Exhibit 10.3

Upper Call Option Transaction

February 22, 2008

THE SECURITIES REPRESENTED HEREBY (THE “OPTIONS”) WERE ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND THE OPTIONS MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREOF.

 

To:

  

Verenium Corporation

55 Cambridge Parkway

Cambridge, MA 02142

Attention: Chief Financial Officer

From:

  

Capital Ventures International

By: Heights Capital Management, Inc., Its Authorized Agent

101 California Street, Suite 3250

San Francisco, CA 94111

Attention: Martin Kobinger

Ladies and Gentlemen:

The purpose of this agreement (this “Confirmation”) is to confirm the terms and
conditions of the above-referenced transaction entered into on the Trade Date
specified below (the “Transaction”) between Capital Ventures International
(“Party A”) and Verenium Corporation (“Party B”). This communication constitutes
a “Confirmation” as referred to in the ISDA Master Agreement specified below.

 

1. This Confirmation is subject to, and incorporates, the definitions and
provisions of the 2000 ISDA Definitions (including the Annex thereto) (the “2000
Definitions”) and the definitions and provisions of the 2002 ISDA Equity
Derivatives Definitions (the “Equity Definitions” and, together with the 2000
Definitions, the “Definitions”), in each case as published by the International
Swaps and Derivatives Association, Inc. (“ISDA”). In the event of any
inconsistency between the 2000 Definitions and the Equity Definitions, the
Equity Definitions will govern.

This Confirmation evidences a complete and binding agreement between Party A and
Party B as to the terms of the Transaction to which this Confirmation relates.
This Confirmation shall be subject to an agreement (the “Agreement”) in the form
of the 2002 ISDA Master Agreement (the “ISDA Form”) as if Party A and Party B
had executed an agreement in such form (without any Schedule but with the
elections set forth in this Confirmation, it being understood the
“Cross-Default” shall not apply to this Transaction).

All provisions contained in, or incorporated by reference to, the Agreement will
govern this Confirmation except as expressly modified herein. In the event of
any inconsistency between this Confirmation and either the Definitions or the
Agreement, this Confirmation shall govern.

 

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UPPER CALL OPTION TRANSACTION

 

2. The general terms relating to the Transaction are as follows:

 

Option Style:

European

 

Option Seller:

Party B

 

Option Buyer:

Party A

 

Strike Price:

$5.16

 

Trade Date:

February 22, 2008

 

Effective Date:

February 27, 2008

 

Option Type:

Call

 

Components:

The Transaction will be divided into individual Components, each with the terms
set forth in this Confirmation, and, in particular, with the Number of Options
and Expiration Dates set forth in this Confirmation. The payments and deliveries
to be made upon settlement of the Transaction will be determined separately for
each Component as if each Component were a separate Transaction under the
Agreement. To the extent that Party A reasonably concludes that it is desirable
for purposes of Party A staying under 9.9% “beneficial ownership” (within the
meaning of the Exchange Act and the rules promulgated thereunder) of Shares,
Party A may increase the number of Components and change the Number of Options
and Expiration Dates of the Components so long as the average Expiration Date of
all Components remains April 1, 2014.

 

Issuer:

Verenium Corporation

 

Shares:

The shares of common stock of the Issuer, par value $0.001 per Share (Ticker
Symbol: VRNM).

 

Number of Options:

For each Component, as provided in Annex A to this Confirmation.

 

Option Entitlement:

One Share per Option

 

Market Disruption Event:

Section 6.3(a) of the Equity Definitions is hereby amended by replacing clause
(ii) thereof in its entirety with the following: “(ii) an Exchange Disruption,
or” and inserting immediately following clause (iii) thereof the following: “;
in each case that the Calculation Agent reasonably determines is material.”

 

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UPPER CALL OPTION TRANSACTION

 

Relevant Price:

VWAP Price

 

VWAP Price:

The “Volume Weighted Average Price” per Share on such day, as displayed on
Bloomberg Page “VRNM UQ<equity>AQR” (or any successor thereto) for the Issuer
with respect to the period from 9:30 a.m. to 4:00 p.m. (New York City time) on
such day, as determined by the Calculation Agent. If no price at such time is
available, or there is a Market Disruption Event on such Expiration Date, the
Calculation Agent shall determine the VWAP Price in a commercially reasonable
manner.

 

Premium:

$4,678,994

 

Premium Payment Date:

Effective Date

 

Exchange:

The Nasdaq Global Market

 

Related Exchange:

Any exchange on which options or futures on the relevant Shares are traded.

 

Clearance System:

DTC

 

Calculation Agent:

Party A. Whenever the Calculation Agent acts or makes a determination, it will
do so in good faith and in a commercially reasonable manner consistent with its
obligations under the Equity Definitions.

 

Procedures for Exercise:

In respect of each Component:

 

Expiration Time:

The close of trading on the Exchange

 

Expiration Date:

Each of the ten (10) consecutive Scheduled Trading Days occurring immediately
prior to the Component Expiration Date, provided that if any Expiration Date
shall not be an Exchange Business Day, such Expiration Date shall be postponed
to the immediately succeeding Exchange Business Day and the corresponding
Expiration Date for each subsequent Daily Number of Options shall be moved back
an equal number of Exchange Business Days reflecting such postponement.

 

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UPPER CALL OPTION TRANSACTION

 

Component Expiration Date:

The Component Expiration Date provided in Annex A to this Confirmation.

 

Daily Number of Options:

One-tenth the Number of Options provided in Annex A to this Confirmation with
respect to each Component.

 

Automatic Exercise:

Applicable.

Settlement Terms:

 

Settlement Method Election:

Applicable; provided that (i) any such election shall apply to all Exercise
Dates (in accordance with the terms below) and may be for Cash Settlement or Net
Share Settlement; (ii) references to “Physical Settlement” in Section 7.1 of the
Equity Definitions shall be replaced by references to “Net Share Settlement”;
(iii) Party B may elect Cash Settlement only if Party B represents and warrants
to Party A in writing on the date of such election that, as of such date, Party
B is not aware of any material nonpublic information concerning itself or the
Shares and is electing Cash Settlement in good faith and not as part of a plan
or scheme to evade compliance with the federal securities laws; and (iv) any
election of settlement method shall apply to all Components. At any time prior
to making a Settlement Method Election, Party B may, without the consent of
Party A, amend this Confirmation by notice to Party A to eliminate Party B’s
right to elect Cash Settlement.

 

Electing Party:

Party B

 

Settlement Method Election Date:

The thirtieth (30th) Scheduled Trading Day immediately preceding the first
Expiration Date.

 

Default Settlement Method:

Net Share Settlement

 

Settlement Date:

For the Daily Number of Options exercised or deemed exercised on each Expiration
Date prior to the Component Expiration Date, the third Exchange Business Day
following the Component Expiration Date.

 

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UPPER CALL OPTION TRANSACTION

 

Cash Settlement:

If Cash Settlement applies, then, notwithstanding any contrary terms of Article
8 of the Equity Definitions, for any Daily Number of Options exercised or deemed
exercised on any Expiration Date, Party B shall pay, on the Settlement Date, the
Cash Settlement Amount to Party A. The Cash Settlement Amount shall be
determined as follows:

(i) If the Settlement Price is less than or equal to the Strike Price, then the
Cash Settlement Amount shall equal zero.

(ii) If the Settlement Price is greater than the Strike Price, then the Cash
Settlement Amount shall equal the product of (x) the Daily Number of Options,
(y) the Option Entitlement and (z) the Settlement Price minus the Strike Price.

 

Net Share Settlement:

On a Settlement Date, Party B shall deliver to Party A a number of Shares equal
to the Number of Shares to be Delivered and will pay to Party A the Fractional
Share Amount, if any.

 

Number of Shares to be Delivered:

The Cash Settlement Amount (determined as if Cash Settlement were applicable)
divided by the Settlement Price, rounded down to the nearest whole number.

 

Cash Settlement Payment Date:

For all Daily Number of Options exercised or deemed exercised on each Expiration
Date, the third Exchange Business Day following the Component Expiration Date.

 

Settlement Currency:

USD

 

Settlement Price:

For any Daily Number of Options, the VWAP Price of the Shares on the relevant
Expiration Date determined by Calculation Agent at the Expiration Time on the
relevant Expiration Date for such Daily Number of Options. If no price at such
time is available, or there is a Market Disruption Event on such Expiration
Date, the Calculation Agent shall determine the Settlement Price in a
commercially reasonable manner.

 

Failure to Deliver:

Applicable

 

Other Applicable Provisions:

To the extent Party B is obligated to deliver Shares hereunder, the provisions
of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 (except that the Representation and
Agreement contained in Section 9.11 of the Equity Definitions shall be modified
by excluding any representations therein relating to restrictions, obligations,
limitations or requirements under applicable securities laws as a result of the
fact that Party B is the issuer of the Shares) and 9.12 of the Equity
Definitions will be applicable as if “Physical Settlement” applied to the
Transaction.

 

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UPPER CALL OPTION TRANSACTION

 

Adjustments:

 

        Method of Adjustment:

Calculation Agent Adjustment

 

Extraordinary Dividend:

Any dividend or distribution that has an ex-dividend date occurring on or after
the Trade Date and on or prior to the date on which Party B satisfies all of its
delivery obligations hereunder.

Extraordinary Events:

        Consequences of Merger Events and Tender Offers:

 

                (a) Share-for-Share:

Modified Calculation Agent Adjustment, or at Party A’s election, Cancellation
and Payment (Calculation Agent Determination)

 

                (b) Share-for-Other:

Cancellation and Payment (Calculation Agent Determination)

 

                (c) Share-for-Combined:

Component Adjustment, or at Party A’s election, Cancellation and Payment
(Calculation Agent Determination)

 

Tender Offer:

Applicable

 

Nationalization, Insolvency or Delisting:

Cancellation and Payment (Calculation Agent Determination)

Additional Disruption Events:

 

(a) Change in Law:

Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is
hereby amended by (i) replacing the phrase “the interpretation” in the third
line thereof with the phrase “or announcement or statement of the formal or
informal interpretation” and (ii) immediately following the word “Transaction”
in clause (X) thereof, adding the phrase “in the manner contemplated by the
Hedging Party on the Trade Date”.

 

(b) Failure to Deliver

Applicable

 

(c) Insolvency Filing:

Applicable

 

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UPPER CALL OPTION TRANSACTION

 

(d) Hedging Disruption:

Applicable

 

(e) Increased Cost of Hedging:

Applicable

 

(f) Loss of Stock Borrow:

Applicable

 

        Maximum Stock Loan Rate:

5%

 

Hedging Party:

Party A for all applicable Additional Disruption Events

 

Determining Party:

Party A for all applicable Additional Disruption Events

 

Non-Reliance:

Applicable

 

Agreements and Acknowledgments
Regarding Hedging Activities:

Applicable

 

Additional Acknowledgments:

Applicable

 

Additional Termination Events:

Applicable. The following will constitute an Additional Termination Event:

(a) Party B shall send Party A an Early Exercise Notice under the terms of the
lower call option Transaction entered into herewith, and the sole Affected Party
will be Party B.

 

Additional Termination at Party B election:

Party B may elect at any time with advance written notice of thirty
(30) Scheduled Trading Days to early terminate this Transaction; provided that
that termination amount shall be determined by Calculation Agent in accordance
with Section 6(e) of the Agreement where Party B is the sole affected party, and
such amount shall be paid in cash on the scheduled termination date.

 

3. Account Details:

Party A Payment Instructions:

To be provided by Party A.

Party B Payment Instructions:

To be provided by Party B.

 

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UPPER CALL OPTION TRANSACTION

 

4. Offices:

The Office of Party A for the Transaction is:

Capital Ventures International

C/O Heights Capital Management, Inc.

101 California Street, Suite 3250

San Francisco, CA 94111

The Office of Party B for the Transaction is:

Verenium Corporation

55 Cambridge Parkway

Cambridge, MA 02142

 

5. Notices: For purposes of this Confirmation:

 

  (a) Address for notices or communications to Party B:

 

To:   Verenium Corporation

         55 Cambridge Parkway

Cambridge,MA 02142

Attn:Gerald M. Haines, Esq.

Telephone:(617) 674-5300

Facsimile:(617) 674-5393

 

  (b) Address for notices or communications to Party A:

 

To:   Capital Ventures International

C/O  Heights Capital Management, Inc.

101  California Street, Suite 3250

San  Francisco, CA 94111

 

Attention:Martin Kobinger

Telephone:(415) 403-6500

Facsimile:(415) 403-6525

With a copy to:

 

To:   Paul, Hastings, Janofsky & Walker LLP

1117California Avenue

Palo Alto, CA 94304-1106

 

Attention:Robert A. Claassen, Esq.

Telephone:(650) 320-1888

Facsimile:(650) 320-1984

 

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UPPER CALL OPTION TRANSACTION

 

6. If any of the transactions contemplated by the Securities Purchase Agreement
dated as of February 22, 2008 (the “Purchase Agreement”) among Party B and each
of the Buyers specified therein relating to the sale of senior convertible notes
of Party B (the “Notes”) and warrants, shall fail to close on the date specified
therein for any reason, or any subsequent date allowed thereunder for
postponements permitted under the terms thereof, the entirety of this
Transaction shall terminate automatically and Party B shall be the sole Affected
Party and this Transaction shall be the sole Affected Transaction and such
termination shall be treated as an Additional Termination Event. For purposes of
determining Loss in relation to any Additional Termination Events or otherwise,
it shall be assumed that all conditions to the exercise of these Options have
occurred.

 

7. Additional agreements, representations, warranties and covenants:

 

  (a) In addition to the representations and warranties in the Agreement and
those contained elsewhere herein, Party B represents and warrants to and for the
benefit of, and agrees with, Party A as follows:

 

  (i) In relation to the Transaction, Party B acknowledges its responsibilities
under applicable federal securities laws, including without limitation Rule
10b-5 under the Exchange Act. Party B represents and warrants on the Effective
Date, except for the Issuer’s financial results for the year ended December 31,
2007, (A) none of Party B and its officers and directors is aware of any
material nonpublic information regarding Party B or the Shares and (b) all
reports and other documents filed by Party B with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) when considered as a whole (with the more recent such reports
and documents deemed to amend inconsistent statements contained in any earlier
such reports and documents), do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances in
which they were made, not misleading.

 

  (ii) Prior to the Trade Date, Party B shall deliver to Party A a resolution of
Party B’s board of directors authorizing the Transaction and such other
certificate or certificates as Party A shall reasonably request.

 

  (iii) Party B is not entering into this Confirmation to create actual or
apparent trading activity in the Shares (or any security convertible into or
exchangeable for Shares) or to manipulate the price of the Shares (or any
security convertible into or exchangeable for Shares) or otherwise in violation
of the Exchange Act.

 

  (iv) Party B is not, and after giving effect to the transactions contemplated
hereby will not be, required to register as an “investment company” as such term
is defined in the Investment Company Act of 1940, as amended.

 

  (v) On any Expiration Date, Party B shall not, and shall cause its affiliates
and affiliated purchasers (each as defined in Rule 10b-18 under the Exchange Act
(“Rule 10b-18”)) not to, directly or indirectly (including, without limitation,
by means of any cash-settled or other derivative instrument) purchase, offer to
purchase, place any bid or limit order that would effect a purchase of, or
commence any tender offer relating to, any Shares (or an equivalent interest,
including a unit of beneficial interest in a trust or limited partnership or a
depository share) or any security convertible into or exchangeable or
exercisable for Shares, except through Party A.

 

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UPPER CALL OPTION TRANSACTION

 

  (vi) On the Trade Date (A) the assets of Party B at their fair valuation
exceed the liabilities of Party B, including contingent liabilities, (B) the
capital of Party B is adequate to conduct the business of Party B and (C) Party
B has the ability to pay its debts and obligations as such debts mature and does
not intend to, or does not believe that it will, incur debt beyond its ability
to pay as such debts mature.

 

  (vii) The execution and delivery of this Confirmation does not violate the
terms of Regulation M (“Regulation M”) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”).

 

  (viii) Any Shares, when issued and delivered in a Net Share Settlement of the
Options or a Share Termination Alternative settlement in accordance with the
terms of this Confirmation, will be duly authorized and validly issued, fully
paid and nonassessable, and the issuance thereof will not be subject to any
preemptive or similar rights.

 

  (b) Each of Party A and Party B agrees and represents that it is an “eligible
contract participant” as defined in Section 1a(12) of the U.S. Commodity
Exchange Act, as amended.

 

  (c) Each of Party A and Party B acknowledges that the offer and sale of the
Transaction to it is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”), by virtue of
Section 4(2) thereof. Accordingly, Party A represents and warrants to Party B
that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its
investment, (ii) it is an “accredited investor” as that term is defined in
Regulation D as promulgated under the Securities Act, (iii) it is entering into
the Transaction for its own account and without a view to the distribution or
resale thereof, and (iv) the assignment, transfer or other disposition of the
Transaction has not been and will not be registered under the Securities Act and
is restricted under this Confirmation, the Securities Act and state securities
laws.

 

  (d) The parties hereto further agree and acknowledge (A) that this
Confirmation is (i) a “securities contract,” as such term is defined in
Section 741(7) of the Title 11 of the United States Code (the “Bankruptcy
Code”), with respect to which each payment and delivery hereunder is a
“settlement payment,” as such term is defined in Section 741(8) of the
Bankruptcy Code, and (ii) a “swap agreement,” as such term is defined in
Section 101(53B) of the Bankruptcy Code, with respect to which each payment and
delivery hereunder is a “transfer,” as such term is defined in Section 101(54)
of the Bankruptcy Code, and (B) that Party A is entitled to the protections
afforded by, among other sections, Sections 362(b)(6), 362(b)(17), 546(e),
546(g), 555 and 560 of the Bankruptcy Code.

 

8. Other Provisions:

 

  (a)

Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If Party B shall owe Party A any amount pursuant to
Section 12.2, 12.3, 12.6, 12.7 or 12.9 of the Equity Definitions (except in the
event of an Insolvency, a Nationalization, a Tender Offer or a Merger Event, in
each case, in which the consideration or proceeds to be paid to holders of
Shares consists solely of cash) or pursuant to Section 6(d)(ii) of the Agreement
(except in the event of an Event of Default in which Party B is the Defaulting
Party or a Termination Event in which Party B is the Affected Party, that
resulted from an event or events within Party B’s control) (a “Payment
Obligation”), Party B shall have the right, in its sole discretion, to satisfy
any such Payment Obligation by the Share Termination Alternative (as defined
below) by giving irrevocable telephonic notice to Party A, confirmed in writing
within one Scheduled Trading Day, between the hours of 9:00 AM and 12:00 PM, New
York City time, on the relevant Merger Date, Tender Offer Date, Announcement
Date or Early Termination Date, as applicable (“Notice of Share Termination”).
Upon such Notice of Share Termination, the following provisions shall apply on
the

 

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UPPER CALL OPTION TRANSACTION

 

 

Scheduled Trading Day immediately following the Merger Date, Tender Offer Date,
Announcement Date or Early Termination Date, as applicable:

 

Share Termination Alternative:

Applicable and means that Party B shall deliver to Party A the Share Termination
Delivery Property on the date on which the Payment Obligation would otherwise be
due pursuant to Section 12.7 or 12.9 of the Equity Definitions or
Section 6(d)(ii) of the Agreement, as applicable (the “Share Termination Payment
Date”), in satisfaction of the Payment Obligation.

 

Share Termination Delivery Property:

A number of Share Termination Delivery Units, as calculated by the Calculation
Agent, equal to the Payment Obligation divided by the Share Termination Unit
Price. The Calculation Agent shall adjust the Share Termination Delivery
Property by replacing any fractional portion of a security therein with an
amount of cash equal to the value of such fractional security based on the
values used to calculate the Share Termination Unit Price.

 

Share Termination Unit Price:

The value of property contained in one Share Termination Delivery Unit on the
date such Share Termination Delivery Units are to be delivered as Share
Termination Delivery Property, as determined by the Calculation Agent in its
discretion by commercially reasonable means and notified by the Calculation
Agent to Party B at the time of notification of the Payment Obligation.

 

Share Termination Delivery Unit:

In the case of a Termination Event, Event of Default or Delisting, one Share or,
in the case of a Merger Event, a Tender Offer, a Nationalization or an
Insolvency, a unit consisting of the number or amount of each type of property
received by a holder of one Share (without consideration of any requirement to
pay cash or other consideration in lieu of fractional amounts of any securities)
in such Merger Event, Tender Offer, Nationalization or Insolvency. If such
Merger Event, Tender Offer, Nationalization or Insolvency involves a choice of
consideration to be received by holders, such holder shall be deemed to have
elected to receive the maximum possible amount of cash.

 

Failure to Deliver:

Applicable

 

Other applicable provisions:

If Share Termination Alternative is applicable, the provisions of Sections 9.8,
9.9, 9.10, 9.11 (except that the Representation and Agreement contained in
Section 9.11 of the Equity Definitions shall be modified by excluding any
representations therein relating to restrictions, obligations, limitations or
requirements under applicable securities laws as a result of the fact that Party
B is the issuer of the Shares) and 9.12 of the Equity Definitions will be
applicable, as if “Physical Settlement” were applicable and all references to
“Shares” shall be read as references to “Share Termination Delivery Units”.

 

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UPPER CALL OPTION TRANSACTION

 

  (b) Registration/Private Placement Procedures. (i) If, in the reasonable
judgment of Party A or Party B, based on the advice of counsel, either (a) any
securities of Party B or its affiliates comprising any Share Termination
Delivery Units or (b) any Shares, in either case deliverable to Party A
hereunder (any such securities or Shares, “Delivered Securities”) would not be
immediately freely transferable by Party A under Rule 144 without restriction or
condition under the Securities Act, then the provisions set forth in this
Section 8(b) shall apply. At the election of Party B by notice to Party A within
one Exchange Business Day after the relevant delivery obligation arises, but in
any event at least one Exchange Business Day prior to the date on which such
delivery obligation is due, either (A) all Delivered Securities, delivered by
Party B to Party A shall be covered by an effective registration statement of
Party B for immediate resale by Party A (such registration statement and the
corresponding prospectus (the “Prospectus”) (including, without limitation, any
sections describing the plan of distribution) in form and content commercially
reasonably satisfactory to Party A) or (B) Party B shall deliver additional
Delivered Securities so that the value of such Delivered Securities, as
determined by the Calculation Agent to reflect an appropriate liquidity
discount, equals the value of the number of Delivered Securities that would
otherwise be deliverable if such Delivered Securities were freely tradeable
(without prospectus delivery) upon receipt by Party A (such value, the “Freely
Tradeable Value”); provided that Party B may not make the election described in
this clause (B) if, on the date of its election, it has taken, or caused to be
taken, any action that would make unavailable either the exemption pursuant to
Section 4(2) of the Securities Act for the delivery by Party B to Party A (or
any affiliate designated by Party A) of the Delivered Securities or the
exemption pursuant to Section 4(1) or Section 4(3) of the Securities Act for
resales of the Delivered Securities by Party A (or any such affiliate of Party
A). (For the avoidance of doubt, as used in this paragraph (b) only, the term
“Party B” shall mean the issuer of the relevant securities, as the context shall
require.)

 

  (i) If Party B makes the election described in clause (b)(i)(A) above:

 

  (A) Party A (or an Affiliate of Party A designated by Party A) shall be
afforded a reasonable opportunity to conduct a “due diligence” investigation
with respect to Party B that is customary in scope for underwritten follow-on
offerings of equity securities of companies of comparable size, maturity and
lines of business; provided that if Party A is not reasonably satisfied with the
results of the investigation described in this subclause (A) or Party B’s
compliance with clause (b)(i)(A) above and subclause (ii)(B) below, then Party B
shall be deemed to have made the election described in clause (b)(i)(B) above;
provided, however, that Party A has given Party B reasonable notice of its
determination and provided Party B with reasonable opportunity to satisfy Party
A’s concerns; and

 

  (B)

Party A (or an Affiliate of Party A designated by Party A) and Party B shall
enter into an agreement (a “Registration Agreement”) on commercially reasonable
terms in connection with the public resale of such Delivered Securities by Party
A or such Affiliate substantially similar to underwriting agreements customary
for underwritten follow-on offerings of equity securities of companies of
comparable size, maturity and lines of business, in form and substance
commercially reasonably satisfactory to Party A or such Affiliate and Party B,
which Registration Agreement shall include, without limitation, provisions
substantially similar to those contained in such underwriting agreements
relating to the indemnification of, and contribution in connection with the
liability of, Party A and its Affiliates and Party B, shall provide for the
payment by Party B of all reasonable registration expenses in connection with
such resale, including all registration costs and reasonable expenses of counsel
for Party A (provided that such fees and expenses shall not exceed $100,000 in
the aggregate),

 

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UPPER CALL OPTION TRANSACTION

 

 

and shall provide for the delivery of accountants’ “comfort letters” to Party A
or such Affiliate with respect to the financial statements and certain financial
information contained in or incorporated by reference into the Prospectus as are
customarily requested in comfort letters covering underwritten follow-on offers
of equity securities of companies of comparable size, maturity and lines of
business.

 

  (ii) If Party B makes or is deemed to make the election described in clause
(b)(i)(B) above:

 

  (A) All Delivered Securities shall be delivered to Party A (or any Affiliate
of Party A designated by Party A) pursuant to the exception from the
registration requirements of the Securities Act provided by Section 4(2)
thereof;

 

  (B) Party A (or an Affiliate of Party A designated by Party A) and any
potential institutional purchaser of any such Delivered Securities from Party A
or such Affiliate identified by Party A shall be afforded a commercially
reasonable opportunity to conduct a due diligence investigation in compliance
with applicable law with respect to Party B customary in scope for private
placements of equity securities of companies of comparable size, maturity and
lines of business (including, without limitation, the right to have made
available to them for inspection all financial and other records, pertinent
corporate documents and other information reasonably requested by them);

 

  (C) Party A (or an Affiliate of Party A designated by Party A) and Party B
shall enter into an agreement (a “Private Placement Agreement”) on commercially
reasonable terms in connection with the private placement of such Delivered
Securities by Party B to Party A or such Affiliate and the private resale of
such shares by Party A or such Affiliate, substantially similar to private
placement purchase agreements customary for private placements of equity
securities of companies of comparable size, maturity and lines of business, in
form and substance commercially reasonably satisfactory to Party A and Party B,
which Private Placement Agreement shall include, without limitation, provisions
substantially similar to those contained in such private placement purchase
agreements relating to the indemnification of, and contribution in connection
with the liability of, Party A and its Affiliates and Party B, shall provide for
the payment by Party B of all reasonable expenses in connection with such
resale, including all reasonable fees and expenses of counsel for Party A
(provided that such fees and expenses shall not exceed $50,000 in the
aggregate), shall contain representations, warranties and agreements of Party B
reasonably necessary or advisable to establish and maintain the availability of
an exemption from the registration requirements of the Securities Act for such
resales, and shall use commercially reasonable efforts to provide for the
delivery of accountants’ “comfort letters” to Party A or such Affiliate with
respect to the financial statements and certain financial information contained
in or incorporated by reference into the offering memorandum prepared for the
resale of such Shares as are customarily requested in comfort letters covering
private placements of equity securities of companies of comparable size,
maturity and lines of business;

 

  (D)

Party B agrees that any Delivered Securities so delivered to Party A, (i) may be
transferred by and among Party A and its Affiliates, and Party B shall effect
such transfer without any further action by Party A and (ii) after the holding
period has elapsed under Rule 144 under the Securities Act following which the
Delivered Securities are freely tradable without condition or restriction, Party
B shall promptly remove, or cause the transfer agent for such Delivered
Securities to remove, any legends referring to any such restrictions or
requirements from such Delivered Securities upon delivery by Party A (or such
Affiliate of Party A) to Party B or such transfer agent of seller’s and broker’s
representation letters customarily delivered by Party A in connection with
resales of restricted securities pursuant to Rule 144 under the Securities Act,
without any further requirement for the

 

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delivery of any certificate, consent, agreement, opinion of counsel, notice or
any other document, any transfer tax stamps or payment of any other amount or
any other action by Party A (or such affiliate of Party A); and

 

  (E) Party B and Party A shall not take, or cause to be taken, any action that
would make unavailable either the exemption pursuant to Section 4(2) of the
Securities Act for the delivery by Party B to Party A (or any affiliate
designated by Party A) of the Delivered Securities or the exemption pursuant to
Section 4(1) or Section 4(3) of the Securities Act for resales of the Delivered
Securities by Party A (or any such affiliate of Party A).

 

  (c) Make-whole. If (x) Party B elects to deliver Share Termination Delivery
Units pursuant to Section 8(a) hereof or (y) Party B makes the election
described in clause (b)(i)(B) of Section 8(b) hereof, then in either case Party
A or its affiliate may sell such Shares or Share Termination Delivery Units, as
the case may be, during a period (the “Resale Period”) commencing on the
Exchange Business Day following delivery of such Shares or Share Termination
Delivery Units, as the case may be, and ending on the Exchange Business Day on
which Party A completes the sale of all such Shares or Share Termination
Delivery Units, as the case may be, or a sufficient number of Shares or Share
Termination Delivery Units, as the case may be, so that the realized net
proceeds of such sales exceed the amount of the Payment Obligation (in the case
of clause (x), or in the case that both clause (x) and clause (y) apply) or the
Freely Tradeable Value (in the case that only clause (y) applies) (such amount
of the Payment Obligation or Freely Tradeable Value, as the case may be, the
“Required Proceeds”). If any of such delivered Shares or Share Termination
Delivery Units remain after such realized net proceeds exceed the Required
Proceeds, Party A shall return such remaining Shares or Share Termination
Delivery Units to Party B. If the Required Proceeds exceed the realized net
proceeds from such resale, Party B shall transfer to Party A by the open of the
regular trading session on the Exchange on the Exchange Trading Day immediately
following the last day of the Resale Period the amount of such excess (the
“Additional Amount”) in cash or in a number of additional Shares (“Make-whole
Shares”) in an amount that, based on the Relevant Price on the last day of the
Resale Period (as if such day was the “Valuation Date” for purposes of computing
such Relevant Price), has a dollar value equal to the Additional Amount. The
Resale Period shall continue to enable the sale of the Make-whole Shares in the
manner contemplated by this Section 8(c). This provision shall be applied
successively until the Additional Amount is equal to zero, subject to
Section 8(g).

 

  (d) Repurchase Notices. Party B shall, on any day on which Party B effects any
repurchase of Shares, use its best efforts to promptly give Party A a written
notice of such repurchase (a “Repurchase Notice”) on such day if, following such
repurchase, the Notice Percentage as determined on such day is (i) greater than
8.9% and (ii) greater by 0.5% than the Notice Percentage included in the
immediately preceding Repurchase Notice (or, in the case of the first such
Repurchase Notice, greater than the Notice Percentage as of the date hereof).
The “Notice Percentage” as of any day is the fraction, expressed as a
percentage, the numerator of which is the Number of Shares and the denominator
of which is the number of Shares outstanding on such day.

 

  (e)

Beneficial Ownership. Notwithstanding anything to the contrary in the Agreement
or this Confirmation, in no event shall Party A be entitled to receive, or shall
be deemed to receive, any Shares if, upon such receipt of such Shares, the
“beneficial ownership” (within the meaning of Section 13 of the Exchange Act and
the rules promulgated thereunder) of Shares by Party A or any entity that
directly or indirectly controls Party A (collectively, “Party A Group”) would be
equal to or greater than 9.9% or more of the outstanding Shares. If any delivery
owed to Party A hereunder is not made, in whole or in part, as a result of this
provision, Party B’s obligation to make such delivery shall not be extinguished
and Party B shall make such delivery as promptly as practicable after, but in no
event later than one Exchange Business Day

 

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after, Party A gives notice to Party B that such delivery would not result in
Party A Group directly or indirectly so beneficially owning in excess of 9.9% of
the outstanding Shares.

 

  (f) Limitations on Settlement by Party B. Notwithstanding anything herein or
in the Agreement to the contrary, in no event shall Party B be required to
deliver Shares in connection with the Transaction in excess of 26,577,018 Shares
(the “Capped Number”). Party B represents and warrants (which shall be deemed to
be repeated on each day that the Transaction is outstanding) that the Capped
Number is equal to or less than the number of authorized but unissued Shares of
Party B that are not reserved for future issuance in connection with
transactions in the Shares (other than the Transaction) on the date of the
determination of the Capped Number (such Shares, the “Available Shares”). In the
event Party B shall not have delivered the full number of Shares otherwise
deliverable as a result of this Section 8(f) (the resulting deficit, the
“Deficit Shares”), Party B shall be continually obligated to deliver, from time
to time until the full number of Deficit Shares have been delivered pursuant to
this paragraph, Shares when, and to the extent, that (i) Shares are repurchased,
acquired or otherwise received by Party B or any of its subsidiaries after the
Trade Date (whether or not in exchange for cash, fair value or any other
consideration), (ii) authorized and unissued Shares reserved for issuance in
respect of other transactions prior to such date which prior to the relevant
date become no longer so reserved and (iii) Party B additionally authorizes
unissued Shares that are not reserved for other transactions. Party B shall
immediately notify Party A of the occurrence of any of the foregoing events
(including the number of Shares subject to clause (i), (ii) or (iii) and the
corresponding number of Shares to be delivered) and promptly deliver such Shares
thereafter. Party B shall not take any action to decrease the number of
Available Shares below the Capped Number.

 

  (g) Right to Extend. Party A may postpone any Exercise Date or any other date
of valuation or delivery with respect to some or all of the relevant Options (in
which event the Calculation Agent shall make appropriate adjustments to the
Number of Shares to be Delivered with respect to one or more Components) for up
to an aggregate number of thirty (30) Exchange Business Days, if Party A
determines, in its reasonable discretion, that such extension is reasonably
necessary or appropriate to preserve Party A’s hedging or hedge unwind activity
hereunder in light of existing liquidity conditions or to enable Party A to
effect purchases of Shares in connection with its hedging, hedge unwind or
settlement activity hereunder in a manner that would, if Party A were Party B or
an affiliated purchaser of Party B, be in compliance with applicable legal,
regulatory or self-regulatory requirements, or with related policies and
procedures applicable to Party A.

 

  (h) Equity Rights. Party B intends that all documentation with respect to this
Transaction is intended to qualify this Transaction as an equity instrument for
purposes of SFAS 150 and EITF 00-19. Party A acknowledges and agrees that this
Confirmation is not intended to convey to it rights with respect to the
Transaction that are senior to the claims of common stockholders in the event of
Party B’s bankruptcy. For the avoidance of doubt, the parties agree that the
preceding sentence shall not apply at any time other than during Party B’s
bankruptcy to any claim arising as a result of a breach by Party B of any of its
obligations under this Confirmation or the Agreement. For the avoidance of
doubt, the parties acknowledge that this Confirmation is not secured by any
collateral that would otherwise secure the obligations of Party B hereinunder or
pursuant to any other agreement.

 

  (i) Transfer and Assignment. Party B may not transfer or assign its rights and
obligations hereunder and under the Agreement without the prior written consent
of Party A. Party A may transfer or assign its rights and obligations hereunder
and under the Agreement, in whole or in part, at any time without the consent of
Party B, subject to the restrictions set forth in the legend appearing at the
top of this Confirmation.

 

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  (j) Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Party B and each of its employees, representatives,
or other agents may disclose to any and all persons, without limitation of any
kind, the tax treatment and tax structure of the Transaction and all materials
of any kind (including opinions or other tax analyses) that are provided to
Party B relating to such tax treatment and tax structure.

 

  (k) Designation by Party A. Notwithstanding any other provision in this
Confirmation to the contrary requiring or allowing Party A to purchase, sell,
receive or deliver any Shares or other securities to or from Party B, Party A
may designate any of its affiliates to purchase, sell, receive or deliver such
Shares or other securities and otherwise to perform Party A’s obligations in
respect of the Transaction and any such designee may assume such obligations.
Party A shall be discharged of its obligations to Party B to the extent of any
such performance.

 

  (l) Additional Termination Event. If Party A reasonably determines based on
advice of counsel that it is advisable to terminate a portion of the Transaction
so that Party A’s hedging activities related to the Transaction will comply with
applicable securities laws, rules or regulations, an Additional Termination
Event shall occur in respect of which (1) Party B shall be the sole Affected
Party and (2) the Transaction shall be the sole Affected Transaction.

 

  (m) Opinion. Party B shall deliver to Party A an opinion of counsel, dated as
of the Trade Date and reasonably acceptable to Party A in form and substance
covering the matters specified in Annex I hereto.

 

  (n) Waiver of Trial by Jury. EACH OF PARTY B AND PARTY A HEREBY IRREVOCABLY
WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON
BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THE TRANSACTION OR THE ACTIONS OF PARTY A OR ITS AFFILIATES OR PARTY
B OR ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.

 

  (o) Governing Law. THE AGREEMENT AND THIS CONFIRMATION AND ANY OTHER MATTERS
ARISING OUT OF OR RELATING TO THE TRANSACTION OR THE ACTIONS OF PARTY A OR ITS
AFFILIATES OR PARTY B OR ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR
ENFORCEMENT HEREOF SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE). THE PARTIES HERETO IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND
THE UNITED STATES COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH
ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN,
AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS.

Party B hereby agrees (a) to check this Confirmation carefully and immediately
upon receipt so that errors or discrepancies can be promptly identified and
rectified and (b) to confirm that the foregoing (in the exact form provided by
Party A) correctly sets forth the terms of the agreement between Party A and
Party B with respect to the Transaction, by manually signing this Confirmation
or this page hereof as evidence of agreement to such terms and providing the
other information requested herein and immediately returning an executed copy to
Heights Capital Management, Inc., 101 California Street, Suite 3250, San
Francisco, CA 94111, Facsimile (415) 403-6525.

 

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UPPER CALL OPTION TRANSACTION

 

Please confirm that the foregoing correctly sets forth the terms of your
agreement by signing and returning this Confirmation.

 

Very truly yours,

CAPITAL VENTURES INTERNATIONAL

BY: HEIGHTS CAPITAL MANAGEMENT, INC,

Its Authorized Agent

(Party A)

By:   /s/Martin Kobinger Name:   Martin Kobinger Title:   Investment Manager

 

Agreed and Accepted By:

Verenium Corporation

(Party B)

By:   /s/ Carlos A. Riva Name:   Carlos A. Riva Title:   President and Chief
Executive Officers

 

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Annex A

For each Component of the Transaction, the Number of Options and Expiration Date
are set forth below.

 

Component Number    Number of Options    Component Expiration Date

1

   4,429,503    October 1, 2013

2

   4,429,503    April 1, 2014

3

   4,429,503    October 1, 2014

 

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UPPER CALL OPTION TRANSACTION

 

ANNEX I

Matters to be covered in Opinion of Counsel to Party B

1. Party B is validly existing as a corporation in good standing under the laws
of the State of Delaware.

2. Party B has the requisite corporate power and authority to enter into the
Transaction (for purposes of this Annex 1, the “Agreement”) and to carry out the
Transactions contemplated thereby.

3. The execution and delivery by Party B of the Transaction, and the performance
by Party B of its obligations under the Transaction, have been duly authorized
by all necessary corporate action on the part of Party B.

4. The Transaction has been duly authorized, executed and delivered by Party B.

5. No consent, approval or authorization of, or registration, filing or
declaration with, any governmental or public body or authority is required in
connection with the execution, delivery or performance by Party B of the
Transaction.

6. The execution, delivery and performance by Party B of the Transaction and
compliance by Party B with the terms and provisions thereof will not, whether
with or without the giving of notice or lapse of time or both, result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, (A) any material indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any other
agreement or instrument to which Party B or any subsidiary is bound or by which
Party B or any subsidiary or any of their respective properties may be bound or
affected, or (B) any Delaware or federal law, statute, rule, regulation or order
or any judgment, order, writ or decree of any governmental agency or body or any
court having jurisdiction over Party B or any of its properties.

7. Neither Party B nor any subsidiary is an “investment company” or a company
“controlled” by an “investment company”, in each case within the meanings
ascribed to such terms in the Investment Company Act of 1940, as amended, nor is
Party B or any subsidiary subject to regulation under said Act.

 

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