CONTRACT NUMBER: [*** Redacted]

                              DEVELOPMENT AGREEMENT

This Agreement (the "Agreement"), dated as of September 4, 2003 (the "Effective
Date"), is between In-Q-Tel, Inc., a Delaware corporation ("In-Q-Tel") and
Nanosys, Inc., a Delaware corporation ("Developer").

1.   SERVICES, DELIVERABLES, AND SCHEDULE

     Developer shall perform the services ("Services") and provide the
     deliverables ("Deliverables") specified in the Statement of Work (attached
     as Exhibit 1), in accordance with the schedule set forth in the Statement
     of Work. Exhibit 1 is hereby incorporated into the Agreement.

2.   PAYMENTS

     a.   Generally. This is a Firm Fixed Price Agreement (including all third
          party licenses required to deliver the Deliverables). Developer shall
          receive payments in the amounts and at the times specified in the
          Statement of Work, and shall submit invoices as provided in Exhibit 2
          (Invoice Procedure). Exhibit 2 is hereby incorporated into the
          Agreement.

     b.   Expenses. The payments listed in Exhibit 1 include all out-of-pocket
          costs and expenses incurred by Developer in connection with this
          Agreement, provided, however, that In-Q-Tel shall reimburse Developer
          for such reasonable and customary actual out-of-pocket costs and
          expenses related to travel required in the performance of this
          Agreement as are authorized by In-Q-Tel in advance of Developer
          incurring such costs or expenses. To be reimbursed for costs and
          expenses, Developer shall submit invoices therefor as provided in
          Exhibit 2 and attach receipts for costs and expenses of twenty-five
          dollars ($25.00) or more.

     c.   Payment Adjustments for Changes in Firm Fixed Price Work. (1)
          Developer's payments shall be adjusted to reflect the cost impact of
          any agreed-upon changes in the scope of work; and (2) any such changes
          in the scope of work and any associated payment adjustment shall be
          set forth in a written modification to the Agreement signed by both
          parties. If Developer believes that it has been requested by any
          In-Q-Tel representative to perform work that exceeds the Agreement's
          existing scope, it shall immediately bring this to In-Q-Tel's
          attention through a written notice delivered to the In-Q-Tel
          representatives designated to receive notices in Exhibit 5 to the
          Agreement. To the extent that such work exceeds the Agreement's
          existing scope, then Developer may, at Developer's election, perform
          such work if requested to do so in writing by one of the In-Q-Tel
          representatives listed in Exhibit 5, and if Developer elects to
          perform any work subsequently determined to be out of scope, its
          payments shall be adjusted to reflect the cost impact of that work.
          Exhibit 5 is hereby incorporated into the Agreement.

3.   PERSONNEL

     a.   At no time shall In-Q-Tel be deemed to be the employer of Developer's
          employees or employees of its contractors.

     b.   Developer shall provide In-Q-Tel with advance written notice of the
          names, citizenship, date and place of birth, and addresses of any
          foreign nationals (including persons with dual citizenship) employed
          or contracted by Developer and assigned by Developer to perform any
          service with respect to the Statement of Work.

4.   SECURITY REQUIREMENTS

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

                                      -1-
In-Q-Tel Proprietary

<PAGE>

CONTRACT NUMBER: [*** Redacted]

     If at any time Developer's solution is to be installed or hosted on a
     Central Intelligence Agency ("CIA") system, the CIA must have adequate
     assurance that Developer's solution does not contain vulnerabilities such
     as viruses, Trojan horses, trap doors, or other similar malicious
     instruction or techniques. [*** Redacted]

5.   INTELLECTUAL PROPERTY

     a.   Ownership. As between In-Q-Tel and Developer, all patent, copyright,
          trade secret and other proprietary rights with respect to any designs,
          specifications, documentation, computer software, reports, training
          materials, inventions, discoveries and other items ("Intellectual
          Property") created or conceived ("Developed") by or on behalf of
          Developer during the performance of the Agreement shall be owned by
          Developer, and any Intellectual Property Developed by or on behalf of
          In-Q-Tel (other than work Developed for In-Q-Tel by Developer pursuant
          to the Agreement) in the performance of the Agreement shall be owned
          by In-Q-Tel. For purposes of this clause, Intellectual Property
          Developed "by or on behalf of Developer" means Intellectual Property
          Developed by Developer or its contractors or consultants.

          In-Q-Tel acknowledges that Developer owns, will own, has licensed, or
          will license Intellectual Property that was not or will not be
          Developed under this Agreement (such Intellectual Property is referred
          to collectively as "Developer Background IP").

          To the extent that any Subject Invention is created or conceived by or
          on behalf of Developer during the performance of this Agreement
          requiring that Developer elect to take title to such Subject
          Invention, as set forth in Exhibit 3, then upon notification by
          Developer that it wishes to elect to take title to such Subject
          Invention, In-Q-Tel shall notify the CIA pursuant to the
          In-Q-Tel's agreements with the CIA of Developer's election to
          take title to such Subject Invention.

     b.   In-Q-Tel License Rights. Developer hereby grants to In-Q-Tel a
          worldwide, perpetual, royalty-free, nonexclusive, nontransferable
          (except to a successor entity) license under Developer Intellectual
          Property and Developer Background IP solely to (i) use, perform and
          display the Deliverables (defined below), for (a) In-Q-Tel's internal
          noncommercial purposes, and (b) testing, demonstration and evaluation
          purposes. Except as expressly provided herein, and notwithstanding the
          Government Patent Rights and Government Data Rights set forth in
          Exhibits 3 and 4 with respect to Developer Intellectual Property, no
          other rights or licenses are granted to In-Q-Tel with respect to any
          Developer Intellectual Property or Developer Background IP. The
          inclusion of any third party software or intellectual property in the
          Deliverables shall be subject to In-Q-Tel's prior approval and
          Developer shall secure the license rights set forth in Sections 5(b)
          and 5(d) with respect to such software and intellectual property, with
          no inconsistent terms and conditions except as approved by In-Q-Tel.

     c.   "Deliverables". For the purpose of this Section 5, the term
          "Deliverables" means all deliverables specified in the Statement of
          Work, including, but not limited to, computer programs, computer
          databases, documentation and other recorded information, in each case
          that are delivered to In-Q-Tel and the CIA pursuant to the
          Agreement.

     d.   U.S. Government Rights. Exhibit 3 ("Government Patent Rights") and
          Exhibit 4


*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


                                      -2-

In-Q-Tel Proprietary

<PAGE>
CONTRACT NUMBER: [*** Redacted]

          ("Government Data Rights") are hereby incorporated into this
          Agreement. Developer grants the United States Government the rights
          and licenses specified in Exhibit 3 and Exhibit 4.

     e.   Marking of Deliverables. Developer shall prominently place the
          following notice on all Deliverables: "Use, reproduction, or
          disclosure is subject to restrictions set forth in Contract Number
          [*** Redacted] and Contract Number [*** Redacted].

     f.   Subcontracting. Developer shall obtain from its contractors all
          Deliverables, Intellectual Property and rights necessary to fulfill
          Developer's obligations to the Government and In-Q-Tel under the
          Agreement.

     g.   Precedence of Intellectual Property Clause. Nothing elsewhere in the
          Agreement shall be construed to modify or limit either party's rights
          (or the rights of the CIA or the Government) under this
          Section 5 of the Agreement.

6.   PROPRIETARY INFORMATION

     a.   The term "Proprietary Information" means information disclosed by one
          party to the other party relating to a party's research, development,
          trade secrets or business affairs that the party treats as
          confidential and that: (1) is marked "Proprietary Information" if
          disclosed in writing (including electronically); or (2) is identified
          as "Proprietary Information" prior to oral disclosure and reduced to
          writing, marked as "Proprietary Information," and delivered to the
          other party within thirty (30) days of the oral disclosure. The term
          "Receiving Party" means a party that receives Proprietary Information
          of the other party (the "Disclosing Party").

     b.   (i) Developer shall not use In-Q-Tel's Proprietary Information for any
          purpose, other than as expressly authorized by this Agreement and
          shall limit disclosure of In-Q-Tel's Proprietary Information to those
          of its employees, contractors, and consultants with a need to know (as
          determined by Developer) such Proprietary Information, subject to a
          nondisclosure obligation comparable in scope to this Section 6.

          (ii) In-Q-Tel shall not use Developer's Proprietary Information for
          any purpose, other than as expressly authorized by this Agreement and
          shall limit disclosure of Developer's Proprietary Information to those
          of its employees, contractors, and consultants with a need to know (as
          determined by In-Q-Tel) such Proprietary Information subject to, for
          In-Q-Tel's contractors and consultants, a nondisclosure obligation in
          In-Q-Tel's standard form. In-Q-Tel may also disclose Developer's
          Proprietary Information to the CIA and its contractors or consultants
          who have a need to know (as determined by In-Q-Tel) such Proprietary
          Information. In-Q-Tel and the CIA may disclose Developer's Proprietary
          Information to the National Imagery and Mapping Agency ("NIMA").

     c.   Each party shall protect the other party's Proprietary Information by
          using the same degree of care (but no less than a reasonable degree of
          care) that it uses to protect its own Proprietary Information. The
          obligations imposed by this section shall expire five (5) years after
          the Agreement's completion or termination, and shall not apply to any
          Proprietary Information that: (1) is or becomes publicly known through
          no fault of the Receiving Party; (2) is developed independently by the
          Receiving Party prior to the date of disclosure; or (3) is rightfully
          obtained by the Receiving Party from a third party entitled to
          disclose the information without confidentiality restrictions. A
          Receiving Party also may disclose Proprietary Information to the
          extent required by a court or other governmental authority, provided
          that the Receiving Party promptly notifies the Disclosing Party of the
          disclosure requirement and cooperates with the Disclosing Party (at
          the latter's expense and at its request) to resist or limit the
          disclosure.

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

                                      -3-

In-Q-Tel Proprietary

<PAGE>
CONTRACT NUMBER: [*** Redacted]

     d.   Except as may be required by law (including without limitation,
          federal or state securities laws), Developer shall respect the
          confidentiality of, and shall not disclose, disseminate or publish the
          terms of the Agreement. In any case where Developer proposes to
          disclose the terms of the Agreement because disclosure is required by
          law, Developer shall provide In-Q-Tel with prior notice of the
          proposed disclosure and, in consultation with In-Q-Tel, shall
          undertake efforts to maintain the confidential nature of the
          Agreement, or appropriately redact portions thereof (and cooperate
          with In-Q-Tel in In-Q-Tel's actions to prevent disclosure).

     e.   Either party's breach of this clause would cause the other party
          irreparable injury for which it would not have an adequate remedy at
          law. The non-breaching party shall be entitled to seek injunctive
          relief in a court of competent jurisdiction in addition to other legal
          or equitable remedies.

7.   WARRANTIES

     a.   Each party represents and warrants that it has the authority to enter
          into the Agreement.

     b.   Developer represents and warrants that to the best of Developer's
          actual knowledge as of the Effective Date, neither the Services nor
          the Deliverables will infringe any patent, copyright, trade secret or
          other proprietary right of any third party or otherwise conflict with
          the rights of any third party.

     c.   Developer represents and warrants that to the best of Developer's
          actual knowledge as of the Effective Date Developer has the right to
          incorporate Third Party IP licensed by the Developer into the
          Deliverables and to grant to In-Q-Tel and the CIA the rights
          contained in Sections 6.b. and 6.c. hereof, respectively, to such
          Third Party IP incorporated in Deliverables. Developer also represents
          and warrants that neither In-Q-Tel nor the CIA requires further
          licenses to such Third Party IP incorporated in Deliverables.

     d.   THE EXPRESS WARRANTIES IN THE AGREEMENT SHALL BE IN LIEU OF ALL OTHER
          WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
          MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

8.   INDEMNITY

     a.   Subject to the conditions in Section 8(b) below, Developer shall
          defend, indemnify and hold harmless In-Q-Tel and its directors,
          officers, agents and employees from and against all third-party
          claims, liabilities, suits, losses, damages and expenses, including
          costs and reasonable attorney's fees (collectively, "Claims"),
          relating to or resulting from: (1) In-Q-Tel's or the CIA's use or
          possession of the Deliverables as set forth and authorized herein or
          in the attached Statement of Work, or Services actually or allegedly
          infringing any patent, copyright, trade secret or other proprietary
          right of any third party, or otherwise conflicting with the rights of
          any third party, including, but not limited to, a breach of the
          warranty in Sections 7.b and 7.c.; (2) acts and omissions of
          Developer's employees, contractors, or consultants (collectively,
          "Agents") or the presence of such Agents at In-Q-Tel's facilities
          (except Claims resulting solely from In-Q-Tel's gross negligence or
          willful misconduct), including Claims resulting from injuries to such
          Agents or injuries, property damage, or loss of data caused by such
          Agents; (3) Developer's failure to comply with applicable laws and
          regulations or to obtain necessary licenses, permits or approvals; and
          (4) Developer's failure to perform obligations arising from its
          relationships with its Agents, including any Claims by its Agents and
          Claims by a taxing authority, (collectively, "Developer Claims").

*** Confidential treatment requested pursuant to a request fr confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


                                      -4-

In-Q-Tel Proprietary
<PAGE>
CONTRACT NUMBER: [*** Redacted]

     b.   Indemnified parties shall have the right to reasonably participate in
          any litigation within the scope of this indemnity insofar as it
          concerns Claims against them, including the right to select and retain
          counsel to represent them at indemnifying party's expense. All
          indemnified parties shall cooperate with the indemnifying party to the
          extent reasonably necessary in the defense of any Claim within the
          scope of this indemnity and the Indemnifying party shall be promptly
          notified and shall have the control of the defense and settlement of
          any Claim for which indemnification is desired, provided that any
          settlement shall require the indemnified party's prior written
          consent.

9.   LIMITATION OF LIABILITY

     EXCEPT IN CONNECTION WITH A CLAIM FOR INDEMNIFICATION PURSUANT TO THE
     AGREEMENT'S INDEMNITY CLAUSE, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
     ANY INDIRECT, INCIDENTAL, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES. IN NO
     EVENT SHALL IN-Q-TEL BE LIABLE TO DEVELOPER FOR ANY CLAIMS ARISING FROM THE
     ACTS OR OMISSIONS OF IN-Q-TEL'S CONTRACTORS AND CONSULTANTS, THE CIA AND
     THE CIA'S CONTRACTORS AND CONSULTANTS.

10.  MONITORING THE PROGRESS OF WORK; COOPERATION

     Monitoring Progress. In-Q-Tel and the CIA shall have access to Developer's
     premises and personnel, at reasonable times and with reasonable notice, as
     set forth in the Statement of Work attached hereto as Exhibit 1, for the
     purpose of monitoring the progress of work under the Agreement. Developer
     shall cooperate with In-Q-Tel and the CIA, as set forth in the Statement of
     Work attached hereto as Exhibit 1, to ensure that In-Q-Tel and the CIA are
     fully apprised of the status of work and the progress made and problems
     encountered by Developer.

11.  TERMINATION

     a.   Termination for Default By Either Party. Either party may terminate
          the Agreement for default based on a material breach by the other
          party that is not cured within fourteen (14) days after written notice
          from the other party. The party terminating for default shall notify
          the other party in writing of the default termination, specifying the
          reasons for the termination.

     b.   Termination by In-Q-Tel. In-Q-Tel, at its discretion may, without
          liability and upon written notice to Developer, terminate this
          Agreement in the event of a sale of all or substantially all of the
          business assets of Developer in a merger or acquisition, which
          business assets relate to the subject matter of this Agreement.

     c.   Post-Termination Procedures. Promptly after any termination, Developer
          shall: (1) stop all work being performed on behalf of In-Q-Tel under
          this Agreement, except any activities reasonably necessary (as
          reasonably determined by In-Q-Tel) for an orderly termination; and (2)
          furnish to In-Q-Tel all completed or uncompleted work requested by
          In-Q-Tel that if completed would have been delivered to In-Q-Tel or
          incorporated in a Deliverable (including property required to be
          transferred to In-Q-Tel under Section 13). Promptly upon Developer's
          compliance with item (2) above, In-Q-Tel shall pay to Developer any
          amounts due for performance of all work performed under this Agreement
          prior to such determination, but not with respect to work covered by
          Deliverables that have been rejected by In-Q-Tel under the Acceptance
          provision of the Statement of Work. Nothing in this section shall
          prohibit Developer from engaging in any research and development
          activities whether directed to technology related to that contemplated
          by this Agreement or otherwise.

12.  PUBLICITY AND DISCLOSURE

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

                                      -5-

In-Q-Tel Proprietary
<PAGE>
CONTRACT NUMBER: [*** Redacted]

         a.       Developer shall not, without In-Q-Tel's prior written
                  approval: (1) publicize the existence or terms of the
                  Agreement or any other aspect of the parties' relationship; or
                  (2) use In-Q-Tel's name in press releases or promotional
                  materials. Developer agrees not to make any public statement
                  on the possible uses of the Deliverables by In-Q-Tel or the
                  Government (including any agency thereof) without the prior
                  written consent of In-Q-Tel.

         b.       If a news organization or other third party contacts Developer
                  concerning In-Q-Tel, the CIA , or NIMA, Developer shall make
                  no comment, but shall instead refer the third party to
                  In-Q-Tel and promptly notify In-Q-Tel of the third party
                  contact.

         c.       The parties agree to develop mutually agreeable press releases
                  or other information about their relationship. The parties may
                  use the information in such press releases and other
                  information (and make presentations conveying substantially
                  the same substance as such approved information) without
                  requiring further consent of the parties. Nothing in the
                  Agreement, however, shall limit or restrict In-Q-Tel's ability
                  to brief or inform its constituents, including but not limited
                  to, the United States Congress, the CIA and NIMA, on its
                  activities, whether related to the Agreement or otherwise.

         d.       Developer shall provide to In-Q-Tel such non-confidential
                  marketing materials regarding Developer and Developer's
                  technology and products developed under this Agreement when
                  and as In-Q-Tel may reasonably request , including as may be
                  specified in the Statement of Work ("Marketing Materials").
                  Developer hereby grants to In-Q-Tel the a worldwide,
                  perpetual, royalty-free, nonexclusive, nontransferable (except
                  to a successor entity) license to use, reproduce, distribute,
                  modify, perform and display the Marketing Materials to promote
                  Developer's technology and deliverables to potential customers
                  within the Government.

13.      PROPERTY

         "Property" means any tangible personal property acquired for the
         performance of the Agreement. Developer shall obtain In-Q-Tel's written
         approval prior to acquiring any item of property with an acquisition
         value exceeding fifty thousand dollars ($50,000). Title to such items
         of property (as well as items of property with an acquisition value
         below fifty thousand dollars ($50,000)) shall vest in Developer upon
         acquisition. Upon completion or termination of the Agreement, Developer
         shall transfer title to and physical custody of unconsumed items of
         property with an acquisition value exceeding fifty thousand dollars
         ($50,000) to In-Q-Tel unless the parties agree otherwise in writing.
         Developer shall not deny the benefit of property to any person in
         violation of 42 U.S.C. Section 2000d.

14.      NOTIFICATION OF EXPORT LICENSE APPLICATIONS

         Developer shall provide In-Q-Tel with written notification and a copy
         of any export license application pertaining to technology developed
         directly under the Agreement as soon as possible but no later than the
         date of Developer's filing of such application. Developer shall comply
         with the requirements imposed by the Export Administration Act of 1979,
         50 U.S.C. Sections 2401 et seq.; the International Emergency Economic
         Powers Act, 50 U.S.C. Sections 1701 et seq.; the Arms Export Control
         Act, 22 U.S.C. Sections 2778 et seq.; and regulations and Executive
         Orders promulgated thereunder.

15.      AUDIT PROVISION

         If any work is to be performed (1) on a cost-reimbursement, incentive,
         time-and-materials, labor-hour, or price-redeterminable type or any
         combination of these; or (2) for which cost or pricing data are
         required, and the fees for such work exceed, on an aggregate basis,
         fifty thousand dollars ($50,000), the following provision shall apply:
         Developer shall maintain adequate records

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -6-
<PAGE>

CONTRACT NUMBER: [*** Redacted]

         to account for all In-Q-Tel funding under the Statement of Work and to
         account for any Developer resources utilized to fulfill the
         requirements under the Statement of Work. Developer's financial records
         are subject to examination or audit on behalf of In-Q-Tel or the CIA
         for a period not to exceed three (3) years after the completion of the
         Agreement's performance or the termination of the Agreement. In-Q-Tel
         or the CIA or designees thereof shall have access and the right to
         examine any non-privileged and pertinent books, documents, papers and
         records of Developer involving transactions related to the Statement of
         Work, and any IRS-required reports prepared by Developer. Developer
         shall advise In-Q-Tel or CIA of any documents withheld as privileged,
         and shall provide relevant information substantiating a claim of
         privilege at In-Q-Tel's or the CIA's request.

16.      GENERAL TERMS AND CONDITIONS

         a.       Governing Law; Contract Interpretation. The Agreement shall be
                  interpreted and enforced under the laws of the Commonwealth of
                  Virginia, without regard to its conflict of law principles.
                  The Agreement shall be construed without regard to the party
                  or parties responsible for its preparation and shall be deemed
                  to have been prepared jointly by the parties. All headings in
                  the Agreement are included solely for convenient reference,
                  and shall not affect its interpretation. The following
                  sections or sub-sections of the Agreement shall remain in
                  effect after its termination or completion: 4, 5, 6, 7, 8, 9,
                  11.c, 12, 13, 14, 15, 16.a and 16.e. If any provision of the
                  Agreement is determined by a court to be unenforceable as
                  drafted, that provision shall be construed in a manner
                  designed to effectuate its purpose to the greatest extent
                  possible under applicable law, and the enforceability of other
                  provisions shall not be affected.

         b.       Notices. All notices sent under the Agreement shall be in
                  writing and: (1) hand delivered; (2) transmitted by fax or
                  electronic mail, with a copy sent concurrently by certified
                  mail, return receipt requested; or (3) delivered by prepaid
                  overnight courier. Notices shall be sent to the
                  representatives of the parties identified in Exhibit 5.

         c.       Relationship of the Parties. Nothing in the Agreement shall be
                  construed as creating a partnership, joint venture or agency
                  relationship between the parties, or as authorizing either
                  party to act as agent for the other or to enter into contracts
                  on behalf of the other.

         d.       Compliance with Laws. Developer shall comply with all laws
                  applicable to the performance of the Agreement, including the
                  Anti-Kickback Act (41 U.S.C. Sections 51-58) and the Byrd
                  Amendment (31 U.S.C. Section 1352).

         e.       Unauthorized Use of Name, Seal, and Initials.

                  Developer and its contractors may not, except with the written
                  permission of the CIA, use the words Central Intelligence
                  Agency the initials CIA the seal of the CIA, or any colorable
                  imitation of such words, initials or seal in connection with
                  any merchandise, retail product, impersonation, solicitation
                  or commercial activity in a manner reasonably calculated to
                  convey the impression that such use is approved, endorsed or
                  authorized by the CIA.

                  Developer and its contractors may not, except with the written
                  permission of NIMA, use the words "Natural Imagery and Mapping
                  Agency", the initials "NIMA," the seal of NIMA or any
                  colorable imitation of such words, initials or seal in
                  connection with any merchandise, retail product,
                  impersonation, solicitation or commercial activity in a manner
                  reasonably calculated to convey the impression that such use
                  is approved, endorsed or authorized by NIMA.

         f.       Academic Institutions. Developer shall notify any academic
                  institution that it proposes to

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -7-
<PAGE>
 CONTRACT NUMBER: [*** Redacted]

                  use as a subcontractor that the work will be funded by
                  the CIA.

         g.       Reservation of Rights. Except as specifically provided in the
                  Agreement, the Agreement does not offer or grant to either
                  party any rights or licenses under any present or future
                  Intellectual Property of the other party, and neither party
                  shall copy, distribute or disclose Intellectual Property of
                  the other party without the other party's consent, remove,
                  alter or obfuscate any copyright or other proprietary rights
                  notices placed on or embedded in the other party's
                  Intellectual Property, or fail to reproduce such notices on
                  any copies it is authorized to make.

         h.       Assignment and Delegation. Neither party may assign any of its
                  rights or delegate any of its duties under the Agreement to
                  any third party without the prior written consent of the
                  other, which shall not be withheld unreasonably; provided that
                  the foregoing does not impose any restrictions on the
                  assignment or other disposition of Intellectual Property
                  rights beyond those specified in the Agreement's Intellectual
                  Property clause. The parties agree that consent for the
                  foregoing provision shall be deemed to have been granted if
                  the party to whom consent has been requested does not respond
                  with a written approval or rejection of consent within
                  forty-five (45) days after receipt of a written request. A
                  "delegation" by Developer shall include subcontracting.
                  Notwithstanding the foregoing, in the event of a sale of all
                  or substantially all of the business assets of Developer in a
                  merger or acquisition, which business assets relate to the
                  subject matter of this Agreement, the rights and duties of
                  Developer shall be assigned and delegated pursuant to such
                  transaction unless In-Q-Tel elects to terminate this
                  Agreement.

         i.       Agreement Modifications. The Agreement may be modified or
                  amended only by a written agreement signed by both parties.

         j.       Entire Agreement. The Agreement, inclusive of all exhibits,
                  constitutes the entire agreement between the parties
                  concerning its subject matter and supersedes any prior
                  agreements between the parties concerning the subject matter
                  of the Agreement.

                            [SIGNATURE PAGE FOLLOWS]

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -8-
<PAGE>

CONTRACT NUMBER: [*** Redacted]

The parties have caused this Development Agreement to be executed by their
respective duly authorized officers as of the Effective Date.

IN-Q-TEL, INC.                               NANOSYS, INC.

By: [*** Redacted]                           By: /s/ Lawrence A. Bock

Name: [*** Redacted]                         Name: Lawrence A. Bock

Title: [*** Redacted]                        Title: President and CEO

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -9-



<PAGE>

CONTRACT NUMBER: [*** Redacted]

                                    EXHIBIT 1
                                STATEMENT OF WORK

1.       INTRODUCTION

[*** Redacted]

There are several engineering phases inherent to the development of a device
product. Generally speaking the process begins with a Feasibility Phase, which
is designed to determine if the concepts upon which the device is based are
possible. The next step is the Breadboard Phase, which is a laboratory based
system that is aimed at showing feasibility of all of the key technical unknowns
for a particular product, but with no regard to form factor. The third stage
results in the development of a prototype, which ideally reflects the
configuration of the desired final product. Under this Statement of
Work, Nanosys will complete the Feasibility Phase and Breadboard Phase
for a [*** Redacted] inclusive. The Feasibility Phase will be targeted to
culminate in the demonstration of a baseline device that will serve as a
fiducial upon which Breadboard Phase performance optimization can be compared.

2.       DELIVERABLES AND SERVICES

This project is divided into two phases: a six-month Feasibility Phase followed
by a twelve-month Breadboard Phase. The Feasibility Phase must be satisfactorily
completed and a Notice to Proceed obtained from In-Q-Tel before proceeding to
the Breadboard Phase.

Nanosys covenants and agrees that over the entire course of the program (both
Feasibility and Breadboard Phases), it will [*** Redacted].

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -10-
<PAGE>

CONTRACT NUMBER: [*** Redacted]

The following deliverables and services are common to both phases of the
program:

-        Kickoff Meetings

         Nanosys shall participate in kickoff meetings with representatives of
         In-Q-Tel and the CIA at a location designated by In-Q-Tel. The parties
         will review the development program for the current phase and will
         confirm logistical arrangements for execution of the effort. The
         parties will also have an opportunity to clarify any ambiguity in the
         technical description of the effort.

-        Progress Reports

         Nanosys shall provide progress reports (of a quality and
         comprehensiveness that would be contained in a Government funded
         research report) with approximately every [*** Redacted] that include:

                  detailed description of work performed since the previous
                  reporting period

                  -        detailed description of Services performed,

                  -        engineering support hours expended during the
                           progress period,

                  -        description of technical issues pertinent to the
                           deliverables,

                  -        disclosure of any potential risk to timely delivery
                           of the deliverables, and

                  -        identification of any "subject inventions" as
                           contemplated by Exhibit 3 ("subject inventions").

-        Interim Progress Reports

         Nanosys shall provide Interim Progress Reports approximately
         [*** Redacted] that include:

                  -        progress towards Deliverables and plans for the next
                           period,

                  -        description of Services performed,

                  -        engineering support hours expended during the
                           progress period,

                  -        description of technical issues pertinent to the
                           deliverables,

                  -        disclosure of any potential risk to timely delivery
                           of the deliverables, and

                  -        identification of any "subject inventions".

                  The description of Services performed and progress towards
                  Deliverables in an Interim Progress Report may be in summary
                  form, e.g. not required to exceed two pages.

-        Technical Exchanges

         Nanosys shall conduct meetings with In-Q-Tel and/or the CIA
         approximately every [*** Redacted], or as otherwise agreed to by the
         Parties, during the term of the Development Agreement to provide
         updates on any technologies that may be of interest to the CIA.

I. FEASIBILITY PHASE

Subject to the qualifications below, the goal of the Feasibility Phase is for
Nanosys to [*** Redacted]. This device would not be required to [*** Redacted]
but will serve as a basis platform for modeling and optimizing device
performance during the Breadboard Phase. In-Q-Tel personnel and/or the CIA may
perform informal site visits, e.g., not requiring any formal agenda or
presentation, from time to time as necessary and reasonable to view technical
progress, provided that reasonable advance notice, e.g., five days, is provided
for any such visits, and that such visits reasonably take into account Nanosys'
allocation of resources and schedules.

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -11-
<PAGE>

CONTRACT NUMBER: [*** Redacted]

A.       FEASIBILITY PHASE DELIVERABLES

-        Baseline [*** Redacted] Demonstration

         [*** Redacted]. The demonstration shall take place at Nanosys'
         facilities. [*** Redacted]. In-Q-Tel understands that although Nanosys
         is obligated to deliver the deliverables specified for the Feasibility
         Phase and use its commercially reasonable efforts to have an [***
         Redacted] result, this Statement of Work is for a research program, and
         that a commercially reasonable effort by Nanosys does not guarantee
         that [*** Redacted] will result from the Feasibility Phase. For
         purposes of this Agreement, Nanosys' commercially reasonable effort
         under the Feasibility and Breadboard Phases of this Statement of Work,
         shall include the devotion of at least [*** Redacted] ([*** Redacted]
         in the Feasibility Phase and [*** Redacted] in the Breadboard Phase;
         provided, however that the [*** Redacted] for the Breadboard Phase will
         be increased by the [*** Redacted] (or portion thereof), if any, not
         expended in the Feasibility Phase) to development and optimization of
         the [*** Redacted] contemplated by this Statement of Work, over both
         phases of the program. For purposes of this Agreement, "[*** Redacted]"
         means [*** Redacted]. In-Q-Tel further understands that the purpose of
         the Deliverable for the Feasibility Phase is to demonstrate that a
         functional [*** Redacted] has been achieved on which to measure the
         initial baseline performance of this technology, and the platform will
         be used to identify [*** Redacted] improvements during the development
         of the breadboard device.

-        Summary Research Report

         Nanosys shall supply to In-Q-Tel a detailed report describing the
         findings and results of the development program. The report shall
         include the following items:

                  -        a summary abstract of the work performed during the
                           Feasibility Phase,

                  -        a description of the technical development work
                           performed during the course of the feasibility phase
                           of the program,

                  -        conclusions to the work performed during the course
                           of the program,

                  -        engineering support hours expended during the
                           Feasibility Phase, and

                  -        identification of any "subject inventions" conceived
                           under the Feasibility Phase of the program.

                  The Summary Research Report shall also include a description
                  and the results of the following:

                  -        work performed under the program to develop [***
                           Redacted] (where [*** Redacted] is
                           understood to be [*** Redacted]),

                  -        the evaluation of [*** Redacted] under the program
                           for [*** Redacted] and

                  -        work performed under the program to develop [***
                           Redacted].

-        Design Document

         Nanosys shall supply to In-Q-Tel a detailed design and manufacturing
         document that provides the following:

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -12-
<PAGE>

CONTRACT NUMBER: [*** Redacted]

                  -        a detailed description of the specifications of the
                           Feasibility Phase [*** Redacted] including both
                           design and performance, and

                  -        a description of the processes employed to produce
                           the Feasibility Phase [*** Redacted]. The
                           description shall be at the level of detail
                           consistent with a "Materials and Methods" section of
                           a scientific publication.

-        Breadboard Phase Technical Development Plan

         Nanosys shall provide to In-Q-Tel a Breadboard Phase Technical
         Development Plan that details the proposed breadboard technical
         development and optimization work to be conducted by Nanosys during a
         twelve month Breadboard Phase program.

-        Staffing Plan

         Nanosys shall provide to In-Q-Tel a Staffing Plan that details the
         following:

                  -        staffing resources reasonably expected to be required
                           to execute the Breadboard Phase Technical Development
                           Plan,

                  -        a schedule for implementing the required staffing,
                           and

                  -        a description of how the needed resources will be
                           obtained.

II. BREADBOARD PHASE

The Breadboard Phase of the program shall not commence unless and until In-Q-Tel
has delivered a Notice to Proceed to Nanosys. Upon the completion of the
Feasibility Phase, In-Q-Tel will assess the results of the Feasibility Phase and
the applicability of the program to its and the CIA's needs and interests.
This assessment will be independent of acceptance of Deliverables but In-Q-Tel
may use information contained in the Deliverables in furtherance of its
assessment activity. In-Q-Tel may, at its option and sole discretion, terminate
this Agreement and not proceed to the Breadboard Phase if it determines that is
appropriate. In-Q-Tel shall notify Nanosys in writing of such termination, but
need not specify any reasons for termination. Such termination shall not
constitute a "default" as contemplated by Section 11.a of the Development
Agreement and the post-termination language in Section 11.c of the Development
Agreement shall apply to any such termination.

If In-Q-Tel determines to proceed to the Breadboard Phase, In-Q-Tel shall
deliver a Notice to Proceed to Nanosys and the Breadboard Phase shall commence
promptly. Upon commencement of the Breadboard Phase, [*** Redacted] that was
constructed and brought to operation during the Feasibility Phase will be used
as a baseline platform for [*** Redacted] and Nanosys shall continue to use its
commercially reasonable efforts, as set forth above, toward [*** Redacted] as
contemplated by this Statement of Work. Optimization efforts shall focus on [***
Redacted]. The final breadboard device resulting from the Breadboard Phase is
targeted to [*** Redacted]

A.       BREADBOARD PHASE DELIVERABLES

Projected tasks for the Breadboard Phase are as follows. In-Q-Tel personnel (and
optionally the CIA) may perform informal site visits from time to time as
necessary and reasonable, to view technical progress, provided that reasonable
advance notice, e.g., five days, is provided for any such visits, and provided
that such visits take account of Nanosys' resources and schedules.

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -13-


<PAGE>

CONTRACT NUMBER: [*** Redacted]

-        Marketing Materials

         Nanosys shall provide product marketing presentations and technical
         materials related to the technology developed under the Development
         Agreement to enable In-Q-Tel to present and promote Nanosys'
         technology, organizational capability and associated products to
         Government customers. Such materials shall include items such as
         Technical Presentations, Demonstration Materials, Product Technical
         Data Sheets and Press Releases that are available at the time of
         request.

-        [*** Redacted]

         [*** Redacted]

-        Summary Research Report

         Nanosys shall supply to In-Q-Tel a detailed report describing the
         findings and results of the development program. The report shall
         include the following items:

                  -        a summary abstract of the work performed during the
                           Breadboard Phase,

                  -        a description of the technical development work
                           performed during the course of the Breadboard Phase
                           of the program,

                  -        conclusions to the work performed during the course
                           of the program,

                  -        engineering support hours expended during the
                           Breadboard Phase, and

                  -        identification of any "subject inventions" conceived
                           under the Breadboard Phase of the program.

         The Summary Research Report shall also include a description and
         results of the following:

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -14-


<PAGE>

CONTRACT NUMBER: [*** Redacted]

                  -        Work performed under the program to evaluate the
                           effects of [*** Redacted]

                  -        Work performed under the program to [*** Redacted],
                           and

                  -        Work performed under the program to [*** Redacted].

-        Design Document

         Nanosys shall supply to In-Q-Tel a detailed set of design documents
         that provides the following:

                  -        A detailed description of materials and improvements
                           for the [*** Redacted] including both design and
                           performance, and

                  -        a description of the processes employed to produce
                           the Breadboard Phase [*** Redacted]. The description
                           shall be at the level of detail consistent with a
                           "Materials and Methods" section of a scientific
                           publication.

3.       DELIVERY AND PAYMENT SCHEDULE

A. DELIVERY DATES. Nanosys shall deliver to In-Q-Tel and/or, at the direction of
In-Q-Tel, the CIA, the Deliverables in accordance with the dates specified in
the table below.

B. PAYMENT DATES. Subject to the rights to terminate the Development Agreement
and not proceed from the Feasibility Phase to the Breadboard Phase, the total
fee for the Deliverables and Services for both Phases of the program to be
provided under this Agreement is [*** Redacted]. The total fee for the
Feasibility Phase of the program is [*** Redacted] ("Feasibility Phase Payment")
and the total fee for the Breadboard Phase of the program is [*** Redacted]
("Breadboard Phase Payment").

In-Q-Tel shall pay the entire [*** Redacted] Feasibility Phase Payment for the
Feasibility Phase of the program [*** Redacted]. In-Q-Tel expressly acknowledges
and agrees that the Feasibility Phase Payment is in consideration of Nanosys'
delivering the Deliverables for the Feasibility Phase and that such payment
shall have been earned in its entirety by Nanosys at the end of the Feasibility
Phase regardless of whether [*** Redacted], provided that the other Deliverables
specified for the Feasibility Phase have been delivered and the commercially
reasonable effort required by Section 1.A of this Statement of Work shall have
been given.

Upon delivery of a Notice to Proceed by In-Q-Tel, payment of the remaining [***
Redacted] by In-Q-Tel to Nanosys shall be made in accordance with the dates
specified in the table below. Payments made by In-Q-Tel hereunder shall be in
accordance with and subject to Section 2 of the Development Agreement.

                              DELIVERABLES SCHEDULE


<CAPTION>
                                                                          PAYMENT UPON IN-Q-TEL'S
DELIVERABLE/SERVICE                   DELIVERY DATE                      ACCEPTANCE OF DELIVERABLE
-------------------                   -------------                      -------------------------
                                                                  
FEASIBILITY PHASE

No deliverable                       [*** Redacted]                            [*** Redacted]



*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -15-


<PAGE>

CONTRACT NUMBER: [*** Redacted]


                                                                                
Kickoff meeting                         [*** Redacted]                                  No payment

Interim Progress Reports                [*** Redacted]                                  No payment

[*** Redacted] Technical Exchange
    meeting                             [*** Redacted]                                  No payment

[*** Redacted];                         [*** Redacted]                                  No payment
Summary Research Report; Design
Document; Breadboard Phase
Technical Development Plan;
Staffing Plan;

BREADBOARD PHASE

No deliverable                          [*** Redacted]                                  [*** Redacted]

Kickoff meeting                         [*** Redacted]                                  No payment

Interim Progress Reports                [*** Redacted]                                  No payment

[*** Redacted] Progress Report          [*** Redacted]                                  [*** Redacted]

[*** Redacted] Technical Exchange
   meeting                              [*** Redacted]                                  No payment

Interim Progress Reports                [*** Redacted]                                  No payment

Final Technical Exchange meeting        [*** Redacted]                                  No payment

[*** Redacted]; Summary                 [*** Redacted]
Research Report; Design Documents                                                       [*** Redacted]


4.       ACCEPTANCE PROCESS

All Deliverables are subject to review and acceptance by In-Q-Tel. Each
Deliverable shall be deemed to have been accepted by In-Q-Tel [*** Redacted]
after In-Q-Tel's receipt of such Deliverable, unless In-Q-Tel provides Nanosys
with written notice (containing reasonable detail) of the defects in the
Deliverable regarding such Deliverable's failure to conform with the
specifications and requirements set forth in this Statement of Work (including,
without limitation, Section 5 of this SOW (Quality Assurance Statement)).

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -16-


<PAGE>

CONTRACT NUMBER: [*** Redacted]

Nanosys shall have [*** Redacted] following In-Q-Tel's notice of rejection in
which to correct such defects in the Deliverable and to deliver a corrected
Deliverable to In-Q-Tel for its review and acceptance as set forth above. In the
event that in-Q-Tel does not accept such corrected Deliverable, In-Q-Tel may, in
its sole discretion and in addition to any other available remedies: (a) extend
the correction period and repeat the acceptance process set forth herein; (b)
deem Nanosys' failure to provide an acceptable Deliverable to be a default, and
immediately terminate this Agreement for cause pursuant to Section 11.a of the
Development Agreement, provided however, that In-Q-Tel need not provide Nanosys
the cure period specified in Section 11.a. In the event that In-Q-Tel does not
accept a Deliverable which acceptance is a condition of a payment in accordance
with the schedule set forth herein, Nanosys shall not be obligated to continue
any work toward subsequent Deliverables under this Agreement until such time as
the Deliverable has been accepted and payment is made, or as otherwise agreed to
by the parties.

5.       QUALITY ASSURANCE STATEMENT

Nanosys will assure that the quality of the Deliverables and the Services
provided hereunder are consistent with the requirements outlined in this
Statement of Work, are of professional quality, and are reflective of the level
of effort (as measured in [*** Redacted]) required hereunder. All labor hours
credited to the work program throughout the period covered by the Statement of
Work shall be contributed from professional scientific or engineering staff
possessing educational credentials or relevant years of experience commensurate
with a highly skilled research group performing nanotechnology development
research (i.e. representative of the current professional scientific or
engineering staff at Nanosys). Nanosys agrees to provide In-Q-Tel with [***
Redacted] upon request.

                                [END OF EXHIBIT]

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -17-

<PAGE>

CONTRACT NUMBER: [*** Redacted]

                                    EXHIBIT 2
                                INVOICE PROCEDURE

Developer's invoices may be submitted upon satisfactory completion of the
relevant milestone in the Statement of Work, and shall be paid within
[*** Redacted] of In-Q-Tel's receipt of a proper invoice. For invoices items
associated with delivery of Deliverable(s), the terms "satisfactory completion
of the relevant milestone" shall include In-Q-Tel acceptance of such
Deliverable(s) pursuant to Section 4 of the Statement of Work ("Acceptance
Process").

Developer shall send invoices to:

                  Accounts Payable
                  In-Q-Tel, Inc.
                  1000 Wilson Blvd.
                  Suite 2900-3910
                  Arlington, VA  22209

Each invoice must contain the following information:

           (i)      Invoice number and invoice date;

           (ii)     Name and address of Developer and address for sending
                    payment;

           (iii)    Agreement or purchase order number;

           (iv)     Contact person for questions; and

           (v)      Certification signed by Contracting Officer as follows:

                  "The services or goods being invoiced have been performed or
                  delivered as required and conform in all respects with the
                  Agreement's terms. The amount claimed for the services or
                  goods being invoiced agrees with the established prices in the
                  Agreement. Appropriate technical and financial representatives
                  have authorized and reviewed, as necessary, this invoice for
                  compliance with the Agreement. Any exceptions are as noted as
                  below."

                                [END OF EXHIBIT]

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -18-


<PAGE>

CONTRACT NUMBER: [*** Redacted]

                                    EXHIBIT 3

                            GOVERNMENT PATENT RIGHTS

1.       DEFINITIONS

         The following terms shall have the meanings specified below. Any term
         not defined below shall have the meaning set forth in the Agreement.

         "Government Purpose" means any activity in which the Government is a
         party, including cooperative agreements with international or
         multi-national defense organizations or sales or transfers by the
         Government to foreign governments or international organizations.
         Government Purposes include competitive procurement, but do not include
         the rights to practice a Subject Invention for commercial purposes or
         authorize others to do so.

         "Invention" means any invention or discovery that is or may be
         patentable or otherwise protectable under Title 35 of the U.S. Code.

         "Made," when used in relation to any Invention, means the conception or
         first actual reduction to practice of such Invention.

         "Practical Application" means to manufacture a composition or product,
         to practice a process or method, or to operate a machine or system;
         and, in each case, under such conditions as to establish that the
         Invention is capable of being utilized and that its benefits are, to
         the extent permitted by law or Government regulations, available to the
         public on reasonable terms.

         "Subject Invention" means any Invention conceived or first actually
         reduced to practice by or on behalf of Developer in the performance of
         work under the Agreement.

2.       ALLOCATION OF PRINCIPAL RIGHTS

         Developer may retain the entire right, title, and interest throughout
         the world to each Subject Invention subject to the provisions of this
         exhibit and 35 U.S.C. Section 203. With respect to any Subject
         Invention in which Developer retains title, the Government shall have a
         nonexclusive, nontransferable, irrevocable, paid-up license to practice
         or have practiced for or on behalf of the Government the Subject
         Invention throughout the world for Government Purposes.

3.       INVENTION DISCLOSURE, ELECTION OF TITLE, AND FILING OF PATENT
         APPLICATIONS

         3.1      Developer shall disclose each Subject Invention to In-Q-Tel in
                  writing within [*** Redacted] months after the inventor
                  discloses it in writing to Developer's personnel responsible
                  for patent matters. The disclosure shall identify the
                  Agreement and the identity of the inventor(s), and shall be
                  sufficiently complete in technical detail to convey a clear
                  understanding of the Invention to the extent known at the time
                  of the disclosure.

         3.2      Developer will elect in writing whether or not to retain title
                  to any Subject Invention by notifying In-Q-Tel within the
                  shorter of the following periods: (1) [*** Redacted] months of
                  disclosure to In-Q-Tel; or (2) in any case where publication,
                  sale, or public use has initiated the one (1) year statutory
                  period wherein valid patent protection can still be obtained
                  in the United States, [*** Redacted] calendar days prior to
                  the end of the statutory period. When it elects to retain
                  title to a Subject Invention, Developer shall file its initial
                  patent application prior to the end of any statutory period
                  wherein valid patent protection can be obtained in the United
                  States, and shall thereafter file corresponding patent
                  applications in other countries in which it wishes to retain
                  title within reasonable times.

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -19-

<PAGE>

CONTRACT NUMBER: [*** Redacted]

4.       CONDITIONS WHEN THE GOVERNMENT MAY OBTAIN TITLE

         Upon In-Q-Tel's written request, Developer shall convey title to any
         Subject Invention to the Government under any of the following
         conditions:

         (a)      If Developer elects not to retain title, or if Developer fails
                  to disclose or elect title to the Subject Invention within the
                  times specified in Section 3 of this exhibit and In-Q-Tel
                  requests conveyance of title within ninety (90) days after it
                  has advised the CIA of such a failure.

         (b)      In those countries in which Developer fails to file patent
                  applications within the times specified in Section 3 of this
                  exhibit; however, if Developer has filed a patent application
                  in a country after the times specified in Section 3 but before
                  In-Q-Tel requests conveyance of title, Developer shall
                  continue to retain title in that country.

         (c)      In any country in which Developer decides not to continue the
                  prosecution of any application for, to pay the maintenance
                  fees on, or defend in reexamination or opposition proceedings
                  on, a patent on a Subject Invention.

5.       MINIMUM RIGHTS TO DEVELOPER AND PROTECTION OF DEVELOPER'S RIGHT TO FILE

         Developer shall retain a nonexclusive, royalty-free license to practice
         or have practiced throughout the world each Subject Invention to which
         the Government obtains title. Developer's license extends to the
         domestic subsidiaries and affiliates, if any, of Developer within the
         corporate structure of which it is a part and includes the right to
         grant sublicenses of the same scope. Any transfer of the license
         requires CIA approval (except a transfer to the successor of that part
         of the business to which the Subject Invention pertains).

6.       ACTION TO PROTECT THE GOVERNMENT'S INTEREST

         6.1      Developer agrees to execute or to have executed and promptly
                  deliver to In-Q-Tel for delivery to the CIA all instruments
                  necessary: (1) to establish or confirm the Government's rights
                  in those Subject Inventions to which Developer elects to
                  retain title; and (2) to convey title to the Government when
                  requested under Section 4 of this exhibit and to enable the
                  Government to obtain patent protection in that Subject
                  Invention.

         6.2      Developer shall: (1) require its technical employees to
                  execute written agreements obligating them to disclose Subject
                  Inventions, promptly and in writing, to Developer personnel
                  responsible for administering patents; and (2) instruct
                  employees, through suitable educational programs, on the
                  importance of reporting inventions in sufficient time to
                  permit the filing of patent applications prior to United
                  States or foreign statutory bars.

         6.3      Developer shall notify In-Q-Tel of any decisions not to
                  continue the prosecution of a patent application, pay
                  maintenance fees, or defend in a reexamination or opposition
                  proceedings on a patent, in any country, not less than [***
                  Redacted] before the expiration of the response period
                  required by the relevant patent office.

         6.4      Developer shall include, within the specification of any
                  United States patent application and any patent issuing
                  thereon covering a Subject Invention, the following statement:
                  "This invention was made with Government support under
                  Contract No. [*** Redacted] awarded by the Central
                  Intelligence Agency. The Government has certain rights in the
                  invention."

7.       SUBCONTRACTING

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -20-

<PAGE>

CONTRACT NUMBER: [*** Redacted]

         Developer shall include in its agreements with subcontractors and
         employees provisions sufficient to obtain for the Government the rights
         granted to the Government in this exhibit.

8.       REPORTING ON UTILIZATION OF SUBJECT INVENTIONS

         At In-Q-Tel's request, Developer shall submit annual reports, in a
         mutually agreeable form, on the utilization of a Subject Invention or
         on efforts at obtaining such utilization that are being made by
         Developer or its licensees or assignees. Developer shall also submit
         any additional reports CIA may request in connection with any march-in
         proceedings under Section 10 of this exhibit. As required by 35 U.S.C.
         Section 202(c)(5), CIA shall not disclose such information to persons
         outside the Government without Developer's permission.

9.       PREFERENCE FOR UNITED STATES INDUSTRY

         Neither Developer nor any assignee shall grant any person the exclusive
         right to use or sell any Subject Invention in the United States or
         Canada unless such person agrees that any product embodying the Subject
         Invention or produced through the use of the Subject Invention shall be
         manufactured substantially in the United States or Canada. The CIA may
         waive this requirement in individual cases if Developer shows that
         reasonable but unsuccessful efforts have been made to grant licenses on
         similar terms to potential licensees that would be likely to
         manufacture substantially in the United States or that domestic
         manufacture is not commercially feasible.

10.      MARCH-IN RIGHTS

         When Developer holds title to a Subject Invention, the CIA has the
         right, in accordance with the procedures in 37 CFR 401.6 and any
         supplemental CIA regulations, to require Developer or its assignee or
         exclusive licensee to grant a nonexclusive license to a responsible
         applicant or applicants upon reasonable terms (and to grant such a
         license itself if Developer or its assignee or exclusive licensee
         refuse to do so) upon determining that such action is necessary: (1)
         because Developer or its assignee has not taken, or is not expected to
         take within a reasonable time, effective steps to achieve Practical
         Application of the Subject Invention within such field of use; (2) to
         alleviate health or safety needs that are not reasonably satisfied by
         Developer, its assignee or their licensees; (3) to meet requirements
         for public use specified by federal regulations that are not reasonably
         satisfied by Developer, its assignee or their licensees; or (4) because
         of a violation of Section 9 of this exhibit.

11.      SPECIAL PROVISIONS APPLICABLE TO NONPROFIT ORGANIZATIONS

         If Developer is a nonprofit organization, Developer agrees to comply
         with the requirements set forth in section 52.227-11(k) of the Federal
         Acquisition Regulation (48 CFR 52.227-11(k)).

                                [END OF EXHIBIT]


*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -21-

<PAGE>

CONTRACT NUMBER: [*** Redacted]

                                    EXHIBIT 4
                             GOVERNMENT DATA RIGHTS

1.       DEFINITIONS

         The following terms shall have the meanings specified below. Any term
         not defined below shall have the meaning set forth in this Agreement.

         "Computer Software" means computer programs, computer databases, and
         documentation thereof.

         "Data" means recorded information, regardless of form or the media on
         which it may be recorded, which represents Technical Data or Computer
         Software.

         "Form, Fit, and Function Data" means Data relating to items,
         components, or processes that are sufficient to enable physical and
         functional interchangeability as well as Data identifying source, size,
         configuration, mating, and attachment characteristics, functional
         characteristics, and performance requirements, except the source code,
         algorithm, process, formulae, and flow charts for Computer Software.

         "Government Purpose" means any activity in which the Government is a
         party, including cooperative agreements with international or
         multi-national defense organizations or sales or transfers by the
         Government to foreign governments or international organizations.
         Government Purposes include competitive procurement, but do not include
         the rights to use, modify, reproduce, release, perform, display or
         disclose Data for commercial purposes or to authorize others to do so.

         "Government Purpose License Rights" means the rights: (1) to use,
         modify, reproduce, release, perform, display or disclose Data within
         the Government without restriction; and (2) to release or disclose Data
         outside the Government and authorize persons to whom release or
         disclosure has been made to use, modify, reproduce, release, perform,
         display, or disclose the Data for Government Purposes only.

         "Limited rights" means the rights of the Government in Limited Rights
         Data as set forth in the Limited Rights Notice at Section 7.2 of this
         Exhibit 4.

         "Limited Rights Data" means Data (other than Computer Software)
         developed at private expense that embody trade secrets or are
         commercial or financial and confidential or privileged.

         "Restricted Computer Software" means Computer Software developed at
         private expense and that is a trade secret; is commercial or financial
         and is confidential or privileged; or is published copyrighted Computer
         Software, including minor modifications of such Computer Software.

         "Restricted Rights" means the rights of the Government in Restricted
         Computer Software (including minor modifications of such Computer
         Software), as set forth in a Restricted Rights Notice at Section 7.3 of
         this Exhibit 4.

         "Technical Data" means Data (other than Computer Software) that are of
         a scientific or technical nature.

2.       ALLOCATION OF RIGHTS

         2.1. The Government shall have Government Purpose License Rights in:

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.



In-Q-Tel Proprietary                  -22-
<PAGE>

CONTRACT NUMBER: [*** Redacted]

                  (i)      Data first produced by Developer in the performance
                           of this Agreement;

                  (ii)     Form, Fit, and Function Data delivered by Developer
                           to In-Q-Tel under this Agreement, if In-Q-Tel
                           delivers such Data to the Government;

                  (iii)    Data delivered by Developer to In-Q-Tel under this
                           Agreement (except for Restricted Computer Software)
                           that constitute manuals or instructional and training
                           material for installation, operation, or routine
                           maintenance and repair of items, components, or
                           processes delivered or furnished for use under this
                           Agreement, if In-Q-Tel delivers such Data to the
                           Government; and

                  (iv)     All other Data delivered by Developer to In-Q-Tel
                           under this Agreement (unless provided otherwise for
                           Limited Rights Data or Restricted Computer Software
                           pursuant to Section 7 of this Exhibit 4) if such Data
                           is delivered by In-Q-Tel to the Government.

         2.2.     Developer shall retain its ownership of Data, and specifically
                  shall have the rights referenced in Sections 3.1, 4, 5, 6, and
                  7 of this Exhibit 4.

3.       COPYRIGHT

         3.1      Developer may establish claim to copyright subsisting in any
                  Data first produced by Developer in the performance of this
                  Agreement. When claim to copyright is made, Developer shall
                  affix to the Data the applicable copyright notice of 17 U.S.C.
                  401 or 402 and acknowledgment of Government sponsorship
                  (including contract No. [*** Redacted] between the Government
                  and In-Q-Tel) when such Data are delivered to In-Q-Tel or are
                  published or deposited for registration as a published work in
                  the U.S. Copyright Office. Developer hereby grants to the
                  Government the license rights specifically granted in Sections
                  2.1 and 7 of this Exhibit 4.

         3.2      Developer shall not, without prior written permission of
                  In-Q-Tel, incorporate in Data delivered under this Agreement
                  any Data not first produced in the performance of this
                  Agreement that contains the copyright notice of 17 U.S.C. 401
                  or 402, unless Developer identifies such Data to In-Q-Tel and
                  grants to the Government, or acquires on its behalf, a license
                  of the same scope as set forth in Section 3.1 of this Exhibit
                  4.

         3.3      Pursuant to its contract with In-Q-Tel, the Government has
                  agreed not to remove any copyright notices placed on Data
                  pursuant to this Section 3, and to include such notices on all
                  reproductions of the Data.

4.       RELEASE, PUBLICATION AND USE OF DATA

         4.1      Developer shall have the right to use, reproduce, modify,
                  release, perform, display, distribute, and disclose any Data
                  first produced by Developer, or specifically used by
                  Developer, in the performance of this Agreement consistent
                  with the Federal export control and national security laws and
                  regulations.

         4.2.     If Developer receives or is given access to Data that contain
                  restrictive markings, it shall treat the Data in accordance
                  with such markings unless otherwise specifically authorized in
                  writing by In-Q-Tel.

5.       UNAUTHORIZED MARKING OF DATA

         If any Data delivered by Developer to In-Q-Tel bear any restrictive
         markings not authorized by this Exhibit 4, In-Q-Tel or the Government
         may at any time either return the Data to Developer or

In-Q-Tel Proprietary                  -23-

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

CONTRACT NUMBER: [*** Redacted]

         cancel or ignore the markings.

6.       OMITTED OR INCORRECT MARKINGS

         6.1.     Data delivered by Developer to In-Q-Tel without any of the
                  restrictive notices authorized by Sections 3 or 7 of this
                  Exhibit 4 shall be deemed to have been furnished with
                  Government Purpose License Rights in such Data. However, if
                  the Data has not been disclosed without restriction outside
                  In-Q-Tel and the Government, Developer may request permission
                  to have notices placed on qualifying Data, and the Government
                  may agree to do so if Developer:

                  (i)      Identifies the Data to which the omitted notice is to
                           be applied;

                  (ii)     Demonstrates that the omission of the notice was
                           inadvertent;

                  (iii)    Establishes that the use of the proposed notice is
                           authorized; and

                  (iv)     Acknowledges that neither In-Q-Tel nor the Government
                           has any liability with respect to the disclosure,
                           use, or reproduction of any such Data made prior to
                           the addition of the notice or resulting from the
                           omission of the notice.

         6.2.     The Government may permit correction of incorrect notices if
                  Developer identifies the Data on which correction of the
                  notice is to be made and demonstrates that the correct notice
                  is authorized.

7.       PROTECTION OF LIMITED RIGHTS DATA AND RESTRICTED COMPUTER SOFTWARE

         7.1.     When Data other than that listed in Paragraphs 2. 1 (i)-(iii)
                  of this Exhibit 4 are specified to be delivered under this
                  Agreement and qualify as either Limited Rights Data or
                  Restricted Computer Software, if Developer desires to continue
                  protection of such Data, Developer may instruct In-Q-Tel to
                  withhold such Data from the Government. As a condition to this
                  withholding, Developer shall identify to In-Q-Tel the Data
                  being withheld and furnish Form, Fit, and Function Data to
                  In-Q-Tel for delivery to the Government in lieu thereof.
                  Limited Rights Data that are formatted as a computer database
                  for delivery to the Government shall be treated as Limited
                  Rights Data and not Restricted Computer Software.

         7.2.     This Agreement may identify and specify the delivery of
                  Limited Rights Data to the Government or the Government may
                  require the delivery of such Data by written request. If
                  delivery of such Data is so required, Developer may affix the
                  following "Limited Rights Notice" to the Data and the
                  Government will thereafter treat the Data, subject to the
                  provisions of Sections 5 and 6 of this Exhibit 4, in
                  accordance with such Notice:

                              LIMITED RIGHTS NOTICE

                           These data are submitted with limited rights under
                           Government contract No. [*** Redacted] (and
                           Agreement No. [*** Redacted]). These data may

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.


In-Q-Tel Proprietary                  -24-

<PAGE>

CONTRACT NUMBER: [*** Redacted]

                     be reproduced and used by the Government with the express
                     limitation that they will not, without written permission
                     of the Developer, be used for purposes of manufacture or
                     distribution of commercial products nor disclosed outside
                     the Government.

This Notice shall be marked on any reproduction of these data, in whole or in
part.

                                 (End of notice)

7.3      This Agreement may identify and specify the delivery of Restricted
         Computer Software to the Government or the Government may require the
         delivery of such Computer Software by written request. If delivery of
         such Computer Software is so required, Developer may affix the
         following "Restricted Rights Notice" to the Computer Software and the
         Government will thereafter treat the Computer Software, subject to
         Sections 5 and 6 of this Exhibit 4, in accordance with the Notice:

                            RESTRICTED RIGHTS NOTICE

                     (This computer software is submitted with restricted rights
                     under Government Contract No. [*** Redacted] (and Agreement
                     No. [*** Redacted]). It may not be used, reproduced, or
                     disclosed by the Government except as provided in paragraph
                     (b) of this Notice.

                     (b) This computer software may be:

                     (1) Used or copied for use in or with the computer or
                     computers for which it was acquired, including use at any
                     Government installation to which such computer or computers
                     may be transferred;

                     (2) Used or copied for use in a backup computer if any
                     computer for which it was acquired is inoperative;

                     (3) Reproduced for safekeeping (archives) or backup
                     purposes;

                     (4) Modified, adapted, or combined with other computer
                     software, provided that the modified, combined, or adapted
                     portions of the derivative software incorporating
                     restricted computer software are made subject to the same
                     restricted rights;

                     (5) Disclosed to and reproduced for use by support service
                     contractors in accordance with subparagraphs (b) (1)
                     through (4) of this Notice, provided the Government makes
                     such disclosure or reproduction subject to these restricted
                     rights; and

                     (6) Used or copied for use in or transferred to a
                     replacement computer.

                     (c) This Notice shall be marked on any reproduction of this
                     computer software, in whole or in part.

                                 (End of notice)

Where it is impractical to include the Restricted Rights Notice on Restricted
Computer Software, the following short-form Notice may be used in lieu thereof.

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -25-
<PAGE>

CONTRACT NUMBER: [*** Redacted]

                       RESTRICTED RIGHTS NOTICE SHORT FORM

                     Use, reproduction, or disclosure is subject to restrictions
                     set forth in Contract No. [*** Redacted] and Agreement No.
                     [*** Redacted].

                                 (End of notice)

8.       SUBCONTRACTING

         Developer has the responsibility to obtain from its subcontractors all
         Data and rights necessary to fulfill Developer's obligations to the
         Government under this Agreement. If a subcontractor refuses to grant
         the Government such rights, Developer shall promptly notify In-Q-Tel
         and not proceed with subcontract award without further authorization.

9.       RELATIONSHIP TO PATENTS

         Nothing contained in this Exhibit 4 shall imply a license to the
         Government under any patent.

10.      COMMERCIAL ITEMS

         Notwithstanding anything else contained in this Exhibit 4, when a
         "commercial item" (as defined in FAR ss. 2.101) is acquired under this
         Agreement, the Government shall acquire only the Technical Data and the
         rights in Technical Data and Computer Software customarily provided to
         the public with the commercial item.

                                [END OF EXHIBIT]

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

In-Q-Tel Proprietary                  -26-
<PAGE>

                                    EXHIBIT 5

                REPRESENTATIVES OF THE PARTIES TO RECEIVE NOTICES

IN-Q-TEL'S REPRESENTATIVES:
                                     [*** Redacted]

                                     With a copy to:

                                     [*** Redacted]

                                     [*** Redacted]

DEVELOPER'S REPRESENTATIVES:

                                     Dr. J. Wallace Parce
                                     Chief Technical Officer
                                     Nanosys, Inc.
                                     2625 Hanover Street
                                     Palo Alto, CA 94304
                                     Phone: 650) 331-2131
                                     Email: wparce@nanosysinc.com

                                     With a copy to:
                                     Ms. Karen Vergura
                                     Vice President, Finance
                                     Nanosys, Inc.
                                     2625 Hanover Street
                                     Palo Alto, CA 94304
                                     Email: kvergura@nanosysinc.com

                                     Mr. Matthew Murphy, Esq.
                                     Vice President, Intellectual Property
                                     Nanosys, Inc.
                                     2625 Hanover Street
                                     Palo Alto, CA 94304
                                     Phone: (650) 331-2109
                                     Email: mmurphy@nanosysinc.com

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

                                [END OF EXHIBIT]

                                      -28-

<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.

THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO A
VOTING AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE
COMPANY (A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY
INTEREST IN THIS WARRANT OR SUCH SHARES THE PERSON ACCEPTING ANY SUCH INTEREST
SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID
VOTING AGREEMENT.

                             STOCK PURCHASE WARRANT
                To Purchase Shares of Series C Preferred Stock of
                                  Nanosys, Inc.

         THIS CERTIFIES that, for value received, In-Q-Tel, Inc., a Delaware
corporation (the "Investor"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after the Payment Date, as
defined below, and on or prior to September 4, 2008 (the "Termination Date"),
but not thereafter, to subscribe for and purchase, from Nanosys, Inc., a
Delaware corporation (the "Company"), up to a total of 542,314 shares of Series
C Preferred Stock (the "Shares"), with the exact number of shares for which this
Warrant is exercisable determined as set forth below, at an exercise price (the
"Exercise Price") of $0.001 per Share.

         1. Title to Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, in accordance with the terms of this Warrant
upon delivery of this Warrant by the holder hereof together with the Assignment
Form annexed hereto as Attachment C properly endorsed to the office or agency of
the Company, referred to in Sections 2 and 3 hereof.

         2. Exercise of Warrant.

                  (a) This Warrant shall be exercisable after the date of actual
receipt by the Company of an aggregate of [*** Redacted] of payments from I
n-Q-Tel, Inc. (the "Payment Date") pursuant to the Development Agreement, dated
as of even date hereof by and among the Company and the In-Q-Tel, Inc.
(the "DA"), for the number of Shares determined as follows (the number of Shares
as to which this warrant is exercisable pursuant to the terms of this Section 2
hereinafter referred to as "Vested Shares"):

                           (i) This Warrant shall be exercisable after the
Payment Date for the number of Shares equal to (i) 542,314 multiplied by (ii) a
fraction, (A) the numerator of which is the

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

amount, up to [*** Redacted], actually paid to the Company (or its assigns) from
time to time pursuant to the DA minus (x) the total dollar amount of all
equipment or other assets (based on the acquisition price to the Company) as to
which title is transferred by the Company to In-Q-Tel, Inc. pursuant to Section
13 of the DA and (y) all cash or cash equivalents transferred by the Company to
In-Q-Tel, Inc. pursuant to a request by In-Q-Tel, Inc. or pursuant to any other
action through which In-Q-Tel, Inc. seeks refund or payment of such funds, and
(B) the denominator of which is [*** Redacted].

                  (b) The right to purchase Vested Shares represented by this
Warrant is exercisable by the registered holder hereof, as to all of the Vested
Shares as of the date of such exercise, at any time before the close of business
on the Termination Date by the delivery of this Warrant and the Notice of
Exercise form annexed hereto as Attachment B duly executed to the office of the
Company in Palo Alto, California (or such other office or agency of the Company
as it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
of the Exercise Price for the Vested Shares thereby purchased (by cash or by
check or bank draft payable to the order of the Company or by cancellation of
indebtedness of the Company to the holder hereof, if any, at the time of
exercise in an amount equal to the purchase price of the Shares thereby
purchased); whereupon the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Preferred Stock so purchased. The
Company agrees that if at the time of the surrender of this Warrant and purchase
the holder hereof shall be entitled to exercise this Warrant, the shares so
purchased shall be and be deemed to be issued to such holder as the record owner
of such shares at the close of business on the date on which this Warrant shall
have been exercised as aforesaid. If this Warrant is exercised, or converted
pursuant to Section 3 below, for a number of Vested Shares that are less than
the total number of Shares, promptly after surrender of the Warrant upon such
exercise or conversion, the Company will execute and deliver a new warrant
evidencing the right of the Holder to the balance of the Shares purchasable
hereunder upon the same terms and conditions set forth herein, provided that the
issuance of such new warrant shall not accelerate, or be deemed or construed to
accelerate, the vesting of any Shares as set forth in Section 2(a) above, and
the terms of such new warrant shall be modified to the extent necessary to
prevent the acceleration of vesting of any Shares under the terms of this
Warrant.

         3. Right to Convert Warrant. The registered holder hereof shall have
the right to convert this Warrant, by the delivery of this Warrant and the
Notice of Conversion form annexed hereto as Attachment B duly executed to the
office of the Company in Palo Alto, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), as
to all Shares that are Vested Shares at the time of such conversion, at any time
before the close of business on the Termination Date, into the shares of Series
C Preferred Stock as provided for in this Section 3. Upon exercise of this
conversion right, the holder hereof shall be entitled to receive that number of
Vested Shares equal to the quotient obtained by dividing [(A - B)(X)] by (A),
where:

                  (A) = the Fair Market Value (as defined below) of one (1)
                        Share on the date of conversion of this Warrant.

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

                                                                             -2-
<PAGE>

                           (B) = the Exercise Price for one (1) Share under this
Warrant.

                           (X) = the number of Vested Shares issuable upon
exercise of this Warrant.

         "Fair Market Value" of a Share shall mean:

                  (a) if the conversion right is being exercised upon the
occurrence of the Company's initial public offering, the initial public offering
price per share (before deducting underwriting commissions and discounts and
offering expenses) multiplied by the number of shares of Common Stock issuable
upon conversion of one (1) Share issuable upon exercise of this Warrant; and

                  (b) in all other cases, the fair value as determined in good
faith by the Company's Board of Directors.

         Upon conversion of this Warrant, the registered holder hereof shall be
entitled to receive a certificate for the number of Vested Shares determined as
aforesaid.

         4. Issuance of Stock; No Fractional Shares or Scrip. Certificates for
the stock purchased hereunder or issuable upon conversion hereof shall be
delivered to the holder hereof promptly after the date on which this Warrant
shall have been exercised or converted as aforesaid. The Company covenants that
all Shares which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue). The Company agrees that, if at the time of
the surrender of this Warrant and exercise of the rights represented hereby, the
holder hereof shall be entitled to exercise such rights, the Shares so issued
shall be and be deemed to be issued to such holder as the record owner of such
Shares as of the close of business on the date on which this Warrant shall have
been exercised or converted as aforesaid. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant, and any fractional share amounts shall be rounded down to the
nearest whole share issuable upon exercise of this Warrant.

         5. Charges, Taxes and Expenses. Issuance of certificates for the Shares
upon the exercise or conversion of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
Shares are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for the Shares, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.

                                                                             -3-

<PAGE>

         6. No Rights as Shareholders. This Warrant does not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the exercise or conversion hereof.

         7. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the registered holder at the above-mentioned office or
agency of the Company, for a new Warrant of like tenor and dated as of such
exchange.

         The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant.
This Warrant may be surrendered for exchange, transfer or exercise, in
accordance with its terms, at such office or agency of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.

         8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.

         9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.

         10. Acquisition, Initial Public Offering and Dilution.

                  (a) Merger, Sale of Assets, etc.

                           (i)      "Acquisition." For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company (including a sale of all or
substantially all of the intellectual property of the Company), or any
reorganization, consolidation, acquisition or merger of the Company where the
holders of the Company's securities before the transaction own less than 50% of
the outstanding voting securities of the surviving entity after the transaction.

                           (ii)     If at any time after the date hereof the
Company proposes to consummate an Acquisition in which the shareholders of the
Company shall receive cash or publicly traded securities in exchange for their
shares of stock in the Company pursuant to such transaction, then the Company
shall give the holder of this Warrant written notice (the "Merger Notice") of
such impending transaction not later than fifteen (15) days prior to the
shareholders' meeting called to approve such transaction, or fifteen (15) days
prior to the closing of such transaction, whichever is earlier, and shall also
notify the holder of this Warrant of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction, and the Company shall thereafter give the holder of this
Warrant prompt notice of any material

                                                                             -4-

<PAGE>

changes. If this Warrant has not been exercised or converted by the closing of
such transaction then this Warrant shall terminate and shall no longer be
exercisable pursuant to the terms of Sections 2 or 3 hereof.

                           (iii)    If this Warrant is not terminated in an
Acquisition pursuant to the provisions of Section 10(a)(ii), (a "Non-Terminating
Acquisition") then, as a condition of such Non-Terminating Acquisition, lawful
and adequate provisions shall be made by the Company whereby the Investor shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Preferred Stock or Common Stock, as applicable, of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by this Warrant) such shares of stock, securities or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Preferred Stock or Common Stock, as applicable,
equal to the number of shares of such stock immediately theretofore purchasable
and receivable upon the exercise of the rights represented by this Warrant. In
the event of any Non-Terminating Acquisition, appropriate provision shall be
made by the Company with respect to the rights and interests of the Investor
that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof.

                  (b) Initial Public Offering. If at any time after the date
hereof the Company proposes to consummate the initial public offering ("IPO") of
its Common Stock in a bona fide firm commitment underwriting pursuant to a
registration statement on Form S-1 (or successor form) under the Securities Act
of 1933, as amended, (the "Securities Act"), then the Company shall give the
Investor written notice of such impending transaction not later than thirty (30)
days prior to the closing of the IPO. Such notice shall describe the material
terms and conditions of the IPO, and the Company shall thereafter give the
holder of this Warrant prompt notice of any material changes. If this Warrant
has not been exercised or converted by the closing of the IPO it shall terminate
and shall no longer be exercisable or convertible pursuant to the terms of
Section 2 or 3 hereof.

                  (c) Reclassification, etc. If the Company at any time shall,
by subdivision, combination or reclassification of securities or otherwise,
change any of the securities to which purchase rights under this Warrant exist
into the same or a different number of securities of any class or classes, this
Warrant shall thereafter be to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change. If the Shares issuable upon the exercise of this Warrant are subdivided
or combined into a greater or smaller number of the Shares, the purchase price
under this Warrant shall be proportionately reduced in case of subdivision of
shares or proportionately increased in the case of combination of shares, in
both cases by the ratio which the total number of Shares to be outstanding
immediately after such event bears to the total number of Shares outstanding
immediately prior to such event.

                                                                             -5-

<PAGE>

                  (d) Cash Distributions. No adjustment on account of dividends
on the Shares issuable upon the exercise of this Warrant will be made to the
purchase price under this Warrant.

                  (e) Authorized Shares. The Company covenants that, during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Preferred Stock and Common Stock a sufficient number of shares to
provide for the issuance of the Shares upon the exercise or conversion of this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Shares upon the exercise of the purchase rights under this Warrant.

                  (f) Conversion Price Adjustments. The rate at which the Shares
are convertible into shares of Common Stock of the Company is subject to
adjustment as set forth in the Company's Certificate of Incorporation, as
amended from time to time. Any adjustment to the conversion rate of the Shares
issuable upon the exercise of this Warrant effected prior to any exercise or
conversion of this Warrant shall apply to any Shares thereafter issued pursuant
to the terms hereof.

                  (g) Option to Accelerate Vesting of Shares. Prior to the
termination of this Warrant pursuant to the provisions of Section 10(a) or 10(b)
hereunder, In-Q-Tel, Inc. shall have the right to pay to the Company any amounts
that remain unpaid to the Company under the DA and thereby accelerate the
vesting of the Shares in accordance with the formula set forth in Section 2(a)
above, provided that, no acceleration of vesting of the Shares under this
warrant shall be effective unless the payments by In-Q-Tel, Inc. to the Company
are irrevocable under the terms of the DA and not subject to refund to In-Q-Tel,
Inc.

         11. Restrictions on Transferability of Securities.

                  (a) Restrictions on Transferability. This Warrant, the Shares
issuable upon exercise of this Warrant, and the shares of Common Stock issuable
upon conversion of the Shares (collectively the "Securities") shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Section 11, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each holder of any of the Securities will
cause any proposed purchaser, assignee, transferee, or pledgee of the Securities
held by such holder to agree in writing to take and hold such Securities subject
to the provisions and upon the conditions specified in this Warrant as if such
purchaser, assignee, transferee or pledgee were the Investor hereunder.

                  (b) Restrictive Legend. Each certificate representing the
Securities and any other securities issued in respect of the Securities upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section 11(c)
below) be stamped or otherwise imprinted with legends in the following form (in
addition to any legend required under applicable state securities laws):

                           (i)      33 Act Legend.

                                                                             -6-

<PAGE>

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
         INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
         SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
         SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
         REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
         EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
         SAID ACT.

                           (ii)     Lock-Up Legend.

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
         OTHERWISE TRANSFERRED FOR A PERIOD NOT TO EXCEED 180 DAYS FOLLOWING THE
         EFFECTIVE DATE OF A REGISTRATION STATEMENT FILED BY THE COMPANY FOR ITS
         INITIAL PUBLIC OFFERING.

         The Investor and each holder of Securities and each subsequent
transferee, assignee, transferee or pledgee (hereinafter collectively, including
the Investor, referred to as a "Holder") consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Securities in order to implement the restrictions on transfer established in
Sections 11 and 15.

                  (c) Notice of Proposed Transfers. Each Holder of a certificate
representing the Securities, by acceptance thereof, agrees to comply in all
respects with the provisions of Sections 11 and 15. Prior to any proposed sale,
assignment, transfer or pledge of any Securities (other than (i) a transfer not
involving a change in beneficial ownership, (ii) in transactions involving the
distribution without consideration of Securities by a Holder to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) a transfer to an affiliated fund, partnership or
company, which is not a competitor of the Company, subject to compliance with
applicable securities laws or (iv) transfers in compliance with Rule 144, so
long as the Company is furnished with satisfactory evidence of compliance with
such Rule), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the Holder thereof shall give
prior written notice to the Company of such Holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such Holder's expense, by either
(i) an opinion of counsel (who shall, and whose opinion shall be, addressed to
the Company and reasonably satisfactory to the Company) to the effect that the
proposed transfer of the Securities may be effected without registration under
the Securities Act or (ii) a "no action" letter from the Securities and Exchange
Commission (the "Commission") to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the Holder of
such Securities shall be entitled to transfer such Securities in accordance with
the terms of the notice delivered by such Holder to the Company. Each
certificate evidencing the Securities transferred as above provided shall bear
(except if such transfer is made pursuant to Rule 144, in which case the legend
set forth in Section

                                                                             -7-

<PAGE>

11(b)(i) shall not be required) the restrictive legends set forth in Section
11(b) above, except that each such certificate shall not bear the legend set
forth in Section 11(b)(i) if in the opinion of counsel for such Holder and in
the opinion of counsel for the Company such legend is not required in order to
establish compliance with any provision of the Securities Act.

                  (d) Removal of Restrictions on Transfer of Securities. The
legend referred to in Section 11(b)(i) hereof stamped on a certificate
evidencing the Securities and the stock transfer instructions and record
notations with respect to the Securities shall be removed, and the Company shall
issue a certificate without such legend to the Holder of the Securities, if the
Securities are registered under the Securities Act, or if such Holder provides
the Company with an opinion of counsel (which may be counsel for the Company)
reasonably satisfactory to the Company to the effect that a public sale or
transfer of such security may be made without registration under the Securities
Act or such Holder provides the Company with reasonable assurances, which may,
at the option of the Company, include an opinion of counsel (which may be
counsel for the Company) reasonably satisfactory to the Company, that such
security can be sold pursuant to paragraph (k) of Rule 144 (or any successor
provision) under the Securities Act. After the expiration of the Lock-Up Period
(as defined in Section 15 below), and upon request of the Holder, the legend
referred to in Section 11(b)(ii) hereof stamped on a certificate evidencing the
Securities and the stock transfer instructions and record notations with respect
to the Securities shall be removed, and the Company shall issue a certificate
without such legend to the Holder of the Securities.

         12. Investment Representations of the Investor. With respect to the
acquisition of any of the Securities, the Investor hereby represents and
warrants to the Company as follows:

                  (a) Experience. The Investor has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Investor is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act.

                  (b) Investment. The Investor is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. The Investor
understands that the Securities have not been, and will not be, registered under
the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Investor's representations as expressed herein.

                  (c) Rule 144. The Investor acknowledges that the Securities
must be held indefinitely unless subsequently registered under the Securities
Act, or unless an exemption from such registration is available. The Investor is
aware of the provisions of Rules 144 and 144A promulgated under the Securities
Act that permit limited resale of securities purchased in a private placement
subject to satisfaction of certain conditions.

                                                                             -8-

<PAGE>

                  (d) No Public Market. The Investor understands that no public
market now exists for any of the securities issued by the Company and that the
Company has made no assurances that a public market will ever exist for the
Securities.

                  (e) Access to Data. The Investor has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and has also had an opportunity to ask questions of the
Company's officers, which questions were answered to the Investor's
satisfaction.

         13. Representations of the Company.

                  (a) Series C Stock Purchase Agreement Representations. The
Company hereby represents that the representations and warranties of the Company
set forth in Section 3 of the Series C Preferred Stock Purchase Agreement, dated
as of April 10, 2003 (the "SPA"), were true and correct in all material respects
as of April 10, 2003.

                  (b) Representations and Warranties as of the September 4,
2003. The Company represents and warrants as of September 4, 2003 as follows:

                           (i)      Corporate Power. The Company has all
requisite corporate power and authority to: (A) execute and deliver this
Warrant; (B) to issue the Shares hereunder; (C) to issue the shares of the
Common Stock of the Company issuable upon conversion of the Shares; and (D) to
carry out and perform its obligations under the terms of this Warrant.

                           (ii)     Capitalization. As of September 4, 2003,
the entire authorized capital stock of the Company consists of: (A) 53,500,000
shares of Common Stock, of which 6,194,500 shares are issued and outstanding and
no shares are held as treasury shares, and (B) 40,250,000 shares of Preferred
Stock, 5,500,000 of which are designated Series A Preferred Stock of which
5,499,998 are issued and outstanding, 13,000,000 of which are designated Series
B Preferred of which 12,500,003 are issued and outstanding, and 21,750,000 of
which are designated Series C Preferred Stock 19,948,022 of which are issued and
outstanding. As of September 4, 2003, and other than options to purchase Common
Stock outstanding under the Option Plan, as defined below, and warrants for
Series C Preferred Stock issued to the Investor or its affiliates, the Company
has outstanding (A) warrants to purchase 116,250 shares of Series B Preferred
Stock, and (B) options to purchase 17,000 shares of Common Stock.

                                    (1) The outstanding shares of Common Stock
and Preferred Stock have been duly authorized and validly issued in compliance
with applicable laws, and are fully paid and nonassessable.

                                    (2) The Company has reserved

                                             a) the Shares of Series C Preferred
Stock for issuance upon the exercise or conversion of this Warrant;

                                                                             -9-

<PAGE>

                                             b) the shares of Common Stock (as
may be adjusted in accordance with the provisions of the Company's Third Amended
and Restated Certificate of Incorporation) for issuance upon the conversion of
the Shares; and

                                             c) 6,037,000 shares of Common Stock
authorized for issuance to employees, consultants and directors pursuant to its
2001 Stock Plan (the "Option Plan").

                           (iii)    Litigation. There are no actions, suits,
proceedings or investigations pending against (A) the Company, (B) its
directors, officers, and key employees in their official capacity as directors,
officers and employees of the Company, or (C) its properties (nor has the
Company received notice of any threat thereof) before any court or governmental
agency, nor, to the Company's knowledge, does there exist any basis therefor. To
its knowledge, the Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.

                           (iv)     Intellectual Property.

                                    (1) To the Company's knowledge, other than
software and technology licenses that are generally commercially available, the
Company owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, manufacturing processes, formulae,
trade secrets, customer lists and know-how (collectively, "Intellectual
Property") necessary to the business of the Company as presently conducted, the
lack of which could reasonably be expected to have a material adverse effect on
the Company's financial condition, results of operations, assets, liabilities,
business or prospects, and no claim is pending or, to the Company's knowledge,
threatened to the effect that the operations of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and, to the Company's knowledge, there is no reasonable basis for any
such claim (whether or not pending or threatened). No claim is pending or, to
the Company's knowledge, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and, to the
Company's knowledge, there is no reasonable basis for any such claim (whether or
not pending or threatened). To the Company's knowledge, all Intellectual
Property developed by and belonging to the Company that has not been patented
has been kept confidential. The Company has not granted or assigned to any other
person or entity any right to provide the services or proposed services of the
Company. There are no agreements, understandings, instruments, contracts,
judgments, orders or decrees to which the Company is a party or by which it is
bound which involve indemnification by the Company with respect to infringements
of Intellectual Property.

                                    (2) To the knowledge of the Company, no
third party may assert any valid claim against the Company or any Designated
Person (as defined below) with respect to (A) the continued employment by or
association with the Company of any of the present officers or employees of, or
consultants to, the Company (collectively, the "Designated Persons"), or (B) the
use or disclosure by the Company or any Designated Person of any information
which the Company or any Designated Person would be prohibited from using or
disclosing under any prior agreements

                                                                            -10-

<PAGE>

or arrangements or under any laws, including, without limitation, laws
applicable to unfair competition, trade secrets or proprietary information. The
Company does not believe it is or will be necessary to use any inventions of any
Designated Person made prior to his or her employment or engagement by the
Company.

                           (v)      Financial Statements. The Company has
previously delivered to In-Q-Tel, Inc. audited financial statements (including
balance sheet, income statement and statement of cash flows) as of December 31,
2002 for the fiscal year then ended, and its unaudited financial statements
(including balance sheet, income statement and statement of cash flows) as of
June 30, 2003 and for the six-month period then ended (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except that the unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject to normal year-end audit adjustments.

                           (vi)     Material Contracts. All of the contracts and
obligations set forth in Section 3.9 of the Schedule of Exceptions to the SPA
(the "Material Contracts") are valid, binding and in full force and effect
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies and to general principles of
equity. The Company is not in default or arrears under and, to the knowledge of
the Company, no other party to any Material Contract is in default or arrears
under, any term of any Material Contract

         14. Notices. If at any time prior to the exercise or conversion of this
Warrant in full the Company takes a record of the holders of the Company's stock
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company will give to the holder of
this Warrant, at least thirty (30) days prior to the date specified therein,
written notice specifying the date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.

         15. Lock-Up Agreement. Each Holder hereby agrees that, upon request of
the Company or the managing underwriter of a public offering of any securities
of the Company, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of all or any portion of
the Securities without the prior written consent of the Company or the managing
underwriter, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days from the date upon which the registration statement
relating to such public offering is declared or ordered effective by the
Securities and Exchange Commission) as may be requested by the Company or the
underwriters, as the case may be (the "Lock-Up Period").

         16. Miscellaneous.

                                                                            -11-

<PAGE>

                  (a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respect as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall be governed in all
respects by the laws of the State of California.

                  (b) Waivers and Amendments. With the written consent of the
Company and the Investor, the obligations of the Company and the right of the
Investor may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent the Company and the Investor may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Warrant.

                  (c) Notices. All notices and other communications required or
permitted to be given under this Warrant shall be in writing and shall be deemed
effectively given upon personal delivery, delivery by nationally recognized
courier or upon deposit with the United States Post Office (by first class mail,
postage prepaid) addressed as follows: (i) if to the Company, at the address of
its principal office in the State of California, or at such other address as the
Company shall have furnished Investor in writing, and (ii) if to the Investor,
to 1000 Wilson Blvd., Suite 2900, Arlington, VA 22209, Attn: General Counsel, or
such other address as the Investor shall have furnished the Company in writing.

                  (d) Survival. The provisions of Sections 11 and 15 hereof
shall survive the exercise or conversion of this Warrant and shall remain in
effect until such time as the Investor or any Holder no longer holds Securities.

                  (e) Binding Effect on Successors. This Warrant shall be
binding upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
covenants and agreements of the Company shall inure to the benefit of successors
and assigns of the holder hereof.

                                                                            -12-

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.

Dated: September 4, 2003

                                    NANOSYS, INC.

                                    Name:  /s/ Lawrence A. Bock
                                           --------------------
                                    By:    Lawrence A. Bock
                                           --------------------
                                    Title: President and Chief Executive Officer
                                           -------------------------------------

Agreed and Accepted:
In-Q-Tel, Inc.

Name:  [*** Redacted]
       --------------
By:    [*** Redacted]
       --------------
Title: [*** Redacted]
       --------------


*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

                                  ATTACHMENT A
                               NOTICE OF EXERCISE

To:      Nanosys, Inc.

         (1)      The undersigned hereby elects to purchase ________________
shares of the Vested Shares of Series C Preferred Stock of Nanosys, Inc.
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price in full for such Vested Shares, together with all applicable
transfer taxes, if any.

         (2)      Please issue a certificate of certificates representing said
shares of Series C Preferred Stock in the name of the undersigned or in such
other name as is specified below:

                                     (Name)

                                    (Address)

         (3)      The undersigned represents that the aforesaid shares of Series
C Preferred Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.

                                                 _______________________________
      (Date)                                     (Signature)

<PAGE>

                                  ATTACHMENT B
                              NOTICE OF CONVERSION

To:      Nanosys, Inc.

         (1)      The undersigned hereby elects to convert _______________
shares of the Vested Shares of the attached Warrant into such number of shares
of Series C Preferred Stock of Nanosys, Inc. as is determined pursuant to
Sections 2 and 3 of such Warrant, which conversion shall be effected pursuant to
the terms of the attached Warrant.

         (2)      Please issue a certificate or certificates representing said
shares of Nanosys, Inc. Series C Preferred Stock in the name of the undersigned
or in such other name as is specified below:

                                     (Name)

                                    (Address)

         (3)      The undersigned represents that the aforesaid shares of
Nanosys, Inc. Series C Preferred Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection
with, the distribution thereof and that the undersigned has no present intention
of distributing or reselling such shares.

                                                 ______________________________
      (Date)                                     (Signature)

                                                                             -2-
<PAGE>

                                  ATTACHMENT C
                                 ASSIGNMENT FORM

       (To assign the foregoing warrant, execute this form and supply the
        required information. Do not use this form to purchase shares.)

         FOR VALUE RECEIVED, ____% of the foregoing Warrant and all rights
evidenced thereby are hereby assigned to

________________________________________________________________________________
                                 (Please Print)

whose address is________________________________________________________________
                                 (Please Print)

                                                       Dated: ____________, 20__

                      Transferring Holder's Signature: _________________________

                        Transferring Holder's Address: _________________________
                                                       _________________________

Signed in the presence of:

___________________________


NOTE: The signature to this Assignment Form set forth above must correspond with
the name of the Investor as it appears on the face of the Warrant, without
alteration or enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant.

         In connection with the transfer of the Warrant (or a portion thereof)
to the undersigned, the undersigned hereby agrees to be bound by and comply with
all of the provisions and obligations applicable to the Investor contained in
the Warrant and to execute any further documentation necessary to carry out the
intent of the foregoing agreement to be bound.

                           Transferee Holder's Signature: ______________________

                      Transferee Holder's Name (printed): ______________________

                             Transferee Holder's Address: ______________________

                                                          ______________________

<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.

THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO A
VOTING AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE
COMPANY (A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY
INTEREST IN THIS WARRANT OR SUCH SHARES THE PERSON ACCEPTING ANY SUCH INTEREST
SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID
VOTING AGREEMENT.

                             STOCK PURCHASE WARRANT
                To Purchase Shares of Series C Preferred Stock of
                                  Nanosys, Inc.

         THIS CERTIFIES that, for value received, In-Q-Tel Employee Fund (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the Payment Date, as defined
below, and on or prior to September 4, 2008 (the "Termination Date"), but not
thereafter, to subscribe for and purchase, from Nanosys, Inc., a Delaware
corporation (the "Company"), up to a total of 180,771 shares of Series C
Preferred Stock (the "Shares"), with the exact number of shares for which this
Warrant is exercisable determined as set forth below, at an exercise price (the
"Exercise Price") of $0.001 per Share.

         1. Title to Warrant. Prior to the expiration hereof and subject to
         compliance with applicable laws, this Warrant and all rights hereunder
         are transferable, in whole or in part, in accordance with the terms of
         this Warrant upon delivery of this Warrant by the holder hereof
         together with the Assignment Form annexed hereto as Attachment C
         properly endorsed to the office or agency of the Company, referred to
         in Sections 2 and 3 hereof.

         2. Exercise of Warrant.

(a) This Warrant shall be exercisable after the date of actual receipt by the
Company of an aggregate of [*** Redacted] of payments from In-Q-Tel, Inc. (the
"Payment Date") pursuant to the Development Agreement, dated as of even date
hereof by and among the Company and the In-Q-Tel, Inc. (the "DA"), for the
number of Shares determined as follows (the number of Shares as to which this
warrant is exercisable pursuant to the terms of this Section 2 hereinafter
referred to as "Vested Shares"):

                           (i)      This Warrant shall be exercisable after the
Payment Date for the number of Shares equal to (i) 180,771 multiplied by (ii) a
fraction, (A) the numerator of which is the

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

amount, up to [*** Redacted], actually paid to the Company (or its assigns) from
time to time pursuant to the DA minus (x) the total dollar amount of all
equipment or other assets (based on the acquisition price to the Company) as to
which title is transferred by the Company to In-Q-Tel, Inc. pursuant to Section
13 of the DA and (y) all cash or cash equivalents transferred by the Company to
In-Q-Tel, Inc. pursuant to a request by In-Q-Tel, Inc. or pursuant to any other
action through which In-Q-Tel, Inc. seeks refund or payment of such funds, and
(B) the denominator of which is [*** Redacted].

                  (b) The right to purchase Vested Shares represented by this
Warrant is exercisable by the registered holder hereof, as to all of the Vested
Shares as of the date of such exercise, at any time before the close of business
on the Termination Date by the delivery of this Warrant and the Notice of
Exercise form annexed hereto as Attachment B duly executed to the office of the
Company in Palo Alto, California (or such other office or agency of the Company
as it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
of the Exercise Price for the Vested Shares thereby purchased (by cash or by
check or bank draft payable to the order of the Company or by cancellation of
indebtedness of the Company to the holder hereof, if any, at the time of
exercise in an amount equal to the purchase price of the Shares thereby
purchased); whereupon the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Preferred Stock so purchased. The
Company agrees that if at the time of the surrender of this Warrant and purchase
the holder hereof shall be entitled to exercise this Warrant, the shares so
purchased shall be and be deemed to be issued to such holder as the record owner
of such shares at the close of business on the date on which this Warrant shall
have been exercised as aforesaid. If this Warrant is exercised, or converted
pursuant to Section 3 below, for a number of Vested Shares that are less than
the total number of Shares, promptly after surrender of the Warrant upon such
exercise or conversion, the Company will execute and deliver a new warrant
evidencing the right of the Holder to the balance of the Shares purchasable
hereunder upon the same terms and conditions set forth herein, provided that the
issuance of such new warrant shall not accelerate, or be deemed or construed to
accelerate, the vesting of any Shares as set forth in Section 2(a) above, and
the terms of such new warrant shall be modified to the extent necessary to
prevent the acceleration of vesting of any Shares under the terms of this
Warrant.

         3. Right to Convert Warrant. The registered holder hereof shall have
the right to convert this Warrant, by the delivery of this Warrant and the
Notice of Conversion form annexed hereto as Attachment B duly executed to the
office of the Company in Palo Alto, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), as
to all Shares that are Vested Shares at the time of such conversion, at any time
before the close of business on the Termination Date, into the shares of Series
C Preferred Stock as provided for in this Section 3. Upon exercise of this
conversion right, the holder hereof shall be entitled to receive that number of
Vested Shares equal to the quotient obtained by dividing [(A - B)(X)] by (A),
where:

                           (A) =  the Fair Market Value (as defined below) of
                                  one (1) Share on the date of conversion of
                                  this Warrant.

                           (B) =  the Exercise Price for one (1) Share under
                                  this Warrant.

*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

                                                                             -2-
<PAGE>

                           (X) = the number of Vested Shares issuable upon
                                 exercise of this Warrant.

         "Fair Market Value" of a Share shall mean:

                  (a) if the conversion right is being exercised upon the
occurrence of the Company's initial public offering, the initial public offering
price per share (before deducting underwriting commissions and discounts and
offering expenses) multiplied by the number of shares of Common Stock issuable
upon conversion of one (1) Share issuable upon exercise of this Warrant; and

                  (b) in all other cases, the fair value as determined in good
faith by the Company's Board of Directors.

         Upon conversion of this Warrant, the registered holder hereof shall be
entitled to receive a certificate for the number of Vested Shares determined as
aforesaid.

         4. Issuance of Stock; No Fractional Shares or Scrip. Certificates for
the stock purchased hereunder or issuable upon conversion hereof shall be
delivered to the holder hereof promptly after the date on which this Warrant
shall have been exercised or converted as aforesaid. The Company covenants that
all Shares which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue). The Company agrees that, if at the time of
the surrender of this Warrant and exercise of the rights represented hereby, the
holder hereof shall be entitled to exercise such rights, the Shares so issued
shall be and be deemed to be issued to such holder as the record owner of such
Shares as of the close of business on the date on which this Warrant shall have
been exercised or converted as aforesaid. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant, and any fractional share amounts shall be rounded down to the
nearest whole share issuable upon exercise of this Warrant.

         5. Charges, Taxes and Expenses. Issuance of certificates for the Shares
upon the exercise or conversion of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
Shares are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for the Shares, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.

         6. No Rights as Shareholders. This Warrant does not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the exercise or conversion hereof.

                                                                             -3-
<PAGE>

         7. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the registered holder at the above-mentioned office or
agency of the Company, for a new Warrant of like tenor and dated as of such
exchange.

         The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant.
This Warrant may be surrendered for exchange, transfer or exercise, in
accordance with its terms, at such office or agency of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.

         8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.

         9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.

         10. Acquisition, Initial Public Offering and Dilution.

                  (a) Merger, Sale of Assets, etc.

                           (i)      "Acquisition." For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company (including a sale of all or
substantially all of the intellectual property of the Company), or any
reorganization, consolidation, acquisition or merger of the Company where the
holders of the Company's securities before the transaction own less than 50% of
the outstanding voting securities of the surviving entity after the transaction.

                           (ii)     If at any time after the date hereof the
Company proposes to consummate an Acquisition in which the shareholders of the
Company shall receive cash or publicly traded securities in exchange for their
shares of stock in the Company pursuant to such transaction, then the Company
shall give the holder of this Warrant written notice (the "Merger Notice") of
such impending transaction not later than fifteen (15) days prior to the
shareholders' meeting called to approve such transaction, or fifteen (15) days
prior to the closing of such transaction, whichever is earlier, and shall also
notify the holder of this Warrant of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction, and the Company shall thereafter give the holder of this
Warrant prompt notice of any material changes. If this Warrant has not been
exercised or converted by the closing of such transaction then this Warrant
shall terminate and shall no longer be exercisable pursuant to the terms of
Sections 2 or 3 hereof.

                                                                             -4-
<PAGE>

                           (iii)    If this Warrant is not terminated in an
Acquisition pursuant to the provisions of Section 10(a)(ii), (a "Non-Terminating
Acquisition") then, as a condition of such Non-Terminating Acquisition, lawful
and adequate provisions shall be made by the Company whereby the Investor shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Preferred Stock or Common Stock, as applicable, of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by this Warrant) such shares of stock, securities or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Preferred Stock or Common Stock, as applicable,
equal to the number of shares of such stock immediately theretofore purchasable
and receivable upon the exercise of the rights represented by this Warrant. In
the event of any Non-Terminating Acquisition, appropriate provision shall be
made by the Company with respect to the rights and interests of the Investor
that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof.

                  (b) Initial Public Offering. If at any time after the date
hereof the Company proposes to consummate the initial public offering ("IPO") of
its Common Stock in a bona fide firm commitment underwriting pursuant to a
registration statement on Form S-1 (or successor form) under the Securities Act
of 1933, as amended, (the "Securities Act"), then the Company shall give the
Investor written notice of such impending transaction not later than thirty (30)
days prior to the closing of the IPO. Such notice shall describe the material
terms and conditions of the IPO, and the Company shall thereafter give the
holder of this Warrant prompt notice of any material changes. If this Warrant
has not been exercised or converted by the closing of the IPO it shall terminate
and shall no longer be exercisable or convertible pursuant to the terms of
Section 2 or 3 hereof.

                  (c) Reclassification, etc. If the Company at any time shall,
by subdivision, combination or reclassification of securities or otherwise,
change any of the securities to which purchase rights under this Warrant exist
into the same or a different number of securities of any class or classes, this
Warrant shall thereafter be to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change. If the Shares issuable upon the exercise of this Warrant are subdivided
or combined into a greater or smaller number of the Shares, the purchase price
under this Warrant shall be proportionately reduced in case of subdivision of
shares or proportionately increased in the case of combination of shares, in
both cases by the ratio which the total number of Shares to be outstanding
immediately after such event bears to the total number of Shares outstanding
immediately prior to such event.

                  (d) Cash Distributions. No adjustment on account of dividends
on the Shares issuable upon the exercise of this Warrant will be made to the
purchase price under this Warrant.

                  (e) Authorized Shares. The Company covenants that, during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Preferred Stock and Common Stock a sufficient number of shares to
provide for the issuance of the Shares upon the exercise or conversion of this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute

                                                                             -5-
<PAGE>

full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Shares upon
the exercise of the purchase rights under this Warrant.

                  (f) Conversion Price Adjustments. The rate at which the Shares
are convertible into shares of Common Stock of the Company is subject to
adjustment as set forth in the Company's Certificate of Incorporation, as
amended from time to time. Any adjustment to the conversion rate of the Shares
issuable upon the exercise of this Warrant effected prior to any exercise or
conversion of this Warrant shall apply to any Shares thereafter issued pursuant
to the terms hereof.

                  (g) Option to Accelerate Vesting of Shares. Prior to the
termination of this Warrant pursuant to the provisions of Section 10(a) or 10(b)
hereunder, In-Q-Tel, Inc. shall have the right to pay to the Company any amounts
that remain unpaid to the Company under the DA and thereby accelerate the
vesting of the Shares in accordance with the formula set forth in Section 2(a)
above, provided that, no acceleration of vesting of the Shares under this
warrant shall be effective unless the payments by In-Q-Tel, Inc. to the Company
are irrevocable under the terms of the DA and not subject to refund to In-Q-Tel,
Inc.

         11. Restrictions on Transferability of Securities.

                  (a) Restrictions on Transferability. This Warrant, the Shares
issuable upon exercise of this Warrant, and the shares of Common Stock issuable
upon conversion of the Shares (collectively the "Securities") shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Section 11, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each holder of any of the Securities will
cause any proposed purchaser, assignee, transferee, or pledgee of the Securities
held by such holder to agree in writing to take and hold such Securities subject
to the provisions and upon the conditions specified in this Warrant as if such
purchaser, assignee, transferee or pledgee were the Investor hereunder.

                  (b) Restrictive Legend. Each certificate representing the
Securities and any other securities issued in respect of the Securities upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section 11(c)
below) be stamped or otherwise imprinted with legends in the following form (in
addition to any legend required under applicable state securities laws):

                           (i)      33 Act Legend.

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
         INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
         SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
         SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
         REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
         EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
         SAID ACT.

                                                                             -6-
<PAGE>

                           (ii)     Lock-Up Legend.

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
         OTHERWISE TRANSFERRED FOR A PERIOD NOT TO EXCEED 180 DAYS FOLLOWING THE
         EFFECTIVE DATE OF A REGISTRATION STATEMENT FILED BY THE COMPANY FOR ITS
         INITIAL PUBLIC OFFERING.

         The Investor and each holder of Securities and each subsequent
transferee, assignee, transferee or pledgee (hereinafter collectively, including
the Investor, referred to as a "Holder") consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Securities in order to implement the restrictions on transfer established in
Sections 11 and 15.

                  (c) Notice of Proposed Transfers. Each Holder of a certificate
representing the Securities, by acceptance thereof, agrees to comply in all
respects with the provisions of Sections 11 and 15. Prior to any proposed sale,
assignment, transfer or pledge of any Securities (other than (i) a transfer not
involving a change in beneficial ownership, (ii) in transactions involving the
distribution without consideration of Securities by a Holder to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) a transfer to an affiliated fund, partnership or
company, which is not a competitor of the Company, subject to compliance with
applicable securities laws or (iv) transfers in compliance with Rule 144, so
long as the Company is furnished with satisfactory evidence of compliance with
such Rule), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the Holder thereof shall give
prior written notice to the Company of such Holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such Holder's expense, by either
(i) an opinion of counsel (who shall, and whose opinion shall be, addressed to
the Company and reasonably satisfactory to the Company) to the effect that the
proposed transfer of the Securities may be effected without registration under
the Securities Act or (ii) a "no action" letter from the Securities and Exchange
Commission (the "Commission") to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the Holder of
such Securities shall be entitled to transfer such Securities in accordance with
the terms of the notice delivered by such Holder to the Company. Each
certificate evidencing the Securities transferred as above provided shall bear
(except if such transfer is made pursuant to Rule 144, in which case the legend
set forth in Section 11(b)(i) shall not be required) the restrictive legends set
forth in Section 11(b) above, except that each such certificate shall not bear
the legend set forth in Section 11(b)(i) if in the opinion of counsel for such
Holder and in the opinion of counsel for the Company such legend is not required
in order to establish compliance with any provision of the Securities Act.

                  (d) Removal of Restrictions on Transfer of Securities. The
legend referred to in Section 11(b)(i) hereof stamped on a certificate
evidencing the Securities and the stock transfer instructions and record
notations with respect to the Securities shall be removed, and the Company shall
issue a certificate without such legend to the Holder of the Securities, if the
Securities are registered under the Securities Act, or if such Holder provides
the Company with an opinion of counsel (which may be counsel for the Company)
reasonably satisfactory to the Company to the

                                                                             -7-

<PAGE>

effect that a public sale or transfer of such security may be made without
registration under the Securities Act or such Holder provides the Company with
reasonable assurances, which may, at the option of the Company, include an
opinion of counsel (which may be counsel for the Company) reasonably
satisfactory to the Company, that such security can be sold pursuant to
paragraph (k) of Rule 144 (or any successor provision) under the Securities Act.
After the expiration of the Lock-Up Period (as defined in Section 15 below), and
upon request of the Holder, the legend referred to in Section 11(b)(ii) hereof
stamped on a certificate evidencing the Securities and the stock transfer
instructions and record notations with respect to the Securities shall be
removed, and the Company shall issue a certificate without such legend to the
Holder of the Securities.

         12. Investment Representations of the Investor. With respect to the
acquisition of any of the Securities, the Investor hereby represents and
warrants to the Company as follows:

                  (a) Experience. The Investor has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests.

                  (b) Investment. The Investor is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. The Investor
understands that the Securities have not been, and will not be, registered under
the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Investor's representations as expressed herein.

                  (c) Rule 144. The Investor acknowledges that the Securities
must be held indefinitely unless subsequently registered under the Securities
Act, or unless an exemption from such registration is available. The Investor is
aware of the provisions of Rules 144 and 144A promulgated under the Securities
Act that permit limited resale of securities purchased in a private placement
subject to satisfaction of certain conditions.

                  (d) No Public Market. The Investor understands that no public
market now exists for any of the securities issued by the Company and that the
Company has made no assurances that a public market will ever exist for the
Securities.

                  (e) Access to Data. The Investor has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and has also had an opportunity to ask questions of the
Company's officers, which questions were answered to the Investor's
satisfaction.

         13. Representations of the Company.

                  (a) Series C Stock Purchase Agreement Representations. The
Company hereby represents that the representations and warranties of the Company
set forth in Section 3 of the Series C Preferred Stock Purchase Agreement, dated
as of April 10, 2003 (the "SPA"), were true and correct in all material respects
as of April 10, 2003.

                                                                             -8-

<PAGE>

                  (b) Representations and Warranties as of the September 4,
2003. The Company represents and warrants as of September 4, 2003 as follows:

                           (i)      Corporate Power. The Company has all
requisite corporate power and authority to: (A) execute and deliver this
Warrant; (B) to issue the Shares hereunder; (C) to issue the shares of the
Common Stock of the Company issuable upon conversion of the Shares; and (D) to
carry out and perform its obligations under the terms of this Warrant.

                           (ii)     Capitalization. As of September 4, 2003,
the entire authorized capital stock of the Company consists of: (A) 53,500,000
shares of Common Stock, of which 6,194,500 shares are issued and outstanding and
no shares are held as treasury shares, and (B) 40,250,000 shares of Preferred
Stock, 5,500,000 of which are designated Series A Preferred Stock of which
5,499,998 are issued and outstanding, 13,000,000 of which are designated Series
B Preferred of which 12,500,003 are issued and outstanding, and 21,750,000 of
which are designated Series C Preferred Stock 19,948,022 of which are issued and
outstanding. As of September 4, 2003, and other than options to purchase Common
Stock outstanding under the Option Plan, as defined below, and warrants for
Series C Preferred Stock issued to the Investor or its affiliates, the Company
has outstanding (A) warrants to purchase 116,250 shares of Series B Preferred
Stock, and (B) options to purchase 17,000 shares of Common Stock.

                                    (1) The outstanding shares of Common Stock
and Preferred Stock have been duly authorized and validly issued in compliance
with applicable laws, and are fully paid and nonassessable.

                                    (2) The Company has reserved

                                             a) the Shares of Series C Preferred
Stock for issuance upon the exercise or conversion of this Warrant;

                                             b) the shares of Common Stock (as
may be adjusted in accordance with the provisions of the Company's Third Amended
and Restated Certificate of Incorporation) for issuance upon the conversion of
the Shares; and

                                             c) 6,037,000 shares of Common Stock
authorized for issuance to employees, consultants and directors pursuant to its
2001 Stock Plan (the "Option Plan").

                           (iii)    Litigation(c) . There are no actions, suits,
proceedings or investigations pending against (A) the Company, (B) its
directors, officers, and key employees in their official capacity as directors,
officers and employees of the Company, or (C) its properties (nor has the
Company received notice of any threat thereof) before any court or governmental
agency, nor, to the Company's knowledge, does there exist any basis therefor. To
its knowledge, the Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.

                           (iv)     Intellectual Property.

                                                                             -9-

<PAGE>

                                    (1) To the Company's knowledge,
other than software and technology licenses that are generally commercially
available, the Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know-how (collectively,
"Intellectual Property") necessary to the business of the Company as presently
conducted, the lack of which could reasonably be expected to have a material
adverse effect on the Company's financial condition, results of operations,
assets, liabilities, business or prospects, and no claim is pending or, to the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the Company's knowledge, there is no reasonable
basis for any such claim (whether or not pending or threatened). No claim is
pending or, to the Company's knowledge, threatened to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and,
to the Company's knowledge, there is no reasonable basis for any such claim
(whether or not pending or threatened). To the Company's knowledge, all
Intellectual Property developed by and belonging to the Company that has not
been patented has been kept confidential. The Company has not granted or
assigned to any other person or entity any right to provide the services or
proposed services of the Company. There are no agreements, understandings,
instruments, contracts, judgments, orders or decrees to which the Company is a
party or by which it is bound which involve indemnification by the Company with
respect to infringements of Intellectual Property.

                                    (2) To the knowledge of the Company, no
third party may assert any valid claim against the Company or any Designated
Person (as defined below) with respect to (A) the continued employment by or
association with the Company of any of the present officers or employees of, or
consultants to, the Company (collectively, the "Designated Persons"), or (B) the
use or disclosure by the Company or any Designated Person of any information
which the Company or any Designated Person would be prohibited from using or
disclosing under any prior agreements or arrangements or under any laws,
including, without limitation, laws applicable to unfair competition, trade
secrets or proprietary information. The Company does not believe it is or will
be necessary to use any inventions of any Designated Person made prior to his or
her employment or engagement by the Company.

                           (v)      Financial Statements. The Company has
previously delivered to In-Q-Tel, Inc. audited financial statements (including
balance sheet, income statement and statement of cash flows) as of December 31,
2002 for the fiscal year then ended, and its unaudited financial statements
(including balance sheet, income statement and statement of cash flows) as of
June 30, 2003 and for the six-month period then ended (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except that the unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject to normal year-end audit adjustments.

                                                                            -10-

<PAGE>

                           (vi)     Material Contracts. All of the contracts and
obligations set forth in Section 3.9 of the Schedule of Exceptions to the SPA
(the "Material Contracts") are valid, binding and in full force and effect
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies and to general principles of
equity. The Company is not in default or arrears under and, to the knowledge of
the Company, no other party to any Material Contract is in default or arrears
under, any term of any Material Contract

         14. Notices. If at any time prior to the exercise or conversion of this
Warrant in full the Company takes a record of the holders of the Company's stock
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company will give to the holder of
this Warrant, at least thirty (30) days prior to the date specified therein,
written notice specifying the date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.

         15. Lock-Up Agreement. Each Holder hereby agrees that, upon request of
the Company or the managing underwriter of a public offering of any securities
of the Company, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of all or any portion of
the Securities without the prior written consent of the Company or the managing
underwriter, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days from the date upon which the registration statement
relating to such public offering is declared or ordered effective by the
Securities and Exchange Commission) as may be requested by the Company or the
underwriters, as the case may be (the "Lock-Up Period").

         16. Miscellaneous.

                  (a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respect as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall be governed in all
respects by the laws of the State of California.

                  (b) Waivers and Amendments. With the written consent of the
Company and the Investor, the obligations of the Company and the right of the
Investor may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent the Company and the Investor may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Warrant.

                  (c) Notices. All notices and other communications required or
permitted to be given under this Warrant shall be in writing and shall be deemed
effectively given upon personal delivery, delivery by nationally recognized
courier or upon deposit with the United States Post Office (by first class mail,
postage prepaid) addressed as follows: (i) if to the Company, at the address of
its principal office in the State of California, or at such other address as the
Company shall have furnished Investor in writing, and (ii) if to the Investor,
to 1000 Wilson Blvd., Suite 2900, Arlington,

                                                                            -11-

<PAGE>

VA 22209, Attn: General Counsel, or such other address as the Investor shall
have furnished the Company in writing.

                  (d) Survival. The provisions of Sections 11 and 15 hereof
shall survive the exercise or conversion of this Warrant and shall remain in
effect until such time as the Investor or any Holder no longer holds Securities.

                  (e) Binding Effect on Successors. This Warrant shall be
binding upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
covenants and agreements of the Company shall inure to the benefit of successors
and assigns of the holder hereof.

                                                                            -12-

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.

Dated: September 4, 2003

                                    NANOSYS, INC.

                                    Name:  /s/ Lawrence A. Bock
                                           --------------------
                                    By:    Lawrence A. Bock
                                           --------------------
                                    Title: President and Chief Executive Officer
                                           -------------------------------------

Agreed and Accepted:
In-Q-Tel Employee Fund

Name:  [*** Redacted]
       --------------
By:    [*** Redacted]
       --------------
Title: [*** Redacted]
       --------------



*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

                                  ATTACHMENT A
                               NOTICE OF EXERCISE

To:      Nanosys, Inc.

         (1)      The undersigned hereby elects to purchase ________________
shares of the Vested Shares of Series C Preferred Stock of Nanosys, Inc.
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price in full for such Vested Shares, together with all applicable
transfer taxes, if any.

         (2)      Please issue a certificate of certificates representing said
shares of Series C Preferred Stock in the name of the undersigned or in such
other name as is specified below:

                                     (Name)

                                   (Address)

         (3)      The undersigned represents that the aforesaid shares of Series
C Preferred Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.

                                     ___________________________________________
(Date)                               (Signature)

<PAGE>

                                  ATTACHMENT B
                              NOTICE OF CONVERSION

To:      Nanosys, Inc.

         (1)      The undersigned hereby elects to convert _______________
shares of the Vested Shares of the attached Warrant into such number of shares
of Series C Preferred Stock of Nanosys, Inc. as is determined pursuant to
Sections 2 and 3 of such Warrant, which conversion shall be effected pursuant to
the terms of the attached Warrant.

         (2)      Please issue a certificate or certificates representing said
shares of Nanosys, Inc. Series C Preferred Stock in the name of the undersigned
or in such other name as is specified below:

                                     (Name)

                                   (Address)

         (3)      The undersigned represents that the aforesaid shares of
Nanosys, Inc. Series C Preferred Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection
with, the distribution thereof and that the undersigned has no present intention
of distributing or reselling such shares.

                                    ____________________________________________
(Date)                              (Signature)

<PAGE>

                                  ATTACHMENT C
                                 ASSIGNMENT FORM

  (To assign the foregoing warrant, execute this form and supply the required
             information. Do not use this form to purchase shares.)

         FOR VALUE RECEIVED, ____% of the foregoing Warrant and all rights
evidenced thereby are hereby assigned to

________________________________________________________________________________
                                 (Please Print)

whose address is _______________________________________________________________
                                 (Please Print)

                                                       Dated: ____________, 20__

                             Transferring Holder's Signature: __________________

                               Transferring Holder's Address: __________________

                                                              __________________

Signed in the presence of:

______________________


NOTE: The signature to this Assignment Form set forth above must correspond with
the name of the Investor as it appears on the face of the Warrant, without
alteration or enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant.

         In connection with the transfer of the Warrant (or a portion thereof)
to the undersigned, the undersigned hereby agrees to be bound by and comply with
all of the provisions and obligations applicable to the Investor contained in
the Warrant and to execute any further documentation necessary to carry out the
intent of the foregoing agreement to be bound.

                           Transferee Holder's Signature: ______________________

                      Transferee Holder's Name (printed): ______________________

                             Transferee Holder's Address: ______________________

                                                          ______________________

Source: OneCLE Business Contracts.