exv10w24



 





Exhibit 10.24




 


SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT




AMONG




NANOSPHERE, INC.,




BAIN CAPITAL VENTURE FUND 2005, L.P.,




BROOKSIDE CAPITAL PARTNERS,




AND




THE OTHER PURCHASERS NAMED ON SCHEDULE I HERETO




DATED AS OF APRIL 12, 2006



 



 









 








TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	AUTHORIZATION OF SECURITIES	 	 	1	 
	 
	 	1.1	 	 	 	 	1	 
	 
	 	1.2	 	 	 	 	1	 
	2.	 	SALE AND PURCHASE OF THE SECURITIES	 	 	1	 
	3.	 	CLOSING; PAYMENT OF PURCHASE PRICE; USE OF PROCEEDS	 	 	2	 
	 
	 	3.1	 	Closing	 	 	2	 
	 
	 	3.2	 	Use of Proceeds	 	 	2	 
	4.	 	REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS; RESTRICTIONS ON TRANSFER	 	 	2	 
	 
	 	4.1	 	Organization	 	 	2	 
	 
	 	4.2	 	Validity	 	 	2	 
	 
	 	4.3	 	Brokers	 	 	2	 
	 
	 	4.4	 	Investment Representations and Warranties	 	 	3	 
	 
	 	4.5	 	Acquisition for Own Account	 	 	3	 
	 
	 	4.6	 	Disclosure of Information	 	 	3	 
	 
	 	4.7	 	Ability to Protect Its Own Interests and Bear Economic Risks	 	 	3	 
	 
	 	4.8	 	Accredited Investor	 	 	3	 
	 
	 	4.9	 	Restricted Securities	 	 	3	 
	 
	 	4.10	 	No Public Market	 	 	4	 
	 
	 	4.11	 	Residence	 	 	4	 
	5.	 	REPRESENTATIONS AND WARRANTIES BY THE COMPANY	 	 	4	 
	 
	 	5.1	 	Capitalization	 	 	4	 
	 
	 	5.2	 	Due Issuance and Authorization of Capital Stock	 	 	5	 
	 
	 	5.3	 	Organization	 	 	5	 
	 
	 	5.4	 	Subsidiaries	 	 	5	 
	 
	 	5.5	 	Consents	 	 	5	 
	 
	 	5.6	 	Authorization; Enforcement	 	 	6	 
	 
	 	5.7	 	Issuance of Securities	 	 	6	 
	 
	 	5.8	 	No Conflicts	 	 	6	 
	 
	 	5.9	 	Material Contracts	 	 	7	 
	 
	 	5.10	 	Right of First Refusal; Stockholders Agreement	 	 	7	 
	 
	 	5.11	 	Previous Issuances Exempt	 	 	8	 
	 
	 	5.12	 	No Integrated Offering	 	 	8	 
	 
	 	5.13	 	Absence of Certain Changes: Financial Statements	 	 	8	 
	 
	 	5.14	 	No Undisclosed Material Liabilities	 	 	9	 
	 
	 	5.15	 	Litigation	 	 	9	 
	 
	 	5.16	 	Taxes	 	 	9	 
	 
	 	5.17	 	Employee Matters	 	 	10	 
	 
	 	5.18	 	Compliance with Laws	 	 	10	 
	 
	 	5.19	 	Brokers	 	 	11	 
	 
	 	5.20	 	Environmental Matters	 	 	11	 
	 
	 	5.21	 	Intellectual Property Matters	 	 	11	 
	 
	 	5.22	 	Related-Party Transactions	 	 	15	 






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TABLE OF CONTENTS

(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	5.23	 	Title to Property and Assets	 	 	15	 
	 
	 	5.24	 	Disclosure	 	 	15	 
	 
	 	5.25	 	Corporate Records; Minute Books	 	 	16	 
	 
	 	5.26	 	Absence of Changes	 	 	16	 
	 
	 	5.27	 	Illegal Payments	 	 	17	 
	 
	 	5.28	 	Suppliers and Customers	 	 	17	 
	 
	 	5.29	 	Insurance	 	 	17	 
	6.	 	CONDITIONS OF PARTIES’ OBLIGATIONS	 	 	17	 
	 
	 	6.1	 	Conditions of the Purchasers’ Obligations	 	 	17	 
	 
	 	6.2	 	Conditions of the Company’s Obligations	 	 	20	 
	 
	 	6.3	 	Conditions of Each Party’s Obligations	 	 	20	 
	7.	 	TRANSFER RESTRICTIONS; RESTRICTIVE LEGEND	 	 	21	 
	 
	 	7.1	 	Transfer Restrictions	 	 	21	 
	 
	 	7.2	 	Restrictive Legend	 	 	21	 
	8.	 	REGISTRATION, TRANSFER AND SUBSTITUTION OF CERTIFICATES FOR SECURITIES	 	 	21	 
	 
	 	8.1	 	Stock Register; Ownership of Securities	 	 	21	 
	 
	 	8.2	 	Replacement of Certificates	 	 	21	 
	9.	 	DEFINITIONS	 	 	22	 
	10.	 	COVENANTS	 	 	24	 
	 
	 	10.1	 	Financial Statements and Other Information	 	 	24	 
	 
	 	10.2	 	Inspection of Property	 	 	26	 
	 
	 	10.3	 	Affirmative Covenants	 	 	26	 
	 
	 	10.4	 	Intellectual Property Rights	 	 	27	 
	 
	 	10.5	 	Authorized and Reserved Common Stock and Series D Preferred Stock	 	 	27	 
	 
	 	10.6	 	Designation of Directors	 	 	28	 
	 
	 	10.7	 	Insurance	 	 	28	 
	 
	 	10.8	 	Securities Law Compliance	 	 	28	 
	 
	 	10.9	 	Qualification to Conduct Business	 	 	28	 
	 
	 	10.10	 	Future Option Plans	 	 	28	 
	 
	 	10.11	 	Purchaser Obligation to Maintain Confidentiality	 	 	28	 
	 
	 	10.12	 	Key Man Insurance	 	 	29	 
	 
	 	10.13	 	Termination of Covenants	 	 	29	 
	11.	 	GENERAL PROVISIONS	 	 	29	 
	 
	 	11.1	 	Waivers and Amendments	 	 	29	 
	 
	 	11.2	 	No Implied Waiver	 	 	29	 
	 
	 	11.3	 	No Waivers	 	 	29	 
	 
	 	11.4	 	Notices	 	 	30	 
	 
	 	11.5	 	Delays or Omissions; Remedies Cumulative	 	 	31	 
	 
	 	11.6	 	Indemnification	 	 	31	 
	 
	 	11.7	 	Successors and Assigns	 	 	32	 
	 
	 	11.8	 	Headings	 	 	32	 
	 
	 	11.9	 	Governing Law	 	 	32	 






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TABLE OF CONTENTS

(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	11.10	 	Expenses	 	 	32	 
	 
	 	11.11	 	Jurisdiction	 	 	32	 
	 
	 	11.12	 	Waiver of Jury Trial	 	 	33	 
	 
	 	11.13	 	Counterparts; Effectiveness	 	 	33	 
	 
	 	11.14	 	Entire Agreement	 	 	33	 
	 
	 	11.15	 	Severability	 	 	33	 
	 
	 	11.16	 	Exculpation Among Purchasers; Attorney	 	 	33	 






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LIST OF EXHIBITS




	 	 	 
	EXHIBIT A

	 	Amended and Restated Certificate of Incorporation
	 
	 	 
	EXHIBIT B

	 	Second Amended and Restated Stockholders Agreement
	 
	 	 
	EXHIBIT C

	 	Form of Warrant
	 
	 	 
	EXHIBIT D

	 	Amended and Restated Registration Rights Agreement
	 
	 	 
	EXHIBIT E

	 	Note and Warrant Cancellation Agreement






-iv-









 






SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT




          This SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made and
entered into this 12th day of April, 2006 by and among Nanosphere, Inc., a Delaware corporation
(the “Company”), Bain Capital Venture Fund 2005, L.P., a Delaware limited partnership and Brookside
Capital Partners Fund, L.P., a Delaware limited partnership (collectively, “Bain Capital”), certain
entities related to Bain Capital as listed on Schedule I and the other entities and
individuals as listed on Schedule I attached hereto (each such purchaser is referred to
herein as a “Purchaser,” and such purchasers collectively are referred to herein as the
“Purchasers”). Certain terms used and not otherwise defined in the text of this Agreement are
defined in Section 9 hereof.



WITNESSETH




          WHEREAS, the Company desires to issue and to sell to the Purchasers, and the Purchasers desire
to purchase from the Company, the shares of Series D Preferred Stock (as hereinafter defined), all
in accordance with the terms and provisions of this Agreement;



          NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties
and covenants herein contained, the parties hereto hereby agree as follows:



     1. Authorization of Securities.



          1.1 The Company has authorized the issuance and sale of up to 162,857,142 shares of its Series
D Preferred Stock, par value $0.01 per share (“Series D Preferred Stock”), which will be
convertible into shares of the Company’s common stock, par value $0.01 per share (the “Common
Stock”), and which will have the rights, preferences and privileges set forth in the form of
Amended and Restated Certificate of Incorporation attached hereto as Exhibit A (the
“Amended and Restated Certificate of Incorporation”). The shares of Common Stock into which the
Series D Preferred Stock is convertible are sometimes referred to herein as the “Conversion Shares”
and the shares of Series D Preferred Stock, the Conversion Shares and the Warrants and the Warrant
Shares (each as defined below) are sometimes referred to herein collectively as the “Securities”.



          1.2 The Company has authorized the issuance to each Purchaser of a Warrant dated as of the
date hereof substantially in the form attached hereto as Exhibit C to purchase the number
of shares of the Company’s Series D Preferred Stock set forth opposite such Purchaser’s name on
Schedule I hereto. The Warrants issued pursuant to this Agreement are collectively
referred to herein as the “Warrants”. The shares of Series D Preferred Stock for which the
Warrants are exercisable are referred to herein collectively as the “Warrant Shares”.



     2. Sale and Purchase of the Securities. Subject to the terms and conditions contained
in this Agreement, each Purchaser agrees to purchase, severally and not jointly with respect to the
other Purchasers, and the Company agrees to sell and issue to each Purchaser, at the Closing (as
defined below), that number of shares of Series D Preferred Stock set forth opposite such
Purchaser’s name on Schedule I attached hereto at a purchase price of $0.35 per share of
Series D Preferred Stock (the “Purchase Price”) and the Warrants to purchase the Warrant
Shares set forth opposite such Purchaser’s name on Schedule I attached hereto.



 









 





     3. Closing; Payment of Purchase Price; Use of Proceeds.



          3.1 Closing. The closing (the “Closing”) with respect to the transaction contemplated
in Section 2 hereof shall take place remotely via the exchange of documents and signatures at 10:00
a.m. on April 12, 2006, or at such other time and place as the Company and Purchasers mutually
agree upon, orally or in writing (the “Closing Date”). At the Closing, the Company shall deliver
to each Purchaser (i) a certificate representing the shares of Series D Preferred Stock being
purchased by such Purchaser (registered in the name of such Purchaser) and (ii) a Warrant to
purchase the initial number of Warrant Shares set forth opposite such Purchaser’s name on
Schedule I (registered in the name of such Purchaser), against payment of the purchase
price therefor by (A) wire transfer (of immediately available funds) to a bank account designated
by the Company; (B) by cancellation of indebtedness of the Company to the Purchaser, including
interest; (C) cancellation of outstanding warrants and rights associated therewith; or (D) by any
combination of such methods, in each case as set forth on Schedule I hereto.



          3.2 Use of Proceeds. The Company shall use the proceeds from the sale of Series D
Preferred Stock hereunder for general corporate purposes.



     4. Representations and Warranties of the Purchasers; Restrictions on Transfer. Each
Purchaser, severally as to itself and not jointly, represents and warrants to the Company as
follows:



          4.1 Organization. Any Purchaser which is a corporation, limited liability company,
partnership, trust or other entity represents that such Purchaser is validly existing or formed and
in good standing under the laws of its jurisdiction of organization or formation, and has all
corporate, limited liability company, partnership, trust or other entity power (as the case may be)
and authority to enter into this Agreement and the other Transaction Documents and instruments
referred to herein to which it is a party and to consummate the transactions contemplated hereby
and thereby.



          4.2 Validity. The execution, delivery and performance of this Agreement, and the
other Transaction Documents and instruments referred to herein, in each case to which such
Purchaser is a party, and the consummation by such Purchaser of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary action on the part of such
Purchaser. This Agreement has been duly executed and delivered by such Purchaser, and the other
Transaction Documents and instruments referred to herein to which it is a party will be duly
executed and delivered by such Purchaser, and each such agreement constitutes or will constitute a
valid and binding obligation of such Purchaser enforceable against it in accordance with its terms.



          4.3 Brokers. There is no broker, investment banker, financial advisor, finder or
other person which has been retained by or is authorized to act on behalf of such Purchaser who
might be entitled to any fee or commission for which the Company will be liable in
connection with the execution of the Transaction Documents and the consummation of the
transactions contemplated thereby.



2









 





          4.4 Investment Representations and Warranties. Such Purchaser understands that the
issuance of the Securities to the Purchasers has not been, and will not be, registered under the
Securities Act.



          4.5 Acquisition for Own Account. This Agreement is made with the Purchaser in
reliance upon the Purchaser’s representations to the Company contained in this Agreement,
including, without limitation, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that the Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same; it being understood,
the foregoing notwithstanding, that certain of the Securities being purchased by Allen & Company
LLC are being purchased as nominee for up to eleven (11) total employees or Affiliates of Allen &
Company LLC, each of whom is an “accredited investor” as such terms is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act. The Purchaser further represents that the
Purchaser does not presently have any contract, undertaking, agreement or arrangement with any
Person to sell, transfer or grant participations to such Person or to any third Person, with
respect to any of the Securities. Any Purchaser which is a corporation, limited liability company,
partnership, trust or other entity has not been formed for the specific purpose of acquiring the
Securities.



          4.6 Disclosure of Information. The Purchaser has had an opportunity to discuss the
Company’s business, management, financial affairs and the terms and conditions of the offering of
the Securities with the Company’s management. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 5 of this Agreement or the right of the
Purchasers to rely thereon.



          4.7 Ability to Protect Its Own Interests and Bear Economic Risks. By reason of the
business and financial experience of Purchaser (or, if the Purchaser is an entity, of its
managers), the Purchaser has the capacity to protect his, her or its own interests in connection
with the transactions contemplated by this Agreement and the other Transaction Documents. Such
Purchaser is able to bear the economic risk of an investment in the Securities and is able to
sustain a loss of all of its investment in the Securities without economic hardship if such a loss
should occur.



          4.8 Accredited Investor. The Purchaser is an “accredited investor” as such term is
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.



          4.9 Restricted Securities.




          (a) The Purchaser understands that the Securities have not been registered under the
Securities Act, by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Purchaser’s representations as expressed in this
Agreement. The Purchaser understands that the



3









 







Securities are “restricted securities” under applicable U.S. federal and state
securities laws and that, pursuant to these laws, the Purchaser must hold the Securities
indefinitely unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that the Company has no obligation to
register or qualify the Securities, or the shares of Common Stock into which they may be
converted or exchanged for resale, except as expressly set forth in the Transaction
Documents. The Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities, and on
requirements relating to the Company which are outside of the Purchaser’s control, and which
the Company is under no obligation and may not be able to satisfy.




          (b) Such Purchaser is aware of the provisions of Rule 144 under the Securities Act
which permit limited resale of securities purchased in a private placement.



          4.10 No Public Market. Such Purchaser understands that no public market now exists
for any of the Securities issued by the Company, and that the Company has made no assurances that a
public market will ever exist for the Securities.



          4.11 Residence. If the Purchaser is an individual, then the Purchaser resides in the
state or province identified as the address of the Purchaser set forth on Schedule I
hereto; if the Purchaser is a corporation, limited liability company, partnership, trust or other
entity, then the principal office of the Purchaser is identified as the address of the Purchaser
set forth on Schedule I hereto.



     5. Representations and Warranties by the Company. The Company represents and warrants
to each Purchaser that, except as set forth on the Disclosure Schedule attached to this Agreement
(the “Disclosure Schedule”), which exceptions shall be deemed to be part of the representations and
warranties made hereunder, the following representations are true and complete as of the Closing,
except as otherwise indicated in this Section 5:



          5.1 Capitalization.




          (a) As of the date hereof, and after giving effect to the filing of the Amended and
Restated Certificate of Incorporation and immediately following the Closing, the authorized
capital stock of the Company consists of: 450,000,000 shares of Common Stock, par value
$0.01 per share, of which 23,292,906 shares are issued and outstanding; and (ii) 339,327,690
shares of preferred stock, par value $0.01 per share (“Preferred Stock”), of which: (A)
17,007 shares are designated Series B Preferred Stock, and all of which are issued and
outstanding; (B) 10,066,673 shares are designated Series C Preferred Stock, 10,050,007 of
which are issued and outstanding and 16,666 of which are reserved for issuance upon the
exercise of certain warrants listed on Schedule 5.1(a); (C) 132,263,734 shares are
designated Series C-2 Preferred Stock, 128,825,043 of which are issued and outstanding; and
(D) 196,980,276 shares are designated Series D Preferred Stock, 162,857,142 of which will be
issued and outstanding. 40,000,000 shares of Common Stock are reserved for issuance under
the Company’s 2000 Long-Term



4









 







Incentive Plan, as amended from time to time (the “2000 Plan”) (of which a net total of
options representing 39,954,975 shares of Common Stock have been granted as of the date
hereof). The Company has no other shares of capital stock authorized, issued or
outstanding. A capitalization table presenting the capitalization of the Company, after
giving effect to the filing of the Amended and Restated Certificate of Incorporation and the
Closing is set forth on Schedule 5.1(a) hereto.




          (b) As of the date hereof, and except as may be granted by this Agreement or the other
Transaction Documents, (i) other than as set forth in Schedule 5.1(a), there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock, nor are any such
issuances or arrangements contemplated other than pursuant to the 2000 Plan, the details of
which are set forth on Schedule 5.1(a) hereto; (ii) there are no agreements or
arrangements under which the Company is or may become obligated to register the sale of any
of its securities under the Securities Act; (iii) the Company has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect thereof, except
as required by the Amended and Restated Certificate of Incorporation; and (iv) except as set
forth in this Section 5.1, the Company has not reserved any shares of capital stock for
issuance pursuant to any stock option plan or similar arrangement.



          5.2 Due Issuance and Authorization of Capital Stock. All of the outstanding shares of
capital stock of the Company have been validly issued and are fully paid and nonassessable. The
sale and delivery of the shares of Series D Preferred Stock and the Warrants to the Purchasers
pursuant to the terms hereof and the issuance of the Warrant Shares upon exercise of the Warrants
by the holders thereof, and the issuance of the Conversion Shares upon conversion of the shares of
Series D Preferred Stock and Warrant Shares will vest in the holders thereof legal and valid title
to such Securities, free and clear of any lien, claim, judgment, charge, mortgage, security
interest, pledge, escrow, equity or other encumbrance (collectively, “Encumbrances”), excluding
Encumbrances incurred by the Purchaser themselves.



          5.3 Organization. The Company (i) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, (ii) is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the nature of the
property owned or leased by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified would not have a Material
Adverse Effect, (iii) has its principal place of business and chief executive office in Northbrook,
Illinois and (iv) has all requisite corporate power and authority to own or lease and operate its
assets and carry on its business as presently being conducted.



          5.4 Subsidiaries. The Company has no Subsidiaries.



          5.5 Consents. Neither the execution, delivery or performance of the Amended and
Restated Certificate of Incorporation, this Agreement or the other Transaction Documents by
the Company, nor the consummation by it of the obligations and transactions contemplated
hereby or thereby (including, without limitation, the issuance, the reservation for issuance and



5









 







the delivery of the Securities) requires any consent of, authorization by, exemption from, filing
with or notice to any Governmental Entity or any other Person, other than (i) the filings required
to comply with the Company’s registration obligations under this Agreement and the other
Transaction Documents, (ii) the filing of the Amended and Restated Certificate of Incorporation
with the Secretary of State of Delaware, (iii) filings required under applicable U.S. federal and
state securities laws and (iv) as have otherwise been obtained.



          5.6 Authorization; Enforcement. The Company has all requisite corporate power and has
taken all necessary corporate action required for the due authorization, execution, delivery and
performance by the Company of this Agreement and the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Securities). The execution, delivery and performance by the Company of each of
the Transaction Documents, including the issuance of the Series D Preferred Stock and the Warrants,
the execution and filing of the Amended and Restated Certificate of Incorporation, and the
consummation by the Company of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the Company. The Company has taken all
actions under the Amended and Restated Certificate of Incorporation and its By-laws (the “Charter
Documents”) as may be necessary or advisable to provide the Purchasers with the rights hereby
contemplated.



          5.7 Issuance of Securities. The Securities have been duly authorized and a sufficient
number of shares of authorized but unissued shares of Common Stock have been reserved for issuance
upon conversion of the Series D Preferred Stock sold hereunder and the Warrant Shares, and a
sufficient number of authorized but unissued shares of Series D Preferred Stock have been reserved
for issuance upon exercise of the Warrants by the holders thereof in accordance with the terms
thereof, and upon such issuance or conversion of the Series D Preferred Stock in accordance with
the terms of this Agreement or the Amended and Restated Certificate of Incorporation, as the case
may be, the Series D Preferred Stock and the Conversion Shares, and the Warrant Shares, when issued
and paid for in accordance with the Warrants, will be duly authorized, validly issued, fully paid
and non-assessable, and free from all Taxes and Encumbrances, and will not be subject to preemptive
rights or other similar rights of stockholders of the Company other than as set forth in the
Stockholders Agreement, and the issuance of such Securities will not impose personal liability upon
the holder thereof. Additionally, assuming the accuracy of the representations of the Purchasers
in Section 4 of this Agreement, and subject to the filings described in Section 5.5(iii) of this
Agreement, the Securities will be issued in compliance with all applicable federal and state
securities laws.



          5.8 No Conflicts. The execution, delivery and performance of each of the Transaction
Documents by the Company, the execution and filing of the Amended and Restated Certificate of
Incorporation by the Company, and the consummation of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for issuance, as applicable,
of the Series D Preferred Stock and the Conversion Shares) will not (i) result in a violation of
the Charter Documents, (ii) conflict with or result in the breach of the terms, conditions or
provisions of or constitute a default (or an event which with notice or lapse of time or both would
become a default) under, or give rise to any right of termination,



6









 







acceleration or cancellation under, any agreement, lease, mortgage, license, indenture,
instrument or other contract to which the Company is a party, (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including, without limitation, U.S. federal and
state securities laws and regulations) applicable to the Company or by which any property or asset
of the Company is bound or affected, or (iv) result in the creation of any Encumbrance upon any of
their assets. The Company is not in violation of its Charter Documents, and the Company is not in
default (and no event has occurred which, with notice or lapse of time or both, would cause the
Company to be in default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company is a party. The business of the
Company is not being conducted in violation in any material respect of any law, ordinance or
regulation of any Governmental Entity.



          5.9 Material Contracts. Each Material Contract of the Company is listed on
Schedule 5.9 hereof. Each such contract is the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or other similar
laws affecting creditors’ rights generally and by general equitable principles. Except as set
forth on Schedule 5.9 hereof, there has not occurred any material breach, violation or
default or any event that, with the lapse of time, the giving of notice or the election of any
Person, or any combination thereof, would constitute a material breach, violation or default by the
Company under any such contract or, to the knowledge of the Company, by any other Person to any
such contract. The Company has not been notified that any party to any Material Contract intends
to cancel, terminate, not renew or exercise an option under any Material Contract, whether in
connection with the transactions contemplated hereby or otherwise.



          5.10 Right of First Refusal; Stockholders Agreement. Except as set forth on
Schedule 5.10, and except with respect to any rights granted to the Purchasers pursuant to
the terms of the Amended and Restated Certificate of Incorporation, this Agreement or the other
Transaction Documents or the transactions contemplated hereby or thereby, no party has any right of
first refusal, right of first offer, right of co-sale, preemptive right or other similar right
regarding the Company’s securities. There are no provisions of the Charter Documents, no
agreements to which the Company is a party and no agreements by which the Company is bound other
than the Amended and Restated Certificate of Incorporation, this Agreement or the other Transaction
Documents, which (i) may affect or restrict the voting rights of the Purchasers with respect to the
Securities in their capacity as stockholders of the Company, (ii) restrict the ability of the
Purchasers, or any successor thereto or assignee or transferee thereof, to transfer the Securities,
(iii) would adversely affect the Company’s or any Purchaser’s right or ability to consummate the
transactions contemplated by this Agreement or comply with the terms of the other Transaction
Documents or the Amended and Restated Certificate of Incorporation and the transactions
contemplated hereby or thereby, (iv) require the vote of more than a majority of the Company’s
issued and outstanding capital stock, voting together as a single class, to take or prevent any
corporate action, other than those matters requiring a class vote under Delaware law, or (v)
entitle any party to nominate or elect any director of the Company or require any of the Company’s
stockholders to vote for any such nominee or other person as a director of the Company in each
case.



7









 





          5.11 Previous Issuances Exempt. All shares of capital stock and other securities
issued by the Company prior to the Closing Date have been issued in transactions exempt from the
registration requirements under the Securities Act and all applicable state securities or “blue
sky” laws, and in compliance with all applicable corporate laws. The Company has not violated the
Securities Act or any applicable state securities or “blue sky” laws in connection with the
issuance of any shares of capital stock or other securities prior to the Closing Date. The Company
has not offered any of its capital stock, or any other securities, for sale to, or solicited any
offers to buy any of the foregoing from the Company, or otherwise approached or negotiated with any
other Person in respect thereof, in such a manner as to require registration under the Securities
Act.



          5.12 No Integrated Offering. Neither the Company, nor any of its Affiliates or any
other Person acting on the Company’s behalf, has directly or indirectly engaged in any form of
general solicitation or general advertising with respect to the Securities nor have any of such
Persons made any offers or sales of any security of the Company or its Affiliates or solicited any
offers to buy any security of the Company or its Affiliates under circumstances that would require
registration of the Securities under the Securities Act or cause this offering of Securities to be
integrated with any prior offering of securities of the Company for purposes of the Securities Act.



          5.13 Absence of Certain Changes: Financial Statements.




          (a) The Company has provided to the Purchasers true and correct copies of its unaudited
consolidated balance sheet dated as of December 31, 2005 (the “Balance Sheet Date”),
the audited balance sheets as of 2004 (in draft form) and 2003, and the related statements
of operation, changes in stockholder’s equity and cash flows for the twelve months ended
December 31, 2005, December 31, 2004 and December 31, 2003 (the “Financial Statements”).
The Financial Statements present fairly, in all material respects, the financial position
and operating results of the Company as of the respective dates therein, subject to normal
year end audit adjustments and the absence of footnotes. The Financial Statements are in
accordance with the books and records of the Company.




          (b) Except as set forth on Schedule 5.13 or as contemplated by this Agreement,
or in connection with the Amended and Restated Certificate of Incorporation, this Agreement
or the other Transaction Documents, since the Balance Sheet Date, there has not been:




     (1) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company of any outstanding shares
of its capital stock of the Company;




     (2) any amendment of any term of any outstanding security of the Company;



8









 






     (3) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the Company
relating to its assets or business (including the acquisition or disposition of any
material amount of assets) or any relinquishment by the Company of any contract or
other right, other than transactions, commitments, contracts, agreements or
settlements (excluding settlements of litigation and tax proceedings) in the
ordinary course of business or those contemplated by this Agreement;




     (4) any (A) grant of any severance or termination pay to (or amendment to any
such existing arrangement with) any director, officer or employee of the Company,
(B) entering into of any employment, deferred compensation, supplemental retirement
or other similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of the Company, (C) increase in, or accelerated
vesting and/or payment of, benefits under any existing severance or termination pay
policies or employment agreements or (D) increase in or enhancement of any rights or
features related to compensation, bonus or other benefits payable to directors,
officers or senior employees of the Company, in each case, other than in the
ordinary course of business consistent with past practice; or




     (5) any material tax election made or changed, any audit settled or any amended
tax returns filed.



          5.14 No Undisclosed Material Liabilities. As of the date of this Agreement, there are
no liabilities of the Company of any kind whatsoever, whether interest-bearing indebtedness, or
liabilities accrued, contingent, absolute, determined, determinable or otherwise, other than
liabilities:




          (a) reflected in the Financial Statements;




          (b) disclosed on Schedule 5.14 hereto;




          (c) incurred in the ordinary course of business which in the aggregate are less than
$10,000; or




          (d) under this Agreement, or connected herewith, in the other Transaction Documents or
the Amended and Restated Certificate of Incorporation.



          5.15 Litigation. There is no action, suit, investigation or other proceeding pending
against, or to the knowledge of the Company, threatened against or affecting, the Company or any of
its properties or to the knowledge of the Company any of its officers or directors before any court
or arbitrator or any Governmental Entity. To the knowledge of the Company, there are no facts that
would cause a reasonable person to believe that such a proceeding would likely result.



          5.16 Taxes. The Company has properly filed all federal, foreign, state, local, and
other tax returns and reports which are required to be filed, which returns and reports were
properly completed and are true and correct in all material respects, and all taxes, interest,
and penalties due and owing have been timely paid. There are no outstanding waivers or extensions



9









 







of time with respect to the assessment or audit of any tax or tax return of the Company, or claims
now pending or matters under discussion with any taxing authority in respect of any tax of the
Company.



          5.17 Employee Matters.




          (a) The Company has provided to the Purchasers (or their representatives) lists of all
of the Company’s employees (including the salary and benefits for each employee) and
Schedule 5.17(a) lists all of the employment agreements and arrangements to which the
Company is a party with respect to its employees. Such employment agreements and
arrangements include, without limitation, employee leasing arrangements, employee services
agreements and non-competition agreements.




          (b) The Company does not maintain any “employee benefit plan” subject to the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”) other than a traditional health
insurance plan, dental plan, vision plan, life insurance and disability plan and a 401(k)
plan for employees.




          (c) No director or officer or other employee of the Company will become entitled to any
retirement, severance or similar benefit or enhanced or accelerated benefit (including any
acceleration of vesting or lapse of repurchase rights or obligations with respect to any
employee benefit plan subject to ERISA or other benefit under any compensation plan or
arrangement of the Company (each, an “Employee Benefit Plan”)) solely as a result of the
transactions contemplated in this Agreement; and (ii) no payment made or to be made to any
current or former employee of director of the Company, or any of its Affiliates by reason of
the transactions contemplated hereby (whether alone or in connection with any other event,
including, but not limited to, a termination of employment) will constitute an “excess
parachute payment” within the meaning of Section 280G of the Code.




          (d) To the Company’s knowledge, it is in compliance with all applicable federal, state,
local and foreign statutes, laws (including, without limitation, common law), judicial
decisions, regulations, ordinances, rules, judgments, orders and codes respecting
employment, employment practices, labor, terms and conditions of employment and wages and
hours, and no work stoppage or labor strike against the Company is pending or threatened,
nor is the Company involved in or threatened with any labor dispute, grievance or litigation
relating to labor matters involving any current or former employees of the Company or
independent contractors. There are no suits, actions, disputes, claims (other than routine
claims for benefits), investigations or audits pending or, to the knowledge of the Company,
threatened in connection with any Employee Benefit Plan.



          5.18 Compliance with Laws. The Company has, and is in material compliance with the
terms of, all franchises, permits, licenses and other rights and privileges necessary to conduct
the Company’s present and proposed business and is in compliance with and has not
violated, in any material respect, any applicable provisions of any laws, statutes, ordinances
or regulations or the terms of any judgments, orders, decrees, injunctions or writs.



10









 





          5.19 Brokers. Except as set forth on Schedule 5.19, there is no investment
banker, broker, finder, financial advisor or other Person which has been retained by or is
authorized to act on behalf of the Company who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement. Notwithstanding anything to the
contrary in Section 11.6, the Company agrees to indemnify and hold harmless each Purchaser from any
liability for any commission or compensation in the nature of a finder’s or broker’s fee arising
out of this transaction (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or representatives is
responsible.



          5.20 Environmental Matters.




          (a) (i) No written notice, notification, demand, request for information, citation,
summons, complaint or order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company, threatened by any
Person against, the Company, and no penalty has been assessed against the Company, in each
case, with respect to any matters relating to or arising out of any Environmental Law; (ii)
the Company is in compliance with all Environmental Laws; and (iii) to the knowledge of the
Company there are no liabilities of or relating to the Company relating to or arising out of
any Environmental Law, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability.




          (b) For purposes of this Agreement, the term “Environmental Laws” means federal, state,
local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, codes, injunctions, permits and governmental agreements relating to human
health and the environment, including, but not limited to, Hazardous Materials; and the term
“Hazardous Material” means all substances or materials regulated as hazardous, toxic,
explosive, dangerous, flammable or radioactive under any Environmental Law including, but
not limited to: (i) petroleum, asbestos, or polychlorinated biphenyls and (ii) in the
United States, all substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan.



          5.21 Intellectual Property Matters.




          (a) “Intellectual Property” means (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereon, and all
patents, patent applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names and corporate names, together
with all translations, adaptations, derivations and combinations thereof and including all
goodwill associated therewith, and all applications, registrations and renewals in
connection therewith, (iii) all copyrightable works, all copyrights and all



11









 







applications, registrations and renewals in connection therewith, (iv) all trade
secrets and confidential business information (including, without limitation, ideas,
research and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans and
proposals), (v) all computer software (including, without limitation, data and related
documentation and except for any commercial “shrink-wrapped” software) and source codes,
(vi) all other proprietary rights, (vii) all copies and tangible embodiments of the
foregoing (in whatever form or medium) and (viii) all licenses or agreements in connection
with the foregoing. “Company Intellectual Property” means all Intellectual Property which
is used in connection with, and is material to, the business of the Company as presently
conducted or as contemplated to be conducted and all Intellectual Property owned or licensed
by the Company, provided that any Intellectual Property that is licensed by the Company
shall be included within the meaning of Company Intellectual Property only within the scope
of use by the Company or in connection with the Company’s business.




          (b) “Company IP Agreements” means (i) licenses of Intellectual Property to the Company,
and (ii) licenses of Intellectual Property by the Company to third parties.




          (c) Except as set forth on Schedule 5.21(b), with respect to each item of
Company Intellectual Property:




     (1) the Company possesses all rights, titles and interests in and to the item
if owned by the Company, free and clear of any Encumbrance, license or other
restriction, and possesses all rights necessary in the case of a licensed item that
are material to their business as presently conducted or as contemplated to be
conducted, and the Company has taken or caused to be taken reasonable and prudent
steps to protect its rights in and to, and the validity and enforceability of, the
item owned by the Company;




     (2) the item, if owned by the Company, is not, and if licensed, to the
knowledge of the Company is not, subject to any outstanding injunction, judgment,
order, decree, ruling or charge naming the Company;




     (3) except with respect to proceedings before the U.S. Patent and Trademark
Office in the ordinary course of business, no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to the knowledge of
the Company, has been or is being threatened which: (i) challenges the legality,
validity, enforceability, use or ownership of the item; (ii) restricts the conduct
of the business of the Company in any material respect; or (iii) grants third
parties any material rights to the item;




     (4) the Company has sufficient right, title and interest to use or own the item
without infringement of the rights of third parties and the Company is not
aware of any basis for any claim by a third party that the business of the
Company infringes upon the proprietary rights of others;



12









 






     (5) except in the ordinary course of business, the Company has not agreed to
indemnify any Person for or against any interference, infringement, misappropriation
or other conflict with respect to the item;




     (6) except pursuant to the Company IP Agreements, the Company is not bound by
or a party to any option, license, sublicense, agreement or permission of any kind
with respect to the item;




     (7) to the knowledge of the Company, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with the Company’s
intellectual property rights in the item, in any material respect;




     (8) no party to any option, license, sublicense or agreement or permission of
any kind covering the item is in breach or default, and no event has occurred which,
with notice or lapse of time, would constitute a breach or default or permit
termination, modification or acceleration thereunder;




     (9) All employees and consultants who contributed to the discovery or
development of any of the Company Intellectual Property did so either (i) within the
scope of their employment such that, in accordance to applicable law, all Company
Intellectual Property arising therefrom became the exclusive property of the Company
or (ii) pursuant to written agreements assigning all Company Intellectual Property
arising therefrom to the Company;




     (10) each option, license, sublicense, agreement or permission of any kind
covering the item is legal, valid, binding, enforceable and in full force and
effect; and




     (11) if the item is owned by the Company, the Company has, and if the item is
licensed by the Company, to the knowledge of the Company, each licensor has complied
with the applicable provisions of the Baye-Dole Act of 1980, as amended.



          Schedule 5.21 (b) sets forth a list of all Company Intellectual Property. All
registered patents, copyrights, trademarks, and service marks listed on Schedule 5.21(b)
(x) are, if owned by the Company and (y) if licensed, to the knowledge of the Company, are valid
and subsisting and in full force and effect and are not subject to any taxes or other fees except
for periodic filing and maintenance fees. Except as set forth on Schedule 5.21(b), the
Company has not interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of third parties, and there is no pending or, to the
knowledge of the Company, threatened claim or litigation against the Company contesting the right
to use any third party’s Intellectual Property rights, asserting the misuse of any thereof, or
asserting the infringement or other violation thereof. True and complete copies of all issued
patents and copies of all filed patent applications, if any, of the Company have been provided to
the Purchasers.



13









 






          (d) All domain names listed on Schedule 5.21(b) (the “Domain Names”) have been
and are duly registered with an accredited registrar. The Company owns, and has not waived
or granted to any third party, any rights, title or interest in the Domain Names (except
pursuant to the terms of registration thereof) including without limitation any benefits,
entitlements or rights of renewal with respect to the Domain Names. The Company’s
registrar(s) have not notified the Company that any of the Domain Names have been placed on
“hold” or are otherwise subject to a dispute or potential dispute pursuant to such
registrar’s dispute resolution policy.




          (e) To the knowledge of the Company, none of the key employees of the Company is
obligated under any contract (including, without limitation, licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment, decree, or order
of any court or administrative agency, that would interfere with the use of his or her
reasonable diligence to promote the interests of the Company or that would conflict with the
Company’s businesses as presently conducted. Neither the execution, delivery or performance
of this Agreement, nor the carrying on of the Company’s businesses by the employees of the
Company, nor the conduct of the Company’s businesses as presently conducted or as proposed
to be conducted, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant, or instrument under
which any such key employee is obligated, and which conflict, breach or default would have a
Material Adverse Effect.




          (f) The Company has entered into acceptable non-compete, confidentiality and
proprietary information and invention agreements with all employees of the Company, and with
directors of the Company who may have access to the Company’s Intellectual Property, seeking
to protect, among other things, the confidentiality of all Company Intellectual Property and
to ensure full and unencumbered ownership by the Company of all Company Intellectual
Property. The Company, after reasonable investigation, is not aware of any violation by any
such employees of such agreements. The Company has entered into acceptable confidentiality
and proprietary information and invention agreements with any consultants, advisors and
independent contractors who may have access to the Company’s intellectual property.




          (g) No stockholder, member, director, officer or employee of the Company has any
interest, right, title or interest in any of the Company Intellectual Property.




          (h) The Company Intellectual Property comprises all Intellectual Property necessary to
the Company’s business as presently conducted or proposed to be conducted by it. The
Company does not believe it is or will be necessary to utilize any inventions, trade secrets
or proprietary information of any of its employees made prior to their employment by the
Company, except for inventions, trade secrets or proprietary information that have been
assigned to the Company.




          (i) The components used in the Company’s products are free of any disabling codes or
instructions (a “Disabling Code”), and any virus or other intentionally created,
undocumented contaminant (a “Contaminant”), that may, or may be used to,



14









 







access, modify, delete, damage or disable the Systems (as defined below) or that may
result in damage thereto. The components obtained from third party suppliers are, to the
knowledge of the Company, free of any Disabling Codes or Contaminants that may, or may be
used to, access, modify, delete, damage or disable any of the Systems or that might result
in damage thereto. The Company has taken reasonable steps and implemented reasonable
procedures to ensure that its internal computer systems (consisting of hardware, software,
databases or embedded control systems, collectively, the “Systems”) are free from Disabling
Codes and Contaminants. The Company has in place disaster recovery plans, procedures and
facilities and has taken all reasonable steps to safeguard its Systems and restrict
unauthorized access thereto.




          (j) The Company is not subject to any “open source” or “copyleft” obligations or
otherwise required to make generally available, or make any public disclosure of, any source
code either used or developed by the Company.



          5.22 Related-Party Transactions. Except as set forth on Schedule 5.22, no
employee, officer, director or stockholder of the Company or member of his or her immediate family
is currently indebted to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of such individuals. Except as set forth on Schedule
5.22 hereto, as of the date hereof none of such Persons has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the Company except that
employees, officers, or directors of the Company and members of their immediate families may own
stock in an amount not to exceed 1% of the outstanding capital stock of publicly traded companies
that may compete with the Company. As of the date hereof, except as set forth on Schedule
5.22 hereto, no employee, director, officer or stockholder of the Company and no member of the
immediate family of any employee, officer, director or stockholder of the Company is directly or
indirectly interested in any contract with the Company.



          5.23 Title to Property and Assets. (i) The Company has good and marketable title to,
or a valid leasehold interest in, the real and personal properties and assets used by it or located
on its premises or shown on the unaudited balance sheet dated December 31, 2005 or acquired after
the date thereof, free and clear of all liens, except for properties and assets disposed of in the
ordinary course of business since December 31, 2005 and liens for current property taxes not yet
due and payable; (ii) the Company’s buildings, equipment and other tangible assets are in good
operating condition in all material respects and are fit for use in the ordinary course of
business; (iii) to the knowledge of the Company, the Company owns, or has a valid leasehold
interest in, all material assets necessary for the conduct of its business as presently conducted
and as presently proposed to be conducted; and (iv) with respect to any leased real property, the
Company is not in violation in any material respect of any of its leases. The Company has
delivered to the Purchasers true and complete copies of any leases related to the real property
used by the Company in the conduct of its business.



          5.24 Disclosure. The Company has made available to the Purchasers all the information
reasonably available to the Company that the Purchasers have requested for deciding whether to
acquire the Securities. No representation or warranty of the Company contained in this Agreement,
as qualified by the applicable sections of the Disclosure Schedule, in any of the



15









 







Transaction Documents and no certificate furnished or to be furnished to Purchasers at the
Closing contains any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not misleading. It is
understood that this representation is qualified by the fact that the Company has not delivered to
the Purchasers, and has not been requested to deliver, a private placement or similar memorandum or
any written disclosure of the types of information customarily furnished to purchasers of
securities.



          5.25 Corporate Records; Minute Books. Copies of the Amended and Restated Certificate
of Incorporation, certified by the Secretary of State of the State of Delaware, and of the By-laws
of the Company, certified by its Secretary, heretofore delivered to the Purchasers are true and
complete copies of such instruments as amended to the date of this Agreement. Such certificate of
incorporation and By-laws are in full force and effect. The minute books of the Company provided
to the Purchasers or their counsel contain a complete summary of all meetings and actions by
written consent of directors and stockholders since the time of incorporation and reflect all
transactions referred to in such minutes accurately in all material respects; provided, however,
that the minutes marked “draft” relating to the board’s meetings in 2006 may be subject to minor
adjustment at the discretion of the Company’s board of directors.



          5.26 Absence of Changes. Since the Balance Sheet Date, the Company has operated its
business in the ordinary course of business; and, without limiting the generality of the foregoing,
except as set forth on Schedule 5.26, there has not been:




     (1) any Material Adverse Effect or any event or events that individually or in
the aggregate would have a Material Adverse Effect;




     (2) any damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting the Company’s properties or
assets;




     (3) any sale, assignment or transfer, or any agreement to sell, assign or
transfer, any material asset, liability, property, obligation or right of the
Company to any Person, including, without limitation, the Purchasers and their
respective Affiliates;




     (4) except as set forth in Schedule 5.26, any obligation or liability
incurred, or any loans or advances made, by the Company to any of its Affiliates,
other than expenses allowable in the ordinary course of business of the Company;




     (5) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any material property, rights or assets other than in the
ordinary course of business of the Company;




     (6) any assignment, lease or other transfer or disposition, or any other
agreement or arrangement therefor by the Company of any property or equipment having
a value in excess of $10,000 except in the ordinary course of business;



16









 






     (7) other than for employment compensation [or facility rent expenditures], any
expenditure by the Company (or series of related expenditures) involving more than
$10,000 singly or $25,000 in the aggregate;




     (8) any waiver of any material rights or claims of the Company;




     (9) any agreement or commitment by the Company to do any of the foregoing or
any transaction by the Company outside the ordinary course of business of the
Company; or




     (10) any lien upon, or adversely affecting, any material property or other
assets of the Company.



          5.27 Illegal Payments. Neither the Company nor, to the best knowledge of the Company,
any director, officer, agent or employee of the Company has paid, caused to be paid, or agreed to
pay, directly or indirectly, in connection with the business of the Company: (i) to any government
or agency thereof, any agent or any supplier or customer, any bribe, kickback or other similar
payment; (ii) any contribution to any political party or candidate (other than from personal funds
of directors, officers or employees not reimbursed by their respective employers or as otherwise
permitted by applicable law); or (iii) intentionally established or maintained any unrecorded fund
or asset or made any false entries on any books or records for any purpose.



          5.28 Suppliers and Customers. The Company does not have any knowledge of any
termination, cancellation or threatened termination or cancellation or limitation of, or any
material dissatisfaction with, the business relationship between the Company and any material
supplier, customer, vendor, customer or client.



          5.29 Insurance. The Company has in full force and effect fire and casualty insurance
policies with extended coverage, sufficient in amount (subject to reasonable deductions) to allow
it to replace any of its properties that might be damaged or destroyed.



     6. Conditions of Parties’ Obligations.



          6.1 Conditions of the Purchasers’ Obligations. The obligations of each of the
Purchasers under Section 2 hereof are subject to the fulfillment prior to or on the Closing Date of
all of the following conditions, any of which may be waived in whole or in part by such Purchaser
severally in its absolute discretion.




          (a) Representations and Warranties. The representations and warranties of the
Company contained in this Agreement and in any certificate delivered by the Company pursuant
hereto shall be true and correct in all respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of the Closing
Date, except that any such representation or warranty shall be true and correct in all
respects where such representation or warranty is qualified with respect to materiality,
after giving full effect to such qualification.



17









 






          (b) Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are required to be
performed or complied with by the Company on or before the Closing.




          (c) Amended and Restated Certificate of Incorporation. The Amended and
Restated Certificate of Incorporation shall have been filed with the Secretary of State of
the State of Delaware, and the Purchasers shall have received confirmation from the
Secretary of State of the State of Delaware reasonably satisfactory to them that such filing
has occurred.




          (d) Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals, if any, required under applicable state securities
laws shall have been obtained for the lawful execution, delivery and performance of this
Agreement or the other Transaction Documents, including without limitation the offer and
sale of the Securities.




          (e) Stockholders Agreement. The Company and each Purchaser (other than a
Purchaser relying upon this condition to excuse such Purchaser’s performance hereunder) and
the other stockholders of the Company who are required signatories thereto (in order to give
effect to such agreement) shall have executed and delivered the Stockholders Agreement.




          (f) Registration Rights Agreement. The Company and each Purchaser (other than
a Purchaser relying upon this condition to excuse such Purchaser’s performance hereunder)
and the other stockholders of the Company who are signatories thereto (in order to give
effect to such agreement) shall have executed and delivered the Registration Rights
Agreement.




          (g) Supporting Documents. The Purchasers at the Closing shall have received
the following:




     (1) an opinion from Paul, Hastings, Janofsky & Walker LLP, counsel to the
Company, dated as of the Closing Date, in a form reasonably satisfactory to the
Purchasers; and




     (2) a certificate of the Secretary of the Company, dated as of the Closing
Date, certifying: (i) the By-laws of the Company; (ii) resolutions of the Board of
Directors of the Company, authorizing and approving the Transaction Documents and
the transactions contemplated under the Transaction Agreements; (iii) resolutions of
the stockholders of the Company approving the Amended and Restated Certificate of
Incorporation; (iv) the names, titles and signatures of the officers authorized to
execute the documents referred to in this subparagraph (2); and (v) that the Amended
and Restated Certificate of Incorporation delivered to the Purchasers at the time of
the execution of this Agreement has been validly adopted and has not been amended or
modified.




          (h) Consents and Waivers. The Company shall have obtained all third-party
consents or waivers necessary to execute and perform its obligations under the
Amended and Restated Certificate of Incorporation, this Agreement and the other
Transaction Documents (including any consents and waivers listed on Schedule 5.5), to



18









 







issue the Series D Preferred Stock and the Conversion Shares, and to carry out the
transactions contemplated hereby and thereby. All corporate and other action and
governmental filings necessary to effectuate the terms of the Amended and Restated
Certificate of Incorporation, this Agreement, the other Transaction Documents, the Series D
Preferred Stock and the Conversion Shares, and other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.




          (i) Satisfaction of Obligations. Each of the other Purchasers shall have
simultaneously complied with their obligations under Section 2 hereof.




          (j) Good Standing Certificates. The Company shall have delivered to the
Purchaser good standing certificates for the Company for the states of California and
Delaware, each dated as of a date reasonably close to the Closing Date.




          (k) Election of Directors. The number of directors constituting the Board of
Directors shall have been fixed at eight (8).




          (l) Preemptive Rights. All stockholders of the Company having any preemptive
right or right of first refusal with respect to the issuance of the Securities or the Common
Stock issuable upon conversion of the Securities either: (i) shall be purchasing Securities
under this Agreement in connection with the exercise of such preemptive right or (ii) shall
have irrevocably waived the same.




          (m) Termination of Existing Agreements. Effective upon the Closing, (i) any
prior stockholder agreements, voting agreements, co-sale agreements, or agreements relating
to rights of first offer, rights of first refusal or preemptive rights shall have been
terminated and shall be of no further force and effect and (ii) any prior registration
rights agreements shall have been terminated and shall be of no further force and effect;
provided, however, that the Prior Agreement, as defined in the Stockholders’ Agreement, is
amended and restated in accordance with the terms of the Stockholders’ Agreement, and the
Prior Agreement, as defined in the Registration Rights Agreement, is amended and restated in
accordance with the terms of the Registration Rights Agreement.




          (n) Material Adverse Change; Market Conditions. (i) The Company shall not have
suffered any Material Adverse Effect with respect to its business, financial condition,
results of operations, assets, liabilities or prospects; (ii) all employees of the Company
listed on Schedule 5.17(a) hereto shall remain under the employ of the Company, and
no such employee shall have informed the Company of any intent or desire to resign his or
her position; and (iii) there shall have been no material adverse change in general market
conditions as determined in the sole reasonable discretion of Bain Capital.



19









 






          (o) Fees of Purchaser’s Counsel and Consultants. The Company shall have paid,
in accordance with Section 11.10, the fees, expenses and disbursements of Ropes & Gray LLP,
as counsel to Bain Capital.




          (p) Warrants. The Company shall have executed the Warrants and delivered them
to the Purchasers.




          (q) Compliance Certificate. The Company shall have delivered to the Purchasers
a Compliance Certificate, executed by the Chief Executive Officer of the Company, dated as
of the Closing Date to the effect that the conditions specified in subsections (a) through
(h) and (j) through (p) of this Section 6.1 have been satisfied.



          6.2 Conditions of the Company’s Obligations. The obligations of the Company under
Section 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the
following conditions, any of which may be waived in whole or in part by the Company.




          (a) Covenants; Representations and Warranties. (i) Each of the Purchasers at
the Closing Date shall have performed in all material respects with all of its obligations
hereunder required to be performed by it at or prior to the Closing Date and (ii) the
representations and warranties of each of the Purchasers at the Closing Date contained in
this Agreement shall be true and correct in all material respects at and as of the Closing
Date as if made at and as of the Closing Date (except to the extent expressly made as of an
earlier date, in which case as of such earlier date).




          (b) Stockholders Agreement. Each Purchaser and the other stockholders of the
Company who are required signatories thereto (in order to give effect to such agreement)
shall have executed and delivered the Stockholders Agreement.




          (c) Note and Warrant Cancellation. Each Purchaser paying for the Securities
purchased by it under this Agreement who is paying in full (or in part) for such Securities
by the cancellation of indebtedness shall have executed and delivered to the Company a Note
and Warrant Cancellation Agreement in the form attached hereto as Exhibit E.



          6.3 Conditions of Each Party’s Obligations. The respective obligations of each party
to consummate the transactions contemplated hereunder are subject to the parties being reasonably
satisfied as to the absence of (i) litigation challenging or seeking damages in connection with the
transactions contemplated by this Agreement, any of the Transaction Documents or the Amended and
Restated Certificate of Incorporation, and (ii) any statute, rule, regulation, injunction, order or
decree, enacted, enforced, promulgated, entered, issued or deemed applicable to this Agreement or
the transactions contemplated hereby (or in the case of any statute, rule or regulation, awaiting
signature or reasonably expected to become law), by any court, government or governmental authority
or agency or legislative body, domestic, foreign or supranational, that would, or would reasonably
be expected to, prohibit or enjoin the transactions contemplated by this Agreement.



20









 





     7. Transfer Restrictions; Restrictive Legend.



          7.1 Transfer Restrictions. Each Purchaser understands that the Company may, as a
condition to the transfer of any of the Securities, require that the request for such transfer be
accompanied by an opinion of counsel reasonably satisfactory to the Company, to the effect that the
proposed transfer does not result in a violation of the Securities Act, unless such transfer is
covered by an effective registration statement or by Rule 144 or Rule 144A under the Securities
Act; provided, however, that an opinion of counsel shall not be required for a
transfer by a Purchaser that is (i) in the case of an individual, pursuant to applicable laws of
descent and distribution or by will or among such individual’s Family Group and (ii) in the case of
an entity, among its Affiliates not constituting Competitors; provided further that the
transferee in each case agrees to be subject to the restrictions in this Section 7. Each Purchaser
agrees that the certificates evidencing the Securities may bear substantially the following legend:




     “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE
SECURITIES LAWS AND EXCEPT AS PERMITTED BY THE STOCKHOLDERS AGREEMENT, MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE LAWS OR AN EXEMPTION FROM
REGISTRATION UNDER THE ACT OR APPLICABLE LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.”



          7.2 Restrictive Legend. The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have obtained an opinion of
counsel reasonably acceptable to the Company to the effect that, or the Company is otherwise
satisfied that, the securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.



     8. Registration, Transfer and Substitution of Certificates for Securities.



          8.1 Stock Register; Ownership of Securities. The Company will keep at its principal
office a register in which the Company will provide for the registration of transfers of the
Securities. The Company may treat the Person in whose name any of the Securities are registered on
such register as the owner thereof and the Company shall not be affected by any notice to the
contrary. All references in this Agreement to a “holder” of any Securities shall mean the Person
in whose name such Securities are at the time registered on such register.



          8.2 Replacement of Certificates. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of any certificate representing
Securities, and, in the case of any such loss, theft or destruction, upon delivery of an indemnity
agreement reasonably satisfactory to the Company or, in the case of any such mutilation, upon
surrender of such certificate for cancellation at the office of the Company maintained pursuant to
Section 8.1 hereof, the Company at its expense will execute and deliver, in lieu thereof, a new
certificate representing Securities of like tenor.



21









 





     9. Definitions.




          (a) Except as otherwise expressly provided herein, all accounting terms used in this
Agreement, whether or not defined in this Section 9, shall be construed in accordance with
GAAP.




          (b) Unless the context otherwise requires, the terms listed in this Section 9 have the
following meanings for all purposes of this Agreement.



          “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act; provided, that with respect to Bain Capital, the term
Affiliate shall be deemed to include any Person under common management with Bain Capital, LLC.



          “Agreement” has the meaning assigned to it in the introductory paragraph hereof.



          “Amended and Restated Certificate of Incorporation” has the meaning assigned to it in Section
1 hereof.



          “Bain Capital” has the meaning assigned to it in the introductory paragraph of this Agreement
and shall include all Affiliates.



          “Balance Sheet Date” has the meaning assigned to it in Section 5.13(a) hereof.



          “Business Day” means any day other than Saturday, Sunday or day on which banking institutions
in New York, New York are authorized or required to be closed.



          “Charter Documents” has the meaning assigned to it in Section 5.6 hereof.



          “Closing Date” has the meaning assigned to it in Section 3 hereof.



          “Code” means the Internal Revenue Code of 1986, as amended.



          “Common Stock” has the meaning assigned to it in Section 1 hereof.



          “Competitor” means a Person engaging in a business substantially similar to, or competitive
with, the business of the Company, as determined by the Company’s board of directors in its good
faith discretion.



          “Conversion Shares” means the shares of Common Stock issuable upon conversion of the Series D
Preferred Stock.



          “Encumbrances” has the meaning assigned to it in Section 5.2 hereof.



          “Environmental Law” has the meaning assigned to it in Section 5.20(b) hereof.



          “ERISA” has the meaning assigned to it in Section 5.17(a) hereof.



          “Exchange Act” means the Securities Exchange Act of 1934, as amended.




22









 





          “Family Group” means an individual’s spouse and descendants (whether natural or adopted) and
any trust solely for the benefit of the individual and/or the individual’s spouse and/or
descendants.



          “Financial Statements” has the meaning assigned to it in Section 5.13(a) hereof.



          “GAAP” means U.S. generally accepted accounting principles consistently
applied.



          “Governmental Entity” means any national, federal, state, municipal, local, territorial,
foreign or other government or any department, commission, board, bureau, agency, regulatory
authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or
public or private tribunal.



          “Hazardous Material” has the meaning assigned to it in Section 5.20(b) hereof.



          “Intellectual Property” has the meaning assigned to it in Section 5.21 (a) hereof.



          “Lurie” means Lurie Investment Fund, L.L.C. and its Affiliates.



          “Material Adverse Effect” means any (i) adverse effect on the issuance or validity of the
Securities or the transactions contemplated hereby or on the enforceability or validity of the
Amended and Restated Certificate of Incorporation or on the ability of the Company to perform its
obligations under this Agreement or the other Transaction Documents, or (ii) material adverse
effect on the prospects or condition (financial or otherwise), properties, assets, liabilities,
business or operations of the Company and its Subsidiaries taken as a whole.



          “Material Contract” means all written and oral contracts, agreements, deeds, mortgages,
leases, subleases, licenses, instruments, notes, commitments, commissions, undertakings,
arrangements and understandings, including Company IP Agreements, (i) which by their terms involve,
or would reasonably be expected to involve, aggregate payments by or to the Company of in excess of
$50,000, (ii) which are not terminable by the Company upon 30 days’ or less notice without penalty
or premium, (iii) under which any of the Company’s properties or assets are subject or bound, and
(iv) the breach of which would cause a Material Adverse Effect.



          “Person” means and includes all natural persons, corporations, business trusts, associations,
companies, partnerships, joint ventures, limited liability companies and other entities and
governments and agencies and political subdivisions.



          “Purchaser” and “Purchasers” have the meaning assigned to them in the introductory paragraph
of this Agreement and shall include any Affiliates of the Purchasers.



          “Registration Rights Agreement” means the Amended and Restated Registration Rights Agreement
in the form attached hereto as Exhibit D,



          “Securities” has the meaning assigned to it in Section 1 hereof.



23









 





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



          “Series D Preferred Stock” has the meaning assigned to such term in Section 1 hereof.



          “Stockholders Agreement” means the Amended and Restated Stockholders Agreement in the form
attached hereto as Exhibit B.



          “Subsidiary” means any corporation, association trust, limited liability company, partnership,
joint venture or other business association or entity (i) at least 50% of the outstanding voting
securities of which are at the time owned or controlled directly or indirectly by the Company or
(ii) with respect to which the Company possesses, directly or indirectly, the power to direct or
cause the direction of the affairs or management of such Person.



          “Tax” or “Taxes” means federal, state, county, local, foreign or other income, gross receipts,
ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or
not.



          “Transaction Documents” means this Agreement, the Warrants, the Stockholders Agreement and the
Registration Rights Agreement.



     10. Covenants



          10.1 Financial Statements and Other Information. The Company shall deliver to each of
Bain Capital and Lurie (each a “Qualified Purchaser”) so long as such Qualified Purchaser or its
Permitted Transferee(s) (as defined in the Stockholders Agreement) holds not less than 30% of the
aggregate number of shares of Common Stock issuable upon conversion of the Series D Preferred
originally purchased by such Qualified Purchaser pursuant to this Agreement:




          (a) as soon as available, but in any event within 30 days after the end of each monthly
accounting period in each fiscal year beginning with the report for the month of April 2006,
unaudited statements of income and cash flows of the Company and its Subsidiaries for such
monthly period and for the period from the beginning of the fiscal year to the end of such
month, and unaudited consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case comparisons to
the company’s annual budget, and to the corresponding period in the preceding fiscal year,
and all such statements shall be prepared in accordance with GAAP, and shall be certified by
the Company’s chief financial officer or, if there is none, the Company’s chief executive
officer;




          (b) as soon as available, but in any event within 45 days after the end of each
quarterly accounting period in each fiscal year, unaudited statements of income
and cash flows of the Company and its Subsidiaries for such quarterly period and for
the period from the beginning of the fiscal year to end of such quarter, and unaudited



24









 







consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the
end of such quarterly period, setting forth in each case comparisons to the company’s annual
budget, and to the corresponding period in the preceding fiscal year, and all such
statements shall be prepared in accordance with GAAP, and shall be certified by the
Company’s chief financial officer or, if there is none, the Company’s chief executive
officer;



          (c) within 120 days after the end of each fiscal year, audited statements of income and
cash flows of the Company and its Subsidiaries for such fiscal year, and audited
consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the preceding fiscal
year, all prepared in accordance with GAAP, and accompanied by (i) with respect to such
financial statements, an unqualified opinion of an independent accounting firm of recognized
national standing approved by the Company’s board of directors and (ii) a copy of such
firm’s annual management letter to the board of directors;



          (d) at least 45 days prior to the beginning of each fiscal year, a budget plan,
including a timetable of key events and annual budgeted statements of income and cash flows
and budgeted balance sheets, which budgeted financial statements will have been submitted to
the Company’s board of directors for approval prior to the beginning of such fiscal year and
will have been approved by the Company’s board of directors prior to the thirtieth day of
such fiscal year, prepared on a monthly basis for the Company and its Subsidiaries for such
fiscal year (displaying anticipated statements of income and cash flows and balance sheets),
and promptly upon preparation thereof, any other significant budgets prepared by the Company
and any revisions of such annual or other budget (each of which shall be reviewed and
approved by the Company’s board of directors);



          (e) promptly upon receipt thereof, any additional reports, management letters or other
detailed information concerning significant aspects of the Company’s operations or financial
affairs given to the Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);



          (f) promptly (but in any event within five Business Days) after the discovery by an
executive officer of the Company, or receipt of notice by the Company, of any material
default under any Material Contract or any other Material Adverse Effect with respect to the
Company or any Subsidiary (including, without limitation, the filing of any material
litigation against the Company or any Subsidiary or the existence of any dispute with any
Person which involves, in the Company’s good faith judgment, a reasonable likelihood of such
litigation being commenced), an Officer’s Certificate specifying the nature and period of
existence thereof and what actions the Company and its Subsidiaries have taken and propose
to take with respect thereto;



25









 






          (g) promptly upon receipt thereof (but in any event within five Business Days), receipt
by the Company of an offer to buy a controlling interest in the capital stock of the Company
or a significant amount of assets;




          (h) within five days after transmission thereof, copies of all financial statements,
proxy statements, reports and any other general written communications which the Company
sends to its stockholders and copies of all registration statements and all regular, special
or periodic reports which it files, or any of its officers or directors file with respect to
the Company, with the Securities and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press releases and other
written statements made available generally by the Company to the public concerning material
developments in the Company’s and its Subsidiaries’ businesses; and



          (i) with reasonable promptness, such other information and financial data concerning
the Company or its Subsidiaries as such Qualified Purchaser may reasonably request.


Each of the financial statements referred to in this Section 10.1 shall fairly present the
financial condition and results of operations of the Company and its Subsidiaries as of the dates
thereof and for the periods reflected therein and shall be true and correct in all material
respects at and as of the dates and for the periods stated therein, subject in the case of the
unaudited financial statements to changes resulting from normal year-end adjustments for recurring
accruals (none of which would, individually or in the aggregate, would have a Material Adverse
Effect and lack of footnotes.



Notwithstanding the foregoing, the provisions of this Section 10.1 shall cease to be effective so
long as the Company is subject to the periodic reporting requirements of the Securities Exchange
Act and continues to comply with such requirements.




          10.2 Inspection of Property. The Company shall permit any representatives designated
by any Qualified Purchaser, upon reasonable notice to the Company’s Chief Financial Officer and
during normal business hours, accompanied by an authorized representative of the Company, to (i)
visit and inspect any of the properties of the Company or its Subsidiaries, (ii) examine the
corporate and financial records of the Company or its Subsidiaries and make copies thereof or
extracts therefrom and (iii) discuss the affairs, finances and accounts of any such corporations
with the directors, officers, key employees, consultants and independent accountants of the Company
and its Subsidiaries.



          10.3 Affirmative Covenants. So long as any shares of the Series D Preferred Stock
issued hereunder or issuable upon exercise of the Warrants are outstanding, the Company shall, and
shall cause each Subsidiary to, unless it has received the prior written consent of the holders of
at least 51% of the then outstanding shares of Series D Preferred Stock:




          (a) at all times cause to be done all things necessary to maintain, preserve and renew
its corporate existence and all licenses, authorizations and permits necessary to the
conduct of its businesses as currently conducted and as proposed to be
conducted, the failure of which would reasonably be expected to have a Material Adverse
Effect;



26









 






          (b) maintain and keep its properties in reasonably good repair, working order and
condition;




          (c) file, file applications for, seek and pursue all appropriate licenses,
authorizations and permits and all appropriate patents, trademarks and other intellectual
property protection, with respect to any new discoveries, inventions, products and product
developments;




          (d) pay and discharge when payable all Taxes, assessments and governmental charges
imposed upon its properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid would by law become a lien upon any of its property,
unless and to the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with GAAP) have been
established on its books with respect thereto;




          (e) comply with all applicable laws, rules and regulations of all Governmental
Entities; and




          (f) maintain proper books of record and account which present fairly in all material
respects its financial condition and results of operations and make provision on its
financial statements for all such proper reserves as in each case are required in accordance
with GAAP.



          10.4 Intellectual Property Rights. The Company shall, and shall cause each Subsidiary
to, possess, or acquire when needed, and maintain all material rights to Intellectual Property
necessary to the conduct of their respective businesses and own all right, title and interest in
and to, or have a valid license for, all such Intellectual Property. Neither the Company nor any
Subsidiary shall take any action, or fail to take any action, which could result in the invalidity,
abandonment, misuse or unenforceability of such rights to such Intellectual Property or which could
infringe upon or misappropriate any rights of other Persons.



          10.5 Authorized and Reserved Common Stock and Series D Preferred Stock. The Company
agrees to take and to cause to be taken all action necessary to assure that a sufficient quantity
of Series D Preferred Stock is timely authorized and reserved for issuance as dividends on the
Series D Preferred Stock and upon exercise of the Warrants by the holders thereof in accordance
with the terms thereof, and to assure that a sufficient quantity of Common Stock is timely
authorized and reserved for issuance to accommodate conversion of Series D Preferred Stock
(including Series D Preferred Stock issued in the future and issued as dividends on Series D
Preferred Stock and upon exercise of the Warrants by the holders thereof in accordance with the
terms thereof). All such shares of Common Stock and Series D Preferred Stock so issuable, and the
Warrant Shares, when paid for in accordance with the Warrants, shall, after being issued, be duly
and validly issued, fully paid and nonassessable and free of all Taxes
and Encumbrances. The Company shall take all action as may be necessary to assure that all
such shares of Series D Preferred Stock and Common Stock may be so issued without violation of any
laws or governmental regulations.



27









 





          10.6 Designation of Directors. The Company shall use its best efforts to cause any
directors designated by the Purchasers as provided in the Stockholders’ Agreement to be elected to
the board of directors of the Company, in accordance with the terms of the Stockholders’ Agreement.



          10.7 Insurance. From and after the date hereof, the Company shall maintain in full
force and effect with good and responsible insurance companies adequate insurance covering risks of
such types and in such amounts as are customary for corporations of similar size engaged in similar
lines of business, in amounts and on terms determined by the Board, which policies shall name the
Corporation as the sole designated beneficiary thereof and shall be issued by any AAA rated
insurance company.



          10.8 Securities Law Compliance. Promptly after the Closing, the Company shall make
all filings under all applicable federal and state securities laws necessary to consummate the
issuance of the Series D Preferred Stock and the Warrants pursuant to this Agreement in compliance
with such laws.



          10.9 Qualification to Conduct Business. The Company shall be duly qualified at all
times to do business as a foreign corporation and is and will continue to be in good standing in
each jurisdiction where the nature of the property owned or leased by it or the nature of the
business conducted by it makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect.



          10.10 Future Option Plans. The Company shall cause any equity incentive plan adopted
after the Closing Date to provide, in form reasonably satisfactory to the Qualified Purchasers,
that any increase, at any time, in the aggregate ownership of securities of the Company by any
Person who is a stockholder of the Company on the Closing Date (and immediately after giving effect
to the Closing) and any such Person’s Affiliates, in each case, other than active operating
companies, shall be exempted from the definition therein of a “Change in Control” (or any like
term).



          10.11 Purchaser Obligation to Maintain Confidentiality. Except as otherwise required
by law, each Qualified Purchaser and its Permitted Transferees to whom disclosures are made by the
Company pursuant to Section 10.1 (the “Recipient”) shall not, and shall cause each of its
directors, officers, employees, agents, and representatives (collectively, the “Recipient
Representatives”) not to disclose the Confidential Information (as defined in this Section 10.11)
to any Person or entity other than the Recipient Representatives. For the purposes of this Section
10.11, “Confidential Information” means all information relating to the Company (whether provided
in writing or otherwise) that has been provided or shown to the Recipient or any Recipient
Representative by or on behalf of the Company or any of its directors, officers, employees, agents
and representatives; provided, however, that “Confidential Information” shall not include
information that: (i) becomes generally publicly available other than as a result of disclosure by
Recipient or any Recipient Representative; or (ii) becomes available to the
Recipient on a non-confidential basis from a third party that is not bound by a similar duty
of confidentiality to any Person with respect to such information.



28









 





          10.12 Key Man Insurance. The Company shall, within sixty (60) days after the Closing
Date, obtain a “key man” insurance policy issued by an insurer or insurers of recognized
responsibility for each of William P. Moffit and Chad Mirkin in amounts as mutually agreed by the
Company and the Purchasers of a majority of the Series D Preferred Stock.



          10.13 Termination of Covenants. Except for the provisions of Section 10.11, all the
provisions set forth in this Section 10 shall automatically terminate, and be of no further force
or effect, immediately upon the consummation of a Qualified Public Offering (as defined in the
Amended and Restated Certificate of Incorporation as in effect on the date hereof).



     11. General Provisions.



          11.1 Waivers and Amendments. Any term of this Agreement may be amended, terminated or
waived only with the written consent of the Company and of the holders of a majority of the
then-outstanding shares of Series D Preferred Stock; provided, however, that no Purchaser shall,
without its consent, be materially adversely affected by any such amendment, termination or waiver
in any manner in which the other Purchasers are not likewise materially adversely affected. Any
amendment or waiver effected in accordance with this Section 11.1 shall be binding upon the
Purchasers and each transferee of the Securities, each future holder of all such Securities, and
the Company.



          The foregoing notwithstanding, no such waiver or supplemental agreement shall affect any of
the rights of any holder of any Securities created by (1) the Amended and Restated Certificate of
Incorporation or by the Delaware General Corporation Law without compliance with all applicable
provisions of the Amended and Restated Certificate of Incorporation and the Delaware General
Corporation Law or (2) any Transaction Document other than this Agreement without compliance with
all applicable provisions of such Transaction Document.



          Neither this Agreement, nor any provision hereof, may be changed, waived, discharged or
terminated orally or by course of dealing, but only by an instrument in writing.



          11.2 No Implied Waiver. Except as expressly provided in this Agreement, no course of
dealing between the Company and the Purchasers or any other holder of shares of Series D Preferred
Stock and no delay in exercising any such right, power or remedy conferred hereby or by the Amended
and Restated Certificate of Incorporation, or by any of the other Transaction Documents or now or
hereafter existing at law in equity, by statute or otherwise, shall operate as a waiver of, or
otherwise prejudice, any such right, power or remedy.



          11.3 No Waivers. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.



29









 





          11.4 Notices.




          (a) Requirement of a Writing; Permitted Methods of Delivery. Each party giving or
making any notice, request, demand or other communication (each, a “Notice”) pursuant to
this Agreement shall give the Notice in writing and use one of the following methods of
delivery, each of which for purposes of this Agreement is a writing: (i) personal delivery;
(ii) nationally recognized overnight courier (signature required for delivery), with all
fees prepaid; or (iii) facsimile.




          (b) Addressees and Addresses. Each party giving a Notice shall address the Notice to
the appropriate person at the receiving party (the “Addressee”):


If to a Purchaser at its address set forth on Schedule I hereto.



with a copy to each of:



Ropes & Gray LLP

One International Place

Boston, MA 02110

Attention: Joel F. Freedman, Esq.

Facsimile No.: (617) 951-7050



and



Neal, Gerber & Eisenberg LLP

Two North LaSalle Street

Chicago, Illinois 60602-3801

Attention: Jonathan D. Wasserman, Esq.

Facsimile No.: (312) 578-1790



If to the Company, to:



Nanosphere, Inc.

4088 Commercial Avenue

Northbrook, Illinois 60062

Attention: President and Chief Executive Officer

Facsimile No.: (847) 400-9199



with a copy to:



Paul, Hastings, Janofsky & Walker LLP

1055 Washington Boulevard

Stamford, Connecticut 06901

Attention: Esteban A. Ferrer, Esq.

Fax: (203) 359-3031



or to another Addressee or at another address as designated by a party to this Agreement in a
Notice made pursuant to this Section 11.4 to all other parties hereto;




30









 









          (c) Effectiveness of a Notice. A Notice is effective hereunder only if the party
giving the Notice has complied with all the terms of Section 11.4(a) and Section 11.4(b)
hereof. For the purposes of this Section 11.4(c), a Notice shall be deemed to have been
received as follows:




     (1) f a Notice is delivered in person, upon receipt;




     (2) if a Notice is sent by nationally recognized overnight courier, upon
receipt as indicated in the records of such courier; and




     (3) if a Notice is sent by facsimile, upon receipt by the party giving the
Notice of an acknowledgment or transmission report generated by the machine from
which the facsimile was sent indicating that the facsimile was sent in its entirety
to the Addressee’s facsimile number.



          11.5 Delays or Omissions; Remedies Cumulative. Neither shall any delay or omission to
exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or
default of any other party to this Agreement, impair any such right, power or remedy of such
non-breaching or non-defaulting party nor be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default thereafter
occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any party hereto of any breach or default under this
Agreement, or any waiver on the part of any party hereto of any provision or condition of this
Agreement, must be in a writing delivered in accordance with the terms hereof and shall be
effective only to the extent specifically set forth in such writing. None of the rights, powers or
remedies conferred upon the Purchasers on the one hand or the Company on the other hand shall be
mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to
every other right, power or remedy, whether conferred by this Agreement, any of the other
Transaction Documents or the Amended and Restated Certificate of Incorporation or now or hereafter
available at law, in equity, by statute or otherwise.



          11.6 Indemnification. The Company shall indemnify, save and hold harmless each
Purchaser, its Affiliates, its directors, officers, employees, partners, representatives and agents
(each, an “Indemnified Person,” and collectively, the “Indemnified Persons”) from and against (and
shall promptly reimburse such Indemnified Persons for) any and all liability, loss, cost, damage,
reasonable attorneys’ and accountants’ fees and expenses, court costs and all other out-of-pocket
expenses incurred (collectively, “Losses”) in connection with or arising from any breach of, or
inaccuracy in, the representations or warranties of the Company set forth in this Agreement or any
of the Transaction Documents. Notwithstanding the foregoing, the Company shall not be obligated to
indemnify any Indemnified Person for any Loss arising from any such breach or inaccuracy, unless a
written notice describing such breach or inaccuracy is delivered to the Company at any time prior
to October 12, 2007. This indemnification provision shall be in addition to the rights of the
Purchaser to bring an action against the Company for breach of any term of this Agreement, the
other Transaction Documents or the Amended and Restated Certificate of Incorporation.



31









 





          11.7 Successors and Assigns. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective parties hereto, the
successors and assigns of each Purchaser and the successors of the Company, whether so expressed or
not. None of the parties hereto may assign its rights or obligations under Section 2 hereof
without the prior written consent of the Company, except that each Purchaser may, without the prior
consent of the Company, assign its rights to purchase the shares of Series D Preferred Stock
hereunder to any of its Affiliates. This Agreement shall not inure to the benefit of or be
enforceable by any other Person.



          11.8 Headings. The headings of the Sections and paragraphs of this Agreement have
been inserted for convenience of reference only and do not constitute a part of this Agreement.



          11.9 Governing Law. This Agreement shall be governed by and construed in accordance
with the General Corporation Law of the State of Delaware, as to matters within the scope thereof,
and as to all other matters, this Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.



          11.10 Expenses. Upon consummation of the purchase of the shares of Series D Preferred
Stock and the Warrants by the Purchasers pursuant to this Agreement, the Company agrees to pay Bain
Capital’s reasonable out-of-pocket expenses, including fees of counsel, consultants and
accountants, and diligence and travel expenses incurred in connection with the preparation and
negotiation of this Agreement and the consummation of the transactions contemplated hereby in
aggregate amount not to exceed $150,000 (an estimate of the fees and expenses of such counsel may
be paid by check or delivered by wire transfer to such counsel at the Closing by Bain Capital, the
amount of such check or wire transfer being deducted from the aggregate amount to be paid by Bain
Capital at the Closing for the shares of Series D Preferred Stock and the Warrants to be purchased
by it hereunder).



          11.11 Jurisdiction.



     Any suit, action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions contemplated hereby shall
be brought in any federal or state court located in New York County, New York, and each of the
parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 12.2 shall be deemed effective service of
process on such party.



32









 





          11.12 Waiver of Jury Trial.



     TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, THE PURCHASERS AND THE
COMPANY HEREBY WAIVE, AND COVENANT THAT NEITHER THE COMPANY NOR THE PURCHASERS WILL ASSERT, ANY
RIGHT TO TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF
OR IN ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE PURCHASERS AND THE
COMPANY HEREUNDER OR THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges that it has been informed by the
Purchasers that the provisions of this Section 12.10 constitute a material inducement upon which
the Purchasers are relying and will rely in entering into this Agreement. Any Purchaser or the
Company may file an original counterpart or a copy of this Section 12.10 with any court as written
evidence of the consent of the Purchasers and the Company to the waiver of the right to trial by
jury.



          11.13 Counterparts; Effectiveness. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts, including facsimiles copies
thereof, shall be deemed an original, shall be construed together and shall constitute one and the
same instrument. This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.



          11.14 Entire Agreement. The Amended and Restated Certificate of Incorporation, the
By-laws and the Transaction Documents contain the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof and such agreements supersede and replace all
other prior agreements, written or oral, among the parties hereto with respect to the subject
matter hereof and thereof.



          11.15 Severability. If any provision of this Agreement shall be found by any court of
competent jurisdiction to be invalid or unenforceable, the parties hereby waive such provision to
the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum
extent allowable by law, be modified by such court so that it becomes enforceable, and, as
modified, shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.



          11.16 Exculpation Among Purchasers; Attorney. Each Purchaser acknowledges that it is
not relying upon any Person, other than the Company and its officers and directors, in making its
investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the purchase of the Securities. Each
Purchaser acknowledges and agrees that Ropes & Gray LLP is only
representing Bain Capital in connection with the transactions contemplated hereby and is not
representing such other Purchaser.



33









 





     IN WITNESS WHEREOF, the parties hereto have caused this Stock and Warrant Purchase Agreement
to be duly executed as of the day and year first above written.



	 	 	 	 	 
	 	THE COMPANY


NANOSPHERE, INC.

 	 
	 	By:  	/s/ William P. Moffitt
 	 
	 	Name:  	William P. Moffit 	 
	 	Title:  	President and Chief Executive Officer 	 
	 



[Signature Page to Purchase Agreement]





 









 









     IN WITNESS WHEREOF, the parties hereto have caused this Stock and Warrant Purchase Agreement
to be duly executed as of the date and year first above written.



	 	 	 	 	 
	 	PURCHASERS:



BAIN CAPITAL VENTURE FUND 2005, L.P.


By: Bain Capital Venture Partners, L.P.



Bain Capital Investors, LLC,

its general partner

 	 
	 	By:  	/s/
James Nahirny
 	 
	 	 	Name:  	James Nahirny 	 
	 	 	Title:  	Authorized Person 	 
	 



	 	 	 	 	 
	 	BCIP ASSOCIATES III, LLC



By: BCIP Associates III,

      its sole member and manager



BCIP ASSOCIATES III-B, LLC



By: BCIP Associates III-B,

      its sole member and manager



By: Bain Capital Investors, LLC

      their Managing Partner

 	 
	 	By:  	/s/
James Nahirny
 	 
	 	 	Name:  	James Nahirny 	 
	 	 	Title:  	Authorized Person 	 
	 



	 	 	 	 	 
	 	BROOKSIDE CAPITAL PARTNERS FUND, L.P.



By: Brookside Capital Investors, L.P.,

      its general partner



By: Brookside Capital Management, LLC,

      its general partner

 	 
	 	By:  	/s/
William Pepperdick	 
	 	 	Name:  	William Pepperdick	 
	 	 	Title:  	Managing Director	 
	 



	 	 	 	 	 
	 	RGIP, LLC

 	 
	 	By:  	/s/
 
 	 
	 	 	Name:  	 	 
	 	 	Managing Member 	 
	 



[Signature Page to Purchase Agreement]




 









 








	 	 	 	 	 
	 	LURIE INVESTMENT FUND, L.L.C.

 	 
	 	By:  	/s/ Mark Slezak
 	 
	 	 	Mark Slezak, Authorized Signatory 	 
	 	 	 	 
	 
	 	WASK INVESTMENTS, L.L.C.

 	 
	 	By:  	/s/ Mark Slezak
 	 
	 	 	Mark Slezak, Authorized Signatory 	 
	 	 	 	 
	 
	 	ANN AND ROBERT H. LURIE FOUNDATION

 	 
	 	By:  	/s/ Mark Slezak
 	 
	 	 	Mark Slezak, Authorized Signatory 	 
	 	 	 	 
	 	 	 
	 	/s/ Laura A. Mondrowski
 	 
	 	Laura A. Mondrowski 	 
	 	 	 
	 
	 	IBRAHIM S. HAWATMEH REVOCABLE LIVING TRUST, DATED 5/24/84

 	 
	 	By:  	/s/
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	 	 
	 
	 	R CAPITAL II, LTD.

 	 
	 	By:  	/s/ Robert Gephart
 	 
	 	Name:  	Robert Gephart 	 
	 	Title:  	Vice President 	 
	 
	 	 	 
	 	/s/ Mark Landy
 	 
	 	Mark Landy 	 
	 	 	 
	 	 	 
	 	/s/ Susanne Landy
 	 
	 	Susanne Landy 	 
	 	 	 
	 	 	 
	 	/s/ Adam N. Mirkin 4/8/06
 	 
	 	Adam N. Mirkin 	 
	 	 	 
	 
	 	/s/ Rhoderic Peter Mirkin
 	 
	 	Rhoderic Peter Mirkin 	 
	 	 	 
	 
	 	/s/ Richard Segal
 	 
	 	Richard Segal 	 
	 	 	 
	 
	 	Nanosphere Series D

 	 
	 	/s/ Phillip Van Winkle
 	 
	 	Phillip Van Winkle 	 
	 	 	 
	 
	 	/s/ Stephanie Van Winkle
 	 
	 	Stephanie Van Winkle 	 
	 	 	 
	 





[Signature Page to Purchase Agreement]




 









 








	 	 	 	 	 
	 	 	 
	 	/s/ Richard Wickel 4/10/06
 	 
	 	Richard Wickel 	 
	 	 	 
	 
	 	 	 
	 	By:  	/s/ Peter J. Stang
 	 
	 	Name:  	Peter J. Stang 	 
	 	 	 	 
	 
	 	 	 
	 	/s/ Sheli Z. Rosenberg
 	 
	 	Sheli Z. Rosenberg 	 
	 	 	 
	 
	 	 	 
	 	/s/ Steven E. Mather
 	 
	 	Steven E. Mather 	 
	 	 	 
	 
	 	 	 
	 	/s/ William T. White III
 	 
	 	William T. White III 	 
	 	 	 
	 
	 	ALLEN & COMPANY LLC, on behalf of itself and certain of its employees or
Affiliates

 	 
	 	By:  	/s/	 
	 	Name:  	 	 
	 	Title:  	CFO 	 
	 



[Signature Page to Purchase Agreement]