NOTHING VENTURED NOTHING GAINED Venture Capital Term Sheets

NOTHING VENTURED NOTHING GAINED© Venture Capital Term Sheets by Barry Burgdorf Vice Chancellor and General Counsel July 25, 2007

TERM SHEETS GENOMICS, INC. SERIES [A] PREFERRED STOCK FINANCING 2

PURPOSE The intent of this document is to describe, for negotiation purposes only, certain principal terms of the proposed Series [A] Preferred Stock financing of Genomics, Inc. (the “Company”). Until execution and delivery of such definitive agreements, the Company and the investors shall each have the absolute right to terminate all negotiations for any reason without liability or obligation. 3

CONFIDENTIALITY The terms and conditions of this term sheet, including its existence, shall be confidential information and shall not be disclosed to any third party without the consent of the Company and each investor, except to 1) employees, agents, etc. with a need to know and a duty to keep confidential; and 2) if required by law. Note: As public universities, U. T. System and System institutions must include language relating to the Texas Public Information Act. 4

VALUATION AND INVESTORS PRE-MONEY VALUATION: $25 million (on a fully-diluted basis, including all options and warrants, and all authorized but unissued options) INVESTORS: Name Bill & Ted’s Excellent VC Fund (“BT”) [Other Investors] Total Amount $________ $____ 5

THE CAPITALIZATION TABLE The capitalization of the Company on a fullydiluted basis (including all options and warrants, and all authorized but not issued options) after giving effect to the financing would be as follows: Class of Stock Common Options Series A Preferred Warrants TOTAL # of Shares _____ _____ Fully-Diluted ___% 100% 6

THE STOCK OPTION PLAN: WHAT ABOUT ME BOSS? The Company’s Stock Option Plan, will be implemented as part of this financing as necessary to establish the total shares reserved under the Option Plan to 20% of the outstanding shares of the Company after the proposed financing. [Specific terms of option plan -- i. e. , vesting, Company’s repurchase rights, etc. ] 7

THE STOCK OPTION PLAN: WHAT ABOUT ME BOSS? (cont’d) Note: If U. T. employees will be involved in Company management, they will need independent personal legal advice on the option plan and executive compensation. Issues to consider: 1. institutional rules on outside employment; 2. conflicts of interest management plan; 3. agreements on intellectual property; 4. tax consequences; 5. SEC issues regarding cheap stock and backdating. 8

DIVIDEND RIGHTS: THE VC’S VIG The Series [A] Preferred would be entitled to an annual per share dividend equal to [7 -9%] of the Purchase Price, payable when and if declared by the Board of Directors (the “Board”). The dividends would be [non-] cumulative beginning _____. 9

DIVIDEND PREFERENCE: ME FIRST! Dividends on the Series [A] Preferred would be paid prior to payment of any dividend with respect to the Common Stock and any other class or series of stock. 10

DIVIDEND PARTICIPATING WITH THE COMMON: ONCE MORE WITH FEELING After payment of the preferential dividend to the holders of the Series [A] Preferred any other series of Preferred Stock, any further dividends would be paid pro rata to the holders of the Series [A] Preferred and the Common Stock on an asconverted basis. 11

LIQUIDATION PREFERENCE: SEEMS LIKE WE JUST GOT STARTED In the event of any liquidation [define] of the Company, the holders of the Series [A] Preferred would be entitled to receive, prior to any distribution to the holders of any other series of Preferred Stock or the Common Stock, an amount equal to the Purchase Price [or [2 X] the Purchase Price] plus all accrued or declared but unpaid dividends thereon (the “Preference Amount”). Note: Definition of liquidation event is a key term – who controls? 12

LIQUIDATION PARTICIPATION WITH THE COMMON: I’LL TAKE SOME OF YOURS TOO, PLEASE! After the payment of the Preference Amount, distribution pro rata among the holders of the Series [A] Preferred, other series of Preferred Stock and the Common Stock on an asconverted basis until the holders of Series A Preferred have received an amount per share equal to [3 X the Purchase Price, as adjusted]. 13

REDEMPTION: SHOULD I STAY OR SHOULD I GO? Beginning on the _______th Anniversary of Closing, [each holder] or [the holders of a majority/66 -2/3%] of then outstanding Series [A] Preferred may require the Company to redeem all of the outstanding Series [A] Preferred [in equal annual installments over a ____-year period]. The redemption price is generally the same as the Liquidation Preference. 14

CONVERSION RIGHTS: I SAW THE LIGHT The holders of the Series [A] Preferred would have the right to convert the Series [A] Preferred into shares of Common Stock at any time. The initial conversion rate for the Series [A] Preferred would be 1 -for-1. 15

AUTOMATIC CONVERSION: THE LIGHT SAW ME The Series [A] Preferred would automatically be converted into Common Stock, at then applicable conversion rate, upon the closing of an underwritten public offering of shares of Common Stock of the Company at a public offering price of at least $[2 to 3 times the Purchase Price] per share and gross proceeds to the Company in excess of $[__, 000] (a “Qualified IPO”). 16

ANTIDILUTION PROVISIONS: IS THERE ANY ALCOHOL IN THIS DRINK? Basic Conversion Formula: Each share of Preferred Stock is convertible into that number of shares of Common Stock determined by dividing the Original Issue Price by the Conversion Price then in effect. The Conversion Price shall initially be $[Series [A] Purchase Price], i. e. , 1 -to-1 conversion. 17

ANTIDILUTION PROVISIONS: IS THERE ANY ALCOHOL IN THIS DRINK? (cont’d) Basic Conversion Formula can be written as: SH PS convertible into No. SH CS = OIP CP then in effect Antidilution Provisions: 1. Stock Splits, etc. In the event of stock dividends, stock splits, reverse stock splits or similar events, then conversion price will be proportionately increased or decreased, as the case may be. 18

ANTIDILUTION PROVISIONS: IS THERE ANY ALCOHOL IN THIS DRINK? (cont’d) 2. Formula, or Weighted Average, Adjustment of Conversion Price In the event of a diluting issuance (other than excluded issuances) at a price lower than the conversion price then in effect, the conversion price shall be reduced to a price determined by multiplying the conversion price by a fraction: [CS IOS prior to deal] + [CS issuable for CON at CP] [CS IOS prior to deal] + [CS issued in deal] 19

PROTECTIVE PROVISIONS: NOT SO FAST THERE PARTNER! Consent of the holders of ______ of the outstanding Series [A] Preferred would be required for: • any amendment or change of the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series [A]; 20

PROTECTIVE PROVISIONS: NOT SO FAST THERE PARTNER! (cont’d) • any action that authorized, created or issued shares of any class of stock having preferences superior to [or on a parity with] the Series [A] Preferred; • any action that reclassified any outstanding shares into shares having preferences or priority as to dividends or assets senior to or on a parity with the preference of the Series [A] Preferred; • any amendment of the Company’s Articles of Incorporation that adversely affected the rights of the Series [A] Preferred; 21

PROTECTIVE PROVISIONS: NOT SO FAST THERE PARTNER! (cont’d) • any increase in the number of authorized shares of the Series [A] Preferred; • any merger or consolidation of the Company with one or more other corporations in which the shareholders of the Company immediately after such merger or consolidation held stock representing less than a majority of the voting power of the outstanding stock of the surviving corporation; • the sale of all or substantially all the Company’s assets [or the exclusive licensing of all or substantially all of the Company’s intellectual property]; 22

PROTECTIVE PROVISIONS: NOT SO FAST THERE PARTNER! (cont’d) • the liquidation or dissolution of the Company; • the declaration or payment of a dividend on the Common Stock (other than a dividend payable solely in shares of Common Stock); • incurrence of indebtedness in excess of [$50, 000]; • material changes in the Company’s business plan; or • any increase in the authorized number of shares issuable pursuant to the Company’s Stock Option Plan. 23

BOARD OF DIRECTORS: WHO’S RUNNING THIS SHOW ANYWAY? At the closing of the sale of the Series [A] Preferred Stock, the Board of Directors of the Company will consist of _______ or for so long as it continues to hold _____ shares of Series [A] Preferred Stock, it shall have board observation rights and visitation rights [and information rights]. Note: If a U. T. System employee is to serve on the Board: 1. Approvals needed; 2. Make sure you understand the duties, responsibilities, and liabilities of a 24 Board member

PREEMPTIVE RIGHTS: HEY DON’T FORGET ME! Each holder of Series [A] Preferred would have a preemptive right to purchase up to its pro rata share (based on its percentage of the Company’s outstanding common shares, calculated on a fully-diluted as-converted basis for all outstanding shares) of any equity securities offered by the Company or a subsidiary (other than in a transaction registered under the Securities Act of 1933, as amended (the “ 1933 Act”), on the same price and terms and 25

PREEMPTIVE RIGHTS: HEY DON’T FORGET ME! (cont’d) conditions as the Company or the subsidiary would propose to offer such securities to other potential investors (with a right of oversubscription if any holder of Series [A] Preferred elected not to purchase its full pro rata share). This right would not apply to the issuance by the Company of up to ______ shares of Common Stock (or options therefor) issued to employees, officers or directors of the Company pursuant to stock purchase or stock option plans approved by the Board. 26

RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT: “YOU FIRST” “NO, I INSIST – YOU FIRST” The Company, each holder of Series [A] Preferred, the founders of the Company (the “Founders”) and the other principal shareholders of the Company (the “Principal Shareholders”) would enter into a Co-Sale Agreement which would give the holders of the Series [A] Preferred first refusal rights and cosale rights that any Founder or Principal Shareholder who proposed to sell all or a portion of his shares to a third party must permit 27

RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT: “YOU FIRST” “NO, I INSIST – YOU FIRST” (Cont’d) the holders of the Series [A] Preferred hereunder, at their option, to either (i) purchase such stock on the same terms as the proposed transferee, with the right of the participating investors to purchase all shares of nonparticipating investors [(a/k/a “gobble up”)], or (ii) sell a proportionate part of their shares on the same terms offered by the proposed transferee. This right would terminate upon the closing of a Qualified IPO. 28

REGISTRATION RIGHTS: LET’S GO PUBLIC Demand, S-3 and Piggy-back Rights The holders of Series [A] Preferred would have registration rights. • Demand • S-3 • Piggyback 29

OTHER ISSUES: DID WE FORGET ANYTHING? 1. Confidential Information and Invention Assignment Agreement 2. Legal Fees 3. Key Man Life Insurance Policies 4. Subject Founders to Vesting 5. Technology Transfers Complete 6. Who Drafts? 7. Closing – When are we going to tie the knot? 30

NOTHING VENTURED NOTHING GAINED© Venture Capital Term Sheets by Barry Burgdorf Vice Chancellor and General Counsel July 25, 2007