Document:

exv10w3

 

Exhibit 10.3

VOLCANO CORPORATION

2005 EQUITY COMPENSATION PLAN

     The purpose of the Volcano Corporation 2005 Equity Compensation Plan (the “Plan”) is to
provide (i) designated employees of Volcano Corporation (the “Company”) and its parents and
subsidiaries, (ii) certain consultants and advisors who perform services for the Company or its
parents or subsidiaries, and (iii) non-employee members of the Board of Directors of the Company
(the “Board”) with the opportunity to receive grants of incentive stock options, nonqualified stock
options, stock awards (including restricted stock units), and stock appreciation rights. The
Company believes that the Plan will encourage the participants to contribute materially to the
growth of the Company, thereby benefiting the Company’s stockholders, and will align the economic
interests of the participants with those of the stockholders.

     1. Administration

     (a) Committee.
The Plan shall be administered and interpreted by the members of
the Compensation Committee of the Board (the “Committee”),
which (i) shall consist of “outside
directors” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
“Code”), and related Treasury regulations, and “non-employee directors” as defined under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (ii) shall have the
authority set forth below.

     (b) Committee
Authority. The Committee or its delegate shall have the sole authority to
(i) determine the individuals to whom grants shall be made under
the Plan; (ii) determine the type,
size, and terms of the grants to be made to each such individual; (iii) determine the time when the
grants will be made and the duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability; (iv) amend the terms of any
previously issued grant; and (v) deal with any other matters arising under the Plan. However, the
Board may ratify or approve any grants as it deems appropriate, and the Board shall approve and
administer all grants made to non-employee directors.

     (c) Committee
Determinations. The Committee or its delegate shall have full
 power and
authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend
such rules, regulations, agreements, and instruments for implementing the Plan and for the conduct
of its business as it deems necessary or advisable, in its sole discretion. The Committee’s or its
delegate’s interpretations of the Plan and all determinations made by the Committee or its delegate
pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having
any interest in the Plan or in any awards granted hereunder. All powers of the Committee or
its delegate shall be executed in its or their sole discretion, in
the best interest of the Company,
not as a fiduciary, and in keeping with the objectives of the Plan
and need not be uniform as to
similarly situated individuals.

 

 

     (d) Other
Equity Awards. The terms of this Plan shall not impact or govern the
administration by the Company or the rights of any holders of an
option or stock award granted
pursuant to the Volcano Corporation 2000 Long Term Incentive Plan, as amended (the “2000 Plan”).
Unless otherwise provided by the Company and agreed to by the recipient of an award under the 2000
Plan, all awards granted pursuant to the 2000 Plan shall continue to be governed by the terms of
such plan.

     (e) No
Repricings. Notwithstanding anything in this Plan to the
contrary, with respect
to Options held by a person subject to Section 16 of the
Exchange Act, in no event may the Board,
the Committee or its or their delegate (i) amend or modify an Option in a manner that would reduce
the exercise price of such Option; (ii) substitute an Option for another Option with a lower
exercise price; (iii) cancel an Option and issue a new Option with a lower exercise price to the
holder of the cancelled Option within six (6) months following the date of the cancellation of the
cancelled Option; or (iv) cancel an outstanding Option that is under water (i.e., for which the Fair
Market Value, as defined below, of the underlying Shares is less than the Option’s Exercise Price,
as defined below) for the purpose of granting a replacement Grant (as
defined below) of a different
type.

     2. Grants

     (a) Awards under the Plan may consist of grants of incentive stock options as described
in Section 5 (“Incentive Stock Options”), nonqualified stock options as described in Section 5
(“Nonqualified Stock Options”) (Incentive Stock Options and Nonqualified Stock Options are
collectively referred to as “Options”), stock awards as described in Section 6 (“Stock Awards”),
restricted stock units as described in Section 6 (“Restricted Stock Units”), and Stock Appreciation
Rights described in Section 7 (“SARs”) (hereinafter collectively referred to as “Grants”). All
Grants shall be subject to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan and as specified in the individual grant instrument or an
amendment to the grant instrument (the “Grant Instrument”). All Grants shall be made conditional
upon the Grantee’s acknowledgement, in writing or by acceptance of the Grant, that all decisions
and determination of the Committee or its delegate shall be final and binding on the Grantee, his
or her beneficiaries and any other person having or claiming an interest under such Grant. Grants
under a particular Section of the Plan need not be uniform as among the grantees.

     3. Shares Subject to the Plan

     (a) Shares Authorized. Subject to adjustment as described below, (i) the maximum
aggregate number of shares of common stock of the Company (“Company Stock”) that may be issued or
transferred under any forms of Grants under the Plan is six million four hundred seventy eight
thousand eight hundred and fourteen (6,478,814) shares minus the sum of (A) such number of shares
subject to stock options granted under the 2000 Plan, which stock options are issued and
outstanding or issued and exercised and (B) such number of shares subject to stock awards granted
under the 2000 Plan and not forfeited or repurchased, (ii) the maximum aggregate number of shares
of Company

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Stock that may be issued under the Plan under Incentive Stock Options is the number of shares
calculated under Section 3(a)(i) above, and (iii) the maximum aggregate number of shares of Company
Stock that may be issued under the Plan under Awards other than Options is the lesser of (A) one
million six hundred thousand (1,600,000) shares minus such number of stock awards granted under the
2000 Plan and not forfeited or repurchased and (B) the number of shares calculated under Section
3(a)(i) above. For purposes of this Section 3(a), stock appreciation rights to be settled in shares
of Company Stock shall be counted in full against the number of shares of Company Stock available
for award under the Plan, regardless of the number of exercise gain shares issued upon the
settlement of the stock appreciation right. The maximum aggregate number of shares of Company Stock
that shall be subject to Grants made under the Plan to any individual during any calendar year
shall be the lesser of (A) one million (1,000,000) shares and (B) the number of shares calculated
under Section 3(a)(i) above, subject to adjustment as described below. The shares may be authorized
but unissued shares of Company Stock or reacquired shares of Company Stock, including shares
purchased by the Company on the open market for purposes of the Plan. If and to the extent Options
granted under the Plan terminate, expire, or are canceled, forfeited, exchanged, or surrendered
without having been exercised or if any Stock Awards (including restricted Stock Awards received
upon the exercise of Options) are forfeited, the shares subject to such Grants shall again be
available for purposes of the Plan. Notwithstanding the foregoing, at any such time as the offer
and sale of securities pursuant to the Plan is subject to compliance with Section 260.140.45 of
Title 10 of the California Code of Regulations (“Section 260.140.45”), the total number of shares
of Company Stock issuable upon the exercise of all outstanding Options (together with options
outstanding under any other stock option plan of the Company) and the total number of shares
provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent
(30%) (or such other higher percentage limitation as may be approved by the stockholders of the
Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated
in accordance with the conditions and exclusions of Section 260.140.45.

     (b) Adjustments. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock
split, or combination or exchange of shares; (ii) by reason of a merger, reorganization, or
consolidation; (iii) by reason of a reclassification or change in par value; or (iv) by reason of
any other extraordinary or unusual event affecting the outstanding Company Stock as a class without
the Company’s receipt of consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company’s payment of an extraordinary
dividend or distribution, the maximum number of shares of Company Stock available for Grants, the
maximum number of shares of Company Stock that any individual participating in the Plan may be
granted in any year, the number of shares covered by outstanding Grants, the kind of shares issued
under the Plan, and the price per share of such Grants shall be appropriately adjusted by the
Committee or its delegate to reflect any increase or decrease in the number of, or change in the
kind or value of, issued shares of Company Stock to preclude, to the extent practicable, the
enlargement or dilution of rights and benefits under such Grants; provided, however, that any
fractional shares resulting from such

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adjustment shall be rounded down to the nearest whole share. Any adjustments determined by
the Committee or its delegate shall be final, binding, and conclusive.

     4. Eligibility for Participation

     (a) Eligible Persons. All employees of the Company and its parents
or subsidiaries (“Employees”), including Employees who are
officers or members of the Board, and
members of the Board who are not Employees (“Non-Employee
Directors”) shall be eligible to
participate in the Plan. Consultants and advisors who perform services for the Company or any of its
parents or subsidiaries (“Key Advisors”) shall be eligible to participate in the Plan if the Key
Advisors render bona fide services to the Company or its parents or subsidiaries, the services are
not in connection with the offer and sale of securities in a capital-raising transaction, and the
Key Advisors do not directly or indirectly promote or maintain a market for the Company’s
securities.

     (b) Selection
of Grantees. The Committee or its delegate shall select the Employees,
and Key Advisors to receive Grants and shall determine the number of
shares of Company Stock subject
to a particular Grant. The Board shall select the Non-Employee Directors to receive Grants and
shall determine the number of shares of Company Stock subject to a particular Grant of a
Non-Employee Director. Employees, Key Advisors, and Non-Employee Directors who receive Grants under
this Plan shall hereinafter be referred to as “Grantees.”

     5. Granting of Options

     The Company may grant an Option to an Employee, Non-Employee Director, or Key Advisor.
The following provisions are applicable to Options.

     (a) Number
of Shares. The Company shall determine the number of shares of Company Stock
that will be subject to each Grant of Options to Employees, Non-Employee Directors, and Key
Advisors.

     (b) Type of Option and Price.

          (i) Incentive Stock Options are intended to satisfy the requirements of Section 422 of
the Code. Nonqualified Stock Options are not intended to so qualify. Incentive Stock Options may be
granted only to employees of the Company or its parents or subsidiaries, as defined in Section 424
of the Code. Nonqualified Stock Options may be granted to Employees, Non-Employee Directors, and
Key Advisors.

          (ii) The purchase price (the “Exercise Price”) of Company Stock subject to an Option may
be equal to or greater than the Fair Market Value (as defined below) of a share of Company Stock on
the date the Option is granted; provided, however, that an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns or beneficially owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of stock of the Company or
any parent or subsidiary of the Company, unless the Exercise Price per share is not less than one

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hundred ten percent (110%) of the Fair Market Value of Company Stock on the date of grant.

          (iii) So long as the Company Stock is not publicly traded or, if publicly traded, is not
subject to reported transactions or “bid” or “asked” quotations as set forth below, the Fair Market
Value per share shall be as determined by the Committee. If the Company Stock is publicly traded,
the Fair Market Value per share shall be determined as follows: (x) if the principal trading market
for the Company Stock is a national securities exchange or the Nasdaq National Market, the last
reported sale price thereof on the relevant date or (if there were no trades on that date) the
latest preceding date upon which a sale was reported, or (y) if the Company Stock is not
principally traded on such exchange or market, the mean between the last reported “bid” and “asked”
prices of Company Stock on the relevant date, as reported on Nasdaq or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial
reporting service, as applicable and as the Company determines.

     (c) Option
Term. The term of any Option shall not exceed seven (7) years from the date
of grant. However, an Incentive Stock Option that is granted to an
Employee who, at the time of
grant, owns or beneficially owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, may
not have a term that exceeds five (5) years from the date of grant.

     (d) Exercisability of Options.

          (i) Options shall become exercisable in accordance with such terms and conditions of the
Plan and specified in the Grant Instrument. The Committee or its delegate may accelerate the
exercisability of any or all outstanding Options at any time for any reason.

          (ii) The Company may provide in a Grant Instrument that the Grantee may elect to exercise
part or all of an Option before it otherwise has become exercisable. Any shares so purchased shall
be restricted shares and shall be subject to a repurchase right in favor of the Company during a
specified restriction period, with the repurchase price equal to the lesser of (i) the Exercise
Price or (ii) the Fair Market Value of such shares at the time of repurchase, and (iii) any other
restrictions determined by the Company.

     (e) Grants
to Non-Exempt Employees. Options granted to persons who are non-exempt
employees under the Fair Labor Standards Act of 1938, as amended,
shall have an Exercise Price not
less than one hundred percent (100%) of the Fair Market Value of the Company Stock on the date of
grant, and may not be exercisable for at least six (6) months after the date of grant (except that
such Options may become exercisable upon the Grantee’s death, Disability or retirement, or upon a
Change in Control or other circumstances permitted by applicable regulations).

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     (f) Termination of Employment, Disability, or Death.

          (i) For purposes of this Section 5(f) and Section 6:

     (A)
The term “Employer” shall mean the Company and its parent and subsidiary
corporations or other entities, as determined by the Board.

     (B)
“Employed by, or provide service to, the Employer” shall mean employment or service
as an Employee, Key Advisor or member of the Board (so that, for purposes of exercising
Options or SARs and satisfying conditions with respect to Stock Awards, a Grantee shall not
be considered to have terminated employment or service until the Grantee ceases to be an
Employee, Key Advisor or member of the Board).

     (C)
“Disability” shall mean the inability to perform the duties of an employee’s
position for a continuous period of more than three months by reason of any medically
determinable physical or mental impairment.

     (D)
“Misconduct” means cause or misconduct as defined in any employment agreement
between the Grantee and the Company or an affiliate in effect at the time of the Grantee’s
termination of employment, or, in the absence of any such employment agreement, any of the
following (i) conviction of the Grantee by a court of competent jurisdiction of any felony
or a crime involving moral turpitude; (ii) the Grantee’s knowing failure or refusal to
follow reasonable
 instructions of the Board or reasonable policies, standards and
regulations of the Company or its affiliate; (iii) the Grantee’s continued failure or
refusal to faithfully and diligently perform the usual, customary duties of his
employment with the Company or its affiliate; (iv) the Grantee’s continuously conducting
him or herself in an unprofessional, unethical, immoral or fraudulent
manner; or (v) the
Grantee’s conduct discredits the Company or any affiliate or its
detrimental to the
reputation, character and standing of the Company or any affiliate.

          (ii) Except as provided below, an Option may only be exercised while the Grantee is
employed by, or providing service to, the Employer (as defined below) as an Employee, Key Advisor
or member of the Board, In the event that a Grantee ceases to be employed by, or provide service
to, the Employer for any reason other than Disability, death, termination for Misconduct, or as set
forth in subsection 5(f)(vi) of this Plan, any Option which is otherwise exercisable by the Grantee
shall terminate unless exercised within ninety (90) days after the date on which the Grantee ceases
to be employed by, or provide service to, the Employer (or within such other period of time as may
be specified by the Company), but in any event no later than the date of expiration of the Option
term. Except as otherwise provided, any of the Grantee’s Options that are not otherwise exercisable
as of the date on which the Grantee ceases to be employed by, or provide service to, the Employer
shall terminate as of such date.

          (iii) In the event the Grantee ceases to be employed by, or provide service to, the
Employer on account of a termination by the Employer for Misconduct or if the Grantee breaches his
or her employment agreement with the Employer, any Option held by the Grantee shall terminate on
the date on which the Grantee ceases to be

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employed by, or provide service to, the Employer or the date on which such Option would otherwise
expire, if earlier. In addition, notwithstanding any other provisions of this Section 5, if the
Company determines that the Grantee has engaged in conduct that constitutes Misconduct or has
breached his or her employment agreement at any time while the Grantee is or was employed by, or
providing service to, the Employer or after the Grantee’s termination of employment or service, any
Option held by the Grantee shall terminate as of the date on which such Misconduct first occurred,
or the date on which such Option would otherwise expire, if earlier. Upon any exercise of an
Option, the Company may withhold delivery of share certificates pending resolution of an inquiry
that could lead to a finding resulting in a forfeiture.

          (iv) In the event the Grantee ceases to be employed by, or provide service to, the
Employer because the Grantee is Disabled, any Option which is otherwise exercisable by the Grantee
shall terminate unless exercised within one (1) year after the date on which the Grantee ceases to
be employed by, or provide service to, the Employer (or within such other period of time as may be
specified by the Company), but in any event no later than the date of expiration of the Option
term. Except as otherwise provided, any of the Grantee’s Options that are not otherwise exercisable
as of the date on which the Grantee ceases to be employed by, or provide service to, the Employer
shall terminate as of such date.

          (v) If the Grantee dies while employed by, or providing service to, the Employer, all of
the unexercised outstanding Options of Grantee shall become immediately exercisable and remain
exercisable for a period of one (1) year from his or her date of death, but in no event later than
the date of expiration of the Option term. If the Grantee dies within ninety (90) days after the
date on which the Grantee ceases to be employed or provide service on account of a termination
specified in Section 5(f)(ii) above (or within such other period of time as may be specified by the
Company), any Option that is otherwise exercisable by the Grantee shall terminate unless exercised
within one (1) year after the date on which the Grantee ceases to be employed by, or provide
service to, the Employer (or within such other period of time as may be specified), but in any
event no later than the date of expiration of the Option term. Except as otherwise provided, any of
the Grantee’s Options that are not otherwise exercisable as of the date on which the Grantee ceases
to be employed by, or provide service to, the Employer shall terminate as of such date.

          (vi) Notwithstanding anything herein to the contrary, to the extent that any
Company-sponsored plan or arrangement, or any agreement to which the Company is a party provides
for a longer exercise period for a Grantee’s Options under applicable circumstances than the
exercise period that is provided for in this Section 5(f) under those circumstances, then the
exercise period set forth in such plan, arrangement or agreement applicable to such circumstances
shall apply in lieu of the exercise period provided for in this Section 5(f). In no event, however,
may such exercise period continue past the end of the term of the Option as set forth in this Plan.

     (g) Exercise of Options. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the Company. The

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Grantee shall pay the Exercise Price for an Option in cash, or, to the extent permitted by the
Committee, (i) with payment through a broker in accordance with procedures permitted by Regulation
T of the Federal Reserve Board, or (ii) by such other method as the Committee may approve. The
Grantee shall pay the Exercise Price and the amount of any withholding tax due (pursuant to Section
8).

     (h) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide
that, if the aggregate Fair Market Value of the Company Stock on the date of the grant with respect
to which Incentive Stock Options are exercisable for the first time by a Grantee during any
calendar year, under the Plan or any other stock option plan of the Company or a parent or
subsidiary, exceeds One Hundred Thousand Dollars ($100,000), then the Option, as to the excess,
shall be treated as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted to
any person who is not an Employee of the Company or a parent or subsidiary (within the meaning of
Section 424(f) of the Code) of the Company.

     6. Stock Awards

     The Company may transfer shares of Company Stock or cash to an Employee, Non-Employee
Director, or Key Advisor under a Stock Award. The following provisions are applicable to Stock
Awards:

     (a) General Requirements. Shares of Company Stock issued or transferred pursuant to
Stock Awards may be issued or transferred for consideration or for no consideration, and subject to
restrictions or no restrictions. In the case of Stock Awards issued prior to the date, if any, on
which the Company Stock covered by this Plan have been registered under the Securities Act of 1933,
as amended of 1933, as amended (the“Securities Act”), the per share valuation or purchase price
shall be no less than 100% of the Fair Market Value per share of the Company Stock on the date of
grant. Restrictions on Stock Awards shall lapse over a period of time or according to such other
criteria asset forth in the Grant Instrument. The period of time during which the Stock Award
will remain subject to restrictions will be designated in the Grant Instrument as the “Restriction
Period.”

     (b) Number of Shares. The Grant Instrument shall set forth the number of shares of
Company Stock to be issued or transferred pursuant to a Stock Award and the restrictions applicable
to such shares.

     (c) Requirement of Employment or Service. If the Grantee ceases to be employed by, or
provide service to, the Employer (as defined in Section 5(f)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Stock
Award shall terminate as to all shares covered by the award as to which the restrictions have not
lapsed, and those shares of Company Stock must be immediately returned to the Company. The Company
may, however, provide for complete or partial exceptions to this requirement as it deems
appropriate.

     (d) Restrictions on Transfer and Legend on Stock Certificate. During the Restriction
Period, a Grantee may not sell, assign, transfer, pledge, or otherwise dispose

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of the shares of the Stock Award except to a successor under Section 9(a). Each certificate for
Stock Awards shall contain a legend giving appropriate notice of the restrictions in the Grant. The
Grantee shall be entitled to have the legend removed from the stock certificate covering the shares
subject to restrictions when all restrictions on such shares have lapsed. The Company may determine
that it will not issue certificates for Stock Awards until all restrictions on such shares have
lapsed, or that the Company will retain possession of certificates for Stock Awards until all
restrictions on such shares have lapsed.

     (e) Right to Vote and to Receive Dividends. Except as otherwise determined by the
Committee or its delegate, during the Restriction Period, the Grantee shall not have the right to
vote shares subject to Stock Awards or to receive any dividends or other distributions paid on such
shares.

     (f) Lapse of Restrictions. All restrictions imposed on Stock Awards shall lapse upon
the expiration of the applicable Restriction Period and the satisfaction of all conditions. The
Company may determine, as to any or all Stock Awards, that the restrictions shall lapse without
regard to any Restriction Period.

     (g) Designation as Qualified Performance-Based Compensation. The Committee may
determine that Stock Awards granted to an Employee shall be considered “qualified performance-based
compensation” under Section 162(m) of the Code. The provisions of this paragraph (g) shall apply to
Stock Awards that are to be considered “qualified performance-based compensation” under Section
162(m) of the Code.

          (i) Performance Goals. When Stock Awards that are to be considered “qualified
performance-based compensation” are granted, the Committee shall establish in writing (A) the
objective performance goals that must be met, (B) the performance period during which the
performance goals must be met (the “Performance Period”), (C) the threshold, target and maximum
amounts that may be paid if the performance goals are met, and (D) any other conditions that the
Committee deems appropriate and consistent with the Plan and Section

162(m) of the Code. The
performance goals may relate to the Employee’s business unit or the performance of the Company and
its parents and subsidiaries as a whole, or any combination of the foregoing. The Committee shall
use objectively determinable performance goals based on one or more of the following criteria:
stock price, earnings per share, net earnings, operating earnings, return on assets, stockholder
return, return on equity, growth in assets, unit volume, sales, market share, or strategic business
criteria consisting of one or more objectives based on meeting specified revenue goals, market
penetration goals, geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.

          (ii) Establishment of Goals. The Committee shall establish the performance
goals in writing either before the beginning of the Performance Period or during a period ending no
later than the earlier of (i) ninety (90) days after the beginning of the Performance Period or
(ii) the date on which twenty-five percent (25%) of the Performance Period has been completed, or
such other date as may be required or permitted under applicable regulations under Section 162(m)
of the Code. The

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performance goals shall satisfy the requirements for “qualified performance-based compensation,”
including the requirement that the achievement of the goals be substantially uncertain at the time
they are established and that the goals be established in such a way that a third party with
knowledge of the relevant facts could determine whether and to what extent the performance goals
have been met. The Committee shall not have discretion to increase the amount of compensation that
is payable upon achievement of the designated performance goals.

          (iii) Maximum Payment. If Stock Awards, measured with respect to the Fair Market
Value of Company Stock, are granted, not more than the lesser of (A) one million (1,000,000) shares
of Company Stock and (B) the number of shares of Company Stock calculated under Section 3(a)(i)
above may be granted to an Employee under the Stock Award for any Performance Period.

          (iv) Announcement of Grants. The Committee shall certify and announce the results
for each Performance Period to all Grantees immediately following the announcement of the Company’s
financial results for the Performance Period. If and to the extent that the Committee does not
certify that the performance goals have been met, the grants of Stock Awards for the Performance
Period shall be forfeited or shall not be made, as applicable.

          (v) Death, Disability or Other Circumstances. The Committee may provide that
Stock Awards shall be payable or restrictions on Stock Awards shall lapse, in whole or in part, in
the event of the Grantee’s death or Disability during the Performance Period, or under other
circumstances consistent with the Treasury regulations and rulings under Section 162(m) of the
Code.

     (h) Restricted Stock Units. The Committee or its delegate may grant restricted
stock units (“Restricted Units”) to an Employee or Key Advisor. Each Restricted Unit shall
represent the right of the Grantee to receive an amount in cash or Common Stock (as determined by
the Committee or its delegate) based on the value of the Restricted Unit, if performance goals
established by the Committee are met or upon the lapse of a specified vesting period. A Restricted
Unit shall be based on the Fair Market Value of a share of Company Stock or on such other
measurement base as the Committee or its delegate deems appropriate. The Committee or its delegate
shall determine the number of Restricted Units to be granted and the requirements applicable to
such Restricted Units. All such Restricted Units shall comply with Section 409A of the Code.

     7. Stock Appreciation Rights

     The Company may grant SARs to an Employee, Non-Employee Director, or Key Advisor. The
following provisions are applicable to SARs.

     (a) General Requirements. The Company may grant SARs to an Employee,
Non-Employee Director or Key Advisor separately or in tandem with any Option (for all or a portion
of the applicable Option). Tandem SARs may be granted either at the time

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the Option is granted or at any time thereafter while the Option remains outstanding; provided,
however, that, in the case of an Incentive Stock Option, SARs may be granted only at the time of
the grant of the Incentive Stock Option. Unless otherwise specified in the Grant Instrument, the
base amount of each SAR shall be equal to the per share Exercise Price of the related Option or, if
there is no related Option, the Fair Market Value of a share of Company Stock as of the date of
grant of the SAR.

     (b) Tandem SARs. In the case of tandem SARs, the number of SARs granted to a Grantee
that shall be exercisable during a specified period shall not exceed the number of shares of Company
Stock that the Grantee may purchase upon the exercise of the related Option during such period. Upon
the exercise of an Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal
number of shares of Company Stock.

     (c) Exercisability. A SAR shall be exercisable during the period specified in the Grant
Instrument and shall be subject to such vesting and other restrictions as may be specified. The
Company may accelerate the exercisability of any or all outstanding SARs at any time for any reason.
SARs may only be exercised while the Grantee is employed by, or providing service to, the Employer
or during the applicable period after termination of employment or service as described in Section
5(f). A tandem SAR shall be exercisable only during the period when the Option to which it is
related is also exercisable.

     (d) Grants to Non-Exempt Employees. Notwithstanding the foregoing, SARs granted to
persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, shall
have a base amount not less than one hundred percent (100%) of the Fair Market Value of the Company
Stock on the date of grant, and may not be exercisable for at least six (6) months after the date of
grant (except that such SARs may become exercisable, as determined by the Committee, upon the
Grantee’s death, Disability or retirement, or upon a Change of Control or other circumstances
permitted by applicable regulations).

     (e) Value of SARs. When a Grantee exercises SARs, the Grantee shall receive in
settlement of such SARs an amount equal to the value of the stock appreciation for the number of
SARs exercised, payable in Company Stock. The stock appreciation for a SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of the SAR exceeds the
base amount of the SAR as described in subsection (a). For purposes of calculating the number of
shares of Company Stock to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. Notwithstanding anything to the contrary, the Company may
pay the appreciation of a SAR in the form of cash, shares of Company Stock, or a combination of the
two, so long as the ability to pay such amount in cash does not result in the Grantee incurring
taxable income related to the SAR prior to the Grantee’s exercise of the SAR.

-11-

 

     (f) Number of SARs Authorized for Issuance. For purposes of 3(a) of the Plan,
stock appreciation rights to be settled in shares of Company Stock shall be counted in full against
the number of shares available for award under the Plan, regardless of the number of exercise gain
shares issued upon the settlement of the stock appreciation right.

     8. Withholding of Taxes

     (a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state, and local tax withholding requirements. The Employer
may require that the Grantee or other person receiving or exercising Grants pay to the Employer the
amount of any federal, state, or local taxes that the Employer is required to withhold with respect
to such Grants, or the Employer may deduct from Grant proceeds or other wages paid by the Employer
the amount of any withholding taxes due with respect to such Grants. Grants under the plan may also
be subject to taxation by various governmental entities outside of the United States. Except as
otherwise required by law, the Participant shall be solely responsible for payment of any such taxes
payable to governmental entities outside of the United States.

     (b) Election to Withhold Shares. If the Company so permits, a Grantee may elect to
satisfy the Employer’s income tax withholding obligation with respect to a Grant by having shares
withheld up to an amount that does not exceed the Grantee’s minimum applicable withholding tax rate
for federal (including FICA), state, and local tax liabilities. The election must be in a form and
manner prescribed by the Company.

     9. Transferability of Grants

     (a) Nontransferability of Grants. Except as provided below, only the Grantee may
exercise rights under a Grant during the Grantee’s lifetime. A Grantee may not transfer those rights
except by will or by the laws of descent and distribution. When a Grantee dies, the personal
representative or other person entitled to succeed to the rights of the Grantee may exercise such
rights. Any such successor must furnish proof satisfactory to the Company of his or her right to
receive the Grant under the Grantee’s will or under the applicable laws of descent and distribution.

     (b) Transfer
of Nonqualified Stock Options. Notwithstanding the foregoing, the Grant
Instrument may provide that a Grantee may transfer Nonqualified Stock Options to family members, or
one or more trusts or other entities for the benefit of or owned by family members, consistent with
applicable securities laws, provided that the Grantee receives no consideration for the transfer of
an Option and the transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.

     10. Change in Control of the Company

     (a) “Change in Control” means the determination (which may be made effective as
of a particular date specified by the Board) by the Board, made by a majority vote that a change in
control has occurred, or is about to occur. Such a change shall not include, however, a
restructuring, reorganization, merger or other change in capitalization

-12-

 

in which the Persons who own an interest in the Company on the date hereof (the “Current Owners”)
(or any individual or entity which receives from a Current Owner an interest in the Company through
will or the laws of descent and distribution) maintain more than a fifty percent (50%) interest in
the resultant entity. Regardless of the vote of the Board or whether or not the Board votes, a
Change in Control will be deemed to have occurred as of the first day any one (1) or more of the
following subsections shall have been satisfied:

     (b) Any Person (other than the Person in control of the Company as of the date of this Plan, or
other than a trustee or other fiduciary holding securities under an employee benefit plan of the
Company, or a company owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company), becomes the
beneficial owner, directly or indirectly, of securities of the Company representing more than
thirty-five percent (35%) of the combined voting power of the Company’s then outstanding securities;
or

     (c) The stockholders of the Company approve:

          (i) A plan of complete liquidation of the Company;

          (ii) An agreement for the sale or disposition of all or substantially all of the
Company’s assets; or

          (iii) A merger, consolidation or reorganization of the Company with or involving any other
company, other than a merger, consolidation or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity) at
least fifty percent (50%) of the combined voting power of the voting securities of the Company (or
such surviving entity) outstanding immediately after such merger, consolidation or reorganization.

     (d) However, in no event shall a Change in Control be deemed to have occurred, with respect to
a Grantee, if the Employee is part of a purchasing group which consummates the Change in Control
transaction. A Grantee shall be deemed “part of the purchasing group” for purposes of the preceding
sentence if the Grantee is an equity participant or has agreed to become an equity participant in
the purchasing company or group (except for (i) passive ownership of less than five percent (5%) of
the voting securities of the purchasing company; or (ii) ownership of equity participation in
the purchasing company or group which is otherwise deemed not to be significant, as determined prior
to the Change in Control by a majority of the non-employee continuing Directors of the Board).

     11. Consequences of a Change in Control

     (a) Notice and Acceleration. Upon a Change in Control, unless the Company
determines otherwise, (i) the Company shall provide each Grantee with outstanding Grants written
notice of such Change in Control, (ii) all outstanding Options and SARs

-13-

 

shall automatically accelerate and become fully exercisable, and (iii) the restrictions and
conditions on all outstanding Stock Awards shall immediately lapse.

     (b) Assumption of Grants. Upon a Change in Control where the Company is not the
surviving corporation (or survives only as a subsidiary of another corporation), each Grantee shall
have the right to elect within thirty (30) days of receiving the notice described in paragraph (a)
immediately above one (1) of the following methods of treating his or her outstanding Options,
SARs, and Stock Awards: (i) all outstanding Options and SARs that are not exercised shall be
assumed by, or replaced with comparable options or stock appreciation rights by, the surviving
corporation (or a parent or subsidiary of the surviving corporation), and outstanding Stock Awards
shall be converted to Stock Awards of the surviving corporation (or a parent or subsidiary of the
surviving corporation); or (ii) each Grantee may surrender his or her outstanding Options, SARs, or
Stock Awards in exchange for a payment by the Company, in cash or Company Stock (as elected by the
Grantee) in an amount equal to the amount by which the then Fair Market Value of the shares of
Company Stock underlying the Option or SAR exceeds the Exercise Price of the Grantee’s unexercised
Options or the based amount of the Grantee’s unexercised SARs or for the then Fair Market Value of
shares of Company Stock underlying the Grantee’s Stock Awards.

     12. Requirements for Issuance or Transfer of Shares

     (a) Limitations on Issuance or Transfer of Shares. No Company Stock shall be
issued or transferred in connection with any Grant hereunder unless and until all legal
requirements applicable to the issuance or transfer of such Company Stock have been complied with.
Any Grant made shall be conditioned on the Grantee’s undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company Stock, and certificates
representing such shares may be legended to reflect any such restrictions. Certificates
representing shares of Company Stock issued or transferred under the Plan will be subject to such
stop-transfer orders and other restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.

     (b) Lock-Up Period. If so requested by the Company or any representative of the
underwriters (the “Managing Underwriter”) in connection with any underwritten offering of
securities of the Company under the Securities Act, a Grantee (including any successor or assigns)
shall not sell or otherwise transfer any shares or other securities of the Company during the
thirty (30) day period preceding and the one hundred eighty (180)-day period following the
effective date of a registration statement of the Company filed under the Securities Act for such
underwriting (or such shorter period as may be requested by the Managing Underwriter and agreed to
by the Company) (the “Market Standoff Period”). The Company may impose stop-transfer instructions
with respect to securities subject to the foregoing restrictions until the end of such Market
Standoff Period.

-14-

 

     13. Amendment and Termination of the Plan

     (a) Amendment. The Board or its delegate may amend or terminate the Plan at any time;
provided, however, that neither the Board nor its delegate shall have the authority to amend the
Plan without stockholder approval if such approval is required in order to comply with the Code or
other applicable laws, or to comply with applicable stock exchange requirements.

     (b) Termination of Plan. The Plan shall terminate on the day immediately preceding the
tenth (10th) anniversary of its effective date, unless the Plan is terminated earlier by
the Company or is extended by the Company with the approval of the stockholders.

     (c) Termination and Amendment of Outstanding Grants. A termination or amendment of the
Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless
the Grantee consents or unless the Company acts under Section 20(b). The termination of the Plan
shall not impair the power and authority of the Company with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under
Section 20(b) or may be amended by agreement of the Company and the Grantee consistent with the
Plan.

     (d) Governing Document. The Plan shall be the controlling document. No other
statements, representations, explanatory materials or examples, oral or written, may amend the Plan
in any manner. The Plan shall be binding upon and enforceable against the Company and its
successors and assigns.

     14. Funding of the Plan

     This Plan shall be unfunded. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the payment of any Grants under
this Plan. In no event shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.

     15. Rights of Participants

     Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee Director, or other
person to any claim or right to be granted a Grant under this Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any individual any rights to be retained by or
in the employ of the Employer or any other employment rights.

     16. No Fractional Shares

     No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any
Grant. The Company shall determine whether cash, other awards or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

-15-

 

     17. Headings

     Section headings are for reference only. In the event of a conflict between a title and the
content of a Section, the content of the Section shall control.

     18. Effective Date of the Plan

     The Plan shall be effective on                               , 2005. If required by applicable
law, continuance of the Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the manner and to the degree required under the applicable law.

     19. Information and Documents to Grantees. Prior to the date, if any, upon which the
Company Stock covered by this Plan becomes registered under the Securities Act, and if required by
the applicable laws, the Company shall provide financial statements at least annually to each
Grantee and to each individual who acquired Grants pursuant to the Plan, during the period such
Grantee has one or more Options or SARs outstanding, and in the case of an individual who acquired
shares of Company Stock pursuant to the Plan, during the period such individual owns such shares.
The Company shall not be required to provide such information if the issuance of Grants under the
Plan is limited to key employees whose duties in connection with the Company assure their access to
equivalent information.

     20. Miscellaneous

     (a) Grants in Connection with Corporate Transactions and Otherwise. Nothing contained
in this Plan shall be construed to (i) limit the right of the Company to make Grants under this
Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business or assets of any corporation, firm or association, including Grants to employees
thereof who become Employees, or for other proper corporate purposes, or (ii) limit the right of
the Company to grant stock options or make other awards outside of this Plan. Without limiting the
foregoing, the Company may make a Grant to an employee of another corporation who becomes an
Employee by reason of a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company, the parent or any of their subsidiaries in
substitution for a stock option or Stock Awards grant made by such corporation. The terms and
conditions of the substitute grants may vary from the terms and conditions required by the Plan and
from those of the substituted stock incentives. The Company shall prescribe the provisions of the
substitute grants.

     (b) Compliance with Law. The Plan, the exercise of Options and SARs, and the
obligations of the Company to issue or transfer shares of Company Stock under Grants shall be
subject to all applicable laws and to approvals by any governmental or regulatory agency as may be
required. With respect to persons subject to Section 16 of the Exchange Act it is the intent of the
Company that the Plan and all transactions under the Plan comply with all applicable provisions of
Rule 16b-3 or its successors under the

-16-

 

Exchange Act. In addition, it is the intent of the Company that the Plan and applicable Grants
under the Plan comply with the applicable provisions of Section 162(m) of the Code and Section 422
of the Code. To the extent that any legal requirement of Section 16 of the Exchange Act or Section
162(m) or 422 of the Code as set forth in the Plan ceases to be required under Section 16 of the
Exchange Act or Section 162(m) or 422 of the Code, that Plan provision shall cease to apply. The
Company may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Company may also adopt rules regarding the
withholding of taxes on payments to Grantees. The Company may, in its sole discretion, agree to
limit its authority under this Section.

     (c) Employees
Subject to Taxation Outside the United States. With respect to Grantees who are subject to taxation in countries other than the United States, Grants
may be made on such terms and conditions as the Company deems appropriate to comply with the laws
of the applicable countries, and the Company may create such procedures, addenda and subplans and
make such modifications as may be necessary or advisable to comply with such laws.

     (d) Governing
Law. The validity, construction, interpretation, and effect of the Plan
and Grant Instruments issued under the Plan shall be governed and construed by and determined in
accordance with the laws of the State of California, without giving effect to the conflict of laws
provisions thereof.

     Volcano Corporation

     /s/ Scott Huennekens

-17-exv10w4

 

Exhibit 10.4

Loan and Security Agreement

     This LOAN AND SECURITY AGREEMENT dated the Effective Date between SILICON VALLEY BANK
(“Bank”), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and VOLCANO
THERAPEUTICS, INC., a Delaware corporation (“Borrower”), whose address is 26061 Merit Circle,
Suite 103, Laguna Hills, California 92653, provides the terms on which Bank will lend to Borrower
and Borrower will repay Bank. The parties agree as follows:

1. ACCOUNTING AND OTHER TERMS.

     Accounting terms not defined in this Agreement will be construed following GAAP.
Calculations and determinations must be made following GAAP. The term “financial statements”
includes the notes and schedules. The terms “including” and “includes” always mean “including (or
includes) without limitation,” in this or any Loan Document.

2. LOAN AND TERMS OF PAYMENT.

2.1. Promise to Pay.

     Borrower promises to pay Bank the unpaid principal amount of all Credit Extensions and
interest on the unpaid principal amount of the Credit Extensions.

2.1.1. Revolving Advances.

     (a) Bank will make Advances not exceeding the Credit Limit shown on Schedule 1. Amounts
borrowed under this Section may be repaid and reborrowed during the term of this Agreement.

     (b) To obtain an Advance, Borrower must notify Bank by facsimile or telephone by 12:00
p.m. Pacific time on the Business Day the Advance is to be made. Borrower must promptly confirm the
notification by delivering to Bank the Payment/Advance Form attached as Exhibit B. Bank will credit
Advances to Borrower’s deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without instructions if the
Advances are necessary to meet Obligations which have become due. Bank may rely on any telephone
notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will
indemnify Bank for any loss Bank suffers due to such reliance.

     (c) The Committed Revolving Line terminates on the Revolving Maturity Date, when all Advances
are immediately payable.

2.1.2. Letters of Credit Sublimit.

     Bank will issue or have issued letters of credit (the “Letters of Credit”) for Borrower’s
account not exceeding the amount shown on Schedule 2. Borrower shall secure all of Borrower’s
reimbursement obligations relating to all outstanding Letters of Credit by unencumbered cash on
terms acceptable to Bank on or before the Revolving Maturity Date if the term of this Agreement
is not extended by Bank. Borrower agrees to execute any further documentation in connection with
the Letters of Credit as Bank may reasonably request.

2.1.3. Foreign Exchange Sublimit.

     If there is availability under the Committed Revolving Line and the Borrowing Base for the
making of an Advance in the amount of the applicable FX Reserve relating to the proposed FX Forward
Contract, then Borrower may enter into foreign exchange forward contracts with the Bank under which
Borrower commits to purchase from or sell to Bank a set amount of foreign currency more than one
business day

 

 

after the contract date (the “FX Forward Contract”). Bank will subtract 10% of each outstanding FX
Forward Contract from the foreign exchange sublimit which is set forth in Schedule 2 (the “FX
Reserve”). The total FX Forward Contracts at any one time may not exceed 10 times the amount of the
FX Reserve. Bank may terminate the FX Forward Contracts if an Event of Default occurs.

2.1.4 Cash Management Services Sublimit.

     Borrower may use up to the amount shown on Schedule 2 (the “Cash Management Services
Sublimit”) for Bank’s cash management services, which may include merchant services,
direct deposit of payroll, business credit card, and check cashing services identified in
various cash management services agreements related to such services (the “Cash Management
Services”). The aggregate amounts utilized under the Cash Management Services Sublimit
will at all times reduce the amount otherwise available to be borrowed under the Committed
Revolving Line and new Cash Management Services may be extended only if the amount of such
proposed new extension of such services would otherwise be available for the making of an
Advance in such amount. Any amounts Bank pays on behalf of Borrower or any amounts that
are not paid by Borrower for any Cash Management Services will be treated as Advances
under the Committed Revolving Line and will accrue interest at the rate for Advances.

2.2. Overadvances.

     If Borrower’s Obligations under Section 2.1.1, 2.1.2, 2.1.3 or 2.1.4 exceed the applicable
lending limitations set forth above whether with respect to any specific sublimit provisions or
otherwise in the aggregate, Borrower must immediately pay Bank any such excess.

2.3. Interest Rate, Payments.

     (a) Interest Rate. Advances accrue interest on the outstanding principal balance at
the interest rate set forth on Schedule 2. After an Event of Default, Obligations accrue
interest at 5 percent above the rate effective immediately before the Event of Default. The
interest rate increases or decreases when the Prime Rate changes. Interest is computed on a
360 day year for the actual number of days elapsed.

     (b) Payments. Interest due on the Committed Revolving Line is payable on the first day
of each month. Bank may debit any of Borrower’s deposit accounts maintained with Bank,
including the Accounts shown on Schedule 1 for principal and interest payments owing or any
amounts Borrower owes Bank. Bank will promptly notify Borrower when it debits Borrower’s
accounts. These debits are not a set-off. Payments received after 12:00 noon Pacific time
are considered received at the opening of business on the next Business Day. When a payment
is due on a day that is not a Business Day, the payment is due the next Business Day and
additional fees or interest accrue.

2.4. Fees.

     Borrower will pay:

     (a) Facility Fee. A fully earned, non refundable Facility Fee in the amount shown on
Schedule 2, which shall be due on the Closing Date; and

     (b) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
reasonable expenses) incurred through and after the date of this Agreement, are payable when
due.

3. CONDITIONS OF LOANS.

3.1. Conditions Precedent to Initial Credit Extension.

2

 

     Bank’s obligation to make the initial Credit Extension is subject to the condition precedent
that it receive the agreements, documents and fees it re quires in order to effectuate the
purposes of this Agreement and related transactions and such other items as the Bank may
reasonably determine are necessary or advisable in connection herewith.

3.2. Conditions Precedent to all Credit Extensions.

     Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is
subject to the following:

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

     (b) The representations and warranties in Section 5 must be true (subject to the materiality
provisions in Section 5) on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or result from the
Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that
the representations and warranties of Section 5 remain true.

4. CREATION OF SECURITY INTEREST.

4.1. Grant of Security Interest.

     Borrower grants Bank a continuing security interest in all presently existing and later
acquired Collateral to secure all Obligations and performance of each of Borrower’s duties under
the Loan Documents, Except for Permitted Liens, the Bank will, at all times, have a first-priority
security interest in all of the Collateral. Bank’s lien and security interest in the Collateral
will continue until Borrower fully satisfies its Obligations, and all obligations of the Bank to
make Advances or otherwise extend credit accommodations have terminated.

4.2. Authorization to File Financing Statements.

     Borrower authorizes Bank to file financing statements without notice to Borrower, with all
appropriate jurisdictions, as Bank deems appropriate, in order to perfect or protect Bank’s
interest in the Collateral.

5. REPRESENTATIONS AND WARRANTIES.

     Borrower represents and warrants that the following statements are true and correct on
the date hereof and Borrower covenants that the following statements will continue to be true and
correct throughout the term of this Agreement and so long as any Obligations are outstanding:

5.1. Due Organization and Authorization.

     Borrower and each of its Subsidiaries is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in good standing in, any state in
which the conduct of its business or its ownership of property requires that it be qualified,
except where the failure to do so could not reasonably be expected to cause a Material Adverse
Change. Borrower has not changed its state of formation or its organizational structure or type or
any organizational number (if any) assigned by its jurisdiction of formation.

     The execution, delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with Borrower’s formation documents, nor constitute an event of default under any
material agreement by which Borrower is bound. Borrower is not in default under any agreement to
which it is a

3

 

party or by which it is bound in which the default could reasonably be expected to cause a
Material Adverse Change.

5.2. Collateral.

     Borrower has good title to the Collateral and the Intellectual Property, free of Liens
except Permitted Liens and the pledge of specific patents of the Borrower (having registered
patent numbers in the United States Patent and Trademark Office of 5,871,449; 5,924,997;
6,245,026; and 6,536,949) in connection with the Guaranty dated July 3, 2003 by Borrower given to
Philips Electronics N.V. relating to indebtedness of Pacific Rim Medical Ventures Corp. owing to
Philips Electronics N.V. (such Lien being referred to herein as the “Philips Lien” and
such guaranty being the “Philips Guaranty”) Borrower has no other deposit account, other than the
deposit accounts described on Schedule 1. Each Account with respect to which Advances are
requested by Borrower shall, on the date each Advance is requested and made, represent an
undisputed bona fide existing unconditional obligation of the account debtor created by the sale,
delivery, and acceptance of goods or the rendition of services in the ordinary course of
Borrower’s business. The Collateral is not in the possession of any third party bailee (such as
at a warehouse). In the event that Borrower, after the date hereof, intends to store or otherwise
deliver the Collateral to such a bailee, then Borrower will receive the prior written consent of
Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral for
the benefit of Bank. Borrower has no notice of any actual or imminent Insolvency Proceeding of
any account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. All
Inventory is in all material respects of good and marketable quality, free from material defects.
Borrower is the sole owner of the Intellectual Property, except for non-exclusive licenses
granted to its customers in the ordinary course of business. Each Patent is, to the best of
Borrower’s knowledge, valid and enforceable and no part of the Intellectual Property has been
judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party, except to the extent such claim
could not reasonably be expected to cause a Material Adverse Change.

5.3. Litigation.

     Except as shown in Schedule 1 hereto, there are no actions or proceedings pending or, to the
knowledge of Borrower’s Responsible Officers and legal counsel, threatened by or against Borrower
or any Subsidiary, which could result in damages or costs to Borrower or any Subsidiary of
$100,000 or more, or in which an adverse decision could reasonably be expected to cause a Material
Adverse Change.

5.4. No Material Adverse Change in Financial Statements.

     All consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank
fairly present in all material respects Borrower’s consolidated financial condition and
Borrower’s consolidated results of operations. There has not been any material deterioration in
Borrower’s consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

5.5. Regulatory Compliance.

     Borrower is not an “investment company” or a company “controlled” by an “investment company”
under the Investment Company Act. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of
Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards
Act. Borrower has not violated any laws, ordinances or rules, the violation of which could
reasonably be expected to cause a Material Adverse Change. None of Borrower’s or any Subsidiary’s
properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s
knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally. Borrower and each Subsidiary has timely filed all
required tax returns and paid, or made

4

 

adequate provision to pay, all material taxes, except those being contested in good faith
with adequate reserves under GAAP and which do not result in any tax lien on any of the Collateral
or the Intellectual Property. Borrower and each Subsidiary have obtained all consents, approvals
and authorizations of, made all declarations or filings with, and given all notices to, all
government authorities that are necessary to continue its business as currently conducted, except
where the failure to do so could not reasonably be expected to cause a Material Adverse Change.

5.6. Subsidiaries.

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

5.7. Representations; Full Disclosure.

     The information in the Representations previously submitted to Bank continues to be true and
correct as of the date hereof. No written representation, warranty or other statement of Borrower
in any certificate or written statement given to Bank (taken together with all such written
certificates and written statements to Bank) contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained in the certificates or
statements not misleading.

6. AFFIRMATIVE COVENANTS.

     Borrower will do all of the following for so long as Bank has an obligation to lend, or
there are outstanding Obligations:

6.1. Government Compliance.

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

6.2. Financial Statements, Reports, Certificates.

     (a) Borrower will deliver to Bank: (i) as soon as available, but no later than 30 days after
the last day of each month, a company prepared consolidated balance sheet and income statement
covering Borrower’s consolidated operations during the period certified by a Responsible Officer
and in a form acceptable to Bank; (ii) as soon as available, but no later than 30 days after the
last day of each quarter, a company prepared consolidating balance sheet covering Borrower’s
operations during such period and certified by a Responsible Officer and otherwise in a form
acceptable to Bank; (iii) as soon as available, but no later than 120 days after the last day of
Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial statements from an
independent certified public accounting firm reasonably acceptable to Bank; (iii) a prompt report
of any legal actions pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000 or more, or in which an adverse
decision could reasonably be expected to cause a Material Adverse Change; (iv) budgets, sales
projections, operating plans or other financial information Bank reasonably requests; and (v)
prompt notice of any material change in the composition of the Intellectual Property, including
any subsequent ownership right of Borrower in or to any copyright, patent or trademark not shown
in any intellectual property security agreement between Borrower and Bank or knowledge of an event
that materially adversely affects the value of the Intellectual Property.

5

 

     (b) Within 20 days after the last day of each month when any Credit Extensions are outstanding or
at the time of request for a Credit Extension when no other Credit Extensions are then outstanding,
Borrower will deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in the
form of Exhibit C, with aged listings (by invoice date) of accounts receivable and accounts
payable.

     (c) Within 30 days after the last day of each month, Borrower will deliver to Bank with the
monthly financial statements a Compliance Certificate signed by a Responsible Officer in the form
of Exhibit D.

     (d) Allow Bank to audit Borrower’s Collateral at Borrower’s expense. Such audits will be
conducted no more often than every 6 months, unless an Event of Default or an event which, with
notice or passage of time or both would constitute an Event of Default, has occurred and is
continuing.

6.3. Inventory; Returns.

     Borrower will keep all Inventory in good and marketable condition, free from material defects.
Returns and allowances between Borrower and its account debtors will follow Borrower’s customary
practices as they exist at execution of this Agreement. Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims, that involve more than $50,000.

6.4. Taxes.

     Borrower will make, and cause each Subsidiary to make, timely payment of all material
federal, state, and local taxes or assessments (except for taxes or assessments being contested in
good faith with adequate reserves under GAAP and which do not result in any tax lien on any of the
Collateral) and will deliver to Bank, on demand, appropriate certificates attesting to the
payment.

6.5. Insurance.

     Borrower will keep its business, the Collateral and the Intellectual Property insured for
risks, and in amounts, as Bank may reasonably request. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank in Bank’s reasonable discretion and is
customary for the industry in which Borrower operates where commercial lenders have extended
secured credit facilities. All property policies will have a lender’s loss payable endorsement
showing Bank as an additional loss payee, to the extent of its insurable interest therein, and all
liability policies will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy. At Bank’s request, Borrower will
deliver certified copies of policies and evidence of all premium payments. Proceeds payable under
any policy will, at Bank’s option and to the extent of Bank’s insurable interest, be payable to
Bank on account of the Obligations.

6.6. Primary Accounts.

     Borrower will maintain its primary depository and investment accounts with Bank, which
relationship shall include Borrower maintaining account balances in any accounts at or through
Bank representing at least 70% of all account balances of Borrower at any financial institution.
Within 60 days of the date hereof, Borrower will cause the institutions where any Deposit Accounts
outside of the Bank are maintained to execute and deliver to Bank control agreements in form
sufficient to perfect Silicon’s security interest in the Deposit Accounts and which are otherwise
satisfactory to Bank in its good faith business judgment. Further, Borrower will give Bank five
Business Days advance written notice before establishing any new Deposit Account and will cause
the institution where any such new Deposit Account is maintained to execute and deliver to Bank a
control agreement in form sufficient to perfect Bank’s security interest therein and which is
otherwise satisfactory to Silicon in its good faith business judgment.

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6.7. Financial Covenants.

     Borrower will comply with the financial covenants set forth on Schedule 2.

6.8. Registration of Intellectual Property Rights/Proceeds Resulting In Collateral.

     Borrower has no present maskworks, software, computer programs and other works of authorship
registered with the United States Copyright Office, and Borrower shall not hereafter register any
maskworks, software, computer programs or other works of authorship subject to United States
copyright protection with the United States Copyright Office that result in Collateral, either
directly or as proceeds thereof, without first complying with the following: (i) providing Bank
with at least 15 days prior written notice thereof, (ii) providing Bank with a copy of the
application for any such registration and (iii) executing and filing such other instruments, and
taking such further actions as Bank may reasonably request from time to time to perfect or continue
the perfection of Bank’s interest in the Collateral, including without limitation the filing with
the United States Copyright Office of a security agreement with respect to proceeds of Intellectual
Property, simultaneously with the filing by Borrower of the application for any such registration,
of a copy of this Agreement or a Supplement hereto in form acceptable to Bank identifying the
maskworks, software, computer programs or other works of authorship being registered and confirming
the grant of a security interest therein in favor of Bank.

     Further, Borrower shall inform Bank promptly of any registration of its Intellectual Property
assets in the United States Patent and Trademark Office and take such actions and execute such
documentation as Bank may deem necessary or advisable relating thereto in order for Bank to
protect its interest the Collateral that may arise as proceeds of any such Intellectual Property
items.

     Borrower will (i) protect, defend and maintain the validity and enforceability of the
Intellectual Property and promptly advise Bank in writing of material infringements and (ii) not
allow any Intellectual Property to be abandoned, forfeited or dedicated to the public without
Bank’s written consent.

6.9. Further Assurances.

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

7. NEGATIVE COVENANTS.

     Borrower will not do any of the following without Bank’s prior written consent, which
will not be unreasonably withheld, for so long as Bank has an obligation to lend and there are any
outstanding Obligations:

7.1. Dispositions.

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

7.2. Changes in Business, Non-Ordinary Course Transactions, Ownership, Management or Locations of
Collateral.

     Engage in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto, or enter into any
transaction outside the ordinary course of business, or permit there to be a change in the
record or beneficial ownership of an aggregate of more than 30% of the outstanding shares of stock
of Borrower, in one or more transactions,

7

 

compared to the ownership of outstanding shares of stock of Borrower in effect on the date
hereof (other than by the sale of Borrower’s equity securities in a public offering or to venture
capital investors so long as Borrower identifies to the Bank, in writing, the venture capital
investors prior to the closing of the investment). Borrower will not, without at least 30 days
prior written notice to the Bank, relocate its chief executive office, change its state of
formation (including reincorporation), change its organizational number or name or add any new
offices or business locations (including warehouses) in which Borrower maintains or stores over
$5,000 in Collateral.

7.3. Mergers or Acquisitions.

     Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any
other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of
the capital stock or property of another Person, except a Subsidiary may merge or consolidate into
another Subsidiary or into Borrower if no Default or Event of Default has occurred and is
continuing or would result from such action.

7.4. Indebtedness.

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

7.5. Encumbrance.

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

7.6. Distributions; Investments.

     Directly or indirectly acquire or own any Person, or make any Investment in any Person, other
than Permitted Investments, or permit any of its Subsidiaries to do so. Pay any dividends (other
than dividends payable solely in stock of the Borrower) or make any distribution or payment or
redeem, retire or purchase any capital stock, except for the repurchase of stock from employees,
consultants and like Persons pursuant to company-approved repurchase agreements provided that the
aggregate amount allowed to be repurchased in any fiscal year shall not exceed $75,000 and no such
repurchase shall be permitted to be effected in any event while any Default or Event of Default is
then outstanding.

7.7. Transactions with Affiliates.

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

7.8. Subordinated Debt.

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

7.9 No Further Negative Pledge Agreements. Without limitation of any other term or condition set
forth herein or in any other Loan Document, Borrower shall not enter into any agreements or
transactions

8

 

in which, or otherwise with respect to which, Borrower agrees not to encumber or create a Lien
regarding its Intellectual Property assets.

7.10 Compliance.

     Become an “investment company” or a company controlled by an “investment company,” under the
Investment Company Act of 1940 or undertake as one of its important activities extending credit to
purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could reasonably be expected to have a
material adverse effect on Borrower’s business or operations or would reasonably be expected to
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.

8. EVENTS OF DEFAULT.

     Any one of the following is an Event of Default:

8.1. Payment Default.

     If Borrower fails to pay any of the Obligations within 3 days after their due date.

8.2. Certain Defaults.

     If Borrower (i) fails to provide the financial statements called for by Section 6.2 hereof or
by any other provisions of this Agreement, within the time therein provided; or (ii) Borrower
breaches any of the financial covenants set forth in Section 6.7
of this Agreement; or (iii) fails
to perform or comply with any other term, condition or covenant in any other agreement between
Borrower and Bank which is not cured within any cure period provided in such agreement.

8.3. Other Defaults.

     If Borrower fails to perform or comply with any other term, condition or covenant in this
Agreement (other than as set forth in Section 8.1 or 8.2 above), and such failure is not cured
within 30 days after the date it occurs

8.4. Material Adverse Change.

     A Material Adverse Change occurs.

8.5. Attachment.

     If any of Borrower’s assets having a value in the aggregate of more than $50,000 is attached,
seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure
or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court
order from conducting a material part of its business or if a judgment or other claim becomes a
Lien on a material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is
filed against any of Borrower’s assets by any government agency and not paid within 10 days after
Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending
contest by Borrower;

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8.6.
Insolvency

     If Borrower fails to pay its debts generally as they mature, or if Borrower begins an
Insolvency Proceeding, or if an Insolvency Proceeding is begun against Borrower and not dismissed
or stayed within 30 days;

8.7. Other Agreements.

     If there is a default in any agreement between Borrower and a third party that gives the
third party the right to accelerate any Indebtedness exceeding $100,000 or that could cause a
Material Adverse Change;

8.8 Judgments.

     If a money judgment(s) in the aggregate of at least $50,000 is rendered against Borrower and
is unsatisfied and unstayed for 10 days;

8.9. Misrepresentations.

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

8.10. Guaranty.

     Any guaranty of any Obligations ceases for any reason to be in full force or any Guarantor
does not perform any obligation under any guaranty of any of the Obligations, or any material
misrepresentation or material misstatement exists now or later in any
warranty or representation in any guaranty of the Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.5, 6 or 8 occurs to any Guarantor.

     No Credit Extensions will be made during any of the cure periods set forth in Sections
8.1-8.10 above.

9. BANK’S RIGHTS AND REMEDIES.

9.1. Rights and Remedies.

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

     (a) Declare all Obligations immediately due and payable (but if an Event of Default described
in Section 8.6 occurs all Obligations are immediately due and payable without any action by Bank);

     (b) Stop advancing money or extending credit for Borrower’s benefit under this Agreement or
under any other agreement between Borrower and Bank and terminate the Committed Revolving Line;

     (c) Settle or adjust disputes and claims directly with account debtors for amounts, on terms
and in any order that Bank considers advisable;

     (d) Make any payments and do any acts it considers necessary or reasonable to protect its
security interest in the Collateral. Borrower will assemble the Collateral if Bank requires and
make it available as Bank designates. Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or
compromise any Lien which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower

10

 

grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of
Bank’s rights or remedies;

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

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

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

9.2. Power of Attorney.

     Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints
Bank as its lawful attorney to: (i) endorse Borrower’s name on any checks or other forms of
payment or security; (ii) sign Borrower’s name on any invoice or bill of lading for any Account
or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower’s
insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the
Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the
power of attorney to sign Borrower’s name on any documents necessary to perfect or continue the
perfection of any security interest regardless of whether an Event of Default has occurred.
Bank’s appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, are
coupled with an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank’s obligation to provide Credit Extensions terminates.

9.3. Accounts Collection.

     When an Event of Default occurs and continues, Bank may notify any Person owing Borrower
money of Bank’s security interest in the funds and demand payment of, and collect any Accounts,
general intangibles and other Collateral, and, in connection therewith, Borrower irrevocably
authorizes Bank to endorse or sign Borrower’s name on all collections, receipts, instruments and
other documents, and, in Bank’s good faith business judgment, to grant extensions of time to pay,
compromise claims and settle Accounts and general intangibles for less than face value. When an
Event of Default occurs and continues, Borrower shall collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form received from the
account debtor, with proper endorsements for deposit.

9.4. Bank Expenses.

     If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any
premium thereon or fails to pay any other amount, which Borrower is obligated to pay under this
Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and
all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest
at the then applicable rate and secured by the Collateral. No payments by Bank shall be deemed an
agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.5. Bank’s Liability for Collateral.

     If Bank complies with reasonable banking practices and Section 9207 of the Code, it is not
liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c)
any diminution in

11

 

the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6. Remedies Cumulative.

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

9.7. Demand Waiver.

     Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.

9.8. Asset Based Terms.

     Without limiting Bank’s other rights and remedies, if an Event of Default under Section
8.2(ii) occurs, the provisions of Exhibit E hereto (the “Asset Based Terms”) shall be effective
upon written notice by Bank to the Borrower.

10. NOTICES.

     All notices or demands by any party about this Agreement or any other related agreement must
be in writing and be personally delivered or sent by an overnight delivery service, by certified
mail, postage prepaid, return receipt requested, or by fax to the addresses set forth at the
beginning of this Agreement and, in the case of notices by fax, to the latest fax number a party
has for the other party. A party may change its notice address by giving the other party written
notice.

11.
CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.

     California law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in
Orange County, California.

     BORROWER AND BANK EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN BANK AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF
BANK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH BANK OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO
THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12. GENERAL PROVISIONS

12.1. Successors and Assigns.

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

12.2. Indemnification.

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

12.3. Time of Essence.

     Time is of the essence for the performance of all obligations in this Agreement.

12.4. Severability of Provision.

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

12.5. Amendments in Writing, Integration.

     All amendments to this Agreement must be in writing and signed by Borrower and Bank. This
Agreement represents the entire agreement about this subject matter, and supersedes prior
negotiations or agreements. All prior agreements, understandings, representations, warranties, and
negotiations between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents.

12.6. Counterparts.

     This Agreement may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, are an original, and all taken
together, constitute one Agreement.

12.7. Survival.

     All covenants, representations and warranties made in this Agreement continue in full force
while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify
Bank will survive until all statutes of limitations for actions that may be brought against Bank
have run.

12.8. Confidentiality.

     In handling any confidential information, Bank will exercise the same degree of care that it
exercises for its own proprietary information, but disclosure of information may be made (i) to
Bank’s subsidiaries or affiliates in connection with their business with Borrower, (ii) to
prospective transferees or purchasers of any interest in the loans (provided, however, Bank shall
use commercially reasonable efforts in obtaining such prospective transferee or purchasers
agreement of the terms of this provision), (iii) as required by law, regulation, subpoena, or
other order, (iv) as required in connection with Bank’s examination or audit and (v) as Bank
considers appropriate exercising remedies under this Agreement. Confidential information does not
include information that either: (a) is in the public domain in Bank’s

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possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank;
or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.

12.9. Attorneys’ Fees, Costs and Expenses.

     In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the
prevailing party will be entitled to recover its reasonable attorneys’ fees and other reasonable
costs and expenses incurred, in addition to any other relief to which it may be entitled.

12.9. Conflict With Other Agreements.

     In the event of a conflict between any provision of this Agreement and any provision of the
any of the Existing Loan Agreements or any other document, instrument or agreement between
Borrower, on the one hand, and Bank or any other division or affiliate of Bank on the other hand,
Bank shall determine in its sole discretion which provision shall apply.

13. DEFINITIONS.

13.1. Definitions.

     In this Agreement:

     “Accounts” is defined on Exhibit A hereto.

     “Advance” or “Advances” is a loan advance (or advances) under the Committed Revolving Line.

     “Affiliate” means (I) any of Borrower’s officers or directors, and if Borrower is a limited
liability company, Borrower’s managers and members, and if Borrower is a partnership, Borrower’s
general and limited partners; (ii) a Person that, directly or indirectly, owns or controls, is
controlled by or is under common control with Borrower, and any of such person’s officers or
directors, and if such person is a limited liability company, such person’s managers and members,
and if such person is a partnership, such person’s general and limited partners.

     “Bank Expenses” are all audit fees and expenses and reasonable costs and expenses (including
reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including appeals or Insolvency Proceedings), or otherwise relating
to Borrower or the Loan Documents, including, but not limited to, any reasonable attorneys’ fees
and costs Bank incurs in order to do the following: obtain legal advice in connection with this
Agreement or Borrower; enforce, or seek to enforce, any of Bank’s rights; prosecute actions
against, or defend actions by, account debtors; commence, intervene in, or defend any action or
proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or
prosecute any bankruptcy claim, third-party claim, or other claim; protect, obtain possession of,
lease, dispose of, or otherwise enforce Bank’s security interest in, the Collateral; and otherwise
represent Bank in any litigation relating to Borrower.

     “Borrower’s Books” are all Borrower’s books and records including ledgers, records regarding
Borrower’s assets or liabilities, the Collateral, business operations or financial condition and
all computer programs or discs or any equipment containing the information.

     “Borrowing Base” is as set forth in Schedule 2.

     “Business Day” is any day that is not a Saturday, Sunday or a day on which the Bank is
closed.

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     “Cash Management Services Sublimit” shall have the meaning set forth in Section 2.1.4
hereof.

     “Cash Management Services” shall have the meaning set forth in Section 2.1.4 hereof.

     “Closing Date” is the date of this Agreement.

     “Code” is the California Uniform Commercial Code, in effect from time to time.

     “Collateral” is the property described on Exhibit A.

     “Committed Revolving Line” is defined in Schedule 2.

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

     “Credit Extension” is each Advance, Letter of Credit, FX Forward Contracts, Cash Management
Services utilization and each any other extension of credit by Bank for Borrower’s benefit under
and relating to this Agreement.

     “Current Liabilities” are the aggregate amount of Borrower’s Total Liabilities which mature
within one (1) year.

     “Effective Date” is the date that Bank executes this Agreement.

     “Eligible Accounts” are Accounts in the ordinary course of Borrower’s business that meet all
Borrower’s representations and warranties in Section 5; but Bank may change eligibility standards
by giving Borrower notice. Unless Bank agrees otherwise in writing, Eligible Accounts will not
include:

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

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

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

     (d) Accounts for an account debtor, including Affiliates, whose total obligations to Borrower
exceed 25% of all Accounts, for the amounts that exceed that percentage;

     (e) Accounts for which the account debtor does not have its principal place of business in the
United States, other than for the account debtors of Fukuda Intervention Systems and Goodman
Company Ltd.

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     (f) Accounts for which the account debtor is a federal, state or local government entity or any
department, agency, or instrumentality (unless there has been compliance, to Silicon’s
satisfaction, with the United States Assignment of Claims Act),;

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

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

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

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

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

     “Eligible Inventory” shall mean inventory consisting of finished goods and raw materials
which are deemed acceptable to Bank, for Advance purposes, in Bank’s sole discretion.

     “Equipment” is defined on Exhibit A hereto.

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

     “Existing Loan Agreements” shall mean that certain Loan and Security Agreement entered into by
and between Bank and Borrower dated August 27, 2001, as amended from time to time, with respect to
an equipment financing facility, as amended or otherwise modified from time to time.

     “FX Forward Contract” is defined in Section 2.1.3.

     “FX Reserve” is defined in Section 2.1.3.

     “GAAP” is generally accepted accounting principles.

     “Guarantor” is any present or future guarantor of any of the Obligations.

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

     “Insolvency Proceeding” are proceedings by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

     “Intellectual Property” is defined on Exhibit A hereto

     “Inventory” is defined on Exhibit A hereto.

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

16

 

     “Letter of Credit” is defined in Section 2.1.2.

     “Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.

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

     “Material Adverse Change” is any of the following: (i) a material adverse change in the
business, operations, or condition (financial or otherwise) of the Borrower, or (ii) a material
impairment of the prospect of repayment of any portion of the Obligations; or (iii) a material
impairment of the value or priority of Bank’s security interests in the Collateral.

     “Obligations” are debts, principal, interest, Bank Expenses and other amounts Borrower owes
Bank now or later, including cash management services, letters of credit and foreign exchange
contracts, if any and including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank.

     “Patents” are patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions and continuations in part of the same.

     “Permitted Indebtedness” is:

     (a) Borrower’s indebtedness to Bank under this Agreement, any other Loan Document or under the
Existing Loan Agreements;

     (b) Indebtedness existing on the Closing Date and shown on Schedule 1;

     (c) Subordinated Debt;

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

     (e) Indebtedness secured by Permitted Liens;

     (f) Indebtedness incurred by Subsidiaries of Borrower organized and doing business in Europe
in an aggregate amount not to exceed $500,000 in the aggregate or an equivalent amount in the
applicable local monetary unit;

     (g) A guaranty by the Borrower of the Indebtedness described in clause (f) above and limited,
in any event, to an aggregate amount of no more than $500,000 or an equivalent amount in the
applicable local monetary unit where the underlying Indebtedness is incurred;

     (h) The indebtedness represented by the Philips Guaranty.

     “Permitted Investments” are:

     (a) Investments shown on Schedule 1 and existing on the Closing Date; and

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

17

 

     “Permitted Liens” are:

     (a) Liens existing on the Closing Date and shown on Schedule 1 or arising under this Agreement
or other Loan Documents;

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

     (c) Purchase money Liens (i) on Equipment acquired or held by Borrower or its Subsidiaries
incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when
acquired, if the Lien is confined to the property and improvements and the proceeds of the
equipment;

     (d) Nonexclusive licenses and non-exclusive sublicenses granted by Borrower in the ordinary
course of its business including in connection with joint venture enterprises of Borrower;

     (e) Leases or subleases granted in the ordinary course of Borrower’s business, including in
connection with Borrower’s leased premises or leased property;

     (f) Liens given by Subsidiaries of Borrower organized and doing business in Europe with
respect to the permitted amount of indebtedness as set forth in clause (f) of the category of
Permitted Indebtedness above;

     (g) The Philips Lien; and

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

     “Person” is any individual, sole proprietorship, partnership, limited liability company,
joint venture, company association, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate, entity or government
agency.

     “Philips Guaranty” shall have the meaning ascribed to such term in Section 5.2 hereof.

     “Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s
lowest rate.

     “Quick Assets” is, on any date, the Borrower’s consolidated, unrestricted cash, cash
equivalents, net billed accounts receivable and investments with maturities of fewer than 12
months determined according to GAAP.

     “Representations” are the written Representations and Warranties of Borrower delivered via
email to the Bank on July 15, 2003.

     “Responsible Officer” is each of the Chief Executive Officer, the President, the Chief
Financial Officer and the Controller of Borrower.

     “Revolving Maturity Date” is set forth on Schedule 2.

     “Schedule 1” is Schedule 1 to this Agreement.

     “Schedule 2” is Schedule 2 to this Agreement.

18

 

     “Subordinated Debt” is debt incurred by
Borrower subordinated to Borrower’s indebtedness
owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank
and approved by Bank in writing.

     “Subsidiary” is for any Person, or any other business entity of which more than 50% of the
voting stock or other equity interests is owned or controlled, directly or indirectly, by the
Person or one or more Affiliates of the Person.

     “Tangible Net Worth” is, on any date, the consolidated total assets of Borrower and its
Subsidiaries minus, (i) any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, Patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, and (c) reserves not already deducted
from assets, and (ii) Total Liabilities.

     “Total Liabilities” is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current
portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt.

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

	 	 	 	 	 	 	 
	 	 	BORROWER:	 	 
	 
	 	 	 	 	 	 
	 	 	VOLCANO THERAPEUTICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Scott Huennekens
 

	 	 
	 	 	Name Scott Huennekens	 	 
	 	 	Title   Pres. & CEO	 	 
	 
	 	 	 	 	 	 
	 	 	BANK:	 	 
	 
	 	 	 	 	 	 
	 	 	SILICON VALLEY BANK	 	 
	 
	 

	 	By
	 	/s/ Richard Shuttleworth	 	 
	 

	 	 	 	 	 	 
	 	 	Title Senior Vice President	 	 

Effective Date: July 18, 2003

Version:
—1 dated 7/23/02

19

 

EXHIBIT A 

Collateral

     “Collateral” means of all of Borrower’s right, title and interest in and to the
following whether owned now or hereafter acquired or arising, and wherever located: all
Accounts; all Inventory; all Equipment; all Deposit Accounts; all General Intangibles; all
Investment Property; all Other Property; and any and all claims, rights and interests in any
of the foregoing, and all guaranties and security for any of the foregoing, and all
substitutions and replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies, proceeds of
proceeds and claims against third parties) of, all of the foregoing, and all Borrower’s books
relating to any of the foregoing; provided, however, the Collateral shall not include
Intellectual Property, provided, further, notwithstanding the exclusion of the
Intellectual Property from the scope of the definition of Collateral hereunder, any and all
proceeds of the Intellectual Property (regardless of form but not including proceeds in the
direct form of Intellectual Property itself) shall be specifically included in the definition
of Collateral hereunder, provided, further, that if a judicial authority (including a
U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property
is necessary to have a security interest in such items that are proceeds of the Intellectual
Property including, without limitation, proceeds consisting of payment intangibles, accounts,
license revenues, or general intangibles relating to rights to payment arising therefrom or
relating thereto, then in such circumstance, the Collateral shall automatically, and effective
as of the date hereof, include the Intellectual Property only to the extent necessary to
permit perfection of Bank’s security interest in such proceeds, including, without limitation,
in proceeds consisting of payment intangibles, accounts, license revenues, or general
intangibles relating to rights to payment.

As used in this Agreement and in this Exhibit, the following terms have the following meanings:

“Accounts” means all present and future “accounts” as defined in the Code in effect on
the date hereof with such additions to such term as may hereafter be made, and
includes without limitation all accounts receivable and other sums owing to Borrower.

“Deposit Accounts” means all present and future “deposit accounts” as defined in the
Code in effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation all general and special bank accounts, demand
accounts, checking accounts, savings accounts and certificates of deposit, whether
maintained with Bank or other institutions

“Equipment” means all present and future “equipment” as defined in the Code in effect
on the date hereof with such additions to such term as may hereafter be made, and
includes without limitation all machinery, fixtures, goods, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing.

“General Intangibles” means all present and future “general intangibles” as defined in
the Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer lists,
route lists, telephone numbers, domain names, claims, income tax refunds, security and
other deposits, options to purchase or sell real or personal property, rights in all
litigation presently or hereafter pending (whether in contract, tort or otherwise),
insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of any
kind.

“Inventory” means all present and future “inventory” as defined in the Code in effect on
the date hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and shipping
materials, work in process

 

 

and finished products, including without limitation such inventory as is out of Borrower’s
custody or possession or in transit and including any returned goods and any documents of title
representing any of the above.

“Intellectual Property” means all present and future (a) copyrights, copyright rights, copyright
applications, copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, (b) trade secret rights, including all
rights to unpatented inventions and know how, and confidential information; (c) mask work or
similar rights available for the protection of semiconductor chips; (d) patents, patent
applications and like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the same; (e)
trademarks, servicemarks, trade styles, and trade names, whether or not any of the foregoing are
registered, and all applications to register and registrations of the same and like protections,
and the entire goodwill of the business of Borrower connected with and symbolized by any such
trademarks; (f) computer software and computer software products; (g) designs and design rights;
and (h) all licenses or other rights to use any property or rights of a type described above.

“Investment Property” means all present and future investment property, securities, stocks, bonds,
debentures, debt securities, partnership interests, limited liability company interests, options,
security entitlements, securities accounts, commodity contracts, commodity accounts, and all
financial assets held in any securities account or otherwise, wherever located, and all other
securities of every kind, whether certificated or uncertificated,

“Other Property” means (i) the following as defined in the Code in effect on the date hereof with
such additions to such term as may hereafter be made, and all rights relating thereto: all present
and future “commercial tort claims”, “documents”, “instruments”, “promissory notes”, “chattel
paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm products” and “money”;
and (ii) all other goods and personal property of every kind, tangible and intangible, whether or
not governed by the Code.

21

 

EXHIBIT B

LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.S.T.

Fax To:                             
                                

                     
                   
Date:   
                     
                      
               

o LOAN PAYMENT:
                                                                      
                    
           Client Name (Borrower)

From Account #           
                                                                       To Account #                                        

                      
        (Deposit Account #)            
                      
                      
                (Loan Account #)

Principal $           
          
and/or Interest $          
                      
         

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

Authorized Signature:          
                     
                  
   Phone Number:                  
                     
  

o LOAN ADVANCE:

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan
advance are for an outgoing wire.

From Account #           
                      
                       
                       
   To Account #                 
                      
  

                       
       (Loan Account
#)                 
                       
                       
               (Deposit Account #)

Amount of
Advance $          
                     
          

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

Authorized
Signature:                                         
          
Phone Number:         
                                

OUTGOING WIRE REQUEST

Complete only if all or a portion of funds from the loan advance above are to be wired.

Deadline for same day processing is 12:00 p.m., P.S.T.

Beneficiary
Name:       
                      
                        
       Amount of Wire: $              
                     
      

Beneficiary Bank:                 
                    
                   
    Account Number:                  
                            

City and Sate:                                              

Beneficiary Bank Transit (ABA) #:                  
                      
 

Beneficiary
Bank Code (Swift, Sort, Chip, etc.):                                         

(For International Wire Only)

Intermediary
Bank:           
                      
                       
      Transit (ABA) #:               
                      
    

For Further Credit to:                    
                                      
                      
                      
                      
             

Special Instruction:                    
                                          
                      
                      
                                   

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

	 	 	 	 	 	 	 	 	 
	Authorized Signature:

	 	 	 	 	 	2nd Signature (If Required):	 	 
	 Print
Name/Title:

	 	 

	 	 	 	Print Name/Title:
	 	 
 
	 Telephone
#

	 	 

	 	 	 	Telephone #
	 	 
 
	 

	 	 

	 	 	 	 	 	 
 

 

 

Schedule 1 to Loan and Security Agreement

The exact correct corporate name of Borrower is (attach a copy of the formation documents, e.g.,
articles, partnership agreement): See Representations

Borrower’s State of formation: See Representations

Borrower has operated under only the following other names (if none, so
state): See Representations

All other address at which the Borrower does business are as follows (attach additional sheets if
necessary and include all warehouse addresses):

See Representations

Borrower has deposit accounts and/or investment accounts located only at the following
institutions:

See Representations

List Acct. Numbers: See Representations

Liens existing on the Closing Date and disclosed to and accepted by Bank in
writing:

Permitted Liens are set forth in the Loan Agreement

Subordinated
Debt:

Indebtedness on the Closing Date and disclosed to and consented to by Bank in writing:

Indebtedness outstanding in favor of DP V Associates LP and Domain Partners V LP in the
approximate
aggregate amount of $2,000.000

The following is a list of the Borrower’s copyrights (including copyrights of software) which are
registered with the United States Copyright Office. (Please include name of the copyright and
registration number and attach a copy of the registration:

See Representations

The following is list of all software which the Borrower sells, distributes or licenses to others,
which is not registered with the United States Copyright Office. (Please include versions
which are not registered:

See Representations

The following is a list of all of the Borrower’s patents which are registered with the United
States Patent
Office. (Please include name of the patent and registration number and attach a copy of the
registration.):

See Representations

The following is a list of all of the Borrower’s patents which are pending with the United States
Patent Office. (Please include name of the patent and a copy of the application):
 See
Representations

The following is a list of all of the Borrower’s registered trademarks. (Please include name of
the trademark and a copy of the registration.):

See Representations

Borrower is not subject to litigation which would have a material adverse effect on the Borrower’s
financial
condition, except the following (attach additional comments, if needed):

None

Tax ID Number: 33-0928885

Organizational
Number, if any:                     

 

 

EXHIBIT C

BORROWING BASE CERTIFICATE

	 	 	 
	Borrower: VOLCANO THERAPEUTICS, INC.

	 	Bank: Silicon Valley Bank
	 

	 	3003 Tasman Drive
	 

	 	Santa Clara, CA 95054

Commitment Amount: $6,000,000

	 	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE	 	 	 	 
	1.

	 	Accounts Receivable Book Value as of
	 	 	 	$          
	 

	 	 	 	 	 	 
	2.

	 	Additions (please explain on reverse)
	 	 	 	$          
	 

	 	 	 	 	 	 
	3.

	 	TOTAL ACCOUNTS RECEIVABLE
	 	 	 	$          
	 

	 	 	 	 	 	 
	 
	ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	 	 	 	 
	4.

	 	Amounts over 90 days from invoice date
	 	$          
	 	 
	 

	 	 	 	 	 	 
	5.

	 	Balance of 50% over 90 day accounts
	 	$          	 	 
	 

	 	 	 	 	 	 
	6.

	 	Credit balances over 90 days
	 	$          	 	 
	 

	 	 	 	 	 	 
	7.

	 	Concentration Limits*
	 	$          	 	 
	 

	 	 	 	 	 	 
	8.

	 	Foreign Accounts
	 	$          	 	 
	 

	 	 	 	 	 	 
	9.

	 	Governmental Accounts
	 	$          	 	 
	 

	 	 	 	 	 	 
	10.

	 	Contra Accounts
	 	$          	 	 
	 

	 	 	 	 	 	 
	11.

	 	Promotion or Demo Accounts
	 	$          	 	 
	 

	 	 	 	 	 	 
	12.

	 	Intercompany/Employee Accounts
	 	$          	 	 
	 

	 	 	 	 	 	 
	13.

	 	Other (please explain on reverse)
	 	$          	 	 
	 

	 	 	 	 	 	 
	14.

	 	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
	 	 	 	$          
	 

	 	 	 	 	 	 
	15.

	 	Eligible Accounts (#3 minus #14)
	 	 	 	$          
	 

	 	 	 	 	 	 
	16.

	 	LOAN VALUE OF ACCOUNTS (80% of #15)
	 	 	 	$          
	 

	 	 	 	 	 	 
	16a.

	 	Eligible Inventory
	 	 	 	$          
	 

	 	 	 	 	 	 
	16b.

	 	LOAN VALUE OF ELIGIBLE INVENTORY
(lesser of 20% of 16a)
or ($1,250,000)
	 	 	 	$          
	 

	 	 	 	 	 	 
	16c.

	 	Allowed Overadvance Facility Amount
	 	 	 	$          
	 

	 	 	 	 	 	 
	 
	BALANCES	 	 	 	 
	17.

	 	Maximum Loan Amount
	 	 	 	$          
	 

	 	 	 	 	 	 
	18.

	 	Total Funds Available [Lesser of #17 or (#16 plus #16b plus 16c)]
	 	 	 	$          
	 

	 	 	 	 	 	 
	19.

	 	Present balance owing on Line of Credit
	 	 	 	$          
	 

	 	 	 	 	 	 
	20.

	 	Outstanding under Sublimits (LC, FX and Cash Mgmt)
	 	 	 	$          
	 

	 	 	 	 	 	 
	21.

	 	RESERVE POSITION (#18 minus #19 and #20)
	 	 	 	$          
	 

	 	 	 	 	 	 

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

	 	 	 	 	 	 	 
	COMMENTS:	 	BANK USE ONLY
	 

	 	 	 	Rec’d By:	 	 
	 

	 	 	 	 	 	 
	VOLCANO THERAPEUTICS, INC.

	 	 	 	Auth. Signer 
	 

	 	 	 	Date:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Verified:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Auth. Signer
	 

	 	 	 	Date:	 	 
	 

	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Authorized Signer	 	 	 	 

 

 

EXHIBIT D 

COMPLIANCE CERTIFICATE

			
	TO:	 	SILICON VALLEY BANK

 3003 Tasman Drive

Santa Clara, CA 95054

FROM:
VOLCANO THERAPEUTICS, INC.

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

     Please
indicate compliance status by circling Yes/No under
“Complies” column.

	 	 	 	 	 	 	 
	Reporting
Covenant	 	Required	 	Complies
	Monthly financial
statements + CC

	 	Monthly within 30 days
	 	Yes
	 	No
	Quarterly Consolidating
financial statements

	 	Qrterly within 30 days
	 	Yes
	 	No
	Annual (Audited)

	 	FYE within 120 days
	 	Yes
	 	No
	A/R & A/P Agings

	 	Monthly within 20 days,

when borrowing
	 	Yes
	 	No
	 
	A/R Audit

	 	Initial and Semi-Annual
	 	Yes
	 	No
	Borrowing Base
Certificate

	 	Monthly within 20 days,
when borrowing
	 	Yes
	 	No

	 	 	 	 	 	 	 	 	 
	Financial
Covenant	 	Required	 	Actual	 	Complies
	Maintain on a Monthly

Basis:
	 	 	 	 	 	 	 	 
	Minimum Quick Ratio

	 	0.90:1.00
	 	___:1.00
	 	Yes
	 	No
	Max Net Loss (qtrly)

	 	($6MM) for 6.30.03
	 	 
	 	Yes
	 	No
	 

	 	($5.5MM) for 9.30.03	 	 	 	 	 	 
	 

	 	($4.6MM) thereafter	 	 	 	 	 	 

Have there been updates to Borrower’s intellectual property that affect the Collateral per the
loan agreement provision? Yes /No

Borrower
only has deposit accounts located at the following institutions: __________.

Comments Regarding Exceptions: See Attached.

	 	 	 	 	 
	Sincerely,

	 	BANK USE ONLY
	 
	 	 	 	 
	VOLCANO THERAPEUTICS, INC.

	 	Rec’d By:	 	 
	 
	 	 

	 

	 	 	 	Auth.
Signer          
	 
	 	Date:	 	 
	 
	 	 

	Signature

	 	Verified:	 	 
	 

	 	 

	 
	 	 	 	Auth. Signer          
	Title

	 	Date:	 	 
	 
	 
	 	 

	Date: 
	 	Compliance Status:                     Yes          No

 

 

EXHIBIT E

ASSET BASED TERMS

The following are the “Asset Based Terms”:

     (1) Schedules
and Documents relating to Accounts.  Borrower shall deliver to Bank transaction
reports, Advance requests, schedules of Accounts, and schedules of collections, all on
Bank’s standard forms; provided, however, that Borrower’s failure to execute and deliver the same
shall not affect or limit Bank’s security interest and other rights in all of Borrower’s Accounts.
If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of
all contracts, orders, invoices, and other similar documents, and all shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Bank an aged accounts receivable trial balance in such
form and at such intervals as Bank shall request. In addition, Borrower shall deliver to Bank the
originals of all instruments, chattel paper, security agreements, guarantees and other documents and
property evidencing or securing any Accounts, immediately upon receipt thereof and in the same form
as received, with all necessary endorsements, all of which shall be with recourse. Borrower shall
also provide Bank with copies of all credit memos from time to time
on request by Bank.

     (2) Collection
of Accounts.  Borrower shall hold all payments on, and proceeds of, Accounts
and all other Collateral in trust for Bank, and Borrower shall immediately deliver all
such payments and proceeds to Bank in their original form, duly endorsed, to be applied to the
Obligations in such order as Bank shall determine. Borrower agrees that it will not commingle such
payments and proceeds with any of Borrower’s other funds or property, but will hold such payments
and proceeds separate and apart from such other funds and property and in an express trust for Bank.
Bank may, in its discretion, require that all proceeds of Collateral be deposited by Borrower into a
lockbox account, or such other “blocked account” as Bank may specify, pursuant to a blocked account
agreement in such form as Bank may specify. Bank or its designee may, at any time, notify Account
Debtors that the Accounts have been assigned to Bank. Nothing in this Exhibit limits the
restrictions on Transfers of Collateral set forth elsewhere in this Agreement.

     (3) Interest
Computation.  In computing interest on the Obligations, all checks, wire
transfers and other items of payment received by Silicon (including proceeds of Accounts shall be
deemed applied by Silicon on account of the Obligations three Business Days after receipt by
Silicon of immediately available funds, and, for purposes of the foregoing, any such funds
received after 12:00 Noon on any day shall be deemed received on the next Business Day. Silicon
shall not, however, be required to credit Borrower’s account for the amount of any item of payment
which is unsatisfactory to Silicon in its good faith business judgment, and Silicon may charge
Borrower’s loan account for the amount of any item of payment which is returned to Silicon unpaid.

     (4) Loan
Requests.  Without limiting the right of Bank to cease making Advances on an Event of
Default, requests for Advances shall be in writing and shall be
accompanied by a current Transaction
Report on Bank’s standard form.

     (5) Reserves.  Without limiting the right of Bank to cease making Advances on an Event
of Default, Bank shall have the right, from time to time, to establish and deduct the following
reserves from the amount of Advances, Letters of Credit and other financial accommodations under the
lending formula(s) provided in Schedule 2: (a) reserves to reflect events, conditions contingencies
or risks which, as determined by Bank in good faith, do or may affect
adversely (1) the Collateral or
any other property which is security for the Obligations or its Value (including without limitation
any increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower, or
(iii) the security interests and other rights of Bank in the
(Collateral (including the
enforceability, perfection and priority thereof); and(b)

 

 

reserves to reflect Bank’s good faith belief that any collateral report or financial information
furnished by or on behalf of Borrower to Bank is or may have been incomplete, inaccurate or
misleading in any material respect.

     (6) Cure Periods. The cure periods set forth in the Loan Agreement shall be modified as
follows: the cure period in Section 8.3 of the Loan Agreement shall be five Business Days rather
than 30 days and there shall be no cure period in Section 8.1 of the Loan Agreement.

27

 

Schedule 2 to

Loan and Security Agreement

			
	Borrower:	 	Volcano Therapeutics, Inc.

			
	Date:	 	July 18, 2003

This Schedule forms an integral part of the Loan and Security Agreement (the “Loan
Agreement”) between Silicon Valley Bank (“Bank”) and the above-borrowers (jointly and severally
“Borrower”) of even date herewith. (Capitalized terms used herein, which are not defined, shall
have the meanings set forth in the Loan Agreement.)

 

1. CREDIT LIMIT

    (Section 2.1.1):

An amount not to exceed the lesser of (A) or (B), minus (C):

(A) $6,000,000 at any one time outstanding (the
“Committed Revolving Line”); or

(B) The sum of (1), (2) and (3) (the “Borrowing Base”):

    (1) Up to 80% of the amount of Borrower’s Eligible
Accounts; plus

    (2) Up to the lesser of (x) 20% of the value of the
Eligible Inventory based on the lower of cost or market value;
or (y) $1,250,000; plus

    (3) Up to $1,750,000, provided that Borrower has on
deposit with Bank an amount at least equal to the Advance
proposed to made and all Advances already extended under this
clause (3) and Borrower maintains such aggregate amount in Bank
deposits while any such Advances remain outstanding,
provided, further, that all Advances made under this
clause (3) shall be repaid in their entirety on the earlier to
occur of October 31, 2003 or the satisfaction of the covenant set
forth in Section 7.3 of this Schedule and no further Advances
under this clause (3) shall be made on and after such date;

MINUS

(C) (1) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of credit); (2) the FX
Reserve; and (3) the aggregate amount of Cash Management Services
utilizations.

    Letter of Credit Sublimit

    (Section 2.1.2):                       $1,000,000

 

 

Bank will issue or have issued Letters of Credit for
Borrower’s account not exceeding (i) the lesser of the Committed
Revolving Line or the Borrowing Base, minus (ii) the outstanding
principal balance of the Advances, minus (iii) the applicable FX
Reserve and minus (iv) the aggregate amount of Cash Management
Services utilizations; provided, however, the face amount of
outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) may not exceed the Letter of Credit Sublimit set
forth above.

			
	Foreign Exchange Sublimit
	(Section 2.1.3):	$1,000,000, subject to the provisions set forth in Section 2.1.3 of
the Loan Agreement

 

			
	Cash Management Services Sublimit
	(Section 2.1.4):	$500,000, subject to the provisions set forth in Section 2.1.4 of
the Loan Agreement

			
	2. INTEREST
	 
	    Interest Rate	 	 
	    (Section 2.3(a)):	A rate equal to the “Prime Rate” in effect from time to time, plus 0.75% per annum,
provided that in no event shall the interest rate be less than 4.75% per annum.

			
	3. FEES (Section 2.4(a)):
	 
	    Facility Fee:	$30,000, payable concurrently herewith, and Bank acknowledges that
$ 10,000 of such fee has been received.
	 
	    Termination:	Borrower shall have the right to terminate the Committed Revolving
Line prior to the Revolving Maturity Date, effective three
Business Days after written notice of termination is given to
Bank, in which event Borrower shall pay in full all Obligations on
the effective date of termination.

2

 

4. REVOLVING MATURITY DATE

	 	 	 
	     (Section 13.1):	 	July     , 2004, subject to the required repayment of certain Advances
as set forth in the clause (B)(3) of the Credit Limit
section above.

5.
FINANCIAL COVENANTS

	 	 	 
	     (Section 6.7):	 	Borrower shall comply with each of the following
covenants. Compliance shall be determined on a consolidated
basis as of the end of each month, except as specifically
otherwise provided below:
	 
	Quick Ratio:  	Borrower shall maintain a ratio of
	 
	 	 	(i) the total of unrestricted cash, cash equivalents and
net trade accounts receivable,

TO

	 	 	 
	 	 	(ii) the total of current
liabilities, 

of not less than 0.90 to 1.00.
	 
	Profitability: 	 Borrower shall not incur a net loss (after taxes) in
excess of
(A) $6,000,000 for the fiscal quarter ending June 30,
2003;

(B) $5,500,000 for the fiscal quarter ending September 30, 2003;
and
(C) $4,600,000 for each fiscal quarter thereafter. Further, it
is understood and agreed that cumulative extraordinary non-cash
charges less than or equal to $4,000,000 are to be allowed to be
incurred for the quarter end periods of September 30, 2003 and
December 31, 2003 in the aggregate and the permitted net loss
amounts for such quarters shall be deemed to exclude such
cumulative extraordinary non-cash charges (but only to the extent
of $4,000,000 in the aggregate for both such quarters);
extraordinary non-cash charges in excess of such permitted
aggregate amount for such permitted quarter periods and
any extraordinary non-cash charges in any other quarter end period
shall not be excluded for purposes of determining compliance with
the foregoing maximum loss covenants for such applicable periods.

	Definitions. 
	For purposes of this Agreement, the following term shall have the
following meaning:

“Current assets”, “current liabilities” and “liabilities” shall
have the meaning ascribed thereto by GAAP.

6.
ASSET BASED TERMS

3

 

	 	(iii)	 	“Asset Based Terms”. As used herein, “Asset Based
Terms” means the terms set forth on Exhibit E to the Loan
Agreement. Terms of this Agreement without the Asset Based
Terms are referred to as the “Non-Asset Based Terms”.
	 
	 	(iv)	 	Financial Covenant
Breach. Without limiting any of the other terms or
provisions hereof, if there is breach of the financial
covenant set forth in Section 5 above, the Asset Based Terms
shall be deemed effective upon written notice from the Bank
to the Borrower.

7. ADDITIONAL PROVISIONS.

	 	7.1	 	Warrant to Purchase
Stock. Borrower shall execute and deliver to Bank the
Warrant to Purchase Stock to purchase 40,000 shares
of Borrower’s Series B Preferred Stock on such terms
as are acceptable to Bank.
	 
	 	7.2	 	Close of Initial Series
B Round. Prior to the making of any Advances hereunder,
Borrower shall supply evidence to Bank, in form satisfactory
to Bank, that it has received at least $19,000,000 in net cash
proceeds from its current equity financing
transaction relating to Series B Preferred stock of the
Borrower.
	 
	 	7.3	 	Additional Series B
Proceeds. On or prior to October 31, 2003, Borrower
shall have received additional net cash proceeds from
its Series B Preferred stock offering, apart from the sum
referred to in section 7.2 above, in the minimum amount of
$11,000,000, and Borrower shall supply evidence satisfactory
to Bank thereof. Failure to satisfy the covenant in this
Section 7.3 shall constitute and Event of Default hereunder.

     IN WITNESS WHEREOF, the parties hereto have executed this Schedule as of the date first
written above.

	 	 	 	 	 	 	 	 	 	 	 
	Borrower:	 	 	 	Bank:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	VOLCANO	 	THERAPEUTICS, INC.	 	 	 	SILICON VALLEY BANK	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By

	 	/s/ Scott Huennekens
	 	 	 	By
	 	/s/ Richard Shuttleworth	 	 
	 

	 	 

President or Vice President
	 	 	 	Title
	 	 

Senior Vice President
	 	 
	 

	 	 	 	 	 	 	 	 	 	 

4

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