growth Capital, Inc. to act on its behalf as Agent hereunder and
under the other Loan Documents and authorizes Agent to take such actions on its
behalf and to exercise such powers as are delegated to Agent by the terms hereof
or thereof, together with such actions and powers as are reasonably incidental
thereto.

 

35

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(b)                                 Lender agrees to indemnify Agent in its
capacity as such (to the extent not reimbursed by Borrower and without limiting
the obligation of Borrower to do so), according to its respective Term
Commitment percentages (based upon the total outstanding Term Loan Commitments)
in effect on the date on which indemnification is sought under this
Section 11.17, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever that may at any time be imposed on, incurred by or
asserted against Agent in any way relating to or arising out of, this Agreement,
any of the other Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by Agent under or in connection with any of the
foregoing; The agreements in this Section shall survive the payment of the Loans
and all other amounts payable hereunder.

 

(c)                                  Agent in Its Individual Capacity.  The
Person serving as Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not Agent and the term “Lender” shall, unless otherwise expressly indicated
or unless the context otherwise requires, include each such Person serving as
Agent hereunder in its individual capacity.

 

(d)                                 Exculpatory Provisions.  Agent shall have no
duties or obligations except those expressly set forth herein and in the other
Loan Documents.  Without limiting the generality of the foregoing, Agent shall
not:

 

(i)             be subject to any fiduciary or other implied duties, regardless
of whether any default or any Event of Default has occurred and is continuing;

 

(ii)          have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that Agent is required to
exercise as directed in writing by Lender, provided that Agent shall not be
required to take any action that, in its opinion or the opinion of its counsel,
may expose Agent to liability or that is contrary to any Loan Document or
applicable law; and

 

(iii)       except as expressly set forth herein and in the other Loan
Documents, have any duty to disclose, and Agent shall not be liable for the
failure to disclose, any information relating to Borrower or any of its
affiliates that is communicated to or obtained by any Person serving as Agent or
any of its affiliates in any capacity.

 

(e)                                  Agent shall not be liable for any action
taken or not taken by it (i) with the consent or at the request of Lender or as
Agent shall believe in good faith shall be necessary, under the circumstances or
(ii) in the absence of its own gross negligence or willful misconduct.

 

36

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(f)                                    Agent shall not be responsible for or
have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith,
(iii) the performance or observance of any of the covenants, agreements or other
terms or conditions set forth herein or therein or the occurrence of any default
or Event of Default, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Loan Document or any other agreement,
instrument or document or (v) the satisfaction of any condition set forth in
Section 4 or elsewhere herein, other than to confirm receipt of items expressly
required to be delivered to Agent.

 

(g)                                 Reliance by Agent.  Agent may rely, and
shall be fully protected in acting, or refraining to act, upon, any resolution,
statement, certificate, instrument, opinion, report, notice, request, consent,
order, bond or other paper or document that it has no reason to believe to be
other than genuine and to have been signed or presented by the proper party or
parties or, in the case of cables, telecopies and telexes, to have been sent by
the proper party or parties.  In the absence of its gross negligence or willful
misconduct, Agent may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any certificates or
opinions furnished to Agent and conforming to the requirements of the Loan
Agreement or any of the other Loan Documents.  Agent may consult with counsel,
and any opinion or legal advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, not taken or
suffered by Agent hereunder or under any Loan Documents in accordance
therewith.  Agent shall have the right at any time to seek instructions
concerning the administration of the Collateral from any court of competent
jurisdiction.  Agent shall not be under any obligation to exercise any of the
rights or powers granted to Agent by this Agreement, the Loan Agreement and the
other Loan Documents at the request or direction of Lenders unless Agent shall
have been provided by Lender with adequate security and indemnity against the
costs, expenses and liabilities that may be incurred by it in compliance with
such request or direction.

 

11.18                     Publicity.  None of the parties hereto nor any of its
respective member businesses and affiliates shall, without the other parties’
prior written consent (which shall not be unreasonably withheld or delayed),
publicize or use (a) the other party’s name (including a brief description of
the relationship among the parties hereto), logo or hyperlink to such other
parties’ web site, separately or together, in written and oral presentations,
advertising, promotional and marketing materials, client lists, public relations
materials or on its web site (together, the “ Publicity Materials”); (b) the
names of officers of such other parties in the Publicity Materials; and (c) such
other parties’ name, trademarks, servicemarks in any news or press release
concerning such party; provided however, notwithstanding anything to the
contrary herein, no such consent shall be required (i) to the extent necessary
to comply with the requests of any regulators, legal requirements or laws
applicable to such party, pursuant to any listing agreement with any national
securities exchange (so long as such party provides prior notice to the other
party hereto to the extent reasonably practicable) and (ii) to comply with
Section 11.12.

 

(SIGNATURES TO FOLLOW)

 

37

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IN WITNESS WHEREOF, Borrower, Agent and Lender have duly executed and delivered
this Loan and Security Agreement as of the day and year first above written.

 

 

BORROWER:

 

 

 

AGILE THERAPEUTICS, INC.

 

 

 

Signature:

/s/ Al Altomari

 

 

 

 

Print Name:

Al Altomari

 

 

 

 

Title:

President & CEO

 

 

 

Accepted in Palo Alto, California:

 

 

 

 

AGENT:

 

 

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

 

 

 

Signature:

/s/ Ben Bang

 

 

 

 

Print Name:

Ben Bang

 

 

 

 

Title:

Associate General Counsel

 

 

 

 

LENDER:

 

 

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

 

 

 

Signature:

/s/ Ben Bang

 

 

 

 

Print Name:

Ben Bang

 

 

 

 

Title:

Associate General Counsel

 

[Signature Page to Loan and Security Agreement]

 

--------------------------------------------------------------------------------

 

Table of Exhibits and Schedules

 

Exhibit A:

 

Advance Request

 

 

Attachment to Advance Request

 

 

 

Exhibit B:

 

Promissory Note

 

 

 

Exhibit C:

 

Name, Locations, and Other Information for Borrower

 

 

 

Exhibit D:

 

Borrower’s Patents, Trademarks, Copyrights and Licenses

 

 

 

Exhibit E:

 

Borrower’s Deposit Accounts and Investment Accounts

 

 

 

Exhibit F:

 

Compliance Certificate

 

 

 

Exhibit G:

 

Joinder Agreement

 

 

 

Exhibit H:

 

ACH Debit Authorization Agreement

 

 

 

Exhibit I:

 

Conversion Election Notice

 

 

 

Schedule 1

 

Subsidiaries

Schedule 1.1

 

Commitments

Schedule 1A

 

Existing Permitted Indebtedness

Schedule 1B

 

Existing Permitted Investments

Schedule 1C

 

Existing Permitted Liens

Schedule 5.3

 

Consents, Etc.

Schedule 5.5

 

Actions Before Governmental Authorities

Schedule 5.8

 

Tax Matters

Schedule 5.9

 

Intellectual Property Claims

Schedule 5.10

 

Intellectual Property

Schedule 5.11

 

Borrower Products

 

 

2

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EXHIBIT A

 

ADVANCE REQUEST

 

To:

 

Agent:

 

Date:

 

               , 2015

 

 

Hercules Technology Growth Capital, Inc. (the “Agent”)

 

 

 

 

 

 

400 Hamilton Avenue, Suite 310

 

 

 

 

 

 

Palo Alto, CA 94301

 

 

 

 

 

 

Facsimile: 650-473-9194

 

 

 

 

 

 

Attn:

 

 

 

 

 

Agile Therapeutics, Inc. (“Borrower”) hereby requests from Hercules Technology
Growth Capital, Inc. (“Lender”) an Advance in the amount of
                                           Dollars
($                                ) on                             ,           
(the “Advance Date”) pursuant to the Loan and Security Agreement among Borrower,
Agent and Lender (the “Agreement”). Capitalized words and other terms used but
not otherwise defined herein are used with the same meanings as defined in the
Agreement.

 

Please:

 

(a)

 

Issue a check payable to Borrower

 

o

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

(b)

 

Wire Funds to Borrower’s account

 

o

 

 

 

 

 

 

 

Bank:

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

ABA Number:

 

 

 

 

Account Number:

 

 

 

 

Account Name:

 

 

 

 

Borrower represents that the conditions precedent to the Advance set forth in
the Agreement are satisfied and shall be satisfied upon the making of such
Advance, including but not limited to:  (i) that no event that has had or could
reasonably be expected to have a Material Adverse Effect has occurred and is
continuing; (ii) that the representations and warranties set forth in the
Agreement and in the Warrant are and 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; (iii) that Borrower is in compliance with
all the terms and provisions set forth in each Loan Document on its part to be
observed or performed; and (iv) that as of the Advance Date, 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 under the Loan Documents. 
Borrower understands and acknowledges that Agent has the right to review the
financial information supporting this

 

3

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representation and, based upon such review in its sole discretion, Lender may
decline to fund the requested Advance.

 

Borrower hereby represents that Borrower’s corporate status and locations have
not changed since the date of the Agreement or, if the Attachment to this
Advance Request is completed, are as set forth in the Attachment to this Advance
Request.

 

Borrower agrees to notify Agent promptly before the funding of the Loan if any
of the matters which  have been represented above shall not be true and correct
on the Borrowing Date and if Agent has received no such notice before the
Advance Date then the statements set forth above shall be deemed to have been
made and shall be deemed to be true and correct as of the Advance Date.

 

Executed as of                                         , 2015.

 

 

BORROWER: AGILE THERAPEUTICS, INC.

 

 

 

SIGNATURE:

 

 

TITLE:

 

 

PRINT NAME:

 

 

4

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ATTACHMENT TO ADVANCE REQUEST

 

 

Dated:

 

 

 

Borrower hereby represents and warrants to Agent that Borrower’s current name
and organizational status is as follows:

 

Name:                                                                                                                                                                                                          
Agile Therapeutics, Inc.

 

Type of
organization:                                                                                                                         
Corporation

 

State of
organization:                                                                                                                         
Delaware

 

Organization file number:

 

Borrower hereby represents and warrants to Agent that the street addresses,
cities, states and postal codes of its current locations are as follows:

 

5

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EXHIBIT B

 

PROMISSORY NOTE

 

$[ ],000,000

Advance Date:            , 20[ ]

 

 

 

Maturity Date:                  , 20[ ]

 

FOR VALUE RECEIVED, Agile Therapeutics, Inc., a Delaware corporation (the
“Borrower”) hereby promises to pay to the order of Hercules Technology Growth
Capital, Inc., a Maryland corporation or the holder of this Note (the “Lender”)
at 400 Hamilton Avenue, Suite 310, Palo Alto, CA 94301 or such other place of
payment as the holder of this Secured Term Promissory Note (this “Promissory
Note”) may specify from time to time in writing, in lawful money of the United
States of America, the principal amount of [  ] Million Dollars ($[  ],000,000)
or such other principal amount as Lender has advanced to Borrower, together with
interest at a floating rate equal to the greater of either (a) nine percent
(9.0%), or (b) the sum of (i) nine percent (9.0%), plus (ii) the Prime Rate
minus four and one quarter of one percent (4.25%), per annum based upon a year
consisting of 360 days, with interest computed daily based on the actual number
of days in each month.

 

This Promissory Note is the Note referred to in, and is executed and delivered
in connection with, that certain Loan and Security Agreement dated February 24,
2015, by and among Borrower, Hercules Technology Growth Capital, Inc., a
Maryland corporation (the “Agent”) and the several banks and other financial
institutions or entities from time to time party thereto as lender (as the same
may from time to time be amended, modified or supplemented in accordance with
its terms, the “Loan Agreement”), and is entitled to the benefit and security of
the Loan Agreement and the other Loan Documents (as defined in the Loan
Agreement), to which reference is made for a statement of all of the terms and
conditions thereof.  All payments shall be made in accordance with the Loan
Agreement.  All payments shall be made in accordance with the Loan Agreement,
including the right of Borrower to pay a portion of the amounts due and owing
under this Promissory Note in shares of Common Stock in accordance with, and
subject to the limitations set forth in, Section 2.1(e) of the Loan Agreement
(including the requirement that any shares of Common Stock issuable by Borrower
upon conversion of this Note are subject to an effective resale registration
statement or are eligible for resale to the public pursuant to Rule 144 without
any limitation). All terms defined in the Loan Agreement shall have the same
definitions when used herein, unless otherwise defined herein.  An Event of
Default under the Loan Agreement shall constitute a default under this
Promissory Note.

 

Borrower waives presentment and demand for payment, notice of dishonor, protest
and notice of protest under the UCC or any applicable law.   Borrower agrees to
make all payments under this Promissory Note without setoff, recoupment or
deduction and regardless of any counterclaim or defense.  This Promissory Note
has been negotiated and delivered to Lender and is payable in the State of New
York.  This Promissory Note shall be governed by and construed and enforced in
accordance with, the laws of the State of New York, excluding any conflicts of
law rules or principles that would cause the application of the laws of any
other jurisdiction.

 

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BORROWER FOR ITSELF AND

 

ON BEHALF OF ITS SUBSIDIARIES:

AGILE THERAPEUTICS, INC.

 

 

 

By:

 

Title:

 

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EXHIBIT C

 

NAME, LOCATIONS, AND OTHER INFORMATION FOR BORROWER

 

1.  Borrower represents and warrants to Agent that Borrower’s current name and
organizational status as of the Closing Date is as follows:

 

Name:                                                                                                                                                          
Agile Therapeutics, Inc.

 

Type of
organization:                                                                         
Corporation

 

State of
organization:                                                                         
Delaware

 

Organization file number:                                                    
2829324

 

2.  Borrower represents and warrants to Agent that for five (5) years prior to
the Closing Date, Borrower did not do business under any other name or
organization or form except the following:

 

Name:  Agile Therapeutics, Inc.
Used during dates of:  2001-Present
Type of Organization:  Delaware corporation
State of organization:  DE
Organization file Number:  2829324              
Borrower’s fiscal year ends on December 31
Borrower’s federal employer tax identification number is: 23-2936302

 

3.  Borrower represents and warrants to Agent that its chief executive office is
located at 101 Poor Farm Road, Princeton, NJ 08540.

 

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EXHIBIT D

 

BORROWER’S PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES

 

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EXHIBIT E

 

BORROWER’S DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS

 

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EXHIBIT F

 

COMPLIANCE CERTIFICATE

 

Hercules Technology Growth Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301

 

Reference is made to that certain Loan and Security Agreement dated February 24,
2015 and all ancillary documents entered into in connection with such Loan and
Security Agreement all as may be amended from time to time, (hereinafter
referred to collectively as the “Loan Agreement”) by and among Hercules
Technology Growth Capital, Inc., the several banks and other financial
institutions or entities from time to time party thereto (collectively, the
“Lender”) and Hercules Technology Growth Capital, Inc., as agent for Lender (the
“Agent”) and Agile Therapeutics, Inc. (the “ Borrower”) as Borrower. All
capitalized terms not defined herein shall have the same meaning as defined in
the Loan Agreement.

 

The undersigned is an Officer of Borrower, knowledgeable of all Borrower
financial matters, and is authorized to provide certification of information
regarding Borrower; hereby certifies that in accordance with the terms and
conditions of the Loan Agreement, Borrower is in compliance for the period
ending                        of all covenants, conditions and terms and hereby
reaffirms that all representations and warranties contained therein are true and
correct on and as of the date of this Compliance Certificate 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, after giving
effect in all cases to any standard(s) of materiality contained in the Loan
Agreement as to such representations and warranties.  Attached are the required
documents supporting the above certification.  The undersigned further certifies
that these are prepared in accordance with GAAP (except for the absence of
footnotes with respect to unaudited financial statement and subject to normal
year end adjustments) and are consistent from one period to the next except as
explained below.

 

REPORTING REQUIREMENT

 

REQUIRED

 

CHECK IF
ATTACHED

 

 

 

 

 

Interim Financial Statements

 

Monthly within 30 days

 

 

 

 

 

 

 

Interim Financial Statements

 

Quarterly within 30 days

 

 

 

 

 

 

 

Audited Financial Statements

 

FYE within 150 days

 

 

 

 

Very Truly Yours,

 

 

 

AGILE THERAPEUTICS, INC.

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Its:

 

 

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EXHIBIT G

 

FORM OF JOINDER AGREEMENT

 

This Joinder Agreement (the “Joinder Agreement”) is made and dated as of
[          ], 20[  ], and is entered into by and
between                                    ., a                       
corporation (“Subsidiary”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a
Maryland corporation (as “Agent”).

 

RECITALS

 

A.  Subsidiary’s Affiliate, Agile Therapeutics, Inc. (“Borrower”) [has
entered/desires to enter] into that certain Loan and Security Agreement dated
February 24, 2015, with the several banks and other financial institutions or
entities from time to time party thereto as lender (collectively, the “Lender”)
and Agent, as such agreement may be amended (the “Loan Agreement”), together
with the other agreements executed and delivered in connection therewith;

 

B.  Subsidiary acknowledges and agrees that it will benefit both directly and
indirectly from Borrower’s execution of the Loan Agreement and the other
agreements executed and delivered in connection therewith;

 

AGREEMENT

 

NOW THEREFORE, Subsidiary and Agent agree as follows:

 

1.              The recitals set forth above are incorporated into and made part
of this Joinder Agreement.  Capitalized terms not defined herein shall have the
meaning provided in the Loan Agreement.

 

2.              By signing this Joinder Agreement, Subsidiary shall be bound by
the terms and conditions of the Loan Agreement the same as if it were the
Borrower (as defined in the Loan Agreement) under the Loan Agreement, mutatis
mutandis, provided however, that (a) with respect to (i) Section 5.1 of the Loan
Agreement, Subsidiary represents that it is an entity duly organized, legally
existing and in good standing under the laws of [        ], (b) neither Agent
nor Lender shall have any duties, responsibilities or obligations to Subsidiary
arising under or related to the Loan Agreement or the other agreements executed
and delivered in connection therewith, (c) that if Subsidiary is covered by
Borrower’s insurance, Subsidiary shall not be required to maintain separate
insurance or comply with the provisions of Sections 6.1 and 6.2 of the Loan
Agreement, and (d) that as long as Borrower satisfies the requirements of
Section 7.1 of the Loan Agreement, Subsidiary shall not have to provide Agent
separate Financial Statements.  To the extent that Agent or Lender has any
duties, responsibilities or obligations arising under or related to the Loan
Agreement or the other agreements executed and delivered in connection
therewith, those duties, responsibilities or obligations shall flow only to
Borrower and not to Subsidiary or any other Person or entity.  By way of example
(and not an exclusive list): (i) Agent’s providing notice to Borrower in
accordance with the Loan Agreement or as otherwise agreed among Borrower, Agent
and Lender shall be deemed provided to Subsidiary; (ii) a Lender’s providing an
Advance to Borrower shall be deemed an Advance to Subsidiary; and
(iii) Subsidiary shall have no right to request an Advance or make any other
demand on Lender.

 

3.              Subsidiary agrees not to certificate its equity securities
without Agent’s prior written consent, which consent may be conditioned on the
delivery of such equity securities to Agent in order to perfect Agent’s security
interest in such equity securities.

 

--------------------------------------------------------------------------------

 

4.              Subsidiary acknowledges that it benefits, both directly and
indirectly, from the Loan Agreement, and hereby waives, for itself and on behalf
on any and all successors in interest (including without limitation any assignee
for the benefit of creditors, receiver, bankruptcy trustee or itself as
debtor-in-possession under any bankruptcy proceeding) to the fullest extent
provided by law, any and all claims, rights or defenses to the enforcement of
this Joinder Agreement on the basis that (a) it failed to receive adequate
consideration for the execution and delivery of this Joinder Agreement or
(b) its obligations under this Joinder Agreement are avoidable as a fraudulent
conveyance.

 

 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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[SIGNATURE PAGE TO JOINDER AGREEMENT]

 

SUBSIDIARY:

 

                                                                                                          .

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

Address:

 

 

 

 

 

 

 

 

Telephone:

 

 

Facsimile:

 

 

 

 

 

 

 

AGENT:

 

 

 

 

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

Address:

 

 

400 Hamilton Ave., Suite 310

 

 

Palo Alto, CA 94301

 

 

Facsimile: 650-473-9194

 

 

Telephone: 650-289-3060

 

 

 

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EXHIBIT H

 

ACH DEBIT AUTHORIZATION AGREEMENT

 

Hercules Technology Growth Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, CA  94301

 

Re:  Loan and Security Agreement dated                                 (the
“Agreement”) by and among Agile Therapeutics, Inc. (“Borrower”) and Hercules
Technology Growth Capital, Inc., as agent (“Agent”) and the lenders party
thereto (collectively, the “Lender”)

 

In connection with the above referenced Agreement, Borrower hereby authorizes
Agent to initiate debit entries for (i) the periodic payments due under the
Agreement and (ii) out-of-pocket legal fees and costs incurred by Agent or
Lender pursuant to Section 11.11 of the Agreement to Borrower’s account
indicated below.  Borrower authorizes the depository institution named below to
debit to such account.

 

DEPOSITORY NAME

BRANCH

 

 

CITY

STATE AND ZIP CODE

 

 

TRANSIT/ABA NUMBER

ACCOUNT NUMBER

 

This authority will remain in full force and effect so long as any amounts are
due under the Agreement.

 

AGILE THERAPEUTICS, INC.

 

 

 

(Borrower)(Please Print)

 

 

 

By:

 

 

 

 

 

Date:

 

 

 

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EXHIBIT I

 

CONVERSION ELECTION NOTICE

 

[INSERT DATE]

 

Hercules Technology Growth Capital, Inc., as agent
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301

 

Reference is made to that certain Loan and Security Agreement dated February 24,
2015 and all ancillary documents entered into in connection with such Loan and
Security Agreement all as may be amended from time to time, (hereinafter
referred to collectively as the “Loan Agreement”) between Hercules Technology
Growth Capital, Inc., agent, the lenders party thereto and Agile
Therapeutics, Inc. (the “ Borrower”) as Borrower. All capitalized terms not
defined herein shall have the same meaning as defined in the Loan Agreement.

 

Borrower hereby irrevocably elects to make the Principal Installment Payment in
the amount of $                   due on [                ] (the “Delivery
Date”) in shares of Common Stock in accordance with Section 2.1(e) of the Loan
Agreement.(1)   The number of shares of Common Stock to be delivered to Lender,
on or prior to the Delivery Date, is [                          ], which amount
was determined in accordance with Section 2.1(e) of the Loan Agreement.  The
stock certificates shall be delivered free and clear of any restrictive legends.

 

Borrower hereby represents, warrants and certifies to Lender that, as of the
date hereof, all of the Conversion Conditions have been satisfied.  Borrower
acknowledges and agrees that its right to pay the Principal Installment Payment
in Common Stock in accordance with this Conversion Election Notice is subject to
the satisfaction of all of the Conversion Conditions on the Delivery Date and,
to the extent any of the Conversion Conditions are not satisfied on the Delivery
Date, Borrower shall pay the Principal Installment Payment in cash.

 

 

Sincerely,

 

 

 

AGILE THERAPEUTICS, INC.

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Its:

 

 

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(1) Note: In accordance with Section 2.1(e) of the Loan Agreement, the Delivery
Date must be at least 5 days following the date of delivery of this Conversion
Election Notice.

 

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SCHEDULE 1.1

 

COMMITMENTS

 

LENDER

 

TERM COMMITMENT

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

 

$

25,000,000

 

TOTAL COMMITMENTS

 

$

25,000,000

 

 

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