Exhibit 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT is made and dated as of March 15, 2013 and is
entered into by and between MELA SCIENCES, INC., a Delaware corporation,
(hereinafter referred to as “Borrower”), and HERCULES TECHNOLOGY GROWTH CAPITAL,
INC., a Maryland corporation (“Lender”).

RECITALS

A. Borrower has requested Lender to make available to Borrower term loans in an
aggregate principal amount of up to Ten Million Dollars ($10,000,000.00) in two
(2) tranches (each a “Term Loan” and, collectively, the “Term Loans”); and

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

AGREEMENT

NOW, THEREFORE, Borrower 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:

“Account Control Agreement(s)” means any agreement entered into by and among
Lender, 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 Lender 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.

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

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

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

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

“Amortization Date” means May 1, 2014.

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

 

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

“Cash” means all cash and liquid funds.

“Certificate of Incorporation” means Borrower’s Certificate of Incorporation, as
amended and/or restated and in effect from time to time, as filed with the
Secretary of State of the State of Delaware.

“Change in Control” means (i) any reorganization, recapitalization,
consolidation or merger (or similar transaction or series of related
transactions) of Borrower or any Subsidiary, sale or exchange of outstanding
shares (or similar transaction or series of related transactions) of Borrower or
any Subsidiary in which the holders of Borrower or Subsidiary’s outstanding
shares immediately before consummation of such transaction or series of related
transactions do not, immediately after consummation of such transaction or
series of related transactions, retain shares representing more than fifty
percent (50%) of the voting power of the surviving entity of such transaction or
series of related transactions (or the parent of such surviving entity if such
surviving entity is wholly owned by such parent), in each case without regard to
whether Borrower or Subsidiary is the surviving entity, or (ii) the sale or
issuance by Borrower of equity securities to one or more purchasers, in a single
transaction or series of related transactions not registered under the
Securities Act of 1933, which securities represent, as of immediately following
the closing (or, if there be more than one, any closing) thereof, twenty-five
percent (25%) or more of the then-outstanding total combined voting power of
Borrower.

“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 Fee” means Thirty-Five Thousand Dollars ($35,000), which fee has
been paid to Lender by Borrower, and shall be deemed fully earned on the Closing
Date regardless of the early termination of this Agreement.

“Common Stock” means Borrower’s common stock, $0.001 par value per share, and
any class or series of Borrower’s capital stock into or for which such common
stock may be converted, exchanged or substituted pursuant to a reorganization,
recapitalization, exchange offer or otherwise.

“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

 

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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, unless the Contingent
Obligation is expressly limited to a lesser amount by its terms in which event
it shall be deemed to be lesser amount, or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.

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

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

“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.

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

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

“Facility Charge” means One Hundred Thousand Dollars ($100,000) (i.e., one
percent (1.00%) of the Maximum Term Loan Amount).

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

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

“Indebtedness” means indebtedness of any kind, including (a) all indebtedness
for borrowed money or the deferred purchase price of property or services
(excluding trade credit entered into in the ordinary course of business due
within sixty (60) days or such longer credit terms as may be customarily
extended by a vendor to the Borrower (provided that such trade credit with
longer terms shall not exceed twenty-five percent (25.00%) of all trade credit
at any time), 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.

 

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“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 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 (excluding
the extension of trade credit in the ordinary course of business), 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.

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

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

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
against any property, any conditional sale or other title retention agreement,
and any capital 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 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 Lender to enforce any of its rights or remedies with respect to the Secured
Obligations; or (iii) the Collateral or Lender’s Liens on the Collateral or the
priority of such Liens.

“Maximum Term Loan Amount” means Ten Million Dollars ($10,000,000).

“Maximum Rate” shall have the meaning assigned to such term in Section 2.2.

 

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“Note(s)” means a Term Note.

“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
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 $500,000 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 letters of credit that are
secured by cash or cash equivalents and issued on behalf of the Borrower or a
Subsidiary thereof in an amount not to exceed $400,000 at any time outstanding,
(viii) other Indebtedness in an amount not to exceed $200,000 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 within one year from the date of acquisition thereof,
(b) commercial paper maturing no more than one year 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 no more
than one year 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

 

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agreements approved by Borrower’s Board of Directors; (viii) Investments
consisting of travel or other business related advances in the ordinary course
of business; (ix) Investments in newly-formed Subsidiaries organized in the
United States, provided that such Subsidiaries enter into a Joinder Agreement
promptly after their formation by Borrower and execute such other documents as
shall be reasonably requested by Lender; (x) Investments in subsidiaries
organized outside of the United States approved in advance in writing by Lender;
(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; and (xii) 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
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 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, or if
due, which are being contested in good faith and properly reserved for on
Borrower’s financial records; (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.

 

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“Permitted Transfers” means (i) sales of Inventory in the normal course of
business, (ii) licenses and similar arrangements for the use of Intellectual
Property in the ordinary course of business that could not result in a legal
transfer of title of the licensed property, or (iii) dispositions of worn-out,
obsolete or surplus Equipment at fair market value in the ordinary course of
business, (v) physical transfer of Melafind system equipment to a customer’s
premises in arm’s length transactions in the ordinary course of business with
the use of the equipment granted to customer but with the title to the equipment
being retained by the Borrower, and (v) other Transfers of assets having a fair
market value of not more than $500,000 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.

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

“Prime Rate” means 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.

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

“Required Financing” means the closing of any Borrower financing which becomes
effective during the period commencing on January 1, 2013 through and including
the Closing Date and results in aggregate proceeds to Borrower of at least
$12,500,000.

“Second Tranche Draw Conditions” means satisfaction of both of the following
conditions: (i) Borrower’s commercial placement in arm’s length transactions in
the ordinary course of business of at least 300 MelaFind systems with Persons
not directly affiliated with Borrower, and (ii) receipt by Borrower as of the
last day of any month of commercial patient card revenue in the trailing
three-months ending on such day in an amount equal to or greater than
$3,000,000; for the avoidance of doubt, the Second Tranche Draw Conditions will
not be deemed to have been satisfied if an Event of Default has occurred and is
continuing on the date that the foregoing conditions are otherwise satisfied.

“Second Tranche Draw Period” means the period commencing on the occurrence of
the Second Tranche Draw Conditions and ending on the earliest to occur of
(i) thirty (30) days thereafter, (ii) the existence of an Event of Default on
the date of the occurrence of the Second Tranche Draw Conditions or thereafter,
and (iii) March 17, 2014.

“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.

 

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“Subordinated Indebtedness” means Indebtedness subordinated to the Secured
Obligations in amounts and on terms and conditions satisfactory to Lender 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 Loan Advance” means any Term Loan funds advanced under this Agreement.

“Term Loan Interest Rate” means for any day, a floating rate per annum equal to
the greater of (i) ten and 45 one hundredths percent (10.45%), or (ii) the sum
of (A) ten and 45 one hundredths percent (10.45%), plus (B) the Prime Rate minus
three and one quarter of one percent (3.25%). The Term Loan Interest Rate will
change from time to time on the day the Prime Rate changes.

“Term Loan Maturity Date” means November 1, 2016.

“Term Note” means a Promissory Note in substantially the form of Exhibit B-1.

“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 California; provided, that in the event that, by reason
of mandatory provisions of law, any or all of the attachment, perfection or
priority of, or remedies with respect to, Lender’s Lien on any Collateral is
governed by the Uniform Commercial Code as the same is, from time to time, in
effect in a jurisdiction other than the State of California, 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.

“VWAP” has the meaning given in Section 7.4(b) hereof.

“Warrant” shall have the meaning given in Section 7.4(a) hereof.

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,

 

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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 TERM LOANS

2.1 [Reserved].

2.2 Term Loan.

(a) Advances. Subject to the terms and conditions of this Agreement, Lender will
make, and Borrower agrees to draw, an initial Term Loan Advance of Six Million
Dollars ($6,000,000) on the Closing Date. During the Second Tranche Draw Period,
Borrower may request one (1) additional Term Loan Advance in an amount of up to
Four Million Dollars ($4,000,000). The aggregate outstanding principal amount of
the Term Loan Advances shall not exceed the Maximum Term Loan Amount. Proceeds
of any Advance, to the extent not disbursed on the applicable Advance Date
pursuant to funding instructions approved by Lender, shall be deposited in an
account that is subject to a perfected security interest in favor of Lender.

(b) Advance Request. To obtain a Term Loan Advance, Borrower shall complete,
sign and deliver to Lender an Advance Request (at least five 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
day of each month, beginning the month after the Advance Date. Borrower shall
repay the aggregate Term Loan principal balance of the Term Loans that are then
outstanding on the Amortization Date in equal monthly installments of principal
and interest beginning on the Amortization Date and continuing on the first
business day of each month thereafter. The entire then outstanding principal
balance of the Term Loans and all accrued but unpaid interest hereunder, 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 the
Borrower’s account as authorized on the ACH Authorization on each payment date
of all periodic obligations payable to Lender under each Term Note or Term
Advance. Once repaid, a Term Loan or any portion thereof may not be reborrowed.

(e) 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

 

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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 California 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 of the Term Loans; 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 regular monthly payment (but not an
accelerated payment) is not paid on the scheduled payment date, an amount equal
to two percent (2%) 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 2.2(c), plus three percent (3%) 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 2.2(c).

2.4 Prepayment. At its option upon at least seven (7) business days prior notice
to Lender, 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, all unpaid Lender’s fees and expenses accrued to the date of the
prepayment (including the end of term charge),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, 3.00%; after twelve (12) months but prior to twenty four
(24) months, 2.00%; and thereafter but prior to fifteen (15) days prior to the
Term Loan Maturity Date, 1.00% (each, a “Prepayment Charge”). Borrower agrees
that the Prepayment Charge is a reasonable calculation of Lender’s lost profits
in view of the difficulties and impracticality of determining actual damages
resulting from an early repayment of the Advances. Borrower shall prepay the
outstanding amount of all principal and accrued interest through the prepayment
date, all unpaid Lender’s fees and expenses accrued to the date of the
prepayment (including the end of term charge) and the Prepayment Charge upon the
occurrence of a Change in Control.

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 entire outstanding Secured
Obligations, or (iii) the date that the Secured Obligations become due and
payable, Borrower shall pay Lender a charge of $425,000; provided, however, that
in the event Borrower fails to deliver the Warrant on or before April 30, 2013,
the end of term charge shall increase by $100,000 on May 1, 2013 and by an
additional $100,000 on the first day of each month thereafter until the earlier
to occur of (x) delivery to Lender of the Warrant, and (y) payment to Lender of
the Warrant Value (as defined in Section 7.4(e)) pursuant to and in accordance
with Section 7.4(e). Notwithstanding the required payment date of such charge,
it shall be deemed earned by Lender as of the Closing Date.

 

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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 the Borrower’s receipt of such notice) a Note or
Notes to evidence Lender’s Loans.

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 Lender 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 Lender; 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, the
security interest grant hereunder shall not extend to, and the term “Collateral”
shall not include, the Intellectual Property; provided, further, that
notwithstanding the foregoing, (x) 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”), and (y) if a court of competent
jurisdiction (including a U.S. Bankruptcy Court) holds that it is necessary to
have a security interest in the Intellectual Property out of which such Rights
to Payment arise in order to have a security interest in such Rights to Payment,
then the Collateral shall automatically, and effective as of the date of this
Agreement, include that portion of the Intellectual Property to the extent
necessary to permit perfection of Lender’s security interest in such 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 Lender the following:

(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 Lender to effectuate the transactions contemplated hereby
or to create and perfect the Liens of Lender with respect to all Collateral, in
all cases in form and substance reasonably acceptable to Lender;

 

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

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

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

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

(f) evidence of the occurrence of the Required Financing; and

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

4.2 All Advances. On each Advance Date:

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

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

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

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

 

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4.4 Second Tranche Draw Periods. In addition to the conditions set forth in the
foregoing Sections 4.1 and 4.2, on the Advance Date, if any, during the Second
Tranche Draw Period, Borrower shall have satisfied the Second Tranche Draw
Conditions.

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 except
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, state of incorporation, 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 Lender 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 Lender a Lien in the Collateral as security for the Secured
Obligations .

5.3 Consents. Borrower’s execution, delivery and performance of 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 to which Borrower is a party or require the consent or approval of any
other Person, other than those consents or approvals which have been obtained.
The Borrower’s officer or officers executing the Loan Documents and the Warrant
on Borrower’s behalf 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 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

 

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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 Lender in connection with any Loan Document or included therein or delivered
pursuant thereto contained, contains or will contain any material misstatement
of fact or omitted, omits or will omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were, are or will be made, not misleading at the time such statement was made or
deemed made. Additionally, any and all financial or business projections
provided by Borrower to Lender 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 of Directors.

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) 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.

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

 

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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 and are necessary 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 by Borrower or Borrower Product has been or is subject to any
actual or, to the knowledge of Borrower, threatened litigation, proceeding
(including any proceeding in the United States Patent and Trademark Office or
any corresponding foreign office or agency) or outstanding decree, order,
judgment, settlement agreement or stipulation that restricts in any manner
Borrower’s use, transfer or licensing thereof or that may affect the validity,
use or enforceability thereof. There is no decree, order, judgment, agreement,
stipulation, arbitral award or other provision entered into in connection with
any litigation or proceeding that obligates Borrower to grant licenses or
ownership interest in any future Intellectual Property related to the operation
or conduct of the business of Borrower or Borrower Products. 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. 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 the Borrower in a
written notice provided to Lender 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 (other than as described
under clause (viii) of the definition of Permitted Investments) to any employee,
officer or director of the Borrower nor has Borrower guaranteed the payment of
any loan made to an employee, officer or director of the Borrower by a third
party.

5.14 Capitalization and Subsidiaries. Borrower’s capitalization as of the
Closing Date is set forth on Schedule 5.14 annexed hereto. Borrower does not own
any stock, partnership interest or other securities of any Person, except for
Permitted Investments. Attached as Schedule 5.14, 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.

 

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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 $2,000,000 of commercial general liability insurance for each occurrence.
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. Borrower shall also carry and
maintain a fidelity insurance policy in an amount not less than $100,000.

6.2 Certificates. Borrower shall deliver to Lender certificates of insurance
that evidence Borrower’s compliance with its insurance obligations in
Section 6.1 and the obligations contained in this Section 6.2. Borrower’s
insurance certificate shall state Lender is an additional insured for commercial
general liability, a loss payee for all risk property damage insurance, subject
to the insurer’s approval, a loss payee for fidelity insurance, 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
and fidelity. All certificates of insurance will provide for the insurance
company to “endeavor” to provide a minimum of thirty (30) days advance written
notice to Lender of cancellation or any other change adverse to Lender’s
interests. Any failure of Lender to scrutinize such insurance certificates for
compliance is not a waiver of any of Lender’s rights, all of which are reserved.

6.3 Indemnity. Borrower agrees to indemnify and hold Lender and its officers,
directors, employees, agents, in-house attorneys, representatives and
shareholders 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), that may be
instituted or asserted against or incurred by Lender or any such 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 claims resulting solely from Lender’s gross negligence or willful
misconduct. Borrower agrees to pay, and to save 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 Lender) that may be payable or determined to be payable
with respect to any of the Collateral or this Agreement.

 

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SECTION 7. COVENANTS OF BORROWER

Borrower agrees as follows:

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

(a) as soon as practicable (and in any event within thirty (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 forty-five (45) 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 on behalf of Borrower 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; as well as the
most recent capitalization table for Borrower, including the weighted average
exercise price of employee stock options;

(c) as soon as practicable (and in any event within one hundred twenty
(120) 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 EisnerAmper
LLP or another firm of independent certified public accountants selected by
Borrower and reasonably acceptable to Lender, accompanied by any management
report from such accountants;

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

 

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(e) as soon as practicable (and in any event within ten (10) days) after the end
of each month, a report showing agings of accounts receivable and accounts
payable;

(f) 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;

(g) at the same time and in the same manner as it gives to its directors, copies
of all notices, minutes, consents and other materials that Borrower provides to
its directors in connection with meetings of the Board of Directors, and within
30 days after each such meeting, minutes of such meeting; and

(h) financial and business projections promptly following their approval by
Borrower’s Board of Directors, as well as budgets, operating plans and other
financial information reasonably requested by Lender.

Borrower shall not make any change in its (a) accounting policies or reporting
practices except as may be required by GAAP or the Securities and Exchange
Commission, or (b) fiscal years or fiscal quarters. The fiscal year of Borrower
shall end on December 31.

The executed Compliance Certificate may be sent via facsimile to Lender at
(650) 473-9194 or via e-mail to bjadot @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 Lender at: (866) 468-8916, attention Chief Credit Officer.

7.2 Management Rights. Borrower shall permit any representative that 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. In addition, any such representative shall have the right to meet with
senior management and senior officers of Borrower to discuss such books of
account and records. In addition, Lender shall be entitled at reasonable times
and intervals to consult with and advise the senior management and senior
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 Lender shall 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 Lender with respect to
any business issues shall not be deemed to give Lender, nor be deemed an
exercise by 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 Lender, any financing statements, security agreements,
collateral assignments, notices, control agreements, or other documents to
perfect or give the highest

 

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priority to Lender’s Lien on the Collateral. Borrower shall from time to time
procure any instruments or documents as may be requested by Lender, and take all
further action that may be necessary or desirable, or that Lender may reasonably
request, to perfect and protect the Liens granted hereby and thereby. In
addition, and for such purposes only, Borrower hereby authorizes Lender 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 Lender’s name or in
the name of Lender as agent and attorney-in-fact for Borrower. Borrower shall
protect and defend Borrower’s title to the Collateral and Lender’s Lien thereon
against all Persons claiming any interest adverse to Borrower or Lender other
than Permitted Liens.

7.4 Issuance of Warrant.

(a) Borrower agrees to execute, deliver and issue to Lender, or to an affiliate
of Lender designated in writing by Lender, a Warrant Agreement evidencing the
right to purchase shares of Borrower’s Common Stock in the form attached as
Exhibit I hereto (the “Warrant”), on the earliest to occur of: (i) within five
(5) Business Days following Borrower’s receipt of the vote, consent or approval
of its stockholders necessary to amend Borrower’s Certificate of Incorporation
to increase the authorized Common Stock of Borrower by an amount sufficient to
provide for the issuance of all shares issuable upon exercise in full of the
Warrant, (ii) as of immediately prior to the closing of an Acquisition (as
defined below), and (iii) in addition to, and not in lieu of, Borrower’s
obligations under Section 2.5 above, the payment or prepayment in full of all
Advances and other obligations of Borrower under this Agreement.

(b) The Exercise Price (as defined in the Warrant) initially, upon issuance of
the Warrant, shall be the lowest of (i) $1.71, (ii) the closing price of a share
of Common Stock as reported on NASDAQ-CM on the date hereof, and (iii) the
lowest VWAP of a share of Common Stock as reported on NASDAQ-CM in any
consecutive three (3) trading days during the thirty (30) consecutive trading
day period immediately prior to the date hereof or the thirty (30) consecutive
trading day period immediately prior to the date of issuance of the Warrant;
provided, that in the case of the issuance of this Warrant pursuant to clause
(ii) or (iii) of Section 7.4(a), the Exercise Price shall be determined without
reference to the VWAP of a share of Common Stock within the thirty
(30) consecutive trading day period immediately prior to the date of issuance of
the Warrant, but otherwise in accordance with this Section 7.4. The number of
shares of Common Stock for which the Warrant shall initially, upon issuance, be
exercisable shall equal (x) $775,000, divided by (y) the initial Exercise Price
as determined in accordance with this Section 7.4.

(c) As used herein, “VWAP” means volume-weighted average price and shall equal,
for any period, (i) the sum of (x) the price of each individual trade during
such period, multiplied by (y) the volume of such individual trade, divided by
(ii) the sum of the volume of each such individual trade during such period,
excluding all cross trades and basket cross trades during such period. In
formula form:

 

LOGO [g508693ex10_1p20.jpg]

 

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Where:

PVWAP = volume-weighted average price

Pj = price of trade j

Qj = quantity of trade j

j = each individual trade that takes place over the applicable period, excluding
cross trades and basket cross trades.

(d) Not later than three (3) Business Days prior to the issuance of the Warrant
by Borrower, Borrower shall provide Lender in writing with a copy of Borrower’s
calculation of the lowest VWAP for the periods described in Section 7.4(b). If
Lender objects to such Borrower calculation, Lender shall so notify Borrower in
writing not later than two (2) Business Days following its receipt of such
Borrower calculation, whereupon the parties shall negotiate in good faith a
resolution of such disputed calculation.

(e) Notwithstanding Sections 7.4(a)(ii) and (iii), in the event the Borrower, at
the time (if any) that it is required to issue the Warrant pursuant to either
such Section above, shall not have sufficient authorized and unissued shares of
Common Stock for issuance upon exercise in full of such Warrant, then in any
such event, the Borrower shall, in lieu of issuing such Warrant, pay to the
Lender an amount (the “Warrant Value”) equal to (i)(x) the Share Value (as
defined below), minus (y) the Exercise Price that initially would have been in
effect had the Warrant been issued, as determined pursuant to this Section 7.4,
multiplied by (ii) the number of shares of Common Stock that would have been
represented by the Warrant had the Warrant been issued, as calculated under the
formula for such purpose set forth in this Section 7.4. Payment by the Borrower
of the Warrant Value shall be made in a single installment in cash by certified
or bank cashier’s check or by wire transfer of immediately available funds to
Lender’s designated account, and shall be made (1) if by reason of an
Acquisition, on and at the initial closing thereof, or (2) if by reason of
payment or prepayment in full of all Advances and other obligations of Borrower
under this Agreement, concurrently with such payment or prepayment. The
Borrower’s obligation to pay the Warrant Value pursuant to this Section 7.4(e)
shall be in addition to, and not in lieu of, any and all amounts the Borrower is
obligated to pay in respect of deferred or delayed Warrant issuance under
Section 2.5 above. As used herein:

“Acquisition” means any transaction or series of related transactions involving:
(i) the sale, lease, exclusive license, or other disposition of all or
substantially all of the assets of the Borrower; (ii) any merger or

 

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consolidation of the Borrower into or with another person or entity (other than
a merger or consolidation effected exclusively to change the Borrower’s
domicile), or any other corporate reorganization, in which Borrower’s
stockholders in their capacity as such immediately prior to such merger,
consolidation or reorganization, own less than a majority of the Borrower’s (or
the surviving or successor entity’s) outstanding voting equity securities
immediately after such merger, consolidation or reorganization (or, if such
Borrower stockholders beneficially own a majority of the outstanding voting
equity securities of the surviving or successor entity as of immediately after
such merger, consolidation or reorganization, such surviving or successor entity
is not the Borrower); or (iii) any sale or other transfer by the stockholders of
the Borrower of shares representing at least a majority of the Company’s
then-total outstanding combined voting equity securities, whether pursuant to a
tender offer or otherwise; and

“Share Value” shall mean: (x) in the case of an Acquisition, the maximum
aggregate consideration payable under the executed transaction documents per
outstanding share of Common Stock, assuming the release in full to Borrower’s
stockholders of the entire amount (if any) of the portion of the purchase price
held back and/or deposited into escrow at closing and the receipt by the
Borrower’s stockholders of the maximum aggregate possible deferred payments
(whether in the nature of milestone payments, earn-out payments or otherwise),
if any, and also shall be inclusive of all amounts, if any, paid to or deposited
with any representative of the Borrower’s stockholders to cover the expenses of
such representative; provided, that if payment of the purchase price in such
Acquisition is made in securities or property other than cash, then the dollar
value thereof for purposes of determining the Share Value shall be determined in
accordance with the final definitive transaction documents executed and
delivered in connection with the Acquisition; and (y) in the case of the payment
or prepayment in full of all Advances and other obligations of Borrower under
this Agreement, the higher of (1) the highest closing price of a share of Common
Stock as reported on NASDAQ-CM for the ten (10) trading days ending on the
trading day immediately preceding the date of such payment or prepayment, and
(2) the highest VWAP of a share of Common Stock as reported on NASDAQ-CM in any
consecutive three (3) trading days during the thirty (30) consecutive trading
day period ending on the trading day immediately preceding the date of such
payment or prepayment.

7.5 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.

 

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7.6 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 Lender prompt written notice of any legal process which in any
adverse manner affects the Collateral, the Intellectual Property, such other
property and assets, or any Liens thereon. 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), and shall give Lender prompt written notice of any legal
process which in any adverse manner affects such Subsidiary’s assets. Borrower
shall not agree with any Person other than Lender not to encumber its property.

7.7 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.

7.8 Distributions. Other than Permitted Investments, 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 $200,000 in the
aggregate at any time outstanding, or (d) waive, release or forgive any
indebtedness owed by any employees, officers or directors in excess of $100,000
in the aggregate.

7.9 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 their
assets.

7.10 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 Subsidiary into another
Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person.

7.11 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, Lender or the
Collateral or upon Borrower’s ownership, possession, use, operation or
disposition thereof or upon

 

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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.

7.12 Corporate Changes. Neither Borrower nor any Subsidiary shall change its
corporate name, legal form or jurisdiction of formation without at least twenty
(20) days’ prior written notice to Lender. 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 Lender; and (ii) such
relocation shall be within the continental United States. Other than relocations
of Melafind systems Equipment to customer offices in the ordinary course of
business, neither Borrower nor any Subsidiary shall relocate any item of
Collateral (other than (x) sales of Inventory in the ordinary course of
business, (y) transfer of Equipment other than Melafind systems 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 Lender,
(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 Lender.

7.13 Deposit Accounts. Neither Borrower nor any Subsidiary shall maintain any
Deposit Accounts (other than payroll, petty cash accounts, or other accounts in
which less than Fifty Thousand Dollars ($50,000) in the aggregate in the United
States is on deposit at all times), or accounts holding Investment Property
having a value in excess of Fifty Thousand Dollars ($50,000) in the aggregate,
except with respect to which Lender has an Account Control Agreement.

7.14 Borrower shall notify Lender of each Subsidiary formed subsequent to the
Closing Date and, within 15 days of formation, shall cause any such Subsidiary
organized under the laws of any State within the United States to execute and
deliver to Lender a Joinder Agreement.

SECTION 8. [RESERVED].

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 or any
of the other Loan Documents on the due date; 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,
and (a) with respect to a default under any covenant under this Agreement (other
than under Sections 6, 7.5, 7.6, 7.7, 7.8, 7.9 or 7.10) such default continues
for more than ten (10) days after the earlier of the date on which (i) Lender
has given notice of such default to Borrower and (ii) Borrower has actual
knowledge of such default or (b) with respect to a default under any of Sections
6, 7.5, 7.6, 7.7, 7.8, 7.9 or 7.10, the occurrence of such default; or

 

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

9.4 Other Loan Documents. The occurrence of any default under any Loan Document
or any other agreement between Borrower and Lender and such default continues
for more than ten (10) days after the earlier of (a) Lender has given notice of
such default to Borrower, or (b) Borrower has actual knowledge of such default;
or

9.5 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 when made; or

9.6 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, or terminate substantially all of its employees without making
adequate provisions for the hiring of replacements; 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) forty-five (45) 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

9.7 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 $200,000, or Borrower is enjoined or in any way prevented by court order
from conducting any part of its business, and any of the foregoing are not
dismissed, discontinued, or stayed (as the case may be) within ten (10) days of
the occurrence thereof; or

 

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9.8 Other Obligations. The occurrence of any default under any agreement or
obligation of Borrower involving any Indebtedness in excess of $100,000, or the
occurrence of any default under any agreement or obligation of Borrower that
could reasonably be expected to have a Material Adverse Effect.

SECTION 10. REMEDIES

10.1 General. Upon and during the continuance of any one or more Events of
Default, (i) Lender 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 9.6, all of
the Secured Obligations shall automatically be accelerated and made due and
payable, in each case without any further notice or act), (ii) Lender may
terminate any commitment of Lender to make any further Advances hereunder, and
(iii) Lender may notify any of Borrower’s account debtors to make payment
directly to Lender, compromise the amount of any such account on Borrower’s
behalf and endorse Lender’s name without recourse on any such payment for
deposit directly to Lender’s account. Lender 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 Lender’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, Lender 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 Lender 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. Lender
may require Borrower to assemble the Collateral and make it available to Lender
at a place designated by Lender that is reasonably convenient to Lender and
Borrower. The proceeds of any sale, disposition or other realization upon all or
any part of the Collateral shall be applied by Lender in the following order of
priorities:

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

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 Lender 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.

Lender 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.

 

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10.3 No Waiver. Lender 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 Lender to marshal any
Collateral.

10.4 Cumulative Remedies. The rights, powers and remedies of Lender 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 Lender.

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 fifth 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 Lender:

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer and Mr. Bryan Jadot

400 Hamilton Avenue, Suite 310

Palo Alto, California 94301

Facsimile: 650-473-9194

Telephone: 650-289-3060

 

  (b) If to Borrower:

MELA SCIENCES, INC.

Attention: Mr. Richard Steinhart, CFO

50 Buckhout Street

Irvington, New York 10533

Facsimile: 914-591-3701

Telephone: 914-591-3783

 

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with a copy to:

GOLENBOCK EISEMAN ASSOR BELL & PESKOE LLP

Attention: Valerie Price, Esquire

437 Madison Avenue

New York, New York 10022

Facsimile: 212-754-0330

Telephone: 212-907-7335

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

11.3 Entire Agreement; Amendments. 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 Lender’s proposal letter dated February 5, 2013). None of
the terms of this Agreement or any of the other Loan Documents may be amended
except by an instrument executed by each of the parties hereto.

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 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 Lender to exercise any such
powers. No omission or delay by 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 Lender is entitled, nor shall it in any way
affect the right of Lender to enforce such provisions thereafter.

11.6 Survival. All agreements, representations and warranties of Borrower
contained in this Agreement and the other Loan Documents or in any document
delivered pursuant hereto or thereto shall be for the benefit of 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 Lender’s express prior
written consent, and any such attempted assignment shall be void and of no
effect. 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 Lender’s successors and assigns.

 

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11.8 Governing Law. This Agreement and the other Loan Documents have been
negotiated and delivered to Lender in the State of California, and shall have
been accepted by Lender in the State of California. Payment to Lender by
Borrower of the Secured Obligations is due in the State of California. This
Agreement and the other Loan Documents shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

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 California. By
execution and delivery of this Agreement, each party hereto generally and
unconditionally: (a) consents to nonexclusive personal jurisdiction in Santa
Clara County, State of California; (b) waives any objection as to jurisdiction
or venue in Santa Clara County, State of California; (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 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 LENDER OR ITS ASSIGNEE OR BY LENDER OR
ITS ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including
Claims that involve Persons other than Borrower and Lender; Claims that arise
out of or are in any way connected to the relationship between Borrower 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) If the waiver of jury trial set forth in Section 11.10(a) is ineffective or
unenforceable, the parties agree that all Claims shall be resolved by reference
to a private judge sitting without a jury, pursuant to Code of Civil Procedure
Section 638, before a mutually acceptable referee or, if the parties cannot
agree, a referee selected by the Presiding Judge of the Santa Clara County,
California. Such proceeding shall be conducted in Santa Clara County,
California, with California rules of evidence and discovery applicable to such
proceeding, but nothing herein shall be deemed to be a waiver of the right of
appeal or judicial review by courts of appropriate jurisdiction.

 

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(c) 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 Lender’s fees and 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 Lender after the Closing Date in
connection with or related to: (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, 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 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. Lender acknowledges that certain items of Collateral and
information provided to 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, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, administering, or perfecting Lender’s security interest
in the Collateral or the Loan generally 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 Lender may disclose any such
information: (a) to its own directors, officers, employees, accountants, counsel
and other professional advisors and to its affiliates if Lender in its 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 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 Lender’s counsel;
provided that in such an event Lender shall, to the extent it

 

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does not violate such summons or subpoena, notify Borrower of same so that
Borrower might have an opportunity to apply to limit or narrow the scope of the
disclosure of confidential information; (e) to comply with any legal requirement
or law applicable to Lender; (f) to the extent reasonably necessary in
connection with the exercise of any right or remedy under any Loan Document,
including Lender’s sale, lease, or other disposition of Collateral after
default; (g) to any participant or assignee of 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 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 “Lender” as used in the Loan Documents shall mean and include such
Assignee, and such Assignee shall be vested with all rights, powers and remedies
of Lender hereunder with respect to the interest so assigned; but with respect
to any such interest not so transferred, Lender shall retain all rights, powers
and remedies hereby given; provided, however, that so long as there does not
exist an Event of Default, Borrower shall not be responsible for any duplication
costs for the administration of the Loan by reason of any such assignment. No
such assignment by 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
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 Lender, or any part thereof is rescinded, avoided or
avoidable, reduced in amount, or must otherwise be restored or returned by, or
is recovered from, 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 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.

 

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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
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 between Lender and Borrower.

11.17 Publicity. (a) Borrower consents to the publication and use by Lender and
any of its member businesses and affiliates of (i) Borrower’s name (including a
brief description of the relationship between Borrower and Lender) and logo and
a hyperlink to Borrower’s 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 “Lender Publicity
Materials”); (ii) the names of officers of Borrower in the Lender Publicity
Materials; and (iii) Borrower’s name, trademarks or servicemarks in any news
release concerning Lender.

(b) Neither Borrower nor any of its member businesses and affiliates shall,
without Lender’s consent, publicize or use (i) Lender’s name (including a brief
description of the relationship between Borrower and Lender), logo or hyperlink
to Lender’s 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 “Borrower Publicity Materials”);
(ii) the names of officers of Lender in the Borrower Publicity Materials; and
(iii) Lender’s name, trademarks, servicemarks in any news release concerning
Borrower.

(SIGNATURES TO FOLLOW)

 

31

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

 

BORROWER: MELA SCIENCES, INC. Signature:  

/s/ Richard I. Steinhart

Print Name:  

Richard I. Steinhart

Title:  

Sr. VP & CFO

Accepted in Palo Alto, California:

 

LENDER: HERCULES TECHNOLOGY GROWTH CAPITAL, INC. Signature:  

/s/ Ben Bang

Print Name:  

Ben Bang

Title:  

Senior Counsel

 

32

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EXHIBIT A

ADVANCE REQUEST

 

To:      Lender:    Date:               , 20          Hercules Technology Growth
Capital, Inc.           400 Hamilton Avenue, Suite 310           Palo Alto, CA
94301           Facsimile: 650-473-9194           Attn:     

MELA SCIENCES, INC., a Delaware corporation (“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 between Borrower 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                                   
    

        or

      (b)      Wire Funds to Borrower’s account               
                               

      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 Lender has the right to review the
conditions precedent to the Advance

 

33

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requested and, based upon such review if in its reasonable discretion determines
that the conditions precedent have not been complied with, 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 Lender 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 Advance Date and if Lender 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 [            ], 20[    ].

 

BORROWER: MELA SCIENCES, INC. SIGNATURE:  

 

TITLE:  

 

PRINT NAME:  

 

 

34

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ATTACHMENT TO ADVANCE REQUEST

Dated:                     

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

 

Name:    MELA SCIENCES, INC. Type of organization:    Corporation State of
organization:    Delaware Organization file number:    2778666

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

 

35

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EXHIBIT B

SECURED TERM PROMISSORY NOTE

 

$[    ],000,000    Advance Date:                  , 20[    ]    Maturity Date:
                 , 20[    ]

FOR VALUE RECEIVED, MELA SCIENCES, INC., a Delaware corporation, for itself and
each of its Subsidiaries (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 and is outstanding, together with interest at a
floating rate equal to a floating rate per annum equal to the greater of (i) ten
and 45 one hundredths percent (10.45%), or (ii) the sum of (A) ten and 45 one
hundredths percent (10.45%), plus (B) the Prime Rate minus three and one quarter
of one percent (3.25%), 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 March 15,
2013, by and between Borrower and 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 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
California. This Promissory Note shall be governed by and construed and enforced
in accordance with, the laws of the State of California, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.

 

BORROWER     MELA SCIENCES, INC.     By:     Title:

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EXHIBIT C

NAME, LOCATIONS, AND OTHER INFORMATION FOR BORROWER

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

 

Name:    MELA SCIENCES, INC. Type of organization:    Corporation State of
organization:    Delaware Organization file number:    2778666

2. Borrower represents and warrants to Lender 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:

Used during dates of:

Type of Organization:

State of organization:

Organization file Number:          2778666

Borrower’s fiscal year ends on December 31

Borrower’s federal employer tax identification number is: 113-3986004

3. Borrower represents and warrants to Lender that its chief executive office is
located at 50 Buckhout Street, Irvington, New York 10533.

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EXHIBIT D

BORROWER’S PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES

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

EXHIBIT E

BORROWER’S DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS

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

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 March 15,
2013 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. (“Lender”) as Lender and MELA SCIENCES, INC., a Delaware
corporation, as Borrower (“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 of Borrower’s
financial matters, and is authorized to provide certification of information
regarding Borrower; hereby certifies on behalf of Borrower 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 on behalf of Borrower 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 120 days   

 

Very Truly Yours, MELA SCIENCES, 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 a
Lender.

RECITALS

A. Subsidiary’s Affiliate, MELA SCIENCES, INC., a Delaware corporation
(“Borrower”), [has entered/desires to enter] into that certain Loan and Security
Agreement dated March 15, 2013, with Lender, 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 Lender 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 Lender shall have no duties, responsibilities or obligations to
Subsidiary arising under or related to the Loan Agreement or the other
agreements executed and delivered in connection therewith. Rather, to the extent
that 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): (a) Lender’s providing notice to Borrower
in accordance with the Loan Agreement or as otherwise agreed between Borrower
and Lender shall be deemed provided to Subsidiary; (b) a Lender’s providing an
Advance to Borrower shall be deemed an Advance to Subsidiary; and (c) Subsidiary
shall have no right to request an Advance or make any other demand on Lender.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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[SIGNATURE PAGE TO JOINDER AGREEMENT]

 

SUBSIDIARY:

 

  .

 

  By:     Name:     Title:     Address:     Telephone:     Facsimile:  

 

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 March 15, 2013 between MELA SCIENCES,
INC., a Delaware corporation (“Borrower”) and Hercules Technology Growth
Capital, Inc. (“Lender”) (the “Agreement”)

In connection with the above referenced Agreement, Borrower hereby authorizes
Lender to initiate debit entries for the periodic payments due under the
Agreement to the 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.

 

 

(Borrower)(Please Print) By:  

 

Date: