<PAGE>
                                                                   EXHIBIT 10.12

                           LOAN AND SECURITY AGREEMENT

         This LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of
September 2, 2003, between SILICON VALLEY BANK, a California chartered bank,
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 and with a loan production office located at One Newton
Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462,
doing business under the name "Silicon Valley East" ("Bank") and COLOR KINETICS
INCORPORATED, a Delaware corporation with its office located at 10 Milk Street,
Boston, Massachusetts 02108 ("Borrower"), provides the terms on which Bank shall
lend to Borrower and Borrower shall repay Bank. The parties agree as follows:

         1        ACCOUNTING AND OTHER TERMS

         Accounting terms not defined in this Agreement shall be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Section 13.

         2        LOAN AND TERMS OF PAYMENT

         2.1      PROMISE TO PAY. Borrower hereby unconditionally promises to
pay Bank the unpaid principal amount of all Credit Extensions and interest on
the unpaid principal amount of the Credit Extensions as and when due in
accordance with this Agreement.

         2.1.1    REVOLVING ADVANCES.

                  (a)      Availability. Bank shall make Advances not exceeding
(i) the lesser of (A) the Revolving Line or (B) the Borrowing Base minus (ii)
the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit other than Letters of Credit specifically secured
by cash at Bank), minus (iii) the FX Reserve, and minus (iv) the aggregate
outstanding Advances hereunder (including any Cash Management Services). Amounts
borrowed under this Section may be repaid and reborrowed during the term of this
Agreement.

                  (b)      Borrowing Procedure. To obtain an Advance, Borrower
must notify Bank by facsimile or telephone by 3:00 p.m. Eastern time on the
Business Day the Advance is to be made. If such notification is by telephone,
Borrower must promptly confirm the notification by delivering to Bank a
completed Payment/Advance Form in the form attached as Exhibit B. Bank shall
credit Advances to Borrower's deposit account. Bank may make Advances under this
Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Advances are necessary to meet
Obligations which have become due. Bank may rely on any telephone notice given
by a person whom Bank reasonably believes is a Responsible Officer or designee.
Borrower shall indemnify Bank for any loss Bank suffers due to such reliance.

                  (c)      Termination; Repayment. The Revolving Line terminates
on the Revolving Maturity Date, when the principal amount of all Advances and
the unpaid interest thereon, shall be immediately due and payable. Borrower may
pre-pay the principal amount of all Advances and the unpaid interest thereon at
any time without penalty prior to the Revolving Maturity Date. The Borrower may
terminate this Agreement upon repayment of all Obligations to the Bank
hereunder.

         2.1.2    LETTERS OF CREDIT SUBLIMIT.

                  (a)      Bank shall issue or have issued Letters of Credit for
Borrower's account not exceeding (i) the lesser of the Revolving Line or the
Borrowing Base minus (ii) the outstanding principal balance of an Advances
(including any Cash Management Services), minus (iii) the amount of all Letters
of Credit (including drawn but unreimbursed Letters of Credit other than Letters
of Credit specifically secured by cash at Bank), plus an amount equal to any
Letter of Credit Reserves. The face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed One Million Dollars

<PAGE>

($1,000,000.00). Each Letter of Credit shall have an expiry date no later than
180 days after the Revolving Maturity Date provided Borrower's Letter of Credit
reimbursement obligation shall be secured by cash on terms acceptable to Bank on
and after (i) the Maturity Date of the Revolving Line if the Maturity Date of
the Revolving Line is not extended by Bank, or (ii) the occurrence of an Event
of Default hereunder. All Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement. Borrower agrees to execute any further documentation in connection
with the Letters of Credit as Bank may reasonably request.

                  (b)      The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit except for
losses, costs, expenses or liabilities resulting from Bank's gross negligence
and willful misconduct.

                  (c)      Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such demand as
an Advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.

                  (d)      Upon the issuance of any letter of credit payable in
a currency other than United States Dollars, Bank shall create a reserve (the
"Letter of Credit Reserve") under the Revolving Line for letters of credit
against fluctuations in currency exchange rates, in an amount equal to ten
percent (10%) of the face amount of such letter of credit. The amount of such
reserve may be amended by Bank from time to time to account for fluctuations in
the exchange rate. The availability of funds under the Revolving Line shall be
reduced by the amount of such reserve for so long as such letter of credit
remains outstanding.

         2.1.3    FOREIGN EXCHANGE SUBLIMIT. If there is availability under the
Revolving Line and the Borrowing Base, then Borrower may enter in foreign
exchange forward contracts with the Bank under which Borrower commits to
purchase from or sell to Bank a set amount of foreign currency more than one
business day after the contract date (the "FX Forward Contract"). Bank shall
subtract 10% of each outstanding FX Forward Contract from the foreign exchange
sublimit, which sublimit is a maximum of One Million Dollars ($1,000,000.0) (the
"FX Reserve"). The total FX Forward Contracts at any one time may not exceed 10
times the amount of the FX Reserve. Bank may terminate the FX Forward Contracts
if an Event of Default occurs.

         2.1.4    CASH MANAGEMENT SERVICES SUBLIMIT. Borrower may use up to One
Million Dollars ($1,000,000.00) for the Bank's Cash Management Services, which
may include merchant services, direct deposit of payroll, business credit card,
and check cashing services identified in the various cash management services
agreements related to such Cash Management Services (the "Cash Management
Services"). Such aggregate amounts utilized under the Cash Management Services
Sublimit shall at all times reduce the amount otherwise available for Credit
Extensions under the Revolving Line. Any amounts Bank pays on behalf of Borrower
or any amounts that are not paid by Borrower for any Cash Management Services
will be treated as Advances under the Revolving Line and will accrue interest at
the interest rate applicable to Advances.

         2.1.5    UNDISBURSED CREDIT EXTENSIONS. The Bank's obligation to lend
the undisbursed portion of the Obligations shall terminate if, in Bank's sole
discretion, there has been a Material Adverse Change or there has been any
material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank prior to the execution of this
Agreement.

         2.2      OVERADVANCES. If Borrower's Obligations under Section
2.1.12.1.2, 2.1.3, and 2.1.4 exceed the lesser of either (i) the Revolving Line
or (ii) the Borrowing Base, Borrower must immediately pay in cash to Bank the
excess.

                                       2
<PAGE>

         2.3      INTEREST RATE; PAYMENTS.

                  (a)      Interest Rate. The principal amounts outstanding
under the Revolving Line shall accrue interest at a per annum rate equal to the
aggregate of the Bank's Prime Rate, and one percent (1.0%). After an Event of
Default, Obligations shall bear interest at four percent (4.0%) above the rate
effective immediately before the Event of Default. The applicable interest rate
hereunder shall increase or decrease when the Prime Rate changes. Interest is
computed on the basis of a 360 day year for the actual number of days elapsed.

                  (b)      Payments. Interest is payable on the Payment Date of
each month. Payments received after 12:00 noon Eastern time are considered
received at the opening of business on the next Business Day. When a payment is
due on a day that is not a Business Day, the payment is due the next Business
Day and additional fees or interest, as applicable, shall continue to accrue.

                  (c)      Debit of Accounts. Bank may debit any of Borrower's
deposit accounts including Account Number______________ for principal and
interest payments or any amounts Borrower owes Bank. Bank shall promptly notify
Borrower when it debits Borrower's accounts. These debits shall not constitute a
set-off.

         2.4      FEES. Borrower shall pay to bank:

                  (a)      Letter of Credit Fee. The Borrower shall pay the
Bank's customary fees and expenses for the issuance of Letters of Credit.

                  (b)      Unused Facility Fee for Revolving Line. In addition
to the foregoing, as compensation for the Bank's maintenance of sufficient funds
available for such purpose, the Bank shall have earned a Unused Facility Fee (so
referred to herein), which fee shall be paid quarterly, in arrears, on a
calendar year basis, in an amount equal to one half of one percent (0.50%) per
annum on the difference between Three Million Dollars ($3,000,00.00) and the
average daily principal balance of the Advances outstanding during the previous
quarter, as determined by the Bank. The Borrower shall not be entitled to any
credit, rebate or repayment of any Facility Fee previously earned by the Bank
pursuant to this Section notwithstanding any termination of the within
Agreement, or suspension or termination of the Bank's obligation to make loans
and advances hereunder ; and

                  (c)      Bank Expenses. All Bank Expenses (including
reasonable attorneys' fees and expenses incurred through and after the Closing
Date) when due.

         3        CONDITIONS OF LOANS

         3.1      CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The Bank's
obligation to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:

                  (a)      this Agreement;

                  (b)      a certificate of the Secretary of Borrower with
respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;

                  (c)      Perfection Certificate(s) by Borrower;

                  (d)      guarantees (as applicable);

                  (e)      security agreements (as applicable);

                  (f)      a legal opinion of Borrower's counsel, in form and
substance acceptable to Bank;

                  (g)      financing statements (Forms UCC-1);

                                       3
<PAGE>

                  (h)      Account Control Agreement/ Investment Account Control
Agreement;

                  (i)      Initial Audit;

                  (j)      insurance certificate;

                  (k)      payment of the fees and Bank Expenses then due
specified in Section 2.4 hereof;

                  (l)      Certificate of Foreign Qualification (if applicable);

                  (m)      Certificate of Good Standing/Legal Existence; and

                  (n)      such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.

         3.2      CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Bank's
obligations to make each Credit Extension, including the initial Credit
Extension, is subject to the following:

                  (a)      timely receipt of any Payment/Advance Form; and

                  (b)      the representations and warranties in Section 5 shall
be materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default shall have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties in Section 5 remain true.

         4        CREATION OF SECURITY INTEREST

         4.1      GRANT OF SECURITY INTEREST. Borrower hereby grants Bank, to
secure the payment and performance in full of all of the Obligations and the
performance of each of Borrower's duties under the Loan Documents, a continuing
security interest in, and pledges and assigns to the Bank, the Collateral,
wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof. Borrower warrants and represents that the
security interest granted herein shall be a first priority security interest in
the Collateral. Upon an Event of Default, Bank may place a "hold" on any deposit
account pledged as Collateral.

         Except as noted on the Perfection Certificate, Borrower is not a party
to, nor is bound by, any license or other agreement with respect to which the
Borrower is the licensee that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower's interest in such license or agreement
or any other property. Without prior consent from Bank, Borrower shall not enter
into, or become bound by, any such license or agreement which is reasonably
likely to have a material impact on Borrower's business or financial condition.
Borrower shall take such steps as Bank requests to obtain the consent of, or
waiver by, any person whose consent or waiver is necessary for all such licenses
or contract rights to be deemed "Collateral" and for Bank to have a security
interest in it that might otherwise be restricted or prohibited by law or by the
terms of any such license or agreement, whether now existing or entered into in
the future.

         If the Agreement is terminated, Bank's lien and security interest in
the Collateral shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank 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 Bank.

         4.2      AUTHORIZATION TO FILE FINANCING STATEMENTS. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions in order to perfect or protect Bank's interest or
rights hereunder, including a notice that any disposition of the Collateral, by
either the Borrower or any other Person, shall be deemed to violate the rights
of the Bank under the Code.

                                       4
<PAGE>

         5        REPRESENTATIONS AND WARRANTIES

         Borrower represents and warrants as follows:

         5.1      DUE ORGANIZATION AND AUTHORIZATION. Borrower and each
Subsidiary is duly existing and in good standing in its state of formation and
qualified and licensed to do business in, and in good standing in, any state in
which the conduct of its business or its ownership of property requires that it
be qualified except where the failure to do so could not reasonably be expected
to cause a Material Adverse Change. In connection with this Agreement, the
Borrower delivered to the Bank a certificate signed by the Borrower and entitled
"Perfection Certificate". The Borrower represents and warrants to the Bank that:
(a) the Borrower's exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof; and (b) the Borrower is an
organization of the type, and is organized in the jurisdiction, set forth in the
Perfection Certificate; and (c) the Perfection Certificate accurately sets forth
the Borrower's organizational identification number or accurately states that
the Borrower has none; and (d) the Perfection Certificate accurately sets forth
the Borrower's place of business, or, if more than one, its chief executive
office as well as the Borrower's mailing address if different, and (e) all other
information set forth on the Perfection Certificate pertaining to the Borrower
is materially accurate and complete. If the Borrower does not now have an
organizational identification number, but later obtains one, Borrower shall
forthwith notify the Bank of such organizational identification number.

         The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or by
which it is bound in which the default could reasonably be expected to cause a
Material Adverse Change.

         5.2      COLLATERAL. Borrower has good title to the Collateral, free of
Liens except Permitted Liens. Borrower has no deposit account, other than the
deposit accounts with Bank and deposit accounts described in the Perfection
Certificate delivered to the Bank in connection herewith. The Accounts are bona
fide, existing obligations, and the service or property has been performed or
delivered to the account debtor or its agent for immediate shipment to and
unconditional acceptance by the account debtor. Except as shown in the
Perfection Certificate, the Collateral is not in the possession of any third
party bailee (such as a warehouse). Except as hereafter disclosed to the Bank in
writing by Borrower, none of the components of the Collateral in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00), in the aggregate, shall be
maintained at locations other than as provided in the Perfection Certificate
without the prior written consent of the Bank which shall not be unreasonably
withheld. In the event that Borrower, after the date hereof, intends to store or
otherwise deliver any portion of the Collateral to a bailee, then Borrower will
first receive the written consent of Bank and such bailee must acknowledge in
writing that the bailee is holding such Collateral for the benefit of Bank.
Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All Inventory net of any reserve for excess or obsolescence that
are reported on Borrower's financial statements is in all material respects of
good and marketable quality, free from material defects. Borrower is the sole
owner of the Intellectual Property, except for licenses granted to its customers
in the ordinary course of business. Each Patent is valid and enforceable and no
part of the Intellectual Property has been judged invalid or unenforceable, in
whole or in part, and no claim has been made that any part of the Intellectual
Property violates the rights of any third party except to the extent such claim
could not reasonably be expected to cause a Material Adverse Change.

         5.3      LITIGATION. Except as shown in the Perfection Certificate,
there are no actions or proceedings pending or, to the knowledge of Borrower's
Responsible Officers or legal counsel, threatened by or against Borrower or any
Subsidiary in which an adverse decision could reasonably be expected to cause a
Material Adverse Change.

         5.4      NO MATERIAL DEVIATION IN FINANCIAL STATEMENTS. All
consolidated financial statements for Borrower and any Subsidiary delivered to
Bank fairly present in all material respects Borrower's consolidated financial
condition and Borrower's consolidated results of operations. There has not been
any material deterioration in Borrower's consolidated financial condition since
the date of the most recent financial statements submitted to Bank.

                                       5
<PAGE>

         5.5      SOLVENCY. The fair salable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; the Borrower is not left with unreasonably small capital after the
transactions in this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.

         5.6      REGULATORY COMPLIANCE. Borrower is not an "investment company"
or a company "controlled" by an "investment company" under the Investment
Company Act. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material respects with
the Federal Fair Labor Standards Act. Borrower has not violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
cause a Material Adverse Change. None of Borrower's or any Subsidiary's
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower's knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each Subsidiary has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
good faith with adequate reserves under GAAP. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted except where the
failure to make such declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change.

         5.7      SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.

         5.8      FULL DISCLOSURE. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank
taken together with all such written certificates and written statements given
to Bank contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).

         6        AFFIRMATIVE COVENANTS

         Borrower shall do all of the following:

         6.1      GOVERNMENT COMPLIANCE. Borrower shall maintain its and all
Subsidiaries' legal existence and good standing in its jurisdiction of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
Borrower's business or operations. Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change.

         6.2      FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

                  (a)      Borrower shall deliver to Bank: (i) as soon as
available, but no later than twenty-five (25) days after the last day of each
month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period certified by a
Responsible Officer and in a form acceptable to Bank; (ii) as soon as available,
but no later than one hundred thirty-five (135) days after the last day of
Borrower's fiscal year (except for the Borrower's fiscal year end 2002, which
shall be delivered to the Bank on or before August 18, 2003), audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm reasonably acceptable to Bank;
(iii) in the event that the Borrower's stock becomes publicly held, within five
(5) days of filing, copies of all statements, reports and notices made available
to Borrower's security holders or to any holders of Subordinated Debt and all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission; (iv) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could reasonably be expected to result
in damages or costs to Borrower or any Subsidiary of Two

                                       6
<PAGE>

Hundred Fifty Thousand Dollars ($250,000.00) or more; (v) as soon as available,
but not later than forty-five (45) days prior to the last day of Borrower's
fiscal year, operating plans for the Borrower's upcoming fiscal year; and
(vi)other financial information reasonably requested by Bank.

                  (b)      Within twenty-five (25) days after the last day of
each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed
by a Responsible Officer in the form of Exhibit C, with aged listings of
accounts receivable (by invoice date).

                  (c)      Borrower shall also deliver to Bank with the monthly
and annual financial statements a Compliance Certificate signed by a Responsible
Officer in the form of Exhibit D.

                  (d)      Allow Bank to audit Borrower's Collateral at
Borrower's expense. Such audits shall be conducted no more often than once every
twelve (12) months unless an Event of Default has occurred and is continuing.
Notwithstanding the foregoing, no Advances shall be made prior to the completion
of the initial audit (the "Initial Audit"). The Initial Audit shall be at the
sole expense of the Borrower and shall be completed on or before June 30, 2003.

         6.3      INVENTORY; RETURNS. Borrower shall keep all Inventory in good
and marketable condition, free from material defects. Returns and allowances
between Borrower and its account debtors shall follow Borrower's customary
practices as they exist at the Closing Date. Borrower must promptly notify Bank
of all returns, recoveries, disputes and claims that involve more than One
Hundred Thousand Dollars ($100,000.00), in the aggregate.

         6.4      TAXES. Borrower shall make, and cause each Subsidiary to make,
timely payment of all material federal, state, and local taxes or assessments
(other than taxes and assessments which Borrower is contesting in good faith,
with adequate reserves maintained in accordance with GAAP) and will deliver to
Bank, on demand, appropriate certificates attesting to such payments.

         6.5      INSURANCE. Borrower shall keep its business and the Collateral
insured for risks and in amounts, and as Bank may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that are
satisfactory to Bank. All property policies shall have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
shall show the Bank as an additional insured and all policies shall provide that
the insurer must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
at Bank's option, be payable to Bank on account of the Collateral to be applied
to 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 up to $250,000.00, in the
aggregate, 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 Bank 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 the Bank, be
payable to Bank on account of the Obligations. If Borrower fails to obtain
insurance as required under Section 6.5 or to pay any amount or furnish any
required proof of payment to third persons and the Bank, Bank may make all or
part of such payment or obtain such insurance policies required in Section 6.5,
and take any action under the policies Bank deems prudent.

         6.6      ACCOUNTS.

                  (a)      In order to permit the Bank to monitor the Borrower's
financial performance and condition, Borrower, and all Borrower's Subsidiaries,
shall maintain Borrower's, and such Subsidiaries, primary depository, operating,
and securities accounts with Bank. Any Guarantor shall maintain all depository,
operating and securities accounts with Bank.

                  (b)      Borrower shall identify to Bank, in writing, any bank
or securities account opened by Borrower with any institution other than Bank in
excess of Two Hundred Thousand Dollars ($200,000.00), in the aggregate at any
time. In addition, for each such account that the Borrower or Guarantor at any
time opens or

                                       7
<PAGE>

maintains, Borrower shall, at the Bank's request and option, pursuant to an
agreement in form and substance acceptable to the Bank, cause the depository
bank or securities intermediary to agree that such account is the collateral of
the Bank pursuant to the terms hereunder. The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the benefit
of the Borrower's employees.

         6.7      FINANCIAL COVENANTS.

         Borrower shall maintain at all times, to be tested as of the last day
of each month, unless otherwise noted:

                  (a)      QUICK RATIO. Borrower shall maintain, as of the last
day of each month, a ratio of Quick Assets to Current Liabilities of at least
1.5 to 1.0.

                  (b)      MINIMUM NET REVENUES. Borrower shall maintain minimum
net revenues of: (i) Four Million Five Hundred Thousand Dollars ($4,500,000.00)
for the fiscal quarter ending March 31, 2003; (ii) Five Million Five Hundred
Thousand Dollars ($5,500,000.00) for the fiscal quarter ending June 30, 2003;
(iii) Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000.00) for the
fiscal quarter ending September 30, 2003; (iv) Six Million Dollars
($6,000,000.00) for the fiscal quarter ending December 31, 2003, and (v) for
each fiscal quarter thereafter, an amount equal to the greater of: (A) Six
Million Dollars ($6,000,000.00), or (B) seventy-five percent (75.0%) of the
revenue plan approved by Borrower's Board of Directors.

         6.8      FURTHER ASSURANCES. Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank's security interest in the Collateral or to effect the purposes of
this Agreement.

         6.9      RATIFICATION OF NEGATIVE PLEDGE AGREEMENT. Borrower hereby
ratifies, confirms and reaffirms, all and singular, the terms and conditions of
a certain Negative Pledge Agreement dated as of June 24, 2001, between Borrower
and Bank, and acknowledges, confirms and agrees that said Negative Pledge
Agreement shall remain in full force and effect.

         7        NEGATIVE COVENANTS

         Borrower shall not do any of the following without the Bank's prior
written consent which shall not be unreasonably withheld.

         7.1      DISPOSITIONS. Convey, sell, lease, transfer or otherwise
dispose of (collectively a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers (i)
of Inventory in the ordinary course of business; (ii) of licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete Equipment.

         7.2      CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS
LOCATIONS. 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 (other than by the sale of
Borrower's equity securities in a public offering or to venture capital
investors so long as Borrower identifies to Bank the venture capital investors
prior to the closing of the investment), or management. Borrower shall not,
without at least thirty (30) days prior written notice to Bank: (i) relocate its
chief executive office, or add any new offices or business locations, including
warehouses (unless such new offices or business locations contain less than
Fifty Thousand Dollars ($50,000.00) in Borrower's assets or property), or (ii)
change its jurisdiction of organization, or (iii) change its organizational
structure or type, or (iv) change its legal name, or (v) change any
organizational number (if any) assigned by its jurisdiction of organization.

         7.3      MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with any other Person, or acquire,
or permit any of its Subsidiaries to acquire, all or substantially all of

                                       8
<PAGE>

the capital stock or property of another Person other than a merger with Color
Kinetics Japan Incorporated provided Borrower is the surviving legal entity and
the cash component of the collateral paid by Borrower does not exceed
$200,000.00, and further provided that no Event of Default Exists or would
result from such merger or acquisition. A Subsidiary may merge or consolidate
into another Subsidiary or into Borrower.

         7.4      INDEBTEDNESS. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.

         7.5      ENCUMBRANCE. Create, incur, or allow any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein. The Collateral may also be subject to Permitted Liens.

         7.6      DISTRIBUTIONS; INVESTMENTS. (i) Directly or indirectly acquire
or own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock, except for repurchases of stock from former employees or
directors of Borrower under the terms of applicable repurchase agreements in an
aggregate amount not to exceed Fifty Thousand Dollars ($50,000.00) in the
aggregate in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases.

         7.7      TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower,
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.

         7.8      SUBORDINATED DEBT. Make or permit any payment on any
Subordinated Debt, except under the terms of the Subordinated Debt, or amend any
provision in any document relating to the Subordinated Debt, without Bank's
prior written consent.

         7.9      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 Credit Extension for that
purpose; fail to meet the minimum funding requirements of 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, if the violation could reasonably be expected to have a material
adverse effect on Borrower's business or operations or would reasonably be
expected to cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.

         8        EVENTS OF DEFAULT

         Any one of the following is an Event of Default:

         8.1      PAYMENT DEFAULT. Borrower fails to pay any of the Obligations
within three (3) Business Days after their due date. During the additional
period the failure to cure the default is not an Event of Default (but no Credit
Extension shall be made during the cure period);

         8.2      COVENANT DEFAULT. Borrower fails or neglects to perform any
obligation in Section 6 or violates any covenant in Section 7 or fails or
neglects to perform, keep, or observe any other material term, provision,
condition, covenant or agreement contained in this Agreement, any Loan
Documents, or in any present or future agreement between Borrower and Bank and
as to any default under such other material term, provision, condition, covenant
or agreement that can be cured, has failed to cure the default within ten (10)
days after the occurrence thereof; provided, however, that if the default cannot
by its nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrower be cured within such ten (10) day period, and such default
is likely to be cured within a reasonable time, then Borrower shall have an
additional period (which shall not in any case exceed thirty

                                       9
<PAGE>

(30) days) to attempt to cure such default, and within such reasonable time
period the failure to cure the default shall not be deemed an Event of Default
(but no Credit Extensions shall be made during such cure period). Grace periods
provided under this section shall not apply, among other things, to financial
covenants or any other covenants that are required to be satisfied, completed or
tested by a date certain.

         8.3      MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs;

         8.4      ATTACHMENT. (i) Any material portion of Borrower's assets is
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in ten (10) days; (ii) the
service of process upon the Borrower seeking to attach, by trustee or similar
process, any funds of the Borrower on deposit with the Bank; (iii) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iv) a judgment or other claim becomes a Lien on a
material portion of Borrower's assets; or (v) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within ten (10) days after Borrower receives notice. These are not
Events of Default if stayed or if a bond is posted pending contest by Borrower
(but no Credit Extensions shall be made during the cure period);

         8.5      INSOLVENCY. (i) Borrower becomes insolvent; (ii) Borrower
begins an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within forty-five (45) days (but no
Credit Extensions shall be made before any Insolvency Proceeding is dismissed);

         8.6      OTHER AGREEMENTS. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of Two Hundred Fifty
Thousand Dollars ($250,000) or that could result in a Material Adverse Change;

         8.7      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 twenty (20) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment);

         8.8      MISREPRESENTATIONS. If Borrower or any Person acting for
Borrower makes any material misrepresentation or material misstatement now or
later in any warranty or representation in this Agreement or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document.

         8.9      GUARANTY. (i) Any guaranty of any Obligations terminates or
ceases for any reason to be in full force; or (ii) any Guarantor does not
perform any obligation under any guaranty of the Obligations; or (iii) any
material misrepresentation or material misstatement exists now or later in any
warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty; or (iv) any
circumstance described in Section 7, or Sections 8.4, 8.5 or 8.7 occurs to any
Guarantor, or (v) the death, liquidation, winding up, termination of existence,
or insolvency of any Guarantor.

         8.10     EXISTING LOAN. A default or Event of Default under the
Existing Loan shall be an Event of Default hereunder, and an Event of Default
hereunder shall be a default or Event of Default under the Existing Loan. The
Borrower hereby acknowledges, confirms and agrees that at any time in which any
obligations are outstanding under the Existing Loan it shall continue to comply
with the financial covenants appearing in Section 6.7 of this Agreement, as may
be amended from time to time, notwithstanding any termination of this Agreement
or the repayment of all obligations hereunder.

         9        BANK'S RIGHTS AND REMEDIES

         9.1      RIGHTS AND REMEDIES. When an Event of Default occurs and
continues Bank may, without notice or demand, do any or all of the following:


                                       10
<PAGE>

                  (a)      Declare all Obligations immediately due and payable
(but if an Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);

                  (b)      Stop advancing money or extending credit for
Borrower's benefit under this Agreement or under any other agreement between
Borrower and Bank;

                  (c)      Settle or adjust disputes and claims directly with
account debtors for amounts, on terms and in any order that Bank considers
advisable and notify any Person owing Borrower money of Bank's security interest
in such funds and verify the amount of such account. Borrower shall collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit;

                  (d)      Make any payments and do any acts it considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower shall assemble the Collateral if Bank requests and make it available as
Bank designates. Bank may enter premises where the Collateral is located, take
and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Borrower grants Bank a license
to enter and occupy any of its premises, without charge, to exercise any of
Bank's rights or remedies;

                  (e)      Apply to the Obligations any (i) balances and
deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for
the credit or the account of Borrower;

                  (f)      Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is
hereby granted a non-exclusive, royalty-free license or other right to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any similar property as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral and,
in connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and

                  (g)      Dispose of the Collateral according to the Code.

         9.2      POWER OF ATTORNEY. Borrower hereby irrevocably appoints Bank
as its lawful attorney-in-fact, to be effective upon the occurrence and during
the continuance of an Event of Default, to: (i) endorse Borrower's name on any
checks or other forms of payment or security; (ii) sign Borrower's name on any
invoice or bill of lading for any Account or drafts against account debtors;
(iii) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; (iv) make,
settle, and adjust all claims under Borrower's insurance policies; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign
Borrower's name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred
until all Obligations have been satisfied in full and Bank is under no further
obligation to make Credit Extensions hereunder. Bank's foregoing appointment as
Borrower's attorney in fact, and all of Bank's rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates.

         9.3      ACCOUNTS NOTIFICATION/COLLECTION. In the event that an Event
of Default occurs and is continuing, Bank may notify any Person owing Borrower
money of Bank's security interest in the funds and verify and/or collect the
amount of the Account. After the occurrence of an Event of Default, any amounts
received by Borrower shall be held in trust by Borrower for Bank, and, if
requested by Bank, Borrower shall immediately deliver such receipts to Bank in
the form received from the account debtor, with proper endorsements for deposit.

         9.4      BANK EXPENSES. Any amounts paid by Bank as provided herein are
Bank Expenses and are immediately due and payable, and shall bear interest at
the then applicable rate and be secured by the Collateral. No

                                       11
<PAGE>

payments by Bank shall be deemed an agreement to make similar payments in the
future or Bank's waiver of any Event of Default.

         9.5      BANK'S LIABILITY FOR COLLATERAL. So long as the Bank complies
with reasonable banking practices regarding the safekeeping of collateral, the
Bank shall not be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, or other person. Borrower bears all risk of loss, damage or destruction
of the Collateral.

         9.6      REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements are cumulative. Bank has
all rights and remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's waiver of any
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver hereunder shall be effective unless signed
by Bank and then is only effective for the specific instance and purpose for
which it was given.

         9.7      DEMAND WAIVER. Borrower waives demand, 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 held by Bank on which
Borrower is liable.

         10       NOTICES

         All notices or demands by any party to this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile at the addresses listed below. Either Bank or
Borrower may change its notice address by giving the other written notice.

         If to Borrower:        Color Kinetics Incorporated
                                10 Milk Street
                                Boston, Massachusetts 02108
                                Attn: Mr. David Johnson
                                FAX: (617) 701-2204

         with a copy to:        Foley Hoag LLP
                                One Post Office Square
                                Boston, Massachusetts 02109
                                Attn: John D. Patterson, Jr. Esquire
                                Fax: (617) 832-7000

         If to Bank:            Silicon Valley Bank
                                One Newton Executive Park, Suite 200
                                2221 Washington Street
                                Newton, Massachusetts 02462
                                Attn: Ms. Pamela Aldsworth
                                Fax: (617) 969-5973

         with a copy to:        Riemer & Braunstein LLP
                                Three Center Plaza
                                Boston, Massachusetts 02108
                                Attn: David A. Ephraim, Esquire
                                FAX: (617) 880-3456


         11       CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

                                       12
<PAGE>

         Massachusetts law governs the Loan Documents without regard to
principles of conflicts of law. Borrower and Bank each submit to the exclusive
jurisdiction of the State and Federal courts in Massachusetts; provided,
however, that if for any reason Bank cannot avail itself of such courts in the
Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and
venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, THE BANK
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR
ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH THE BANK DEEMS
NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE
ENFORCE THE BANK'S RIGHTS AGAINST THE BORROWER OR ITS PROPERTY.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

         12       GENERAL PROVISIONS

         12.1     SUCCESSORS AND ASSIGNS. This Agreement binds and is for the
benefit of the successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.

         12.2     INDEMNIFICATION. Borrower hereby indemnifies, defends and
holds the Bank and its officers, employees and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and Borrower (including reasonable
attorneys' fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.

         12.3     RIGHT OF SET-OFF. Borrower and any guarantor hereby grant to
Bank, alien, security interest and right of setoff as security for all
Obligations to Bank, whether now existing or hereafter arising upon and against
all deposits, credits, collateral and property, now or hereafter in the
possession, custody, safekeeping or control of Bank or any entity under the
control of the Bank (including a Bank subsidiary) or in transit to any of them.
At any time after the occurrence and during the continuance of an Event of
Default, without demand or notice, Bank may set off the same or any part thereof
and apply the same to any liability or obligation of Borrower and any guarantor
even though unmatured and regardless of the adequacy of any other collateral
securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE
OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH
DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

         12.4     TIME OF ESSENCE. Time is of the essence for the performance of
all Obligations in this Agreement.

         12.5     SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.

         12.6     AMENDMENTS IN WRITING; INTEGRATION. All amendments to this
Agreement must be in writing signed by both Bank and Borrower. This Agreement
and the Loan Documents represent the entire agreement about this subject matter,
and supersede prior negotiations or agreements. All prior agreements,
understandings,

                                       13
<PAGE>

representations, warranties, and negotiations between the parties about the
subject matter of this Agreement and the Loan Documents merge into this
Agreement and the Loan Documents.

         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, are an original, and all taken together, constitute
one Agreement.

         12.8     SURVIVAL. All covenants, representations and warranties made
in this Agreement continue in full force while any Obligations remain
outstanding. The obligation of Borrower in Section 12.2 to indemnify Bank shall
survive until the statute of limitations with respect to such claim or cause of
action shall have run.

         12.9     CONFIDENTIALITY. In handling any confidential information,
Bank shall exercise the same degree of care that it exercises for its own
proprietary information, but disclosure of information may be made: (i) to
Bank's subsidiaries or affiliates in connection with their business with
Borrower; (ii) to prospective transferees or purchasers of any interest in the
Credit Extensions (provided, however, Bank shall use commercially reasonable
efforts in obtaining such prospective transferee's or purchaser's agreement to
the terms of this provision); (iii) as required by law, regulation, subpoena, or
other order, (iv) as required in connection with Bank's examination or audit;
and (v) as Bank considers appropriate in exercising remedies under this
Agreement. Confidential information does not include information that either:
(a) is in the public domain or in Bank's possession when disclosed to Bank, or
becomes part of the public domain after disclosure to Bank; or (b) is disclosed
to Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.

         12.10    DEFINITIONS

         12.11    DEFINITIONS. In this Agreement:

         "ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing, as such definition may be amended from time to time according to the
Code.

         "ADVANCE" or "ADVANCES" is a loan advance or advances under the
Revolving Line.

         "AFFILIATE" is a Person that owns or controls directly or indirectly
the Person, any Person that controls or is controlled by or is under common
control with the Person, and each of that Person's senior executive officers,
directors, partners and, for any Person that is a limited liability company,
that Person's managers and members.

         "BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, defending and enforcing the Loan Documents (including appeals or
Insolvency Proceedings).

         "BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

         "BORROWING BASE" is eighty percent (80%) of Eligible Accounts and
Eligible Foreign Accounts, as determined by Bank from Borrower's most recent
Borrowing Base Certificate; provided, however, that Bank may lower the
percentage of the Borrowing Base after performing an audit of Borrower's
Collateral.

         "BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed. "Cash Management Services" are defined in Section
2.1.4. "Closing Date" is the date of this Agreement.

                                       14
<PAGE>


         "CODE" is the Uniform Commercial Code as adopted in Massachusetts, as
amended and as may be amended and in effect from time to time.

         "COLLATERAL" is any and all properties, rights and assets of the
Borrower granted by the Borrower to Bank or arising under the Code, now, or in
the future, in which the Borrower obtains an interest, or the power to transfer
rights, including, without limitation, the property described on Exhibit A.

         "CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

         "CREDIT EXTENSION" is each Advance, Letter of Credit, F/X Forward
Contract, or any other extension of credit by Bank for Borrower's benefit.

         "CURRENT ASSETS" are amounts that under GAAP should be included on that
date as current assets on Borrower's consolidated balance sheet.

         "CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year, which shall include, without
limitation, all Credit Extensions and Obligations.

         "ELIGIBLE ACCOUNTS" are billed Accounts in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.2; but Bank may change eligibility standards by giving Borrower
notice. Unless Bank agrees otherwise in writing, Eligible Accounts shall not
include:

                  (a)      Accounts that the account debtor has not paid within
         ninety (90) days of invoice date;

                  (b)      Accounts for an account debtor, fifty percent (50%)
         or more of whose Accounts have not been paid within ninety (90) days of
         invoice date;

                  (c)      Credit balances over ninety (90) days from invoice
         date;

                  (d)      Accounts for an account debtor, including Affiliates,
         whose total obligations to Borrower exceed twenty-five (25%) of all
         Accounts, for the amounts that exceed that percentage, unless Bank
         approves in writing;

                  (e)      Accounts for which the account debtor does not have
         its principal place of business in the United States (except for
         Eligible Foreign Accounts);

                  (f)      Accounts for which the account debtor is a federal,
         state or local government entity or any department, agency, or
         instrumentality thereof;

                  (g)      Accounts for which Borrower owes the account debtor,
         but only up to the amount owed (sometimes called "contra" accounts,
         accounts payable, customer deposits or credit accounts);

                  (h)      Accounts for demonstration or promotional equipment,
         or in which goods are consigned, sales guaranteed, sale or return, sale
         on approval, bill and hold, or other terms if account debtor's payment
         may be conditional;

                                       15
<PAGE>

                  (i)      Accounts for which the account debtor is Borrower's
         Affiliate, officer, employee, or agent;

                  (j)      Accounts in which the account debtor disputes
         liability or makes any claim and Bank believes there may be a basis for
         dispute (but only up to the disputed or claimed amount), or if the
         Account Debtor is subject to an Insolvency Proceeding, or becomes
         insolvent, or goes out of business;

                  (k)      Accounts for which Bank reasonably determines
         collection to be doubtful.

         "ELIGIBLE FOREIGN ACCOUNTS" are Accounts for which the account debtor
does not have its principal place of business in the United States but are: (1)
covered by credit insurance satisfactory to Bank, less any deductible; or (2)
supported by letter(s) of credit acceptable to Bank; or (3) that Bank approves
in writing..

         "ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.

         "EXISTING LOAN" is that certain Loan and Security Agreement dated March
13, 2001, by and between Borrower and the Bank.

         "FX FORWARD CONTRACT" is defined in Section 2.1.3.

         "FX RESERVE" is defined in Section 2.1.3.

         "GAAP" is generally accepted accounting principles. "Guarantor" is any
present or future guarantor of the Obligations.

         "INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

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

         "INTELLECTUAL PROPERTY" is any copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, now owned or
later acquired; any patents, trademarks, service marks and applications
therefor; any trade secret rights, including any rights to unpatented
inventions, now owned or hereafter acquired.

         "INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

         "INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

         "LETTER OF CREDIT" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.

         "LETTER OF CREDIT RESERVE" has the meaning set forth in Section 2.1.2.

         "LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

         "LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

                                       16
<PAGE>


         "MATERIAL ADVERSE CHANGE" is: (i) A material impairment in the
perfection or priority of Bank's security interest in the Collateral or in the
value of such Collateral; (ii) a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower; or (iii) a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iv) Bank determines, based upon information available to it and
in its reasonable judgment, that there is a substantial likelihood that Borrower
shall fail to comply with one or more of the financial covenants in Section 6
during the next succeeding financial reporting period.

         "OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, under this Agreement or the Existing
Loan or otherwise, including letters of credit, cash management services, and
foreign exchange contracts, if any, and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower
assigned to Bank.

         "PAYMENT DATE" is the first day of each calendar month.

         "PERMITTED INDEBTEDNESS" is:

                  (a)      Borrower's indebtedness to Bank under this Agreement
         or the Loan Documents;

                  (b)      Indebtedness existing on the Closing Date and shown
         on the Perfection Certificate;

                  (c)      Subordinated Debt in an amount not to exceed One
         Million Dollars ($1,000,000.00);

                  (d)      Indebtedness to trade creditors incurred in the
         ordinary course of business; and

                  (e)      Indebtedness secured by Permitted Liens; and

                  (f)      Extensions, refinancings, modifications, amendments
         and restatements of any items of Permitted Indebtedness (a) through (e)
         above, provided that the principal amount thereof is not increased or
         the terms thereof are not modified to impose more burdensome terms upon
         Borrower or its Subsidiary, as the case may be.

         "PERMITTED INVESTMENTS" are:

                  (a)      Investments shown on the Perfection Certificate and
         existing on the Closing Date; and

                  (b)      (i) marketable direct obligations issued or
         unconditionally guaranteed by the United States or its agency or any
         state maturing within 1 year from its acquisition, (ii) commercial
         paper maturing no more than 1 year after its creation and having the
         highest rating from either Standard & Poor's Corporation or Moody's
         Investors Service, Inc., (iii) Bank's certificates of deposit issued
         maturing no more than 1 year after issue, (iv) any other investments
         administered through the Bank.

         "PERMITTED LIENS" are:

                  (a)      Liens existing on the Closing Date and shown on the
         Perfection Certificate or arising under this Agreement or other Loan
         Documents;

                  (b)      Liens for taxes, fees, assessments or other
         government charges or levies, either not delinquent or being contested
         in good faith and for which Borrower maintains adequate reserves on its
         Books, if they have no priority over any of Bank's security interests;

                  (c)      Leases or subleases and non-exclusive licenses or
         sublicenses granted in the ordinary course of Borrower's business, if
         the leases, subleases, licenses and sublicenses permit granting Bank a
         security interest;

                                       17
<PAGE>

                  (d)      Purchase money Liens in an amount not to exceed Two
         Hundred Fifty Thousand Dollars ($250,000.00), in the aggregate during
         any fiscal year: (i) on Equipment acquired or held by Borrower incurred
         for financing the acquisition of the Equipment, or (ii) existing on
         equipment when acquired, if the Lien is confined to the property and
         improvements and the proceeds of the equipment; and

                  (e)      Liens incurred in the extension, renewal or
         refinancing of the indebtedness secured by Liens described in (a)
         through (d), 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" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

         "PRIME RATE" is the greater of: (i) Bank's most recently announced
"prime rate," even if it is not Bank's lowest rate or (ii) four percent (4.00%).

         "QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.

         "RESPONSIBLE OFFICER" is each of the Chief Executive Officer,
President, Chief Financial Officer and Controller of Borrower.

         "REVOLVING LINE" is an Advance or Advances of up to Three Million
Dollars ($3,000,000.00). "Revolving Maturity Date" is September 1, 2004.

         "SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (pursuant to a subordination agreement entered into
between the Bank, the Borrower and the subordinated creditor), on terms
acceptable to Bank.

         "SUBSIDIARY" is any Person, corporation, partnership, limited liability
company, joint venture, or any other business entity of which more than 50% of
the voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.

         "TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.

                  [Remainder of Page Intentionally Left Blank]

                                       18
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.

BORROWER:

COLOR KINETICS INCORPORATED

By  /s/ David K. Johnson
   ----------------------------------

Name: David K. Johnson

Title: VP Finance

BANK:

SILICON VALLEY BANK, d/b/a SILICON VALLEY EAST

By /s/ Michael J. Tramack
  -----------------------------------

Name: Michael J. Tramack

Title: Vice President

SILICON VALLEY BANK

By /s/ Maggie Garcia
  -----------------------------------

Name: Maggie Garcia

Title: AVP

           (Signed in Santa Clara County, California)


                                       19
<PAGE>

                                    EXHIBIT A

         The Collateral consists of all of Borrower's right, title and interest
in and to the following:

         All goods, equipment, inventory, contract rights or rights to payment
of money, license agreements, franchise agreements, general intangibles
(including payment intangibles), accounts (including health-care receivables),
documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing),
commercial tort claims, securities, and all other investment property supporting
obligations, and financial assets, whether now owned or hereafter acquired,
wherever located; and

         All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

         The Collateral does not include:

         Any copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work, whether
published or unpublished, now owned or later acquired; any patents, trademarks,
service marks and applications therefor; any trade secret rights, including any
rights to unpatented inventions, now owned or hereafter acquired.
Notwithstanding the foregoing, the Collateral shall include all accounts,
license and royalty fees and other revenues, proceeds, or income arising out of
or relating to any of the foregoing intellectual property. To the extent a court
of competent jurisdiction holds that a security interest in any Intellectual
Property is necessary to have a security interest in any accounts, license and
royalty fees and other revenues, proceeds, or income arising out of or relating
to any of the foregoing Intellectual Property, then the Collateral shall,
effective as of the Closing Date, include the Intellectual Property, to the
extent necessary to permit perfection of the Bank's security interest in such
accounts, license and royalty fees and other revenues, proceeds, or income
arising out of or relating to any of the Intellectual Property.


                                       20
<PAGE>



                                    EXHIBIT B

                        LOAN PAYMENT/ADVANCE REQUEST FORM

                 DEADLINE FOR SAME DAY PROCESSING IS 3:00 E.S.T

Fax To: (617) 969-5965                                    Date:_________________

LOAN PAYMENT:

                     Sample documents Client Name (Borrower)

From Account #__________________________        To Account #___________________
                (Deposit Account #)                           (Loan Account #)

Principal $_____________________________  and/or Interest $____________________

All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:

AUTHORIZED SIGNATURE:___________________        Phone number ___________________
________________________________________________________________________________
LOAN ADVANCE:

COMPLETE OUTGOING WIRE REQUEST SECTION BELOW IF ALL OR A PORTION OF THE FUNDS
FROM THIS LOAN ADVANCE ARE FOR AN OUTGOING WIRE.

From Account #__________________________        To Account #___________________
                  (Loan Account #)                          (Deposit Account #)

Amount of Advance $_____________________

All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:

AUTHORIZED SIGNATURE:____________________       Phone number____________________
________________________________________________________________________________
OUTGOING WIRE REQUEST

COMPLETE ONLY IF ALL OR A PORTION OF THE FUNDS FROM THE LOAN ADVANCE ABOVE ARE
TO BE WIRED.

Deadline for same day processing is 3:00 pm, E.S.T.

Beneficiary Name________________________        Amount of Wire:$________________

Beneficiary Bank________________________        Account Number:_________________

Coty and State:_________________________

Beneficiary Bank Transit (ABA) #:_______         Beneficiary Bank Code
                                               (Swift, Sort, Chip, etc.)

                                                   (FOR INTERNATIONAL WIRE ONLY)

Intermediary Bank:______________________        Transit (ABA):#_________________

For Further Credit to:__________________________________________________________

Special Instruction_____________________________________________________________

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreement(s) covering funds transfer service(s),
which agreement(s) were previously received and executed by me (us).

Authorized Signature:____________________2nd Signature (If required):___________

Print Name/Title:_______________________        Print Name/Title:_______________

Telephone:______________________________        Telephone #_____________________

                                       21
<PAGE>

                                    EXHIBIT C
                           BORROWING BASE CERTIFICATE

--------------------------------------------------------------------------------
Borrower:  Color Kinetics Incorporated

Lender:    Silicon Valley Bank

Commitment Amount:  $3,000,000.00

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

ACCOUNTS RECEIVABLE
1.       Accounts Receivable Book Values as of __________________       $_______
2.       Additions (please explain on reverse)                          $_______
3.       TOTAL ACCOUNTS RECEIVABLE                                      $_______

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.       Amounts over 90 days due                                       $_______
5.       Balance of 50% over 90 day accounts                            $_______
6.       Credit balances over 90 days                                   $_______
7.       Concentration Limits                                           $_______
8.       Ineligible Foreign Accounts                                    $_______
9.       Governmental Accounts                                          $_______
10.      Contra Accounts                                                $_______
11.      Promotion or Demo Accounts                                     $_______
12.      Intercompany/Employee Accounts                                 $_______
13.      Other (please explain on reverse)                              $_______
14.      TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                           $_______
15.      Eligible Accounts (#3 minus #14)                               $_______
16.      LOAN VALUE OF ACCOUNTS (80.0% of #15)                          $_______

BALANCES

17.      Maximum Loan Amount                                            $_______
18.      Total Funds Available (Lesser of #16 and #17)                  $_______
19.      Present balance owing on Line of Credit                        $_______
20.      Outstanding under Sublimits (L/C, Cash Mgt, FXContract)        $_______
21.      RESERVE POSITION (#18 minus #19 and #20)                       $_______

The undersigned Responsible Officer, in his capacity as such, represents and
warrants that this is true, complete and correct, and that the information in
this Borrowing Base Certificate complies with the representations and warranties
in the Loan and Security Agreement between the undersigned and Silicon Valley
Bank.

COMMENTS:                                                    BANK USE ONLY

By:____________________________                 Received by:____________________
           Authorized Signer                                 AUTHORIZED SIGNER

                                                Date:___________________________

                                                Verified:_______________________
                                                             AUTHORIZED SIGNER

                                                Date:___________________________


                                       22
<PAGE>



                                    EXHIBIT D
                             COMPLIANCE CERTIFICATE

TO:      SILICON VALLEY BANK

FROM: COLOR KINETICS INCORPORATED

         The undersigned authorized officer of Color Kinetics Incorporated, in
his capacity as such, certifies that under the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending_____________________with all
required covenants except as noted below and (ii) all representations and
warranties in the Agreement are true and correct in all material respects on
this date. Attached are the required documents supporting the certification. The
Officer certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.

  PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.

<TABLE>
<CAPTION>
REPORTING COVENANT                                            REQUIRED                                      COMPLIES
------------------                                            --------                                      --------
<S>                                             <C>                                                      <C>        <C>
Monthly financial Statements with Cc            Monthly within 25 days                                   Yes        No
Annual (CPA Audited) with CC                    FYE within 120 Days                                      Yes        No
10-Q, 10-K and 8-K                              Within 5 days after filing with SEC                      Yes        No
BBC A/R Agings                                  Monthly within 25 days                                   Yes        No
Detailed Operating Plan                         Within 45 days of prior FYE                              Yes        No
Audit                                           Annually, prior to Advance (before 6/30/03)              Yes        No
</TABLE>

<TABLE>
<CAPTION>
FINANCIAL COVENANT                              REQUIRED                        ACTUAL                      COMPLIES
------------------                              --------                        ------                      --------
<S>                                             <C>                             <C>                      <C>        <C>
Maintain on a MONTHLY Basis:
Minimum Quick Ratio                             1.5:1.0                         _____:1.0                Yes        No

Maintain on a Quarterly Basis:
Minimum Net Revenues                            $_____________*                 $______________          Yes        No
</TABLE>


*As set forth in Section 6.7(b) of the Agreement.

COMMENTS REGARDING EXCEPTIONS:  See Attached.                BANK USE ONLY

Sincerely,                                      Received by:____________________
                                                             AUTHORIZED SIGNER

SIGNATURE                                       Date:___________________________

__________________________________________      Verified:_______________________
TITLE                                                       AUTHORIZED SIGNER

                                                Date:___________________________
__________________________________________
DATE

                                       23