Exhibit 10.7  


VENTURE LOAN AND SECURITY AGREEMENT 


Dated as of December 27, 2005 


by and between 


HORIZON
TECHNOLOGY FUNDING COMPANY LLC,

a Delaware limited liability company

76 Batterson Park Road

Farmington, CT 06032 


as
Lender 


And 


CONVIO, INC.,

a Delaware corporation

11921 N. Mopac Expressway

Suite 200

Austin, Texas 78759

as Borrower 



	Commitment Amount Loan A:	 	$3,000,000	 	 
	

Commitment Amount Loan B:	
 	

$1,000,000	
 	

 
	

Commitment Termination Date Loan A:	
 	

December 30, 2005	
 	

 
	

Commitment Termination Date Loan B:	
 	

March 31, 2006	
 	

 












   
The Lender and Borrower hereby agree as follows: 


AGREEMENT  


        1.    Definitions and Construction.    



        1.1    Definitions.    As used in this Agreement, the following capitalized terms shall have the following meanings: 




        "Affiliate" means any Person that owns or controls directly or indirectly ten percent (10%) or more of the stock of another entity, any
Person that controls or is controlled by or is under common control with such Persons or any Affiliate of such Persons and each of such Person's officers; directors, joint venturers or partners. 



        "Agreement" means this Venture Loan and Security Agreement by and between Borrower and Lender dated as of the date on the cover page
hereto (as it may from time to time be amended or supplemented in writing signed by Borrower and Lender). 


        "Borrower" means the Borrower as set forth on the cover page of this Agreement. 


        "Borrower's Home State" means Texas. 



        "Business Day" means any day that is not a Saturday, Sunday, or other day on which banking institutions are authorized or required to
close in Connecticut or Borrower's Home State. 


        "Claim" has the meaning given such term in Section 10.3 of this Agreement 


        "Code" means the Uniform Commercial Code as adopted and in effect in the State of Connecticut, as amended from time to time;  provided that if by reason of mandatory
provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of
the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than Connecticut, the term "Code" shall also mean the Uniform Commercial Code as
in effect from time to time in such jurisdiction for purposes of the provisions hereof relating to such creation, perfection or effect of perfection or non-perfection. 


        "Collateral" has the meaning given such term in Section 4.1 of this Agreement. 


        "Commitment Fee" has the meaning given such term in Section 2.6(b) of this
Agreement. 


        "Commitment Amount" means collectively, Commitment Amount Loan A and Commitment Amount Loan B. 


        "Commitment Amount Loan A" and "Commitment Amount Loan B" have the respective meanings as
set forth on the cover page of this Agreement. 


        "Commitment Termination Date Loan A" and "Commitment Termination Date Loan B" have the
respective meanings as set forth on the cover page of this Agreement. 


        "Default" means any event which with the passing of time or the giving of notice or both would become an Event of Default hereunder. 


        "Default Rate" means the per annum rate of interest equal to three percent (3%) over the Loan Rate, but such rate shall in no event be
more than the highest rate permitted by applicable law to be charged on commercial loans in a default situation. 


        "Disclosure Schedule" means Exhibit A attached hereto. 



        "Environmental Laws" means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, 


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in
each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal
Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community
Right-to-Know Act. 


        "Equity Securities" of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests,
membership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other
rights to acquire any of the foregoing. 


        "ERISA" has the meaning given to such term in Section 7.12 of this Agreement. 



        "Event of Default" has the meaning given to such term in Section 8 of this
Agreement. 


        "Funding Certificate" means a certificate executed by a Responsible Officer of Borrower substantially in the form of  Exhibit B or such other form as Lender may
agree to accept. 


        "Funding Date" means any date on which a Loan is made to or on account of Borrower under this Agreement. 



        "GAAP" means generally accepted accounting principles as in effect in the United States of America from time to time, consistently
applied. 


        "Good Faith Deposit" has the meaning given such term in Section 2.6(a) of this
Agreement. 


        "Governmental Authority" means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof,
(b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal,
or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented. 


        "Hazardous Materials" means all those substances which are regulated by, or which may form the basis of liability under, any Environmental
Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste. 


        "Indebtedness" means, with respect to Borrower or any Subsidiary, the aggregate amount of, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services (excluding trade payables aged less than one hundred eighty (180) days), (d) all capital lease obligations of such Person, (e) all
obligations or liabilities of others secured by a Lien on any asset of such Person, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others
guaranteed by such Person, and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of such Person. Unless otherwise indicated, the term
"Indebtedness" shall include all Indebtedness of Borrower and the Subsidiaries. 



        "Indemnified Person" has the meaning given such term in Section 10.3 of this
Agreement. 


        "Intellectual Property" means all of Borrower's right, title and interest in and to patents, patent rights (and applications and
registrations therefor), trademarks and service marks (and applications and registrations therefor), inventions, copyrights, mask works (and applications and registrations therefor), trade names,
trade styles, software and computer programs, source code, object code, trade secrets, methods, processes, know how, drawings, specifications, descriptions, and all memoranda, notes, and records with
respect to any research and development, all whether now owned or subsequently acquired 


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or
developed by Borrower and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media (but not including embedded computer
programs and supporting information included within the definition of "goods" under the Code). 



        "Investment" means the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any
interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, or any other investment in, or deposit with, any Person. 


        "Landlord Agreement" means an agreement with one or more of Borrower's landlords substantially in the form provided by Lender to Borrower
or such other form as Lender may reasonably request. 


        "Lender" means the Lender as set forth on the cover page of this Agreement. 



        "Lender's Expenses" means all reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, documentation, administration and funding of the Loan Documents; and Lender's reasonable attorneys' fees, costs and expenses incurred in amending, modifying, enforcing or
defending the Loan Documents (including fees and expenses of appeal or review), including the exercise of any rights or remedies afforded hereunder or under applicable law, whether or not suit is
brought, whether before or after bankruptcy or insolvency, including without limitation all reasonable fees and costs incurred by Lender in connection with Lender's enforcement of its rights in a
bankruptcy or insolvency proceeding filed by or against Borrower or its Property. 



        "Lien" means any voluntary or involuntary security interest, pledge, bailment, lease, mortgage, hypothecation, conditional sales and title
retention agreement, encumbrance or other lien with respect to any Property in favor of any Person. 


        "Loan" means each advance of credit to Borrower made under this Agreement, and "Loans"
means, collectively, all such advances of credit. 


        "Loan A" means the first advance of credit to Borrower under this Agreement in the Commitment Amount Loan A. 



        "Loan B" means the advance of credit to Borrower under this Agreement, if any, in the Commitment Amount Loan B. 


        "Loan Documents" means, collectively, this Agreement, the Notes, the Warrant, any Landlord Agreement, and all other documents, instruments
and agreements entered into in connection with this Agreement, all as amended or extended from time to time. 


        "Loan Rate" means, with respect to each Loan, the per annum rate of interest (based on a year of twelve 30-day months) equal
to the greater of (a) 11.25% or (b) 11.25% plus the difference between (i) the one month LIBOR Rate, as reported in the  Wall Street Journal,
on the date which is five (5) days before the Funding Date for such Loan (or, if such date is not a Business Day, the next
earlier Business Day) and (ii) 3.75%. 


        "Maturity Date" means, with respect to each Loan, July 1, 2009, or if earlier, the date of acceleration of such Loan following an
Event of Default or the date of prepayment, whichever is applicable. 


        "Note" means each promissory note executed in connection with a Loan in substantially the form of  Exhibit C attached hereto, and, collectively, "Notes" means all such promissory notes. 


        "Obligations" means all debt, principal, interest, fees, charges, expenses and reasonable attorneys' fees and costs and other reasonable
amounts, obligations, covenants, and duties owing by Borrower to Lender of any kind and description (whether pursuant to or evidenced by the Loan Documents (other than the Warrant), or by any other
agreement between Lender and Borrower, and whether or not for 


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the
payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all Lender's Expenses (except for Lender's Expenses
relating to the Warrant). 


        "Officer's Certificate" means a certificate executed by a Responsible Officer substantially in the form of  Exhibit E or such other form as Lender may agree to
accept. 



        "Payment Date" has the meaning given such term in Section 2.2(a) of this Agreement. 


        "Permitted Indebtedness" means and includes: 




        (a)   Indebtedness
of Borrower to Lender; 


        (b)   Indebtedness
of Borrower secured by Liens permitted under clause (e) of the definition of Permitted Liens; 


        (c)   Indebtedness
arising from the endorsement of instruments in the ordinary course of business; 


        (d)   Indebtedness
existing on the date hereof and set forth on the Disclosure Schedule; 


        (e)   Indebtedness
consisting of a revolving credit facility in which the aggregate principal amount of outstanding advances are limited to an amount not greater than
(i) Eighty Percent (80%) of Borrower's outstanding accounts receivable plus (ii) One Million Dollars ($1,000,000); 



        (f)    Trade
debt and other unsecured Indebtedness incurred in the ordinary course of business (including deferred revenue and lease obligations); 


        (g)   Guaranties
by Borrower of obligations or liabilities of its Subsidiaries incurred in the ordinary course of business in an aggregate amount not to exceed Five Hundred
Thousand Dollars ($500,000) in any fiscal year; 


        (h)   Indebtedness
of Borrower to any of its Subsidiaries in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) in any fiscal year; 



        (i)    Surety,
performance and similar bonds incurred in the ordinary course of business not securing Indebtedness for borrowed money; 


        (j)    Indebtedness
of Borrower in respect of standby letters of credit to secure its obligations and those of its Subsidiaries regarding real property leases; 


        (k)   Indebtedness
that is subordinated on terms acceptable to the Lender in its sole discretion; and 


        (l)    Extensions,
refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower. 





        "Permitted Investments" means and includes any of the following Investments: 




        (a)   Deposits
and deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent if such institution has an aggregate
capital and surplus of not less than One Hundred Million Dollars ($100,000,000). 



        (b)   Investments
in marketable obligations issued or fully guaranteed by the United States and maturing not more than two (2) years from the date of issuance. 




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        (c)   Investments
in open market commercial paper rated at least "A1" or "P1" or higher by a national credit rating agency and maturing not more than two (2) years from
the creation thereof. 


        (d)   Investments
pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business. 


        (e)   Investments
in Subsidiaries in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) in any fiscal year; 


        (f)    Investments
consisting of notes receivable of, or prepaid royalties or other credit extensions to, customers and suppliers who are not Affiliates in the ordinary course
of business; 


        (g)   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 business; 


        (h)   Investments
consisting of Borrower's accounts receivable in the ordinary course of business; 


        (i)    Investments
in joint ventures in the ordinary course of business in an aggregate amount not to exceed, in the aggregate, Five Hundred Thousand Dollars ($500,000) in any
fiscal year; provided, that upon request of Lender, Borrower shall pledge its ownership interests in any such joint venture to Lender as security for the Obligations; 


        (j)    Investments
consisting of (i) travel advances, in the ordinary course of business, to employees and service providers; and (ii) cashless loans to service
providers in respect of the purchase of Equity Securities of Borrower pursuant to employee stock purchase plans approved by Borrower's board of directors; and 



        (k)   Other
Investments aggregating not in excess of Two Hundred Fifty Thousand Dollars ($250,000) at any time. 





        "Permitted Liens" means and includes: 




        (a)   any
Lien created by this Agreement; 


        (b)   Liens
for fees, taxes, levies, imposts, duties or other governmental charges of any kind which are not yet delinquent or which are being contested in good faith by
appropriate proceedings which suspend the collection thereof (provided that such appropriate proceedings do not involve any substantial danger of the
sale, forfeiture or loss of any material item of Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such
Lien have been provided on the books of Borrower); 


        (c)   Liens
identified on the Disclosure Schedule; 


        (d)   carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business and which are not delinquent or
remain payable without penalty or which are being contested in good faith and by appropriate proceedings (provided that such appropriate proceedings do
not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has adequately
bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower); 


        (e)   Liens
upon any equipment or other personal property acquired by Borrower after the date hereof to secure (i) the purchase price of such equipment or other
personal property, or 




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(ii) lease
obligations or indebtedness incurred solely for the purpose of financing the acquisition of such equipment or other personal property; provided
that (A) such Liens are confined solely to the equipment or other personal property so acquired and the amount secured does not exceed the acquisition price thereof, and
(B) no such Lien shall be created, incurred, assumed or suffered to exist in favor of Borrower's officers, directors or shareholders holding ten percent (10%) or more of Borrower's Equity
Securities; 


        (f)    Licenses
of Intellectual Property entered into in the ordinary course of business in connection with joint ventures and corporate collaborations; 


        (g)   bankers'
liens, rights of setoff and similar Liens incurred on deposits made in the ordinary course of business and Liens in favor of financial institutions arising in
connection with Borrower's deposit accounts or securities accounts held at such institutions to secure customary fees and charges; 


        (h)   cash
pledges and deposits to secure the performance of bids, trade contracts, leases, statutory obligations or governmental franchise obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, as well as cash deposits to collateralize letters of credit issued to serve such functions, in each case in the ordinary course of
business; 


        (i)    any
judgment, attachment or similar Lien not resulting in an Event of Default under Section 8.8; 


        (j)    Liens
to secure payment of worker's compensation, unemployment insurance, old age pensions or other social security obligations of Borrower in the ordinary course of
business; 


        (k)   easements,
reservations, rights-of-way, restrictions, minor defects or irregularities in title and similar charges or encumbrances affecting real
property not constituting a material adverse effect on the business or condition (financial or otherwise) of Borrower; and 


        (l)    Liens
incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described above but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. 





        "Person" means and includes any individual any partnership, any corporation, any business trust any joint stock company, any limited
liability company, any unincorporated association or any other entity and any domestic or foreign national, state or local government, any political subdivision thereof, and any department, agency,
authority or bureau of any of the foregoing. 


        "Property" means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. 


        "Responsible Officer" has the meaning given such term in Section 6.3 of this
Agreement. 


        "Scheduled Payments" has the meaning given such term in Section 2.2(a) of this
Agreement. 


        "Solvent" has the meaning given such term in Section 5.11 of this Agreement. 


        "Subsidiary" means any corporation or other entity of which a majority of the outstanding Equity Securities entitled to vote for the
election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries. 



        "Third Party Equipment" has the meaning given such term in Section 4.8 of this
Agreement. 


        "Transfer" has the meaning given such term in Section 7.4 of this Agreement. 


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        "Warrant" means the separate warrant or warrants dated on or about the date hereof in favor of the Lender or its designees to purchase
securities of Borrower. 



        1.2    Construction.    References in this Agreement to "Articles," "Sections," "Exhibits," "Schedules" and "Annexes"
are to recitals, articles, sections, exhibits, schedules and annexes herein and hereto unless otherwise indicated. References in this Agreement and each of the other Loan Documents to any document,
instrument or agreement shall include (a) all exhibits, schedules, annexes and other attachments thereto, (b) all documents, instruments or agreements issued or executed in replacement
thereof and (c) such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words
"hereof," "herein" and `"hereunder" and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document, as the case may be, as
a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. The words "include" and "including" and words of similar import when used in this
Agreement or any other Loan Document shall not be construed to be limiting or exclusive. Unless otherwise indicated in this Agreement or any other Loan Document, all accounting terms used in this
Agreement or any other Loan Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP, and all terms describing
Collateral shall be construed in accordance with the Code. The terms and information set forth on the cover page of this Agreement are incorporated into this Agreement. 




        2.    Loans; Repayment.    



        2.1    Commitment.    



        (a)   The Commitment Amount. Subject to the terms and conditions of this Agreement and relying upon the representations and
warranties herein set forth Lender agrees to lend to Borrower (i) prior to the Commitment Termination Date Loan A, Loan A in the amount of Commitment Amount Loan A, and (ii) prior to the
Commitment Termination Date Loan B, Loan B in the amount of Commitment Amount Loan B. 



        (b)   The Loans and the Notes. The obligation of Borrower to repay the unpaid principal amount of and interest on each Loan
shall be evidenced by a Note issued to Lender. 


        (c)   Use of Proceeds. The proceeds of each Loan shall be used solely for working capital or general corporate purposes of
Borrower. 


        (d)   Termination of Commitment to Lend. Notwithstanding anything in the Loan Documents, Lender's obligation to lend the
undisbursed portion of the Commitment Amount to Borrower hereunder shall terminate on the earlier of (i) at Lender's sole election, the occurrence of any Event of Default hereunder,
(ii) with respect to Loan A, the Commitment Termination Date Loan A and (iii) with respect to Loan B, the Commitment Termination Date Loan B. Notwithstanding the foregoing, Lender's
obligation to lend the undisbursed portion of the Commitment Amount to Borrower shall terminate if, in Lender's sole judgment, there has been a material adverse change in the general affairs, results
of operations or financial condition of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the
business plan of Borrower presented to Lender on or before the date of this Agreement. 




        2.2    Payments.    



        (a)   Scheduled Payments.    Borrower shall make payments of accrued interest only on the outstanding principal
amount of each Loan on the Payment Dates specified in the Note 




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applicable
to such Loan through and including January 1, 2007 and thirty (30) equal payments of principal plus accrued interest on the outstanding principal amount of each Loan on each
subsequent Payment Date as set forth in the Note applicable to such Loan (collectively, the "Scheduled Payments"). Borrower shall make such Scheduled
Payments commencing on the date set forth in the Note applicable to such Loan and continuing thereafter on the first Business Day of each calendar month (each a "Payment
Date") through the Maturity Date. In any event, all unpaid principal and accrued interest shall be due and payable in full on the Maturity Date. 



        (b)   Interim Payment.    Unless the Funding Date for the Loan is the first day of a calendar month, Borrower shall
pay the per diem interest (accruing at the Loan Rate from the Funding Date through the last day of that month) payable with respect to such Loan on the first Business Day of the next calendar month. 


        (c)   Payment of Interest.    Borrower shall pay interest on each Loan at a per annum rate of interest equal to the
Loan Rate. All computations of interest (including interest at the Default Rate, if applicable) shall be based on a year of twelve 30-day months. Notwithstanding any other provision
hereof, the amount of interest payable hereunder shall not in any event exceed the maximum amount permitted by the law applicable to interest charged on commercial loans. 


        (d)   Application of Payments.    All payments received by Lender prior to an Event of Default shall be applied as
follows: (1) first, to Lender's Expenses then due and owing; and (2) second to all Scheduled Payments then due and owing (provided,  however, if
such payments are not sufficient to pay the whole amount then due, such payments shall be applied first to unpaid interest at the Loan Rate,
then to the remaining amount then due). After an Event of Default, all payments and application of proceeds shall be made as set forth in  Section 9.7. 


        (e)   Late Payment Fee.    Borrower shall pay to Lender a late payment fee equal to five percent (5%) of any
Scheduled Payment not paid within two (2) Business Days of when due. 


        (f)    Default Rate.    Borrower shall pay interest at a per annum rate equal to the Default Rate on any amounts
required to be paid by Borrower under this Agreement or the other Loan Documents (including Scheduled Payments), payable with respect to any Loan, accrued and unpaid interest, and any fees or other
amounts which remain unpaid after such amounts are due. If an Event of Default has occurred and the Obligations have been accelerated (whether automatically or by Lender's election), Borrower shall
pay interest on the aggregate, outstanding accelerated balance hereunder from the date of the Event of Default until all Events of Default are cured, at a per annum rate equal to the Default Rate. 




        2.3    Prepayments.    



        (a)   Mandatory Prepayment Upon an Acceleration.    If any Loan is accelerated following the occurrence of an Event
of Default pursuant to Section 9.1(a) hereof, then Borrower, in addition to any other amounts which may be due and owing hereunder, shall immediately pay to Lender the amount set forth in
Section 2.3(b) below, as if the Borrower had opted to prepay on the date of such acceleration. 


        (b)   Upon
five (5) Business Days' prior written notice to Lender, Borrower may, at its option, at any time, prepay all of the Loans by paying to Lender an amount equal
to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; (ii) an amount equal to (A) if the Loans are prepaid within twelve (12) months
from the date hereof thereof, three (3%) percent of the then outstanding principal balance of the Loans, (B) if the Loans are prepaid more than twelve (12) months from the date hereof
but less than twenty-four (24) months from the date hereof, two (2%) percent of the then outstanding principal balance 




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of
the Loans, or (C) if the Loans are prepaid more than twenty-four (24) months from the date hereof, one (1%) percent of the then outstanding principal balance of the Loans;
(iii) the outstanding principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder. Notwithstanding the foregoing, if Borrower
completes a sale of its Equity Securities in an initial public offering or enters into a merger or acquisition which results in Lender, or the holder of the Warrant, being able to receive net cash
proceeds per share equal to at least two times the Warrant Price (as defined in the Warrant) from exercise of its right under the Warrant, Borrower shall not owe Lender (regardless of whether Lender
is holder of the Warrant) the amount set forth in Section 2.3(b)(ii) above. 




        2.4    Other Payment Terms.    



        (a)   Place and Manner.    Borrower shall make all payments due to Lender in lawful money of the United States. All
payments of principal, interest, fees and other amounts payable by Borrower hereunder shall be made, in immediately available funds, not later than 10:00 a.m. Connecticut time, on the date on
which such payment is due. Borrower shall make such payments to Lender via wire transfer as follows: 




	Payment via wire transfer:	 	 
	Credit:	 	Horizon Technology Funding Company LLC
	Bank Name:	 	ABN Amro/LaSalle Bank NA CDO Trust Services
	 	 	

	Bank Address:	 	135 South LaSalle Street, Suite 1625

Chicago, Illinois 60603

Attn: Greg Meyers, 312-904-0283
	Account No.:	 	2090067—Trust GL
	 	 	

	FFCT-Reference Account Number	 	721771.1
	ABA Routing No.:	 	071000505
	Reference:	 	Convio Invoice #                  







        (b)   Date.    Whenever any payment is due hereunder on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be. 




        2.5    Procedure for Making Loans.    



        (a)   Notice.    Borrower shall notify Lender of the date on which Borrower desires Lender to make any Loan at least
five (5) Business Days in advance of the desired Funding Date, unless Lender elects at its sole discretion to allow the Funding Date to be within five (5) Business Days of Borrower's
notice. Borrower's execution and delivery to Lender of a Note shall be Borrower's agreement to the terms and calculations thereunder with respect to such Loan. Lender's obligation to make any Loan
shall be expressly subject to the satisfaction of the conditions set forth in Sections 3.1 and 3.2. 



        (b)   Loan Rate Calculation.    Prior to each Funding Date, Lender shall establish the Loan Rate with respect to such
Loan, which shall be set forth in the Note to be executed by Borrower with respect to such Loan and shall be conclusive in the absence of a manifest error. 


        (c)   Disbursement.    Lender shall disburse the proceeds of each Loan by wire transfer to Borrower at the account
specified in the Funding Certificate for the Loan. 




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        2.6    Good Faith Deposit; Legal and Closing Expenses; and Commitment Fee.    



        (a)   Good Faith Deposit.    Borrower has delivered to Lender a good faith deposit in the amount of Fifteen Thousand
Dollars ($15,000) (the "Good Faith Deposit"). The Good Faith Deposit will be utilized to pay the Commitment Fee. 


        (b)   Legal, Due Diligence and Documentation Expenses.    Borrower shall pay to Lender concurrently with its
execution and delivery of this Agreement up to the amount of Six Thousand Dollars ($6,000) for Lender's legal, due diligence and documentation expenses in connection with the negotiation and
documentation of this Agreement and the Loan Documents. 


        (c)   Commitment Fee.    Borrower hereby authorizes Lender concurrently with Borrower's execution and delivery of
this Agreement to apply the Good Faith Deposit to the commitment fee and Borrower shall pay the balance of the commitment fee, so that, in the aggregate, Borrower shall pay Lender the amount of Twenty
Thousand Dollars ($20,000) (the "Commitment Fee"). The Commitment Fee shall be retained by Lender and be deemed fully earned upon receipt. 





        3.    Conditions of Loan.    



        3.1    Conditions Precedent to Closing.    At the time of the execution and delivery of this Agreement, Lender shall
have received, in form and substance reasonably satisfactory to Lender, all of the following (unless Lender has agreed to waive such condition or document, in which case such condition or document
shall be a condition precedent to the making of any Loan and shall be deemed added to Section 3.2): 



        (a)   Loan Agreement.    This Agreement duly executed by Borrower and Lender. 


        (b)   Warrant.    The Warrant to be issued to Lender or its designees, duly executed by Borrower. 



        (c)   Secretary's Certificate.    A certificate of the secretary or assistant secretary of Borrower with copies of
the following documents attached: (i) the certificate of incorporation and bylaws of Borrower certified by Borrower as being complete and in full force and effect on the date thereof,
(ii) incumbency and representative signatures, and (iii) resolutions authorizing the execution and delivery of this Agreement and each of the other Loan Documents. 


        (d)   Good Standing Certificates.    A good standing certificate from Borrower's state of incorporation and the state
in which Borrower's principal place of business is located, each dated as of a recent date. 


        (e)   Certificate of Insurance.    Evidence of the insurance coverage required by  Section 6.8 of this Agreement. 


        (f)    Consents.    All necessary consents of shareholders and other third parties with respect to the execution,
delivery and performance of this Agreement, the Warrant and the other Loan Documents. 



        (g)   Legal Opinion.    A legal opinion of Borrower's counsel covering the matters set forth in Exhibit D
hereto. 


        (h)   Grants of Security Interests in Intellectual Property.    Grants of security interests in any U.S. federally
registered Intellectual Property, in the forms provided by Lender. 


        (i)    Other Documents.    Such other documents and completion of such other matters, as Lender may reasonably deem
necessary or appropriate. 




10







 






        3.2    Conditions Precedent to Making a Loan.    The obligation of Lender to make each Loan is further subject to the
following conditions: 



        (a)   No Default.    No Default or Event of Default shall have occurred and be continuing. 


        (b)   No Material Adverse Effect.    No event shall have occurred and no condition shall exists which could
reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower since December 31, 2004. 


        (c)   Landlord Agreements.    Borrower shall have provided Lender with a Landlord Agreement for each location where
Borrower's books and records and the Collateral is located (unless Borrower is the fee owner thereof and except for locations where the value of the Collateral located at such locations has an
aggregate value of less than Fifty Thousand Dollars ($50,000)). 


        (d)   Note.    Borrower shall have duly executed and delivered to Lender a Note in the amount of the Loan. 


        (e)   UCC Financing Statements.    Lender shall have received such documents, instruments and agreements, including
UCC financing statements or amendments to UCC financing statements, as Lender shall reasonably request to evidence the perfection and priority of the security interests granted to Lender pursuant to  Section 4. Borrower authorizes Lender to file any UCC financing statements, continuations of or amendments to UCC financing statements it deems
reasonably necessary to perfect its security interest in the Collateral. 


        (f)    Funding Certificate.    Borrower shall have duly executed and delivered to Lender a Funding Certificate for
such Loan. 


        (g)   Other Documents.    Such other documents and completion of such other matters, as Lender may reasonably deem
necessary or appropriate. 




        3.3    Covenant to Deliver.    Borrower agrees (not as a condition but as a covenant) to deliver to Lender each item
required to be delivered to Lender as a condition to each Loan, if such Loan is advanced. Borrower expressly agrees that the extension of such Loan prior to the receipt by Lender of any such item
shall not constitute a waiver by Lender of Borrower's obligation to deliver such item, and any such extension in the absence of a required item shall be in Lender's sole discretion. 




        4.    Creation of Security Interest.    



        4.1    Grant of Security Interest.    Borrower grants to Lender a valid, continuing security interest in all presently
existing and hereafter acquired or arising Collateral in order to secure prompt, full and complete payment of any and all Obligations and in order to secure prompt, full and complete performance by
Borrower of each of its covenants and duties under each of the Loan Documents (other than the Warrant). The term "Collateral" shall mean and include all
right, title, interest, claims and demands of Borrower in and to all personal property of Borrower, including without limitation, all of the following: 



        (a)   All
goods (and embedded computer programs and supporting information included within the definition of "goods" under the Code) and equipment now owned or hereafter
acquired, including, without limitation, all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any
of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; 


        (b)   All
inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in
process 




11







 





and
finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's books relating to any of the foregoing; 


        (c)   All
contract rights and general intangibles (including Intellectual Property), now owned or hereafter acquired, including, without limitation, goodwill, license
agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, software, computer programs, computer disks, computer tapes, literature,
reports, catalogs, design rights, income tax refunds, payment intangibles, commercial tort claims, payments of insurance and rights to payment of any kind; 


        (d)   All
now existing and hereafter arising accounts, contract rights, royalties, license rights, license fees and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower (subject, in each case, to the contractual rights of third parties to require funds received by
Borrower to be expended in a particular manner), whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's books relating to any of the foregoing; 



        (e)   All
documents, cash, deposit accounts, letters of credit (whether or not the letter of credit is evidenced by a writing), certificates of deposit, instruments,
promissory notes, chattel paper (whether tangible or electronic) and investment property, including, without limitation, all securities whether certificated or uncertificated, security entitlements,
securities accounts, commodity contracts and commodity accounts and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired and Borrower's
books relating to the foregoing; and 


        (f)    Any
and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof including, without limitation,
insurance, condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual Property. 


        (g)   Notwithstanding
the foregoing, the Collateral shall not include any property that: (i) is nonassignable by its terms without the consent of the licensor thereof
or another party (but only to the extent such prohibition on transfer is enforceable under applicable law), or (ii) the granting of a security interest therein is contrary to applicable law,
provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral. 




        4.2    After-Acquired Property.    If Borrower shall at any time acquire a commercial tort claim, as defined in the
Code, Borrower shall promptly notify Lender in writing signed by Borrower of the brief details thereof and grant to Lender in such writing a security interest therein and in the proceeds thereof, all
upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lender. 


        4.3    Duration of Security Interest.    Lender's security interest in the Collateral shall continue until the payment
in full and the satisfaction of all Obligations (other than the contingent indemnity obligations in Section 10.3 below) and termination of Lender's commitment to fund the Loans, whereupon such
security interest shall terminate. Lender shall, at Borrower's sole cost and expense, execute such further documents and take such further actions as may be reasonably necessary to make effective the
release contemplated by this Section 4.3, including duly executing and delivering termination statements for filing in all relevant jurisdictions
under the Code. 



12









  



        4.4    Location and Possession of Collateral.    The Collateral is and shall remain in the possession of Borrower at
its location listed on the cover page hereof or as set forth in the Disclosure Schedule (except for Collateral having an aggregate value of less than Fifty Thousand Dollars ($50,000)). Borrower shall
remain in full possession, enjoyment and control of the Collateral (except only as may be otherwise required by Lender for perfection of its security interest therein) and so long as no Event of
Default has occurred, shall be entitled to manage, operate and use the same and each part thereof with the rights and franchises appertaining thereto; provided
that the possession, enjoyment, control and use of the Collateral shall at all time be subject to the observance and performance of the terms of this Agreement. 


        4.5    Delivery of Additional Documentation Required.    Borrower shall from time to time execute and deliver to
Lender, at the request of Lender, all financing statements and other documents Lender may reasonably request, in form satisfactory to Lender, to perfect and continue Lender's perfected security
interests in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents. 


        4.6    Right to Inspect.    Lender (through any of its officers, employees, or agents) shall have the right, upon
reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's books and records and to make copies thereof and to inspect, test, and appraise the Collateral
in order to verify Borrower's financial condition or the amount, condition of or any other matter relating to, the Collateral; provided, that, if no Event of Default shall have occurred and be
continuing, Borrower shall not make inspections more than once per calendar year and the cost to Borrower of each such audit shall not exceed Three Thousand Five Hundred Dollars ($3,500). 


        4.7    Intellectual Property.    



        (a)   Registration of Copyrights.    At Lender's request, Borrower shall register or cause to be registered with the
United States Copyright Office any software (material to the business of Borrower) developed or acquired by Borrower in connection with any product developed or acquired for sale or licensing. 



        (b)   Additional Intellectual Property.    Borrower shall promptly notify Lender on or before the federal
registration or filing by Borrower of any patent or patent application, or trademark or trademark application, or copyright or copyright application and shall promptly execute and deliver to Lender
any grants of security interests in same, in form acceptable to Lender, to file with the United States Patent and Trademark Office or the United States Copyright Office, as applicable. 


        (c)   Protection of Intellectual Property.    Borrower shall (i) protect, defend and maintain the validity and
enforceability of its Intellectual Property and promptly advise Lender in writing of material infringements, and (ii) not allow any Intellectual Property material to Borrower's business to be
abandoned, forfeited or dedicated to the public without Lender's written consent unless no Event of Default has occurred and is continuing and the Borrower's board of directors determines in good
faith that (a) such action is in the best interests of the Borrower and (b) the value of such Intellectual Property is less than One Hundred Thousand Dollars ($100,000). 




        4.8    Lien Subordination.    Lender agrees that the Liens granted to it hereunder shall be subordinate to Liens to
securing Indebtedness permitted under clause (e) of the definition of Permitted Indebtedness. Lender agrees that the Liens granted to it hereunder in Third Party Equipment shall be subordinate
to the Liens of future lenders providing equipment and software financing and equipment and software lessors for equipment, software and other personal property acquired by Borrower after the date
hereof ("Third Party Equipment"); provided that in the case of 



13







 

equipment
financings and leasing such Liens are confined solely to the equipment or software so financed and the proceeds thereof and are Permitted Liens. Notwithstanding the foregoing, the
Obligations hereunder shall not be subordinate in right of payment to any obligations to other equipment lenders or equipment lessors and Lender's rights and remedies in any Collateral which does not
constitute Third Party Equipment shall not in any way be subordinate to the rights and remedies of any such lenders or equipment lessors. So long as no Event of Default has occurred and is continuing,
Lender agrees to execute and deliver such agreements and documents as may be reasonably requested by Borrower from time to time which set forth the lien subordination described in this  Section 4.8
and are reasonably acceptable to Lender. Lender shall have no obligation to execute any agreement or document which would impose
obligations, restrictions or lien priority on Lender which are less favorable to Lender than those described in this Section 4.8. 




        5.    Representations and Warranties.    Except as set forth in the Disclosure Schedule, Borrower represents and
warrants as follows: 



        5.1    Organization and Qualification.    Borrower is a corporation duly organized and validly existing under the laws
of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the conduct of its business or its ownership of Property requires that it be
so qualified or in which the Collateral is located, except for such states as to which any failure to so qualify would not have a material adverse effect on Borrower. 


        5.2    Authority.    Borrower has all necessary power and authority to execute, deliver, and perform in accordance
with the terms thereof, the Loan Documents to which it is a party. Borrower has all requisite power and authority to own and operate its Property and to carry on its businesses as now conducted. 


        5.3    Conflict with Other Instruments, etc.    Neither the execution and delivery of any Loan Document to which
Borrower is a party nor the consummation of the transactions therein contemplated nor compliance with the terms, conditions and provisions thereof will conflict with or result in a breach of any of
the terms, conditions or provisions of the certificate of incorporation, the by-laws, or any other organizational documents of Borrower or any law or any regulation, order, writ,
injunction or decree of any court or governmental instrumentality or any material agreement or instrument to which Borrower is a party or by which it or any of its Property is bound or to which it or
any of its Property is subject, or constitute a default thereunder or result in the creation or imposition of any Lien, other than Permitted Liens. 


        5.4    Authorization; Enforceability.    The execution and delivery of this Agreement, the granting of the security
interest in the Collateral, the incurring of the Loans, the execution and delivery of the other Loan Documents to which Borrower is a party and the consummation of the transactions herein and therein
contemplated have each been duly authorized by all necessary action on the part of Borrower. No authorization, consent, approval, license or exemption of and no registration, qualification,
designation, declaration or filing with, or notice to, any Person is, was or will be necessary to (i) the valid execution and delivery of any Loan Document to which Borrower is a party,
(ii) the performance of Borrower's obligations under any Loan Document, or (iii) the granting of the security interest in the Collateral, except for filings in connection with the
perfection of the security interest in any of the Collateral or the issuance of the Warrant. The Loan Documents have been duly executed and delivered and constitute legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general
application relating to or affecting the enforcement of creditors' rights or by general principles of equity. 


        5.5    No Prior Encumbrances.    Borrower has good and marketable title to the Collateral free and clear of Liens
except for Permitted Liens. Borrower has good title and ownership of, or is 



14







 




licensed
under, all of Borrower's current Intellectual Property. Borrower has not received any communications alleging that Borrower has violated, or by conducting its business as proposed, would
violate any proprietary rights of any other Person. Borrower has no knowledge of any infringement or violation by it of the intellectual property rights of any third party and has no knowledge of any
violation or infringement by a third party of any of its Intellectual Property. The Collateral and the Intellectual Property constitute substantially all of the assets and property of Borrower. 


        5.6    Name; Location of Chief Executive Office, Principal Place of Business and Collateral.    Borrower has not done
business under any name other than that specified on the signature page hereof. Borrower's jurisdiction of incorporation, chief executive office, principal place of business, and the place where
Borrower maintains its records concerning the Collateral are presently located in the state and at the address set forth on the cover page of this Agreement. The Collateral is presently located at the
address set forth on the cover page hereof or as set forth in the Disclosure Schedule. 


        5.7    Litigation.    There are no actions or proceedings pending by or against Borrower before any court or
administrative agency in which an adverse decision could have a material adverse effect on Borrower or the aggregate value of the Collateral. Borrower does not have knowledge of any such pending or
threatened actions or proceedings. 


        5.8    Financial Statements.    All financial statements relating to Borrower or any Affiliate that have been or may
hereafter be delivered by Borrower to Lender present fairly in all material respects Borrower's financial condition as of the date thereof and Borrower's results of operations for the period then
ended. 


        5.9    No Material Adverse Effect.    No event has occurred and no condition exists which could reasonably be expected
to have a material adverse effect on the financial condition, business or operations of Borrower since December 31, 2004. 


        5.10    Full Disclosure.    No representation, warranty or other statement made by Borrower in any Loan Document
(including the Disclosure Schedule), certificate or written statement furnished to Lender contains any untrue statement of a material fact or omits to state a material fact necessary in order to make
the statements contained in such certificates or statements not misleading. There is no fact known to Borrower which materially adversely affects its ability to perform its obligations under this
Agreement. 


        5.11    Solvency, Etc.    Borrower is Solvent (as defined below) and, after the execution and delivery of the Loan
Documents and the consummation of the transactions contemplated thereby, Borrower will be Solvent. "Solvent" means, with respect to any Person on any
date, that on such date (a) the fair value of the property of such Person is greater than the fair value of the liabilities (including, without limitation, contingent liabilities) of such
Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they
become absolute and matured (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities
mature and (d) such Person is not engaged in business or a transaction and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably
small capital. 


        5.12    Subsidiaries.    Borrower has no Subsidiaries. 



        5.13    Catastrophic Events; Labor Disputes.    None of Borrower or its properties is or has been affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo act of God or other casualty that could reasonably be expected to have a material adverse
effect on the financial condition, business or operations of Borrower. There are 



15







 




no
disputes presently subject to grievance procedure, arbitration or litigation under any of the collective bargaining agreements, employment contracts or employee welfare or incentive plans to which
Borrower is a party, and there are no strikes, lockouts, work stoppages or slowdowns, or, to the knowledge of Borrower, jurisdictional disputes or organizing activity occurring or threatened which
could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower. 


        5.14    Certain Agreements of Officers.    Employees and Consultants. 



        (a)   No Violation.    To the knowledge of Borrower no officer, employee or consultant of Borrower is, or is now
expected to be, in violation of any term of any employment contract, proprietary information agreement, nondisclosure agreement, noncompetition agreement or any other material contract or agreement or
any restrictive covenant relating to the right of any such officer, employee or consultant to be employed by Borrower because of the nature of the business conducted or to be conducted by Borrower or
relating to the use of trade secrets or proprietary information of others, and to Borrower's knowledge, the continued employment of Borrower's officers, employees and consultants does not subject
Borrower to any material liability for any claim or claims arising out of or in connection with any such contract, agreement, or covenant. 


        (b)   No Present Intention to Terminate.    To the knowledge of Borrower, no officer of Borrower, and no employee or
consultant of Borrower whose termination, either individually or in the aggregate, could reasonably be expected to have a material adverse effect on the financial condition, business or operations of
Borrower, has any present intention of terminating his or her employment or consulting relationship with Borrower. 





        6.    Affirmative Covenants.    Borrower, until the full and complete payment of the Obligations (other than the
contingent indemnity obligations in Section 10.3 below), covenants and agrees that: 



        6.1    Good Standing.    Borrower shall maintain its corporate existence and its good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the financial condition, operations
or business of Borrower. Borrower shall maintain in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a material adverse effect on its financial
condition, operations or business. 


        6.2    Government Compliance.    Borrower shall comply with all statutes, laws, ordinances and government rules and
regulations to which it is subject, noncompliance with which could reasonably be expected to materially adversely affect the financial condition, operations or business of Borrower. 


        6.3    Financial Statements, Reports, Certificates.    Borrower shall deliver to Lender: (a) as soon as
available, but in any event within thirty (30) days after the end of each month, a company prepared balance sheet, income statement and cash flow statement covering Borrower's operations during
such period, certified by Borrower's president, treasurer, director of finance or chief financial officer (each, a "Responsible Officer"); (b) as
soon as available, but in any event within one hundred eighty (180) days after the end of Borrower's fiscal year, audited financial statements of Borrower prepared in accordance with GAAP,
together with an unqualified opinion on such financial statements of a nationally recognized or other independent public accounting firm reasonably acceptable to Lender; and (c) as soon as
available, but in any event within ninety (90) days after the end of Borrower's fiscal year or the date of Borrower's board of directors' adoption, Borrower's operating budget and plan for the
next fiscal year; and (d) such other financial information as Lender may reasonably request from time to time. From and after such time as Borrower becomes a publicly reporting company,
promptly as they are available and in any 



16







 




event:
(x) at the time of filing of Borrower's Form 10-K with the Securities and Exchange Commission after the end of each fiscal year of Borrower, the financial statements
of Borrower filed with such Form 10-K; and (y) at the time of filing of Borrower's Form 10-Q with the Securities and Exchange Commission after the end of
each of the first three fiscal quarters of Borrower, the financial statements of Borrower filed with such Form 10-Q. In addition, Borrower shall deliver to Lender
(i) promptly upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders; and (ii) promptly upon receipt
of notice thereof, a report of any material legal actions pending or threatened against Borrower or the commencement of any action, proceeding or governmental investigation involving Borrower is
commenced that is reasonably expected to result in damages or costs to Borrower of Two Hundred Fifty Thousand Dollars ($250,000) or more. 


        6.4    Certificates of Compliance.    Each time financial statements are furnished pursuant to  Section 6.3 above, Borrower
shall deliver to Lender an Officer's Certificate signed by a Responsible Officer in the form of, and certifying to
the matters set forth in Exhibit E hereto. 


        6.5    Notice of Defaults.    As soon as possible, and in any event within five (5) days after the discovery of
a Default or an Event of Default, Borrower shall provide Lender with an Officer's Certificate setting forth the facts relating to or giving rise to such Default or Event of Default and the action
which Borrower proposes to take with respect thereto. 


        6.6    Taxes.    Borrower shall make due and timely payment or deposit of all federal state, and local taxes,
assessments, or contributions required of it by law or imposed upon any property belonging to it, and will execute and deliver to Lender, on demand, appropriate certificates attesting to the payment
or
deposit thereof; and Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request, furnish Lender with proof satisfactory to Lender indicating that Borrower has made such payments or deposits;  provided that Borrower need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings which
suspend the collection thereof (provided that such proceedings do not involve any substantial danger of the sale forfeiture or loss of any material item
of Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such amounts or reserves sufficient to discharge such amounts have been provided on
the books of Borrower). 


        6.7    Use; Maintenance.    Borrower shall keep and maintain all items of equipment and other similar types of
personal property that form any significant portion or portions of the Collateral in good operating condition and repair and shall make all necessary replacements thereof and renewals thereto so that
the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any such material item of Collateral to become a fixture to real estate or an
accession to other personal property, without the prior written consent of Lender. Borrower shall not permit any such material item of Collateral to be operated or maintained in violation of any
applicable law, statute, rule or regulation. With respect to items of leased equipment (to the extent Lender has any security interest in any residual Borrower's interest in such equipment under the
lease). Borrower shall keep, maintain, repair, replace and operate such leased equipment in accordance with the terms of the applicable lease. 


        6.8    Insurance.    Borrower shall keep its business and the Collateral insured for risks and in amounts, and as
Lender may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are reasonably satisfactory to Lender. All property policies shall have a lender's loss
payable endorsement showing Lender as an additional loss payee and all liability policies shall show Lender as an additional insured and all policies shall provide that the insurer must give Lender at
least thirty (30) days notice before canceling its policy. At Lender's 



17







 




request,
Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall at Lender's option, be payable to Lender on account of the
Obligations. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy, toward the
replacement or repair of destroyed or damaged property; provided that (i) any such replaced or repaired property (a) shall be of equal or like value as the replaced or repaired
Collateral and (b) shall be deemed Collateral in which Lender has been granted a first priority security interest and (ii) after the occurrence and during the continuation of an Event of
Default all proceeds payable under such casualty policy shall, at the option of Lender, be payable to Lender, on account of the Obligations. If Borrower fails to obtain insurance as required under
Section 6.8 or to pay any amount or furnish any required proof of payment to third persons and Lender, Lender may make all or part of such payment or obtain such insurance policies required in
Section 6.8, and take any action under the policies Lender deems prudent. On or prior to the first Funding Date and prior to each policy renewal, Borrower shall furnish to Lender certificates
of insurance or other evidence satisfactory to Lender that insurance complying with all of the above requirements is in effect. 


        6.9    Security Interest.    Assuming the proper and effective filing and indexing of one or more financing
statement(s) identifying the Collateral with the proper state and/or local authorities, the security interests in the Collateral granted to Lender pursuant to this Agreement (in which a security
interest may be perfected by the filing of a financing statement): (i) constitute and will continue to constitute first priority security interests (except to the extent any Permitted Liens may
have a superior priority to Lender's Lien under this Agreement) and (ii) are and will continue to be superior and prior to the rights of all other creditors of Borrower (except to the extent of
such Permitted Liens). Except as set forth in the Disclosure Schedule, none of Borrower's Intellectual Property is registered with either the US Patent and Trademark Office or the US Copyright Office. 


        6.10    Further Assurances.    At any time and from time to time Borrower shall execute and deliver such further
instruments and take such further action as may reasonably be requested by Lender to make effective the purposes of this Agreement, including without limitation, the continued perfection and priority
of Lender's security interest in the Collateral. 


        6.11    Equity Investment.    Borrower shall permit Lender or its assignees at Lender's option to purchase up to Five
Hundred Thousand Dollars ($500,000) worth of the securities sold in Borrower's next round of equity financing at the same price and on the same terms as paid and received by the lead investor of the
equity financing. Borrower agrees that it shall notify Lender promptly upon the execution by Borrower of a term sheet or letter of intent setting forth the terms and conditions of such financing and
in any event within five (5) days of such execution. 



        6.12    Subsidiaries.    Upon Lender's request, Borrower shall promptly provide Lender with a pledge of the ownership
interests of all of its Subsidiaries and cause such Subsidiaries to execute and deliver to Lender a guaranty of the Obligations and any and all documents reasonably deemed necessary by Lender to grant
a security interest to Lender in all of the assets of such Subsidiaries. 


        6.13    Assignability of Property.    Borrower shall provide Lender with notice of any of its property with a value of
greater than One Hundred Fifty Thousand Dollars ($150,000) that: (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such
prohibition on transfer is enforceable under applicable law), or (ii) the granting of a security interest therein is contrary to applicable law. 



18







 





        7.    Negative Covenants.    Borrower, until the full and complete payment of the Obligations (other than the
contingent indemnity obligations in Section 10.3 below), covenants and agrees that Borrower, without the prior written consent of Lender, shall not: 



        7.1    Chief Executive Office.    Change its name, jurisdiction of incorporation, chief executive office, principal
place of business or any of the items set forth in Section 1 of the Disclosure Schedule without thirty (30) days prior written notice to Lender. 


        7.2    Collateral Control.    Subject to its rights under Sections 4.4 and
7.4, remove any items of Collateral from Borrower's facility located at the address set forth on the cover page hereof or as set forth on the Disclosure Schedule. 


        7.3    Liens.    Create, incur, assume or suffer to exist any Lien of any kind upon any of Borrower's Property,
whether now owned or hereafter acquired, except Permitted Liens. 


        7.4    Other Dispositions of Collateral.    Convey, sell, lease or otherwise dispose of all or any part of the
Collateral to any Person (collectively, a "Transfer""), except for: (i) Transfers of inventory in the ordinary course of business;
(ii) Transfers of surplus, worn-out or obsolete equipment; (iii) Transfers permitted under subclause (f) of the definition of Permitted Liens with respect to
Collateral; (iv) Transfers constituting Permitted investments or Permitted Liens (including the liquidation of Permitted Investments); (v) non-exclusive licenses of
Intellectual Property in the ordinary course of business; and (vi) Transfers of other property not to exceed One Hundred Thousand Dollars ($100,000) in any fiscal year. 


        7.5    Distributions.    (i) Pay any dividends or make any distributions on its Equity Securities;
(ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities (other than repurchases pursuant to the terms of employee stock purchase plans, employee
restricted stock agreements or similar arrangements in an aggregate amount sufficient to repurchase any early exercised, but unvested Equity Securities from employees of Borrower in connection with
the termination of any such employees employment with Borrower); (iii) return any capita] to any holder of its Equity Securities as such; (iv) make any distribution of
assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such; or (v) set apart any sum for any such purpose;  provided, however, Borrower may pay dividends payable solely in Equity Securities, and Borrower may
issue Equity Securities upon conversion of convertible debt, provided such convertible debt constitutes Permitted Indebtedness. 



        7.6    Mergers or Acquisitions.    Merge or consolidate with or into any other Person or acquire all or substantially
all of the capital stock or assets of another Person. 


        7.7    Change in Ownership.    Engage in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership of greater than twenty five percent (25%) (other than by the sale by Borrower of
Borrower's Equity Securities in a public offering or to venture capital investors so long as Borrower identifies to Lender the venture capital investors prior to the closing of the investment). 


        7.8    Transactions With Affiliates.    Enter into any contractual obligation with any Affiliate or engage in any
other transaction with any Affiliate except upon terms at least as favorable to Borrower as an arms-length transaction with Persons who are not Affiliates of Borrower, provided that
nothing contained herein shall prohibit Borrower from selling its Equity Securities to Borrower's current investors. 



        7.9    Indebtedness Payments.    (i) Prepay, redeem, purchase, defense or otherwise satisfy in any manner prior
to the scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due or permitted to be prepaid under this Agreement or under any revolving credit 



19







 




agreement
constituting Permitted Indebtedness under clause (e) of the definition of Permitted Indebtedness) or lease obligations, (ii) amend, modify or otherwise change the terms of any
Indebtedness for borrowed money or lease obligations so as to accelerate the scheduled repayment thereof or (iii) repay any notes to officers, directors or shareholders. 


        7.10    Indebtedness.    Create, incur, assume or permit to exist any Indebtedness except Permitted Indebtedness. 


        7.11    Investments.    Make any Investment except for Permitted Investments. 


        7.12    Compliance.    Become an "investment company" or a company controlled by an "investment company" under the
Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Loan for that purpose; fail to meet the
minimum funding requirements of the Employment Retirement Income Security Act of 1974, and its regulations, as amended from time to time ("ERISA"),
permit a Reportable Event or Prohibited Transaction as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, in each case if the
violation could reasonably be expected to have a material adverse effect on Borrower's business or operations or could reasonably be expected to cause a material adverse change, or permit any of its
Subsidiaries to do so. 




        8.    Events of Default.    Any one or more of the following events shall constitute art
"Event of Default" by Borrower under this Agreement: 



        8.1    Failure to Pay.    If Borrower fails to pay when due and payable or when declared due and payable in accordance
with the Loan Documents: (i) any Scheduled Payment within two (2) days of the relevant Payment Date or the relevant Maturity Date or (ii) any other portion of the Obligations
within five (5) days after receipt of written notice from Lender that such payment is due. 


        8.2    Certain Covenant Defaults.    If Borrower fails to perform any obligation under  Section 6.8 or violates any of the
covenants contained in Section 7 of this Agreement. 



        8.3    Other Covenant Defaults.    If Borrower fails or neglects to perform, keep, or observe any other material term,
provision, condition, covenant, or agreement contained in this Agreement (other than as set forth in Section 5 and Sections 8.1. 8.2 or 8.4 through
8.13) in any of the other Loan Documents and Borrower has failed to cure such default within fifteen (15) days of the occurrence of such default. During this fifteen
(15) day period, the failure to cure the default is not an Event of Default (but no Loan will be made during the cure period). 



        8.4    Intentionally Omitted,    


        8.5    Seizure of Assets, Etc.    If any material portion of Borrower's assets is attached, seized, subjected to a
writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or Person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material
part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency and
the same is not satisfied, discharged or paid within ten (10) days after Borrower receives notice thereof; provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower. 



20









  



        8.6    Service of Process.    The service of process upon Lender seeking to attach by a trustee or other process any
funds of the Borrower on deposit or otherwise held by Lender, or the delivery upon Lender of a notice of foreclosure by any Person seeking to attach or foreclose on any funds of the Borrower on
deposit or otherwise held by Lender, or the delivery of a notice of foreclosure or exclusive control to any entity holding or maintaining Borrower's deposit accounts or accounts holding securities by
any Person (other than Lender) seeking to foreclose or attach any such accounts or securities. 


        8.7    Default on Indebtedness.    One or more defaults shall exist under any agreement with any third party or
parties which consists of the failure to pay any Indebtedness in an aggregate principal amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) at maturity or which results in a right by
such third party or parties, whether or not exercised, to accelerate the maturity of Indebtedness in an aggregate amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) or a default shall
exist under any financing agreement with Lender. 


        8.8    Judgments.    If a judgment or judgments for the payment of money in an amount, individually or in the
aggregate of at least Two Hundred Fifty Thousand Dollars ($250,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days or more. 


        8.9    Misrepresentations.    If any material misrepresentation or material misstatement of a material fact exists now
or hereafter in any warranty, representation, statement, certification, or report made to Lender by Borrower or any officer, employee, agent, or director of Borrower. 


        8.10    Breach of Warrant.    If Borrower shall breach any material term of the Warrant. 


        8.11    Unenforceable Loan Document.    If any Loan Document shall in any material respect cease to be, or Borrower
shall assert that any Loan Document is not, a legal, valid and binding obligation of Borrower enforceable in accordance with its terms. 



        8.12    Involuntary Insolvency Proceeding.    If a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee (or similar official) of Borrower or for any substantial part of its Property or for the winding-up
or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a
period of thirty (30) consecutive days or such court shall enter a decree or order granting the relief sought in such proceeding. 



        8.13    Voluntary Insolvency Proceeding.    If Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian (or other similar official) of Borrower or for any substantial part of its Property, or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any oldie foregoing. 




        9.    Lender's Rights and Remedies.    



        9.1    Rights and Remedies.    Upon the occurrence and during the continuance of any Default or Event of Default which
has not been waived by Lender, Lender shall not have any further obligation to advance money or extend credit to or for the benefit of Borrower. In addition, upon the occurrence and during the
continuance of an Event of Default, Lender shall have the rights, options, duties and remedies of a secured party as permitted by law and, in addition to and 



21







 

without
limitation of the foregoing, Lender may, at its election, without notice of election and without demand, do any one or more of the following, all of which are authorized by Borrower: 



        (a)   Acceleration of Obligations.    Declare all Obligations, whether evidenced by this Agreement, by any of the
other Loan Documents, or otherwise including (i) any accrued and unpaid interest, (ii) the amounts which would have otherwise come due under Section 2.3(b)(ii) if the Loans
had been voluntarily prepaid, (iii) the unpaid principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder, immediately due and
payable (provided that upon the occurrence of an Event of Default described in Section 8.12 or
8.13 all Obligations shall become immediately due and payable without any action by Lender); 


        (b)   Protection of Collateral.    Make such payments and do such acts as Lender considers necessary or reasonable to
protect Lender's security interest in the Collateral. Borrower agrees to assemble the Collateral if Lender so requires and to make the Collateral available to Lender as Lender may designate. Borrower
authorizes Lender and its designees and agents to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any Lien which in Lender's determination appears or is claimed to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby grants Lender a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in order to exercise any of Lender's rights or remedies provided herein, at law, in equity, or otherwise; 


        (c)   Preparation of Collateral for Sale.    Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Lender and its agents and any purchasers at or after foreclosure are hereby granted a non-exclusive,
irrevocable, perpetual, fully paid, royalty-free license or other right, solely pursuant to the provisions of this Section 9.1, to
use, without charge, Borrower's Intellectual Property, including without limitation, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any Property of a similar nature, now or at any time hereafter owned or acquired by Borrower or in which Borrower now or at any time hereafter has any rights;  provided that such
license shall only be exercisable in connection with the disposition of Collateral upon Lender's exercise of its remedies hereunder; 



        (d)   Sale of Collateral.    Sell the Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Lender determines are commercially reasonable; and 


        (e)   Purchase of Collateral.    Credit bid and purchase all or any portion of the Collateral at any public sale. 





Any
deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 



        9.2    Set Off Right.    Lender may set off and apply to the Obligations any and all indebtedness at any time owing to
or for the credit or the account of Borrower or any other assets of Borrower in Lender's possession or control. 


        9.3    Effect of Sale.    Upon the occurrence and during the continuance of an Event of Default, to the extent
permitted by law, Borrower covenants that it will not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of, any stay or 



22







 




extension
law now or at any time hereafter in force, nor claim, take nor insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisement
of the Collateral or any part thereof prior to any sale or sales thereof to be made pursuant to any provision herein contained, or to the decree, judgment or order of any court of competent
jurisdiction; nor, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold or any part
thereof, and, to the full extent legally permitted, except as to rights expressly provided herein, hereby expressly waives for itself and on behalf of each and every Person, except decree or judgment
creditors of Borrower, acquiring any interest in or title to the Collateral or any part thereof subsequent to the date of this Agreement, all benefit and advantage of any such law or laws and
covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to Lender, but will suffer and permit the
execution of every such power as though no such power, law or laws had been made or enacted. Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate
to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Borrower in and to the Property sold, and shall be a perpetual bar, both at law and in equity, against
Borrower, its successors and assigns, and against any and all Persons claiming the Property sold or any part thereof under, by or through Borrower, its successors or assigns. 


        9.4    Power of Attorney in Respect of the Collateral.    Borrower does hereby irrevocably appoint Lender (which
appointment is coupled with an interest), the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name to file any notices of security interests, financing
statements and continuations and amendments thereof pursuant to the Code or federal law, as may be necessary to perfect, or to continue the perfection of Lender's security interests in the Collateral.
Borrower does hereby irrevocably appoint Lender (which appointment is coupled with an interest) on the occurrence and during the continuance of an Event of Default, the true and lawful attorney in
fact of Borrower with full power of substitution, for it and in its name: (a) to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all rents,
issues, profits, avails, distributions, income, payment draws and other sums in which a security interest is granted under Section 4 with full
power to settle, adjust or compromise any claim thereunder as fully as if Lender were Borrower itself; (b) to receive payment of and to endorse the name of Borrower to any items of Collateral
(including checks, drafts and other orders for the payment of money) that come into Lender's possession or under Lender's control; (c) to make all demands, consents and waivers, or take any
other action with respect to, the Collateral; (d) in Lender's discretion to file any claim or take any other action or proceedings, either in its own name or in the name of Borrower or
otherwise, which Lender may reasonably deem necessary or appropriate to protect and preserve the right, title and interest of Lender in and to the Collateral; (e) endorse Borrower's name on any
checks or other forms of payment or security; (t) sign Borrower's name on any invoice or bill of lading for any account or drafts against account debtors; (g) make, settle, and adjust
all claims under Borrower's insurance policies; (h) settle and adjust disputes and claims about the accounts directly with account debtors, for amounts and on terms Lender determines
reasonable; (i) transfer the Collateral into the name of Lender or a third party as the Code permits; and (j) to otherwise act with respect thereto as though Lender were the outright
owner of the Collateral. 


        9.5    Lender's Expenses.    If Borrower fails to pay any amounts or furnish any required proof of payment due to
third persons or entities, as required under the terms of this Agreement, then Lender may do any or all of the following: (a) make payment of the same or any part thereof; or (b) obtain
and maintain insurance policies of the type discussed in Section 6.8 of this Agreement, and take any action with respect to such policies as
Lender deems prudent. Any amounts paid or deposited by Lender shall constitute Lender's Expenses, shall be immediately due and payable, 



23







 




shall
bear interest at the Default Rate and shall be secured by the Collateral. Any payments made by Lender shall not constitute an agreement by Lender to make similar payments in the future or a
waiver by Lender of any Event of Default under this Agreement. Borrower shall pay all reasonable fees and expenses, including without limitation, Lender's Expenses, incurred by Lender in the
enforcement or attempt to enforce any of the Obligations hereunder not performed when due. 


        9.6    Remedies Cumulative.    Lender's rights and remedies under this Agreement, the Loan Documents, and all other
agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy
shall be deemed an election, and no waiver by Lender of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or
acquiescence by it. 


        9.7    Application of Collateral Proceeds.    The proceeds and/or avails of the Collateral, or any part thereof and
the proceeds and the avails of any remedy hereunder (as well as any other amounts of any kind held by Lender, at the time of or received by Lender after the ocurrence of an Event of Default hereunder)
shall be paid to and applied as follows: 



        (a)   First, to the payment of out-of-pocket costs and expenses including all amounts expended to
preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances,
including reasonable legal expenses and attorneys' fees, incurred or made hereunder by Lender, including, without limitation, Lender's Expenses; 


        (b)   Second, to the payment to Lender of the amount then owing or unpaid on the Loans for any accrued and unpaid interest, the
amounts which would have otherwise come due under Section 2.3(b)(ii), if the Loans had been voluntarily prepaid, the principal balance of the Loans, and all other Obligations with respect to
the Loans (provided, however, if such proceeds shall be insufficient to pay in full the whole amount so
due owing or unpaid upon the Loans, then to the unpaid interest thereon, then to the amounts which would have otherwise came due under Section 2.3(b)(ii), if the Loans had been voluntarily
prepaid, then to the principal balance of the Loans, and then to the payment of other amounts then payable to Lender under any of the Loan Documents); and 



        (c)   Third, to the payment of the surplus, if any, to Borrower, its successors and assigns, or to the Person lawfully entitled
to receive the same. 




        9.8    Reinstatement of Rights.    If Lender shall have proceeded to enforce any right under this Agreement or any
other Loan Document by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then and in every
such ease (unless otherwise ordered by a court of competent jurisdiction), Lender shall be restored to its former position and rights hereunder with respect to the Property subject to the security
interest created under this Agreement. 




        10.    Waivers; Indemnification.    



        10.1    Demand; Protest.    Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Lender on which Borrower may in any way be liable. 


        10.2    Lender's Liability for Collateral.    So long as Lender complies with its obligations, if any, under the Code.
Lender shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or 



24







 




fashion
from any cause other than Lender's gross negligence or willful misconduct; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other Person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower, except to the extent such loss, damage or destruction is
caused by Lender's gross negligence or willful misconduct. 



        10.3    Indemnification and Waiver.    Whether or not the transactions contemplated hereby shall be consummated: 



        (a)   General Indemnity.    Borrower agrees upon demand to pay or reimburse Lender for all liabilities, obligations
and out-of-pocket expenses, including Lender's Expenses and reasonable fees and expenses of counsel for Lender from time to time arising in connection with the enforcement or
collection of sums due under the Loan Documents, and in connection with any amendment or modification of the Loan Documents or any "work-out" in connection with the Loan Documents.
Borrower shall indemnify, reimburse and hold Lender, and each of its respective successors, assigns, agents; attorneys, officers, directors, shareholders, servants, agents and
employees (each an "Indemnified Person") harmless from and against all liabilities, losses, damages, actions, suits, demands, claims of any kind and
nature (including claims relating to environmental discharge, cleanup or compliance), all costs and expenses whatsoever to the extent they may be incurred or suffered by such Indemnified Person in
connection therewith (including reasonable attorneys' fees and expenses), fines, penalties (and other charges of any applicable Governmental Authority), licensing fees relating to any item of
Collateral, damage to or loss of use of property (including consequential or special damages to third parties or damages to Borrower's property), or bodily injury to or death of any person (including
any agent or employee of Borrower) (each, a "Claim"), directly or indirectly relating to or arising out of the use of the proceeds of the Loans or
otherwise, the falsity of any representation or warranty of Borrower or Borrower's failure to comply with the terms of this Agreement or any other Loan Document. The foregoing indemnity shall cover,
without limitation, (i) any Claim in connection with a design or other defect (latent or patent) in any item of equipment or product included in the Collateral, (ii) any Claim for
infringement of any patent, copyright, trademark or other intellectual property right, (iii) any Claim resulting from the presence on or under or the escape, seepage, leakage, spillage,
discharge, emission or release of any Hazardous Materials on the premises owned, occupied or leased by Borrower, including any Claims asserted or arising under any Environmental Law, (iv) any
Claim for negligence or strict or absolute liability in tort, or (v) any Claim asserted as to or arising under any Landlord Agreement; provided,  however, Borrower shall not indemnify Lender for any liability incurred by Lender as a result of Lender's gross negligence or willful misconduct or
violation of any of the Loan Documents. Such indemnities shall continue in full force and effect, notwithstanding the expiration or termination of this Agreement. Upon Lender's written demand,
Borrower shall assume and diligently conduct, at its sole cost and expense, the entire defense of Lender, each of its partners, and each of their respective, agents, employees, directors, officers,
shareholders, successors and assigns against any indemnified Claim described in this Section 10.3(a). Borrower shall not settle or compromise any
Claim against or involving Lender without first obtaining Lender's written consent thereto, which consent shall not be unreasonably withheld. 


        (b)   Waiver.    NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR ANYWHERE ELSE. BORROWER
AGREES THAT IT SHALL NOT SEEK FROM LENDER UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES. 




25







 





        (c)   Survival; Defense.    The obligations in this  Section 10.3 shall survive payment of all other Obligations pursuant to Section 12.8. At
the election of any Indemnified Person. Borrower shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's reasonable discretion, at the sole
cost and expense of Borrower. All amounts owing under this Section 10.3 shall be paid within thirty (30) days after written demand. If it
is finally determined that such Indemnified Person is not entitled to indemnification, then such Indemnified Person shall, promptly after such final determination, reimburse Borrower all amounts
Borrower has expended in connection with such defense of such Indemnified Person. 





        11.    Notices.    Unless otherwise provided in this Agreement, all notices or demands by any party relating to this
Agreement or any other agreement entered into in connection herewith shall be in writing and
(except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid,
return receipt requested, by prepaid nationally recognized overnight courier, or by prepaid facsimile to Borrower or to Lender, as the case may be, at their respective addresses set forth below: 



	If to Borrower:	 	Convio, Inc.

11921 N. Mopac Expressway

Suite 200

Austin, TX 78759

Attention: Jim Offerdahl, CFO

Fax: (512) 652-2691

Ph: (512) 652-2622
	

If to Lender:	
 	

Horizon Technology Funding Company LLC

76 Batterson Park Road

Farmington, CT 06032

Attention: Legal Department

Fax: (860) 676-8655

Ph: (860) 676-8654






        The
parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 


        12.    General Provisions.    



        12.1    Successors and Assigns.    This Agreement and the Loan Documents shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties; provided, however, neither this
Agreement nor any rights hereunder may be assigned by Borrower without Lender's prior written consent, which consent may be granted or withheld in Lender's sole discretion. Lender shall have the right
without the consent of or notice to Borrower to sell, transfer, assign, negotiate, or grant participations in all or any part of, or any interest in Lender's rights and benefits hereunder. Lender may
disclose the Loan Documents and any other financial or other information relating to Borrower or any Subsidiary to any potential participant or assignee of any of the Loans,  provided, that such participant or assignee agrees to protect the confidentiality of such documents and
information using the same measures that it uses to protect its own confidential information. 


        12.2    Time of Essence.    Time is of the essence for the performance of all obligations set forth in this Agreement. 



26







 




        12.3    Severability of Provisions.    Each provision of this Agreement shall be several from every other provision of
this Agreement for the purpose of determining the legal enforceability of any specific provision. 


        12.4    Entire Agreement; Construction; Amendments and Waivers.    



        (a)   Entire Agreement.    This Agreement and each of the other Loan Documents dated as of the date hereof, taken
together, constitute and contain the entire agreement between Borrower and Lender and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between
the parties, whether written or oral, respecting the subject matter hereof. Borrower acknowledges that it is not relying on any representation or agreement made by Lender or any employee, attorney or
agent thereof, other than the specific agreements set forth in this Agreement and the Loan Documents. 


        (b)   Construction.    This Agreement is the result of negotiations between and has been reviewed by each of Borrower
and Lender executing this Agreement as of the date hereof and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be
construed in favor of or against Borrower or Lender. Borrower and Lender agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be
necessary or appropriate to establish Borrower's or Lender's actual intentions. 


        (c)   Amendments and Waivers.    Any and all amendments, modifications, discharges or waivers of, or consents to any
departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lender. Any waiver or consent with respect to any provision
of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower in any case shall entitle Borrower to any
other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent affected in accordance with this  Section 12.4 shall be binding upon Lender and on
Borrower. 




        12.5    Reliance by Lender.    All covenants, agreements, representations and warranties made herein by Borrower shall
be deemed to be material to and to have been relied upon by Lender, notwithstanding any investigation by Lender. 


        12.6    No Set-Offs by Borrower.    All sums payable by Borrower pursuant to this Agreement or any of the
other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever. 


        12.7    Counterparts.    This Agreement may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 


        12.8    Survival.    All covenants, representations and warranties made in this Agreement shall continue in full force
and effect so long as any Obligations (other than the contingent indemnity obligations in Section 10.3 above) or commitment to fund remain
outstanding. The obligations of Borrower to indemnify Lender with respect to the expenses, damages, losses, costs and liabilities described in  Section 10.3 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought against Lender have
run. 




        13.    Relationship of Parties.    Borrower and Lender acknowledge, understand and agree that the relationship between
Borrower, on the one hand, and Lender, on the other, is, and at all time shall remain solely that of a borrower and lender. Lender shall not under any circumstances be construed to be a partner or a
joint venturer of Borrower or any of its Affiliates; nor shall Lender under any 


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circumstances
be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower or any of its Affiliates, or to owe any fiduciary duty to Borrower or any of its
Affiliates. Lender does not undertake or assume any responsibility or duty to Borrower or any of its Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform Borrower
or any of its Affiliates of any matter in connection with its or their Property, any Collateral held by Lender or the operations of Borrower or any of its Affiliates. Borrower and each of its
Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by
Lender in connection with such matters is solely for the protection of Lender and neither Borrower nor any Affiliate is entitled to rely thereon. 



        14.    Confidentiality.    All information (other than periodic reports filed by Borrower with the Securities and
Exchange Commission) disclosed by Borrower to Lender in writing or through inspection pursuant to this Agreement that is marked confidential shall be considered confidential. Lender agrees to use the
same degree of care to safeguard and prevent disclosure of such confidential information as Lender uses with its own confidential information, but in any event no less than a reasonable degree of
care. Lender shall not disclose such information to any third party (other than to Lender's partners,
attorneys, governmental regulators, or auditors, or to Lender's subsidiaries and affiliates and prospective transferees and purchasers of the Loans, all subject to the same confidentiality obligation
set forth herein or as required by law, regulation, subpoena or other order to be disclosed) and shall use such information only for purposes of evaluation of its investment in Borrower and the
exercise of Lender's rights and the enforcement of its remedies under this Agreement and the other Loan Documents. The obligations of confidentiality shall not apply to any information that
(a) was known to the public prior to disclosure by Borrower under this Agreement. (b) becomes known to the public through no fault of Lender. (c) is disclosed to Lender by a third
party having a legal right to make such disclosure, or (d) is independently developed by Lender. Notwithstanding the foregoing, solely to the extent necessary to permit Lender to realize on the
value of the Collateral, Lender's agreement of confidentiality shall not apply if Lender has acquired indefeasible title to any Collateral or in connection with any enforcement or exercise of Lender's
rights and remedies under this Agreement fallowing an Event of Default, including the enforcement of Lender's security interest in the Collateral. 



        15.    CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.    THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF BORROWER AND LENDER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CONNECTICUT. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 



[Remainder
of page intentionally left blank.] 


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        IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. 



	 	 	BORROWER:

CONVIO, INC.
	

 	
 	

By:	

/s/ Jim Offerdahl

	 	 	Name:	Jim Offerdahl

	 	 	Title:	CFO

	

 	
 	

LENDER:

HORIZON TECHNOLOGY FUNDING COMPANY LLC
	 	 	By:	Horizon Technology Finance, LLC, its sole member
	

 	
 	

By:	

/s/ Robert D. Pomeroy, Jr.

	 	 	Name:	Robert D. Pomeroy, Jr.
	 	 	Title:	Managing Member




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