Document:

EX-10.20

 

Exhibit 10.20

LOAN AND SECURITY AGREEMENT

Dated as of February 21, 2007,

between

NANOSPHERE, INC.,

a Delaware corporation,

as “Borrower”,

and

VENTURE LENDING & LEASING V, INC.,

a Maryland corporation,

as “Lender”

 

 

LOAN AND SECURITY AGREEMENT

          The Borrower and Lender identified on the cover page of this document have entered or
anticipate entering into one or more transactions pursuant to which Lender agrees to make available
to Borrower a loan facility governed by the terms and conditions set forth in this document and one
or more Supplements executed by Borrower and Lender which incorporate this document by reference.
Each Supplement constitutes a supplement to and forms part of this document, and will be read and
construed as one with this document, so that this document and the Supplement constitute a single
agreement between the parties (collectively referred to as this “Agreement”).

          Accordingly, the parties agree as follows:

ARTICLE 1 — INTERPRETATION

     1.1 Definitions. The terms defined in Article 10 and in the Supplement will have the meanings
therein specified for purposes of this Agreement.

     1.2 Inconsistency. In the event of any inconsistency between the provisions of any
Supplement and this document, the provisions of the Supplement will be controlling for the purpose
of all relevant transactions.

ARTICLE 2 — THE COMMITMENT AND LOANS

     2.1 The Commitment. Subject to the terms and conditions of this Agreement, Lender agrees to
make term loans to Borrower from time to time from the Closing Date and to, but not including, the
Termination Date in an aggregate principal amount not exceeding the Commitment. The Commitment is
not a revolving credit commitment, and any repayments made hereunder shall not be reborrowed. Each
Loan requested by Borrower to be made on a single Business Day shall be for a minimum principal
amount set forth in the Supplement, except to the extent the remaining Commitment is a lesser
amount.

     2.2 Notes Evidencing Loans; Repayment. Each Loan shall be evidenced by a separate Note
payable to the order of Lender, in the total principal amount of the Loan. Principal and interest
of each Loan shall be payable at the times set forth in the Note and regularly scheduled payments
thereof and each Final Payment shall be effected by automatic debit of the appropriate funds from
Borrower’s Primary Operating Account as specified in the Supplement hereto.

     2.3 Procedures for Borrowing.

     (a) At least five (5) Business Days’ prior to a proposed Borrowing Date, Lender shall have
received from Borrower a written request for a borrowing
hereunder (a “Borrowing Request”). Each Borrowing Request shall be in substantially the
form of Exhibit “B” to the Supplement, shall be executed by a responsible executive or
financial officer of Borrower, and shall state how much is requested, and shall be accompanied by
such other information and documentation as Lender may reasonably request.

     (b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing Date, if Borrower has
satisfied the conditions precedent in Article 4, Lender shall make the Loan available to Borrower
in immediately available funds. Borrower shall deliver to Lender an original executed Note(s) for
the Loan(s) covered by the Borrowing Request pursuant to Section 4.2(d).

     2.4 Interest. Except as otherwise specified in the applicable Note and/or Supplement, Basic
Interest on the outstanding principal balance of each Loan shall accrue daily at the Designated
Rate from the Borrowing Date. If the outstanding principal balance of such Loan is not paid at
maturity, interest shall accrue at the Default Rate until paid in full, as further set forth
herein.

     2.5 Final Payment. Borrower shall pay the Final Payment, if any, with respect to each Loan on
the date set forth in the Note evidencing such Loan.

     2.6 Interest Rate Calculation. Basic Interest, along with charges and fees under this
Agreement and any Loan Document, shall be calculated for actual days elapsed on the basis of a
360-day year, which results in higher interest, charge or fee payments than if a 365-day year were
used. In no event shall Borrower be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in effect.

     2.7 Default Interest. Any unpaid payments of principal or interest or the Final Payment with
respect to any Loan shall bear interest from their respective maturities, whether scheduled or
accelerated, at the

 

 

Designated Rate for such Loan plus five percent (5.00%) per annum, until paid in full,
whether before or after judgment (the “Default Rate”). Borrower shall pay such interest on
demand.

     2.8 Late Charges. If Borrower is late in making any payment of principal or interest or Final
Payment under this Agreement by more than five (5) days, Borrower agrees to pay a late charge of
five percent (5%) of the installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment; provided, however, that Borrower shall not pay such late charge if the
failure to make any such payment when due (taking into account applicable grace periods) arises
solely from either (i) Lender’s failure to effect timely automatic debits of the appropriate funds
from Borrower’s Primary Operating Account as provided in Section 2.2 hereunder or (ii) a technical
malfunction of an ACH transfer (and not for any other reason, including, without limitation,
insufficient funds or an act, or failure to act, by Borrower, which adversely affects the ACH
transfer). This late charge may be charged by Lender for the purpose of defraying the expenses
incidental to the handling of such delinquent amounts. Borrower acknowledges that such late charge
represents a reasonable sum considering all of the circumstances existing on the date of this
Agreement and represents a fair and reasonable estimate of the costs that will be sustained by
Lender due to the failure of Borrower to make timely payments. Borrower further agrees that proof
of actual damages would be costly and inconvenient. Such late charge shall be paid without
prejudice to the right of Lender to collect any other amounts provided to be paid or to declare a
default under this Agreement or any of the other Loan Documents or from exercising any other rights
and remedies of Lender.

     2.9 Lender’s Records. Principal, Basic Interest, Final Payments and all other sums owed
under any Loan Document shall be evidenced by entries in records maintained by Lender for such
purpose. Each payment on and any other credits with respect to principal, Basic Interest, Final
Payments and all other sums outstanding under any Loan Document shall be evidenced by entries in
such records. Absent manifest error, Lender’s records shall be conclusive evidence thereof.

     2.10 Grant of Security Interests; Filing of Financing Statements.

          (a) To secure the timely payment and performance of all of Borrower’s Obligations to Lender,
Borrower hereby grants to Lender continuing security interests in all of the Collateral. In connection with the foregoing, Borrower authorizes Lender to prepare and file any financing statements describing the Collateral without otherwise obtaining Borrower’s signature or consent with respect to the filing of such financing statements.

          (b) In furtherance of Borrower’s grant of the security interests in the Collateral pursuant to Section 2.10(a) above, Borrower hereby pledges and grants to the Lender a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities
declared or granted in connection therewith, and all other cash and non-cash proceeds of the foregoing, as security for the performance of the Obligations. To the extent required by the terms and conditions governing the Shares, Borrower shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence and during the continuance of an Event of Default hereunder, Lender may effect the
 transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Lender and cause new certificates representing such securities to be issued in the name of Lender or its transferee(s). Borrower will execute and deliver such documents, and take or cause to be taken such actions, as Lender may reasonably request to perfect or continue the perfection of Lender’s security interest in the Shares. Unless an Event of Default
 shall have occurred and be continuing, Borrower shall be entitled to exercise any voting
 rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.

          (c) Borrower is and shall remain absolutely and unconditionally liable for the performance of its obligations under the Loan Documents, including, without limitation, any deficiency by reason of the failure of the Collateral to satisfy all amounts due Lender under any of the Loan Documents.

          (d) All Collateral pledged by Borrower under this Agreement and any Supplement shall secure the timely payment and performance of all Obligations under this Agreement, the Notes and the other Loan

 

 

Documents. Except as expressly provided in this Agreement, no Collateral pledged under this
Agreement or any Supplement shall be released until such time as all Obligations (other than
contingent, reimbursement and indemnification obligations for which no claim has been made) under
this Agreement and the other Loan Documents have been satisfied and paid in full.

ARTICLE 3 — REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants that, except as set forth in the Supplement or any schedule
of exceptions executed by the parties, as of the Closing Date and each Borrowing Date:

     3.1 Due Organization. Borrower is a corporation duly organized and validly existing in good standing under the laws of the
jurisdiction of its incorporation, and is duly qualified to conduct business and is in good
standing in each other jurisdiction in which its business is conducted or its properties are
located, except where the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect.

     3.2 Authorization, Validity and Enforceability. The execution, delivery and performance of
all Loan Documents executed by Borrower are within Borrower’s powers, have been duly authorized, and are
not in conflict with Borrower’s certificate of incorporation or by-laws, or the terms of any
charter or other organizational document of Borrower, as amended from time to time; and all such
Loan Documents constitute valid and binding obligations of Borrower, enforceable in accordance
with their terms (except as may be limited by bankruptcy, insolvency and similar laws affecting
the enforcement of creditors’ rights in general, and subject to general principles of equity).

     3.3 Compliance with Applicable Laws. Borrower has complied with all licensing, permit and/or other requirements necessary to lawfully
conduct the business in which it is engaged, and to any sales, leases or the furnishing of
services by Borrower, including without limitation those requiring consumer or other disclosures,
the noncompliance with which would have a Material Adverse Effect

     3.4 No Conflict. The execution, delivery, and performance by Borrower of all Loan Documents
are not in conflict with any law, rule, regulation, order or directive, or any indenture,
agreement, or undertaking to which Borrower is a party or by which Borrower may be bound or affected, except to the extent
any such conflict does not cause a Material Adverse Effect Without limiting the generality of the
foregoing, the issuance to Lender (or its designee) of shares of Borrower’s Series D Preferred
Stock and the grant of registration rights in connection therewith do not violate any agreement or
instrument by which Borrower is bound or require the consent of any holders of Borrower’s
securities other than consents which have been obtained prior to the Closing Date.

     3.5 No Litigation, Claims or Proceedings. There is no material litigation, tax claim, proceeding or dispute pending, or, to the knowledge of
Borrower, threatened against or affecting Borrower, its property or the conduct of its business.

     3.6 Correctness of Financial Statements. Borrower’s financial statements which have been delivered to Lender present fairly Borrower’s
financial condition in accordance with GAAP as of the latest date of such financial statements;
and since that date there has been no Material Adverse Change.

     3.7 No Subsidiaries. Borrower is not a majority owner of or in a control relationship with
any other business entity.

     3.8 Environmental Matters. To its knowledge after reasonable inquiry, Borrower has concluded
that Borrower is in compliance with Environmental Laws, except to the extent a failure to be in
such compliance could not reasonably be expected to have a Material Adverse Effect.

     3.9 No Event of Default. No Default or Event of Default has occurred and is continuing.

     3.10 Full Disclosure. None of the representations or warranties made by Borrower in the Loan
Documents as of the date such representations and warranties are made or deemed made, and none of
the statements contained in any exhibit, report, statement or certificate furnished by or on
behalf of Borrower in connection with the Loan Documents (including disclosure materials delivered
by or on behalf of Borrower to Lender prior to the Closing Date or pursuant to Section 5.2
hereof), contains any untrue statement of a material fact or omits any material fact required to
be stated therein or necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or delivered.

 

 

     3.11 Specific Representations Regarding Collateral.

     (a) Title. Except for the security interests created by this Agreement and Permitted Liens,
(i) Borrower is and will be the unconditional legal and beneficial owner of the Collateral, and
(ii) the Collateral is genuine and subject to no Liens, rights or defenses of others. There exist
no prior assignments or encumbrances of record with the U.S. Patent and Trademark Office or U.S.
Copyright Office affecting any Collateral in favor of any third party other than Lender.

     (b) Rights to Payment. The names of the obligors, amount owing to Borrower, due dates and all
other information with respect to the Rights to Payment are and will be correctly stated in all
material respects in all Records relating to the Rights to Payment. Borrower further represents
and warrants, to its knowledge, that each Person appearing to be obligated on a Right to Payment
has authority and capacity to contract and is bound as it appears to be.

     (c) Location of Collateral. Borrower’s chief executive office, Inventory, Records, Equipment,
and any other offices or places of business are located at the address(es) shown on the
Supplement.

     (d) Business Names. Other than its full corporate name, Borrower has not conducted business
using any trade names or fictitious business names except as shown on the Supplement.

     3.12 Copyrights, Patents, Trademarks and Licenses.

     (a) Borrower owns or is licensed or otherwise has the right to use the Copyrights, the
Patents and the Trademarks.

     (b) To Borrower’s knowledge, no slogan or other advertising device, product, process, method,
substance, part or other material now employed by Borrower infringes upon any rights held by any
other Person.

     (c) No claim or litigation regarding any of the foregoing is pending or, to Borrower’s
knowledge, threatened, which, in either case, could reasonably be expected to have a Material
Adverse Effect.

     3.13 Regulatory Compliance. Borrower has met the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower’s failure to comply with ERISA that is
reasonably likely to result in Borrower’s incurring any liability that could have a Material
Adverse Effect. Borrower is not an “investment company” or a company “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the
Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of
the Federal Fair Labor Standards Act.

ARTICLE 4 — CONDITIONS PRECEDENT

     4.1 Conditions to First Loan. The obligation of Lender to make its first Loan hereunder is,
in addition to the conditions precedent specified in Section 4.2 and in any Supplement, subject to
the fulfillment of the following conditions and to the receipt by Lender of the documents
described below, duly executed and in form and substance satisfactory to Lender and its counsel:

     (a) Resolutions. A certified copy of the resolutions of the Board of Directors of Borrower
authorizing the execution, delivery and performance by Borrower of the Loan Documents.

     (b) Incumbency and Signatures, A certificate of the secretary of Borrower certifying the
names of the officer or officers of Borrower authorized to sign the Loan Documents, together with
a sample of the true signature of each such officer.

     (c) Legal Opinion. The opinion of legal counsel for Borrower as to such matters as Lender may
reasonably request, including the matters covered by Sections 3.1, 3.2, 3.4 and 3.5 hereof.

     (d) Certificate and By-Laws. Certified copies of the Certificate of Incorporation and By-Laws
of Borrower, as amended through the Closing Date.

     (e) This Agreement. Original counterparts of this Agreement and the initial Supplement, with all schedules completed and attached thereto, and
disclosing such information as is acceptable to Lender.

     (f) Financing Statements. Filing copies (or other evidence of filing satisfactory to Lender
and its counsel) of such UCC financing statements, collateral

 

 

assignments, account control agreements, and termination statements, with respect to the
Collateral as Lender shall request.

     (g) Intellectual Property Security Agreement. An Intellectual Property Security Agreement executed by Borrower substantially in the form
attached as Exhibit “G” to the Supplement.

     (h) Lien Searches. UCC lien, judgment, bankruptcy and tax lien searches of Borrower from
such jurisdictions or offices as Lender may reasonably request, all as of a date reasonably
satisfactory to Lender and its counsel.

     (i) Good Standing Certificate. A certificate of status or good standing of Borrower as of a
date acceptable to Lender from the jurisdiction of Borrower’s organization and any foreign
jurisdictions where Borrower is qualified to do business.

     (j) Stock Subscription Agreement; Stock Certificates. The Stock Subscription Agreement (as
defined in the Supplement), together with one or more original certificates representing the
shares of Borrower’s Series D Preferred Stock issued pursuant thereto.

     (k) Insurance Certificates. Insurance certificates showing Lender as loss payee or
additional insured.

     (l) Other Documents. Such other documents and instruments as Lender may reasonably request
to effectuate the intents and purposes of this Agreement.

     4.2 Conditions to All Loans. The obligation of Lender to make its initial Loan and each
subsequent Loan is subject to the following further conditions precedent that:

     (a) No Default. No Default or Event of Default has occurred and is continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this Agreement and Part 3 of
the Supplement are true and correct in all material respects as of the Borrowing Date of such
Loan.

     (b) No Material Adverse Change. No event has occurred that has had or could reasonably be
expected to have a Material Adverse Change.

     (c) Borrowing Request. Borrower shall have delivered to Lender a Borrowing Request for such
Loan.

     (d) Note. Borrower shall have delivered an original executed Note evidencing such Loan,
substantially in the form attached to the Supplement as either Exhibits A-1 or A-2,
whichever is applicable.

     (e) Supplemental Lien Filings. Borrower shall have executed and delivered such amendments or
supplements to this Agreement and additional Security Documents, financing statements and third
party waivers as Lender may reasonably request in connection with the proposed Loan, in order to
create, protect or perfect or to maintain the perfection of Lender’s Liens on the Collateral.

     (f) VCOC Limitation. Lender shall not be obligated to make any Loan under its Commitment if at the time of or after giving effect to the
proposed Loan Lender would no longer qualify as: (A) a “venture capital operating company” under
U.S. Department of Labor Regulations Section 2510.3-101(d), Title 29 of the Code of Federal
Regulations, as amended; and (B) a “business development company” under the provisions of federal
Investment Company Act of 1940, as amended; and (C) a “regulated investment company” under the
provisions of the Internal Revenue Code of 1986, as amended. Lender does not now know, and has no
reason to know, of any facts or circumstances that could reasonably be expected to cause Lender to
no longer qualify as (A) a “venture capital operating company,” or (B) a “business development
company,” or (C) a “regulated investment company” as those terms are defined above. If Lender
fails or refuses to make any Loan under its Commitment for reasons set forth in this Section
4.2(f), then (1) the ratable portion of the Commitment Fee (as defined in the Supplement)
associated with such requested but unfunded Loan shall be refunded to Borrower and (2) the number
of shares of Borrower’s Series D Preferred Stock issued to Lender or its assignee on the Closing
Date (the “Initial Shares”) shall be reduced by a number of shares equal to the product of
the Initial Shares, and a fraction the numerator of which is the principal amount of such
requested but unfunded Loan, and the denominator of which is the Commitment; provided,
however, that in the event Lender subsequently funds such Loan (with Borrower’s consent), such
reductions shall be automatically eliminated or reversed (subject to subsequent reduction in
accordance with the terms of this paragraph).

     (g) Financial Projections. Borrower shall have delivered to Lender Borrower’s business plan
and/or

 

 

financial projections or forecasts as most recently approved by Borrower’s Board of
Directors.

ARTICLE 5 — AFFIRMATIVE COVENANTS

     During the term of this Agreement and until its performance of all Obligations, Borrower
will:

     5.1 Notice to Lender. Promptly give written notice to Lender of:

     (a) Any litigation or administrative or regulatory proceeding affecting Borrower where the
amount claimed against Borrower is at the Threshold Amount or more, or where the granting of the
relief requested would reasonably be expected to have a Material Adverse Effect; or of the
acquisition by Borrower of any commercial tort claim, including brief details of such claim and
such other information as Lender may reasonably request to enable Lender to better perfect its Lien
in such commercial tort claim as Collateral.

     (b) The occurrence of any Default or any Event of Default.

     (c) Any change in the location of any of Borrower’s places of business or Collateral at least
thirty (30) days in advance of such change, or of the establishment of any new, or the
discontinuance of any existing, place of business.

     (d) Any dispute or default by Borrower or any other party under any joint venture,
partnering, distribution, cross-licensing, strategic alliance, collaborative research or
manufacturing, license or similar agreement which could reasonably be expected to have a Material
Adverse Effect.

     (e) Any other matter which has resulted or could reasonably be expected to result in a
Material Adverse Change.

     5.2 Financial Statements. Deliver to Lender or cause to be delivered to Lender, in form and
detail satisfactory to Lender the following financial and other information, which Borrower
warrants shall be accurate and complete in all material respects:

     (a) Monthly Financial Statements. As soon as available but no later than thirty (30) days
after the end of each month, Borrower’s balance sheet as of the end of such period, and Borrower’s
income statement for such period and for that portion of Borrower’s financial reporting year
ending with such period, prepared in accordance with GAAP and attested by a responsible financial officer of Borrower as being complete
and correct and fairly presenting Borrower’s financial condition and the results of Borrower’s
operations. After a Qualified Public Offering, (he foregoing interim financial statements shall be
delivered no later than 45 days after each fiscal quarter and for the quarter-annual fiscal period
then ended.

     (b) Year-End Financial Statements. As soon as available but no later than one hundred fifty
(150) days after and as of the end of each financial reporting year, a complete copy of Borrower’s
audit report, which shall include balance sheet, income statement, statement of changes in equity
and statement of cash flows for such year, prepared in-accordance with GAAP and certified by an
independent certified public accountant selected by Borrower (the “Accountant”). The
Accountant’s certification shall not be qualified or limited due to a restricted or limited
examination by the Accountant of any material portion of Borrower’s records or otherwise.

     (c) Compliance Certificates. Simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a certificate of the chief financial
officer of Borrower substantially in the form of Exhibit “C” to the Supplement stating
whether any Default or Event of Default exists on the date of such certificate, and if so, setting
forth the details thereof and the action which Borrower is taking or proposes to take with respect
thereto.

     (d) Government Required Reports; Press Releases. Promptly after sending, issuing, making
available, or filing, copies of all statements released to any news media for publication, all
reports, proxy statements, and financial statements that Borrower sends or makes available to its
stockholders, and, not later than five (5) days after actual filing or the date such filing was
first due, all registration statements and reports that Borrower files or is required to file with
the Securities and Exchange Commission, or any other governmental or regulatory authority.

     (e) Other Information. Such other statements, lists of property and accounts, budgets,
forecasts, reports, or other information as Lender may from time to time reasonably request.

     5.3 Managerial Assistance from Lender. Permit Lender to substantially participate in, and
substantially influence the conduct of management of Borrower through the exercise of “management
rights,” as that

 

 

term is defined in 29 C.F.R. § 2510.3-101(d), including without limitation the following rights:

     (a) Borrower agrees that (i) it will make its officers, directors, employees and affiliates
available at such times as Lender may reasonably request for Lender to consult with and advise as
to the conduct of Borrower’s business, its equipment and financing plans, and its financial
condition and prospects, (ii) Lender shall have the right to inspect Borrower’s books, records,
facilities and properties at reasonable times during normal business hours on reasonable advance
notice, and (iii) Lender shall be entitled to recommend prospective candidates for election or
nomination for election to Borrower’s Board of Directors and Borrower shall give due consideration
to (but shall not be bound by) such recommendations, it being the intention of the parties that
Lender shall be entitled through such rights, inter alia, to furnish “significant managerial
assistance”, as defined in Section 2(a)(47) of the Investment Company Act of 1940, to Borrower.

     (b) Without limiting the generality of (a) above, if Lender reasonably believes that
financial or other developments affecting Borrower have impaired Borrower’s ability to perform its
obligations under this Agreement, permit Lender reasonable access to Borrower’s management and/or
Board of Directors and opportunity to present Lender’s views with respect to such developments.

Lender shall cooperate with Borrower to ensure that the exercise of Lender’s rights shall not
disrupt the business of Borrower. The rights enumerated above shall not be construed as giving
Lender control over Borrower’s management or policies. The covenants contained in this Section 5.3
shall terminate upon the consummation of a sale of the Borrower’s securities pursuant to a
registration statement filed by the Borrower under the Securities Act of 1933, as amended, in
connection with a firm commitment. underwritten offering of the Borrower’s securities to the
general public.

     5.4 Existence. Maintain and preserve Borrower’s existence, present form of business, and all
rights and privileges necessary or desirable in the normal course of its business; and keep all
Borrower’s property in good working order and condition, ordinary wear and tear excepted.

     5.5 Insurance. Obtain and keep in force insurance in such amounts and types as is usual in
the type of business conducted by Borrower, with insurance carriers having a policyholder rating of not less than “A” and financial category rating
of Class VII in “Best’s Insurance Guide,” unless otherwise approved by Lender. Such insurance
policies must be in form and substance satisfactory to Lender, and shall list Lender as an
additional insured or loss payee, as applicable, on endorsement(s) in form reasonably acceptable to
Lender. Borrower shall furnish to Lender such endorsements, and upon Lender’s request, copies of
any or all such policies.

     5.6 Accounting Records. Maintain adequate books, accounts and records, and prepare all
financial statements in accordance with GAAP, and in compliance in all material respects with the
regulations of any governmental or regulatory authority having jurisdiction over Borrower or
Borrower’s business; and permit employees or agents of Lender to inspect Borrower’s properties,
and to examine, and make copies and memoranda of Borrower’s books, accounts and records at
Borrower’s expense and at such reasonable times during normal business hours, but in no event more
than one time during any fiscal year unless an Event of Default exists (in which case, no such
limitation shall apply, and all such inspections and/or examinations shall be at the sole cost and
expense of Borrower).

     5.7 Compliance With Laws. Comply with all laws (including Environmental Laws), rules,
regulations applicable to, and all orders and directives of any governmental or regulatory
authority having jurisdiction over, Borrower or Borrower’s business, and with all material
agreements to which Borrower is a parry, except where the failure to so comply would not have a
Material Adverse Effect.

     5.8 Taxes and Other Liabilities. Pay all Borrower’s Indebtedness when due; pay all taxes and other governmental or regulatory assessments
before delinquency or before any penalty attaches thereto, except as may be contested in good
faith by the appropriate procedures and for which Borrower shall maintain appropriate reserves;
and timely fife all required tax returns.

     5.9 Special Collateral Covenants.

     (a) Maintenance of Collateral; Inspection. Do all things reasonably necessary to maintain, preserve, protect and keep all Collateral in good
working order and salable condition, ordinary wear and tear excepted, deal with the Collateral in
all ways as are considered good practice by owners of like property, and use the Collateral
lawfully and, to the extent applicable, only as

 

 

permitted by Borrower’s insurance policies. Maintain, or cause to be maintained, complete and
accurate Records relating to the Collateral. Upon reasonable prior notice at reasonable times
during normal business hours, Borrower hereby authorizes Lender’s officers, employees,
representatives and agents to inspect the Collateral and to discuss the Collateral and the Records
relating thereto with Borrower’s officers and employees, and, in the case of any Right to Payment,
with any Person which is or may be obligated thereon.

     (b) Documents of Title. Not sign or authorize the signing of any financing statement or other
document naming Borrower as debtor or obligor, or acquiesce or cooperate in the issuance of any
bill of lading, warehouse receipt or other document or instrument of title with respect to any
Collateral, except those negotiated to Lender, or those naming Lender as secured party, or if
solely to create, perfect or maintain a Permitted Lien.

     (c) Change in Location or Name. Without at least 30 days’ prior written notice to Lender: (a)
not relocate any Collateral or Records, its chief executive office, or establish a place of
business at a location other than as specified in the Supplement; and (b) not change its name,
mailing address, location of Collateral, jurisdiction of incorporation or its legal structure.

     (d) Decals, Markings. At the request of Lender after the occurrence and during the
continuance of an Event of Default, firmly affix a decal, stencil or other marking to designated
items of Equipment, indicating thereon the security interest of Lender.

     (e) Agreement With Real Property Owner/Landlord. Obtain and maintain such acknowledgments,
consents, waivers and agreements (each a “Waiver”) from the owner, lienholder, mortgagee and
landlord (each, a “Landlord”) with respect to any real property on which Equipment is located as
Lender may require, all in form and substance satisfactory to Lender, if either such real property
is located in a jurisdiction that provides for statutory landlord’s liens or where Borrower’s
lease for such real property grants to the Landlord a Lien on Borrower’s Equipment and other
personal property. In all other cases, Borrower agrees it will use commercially reasonable efforts
to obtain a Waiver from the Landlord.

     (f) Certain Agreements on Rights to Payment. Other than in the ordinary course of business,
not make any material discount, credit, rebate or other reduction in the original amount owing on a Right to Payment or accept in satisfaction of a Right to Payment
less than the original amount thereof.

5.10 Authorization for Automated Clearinghouse Funds Transfer. (i) Authorize Lender to initiate
debit entries to Borrower’s Primary Operating Account, specified in the Supplement hereto, through
Automated Clearinghouse (“ACH”) transfers, in order to satisfy regularly scheduled payments of
principal, interest and Final Payments; (ii) provide Lender at least thirty (30) days notice of
any change in Borrower’s Primary Operating Account; and (iii) grant Lender any additional
authorizations necessary to begin ACH debits from a new account which becomes the Primary
Operating Account.

ARTICLE 6 — NEGATIVE COVENANTS

     During the term of this Agreement and until the performance of all Obligations, Borrower will
not:

     6.1 Indebtedness. Be indebted for borrowed money, the deferred purchase price of property, or
leases which would be capitalized in accordance with GAAP; or become liable as a surety,
guarantor, accommodation party or otherwise for or upon the obligation of any other Person,
except:

     (a) Indebtedness incurred for the acquisition of supplies or inventory on normal trade
credit;

     (b) Indebtedness incurred pursuant to one or more transactions permitted under Section
6.4;

     (c) Indebtedness of Borrower under this Agreement;

     (d) Subordinated Debt;

     (e) Indebtedness of Borrower other than as described in subparagraph (i) hereof evidenced by
capital lease obligations entered into in order to finance capital expenditures made by Borrower
in an aggregate amount not to exceed $250,000 at any time outstanding;

     (f) Indebtedness in respect of purchase money obligations and any refinancings or renewals
thereof (in an aggregate principal amount not to exceed $100,000 at any one time outstanding);

     (g) Indebtedness resulting from investments otherwise expressly permitted under Section
6.6;

 

 

     (h) Indebtedness of Borrower in respect of bid, performance or surety bonds, workers’
compensation claims, self-insurance obligations and bankers’ acceptances issued for the account of
any Borrower in the ordinary course of business;

     (i) any Indebtedness approved by Lender prior to the Closing Date as shown on Schedule
6.1 hereto;

     (j) Indebtedness to VLL4 under the VLL4 Loan Agreement; and

     (k) additional Indebtedness of Borrower in an aggregate principal amount not to exceed
$250,000 at any time outstanding.

     6.2 Liens. Create, incur, assume or permit to exist any Lien, or grant any other Person a
negative pledge, on any of Borrower’s property, except Permitted Liens. Borrower and Lender agree
that this covenant is not intended to constitute a lien, deed of trust, equitable mortgage, or
security interest of any kind on any of Borrower’s real property, and this Agreement shall not be
recorded or recordable. Notwithstanding the foregoing, however, violation of this covenant by
Borrower shall constitute an Event of Default.

     6.3 Dividends. Except after a Qualified Public Offering, pay any dividends or purchase, redeem
or otherwise acquire or make any other distribution with respect to any of Borrower’s capital
stock, except (a) dividends or other distributions solely of capital stock of Borrower, and (b) so
long as no Event of Default has occurred and is continuing and the same would be permitted under
applicable law, repurchases of stock from employees upon termination of employment under reverse
vesting or similar repurchase plans not to exceed $200,000 in any calendar year.

     6.4 Changes/Mergers. Liquidate or dissolve; or enter into any consolidation, merger or other
combination in which the stockholders of Borrower immediately prior to the first such transaction
own less than 50% of the voting stock of Borrower immediately after giving effect to such
transaction or related series of such transactions; or sell all, or substantially all, of
Borrower’s assets in a single transaction or related series of transactions, except that Borrower
may consolidate or merge, or sell all, or substantially all, of its assets so long as: (A) the
entity that results from such merger or consolidation, or proposes to purchase all, or
substantially all, of Borrower’s assets (as applicable, the “Surviving Entity”) shall have
executed
and delivered to Lender an agreement in form and substance reasonably satisfactory to Lender,
containing an assumption by the Surviving Entity of the due and punctual payment and performance of
all Obligations and performance and observance of each covenant and condition of Borrower in the
Loan Documents; (B) all such obligations of the Surviving Entity to Lender shall be guaranteed by
any entity that directly or indirectly owns or controls more than 50% of the voting stock of the
Surviving Entity; (C) immediately after giving effect to such merger, consolidation or sale of
assets, no Event of Default or, event which with the lapse of time or giving of notice or both,
would result in an Event of Default shall have occurred and be continuing; and (D) the credit risk
to Lender, in its reasonable discretion, of the Surviving Entity shall not be increased. In
determining whether the proposed merger, consolidation or asset sale would result in an increased
credit risk, Lender may consider, among other things, changes in Borrower’s management team,
employee base, access to equity markets, venture capital support, financial position and/or
disposition of intellectual property rights which may reasonably be anticipated as a result of the
transaction.

     6.5 Sales of Assets. Sell, transfer, lease, license or otherwise dispose of (a
“Transfer”) any of Borrower’s assets except (i) non-exclusive licenses of Intellectual
Property in the ordinary course of business consistent with industry practice; (ii) exclusive
licenses of Intellectual Property in the ordinary course of business consistent with industry
practice and approved by Borrower’s Board of Directors; provided that such exclusive licenses
neither result in a legal transfer of title of the licensed Intellectual Property nor have the
same effect as a sale of such Intellectual Property; (iii) Transfers of worn-out, obsolete or
surplus property (each as determined by Borrower in its reasonable judgment); (iv) Transfers of
Inventory; (v) Transfers constituting Permitted Liens; (vi) Transfers permitted in Section 6.6
hereunder; and (vii) Transfers of Collateral (other than Intellectual Property) for fair
consideration and in the ordinary course of its business.

     6.6 Loans/Investments. Make or suffer to exist any loans, guaranties, advances, or
investments, except:

     (a) accounts receivable in the ordinary course of Borrower’s business;

     (b) investments in domestic certificates of deposit issued by, and other domestic investments
with, financial institutions organized under the laws of the United States or a state thereof,
having at least One

 

 

Hundred Million Dollars ($100,000,000) in capital and
a rating of at least “investment grade” or “A” by Moody’s or any successor rating agency;

     (c) investments in marketable obligations of the United States of America and in open market
commercial paper given the highest credit rating by a national credit agency and maturing not more
than one year from the creation thereof;

     (d) temporary advances to cover incidental expenses to be incurred in the ordinary course of
business;

     (e) investments in joint ventures, strategic alliances, licensing and similar arrangements
customary in Borrower’s industry and which do not require Borrower to assume or otherwise become
liable for the obligations of any third party not directly related to or arising out of such
arrangement or, without the prior written consent of Lender, require Borrower to transfer
ownership of non-cash assets to such joint venture or other entity; and

     (f) Loans to officers and directors of Borrower not involving the actual advance of cash by
Borrower solely to finance the purchases by such officers or directors of shares of capital stock
of Borrower on terms approved by Borrower’s board of directors, including a majority of
non-interested directors.

     6.7 Transactions With Related Persons. Directly or indirectly enter into any transaction with
or for the benefit of a Related Person on terms more favorable to the Related Person than would
have been obtainable in an “arms’ length” dealing, unless such transaction has been approved by
Borrower’s board of directors, including a majority of non-interested directors.

     6.8 Other Business. Engage in any material line of business other than the business Borrower
conducts as of the Closing Date or any other businesses reasonably related thereto.

     6.9 Financing Statements and Other Actions.
Fail to execute and deliver to Lender all financing statements, notices and other documents
(including, without limitation, any filings with the United States Patent and Trademark Office)
from time to time reasonably requested by Lender to maintain a first perfected security interest
in the Collateral in favor of Lender; perform such other acts, and execute and deliver to Lender
such additional conveyances, assignments, agreements and instruments, as Lender
may at any time request in connection with the administration and enforcement of this Agreement or
Lender’s rights, powers and remedies hereunder.

     6.10 Compliance. Become an “investment company” or controlled by an “investment company,”
within the meaning of the Investment Company Act of 1940, or become principally engaged in, or
undertake as one of its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Loan for such 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
law or regulation, which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Lender’s Lien on the Collateral, or permit any of its
subsidiaries to do any of the foregoing.

     6.11 Other Deposit and Securities Accounts.
Maintain any deposit accounts or accounts holding securities owned by Borrower except (i) Deposit
Accounts and investment/securities accounts as set forth in the Supplement, and (ii) other Deposit
Accounts and securities/investment accounts, in each case, with respect to which Borrower and
Lender shall have taken such action as Lender reasonably deems necessary to obtain a perfected
first security interest therein.

     6.12 Subsidiaries.

          (a) Sell, transfer, encumber or otherwise dispose of Borrower’s ownership interest in any
Subsidiary.

          (b) Cause or permit a Subsidiary to do any of the following: (a) grant Liens on such
Subsidiary’s assets, except for Liens on any property held or acquired by such Subsidiary in the
ordinary course of its business securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such property; provided, that such Lien
attaches solely to the property acquired with such Indebtedness and that the principal amount of
such Indebtedness does not exceed one hundred percent (100%) of the cost of such property; and (b)
issue any additional Shares.

     6.13 Prepayment of Indebtedness. Prepay, redeem or otherwise satisfy in any manner prior to
the scheduled repayment thereof any Indebtedness (other than the Loans). Notwithstanding the
foregoing,

 

 

Lender agrees that the conversion or exchange into Borrower’s equity securities of any
Indebtedness (other than the Loans) shall not be prohibited by this Section 6.13.

ARTICLE 7 — EVENTS OF DEFAULT

     7.1 Events of Default; Acceleration. Upon the occurrence and during the continuation of any
Default, the obligation of Lender to make any additional Loan shall be suspended. The occurrence of
any of the following (each, an “Event of Default”) shall terminate any obligation of Lender
to make any additional Loan; and shall, at the option of Lender (1) make all sums of Basic Interest
and principal, all Final Payments, and any Obligations and other amounts owing under any Loan
Documents immediately due and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor or any other notices or demands, and (2) give Lender
the right to exercise any other right or remedy provided by contract or applicable law:

     (a) Borrower shall fail to pay any principal, interest or Final Payment under this Agreement
or any Note, or fail to pay any fees or other charges when due under any Loan Document, and such
failure continues for three (3) Business Days or more after the same first becomes due (each,
individually, a “Payment Default”); or an Event of Default as defined in any other Loan Document
shall have occurred. Notwithstanding the foregoing, in the event of a Payment Default resulting
solely from the technical malfunction of an ACH transfer (and not for any other reason, including,
without limitation, insufficient funds or an act, or failure to act, by Borrower, which adversely
affects the ACH transfer) then Lender shall provide Borrower notice of the same and Borrower shall
have 5 days from the receipt of such notice to cure the Payment Default.

     (b) Any representation or warranty made, or financial statement, certificate or other
document provided, by Borrower under any Loan Document shall prove to have been false or
misleading in any material respect when made or deemed made herein.

     (c) (i)Borrower shall fail to pay its debts generally as they become due or (ii) shall
commence any Insolvency Proceeding with respect to itself; an involuntary Insolvency Proceeding
shall be filed against Borrower, or a custodian, receiver, trustee, assignee for the benefit of
creditors, or other similar official, shall be appointed to take possession, custody or control of
the properties of Borrower, and such
involuntary Insolvency Proceeding, petition or appointment is acquiesced to by Borrower or is not
dismissed within forty five (45) days; or the dissolution or termination of the business of
Borrower, or Borrower shall take any corporate action for the purpose of effecting, approving, or
consenting to any of the foregoing.

     (d) Borrower shall be in default beyond any applicable period of grace or cure under any
other agreement involving the borrowing of money, the purchase of property, the advance of credit
or any other monetary liability of any kind to Lender or to any Person which results in the
acceleration of payment of such obligation in an amount in excess of the Threshold Amount.

     (e) Any governmental or regulatory authority shall take any judicial or administrative
action, or any defined benefit pension plan maintained by Borrower shall have any unfunded
liabilities, any of which, would have a Material Adverse Effect.

     (f) Except as set forth in Section 6.4, any sale, transfer or other disposition of all or a
substantial or material part of the assets of Borrower, including without limitation to any trust
or similar entity, shall occur.

     (g) Any judgment(s) singly or in the aggregate in excess of the Threshold Amount shall be
entered against Borrower which remain unsatisfied, unvacated or unstated pending appeal for ten
(10) or more days after entry thereof.

     (h) At any time prior to the initial sale of Borrower’s equity securities to the public
pursuant to a registration statement filed under the Securities Act of 1933, as amended, any
Person or two or more Persons (other than any “Excluded Person” as defined below) acting in
concert shall have acquired (in a single transaction or series of related transactions) beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission) of
outstanding shares of voting stock of Borrower representing fifty percent (50%) or more of the
voting power of all shares of Borrower’s voting stock that are outstanding immediately after such
acquisition. As used in dais paragraph, “Excluded Person” means: (i) any Person who is a
stockholder of Borrower as of the Closing Date; (ii) a venture capital firm or similar investment
fund or institution; or (iii) an affiliate of any Person described in clause (i) or (ii).

 

 

     (i) Borrower shall fail to perform or observe any covenant contained in Sections 6.1,
6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12 or 6.13 of this Agreement.

     (j) Borrower shall fail to perform or observe any covenant contained in Sections 6.9 or 6.11
of this Agreement and, if capable of being cured, the breach of such covenant is not cured within
10 Business Days after the sooner to occur of Borrower’s receipt of notice of such breach from
Lender or the date on which such breach first becomes known to Borrower’s Chief Executive Officer
or Chief Financial Officer.

     (k) Borrower shall fail to perform or observe any covenant contained in Article 5 or
elsewhere in this Agreement or any other Loan Document (other than a covenant which is dealt with
specifically elsewhere in this Article 7) and, if capable of being cured, the breach of such
covenant is not cured within thirty (30) days after the sooner to occur of Borrower’s receipt of
notice of such breach from Lender or the date on which such breach first becomes known to
Borrower’s Chief Executive Officer or Chief Financial Officer; provided, however
that if such breach is not capable of being cured within such thirty (30) day period and Borrower
timely notifies Lender of such fact and Borrower diligently pursues such cure, then the cure
period shall be extended to the date requested in Borrower’s notice but in no event more than
ninety (90) days from the initial breach; provided, further, that such additional sixty
(60) day opportunity to cure shall not apply in the case of any failure to perform or observe any
covenant which has been the subject of a prior failure within the preceding one hundred eighty
(180) days or which is a willful and knowing breach by Borrower.

     7.2 Remedies Upon Default. Subject to Section 6 of Part 2 of the Supplement, upon the
occurrence and during the continuance of an Event of Default, Lender shall be entitled to, at its
option, exercise any or all of the rights and remedies available to a secured party under the UCC
or any other applicable law, and exercise any or all of its rights and remedies provided for in
this Agreement and in any other Loan Document. The obligations of Borrower under this Agreement
shall continue to be effective or be reinstated, as the case may be, if at any time any payment of
any Obligations is rescinded or must otherwise be returned by Lender upon, on account of, or in
connection with, the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as
though such payment had not been made.

     7.3 Sale of Collateral. Subject to Section 6 of Part 2 of the Supplement, upon the occurrence
and
during the continuance of an Event of Default, Lender may sell all or any part of the Collateral,
at public or private sales, to itself, a wholesaler, retailer or investor, for cash, upon credit or
for future delivery, and at such price or prices as Lender may deem commercially reasonable. To the
extent permitted by law, Borrower hereby specifically waives all rights of redemption and any
rights of stay or appraisal which it has or may have under any applicable law in effect from time
to time. Any such public or private sales shall be held at such times and at such place(s) as
Lender may determine. In case of the sale of all or any part of the Collateral on credit or for
future delivery, the Collateral so sold may be retained by Lender until the selling price is paid
by the purchaser, but Lender shall not incur any liability in case of the failure of such purchaser
to pay for the Collateral and, in case of any such failure, such Collateral may be resold. Lender
may, instead of exercising its power of sale, proceed to enforce its security interest in the
Collateral by seeking a judgment or decree of a court of competent jurisdiction. Without limiting
the generality of the foregoing, if an Event of Default is in effect,

     (1) Subject to the rights of any third parties, Lender may license, or sublicense, whether
general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Copyrights,
Patents or Trademarks included in the Collateral throughout the world for such term or terms, on
such conditions and in such manner as Lender shall in its sole discretion determine;

     (2) Lender may (without assuming any obligations or liability thereunder), at any time and
from time to time, enforce (and shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of Borrower in, to and under any Copyright Licenses, Patent
Licenses or Trademark Licenses and take or refrain from taking any action under any thereof, and
Borrower hereby releases Lender from, and agrees to hold Lender free and harmless from and against
any claims arising out of, any lawful action so taken or omitted to be taken with respect thereto
other than claims arising out of Lender’s gross negligence or willful misconduct; and

     (3) Upon request by Lender, Borrower will execute and deliver to Lender a power of attorney,
in form and substance reasonably satisfactory to Lender for the implementation of any lease,
assignment, license, sublicense, grant of option, sale or other disposition of a Copyright, Patent
or Trademark. In the event of any such disposition pursuant to this clause 3, Borrower
shall supply its know-how and expertise

 

 

relating to the products or services made or rendered in connection with Patents, the manufacture
and sale of the products bearing Trademarks, and its customer lists and other records relating to
such Copyrights, Patents or Trademarks and to the distribution of said products, to Lender.

     (4) If, at any time when Lender shall determine to exercise its right to sell the whole or any
part of the Shares hereunder, such Shares or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act (or any similar statute), then
Lender may, in its discretion (subject only to applicable requirements of law), sell such Shares or
part thereof by private sale in such manner and under such circumstances as Lender may deem
necessary or advisable, but subject to the other requirements of this Article 7, and shall
not be required to effect such registration or to cause the same to be effected. Without limiting
the generality of the foregoing, in any such event, Lender in its discretion may (i) in accordance
with applicable securities laws proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Shares or part thereof could be or shall
have been filed under the Securities Act (or similar statute), (ii) approach and negotiate with a
single possible purchaser to effect such sale, and (iii) restrict such sale to a purchaser who is
an accredited investor under the Securities Act and who will represent and agree that such
purchaser is purchasing for its own account, for investment and not with a view to the distribution
or sale of such Shares or any part thereof. In addition to a private sale as provided above in this
Article 7, if any of the Shares shall not be freely distributable to the public without
registration under the Securities Act (or similar statute) at the time of any proposed sale
pursuant to this Article 7, then Lender shall not be required to effect such registration
or cause the same to be effected but, in its discretion (subject only to applicable requirements of
law), may require that any sale hereunder (including a sale at auction) be conducted subject to
restrictions:

(A) as to the financial sophistication and ability of any Person permitted to bid or
purchase at any such sale;

(B) as to the content of legends to be placed upon any certificates representing the
Shares sold in such sale, including restrictions on future transfer thereof;

(C) as to the representations required to
be made by each Person bidding or purchasing at such sale relating to such Person’s access
to financial information about Borrower or any of its Subsidiaries and such Person’s
intentions as to the holding of the Shares so sold for investment for its own account and
not with a view to the distribution thereof; and

(D) as to such other matters as Lender
may, in its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with the
Bankruptcy Code and other laws affecting the enforcement of creditors’ rights and the
Securities Act and all applicable state securities laws.

     (5) Borrower recognizes that Lender may be unable to effect a public sale of any or all the
Shares and may be compelled to resort to one or more private sales thereof in accordance with
clause (4) above. Borrower also acknowledges that any such private sale may result in
prices and other terms less favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have
been made in a commercially unreasonable manner solely by virtue of such sale being private. Lender
shall be under no obligation to delay a sale of any of the Shares for the period of time necessary
to permit the applicable Subsidiary to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if Borrower and/or the Subsidiary
would agree to do so.

     7.4 Borrower’s Obligations Upon Default.
Upon the request of Lender after the occurrence and during the continuance of an Event of Default,
Borrower will:

     (a) Assemble and make available to Lender the Collateral at such place(s) as Lender shall
reasonably designate, segregating all Collateral so that each item is capable of identification;
and

     (b) Subject to the rights of any lessor, permit Lender, by Lender’s officers, employees,
agents and representatives, to enter any premises where any Collateral is located, to take
possession of the Collateral, to complete the processing, manufacture or repair of any Collateral,
and to remove the Collateral, or to conduct any public or private sale of the Collateral, all
without any liability of Lender for rent or

 

 

other compensation for the use of Borrower’s premises.

ARTICLE 8  — SPECIAL COLLATERAL PROVISIONS

     8.1 Compromise and Collection. Borrower and Lender recognize that setoffs, counterclaims,
defenses and other claims may be asserted by obligors with respect to certain of the Rights to
Payment; that certain of the Rights to Payment may be or become uncollectible in whole or in part;
and that the expense and probability of success of litigating a disputed Right to Payment may
exceed the amount that reasonably may be expected to be recovered with respect to such Right to
Payment. Borrower hereby authorizes Lender, after and during the continuance of an Event of
Default, to compromise with the obligor, accept in full payment of any Right to Payment such amount
as Lender shall negotiate with the obligor, or abandon any Right to Payment. Any such action by
Lender shall be considered commercially reasonable so long as Lender acts in good faith based on
information known to it at the time it takes any such action.

     8.2 Performance of Borrower’s Obligations. Without having any obligation to do so, upon
reasonable prior notice to Borrower, Lender may perform or pay any obligation which Borrower has
agreed to perform or pay under this Agreement, including, without limitation, the payment or
discharge of taxes or Liens levied or placed on or threatened against the Collateral. In so
performing or paying, Lender shall in good faith determine the reasonable action to be taken and
the amount necessary to discharge such obligations. Borrower shall reimburse Lender on demand for
any amounts paid by Lender pursuant to this Section, which amounts shall constitute Obligations
secured by the Collateral and shall bear interest from the date of demand at the Default Rate.

     8.3 Power of Attorney. For the purpose of protecting and preserving the Collateral and
Lender’s rights under this Agreement, Borrower hereby irrevocably appoints Lender, with full power
of substitution, as its attorney-in-fact with full power and authority, after the occurrence and
during the continuance of an Event of Default, to do any act which Borrower is obligated to do
hereunder; to exercise such rights with respect to the Collateral as Borrower might exercise; to
use such Inventory, Equipment, Fixtures or other property as Borrower might use; to enter
Borrower’s premises; to give notice of Lender’s security interest in, and to collect the
Collateral; and before or after Default, to execute and file in Borrower’s name any financing
statements, amendments and continuation
statements, account control agreements or other Security Documents necessary or desirable to
perfect or continue the perfection of Lender’s security interests in the Collateral. Borrower
hereby ratifies all that Lender shall lawfully do or cause to be done by virtue of this
appointment.

     8.4 Authorization for Lender to Take Certain Action. The power of attorney created in Section
8.3 is a power coupled with an interest and shall be irrevocable. The powers conferred on Lender
hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon
Lender to exercise such powers. In no event shall Lender or any of its directors, officers,
employees, agents or representatives be-responsible to Borrower for any act or failure to act,
except for gross negligence or willful misconduct. After the occurrence and during the continuance
of an Event of Default, Lender may exercise this power of attorney without notice to or assent of
Borrower, in the name of Borrower, or in Lender’s own name, from time to time in Lender’s
reasonable discretion and at Borrower’s expense. To further carry out the terms of this Agreement,
after the occurrence and during the continuance of an Event of Default, Lender may:

     (a) Execute any statements or documents or take possession of, and endorse and collect and
receive delivery or payment of, any checks, drafts, notes, acceptances or other instruments and
documents constituting Collateral, or constituting the payment of amounts due and to become due or
any performance to be rendered with respect to the Collateral.

     (b) Sign and endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts; drafts, certificates and statements under any commercial or standby letter of
credit relating to Collateral; assignments, verifications and notices in connection with Accounts;
or any other documents relating to the Collateral, including without limitation the Records.

     (c) Use or operate Collateral or any other property of Borrower for the purpose of preserving
or liquidating Collateral.

     (d) File any claim or take any other action or proceeding in any court of law or equity or as
otherwise deemed appropriate by Lender for the purpose of collecting any and all monies due or
securing any performance to be rendered with respect to the Collateral.

 

 

     (e) Commence, prosecute or defend any suits, actions or proceedings or as otherwise
deemed appropriate by Lender for the purpose of protecting or collecting the Collateral. In
furtherance of this right, upon the occurrence and during the continuance of an Event of Default,
Lender may apply for the appointment of a receiver or similar official to operate Borrower’s
business.

     (f) Prepare, adjust, execute, deliver and receive payment under insurance claims, and collect
and receive payment of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and apply such amounts at Lender’s sole discretion, toward
repayment of the Obligations or replacement of the Collateral.

     8.5 Application of Proceeds. Any Proceeds and other monies or property received by Lender
pursuant to the terms of this Agreement or any Loan Document may be applied by Lender first to the
payment of expenses of collection, including without limitation reasonable attorneys’ fees, and
then to the payment of the Obligations in such order of application as Lender may elect

     8.6 Deficiency. If the Proceeds of any disposition of the Collateral are insufficient to
cover all costs and expenses of such sale and the payment in full of all the Obligations, plus all
other sums required to be expended or distributed by Lender, then Borrower shall be liable for any
such deficiency.

     8.7 Lender Transfer. Upon a transfer of all or any part of the Obligations permitted under
this Agreement, Lender may transfer all or part of the Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Collateral so transferred,
and the transferee shall be vested with all the rights and powers of Lender hereunder with respect
to such Collateral so transferred, but with respect to any Collateral not so transferred, Lender
shall retain all rights and powers hereby given.

     8.8 Lender’s Duties.

     (a) Lender shall use reasonable care in the custody and preservation of any Collateral in its
possession. Without limitation on other conduct which may be considered the exercise of reasonable
care, Lender shall be deemed to have exercised reasonable care in the custody and preservation of
such Collateral if such Collateral is accorded treatment substantially equal to that which Lender
accords its own property, it being understood that Lender shall not have any responsibility for ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, declining value, tenders or other
matters relative to any Collateral, regardless of whether Lender has or is deemed to have
knowledge of such matters; or taking any necessary steps to preserve any rights against any Person
with respect to any Collateral. Under no circumstances shall Lender be responsible for any injury
or loss to the Collateral, or any part thereof, arising from any cause beyond the reasonable
control of Lender.

     (b) Lender may at any time deliver the Collateral or any part thereof to Borrower and the
receipt of Borrower shall be a complete and full acquittance for the Collateral so delivered, and
Lender shall thereafter be discharged from any liability or responsibility therefor.

     (c) Neither Lender, nor any of its directors, officers, employees, agents, attorneys or any
other person affiliated with or representing Lender shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any
other party through the ordinary negligence of Lender, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing Lender.

     8.9 Termination of Security Interests. Upon the payment in full of the Obligations (other
than contingent, reimbursement and indemnification obligations for which no claim has been made)
and satisfaction of all Borrower’s obligations under this Agreement and the other Loan Documents,
and if Lender has no further obligations under its Commitment, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to Borrower. Upon any such
termination, the Lender shall, at Borrower’s expense, execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination.

ARTICLE 9  — GENERAL PROVISIONS

     9.1 Notices. Any notice given by any party under any Loan Document shall be in writing and
personally delivered, sent by overnight courier, or United States mail, postage prepaid, or sent
by facsimile, or other authenticated message, charges prepaid, to the other parry’s or parties’
addresses shown on the Supplement. Each party may change the address or facsimile number to which
notices, requests and other communications

 

 

are to be sent by giving written notice of such change to each other party. Notice given by hand
delivery shall be deemed received on the date delivered; if sent by overnight courier, on the next
Business Day after delivery to the courier service; if by first class mail, on the third Business
Day after deposit in the U.S. Mail; and if by facsimile, on the date of transmission.

     9.2 Binding Effect. The Loan Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns; provided, however, that Borrower
may not assign or transfer Borrower’s rights or obligations under any Loan Document. Lender
reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part
of, or any interest in, Lender’s rights and obligations under the Loan Documents subject to
Borrower’s consent; provided that no such consent shall be required (i) if an Event of Default has
then occurred and is continuing, or (ii) for any assignment to LLC (as defined below), or (iii)
for any collateral assignment for security purposes to an institutional lender providing financing
to Lender . In connection with any of the foregoing, Lender may disclose all documents and
information which Lender now or hereafter may have relating to the Loans, Borrower, or its
business. It is the intention of the parties that, as a “venture capital operating company,”
Venture Lending & Leasing V, LLC (“LLC”), the parent and sole owner of Lender, shall have
the benefit of, and the power to independently exercise, those “management rights” provided in
Section 5.3. To that end, the references to Lender in Sections 4.2(f), 5.1, 5.2, 5.3 and 5.9(a)
hereof shall include LLC, and LLC shall have the right to exercise the advisory, inspection,
information and other rights given to lender under those Sections independently of Lender. No
amendment, modification, termination or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in
writing and signed by Borrower and the Lender; provided, however, that no
amendment or modification of this Agreement shall alter or diminish LLC’s rights under the
preceding sentence without the consent of LLC.

     9.3 No Waiver. Any waiver, consent or approval by Lender of any Event of Default or breach of
any provision, condition, or covenant of any Loan Document must be in writing and shall be
effective only to the extent set forth in writing. No waiver of any breach or default shall be
deemed a waiver of any later breach or default of the same or any other provision of any Loan
Document. No failure or delay on the part of Lender in exercising any power, right, or privilege
under any Loan Document shall operate as a waiver thereof, and no single or partial exercise of any such power, right, or privilege shall preclude
any further exercise thereof or the exercise of any other power, right or privilege. Lender has
the right at its sole option to continue to accept interest and/or principal payments due under
the Loan Documents after Default, and such acceptance shall not constitute a waiver of said
Default or an extension of the maturity of any Loan unless Lender agrees otherwise in writing.

     9.4 Rights Cumulative. All rights and remedies existing under the Loan Documents are
cumulative to, and not exclusive of, any other rights or remedies available under contract or
applicable law.

     9.5 Unenforceable Provisions. Any provision of any Loan Document executed by Borrower which is
prohibited or unenforceable in any jurisdiction, shall be-so only as to such jurisdiction and only
to the extent of such prohibition or unenforceability, but all the remaining provisions of any such
Loan Document shall remain valid and enforceable.

     9.6 Accounting Terms. Except as otherwise provided in this Agreement, accounting terms and
financial covenants and information shall be determined and prepared in accordance with GAAP.

     9.7 Indemnification; Exculpation. Borrower shall pay and protect, defend and indemnify Lender
and Lender’s employees, officers, directors, shareholders, affiliates, correspondents, agents and
representatives (other than Lender, collectively “Agents”) against, and hold Lender and
each such Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses,
expenses (including, without limitation, attorneys’ fees and costs) and other amounts incurred by
Lender and each such Agent, arising from (i) the matters contemplated by this Agreement or any
other Loan Documents, (ii) any dispute between Borrower and a third party, or (iii) any contention
that Borrower has failed to comply with any law, rule, regulation, order or directive applicable
to Borrower’s business; provided, however, that this indemnification shall not apply to any of the
foregoing incurred solely as the result of Lender’s or any Agent’s gross negligence or willful
misconduct. This indemnification shall survive the payment and satisfaction of all of Borrower’s
Obligations to Lender.

     9.8 Reimbursement. Borrower shall reimburse Lender for all reasonable out of pocket costs and
expenses, including without limitation reasonable attorneys’ fees and disbursements expended or
incurred by Lender in any arbitration, mediation, judicial

 

 

reference, legal action or otherwise in connection with (a) the preparation and negotiation of the
Loan Documents, (b) the amendment and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with the rendering of legal
advice as to Lender’s rights, remedies and obligations under the Loan Documents, (c) collecting any
sum which becomes due Lender under any Loan Document, (d) any proceeding for declaratory relief,
any counterclaim to any proceeding, or any appeal, or (e) the protection, preservation or
enforcement of any rights of Lender. For the purposes of this section, attorneys’ fees shall
include, without limitation, fees incurred in connection with the following: (1) contempt
proceedings; (2) discovery; (3) any motion, proceeding or other activity of any kind in connection
with an Insolvency Proceeding; (4) garnishment, levy, and debtor and third party . examinations;
and (5) postjudgment motions and proceedings of any kind, including without limitation any activity
taken to collect or enforce any judgment. All of the foregoing costs and expenses shall be payable
upon demand by Lender, and if not paid within forty-five (45) days of presentation of reasonably
detailed invoices shall bear interest at the highest applicable Default Rate.

     9.9 Execution in Counterparts. This Agreement may be executed in any number of counterparts
which, when taken together, shall constitute but one agreement.

     9.10 Entire Agreement. The Loan Documents are intended by the parties as the final
expression of their agreement and therefore contain the entire agreement between the parties and
supersede all prior understandings or agreements concerning the subject matter hereof. This
Agreement may be amended only in a writing signed by Borrower and Lender.

     9.11 Governing Law and Jurisdiction.

     (a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

     (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF BORROWER
AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED
HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

     9.12 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE STATE LAW, BORROWER AND
LENDER EACH WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT
BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

 

     9.13 Obligations and Restrictions Regarding Confidential Information. Lender acknowledges that certain information and documentation provided by Borrower is and shall be
considered as Confidential Information and is subject to the following restrictions of use and
disclosure, Lender agrees: (i) to maintain Borrower’s Confidential Information in strict
confidence; (ii) not to disclose such Confidential Information to any third parties, except for
disclosure (a) to legal counsel and accountants for Lender, (b) to other professional advisors to
Lender, (c) to regulatory officials having jurisdiction over Lender, (d) as required by law or
legal process provided Lender uses reasonable efforts to give Borrower reasonable advance notice
of such required disclosure in order to enable Borrower to prevent or limit such disclosure unless
Lender is restricted from so giving Borrower such advance notice by such law or legal process, (e)
to another financial institution in connection with any permitted assignment or proposed
assignment to that financial institution of all or part of Lender’s interests hereunder or a
participation interest in the Note(s) consistent with the terms of this Agreement respecting
assignments and participations, provided that the recipient has delivered to Lender a written
confidentiality agreement substantially similar to this Section 9.13, and (f) to prospective
purchasers of any Collateral in connection with any disposition thereof, provided that the
recipient has delivered to Lender a written confidentiality agreement substantially similar to
this Section 9.13; and (iii) not to use any such Confidential Information for any purpose except
for the business purposes as contemplated under this Agreement, Lender may also disclose the
Confidential Information of Borrower to its employees and consultants who have a bona fide need to
know such Confidential Information, but solely to the extent necessary to pursue the business
activities necessary under this Agreement; provided that each such employee and consultant first
executes a written agreement (or is otherwise already bound by a written agreement) that contains
use and nondisclosure restrictions at least as protective as Lender would use regarding its own
confidential information.

ARTICLE 10 — DEFINITIONS

     The definitions appearing in this Agreement or any Supplement shall be applicable to both the
singular and plural forms of the defined terms:

“Account” means any “account,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations
(other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or
hereafter received or acquired by or belonging or owing to Borrower (including, without limitation,
under any trade name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same involves the sale of
goods or services by Borrower (including, without limitation, any such obligation that may be
characterized as an account or contract right under the UCC) and all of Borrower’s rights in, to
and under all purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Borrower’s rights to any goods represented by any of the foregoing (including,
without limitation, unpaid seller’s rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become
due to Borrower under all purchase orders and contracts for the sale of goods or the performance of
services or both by Borrower or in connection with any other transaction (whether or not yet earned
by performance on the part of Borrower), now in existence or hereafter occurring, including,
without limitation, the right to receive the proceeds of said purchase orders and contracts, and
all collateral security and guarantees of any kind given by any Person with respect to any of the
foregoing.

“Affiliate” means any Person which directly or indirectly controls, is controlled by, or
is under common control with Borrower. “Control,” “controlled by” and “under common control with” mean direct or indirect possession of the power to
direct or cause the direction of management or policies (whether through ownership of voting
securities, by contract or otherwise); provided, that control shall be conclusively presumed when
any Person or affiliated group directly or indirectly owns ten percent (10%) or more of the
securities having ordinary voting power for the election of directors of a corporation.

“Agreement” means this Loan and Security Agreement and each Supplement thereto, as each
may be amended or supplemented from time to time.

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.),
as amended.

 

 

“Basic Interest” means the fixed rate of interest payable on the outstanding balance of
each Loan at the applicable Designated Rate.

“Borrowing Date” means the Business Day on which the proceeds of a Loan are disbursed by
Lender.

“Borrowing Request” means a written request from Borrower in substantially the form of
Exhibit “B” to the Supplement, requesting the funding of one or more Loans on a particular
Borrowing Date.

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City or San Francisco are authorized or required by law to close.

“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest.

“Closing Date” means the date of this Agreement.

“Collateral” means all of Borrower’s right, title and interest in and to the following
property, whether now owned or hereafter acquired and wherever located: (a) all Receivables; (b)
all Equipment; (c) all Fixtures; (d) all General Intangibles; (e) all Inventory; (f) all
Investment Property; (g) all Deposit Accounts; (h) all Shares; (i) all other Goods and personal
property of Borrower, whether tangible or intangible and whether now or hereafter owned or
existing, leased, consigned by or to, or acquired by, Borrower and wherever located; (j) all
Records; and (k) all Proceeds of each of the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of each of the foregoing.

“Commitment” means the obligation of Lender to make Loans to Borrower up to the aggregate
principal amount set forth in the Supplement.

“Confidential Information” means any technical or business or other confidential
information that: (i) is disclosed in writing by one party to the other party and is marked
“confidential” or “proprietary” at the time of such disclosure; or (ii) is disclosed orally by one
party to the other party, is identified as “confidential” or “proprietary” at the time of such
disclosure, and is summarized in a writing sent by the disclosing party to the receiving party
within thirty (30) days after any such disclosure; or (iii) the receiving party actually knows or
would reasonably be expected to know is considered by the disclosing party to be confidential or proprietary in nature. Confidential Information will not include information that: (i) is now or
other after becomes generally known or available to the public, through no act or omission on the
part of the receiving party, (ii) was known by the receiving party prior to receiving such
information from the disclosing party and without restriction as to use or disclosure, (iii) is
rightfully acquired by the receiving party from a third party who has the right to disclose it and
who provides it without restriction as to use or disclosure; or (iv) is independently developed by
the receiving party without access to any Confidential Information of the disclosing party.

“Copyright License” means any written agreement granting any right to use any Copyright or
Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest.

“Copyrights” means all of the following now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered
or unregistered, held pursuant to the laws of the United States, any State thereof or of any other
country, (ii) all registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof or any other country;
(iii) all continuations, renewals or extensions thereof; and (iv) any registrations to be issued
under any pending applications.

“Default” means an event which with the giving of notice, passage of time, or both would
constitute an Event of Default.

“Default Rate” is defined in Section 2.7.

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest.

“Designated Rate” means the rate of interest per annum described in the Supplement as
being applicable to an outstanding Loan from time to time.

“Documents” means any “documents,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Environmental Laws” means all federal, state or local laws, statutes, common law
duties, rules,

 

 

regulations, ordinances and codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, or safety matters.

“Equipment” means any “equipment,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest
and any and all additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.

“Event of Default” means any event described in Section 7.1.

“Final Payment” means, with respect to a Loan, an amount equal to that percentage of the
original principal amount of such Loan and payable at the time specified in the Supplement or the Note evidencing such Loan.

“Fixtures” means any “fixtures,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“GAAP” means generally accepted accounting principles and practices consistent with those
principles and practices promulgated or adopted by the Financial Accounting Standards Board and
the Board of the American Institute of Certified Public Accountants, their respective predecessors
and successors. Each accounting term used but not otherwise expressly defined herein shall have
the meaning given it by GAAP.

“General Intangibles” means any “general intangibles,” as such term is defined in the
UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and, in any event, shall include, without limitation, all right, title and
interest that Borrower may now or hereafter have in or under any contract, all customer lists,
Copyrights, Trademarks, Patents, websites, domain names, and all applications therefore and
reissues, extensions, or renewals thereof, other rights to Intellectual Property, interests in
partnerships, joint ventures and other business associations, Licenses, permits, trade secrets,
proprietary or confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data bases, data,
skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill
(including, without limitation, the goodwill associated with any Trademark, Trademark registration
or Trademark licensed under any Trademark License), claims in or under insurance policies,
including unearned premiums, uncertificated securities, money, cash or cash equivalents, deposit,
checking and other bank accounts, rights to sue for past, present and future infringement of
Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of
indemnification.

“Goods” means any “goods,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Indebtedness” of any Person means at any date, without duplication and without regard to
whether matured or unmatured, absolute or contingent: (i) all obligations of such Person for
borrowed money; (ii) all obligations of such Person evidenced by bonds, debentures, notes, or
other similar instruments; (iii) all obligations of such Person to pay the deferred purchase price
of property or services, except trade accounts payable arising in the ordinary course of business;
(iv) all obligations of such Person as lessee under capital leases; (v) all obligations of such
Person to reimburse or prepay any bank or other Person in respect of amounts paid under a letter
of credit, banker’s acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in connection with the
sale of the same or substantially similar securities; (vii) all obligations of such Person to
purchase, redeem, exchange, convert or otherwise acquire for value any capital stock of such
Person or any warrants, rights or options to acquire such capital stock, now or hereafter
outstanding, except to the extent that such obligations remain performable solely at the option of
such Person; (viii) all obligations to repurchase assets previously sold (including any obligation
to repurchase any accounts or chattel paper under any factoring, receivables purchase, or similar
arrangement); (ix) obligations of such Person under interest rate swap, cap, collar or similar
hedging arrangements; and (x) all obligations of others of any type described in clause (i)
through clause (ix) above guaranteed by such Person.

“Insolvency Proceeding” means with respect to a Person (a) any case, action or proceeding
before any court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation,

 

 

receivership, dissolution, winding-up or relief of debtors with respect to such Person, or (b)
any general assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of such Person’s creditors generally or any
substantial portion of its creditors, undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code, but in each case, excluding any avoidance or similar action against
such Person commenced by an assignee for the benefit of creditors, bankruptcy trustee, debtor in
possession, or other representative of another Person or such other Person’s estate.

“Instruments” means any “instrument,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Intellectual Property” means all Copyrights, Trademarks, Patents, Licenses, trade
secrets, source codes, customer lists, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures, designs, knowledge,
know-how, software, data bases, skill, expertise, experience, processes, models, drawings,
materials, records and goodwill associated with the foregoing.

“Intellectual Property Security Agreement” means any Intellectual Property Security
Agreement executed and delivered by Borrower in favor of Lender, as the same may be amended,
supplemented, or restated from time to time.

“Inventory” means any “inventory,” as such term is defined in the UCC, wherever located,
now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires
any interest, and, in any event, shall include, without limitation, all inventory, goods and other
personal property that are held by or on behalf of Borrower for sale or lease or are furnished or
are to be furnished under a contract of service or that constitute raw materials, work in process
or materials used or consumed or to be used or consumed in Borrower’s business, or the processing,
packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the
same is in transit or in the constructive, actual or exclusive possession of Borrower or is held
by others for Borrower’s account, including, without limitation, all goods covered by purchase
orders and contracts with suppliers and all goods billed and held by suppliers and all such
property that may be in the possession or custody of any carriers, forwarding
agents, truckers, warehousemen, vendors, selling agents or other Persons.

“Investment Property” means any “investment property,” as such term is defined in the UCC,
now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires
any interest.

“Letter of Credit Rights” means any “letter of credit rights,” as such term is defined in
the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest, including any right to payment under any letter of credit.

“License” means any Copyright License, Patent License, Trademark License or other license
of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest and any renewals or extensions thereof.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security,
security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or
arising by operation of law or otherwise, against any property, any conditional sale or other
title retention agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect to a lease that
is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction.

“Loan” means an extension of credit by Lender under this Agreement.

“Loan Documents” means, individually and collectively, this Loan and Security Agreement,
each Supplement, each Note, the Intellectual Property Security Agreement, and any other security
or pledge agreement(s), and all other contracts, instruments, addenda and documents executed in
connection with this Agreement or the extensions of credit which are the subject of this
Agreement.

“Material
Adverse Effect” or “Material Adverse
Change” means (a) a material
adverse change in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of Borrower; (b) a material impairment of the
ability of Borrower to perform under any Loan Document; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability against Borrower of any Loan Document.

 

 

“Note” means a promissory note substantially in the form attached to the Supplement as
Exhibit “A”, executed by Borrower evidencing each Loan.

“Obligations” means all debts, obligations and liabilities of Borrower to Lender currently
existing or now or hereafter made, incurred or created under, pursuant to or in connection with
this Agreement or any other Loan Document, whether voluntary or involuntary and however arising or
evidenced, whether direct or acquired by Lender by assignment or succession, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether
Borrower may be liable individually or jointly, or whether recovery upon such debt may be or become
barred by any statute of limitations or otherwise unenforceable; and all renewals, extensions and
modifications thereof; and all attorneys’ fees and costs incurred by Lender in connection with the
collection and enforcement thereof as provided for in any Loan Document.

“Patent License” means any written agreement granting any right with respect to any
invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.

“Patents” means all of the following property now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest: (a) all letters patent of, or
rights corresponding thereto in, the United States or any other country, all registrations and
recordings thereof, and all applications for letters patent of, or rights corresponding thereto
in, the United States or any other country, including, without limitation, registrations,
recordings and applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country; (b) all reissues,
continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to be issued under any such applications.

“Permitted Lien” means:

     (a) involuntary Liens which, in the aggregate, would not have a Material Adverse Effect and
which in any event would not exceed, in the aggregate, the Threshold Amount;

     (b) Liens for current taxes or other governmental or regulatory assessments which are not
delinquent, or which are contested in good faith by the appropriate procedures and for which appropriate reserves
are maintained;

     (c) security interests on any property held or acquired by Borrower in the ordinary course of
business securing Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property; provided, that such Lien attaches solely to the
property acquired with such Indebtedness and that the principal amount of such Indebtedness does
not exceed one hundred percent (100%) of the cost of such property;

     (d) Liens in favor of Lender;

     (e) bankers’ liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business as long as an account control agreement for each account in which such
deposits are held in a form acceptable to Lender has been executed and delivered to Lender;

     (f) materialmen’s, mechanics’, repairmen’s, employees’ or other like Liens arising in the
ordinary course of business and which are not delinquent for more than 45 days or are being
contested in good faith by appropriate proceedings;

     (g) any judgment, attachment or similar Lien, unless the judgment it secures has not been
discharged or execution thereof effectively stayed and bonded against pending appeal within 10
days of the entry thereof;

     (h) licenses or sublicenses of Intellectual Property in accordance with Section 6.5 hereof;

     (i) Liens securing Subordinated Debt;

     (j) Liens which have been approved by Lender in writing prior to the Closing Date, as shown
on Schedule 6.2; and

     (k) Liens granted to VLL4 under the VLL4 Loan Agreement.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company, institution,
public benefit corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or
department thereof).

 

 

“Proceeds”
means “proceeds,” as such term is defined in the UCC and, in any event, shall
include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other
forms of money or currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in
any form whatsoever) made or due and payable to Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral
by any governmental authority (or any Person acting under color of governmental authority), (d) any
claim of Borrower against third parties (i) for past, present or future infringement of any
Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of
any Trademark or Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e) any and all other
amounts from time to time paid or payable under or in connection with any of the Collateral.

“Qualified Public Offering” means the closing of a firmly underwritten public offering of
Borrower’s common stock with aggregate proceeds of not less than $20,000,000 (prior to
underwriting expenses and commissions).

“Receivables” means all of Borrower’s Accounts, Instruments, Documents, Chattel Paper,
Supporting Obligations, and letters of credit and Letter of Credit Rights.

“Records” means all Borrower’s computer programs, software, hardware, source codes and
data processing information, all written documents, books, invoices, ledger sheets, financial
information and statements, and all other writings concerning Borrower’s business.

“Related Person” means any Affiliate of Borrower, or any officer, employee, director or
equity security holder of Borrower or any Affiliate.

“Rights to Payment” means all Borrower’s accounts, instruments, contract rights,
documents, chattel paper and all other rights to payment, including, without limitation, the
Accounts, all negotiable certificates of deposit and all rights to payment under any Patent
License, any Trademark License, or any commercial or standby letter of credit.

“Security Documents” means this Loan and Security Agreement, the Supplement hereto, the
Intellectual Property Security Agreement, and any and all account control agreements, collateral
assignments, chattel mortgages, financing statements, amendments to any of the foregoing and other
documents from time to time executed or filed to create, perfect or maintain the perfection of
Lender’s Liens on the Collateral.

“Shares” means: (a) one hundred percent (100%) of the issued and outstanding capital stock,
membership units or other securities owned or held of record by Borrower in any domestic
Subsidiary, and (b) 65% of the issued and outstanding capital stock, membership units or other
securities entitled to vote owned or held of record by Borrower in any Subsidiary that is a
controlled foreign corporation (as defined in the Internal Revenue Code).

“Subordinated Debt” means Indebtedness (i) approved by Lender; and (ii)
where the holder’s right to payment of such Indebtedness, the
priority of any Lien securing the same, and the rights of the holder thereof to enforce remedies
against Borrower following default have been made subordinate to the Liens of Lender and to the
prior payment to Lender of the Obligations, pursuant to a written subordination agreement approved
by Lender in its sole but reasonable discretion.

“Subsidiary” means any Person a majority of the equity ownership or voting stock of which
is at the time owned by Borrower.

“Supplement” means that certain supplement to the Loan and Security Agreement, as the same
may be amended or restated from time to time, and any other supplements entered into between
Borrower and Lender, as the same may be amended or restated from time to time.

“Supporting Obligations” means any “supporting obligations,” as such term is defined in
the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.

“Termination Date” has the meaning specified in the Supplement.

“Threshold Amount” means Two Hundred Fifty Thousand Dollars ($250,000).

 

 

“Trademark License” means any written agreement granting any right to use any Trademark or
Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest.

“Trademarks” means all of the following property now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest: (a) all trademarks,
tradenames, corporate names, business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have appeared or appear,
designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and any applications in connection therewith, including,
without limitation, registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any State thereof or any
other country or any political subdivision thereof and (b) reissues, extensions or renewals
thereof.

“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the
State of California; provided, that in the event that, by reason of mandatory provisions
of law, any or all of the attachment, perfection or priority of, or remedies with respect to,
Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of California, the term “UCC” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority or remedies and for purposes
of definitions related to such provisions. Unless otherwise defined herein, terms that are defined
in the UCC and used herein shall have the meanings given to them in the UCC.

“VLL4” means Venture Lending & Leasing IV, Inc., a Maryland corporation, together with
its successors and assigns.

“VLL4 Agreement” means that certain Loan and Security Agreement dated as of the date
hereof, between Borrower, as borrower, and VLL4, as lender.

[Signature page follows]

 

 

[Signature page to Loan and Security Agreement]

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

	 	 	 	 	 
	BORROWER:

NANOSPHERE, INC.

 	 	 
	By:  	

 	 	 
	 	Name:  	William P. Moffitt  	 	 
	 	Title:  	Chief Executive Officer 	 	 
	 
	LENDER:

VENTURE LENDING & LEASING V, INC.

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 

[Schedules to Loan and Security Agreement follow]

 

 

[Signature page to Loan and Security Agreement]

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

	 	 	 	 	 
	BORROWER:

NANOSPHERE, INC.

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 
	LENDER:

VENTURE LENDING & LEASING V, INC.

 	 	 
	By:  	

 	 	 
	 	Name:  	Ronald W. Swenson 	 	 
	 	Title:  	Chief Executive Officer 	 	 
	 

[Schedules to Loan and Security Agreement follow]EX-10.21

 

Exhibit
10.21

CONSULTING AND NON-COMPETITION AGREEMENT

Nanosphere, Inc.

     THIS CONSULTING AGREEMENT (this “Agreement”) is made by and between Nanosphere, Inc., a
Delaware corporation (the “Company”), and Chad A Mirkin (“Consultant”) as of the 31st day of
October, 2002.

PREAMBLE

     WHEREAS, the Company has heretofore engaged the Consultant pursuant to a Consulting and
Non-Competition Agreement dated as of January 18, 2000 (the “Prior Agreement”), and the Company
desires to continue to engage the Consultant and the Consultant desires to continue to be engaged
by the Company as a consultant pursuant to the terms hereof;

     WHEREAS, contemporaneously with the execution hereof, the Company has entered into a Series C
Preferred Stock Purchase Agreement, effective as of October 31, 2002, with certain Purchasers named
therein (the “Purchase Agreement”) pursuant to which the Company will issue and sell Series C
Preferred Stock to the Purchasers;

     WHEREAS, the execution and delivery of this Agreement by the Consultant and the Company is a
condition to the Purchasers’ obligations under the Purchase Agreement, including making the
investment described therein;

     WHEREAS, as an inducement to the Purchasers to perform their obligations under the Purchase
Agreement, including making the investment described therein, and in consideration for the
Company’s engagement of the Consultant as a consultant to the Company, Consultant desires to enter
into this Agreement; and

     WHEREAS, the Company is in the business of nano particle-based diagnostics and the business
described in that certain October, 2002 Business Plan prepared by the Company, excluding, however,
without limitation, anything related to dip-pen nanolithography (collectively, the “Business”),
which Business relies on certain fundamental discoveries made, in part, by the Consultant in the
field of nanoparticle technology (the Company’s “Science”);

     NOW, THEREFORE, in consideration of the terms and conditions set forth herein and in the
Consultant’s Intellectual Property Rights, Non-Disclosure and Non-Competition Agreement, dated as
of January 18, 2000, with the Company (the “Intellectual Property Agreement”), and the Purchase
Agreement, and for other good and valuable consideration, the sufficiency of which is hereby
acknowledged, and in reliance upon the recitals set forth above, which are fully made a part of
this Agreement, the Company and Consultant hereby agree as follows:

     1. Consulting Duties. Subject to the terms and conditions of this Agreement,
the Company hereby engages the Consultant to render services to the Company and the Consultant
hereby accepts such engagement on the terms and conditions set forth herein during the Term (as
defined in Paragraph 2 below). The Consultant shall provide such services to the Company as
are reasonably requested by the Company. The Consultant shall perform his duties to the
best of his ability in a diligent, trustworthy, businesslike and efficient manner. In the
performance of his

 

 

services hereunder, the Consultant shall abide by the general rules and regulations-of the Company
and such laws, rules and regulations of any governmental agency that may be binding or effective
upon the Consultant’s activities on behalf of the Company. The Consultant shall have no authority
to bind or act on behalf of the Company, except in his capacity as an officer of the Company, if
appointed as such by the Board of Directors of the Company. The Consultant shall not hold himself
out as an employee of the Company. At all times during the Term hereof and for a period of twelve
(12) months thereafter, the Company shall have full access to all of the books and records of the
Consultant regarding the activities of the Consultant on behalf of the Company. Nothing herein
shall be construed so as to limit Consultant’s ability to consult on behalf of other companies not
engaging in a Competing Business (as defined below) or on behalf of other companies with respect to
businesses that are not Competing Businesses. The Company hereby agrees and acknowledges that
Consultant may act as a consultant to other companies that engage in Competing Businesses so long
as the scope of such consultation does not deal with or in any way relate to the Business or the
subject matter thereof.

     Without limiting the generality of the foregoing, the parties agree that among Consultant’s
consulting duties and services hereunder shall be: (i) provision of scientific advice and
counseling to the Company with regard to the Company’s Science; (ii) representation and promotion
of the Company and its Science at scientific meetings and other public forums; (iii) participation,
either singly, or with other Company representatives, at meetings and presentations on behalf of
the Company; and (iv) participation in capital-raising activities on behalf of the Company.

     2. Term. The Consultant’s engagement hereunder shall commence on the date hereof and
shall continue for an initial period of ten (10) years from the date hereof (the “Initial Period”),
and shall automatically renew for successive one year periods (each, a “Renewal Period”)
thereafter, unless either party gives the other party written notice of the non-renewal of such
engagement at least sixty (60) days prior to the end of the Initial Period or the then current
Renewal Period, as the case may be, of the Term, subject to early termination pursuant to Paragraph
8 hereof (the “Term”).

     3. Compensation. As compensation for the services rendered by the Consultant hereunder
during the Term, the Company agrees to pay the Consultant fees at an initial annual rate of
$60,000.00. Such fees shall be payable monthly or with such other frequency as may be agreed upon
by the Company and the Consultant. The initial annual rate shall be subject to annual review and
adjustment by the Company to reflect changes in market conditions (taking into consideration the
demands imposed on the Consultant by the Company; equity and other forms of Consultant compensation
and benefits; and such other factors as the Board of Directors of the Company, and any consultants
it may retain, elect to consider after consultation with Consultant); provided,
however, that no such annual adjustment shall reduce the annual rate of cash compensation
hereunder below $60,000.00. The first such annual review shall begin in January 2003, and any
adjustment resulting therefrom shall apply retroactively as of January 1, 2003. Each subsequent
review shall commence in January of the applicable year with retroactive effect as of January 1 of
that year. In addition, in anticipation and expectation that Consultant will continue to provide
the services and fulfill the duties contracted for hereunder throughout the Initial Period, the
Company will, simultaneously herewith, grant Consultant non-qualified stock options, under the 2000
Equity Incentive Plan Option Award Agreement for Chad A.

2

 

Mirkin, for the purchase of up to 3,000,000 shares of its common stock, par value $.01 per share,
to vest in three (3) equal annual installments beginning on the first anniversary hereof. If this
Agreement is terminated for any reason prior to the expiration of the Initial Term, then the
Consultant shall continue to provide such patent prosecution support and similar services as the
Company shall reasonably request or as shall be required under any other agreement directly or
indirectly applicable to Consultant. Such services shall be rendered under the direction of the
Company, and as compensation therefor, the Consultant shall be paid by the Company in accordance
with the Company’s normal payroll practices, at such hourly “market” rate as the Company and
Consultant shall agree to in good faith and, absent such agreement, at the rate of $300.00 per
hour.

     4. Expenses, The Company, promptly upon receipt of appropriate documentation
and receipts from the Consultant, shall be responsible for or reimburse the Consultant with respect
to any reasonable bona fide costs or expenses incurred by the Consultant in performing his duties
and obligations hereunder, provided that any such costs or expenses greater than $5,000.00 shall
have been pre-approved in writing by the Company. Upon submission of customary invoices and time
detail, the Company shall, as a one-time matter, reimburse Consultant’s reasonable legal fees
incurred on or prior to the date of this Agreement in connection with the review and modification
of this Agreement, concurrent option awards and related contractual matters pertaining to the
Consultant and Company; provided, however, that such reimbursement obligation shall
be limited to $10,000.00 in the aggregate.

     5. Relationship with Northwestern University.

     The Company hereby acknowledges and agrees with Consultant regarding the following:

     a. Consultant is a full time professor at Northwestern University (“Northwestern”) and has certain duties, responsibilities and obligations to Northwestern with respect thereto (the “Northwestern Relationship”), including, without limitation, certain research and publishing responsibilities;

     b. Consultant’s relationship with the Company is subject to Northwestern’s (i) Policy on Faculty Conflict of Commitment and Conflict of Interest, (ii) Patent and Invention Policy, (iii) Technology Transfer Program and (iv) any other policies and
guidelines that may be in effect from time to time to which Northwestern faculty are
subject, including, without limitation, any grants Consultant may receive with respect
to the Northwestern Relationship (the “Policies”);

     c. Pursuant to Consultant’s relationship with Northwestern and the Policies, Consultant can only devote a limited amount of time to the affairs of the Company; and

     d. Nothing contained in this Agreement shall be construed so as to create or
result in a violation or breach of any of Consultant’s duties, responsibilities and
obligations to Northwestern and under the Policies, and the Company specifically agrees
that if any of the obligations of the Consultant pursuant to this Agreement should
create such a violation or breach, the Consultant shall be relieved of such obligation.

3

 

     The Consultant hereby represents and warrants that, notwithstanding the Northwestern
Relationship and the Policies, the Consultant believes in good faith that he has the ability and
right to provide the consulting services and fulfill the duties contracted for hereunder.

     6. Status of Parties: Indemnification.

     a. The Consultant is, and at all times during the Term shall be, an
independent contractor vis-a-vis the Company. The Consultant shall have no rights to
the Company’s usual employee fringe benefits, including but not limited to workers’
compensation or unemployment insurance benefits, and in no event is a contract of
employment intended hereby.

     b. The Consultant represents, warrants and covenants that this Agreement is
a valid, binding and enforceable agreement of the Consultant and the Consultant hereby
agrees to indemnify and hold the Company harmless from and against any material loss,
cost or expense incurred by the Company arising out of or which are a direct or
indirect result of (i) the Consultant’s breach of a representation, warranty or covenant in this
Agreement, or (ii) the Consultant’s gross negligence or reckless or intentional acts.

     c. The Company represents, warrants and covenants that this Agreement is a
valid, binding and enforceable agreement of the Company and the Company hereby
agrees to indemnify and hold the Consultant harmless from and against any material
loss, cost or expense incurred by the Consultant arising out of or which are a direct or
indirect result of (i) the Company’s breach of a representation, warranty or covenant in this
Agreement, or (ii) the Company’s gross negligence or reckless or intentional acts.

     7. Tax Returns; Taxes. The Consultant agrees that he will file all tax returns and
reports required to be filed by him, and pay all taxes required to be paid by him, on the basis
that the Consultant is an independent contractor, rather than an employee, of the Company.

     8. Termination.

     a. The Term and the Consultant’s engagement hereunder shall terminate upon the first to occur of the following events: (1) the mutual agreement of the Company
and the Consultant to so terminate this Agreement, (2) the death or permanent disability (as hereinafter defined) of the Consultant, (3) the Company’s election to terminate the
Term and the Consultant’s engagement hereunder “for cause” (as hereinafter defined), or (4)
as a result of the non-renewal of this Agreement by either party after the Initial Period
or the then current Renewal Period, as the case may be, of the engagement in accordance
with Paragraph 2 above. For purposes hereof:

     (i) The term “permanent disability” shall mean a disability of the
Consultant that prevents the Consultant from fully performing his duties hereunder
and continues for ninety (90) days or more in any one hundred twenty (120) day
period.

     (ii) The term “for cause” shall mean any one or more of the following (A)
conviction of, plea of nolo contendre by, or plea or settlement agreement by

4

 

    Consultant for theft, embezzlement, fraud, misappropriation of
    funds, or the breach of fiduciary duty, abuse of trust or other
    act of dishonesty, or the violation of any other law or ethical
    rule relating to the Consultant’s engagement with the
    Company, (B) the conviction of the Consultant of a felony
    or a crime involving moral turpitude by the Consultant,
    (C) the impending bona fide threat upon the Company of any
    criminal liability caused by the action or inaction of the
    Consultant, or (D) the Consultant’s material breach of
    any of the covenants set forth in Paragraphs 1, 9, or 2 of
    this Agreement or Paragraphs 3, 4 or 9 of the Intellectual
    Property Agreement; provided, however, in the case
    of clause (D) above only, and only to the extent that it
    pertains to a breach of Paragraph 1 of this Agreement, such
    termination shall not be effective unless and until the Company
    shall have given Consultant written notice that Consultant is in
    material breach of this Agreement (which notice shall specify
    the nature of such breach) and, within thirty (30) days of
    such notice, Consultant shall have failed to cure such breach in
    all material respects.

 

    b.  In the event this Agreement is terminated pursuant
    to the terms hereof, the Company shall be obligated to pay the
    Consultant only the compensation accrued through the date of the
    termination, plus such other compensation as may be payable
    pursuant to the last sentence of Paragraph 3 above.

 

    c.  If this Agreement is terminated at the
    Company’s election for cause, in addition to all of the
    rights and remedies available to the Company as set forth
    herein, the Company shall be entitled to enforce all other
    rights and remedies available to it at law or in equity.

 

    d.  Notwithstanding anything to the contrary, upon the
    termination of the Term of this Agreement for any reason, the
    terms and conditions of this Agreement shall remain in full
    force and effect and shall be binding on and enforceable against
    the parties. The parties hereby acknowledge that their
    respective agreements pertaining to the survival of the terms
    and conditions of this Agreement constitute material inducements
    of the other party to enter into this Agreement.

 

    e.  The Company acknowledges that it would be
    inappropriate for the Company to have actual knowledge of
    material breaches by Consultant hereunder, knowingly not act on
    such information, and subsequently terminate Consultant
    “for cause” on the basis of such old breach.
    Accordingly, in the event that the Board of Directors of the
    Company (and not merely individual members) (x) obtains
    actual knowledge of specific facts, events or circumstances
    constituting a material breach of this Agreement
    (y) comprehends that such facts, events or circumstances
    constitute such a breach, and (z) reasonably appreciates
    the magnitude and implications of such breach, the
    Company’s right to terminate Consultant for cause hereunder
    shall expire (but solely with respect to the matters falling
    within clauses (x), (y) and (z) above) ninety
    (90) days following the Board of Directors of the Company
    obtaining all such knowledge.

 

    9.  Confidential Information. During the period
    of Consultant’s engagement by the Company, and after the
    termination thereof for any reason, Consultant agrees that,
    because of the

5

 

valuable nature of the Confidential Information (as hereinafter defined), he shall use his best
efforts to maintain and protect the secrecy of the Confidential Information. Without in any manner
limiting the generality of the foregoing obligation, Consultant agrees that, except as required in
connection with his work for the Company, he shall not, directly or indirectly, undertake or
attempt to undertake any of the following activities:

     a. disclose any Confidential Information to any other person or entity;

     b. use any Confidential Information for his own purposes or for the purposes
of any other person or entity;

     c. make any copies, duplicates or reproductions of any Confidential
Information;

     d. authorize or permit any other person or entity to use, copy, disclose,
publish or distribute any Confidential Information; or

     e. undertake or attempt to undertake any activity the Company is prohibited
from undertaking or attempting to undertake by any of its present or future clients,
customers, suppliers, vendors, consultants, agents or contractors.

     As used in this Agreement, the term “Confidential Information” means any knowledge,
information or property (excluding information that is publicly available other than as a result of
inappropriate disclosure by the Consultant) relating to, or used or possessed by, the Company other
than Northwestern Intellectual Property (as defined in the Intellectual Property Agreement), and
includes, without limitation, the following: Company Intellectual Property (as defined in the
Intellectual Property Agreement), trade secrets, patents, patent applications, copyrights, software
(including, without limitation, all programs, specifications, applications, routines, subroutines,
techniques and ideas for formulae), discoveries, inventions, concepts, data, drawings, designs and
documents, names of actual and prospective clients, customers, employees, agents, contractors, and
suppliers, marketing information, business plans, financial information and other business records,
and all copies of any of the foregoing, including notes, extracts, and memoranda prepared or
suffered or directed to be prepared by Consultant based on any Confidential Information. Consultant
agrees that all information possessed by him, or disclosed to him, or to which he obtains access
during the course of his consultancy with the Company (excluding Northwestern Intellectual Property
and/or information that is publicly available other than as a result of inappropriate disclosure by
the Consultant) shall be presumed to be Confidential Information under the terms of this Agreement,
and the burden of proving otherwise shall rest with Consultant.

     10. Third Party Information. Consultant understands, in addition, that the
Company has received and in the future will receive from third parties confidential or proprietary
information (‘Third Party Information”) subject to a duty on the Company’s part to maintain the
confidentiality of such information and to use it only for certain limited purposes. During the
term of Consultant’s engagement by the Company and thereafter, Consultant agrees to hold Third
Party Information in the strictest confidence and not to disclose to anyone (other than Company
personnel who need to know such information in connection with their work for the

6

 

Company) or use, except in connection with Consultant’s work for the Company, Third Party
Information.

     11. Return of Confidential Information. Upon the termination of Consultant’s
engagement by the Company for any reason, Consultant agrees not to retain or remove from the
Company’s premises any records, files or other documents or copies thereof or any other
Confidential Information whatsoever, and he agrees to surrender same to the Company, wherever it is
located, immediately upon termination of his consultancy.

     12. Restrictive Covenants.

     a. Noncompetition Agreement. Consultant acknowledges that the Company
has provided and may provide additional special training and resources to Consultant to
enable Consultant to perform his duties as a consultant to the Company. As a result,
Consultant agrees that, during the term of his engagement by the Company and for two
(2) years after the termination of the Consultant’s engagement by the Company (whether
such termination is with or without cause or results from Consultant’s resignation or
non
renewal of a consulting agreement or arrangement) (the “Restricted Period”), Consultant
shall not, in the continental United States (the “Geographic Area”), (i) directly or
indirectly engage in, consult with, be employed by or be connected with any business or
activity that directly or indirectly competes with the Business (a “Competing
Business”),
(ii) own any interest in any Competing Business (other than the ownership of less than
five percent (5%) of the outstanding stock of any publicly traded corporation and/or
NanoInk, Inc.), or (iii) assist others to open or operate any Competing Business;
provided, however, that the foregoing prohibitions set forth in clauses
(i), (ii) and (iii)
above shall not be deemed to have been breached to the extent that (x) the Consultant’s
breach was inadvertent and under circumstances where the Consultant did not know and
cannot reasonably be expected to have known, that his conduct would violate this
Paragraph 12, or (y) the specific conduct in which the Consultant desires to engage and
all reasonably relevant facts were fully and formally disclosed to the Board of
Directors
of the Company by Consultant in writing and expressly consented to in writing by formal
resolution of the Board of Directors of the Company.

     b. Non-Solicitation of Clients. Consultant also agrees that, during the term
of his engagement by the Company and during the Restricted Period, Consultant shall not
canvass, solicit or accept any business from any of the Company’s current or former
clients, including, without limitation, any of the Company’s licensees if such
canvassing,
solicitation or acceptance is related to the Business, unless the specific conduct in
which
the Consultant desires to engage and all reasonably relevant facts were fully and
formally
disclosed to the Board of Directors of the Company by Consultant in writing and
expressly consented to in writing by formal resolution of the Board of Directors of the
Company.

     c. Non-Solicitation of Employees and Consultants. Consultant also agrees
that, during the term of his engagement by the Company and during the Restricted
Period, Consultant shall not solicit, recommend or induce employees or consultants of
the
Company to terminate their employment or other relationship with the Company, unless

7

 

expressly requested to do so by the Company, or unless the specific conduct in which
the Consultant desires to engage and all reasonably relevant facts were fully and formally
disclosed to the Board of Directors of the Company by Consultant in writing and expressly
consented to in writing by formal resolution of the Board of Directors of the Company.
Notwithstanding the foregoing, nothing herein shall prevent the Consultant from providing a
letter of recommendation to an employee with respect to a future employment opportunity.

     d. General Non-Solicitation. Consultant also agrees that, during the term of
his engagement by the Company and during the Restricted Period, Consultant will not
without the express prior written approval of the Board of Directors of the Company (i)
directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise
induce or influence any proprietor, partner, stockholder, lender, director, officer,
employee, sales agent, joint venturer, investor, licensor, licensee, lessor, supplier,
customer, agent, representative or any other person that has a business relationship with
the Company to discontinue, reduce or modify such employment, agency or business
relationship with the Company, or (ii) employ or seek to employ or cause any competitive
business to employ or seek to employ any person or agent who is then (or was at any time
within six (6) months prior to the date the Consultant or the competitive business employs
or seeks to employ such person) employed or retained by the Company.

     e. Cooperation and Clarification. The Company represents that its intent with
respect to Paragraph 9 above and this Paragraph 12 is not to impose unworkable
constraints on Consultant, but that its intent is instead to protect information that it
reasonably and in good faith believes should be appropriately protected in the interest
of the Company and its shareholders. Toward this end, the Company and Consultant agree
that Consultant and the Board of Directors will meet at least one (1) time every six
(6) months in order to evaluate the extent to which modifications or exceptions, if any, to
Paragraph 9 above or this Paragraph 12 are appropriate. To the extent that Consultant
reasonably requests more frequent or interim meetings to discuss proposed modifications
or exceptions, the Company agrees that its Board of Directors or designees thereof
shall make themselves reasonably available to Consultant for such purposes. Notwithstanding
the foregoing, the determinations of the Company’s Board of Directors or such designees
pertaining to any such modification or exception, or pertaining to the revocation of
same, shall be final; provided, further, that the failure to schedule or hold
any such meetings on a timely basis will not in any way diminish the obligations of Consultant hereunder, or
be taken into consideration in the interpretation hereof.

     13. Reasonableness of Restrictions. After consultation with counsel selected by
the Consultant, Consultant agrees and acknowledges that the restrictive covenants set forth in
Paragraphs 9, 10, and 12, including the Geographic Area and Restrictive Period, are reasonable in
scope and length. Consultant has agreed to the foregoing restrictive covenants because (a) he
recognizes that the Company has a legitimate interest in protecting the confidentiality of its
business secrets (including the Confidential Information), (b) he agrees that such noncompetition
agreement is not oppressive to him nor injurious to the public, and (c) the Company has provided
information and resources to Consultant.

8

 

     14. Injunction. Because the award of monetary damages would be an inadequate remedy,
in the event of a breach or threatened breach by the Consultant of any of the provisions
0f this Agreement, the Company shall be entitled to enforce this Agreement and any of
its provisions by injunction, specific performance or other equitable relief, without bond and
without prejudice to any other rights and remedies that the Company may have for a breach of this
Agreement. Nothing herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the recovery of damages
from the Consultant.

     15. No Conflicting Obligation. Except as set forth herein, Consultant represents that
his performance of all the terms of this Agreement and as a consultant to the Company does not and
will not breach any agreement to keep in confidence information acquired by Consultant in
confidence or in trust prior to his engagement by the Company or any other agreement. Consultant
has not entered into, and agrees that he will not enter into, any agreement either written or oral
in conflict herewith.

     16. Amendment. No amendment, whether express or implied, to this Agreement shall be
effective unless it is in writing and signed by both Consultant and a representative of the Company
duly authorized to make such amendment.

     17. Waiver. No consent or waiver, express or implied, by the Company to or of any
breach or default by the Consultant in the performance of his agreements hereunder shall operate as
a consent to or waiver of any other breach or default in the performance of the same or any other
obligations of the Consultant hereunder. The Company’s failure to complain of any such breach or
default shall not constitute a waiver by the Company of its rights hereunder, irrespective of how
long such failure continues.

     18. Governing Law. This Agreement shall be governed by, and construed under, the laws
of the State of Illinois, without regard to its conflict of laws principles.

     19. Severability. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision. In addition, should any time
or area restriction contained herein be found by a court to be unreasonable, such restriction shall
nevertheless remain as to the time or area such court finds reasonable, and as so amended, shall be
enforced.

     20. Board of Directors. The Company agrees that until completion of an initial public
sale of Company securities, the earlier termination of this Agreement by Consultant for any reason
or by the Company “for cause,” or such time as the Consultant shall have violated Paragraph 12
above, the Company shall cause the Consultant to be afforded a seat on the Board of Directors of
the Company. The Company further covenants that as soon as is practicable, it shall use all
reasonable efforts to cause the obligation set forth in this Paragraph 20 to be removed from this
Agreement and incorporated into a Company shareholder agreement as a binding obligation of Company
shareholders with sufficient voting power to cause Consultant’s election to the Board of Directors.

9

 

     21. Miscellaneous. This Agreement shall apply to all periods when the Consultant is or
was engaged by the Company irrespective of whether or not this Agreement is reexecuted at the
beginning of each such period. The title and paragraph headings of this Agreement are intended for
reference only, and they shall not be construed as limiting or affecting any of the contents of
this Agreement. This Agreement is binding upon and shall inure to the benefit of the parties’
heirs, representatives, affiliates, successors or assigns. The use of any gender shall include all
other genders. The provisions of this Agreement shall survive the termination of Consultant’s
engagement by the Company and the assignment of this Agreement by the Company to any successor in
interest or other assignee. This Agreement and the Intellectual Property Agreement contain the
entire agreement between the parties hereto with respect to the subject matter hereof and
supersede, on a prospective basis, any prior oral or written agreements with respect to such
subject matter, including, without limitation, the Prior Agreement. This Agreement may not be
assigned by the Consultant without the express written consent of the Company. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute one and the same instrument.

     22. Conditional Effectiveness. The parties hereto acknowledge, agree and direct that
in the event that on or prior to November 20, 2002, any foreign company investor advises the
Company that it is not satisfied with the closing procedures and timing of the Company’s Series C
Preferred Stock financing or declines the Company’s request that such investor acknowledge in
writing its satisfaction with such procedures and timing, this Agreement will be deemed null and
void, as though neither party had executed and delivered same.

[Signatures on Following Page]

10

 

INTELLECTUAL PROPERTY RIGHTS, NON-DISCLOSURE AND

NON-COMPETITION AGREEMENT

Nanosphere, Inc.

     THIS AGREEMENT (this “Agreement”) is made by and between Nanosphere, Inc., a Delaware
corporation (the “Company”), and Chad A. Mirkin (“Consultant”) as of the 18th day of
January, 2000.

PREAMBLE

     WHEREAS, Consultant owns approximately 49.4% of the common stock, $.01 par value per share, of
the Company;

     WHEREAS, the Company has entered into a Series A Preferred Stock and Warrant Purchase
Agreement, dated as of January 18, 2000, with certain Purchasers named therein (the “Purchase
Agreement”) pursuant to which the Company will issue and sell Series A Preferred Stock and Warrants
to the Purchasers;

     WHEREAS, the execution and delivery of this Agreement by the Consultant and the Company is a
condition to the Purchasers’ obligations under the Purchase Agreement, including making the
investment described therein;

     WHEREAS, as an inducement to the Purchasers to perform their obligations under the Purchase
Agreement, including making the investment described therein, and in consideration for the
Company’s engagement of the Consultant as a consultant to the Company, Consultant desires to enter
into this Agreement; and

     WHEREAS, the Company is in the business of nano particle-based diagnostics and the business
described in that certain Business Plan dated October 29, 1998 and prepared by the Company
(collectively, the “Business”); provided, however, that the definition of Business specifically
excludes, without limitation, anything related to dip-pen nanolithography.

     NOW, THEREFORE, in consideration of the terms and conditions set forth herein, in the
Consultant’s Consulting and Non-Competition Agreement, dated as of the date hereof, with the
Company, and in the Purchase Agreement, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, and in reliance upon the recitals set forth above,
which are fully made a part of this Agreement, the Company and Consultant hereby agree as follows:

     1. Acknowledgment. Subject to the terms and conditions hereof, the Company
desires to preserve the goodwill of its Business and business relationships and to protect the
details of its Business and affairs from disclosure and unauthorized use and to ensure ownership

1

 

of or licensed rights to certain property. Consultant recognizes and acknowledges that he shall
have access to a variety of knowledge, information and property related to the Company’s business
or affairs and may have contact with the Company’s customers, suppliers, licensors, licensees,
employees, other consultants, and similar persons and may assist in the creation and/or development
of certain property.

     2. Relationship with Northwestern University.

     The Company hereby acknowledges and agrees with Consultant regarding the following:

     a. Consultant is a full time professor at Northwestern University
(“Northwestern”) and has certain duties, responsibilities and obligations to
Northwestern with respect thereto (the “Northwestern Relationship”), including, without limitation,
certain research and publishing responsibilities;

     b. Consultant’s relationship with the Company is subject to Northwestern’s
(i) Policy on Faculty Conflict of Commitment and Conflict of Interest, (ii) Patent and
Invention Policy, (iii) Technology Transfer Program and (iv) any other policies and
guidelines which may be in effect from time to time to which Northwestern faculty are
subject, including, without limitation, any grants Consultant may receive with respect
to the Northwestern Relationship (the “Policies”);

     c. Pursuant to Consultant’s relationship with Northwestern and the Policies,
Consultant can only devote a limited amount of time to the affairs of the Company; and

     d. Nothing contained in this Agreement shall be construed so as to create or
result in a violation or breach of any of Consultant’s duties, responsibilities and
obligations to Northwestern and under the Policies, and the Company specifically agrees
that if any of the obligations of the Consultant pursuant to this Agreement should
create such a violation or breach, the Consultant shall be relieved of such obligation.

     The Consultant hereby represents and warrants that, notwithstanding the Northwestern
Relationship and the Policies, the Consultant believes in good faith that he has the ability and
right to conduct and operate the Business.

     3. Right of First Refusal With Respect to Northwestern Intellectual Property.

     a. While Consultant is engaged by the Company as a consultant, and during
the course of performing Consultant’s duties, responsibilities and obligations with respect
to the Northwestern Relationship, Consultant may individually, or in conjunction with
others, develop technology and intellectual property that may be related to the Business
and accordingly benefit the Company (the “Northwestern Intellectual Property”). Subject to
the remainder of this Section 3, the Company hereby acknowledges and agrees that the
Northwestern Intellectual Property, when developed, will be the property of

2

 

Northwestern and the individuals who aid in the development or discovery of such
Northwestern Intellectual Property.

     b. Consultant shall not sell, transfer, assign, pledge, license or otherwise
dispose of (collectively, “Transfer”) his rights in any Northwestern Intellectual
Property
or cause the Transfer of any Northwestern Intellectual Property, except as provided in
this Section 3.

     c. Consultant shall promptly notify the Company in writing of the discovery
or development of any Northwestern Intellectual Property.

     d. Upon the request and at the expense of the Company, Consultant hereby
agrees that he will use his reasonable best efforts to cause Northwestern, and any
other
party with an interest in any such Northwestern Intellectual Property, to assign, to
the
extent possible and if an assignment is not possible or if otherwise requested by the
Company, to license the rights of such party to such Northwestern Intellectual Property
to
the Company, to the extent possible and if not possible or if otherwise requested by
the
Company, to the Consultant.

     e. If Consultant obtains an assignment or license of all or any rights to any
such Northwestern Intellectual Property, he shall promptly provide written notice to
the
Company of his receipt of such assignment or assignments or license or licenses.

     f. For sixty days after the Company’s receipt of the written notice from
Consultant pursuant to subsection (e) above (the “Exclusive Period”), the Company shall
have the exclusive right to acquire, to the extent that such acquisition is possible
and if
not possible or if otherwise requested by the Company, to license such Northwestern
Intellectual Property from Consultant.

     g. If the Company has not notified the Consultant that it intends to license or
acquire such Northwestern Intellectual Property within the Exclusive Period, Consultant
shall have the right to Transfer such Northwestern Intellectual Property to a third
party on
terms and conditions no more favorable than those offered to the Company during the
Exclusive Period.

     h. Any Transfer to the Company of Northwestern Intellectual Property
pursuant to Section 3(d) or 3(f) shall be for no additional consideration.

     4. Protection of Northwestern Intellectual Property. Consultant shall
use his reasonable best efforts to, and to cause any other party who holds any interest in
Northwestern Intellectual Property to, take all reasonable actions to protect the Northwestern
Intellectual Property, including, without limitation, taking all such actions necessary to
keep such Northwestern Intellectual Property confidential until such time as such
confidentiality is no longer necessary to obtain domestic and foreign patents. Upon the
request of the Company,

3

 

Consultant will take all steps necessary to obtain patent protection for such Northwestern
Intellectual Property.

     5. Publishing and Teaching Obligations. Subject to Section 4, the Company hereby
agrees and acknowledges that the Consultant may publish articles or papers, or make lectures and
presentations to students and other faculty, related to Northwestern Intellectual Property.

     6. Confidential Information. During the period of Consultant’s engagement by the
Company, and after the termination thereof for any reason, Consultant agrees that, because of the
valuable nature of the Confidential Information, he shall use his best efforts to maintain and
protect the secrecy of the Confidential Information. Without in any manner limiting the
generality of the foregoing obligation, Consultant agrees that, except as required in connection
with his work for the Company, he shall not, directly or indirectly, undertake or attempt to
undertake any of the following activities:

     a. disclose any Confidential Information to any other person or entity;

     b. use any Confidential Information for his own purposes or for the purposes
of any other person or entity;

     c. make any copies, duplicates or reproductions of any Confidential
Information;

     d. authorize or permit any other person or entity to use, copy, disclose,
publish or distribute any Confidential Information; or

     e. undertake or attempt to undertake any activity the Company is prohibited
from undertaking or attempting to undertake by any of its present or future
clients, customers, suppliers, vendors, consultants, agents or contractors.

     As used in this Agreement, the term “Confidential Information” means any knowledge,
information or property relating to, or used or possessed by, the Company other than Northwestern
Intellectual Property, and includes, without limitation, the following: Company Intellectual
Property (as hereinafter defined), trade secrets, patents, patent applications, copyrights,
software (including, without limitation, all programs, specifications, applications, routines,
subroutines, techniques and ideas for formulae), discoveries, inventions, concepts, data,
drawings, designs and documents, names of actual and prospective clients, customers, employees,
agents, contractors, and suppliers, marketing information, business plans, financial information
and other business records, and all copies of any of the foregoing, including notes, extracts,
and memoranda prepared or suffered or directed to be prepared by Consultant based on any
Confidential Information. Consultant agrees that all information possessed by him, or disclosed
to him, or to which he obtains access during the course of his consultancy with the Company other
than Northwestern Intellectual Property shall be presumed to be Confidential Information under
the terms of this Agreement, and the burden of proving otherwise shall rest

4

 

with Consultant.

     7. Third Party Information. Consultant understands, in addition, that the Company has
received and in the future will receive from third parties confidential or proprietary information
(“Third Party Information”) subject to a duty on the Company’s part to maintain the confidentiality
of such information and to use it only for certain limited purposes. During the term of
Consultant’s engagement by the Company and thereafter, Consultant agrees to hold Third Party
Information in the strictest confidence and not to disclose to anyone (other than Company personnel
who need to know such information in connection with their work for the Company) or use, except in
connection with Consultant’s work for the Company, Third Party Information.

     8. Return of Confidential Information. Upon the termination of Consultant’s engagement
by the Company for any reason, Consultant agrees not to retain or remove from the Company’s
premises any records, files or other documents or copies thereof or any other Confidential
Information whatsoever, and he agrees to surrender same to the Company, wherever it is located,
immediately upon termination of his consultancy.

     9. Assignment of Intellectual Property.

     a. During the period of his engagement by the Company as a Consultant, all
intellectual property and business concepts, business plans, projections and other
similar items, as well as all business opportunities, and any other confidential and/or
proprietary knowledge, data or information of the Company conceived or developed by the
Consultant solely in his role as a Consultant to the Company (the “Company Intellectual
Property”), shall be promptly disclosed to and become the property of the Company, and
Consultant hereby assigns, transfers and conveys the Company Intellectual Property and
any rights Consultant may now have or hereafter acquire in and to the Company
Intellectual Property or to acquire the Company Intellectual Property to the Company;
provided, however, that the Company Intellectual Property shall in no event include any
Northwestern Intellectual Property.

     b. Consultant further agrees to make, verify and provide to the Company any
documents, instruments or other materials, and to perform such acts, necessary or
advisable to vest, secure, evidence or maintain the Company’s ownership or registration
of the Company Intellectual Property, and patents, copyrights, trademarks and similar
foreign and domestic property rights with respect to the Company Intellectual Property.
In the event the Company is unable for any reason, after reasonable effort, to secure
Consultant’s signature on any document needed in connection with the actions specified
in this paragraph, Consultant hereby irrevocably designates and appoints the Company
and its duly authorized officers and agents as his agent and attorney in fact, which
appointment is coupled with an interest, to act for and in his behalf to execute,
verify and file any such documents and to do all other lawfully permitted acts to further the
purposes

5

 

of this paragraph with the same legal force and effect as if executed by Consultant. Consultant
hereby waives and quitclaims to the Company any and all claims, of any nature whatsoever, which
Consultant now or may hereafter have for infringement of any Company Intellectual Property assigned
hereunder to the Company.

     10. Restrictive Covenants.

     a. Noncompetition Agreement. Consultant acknowledges that the Company
has provided and may provide additional special training and resources to Consultant to
enable Consultant to perform his duties as a consultant to the Company. As a result,
Consultant agrees that, during the term of his engagement by the Company and for the
period which is the longer of (x) four years from the date hereof or (y) two (2) years after
the termination of the Consultant’s engagement by the Company (whether such
termination is with or without cause or results from Consultant’s resignation or
non-renewal of a consulting agreement or arrangement) (the “Restricted Period”) Consultant
shall not, in the continental United States (the “Geographic Area”), (i) directly or
indirectly engage in, consult with, be employed by or be connected with any business or
activity which directly or indirectly competes with the Business (a “Competing
Business”), (ii) own any interest in any Competing Business (other than the ownership of
less than five percent (5%) of the outstanding stock of any publicly traded corporation),
or (iii) assist others to open or operate any Competing Business.

     b. Non-Solicitation of Clients. Consultant also agrees that, during the term
of his engagement by the Company and during the Restricted Period, Consultant shall not
canvass, solicit or accept any business from any of the Company’s current or former
clients, including, without limitation, any of the Company’s licensees if such canvassing,
solicitation or acceptance is related to the Business.

     c. Non-Solicitation of Employees and Consultants. Consultant also agrees
that, during the term of his engagement by the Company and during the Restricted
Period, Consultant shall not solicit, recommend or induce employees or consultants of the
Company to terminate their employment or other relationship with the Company.
Notwithstanding the foregoing, nothing herein shall prevent the Consultant from
providing a letter of recommendation to an employee with respect to a future
employment opportunity.

     d. General Non-Solicitation. Consultant also agrees that, during the term of
his engagement by the Company and during the Restricted Period, Consultant will not
without the express prior written approval of the Board of Directors of the Company (i)
directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise
induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales
agent, joint venturer, investor, licensor, licensee, lessor, supplier, customer, agent,
representative or any other person which has a business relationship with the Company to

6

 

discontinue, reduce or modify such employment, agency or business relationship with
the Company, or (ii) employ or seek to employ or cause any competitive business to employ
or seek to employ any person or agent who is then (or was at any time within six (6) months
prior to the date the Consultant or the competitive business employs or seeks to employ
such person) employed or retained by the Company.

     11. Reasonableness of Restrictions. Consultant agrees and acknowledges that the
restrictive covenants set forth in Sections 4, 6 through 8 and 10 including the Geographic
Area and Restrictive Period, are reasonable in scope and length. Consultant has agreed to the
foregoing restrictive covenants because (a) he recognizes that the Company has a legitimate
interest in protecting the confidentiality of its business secrets (including the
Confidential Information), (b) he agrees that such noncompetition agreement is not oppressive to him nor
injurious to the public, and (c) the Company has provided specialized and valuable
training, information and resources to Consultant.

     12. Injunction. Because the award of monetary damages would be an inadequate remedy,
in the event of a breach or threatened breach by the Consultant of any of the provisions of this
Agreement, the Company shall be entitled to enforce this Agreement and any of its provisions by
injunction, specific performance or other equitable relief, without bond and without prejudice to
any other rights and remedies that the Company may have for a breach of this Agreement. Nothing
herein shall be construed as prohibiting the Company from pursuing any other remedies available to
it for such breach or threatened breach, including the recovery of damages from the Consultant.

     13. No Conflicting Obligation. Consultant represents that his performance of all the
terms of this Agreement and as a consultant to the Company does not and will not breach any
agreement to keep in confidence information acquired by Consultant in confidence or in trust prior
to his engagement by the Company or any other agreement. Consultant has not entered into, and
agrees that he will not enter into, any agreement either written or oral in conflict herewith.

     14. Amendment. No amendment, whether express or implied, to this Agreement shall be
effective unless it is in writing and signed by both parties hereto.

     15. Waiver. No consent or waiver, express or implied, by the Company to or of any
breach or default by the Consultant in the performance of his agreements hereunder shall operate
as a consent to or waiver of any other breach or default in the performance of the same or any
other obligations of the Consultant hereunder. The Company’s failure to complain of any such
breach or default shall not constitute a waiver by the Company of its rights hereunder,
irrespective of how long such failure continues.

     16. Governing Law. This Agreement shall be governed by, and construed under, the laws
of the State of Illinois, without regard to its conflict of laws principles.

7

 

     17. Severability. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision. In addition, should any time
or area restriction contained herein be found by a court to be unreasonable, such restriction shall
nevertheless remain as to the time or area such court finds reasonable, and as so amended, shall be
enforced.

     18. Miscellaneous. This Agreement shall apply to all periods when the Consultant is
engaged by the Company irrespective of whether or not this Agreement is reexecuted at the beginning
of each such period. The title and paragraph headings of this Agreement are intended for reference
only, and they shall not be construed as limiting or affecting any of the contents of this
Agreement. This Agreement is binding upon and shall inure to the benefit of the parties’ heirs,
representatives, affiliates, successors or assigns. The use of any gender shall include all other
genders. The provisions of this Agreement shall survive the termination of Consultant’s engagement
by the Company and the assignment of this Agreement by the Company to any successor in interest or
other assignee. This Agreement and the Consulting and Non-Competition Agreement of even date
herewith between the Company and Consultant, contain the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede any prior oral or written agreements
with respect to such subject matter. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which, when taken together, shall constitute
one and the same instrument.

[Signatures on Following Page]

8

 

     IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above
written.

	 	 	 	 	 
	 	THE COMPANY:

NANOSPHERE, INC.

 	 
	 	By:  	    /s/	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	THE CONSULTANT:

 	 
	 	/s/ Chad A. Mirkin	 
	 	
Name:	 
	 	 	 
	 

9

 

	 	 	 	 	 

AMENDMENT TO

CONSULTING AND NON-COMPETITION AGREEMENT

     This Amendment to Consulting and Non-Competition Agreement (this “Amendment”) is made by and
between Nanosphere, Inc., a Delaware corporation (the “Company”), and Chad A. Mirkin
(“Consultant”), as of the 23rd day of February, 2004.

PREAMBLES

     WHEREAS, Consultant is engaged as such by the Company under the terms of a
Consulting and Non-Competition Agreement made by and between the Company and Consultant,
dated as of October 31, 2002 (the “Agreement”);

     WHEREAS, provisions the Agreement provide for an annual review and adjustment by the Company
of the compensation to be paid to Consultant;

     WHEREAS, such an annual review has been undertaken by the Company and an adjustment agreed to
between the Company and Consultant, and the parties wish to memorialize that agreement;

     NOW, THEREFORE, in consideration of the premises, and for other good and valuable
consideration, the sufficiency and receipt of which is hereby acknowledged, the Company and
Consultant hereby agree that the Agreement is hereby amended as follows:

     1. Adjustment. Section 3 of the Agreement is hereby amended to provide that the annual
rate of compensation payable to Consultant for services rendered during the years 2003 and 2004
shall be $100,000 per annum, which rate shall apply retroactively as of January 1, 2003, payable as
provided in Section 2 below.

     2. Payment of Adjustment Amount. The additional $40,000 payable each year to
Consultant for consulting services in 2003 and 2004, over and above the $60,000 initial annual rate
of compensation otherwise payable to Consultant for services during those years (the “Adjustment
Amount”), shall be payable, and be paid, only from the proceeds of the Company’s next capital
fund-raising round by way of sale of equity securities in an amount not less than $5,000,000 (but
not including or counting the proceeds of any bridge loan financing transaction whether or not
equity securities are part of the consideration). Upon consummation of such a round of new equity
financing, all amounts of the Adjustment Amount accrued to that date, being the full $40,000
amount due with respect to the year 2003, plus such amounts as have been accrued to the date of
such payment for 2004, shall be due and payable, in full, in cash, to Consultant. Any balance
remaining due with respect to 2004 shall be paid in installments throughout the year 2004 in
accordance with previous installment payment practices, on the basis of the $100,000 base rate.
Beginning in the year 2005, the annual compensation rate under the Agreement may return to a lower
level commensurate with Consultant’s obligations but not below the $60,000 level set forth in the
terms of the original Agreement and future reviews and adjustments, if any, will be made by the
Company after receiving input from Company representatives and Consultant.

 

 

     3. 2004 Review and Adjustment. The parties agree that the foregoing compensation
adjustment and provision for payment satisfies the annual review and adjustment obligation of the
Company for years 2003 and 2004 under the Agreement.

     IN WITNESS WHEREOF, each of the Company and Consultant have executed this Amendment to
Consulting and Non-Competition Agreement as of the date first above written.

	 	 	 	 	 
	 	NANOSPHERE, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	JEFFREY J. LANEAN 	 
	 	 	Title:  	PRESIDENT & CEO 	 
	 
	 	CONSULTANT

 	 
	 	By:  	
 	 
	 	 	Name:  	Chad A. Mirkin 	 
	 	 	 	 
	 

2

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