<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 2000
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
CEPHEID
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 3826 77-0441625
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1190 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089-1302
(408) 541-4191
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------------
THOMAS GUTSHALL
CHIEF EXECUTIVE OFFICER
CEPHEID
1190 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089-1302
(408) 541-4191
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------------------
Copies to:
<TABLE>
<S> <C>
August J. Moretti Frederick W. Kanner
Heller Ehrman White & McAuliffe LLP Robert M. Smith
2500 Sand Hill Road, Suite 100 Dewey Ballantine LLP
Menlo Park, California 94025-7063 1301 Avenue of the Americas
Telephone: (650) 234-4229 New York, New York 10019-6092
Facsimile: (650) 234-4299 Telephone: (212) 259-8000
Facsimile: (212) 259-6333
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
----------------------------
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If the form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If the form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
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Common stock, no par value.............................. $92,000,000 $24,288
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</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act, the number of
shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
PRELIMINARY PROSPECTUS Subject to completion April , 2000
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Shares
CEPHEID LOGO
Common Stock
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This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the public offering
price to be between $ and $ per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "CPHD."
BEFORE BUYING ANY SHARES, YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to Cepheid $ $
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</TABLE>
The underwriters may also purchase up to shares of common stock from
us at the public offering price, less the underwriting discounts and
commissions, within 30 days from the date of this prospectus. The underwriters
may exercise this option only to cover over-allotments, if any. If the
underwriters exercise the option in full, the total underwriting discounts and
commissions will be $ , and the total proceeds, before expenses, to
Cepheid will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about ,
2000.
WARBURG DILLON READ LLC
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
INVEMED ASSOCIATES
<PAGE> 3
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Through and including , 2000 (the 25th day after commencement of
this offering), federal securities law may require all dealers selling shares of
our common stock, whether or not participating in this offering, to deliver a
prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus summary.................... 3
The offering.......................... 5
Summary consolidated financial data... 6
Risk factors.......................... 7
Forward-looking information........... 15
Use of proceeds....................... 16
Dividend policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected consolidated financial
data................................ 19
Management's discussion and analysis
of financial condition and results
of operations....................... 21
Business.............................. 27
Management............................ 45
Related party transactions............ 52
Principal shareholders................ 54
Description of capital stock.......... 56
Shares eligible for future sale....... 59
Underwriting.......................... 61
Legal matters......................... 64
Experts............................... 64
Where you can find more information... 65
Index to consolidated financial
statements.......................... F-1
</TABLE>
Cepheid(TM), Smart Cycler(R), I-CORE(TM) and GeneXpert(TM) are trademarks of
Cepheid. Other service marks, trademarks and trade names referred to in this
prospectus are the property of their respective owners.
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<PAGE> 4
Inside cover p.1
Illustration: This illustration, on the right side of the page, depicts
Cepheid's integrated sample preparation, amplification and
detection technology. The illustration shows the elements
of a disposable sample preparation cartridge linking with
the elements of an I-CORE module to perform amplification
and detection. The illustration is accompanied by text,
referencing on the appropriate section of the illustration.
Headline: Automating Gene-Based Testing
Caption: Integrated, Automated, Miniaturized Microfluidic Platforms
for Analyzing Complex Biological Samples, Including Sample
Preparation, Amplification and Detection.
Sub-header: Sample Preparation
Caption: Our microfluidic cartridges, 3-4 cubic inches, replace
several skilled technicians in a laboratory, performing all
processing steps in a matter of minutes.
Captions:
Test tube: A raw specimen containing the DNA of interest is added to
the disposable cartridge.
Chambers: Flow-through fluid control measures and mixes the specimen
and reagents.
Lysing module: Cells and organisms are rapidly lysed to release their DNA.
Chip: Micromachined chips capture, purify, and concentrate DNA
molecules.
Reaction tube: Purified DNA molecules are mixed with amplification and
detection chemicals...and delivered into our patented
reaction tube, optimized for amplification and detection.
Sub-header: Amplification and Detection
Caption: Our I-CORE (Integrated Cooling/Heating Optics Reaction)
module is a miniaturized, temperature-controlled
fluorimeter for performing and continuously monitoring
biochemical reactions.
Captions:
Heater block: Rapid, precise temperature control speeds time to result.
Optic blocks: Powerful optical analysis, detecting, monitoring and
qualifying up to four different DNA targets simultaneously.
<PAGE> 5
Base of illustration: I-CORE inside: every I-CORE module in a larger system
can be operated independently, providing a level of
flexibility not possible with any other bioanalysis
system.
Fold-Out p. 2-3
Title: Cepheid's Integrated Technology Platforms and Products
Fold-Out p. 2
Inside Front Cover
The series of five images in the center of the page shows actual elements of
the Smart Cycler family of products. The first image shows a computer rendering
of a reaction tube. The second image is a photograph of an actual I-CORE module
with a reaction tube held above the module. The third and fourth photographs
show the Smart Cycler System, one that shows the internal 16 I-CORE modules
contained in the system, and another with a reaction tube held above a fully
functional Smart Cycler system. The fifth photograph represents a portable
Notebook Smart Cycler system.
Headline: The Smart Cycler(R) family
Caption: The Smart Cycler(R) family of systems enables rapid
amplification and real time detection of DNA targets in
both a laboratory and portable, field environment.
Sub-header: I-CORE(TM) tube and module;
Text: The patented I-CORE reaction tube is a fast and efficient
consumable reaction and detection chamber.
Artwork: Computer image of reaction tube.
Text: The I-Core module -- a single-site DNA assay reaction and
detection system. The building block for Cepheid's broad
range of DNA testing systems -- lab-based and portable.
Artwork: Picture of hand holding reaction tube above I-CORE module.
Sub-header: The 16-site Smart Cycler
Text: Cepheid's first product, the Smart Cycler System, which
contains 16 I-CORE modules.
Artwork: Picture of hand holding I-CORE module above Smart Cycler
system.
Artwork: Picture of hand holding reaction tube above Smart Cycler
system.
<PAGE> 6
Sub-header: Notebook Smart Cycler
Text: Two I-CORE modules integrated with a notebook computer are
contained in this portable DNA testing system.
Artwork: Picture of hand placing tube into a notebook Smart Cycler.
Fold-Out p.3
The series of four images in the center of the page shows elements of the
GeneXpert family of products. The first image shows a photograph of an
industrial designed sample preparation cartridge. The second and third images
represent scanning electron micrographs of a microfluids chip, one at 3 mm in
size, and a magnified view at 50 um. The fourth image is a computer rendering
of a GeneXpert prototype that is designed to accommodate four sample preparation
cartridges.
Headline: The GeneXpert(TM) family
Caption: The GeneXpert(TM) family of systems will fully integrate
cartridge-based sample preparation with rapid amplification
and detection -- one step rapid DNA detection and analysis.
Sub-header: Sample preparation cartridge
Text: All the steps necessary to perform a complex DNA analysis --
out of the lab and into your hand. Consumable cartridge,
designed for use with I-CORE based systems for complete,
seamless automation.
Artwork: Photograph of hand holding sample preparation cartridge.
Sub-header: Microfluidic chip
Text: Micromachined silicon chips operate in a "flow-through"
mode, enabling capture and concentration of DNA in a sample
preparation cartridge.
Artwork: Scanning electron micrographs showing silicon chip at 3 mm
view.
Artwork: Scanning electron micrographs showing silicon chip at 50 um
view.
Sub-header: GeneXpert(TM) prototype
Text: Industrial design for the GeneXpert system based on a
prototype. From raw specimen to result, automatically, in
less than 1 hour.
<PAGE> 7
Prospectus summary
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, especially the risks of investing
in our common stock that we discuss under "Risk factors." Our principal
executive offices are located at 1190 Borregas Avenue, Sunnyvale, California
94089. Our telephone number is (408) 541-4191. Our web site is
http://www.cepheid.com. We do not intend the information found on our website to
be a part of this prospectus.
OUR BUSINESS
We develop, manufacture and market microfluidic systems that integrate, automate
and accelerate biological testing. Our systems combine microinstrumentation
technologies with molecular biology to create miniaturized systems that rapidly
perform all of the steps required to analyze complex biological
samples -- including sample preparation, amplification and detection -- on a
single platform. We are initially focused on the detection and analysis of
nucleic acids in samples such as blood, urine, cell cultures, food and
industrial water. Our systems can perform a broad range of functions that
include automated purification of DNA, screening for disease-causing agents,
rapid detection of food and water contaminants and genetic profiling. Our
systems are designed for a wide variety of laboratory and field settings,
enabling users to perform tests where and when they are needed.
We expect to release our first product, the Smart Cycler, during the first half
of 2000. The Smart Cycler is a fast, versatile DNA amplification and detection
system initially directed to the life sciences research market. Our GeneXpert
system, currently in development, is designed to integrate automated sample
preparation with our amplification and detection technology in a disposable
cartridge format. Our integrated systems allow us to perform analysis of
biological samples faster and more efficiently than products currently
available. We are collaborating with strategic partners to co-develop assays, or
biological tests, and to provide marketing and sales support across a broad
range of markets.
OUR MARKET OPPORTUNITY
The life sciences research, clinical diagnostics, industrial testing and
pharmacogenomics markets use assays extensively to detect and quantify certain
nucleic acids, proteins or genes in biological samples. With the recent advances
in the field of genomics and the availability of vast DNA sequence libraries,
there has been a marked shift towards gene-based testing. Gene-based testing
offers a level of sensitivity and specificity unmatched by other technologies
and is the fastest growing segment in these markets. We believe that DNA assays
will only achieve their full market potential upon the development of advanced
instruments and integrated processes that address the following issues:
+ LONG TIME TO RESULT -- Currently, sample preparation, amplification and
detection can require several hours or even days, especially when cell
culturing is needed;
+ EXPENSIVE, LARGE AND INFLEXIBLE EQUIPMENT -- Most currently available
equipment is expensive, large and inflexible and is typically configured to
accommodate only one assay protocol at a time;
+ SKILLED TECHNICIANS, LABORATORY REQUIRED -- The majority of currently
available equipment and methods require skilled scientists and technicians
and a laboratory setting;
+ SAMPLE VOLUME CONSTRAINTS -- Existing microfluidic technologies, including
arrays and biochips, accept and process only very small sample volumes and
therefore cannot assure that the target molecule, if present in the sample,
will be captured; and
+ LACK OF INTEGRATION -- Currently available amplification and detection
systems do not integrate automated sample preparation and are configured in
ways that complicate the future integration of sample preparation.
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3
<PAGE> 8
THE CEPHEID SOLUTION
We have developed integrated microfluidic instruments designed to incorporate
our automated sample preparation, amplification and detection technologies. Our
systems will allow practitioners in the life sciences research, clinical
diagnostics, industrial testing and pharmacogenomics markets to make use of the
vast new libraries of nucleic acid sequences now being generated by genomics
researchers. We believe our technologies provide the following advantages:
+ RAPID RESULTS -- Our proprietary I-CORE technology, incorporated into our
Smart Cycler and GeneXpert systems, generally achieves amplification and
detection in under 25 minutes. Our GeneXpert system has accomplished sample
preparation in as little as five minutes.
+ INEXPENSIVE, MODULAR, FLEXIBLE -- Our systems are flexible platforms that are
designed to run several different types of assays simultaneously. Our systems
are modular, enabling us to build products to meet the varying needs of our
target markets.
+ EASY TO OPERATE, PORTABLE -- The automation designed into our products will
permit operation by less skilled personnel and enable testing at the point of
use, outside of a laboratory setting.
+ WIDE RANGE OF SAMPLE VOLUMES -- In applications where the concentration of
the target molecule or organism is low, larger sample volumes must be tested
to find the target. Our GeneXpert system is designed to handle higher sample
volumes than any other product currently available in a disposable cartridge.
+ INTEGRATION OF KEY STEPS -- Our GeneXpert system is designed to integrate
sample preparation, amplification and detection into one system.
THE CEPHEID STRATEGY
Our objective is to become the leading provider of microfluidic systems that
integrate, automate and accelerate biological testing. Key elements of our
strategy include:
+ APPLY CORE TECHNOLOGIES BROADLY -- We intend to integrate our proprietary
I-CORE and automated sample preparation technologies to provide rapid
biological analysis platforms with applicability across a number of markets.
Our unique capabilities for rapid sample preparation through the use of
biochips and microfluidics will streamline the labor-intensive "front end" of
the laboratory.
+ INTRODUCE PRODUCTS IN STAGES -- We intend to establish an initial market
position in the life sciences research market by providing a fast, flexible
thermal cycler, our Smart Cycler. Our next product, the GeneXpert system,
will integrate and automate sample preparation with amplification and
detection.
+ FOCUS INITIALLY ON NUCLEIC ACID ANALYSIS -- We are initially focusing on the
development and application of our platform technologies to the field of
rapid nucleic acid analysis. We will adapt our sample preparation and
amplification technologies to improve throughput, lower costs and provide
greater sensitivity, thus providing applications in drug development and the
emerging field of predictive medicine.
+ COLLABORATE WITH PARTNERS -- We intend to market our systems to each of our
targeted market segments principally through partners to provide marketing,
sales, service and distribution. We have entered into a distribution
agreement with Fisher Scientific for the life sciences research market. We
will utilize our partners to develop chemistries for assays.
+ GENERATE RECURRING REVENUE FROM CONSUMABLES -- We expect to generate
recurring revenue from the manufacture and sale of our single use reaction
tubes and integrated sample preparation cartridges.
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4
<PAGE> 9
The offering
The following information assumes that the underwriters do not exercise the
over-allotment option granted to them to purchase additional shares in the
offering.
Common stock we are offering........ shares
Common stock to be outstanding after
the offering........................ shares
Proposed Nasdaq National Market
symbol.............................. CPHD
Use of proceeds..................... To fund our research and development
activities, expand manufacturing and
customer service for existing products,
continue development and manufacturing
of additional products, for other
working capital and general corporate
purposes, for capital expenditures,
including expansion of our facilities
and to support possible acquisitions
and strategic investments. See "Use of
proceeds."
Unless we indicate otherwise, when analyzing the information in this prospectus,
you should assume that all outstanding shares of our preferred stock convert
into 13,326,636 shares of our common stock upon the closing of this offering.
The number of shares of common stock to be outstanding after the offering in the
table above is based on the number of shares outstanding as of March 31, 2000,
excluding:
+ 540,276 shares issuable upon the exercise of options at a weighted average
exercise price of $2.39 per share;
+ 320,397 shares issuable upon the exercise of warrants at a weighted average
exercise price of $2.49 per share;
+ 892,930 additional shares available for future grant under our 1997 Stock
Option Plan;
+ 200,000 additional shares available for future grant under our 2000
Non-Employee Directors' Stock Option Plan; and
+ 200,000 additional shares available for future purchase under our 2000
Employee Stock Purchase Plan.
In addition, we have agreed to issue an additional shares if the
underwriters exercise their over-allotment option in full, which we describe in
"Underwriting." If the underwriters exercise this option in full,
shares of our common stock will be outstanding after this offering.
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5
<PAGE> 10
Summary consolidated financial data
The as adjusted consolidated balance sheet reflects the receipt of the net
proceeds from the sale of shares of our common stock in this offering at
an assumed price to the public of $ per share, after deducting the
underwriting discounts and commissions and estimated offering expenses. The pro
forma net loss per share and shares used in computing pro forma net loss per
share are calculated as if all of our convertible preferred stock was converted
into shares of our common stock on the date of their issuance. The statement of
operations for the year ended December 31, 1997 included approximately $95,000
of expenses incurred from our inception (March 5, 1996) through December 31,
1996 related to fund raising activities. Although we were formed in March 1996,
we did not receive our initial financing until March 1997.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 5, (MARCH 5,
1996) THROUGH YEAR ENDED 1996) THROUGH THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
CONSOLIDATED STATEMENT
OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
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Total revenues.................... $ 1,445 $ 3,577 $ 3,595 $ 8,617 $ 615 $ 916
Operating costs and expenses:
Cost of product sales........... -- -- 97 97 -- 131
Research and development........ 2,220 5,990 10,262 18,472 2,282 3,467
Selling, general and
administrative................ 583 1,178 1,297 3,058 289 730
------- ------- ------- -------- -------- --------
Total costs and operating
expenses................. 2,803 7,168 11,656 21,627 2,571 4,328
Loss from operations.............. (1,358) (3,591) (8,061) (13,010) (1,956) (3,412)
Interest income................... 88 325 250 663 104 202
Interest and other expense........ (4) (45) (108) (157) (19) (43)
------- ------- ------- -------- -------- --------
Net loss.......................... (1,274) (3,311) (7,919) (12,504) (1,871) (3,253)
Deemed dividend to preferred
shareholders.................... -- -- -- -- -- 19,114
------- ------- ------- -------- -------- --------
Net loss allocable to common
shareholders.................... $(1,274) $(3,311) $(7,919) $(12,504) $ (1,871) $(22,367)
------- ------- ------- -------- -------- --------
------- ------- ------- -------- -------- --------
Basic and diluted net loss per
common share.................... $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Shares used in computing basic and
diluted net loss per common
share........................... 167 2,414 4,164 3,415 5,065
Pro forma basic and diluted net
loss per common share........... $ (0.71) $ (1.22)
------- --------
------- --------
Shares used in computing pro forma
basic and diluted net loss per
common share.................... 11,111 18,391
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
ACTUAL AS ADJUSTED
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS)
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<S> <C> <C>
Cash and cash equivalents................................... $ 18,420
Working capital............................................. 17,264
Total assets................................................ 22,087
Long-term portion of debt and capital lease obligations..... 1,071 1,071
Deficit accumulated during the development stage............ (15,757) (15,757)
Total shareholders' equity.................................. 18,546
</TABLE>
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6
<PAGE> 11
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Risk factors
You should carefully consider the risks described below together with all of the
other information included in this prospectus before making an investment
decision. If any of the following risks actually occurs, our business, financial
condition or results of operations could be harmed. In such an event, the
trading price of our common stock could decline, and you may lose all or part of
your investment.
RISKS RELATED TO OUR BUSINESS
OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH WOULD PREVENT US FROM
ACHIEVING PROFITABILITY.
Our technologies are still in the early stages of development. We expect to
introduce our first commercial product, the Smart Cycler system, for the life
sciences research market in the first half of 2000. Fisher Scientific is the
co-exclusive distributor of our Smart Cycler system for the life sciences
research market. We will be substantially dependent on Fisher Scientific for the
marketing and sales of the Smart Cycler system and we will have little ability
to influence its efforts. If our systems do not gain market acceptance, we will
be unable to generate significant sales, which will prevent us from achieving
profitability. Market acceptance will depend on many factors, including:
+ our ability and the ability of our collaborators to convince our potential
customers of the advantages and economic value of our systems over
well-established technologies and products;
+ our ability and the ability of our collaborators to sell our systems; and
+ the success of our competitors' efforts to market and sell their products.
Our systems have been in operation for a limited period of time. As a result we
have not fully established their accuracy, reliability or ease of operation in
commercial use. If our Smart Cycler systems are not accepted in the marketplace,
this could have a negative effect on our ability to sell subsequent systems.
WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.
We have experienced significant operating losses each year since our inception
and expect to incur substantial additional operating losses at least through
2002, primarily as a result of expected increases in expenses for manufacturing
capabilities, research and product development costs and selling, general and
administrative costs. We may never achieve profitability. For example, we
experienced net losses of approximately $1.3 million in the period from
inception (March 5, 1996) to December 31, 1997, $3.3 million in 1998, $7.9
million in 1999 and $3.3 million for the three months ended March 31, 2000. As
of March 31, 2000, we had an accumulated deficit of approximately $15.8 million.
Our losses have resulted principally from costs incurred in research and
development and from selling, general and administrative costs associated with
our operations.
WE DEPEND ON COLLABORATIONS WITH OTHER COMPANIES TO COMMERCIALIZE OUR PRODUCTS.
IF OUR COLLABORATORS ARE UNSUCCESSFUL OR IF WE ARE NOT ABLE TO FIND PROSPECTIVE
COLLABORATORS, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.
We have entered into a number of non-exclusive collaborations whereby our
partners will provide funding to support the development and engineering efforts
required to adapt our systems to meet their specific market needs. Through these
collaborations, we also intend to rely upon our partners to provide the
marketing, sales, service and distribution functions. We only intend to develop
a limited
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7
<PAGE> 12
RISK FACTORS
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internal capability for these functions. These contracts expire after a fixed
period of time. If they are not renewed or if we do not enter into new
collaboration agreements, our revenues will be reduced and our products may not
be commercialized. Our collaborators have the responsibility, where required, to
apply for the regulatory approval of any products to the US Food and Drug
Administration, or FDA, and corresponding regulatory agencies in other
countries. In addition, our collaborators may require a license for the
chemistries used in our products. Although we believe our collaborators have an
economic motivation to succeed in performing their contractual responsibilities,
we have limited or no control over the resources that any collaborator may
devote to our products. Any of our present or future collaborators may not
perform their obligations as expected. These collaborators may breach or
terminate their agreements with us or otherwise fail to conduct their
collaborative activities successfully and in a timely manner. Further, our
collaborators may not devote sufficient resources to the marketing, sale,
service or distribution of these products. If any of these events occur, we may
not be able to commercialize our products.
WE WILL REQUIRE A LICENSE FOR THERMAL CYCLING IN THE FIELD OF CLINICAL
DIAGNOSTICS.
We have received a limited license from PE Biosystems for thermal cycling in the
fields of life sciences research, industrial testing, certain aspects of
identity testing and forensics. We will require a license from PE Biosystems for
thermal cycling in additional fields, such as clinical diagnostics. We may not
be able to obtain such license on reasonable terms, or at all. If we are unable
to obtain such a license, we may be unable to sell our products for use in these
fields.
COMPETING TECHNOLOGIES MAY ADVERSELY AFFECT US.
We expect to encounter intense competition from a number of companies that offer
products in our targeted application areas. We anticipate that these competitors
will include:
+ companies developing and marketing life sciences research products;
+ health care companies that manufacture laboratory-based tests and analyzers;
+ diagnostic and pharmaceutical companies; and
+ companies developing drug discovery technologies.
If we succeed in developing products in these areas, we will face competition
from both established and development-stage companies that continually enter
these markets.
In many instances, our competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organization than we have. Moreover, these
competitors may offer broader product lines and tactical discounts, and have
greater name recognition.
In addition, several companies are currently making or developing products that
may or will compete with our products. Our competitors may succeed in
developing, obtaining FDA approval for or marketing technologies or products
that are more effective or commercially attractive than our potential products
or that render our technologies and potential products obsolete. As these
companies develop their technologies, they may develop proprietary positions
that may prevent us from successfully commercializing our products.
Also, we may not have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in the future.
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RISK FACTORS
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WE EXPECT THAT OUR OPERATING RESULTS WILL FLUCTUATE SIGNIFICANTLY AND ANY
FAILURE TO MEET FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR
INVESTORS AND RESULT IN A DECLINE IN OUR STOCK PRICE.
We expect that our quarterly operating results will fluctuate in the future as a
result of many factors, some of which are outside of our control. We expect our
gross profit to fluctuate depending upon the timing of introduction and
acceptance of our products. In addition, our operating results may be effected
by the inability of some of our customers to consummate anticipated purchases of
our products, whether due to changes in internal priorities or, in the case of
governmental customers, problems with the appropriations process. It is possible
that in some future quarter or quarters our operating results will be below the
expectations of securities analysts or investors. In this event, the market
price of our common stock may fall abruptly and significantly. Because our
revenue and operating results are difficult to predict, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance.
If revenue declines in a quarter, whether due to a delay in recognizing expected
revenue or otherwise, our earnings will decline because many of our expenses are
relatively fixed. In particular, research and development and selling, general
and administrative expenses are not significantly affected by variations in
revenue.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY REQUIRE COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD ALSO CAUSE US
TO PAY SUBSTANTIAL DAMAGES AND LIMIT OUR ABILITY TO SELL SOME OR ALL OF OUR
PRODUCTS.
Our market success depends in part on us neither infringing valid, enforceable
patents or proprietary rights of third parties, nor breaching any licenses that
may relate to our technologies and products. We are aware of third-party patents
that may relate to our technology. It is possible that we may unintentionally
infringe upon these patents or proprietary rights of third parties.
In response, third parties may assert infringement or other intellectual
property claims against us. We may consequently be subjected to substantial
damages for past infringement if it is ultimately determined that our products
infringe a third party's proprietary rights. Further, we may be prohibited from
selling our products before we obtain a license, which, if available at all, may
require us to pay substantial royalties. Even if these claims are without merit,
defending a lawsuit takes significant time, may be expensive and may divert
management attention from other business concerns. Any public announcements
related to litigation or interference proceedings initiated or threatened
against us could cause our stock price to decline.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH WOULD
BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME, IF NOT ALL, OF OUR
INTELLECTUAL PROPERTY RIGHTS, AND THEREBY IMPAIR OUR ABILITY TO COMPETE IN THE
MARKET.
We rely on patents to protect a large part of our intellectual property and our
competitive position. In order to protect or enforce our patent rights, we may
initiate patent litigation against third parties, such as infringement suits or
interference proceedings. These lawsuits could be expensive, take significant
time and divert management's attention from other business concerns. They would
put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing. We may also provoke these third
parties to assert claims against us. Patent law relating to the scope of claims
in the technology fields in which we operate is still evolving and,
consequently, patent positions in our industry are generally uncertain. We
cannot assure you that we will prevail in any of these suits or that the damages
or other remedies awarded, if any, will be commercially valuable. During the
course of these suits, there may be public announcements of the results of
hearings,
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RISK FACTORS
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motions and other interim proceedings or developments in the litigation. If
securities analysts or investors perceive any of these results to be negative,
it could cause our stock to decline.
THE RIGHTS WE RELY UPON TO PROTECT THE INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE THE
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
Our competitive success will be affected in part by our continued ability to
obtain and maintain patent protection on our inventions, technologies and
discoveries, including intellectual property that we license. Our pending patent
applications may lack priority over others' applications or may not result in
the issuance of patents. Even if issued, our patents may not be sufficiently
broad to provide protection against competitors with similar technologies and
may be challenged, invalidated or circumvented.
In addition to patents, we rely on a combination of trade secrets, copyright and
trademark laws, nondisclosure agreements, licenses and other contractual
provisions and technical measures to maintain and develop our competitive
position via our intellectual property rights. Nevertheless, these measures may
not be adequate to safeguard the technology underlying our products. If
inadequately protected, third parties could use our technology, and our ability
to compete in the market would be reduced. In addition, employees, consultants
and others who participate in the development of our products may breach their
agreements with us regarding our intellectual property. We may not have adequate
remedies for the breach. We also may not be able to effectively protect our
intellectual property rights in some foreign countries. For a variety of
reasons, we may decide not to file for patent, copyright or trademark protection
outside of the United States. We also realize that our trade secrets may become
known through other means not currently foreseen by us. Notwithstanding our
efforts to protect our intellectual property, our competitors may independently
develop similar or alternative technologies or products that are equal or
superior to our technology. Our competitors may also develop similar products
without infringing on any of our intellectual property rights or design around
our proprietary technologies.
THE REGULATORY APPROVAL PROCESS IS EXPENSIVE, TIME CONSUMING, UNCERTAIN AND MAY
PREVENT US FROM OBTAINING REQUIRED APPROVALS FOR THE COMMERCIALIZATION OF SOME
OF OUR PRODUCTS.
Some of our products, depending upon their intended use, will be subject to
approval or clearance by the FDA or foreign governmental entities prior to their
marketing for commercial use. Products used for clinical diagnostic purposes
will require such approval. To date, we have not sought approval from the FDA or
any foreign governmental body for the commercial sale of any of our products.
The process of obtaining necessary FDA or foreign clearance or approvals can be
lengthy, expensive and uncertain. We expect our collaborators generally to
direct the regulatory approval process for many of our products. There are no
assurances that they will timely and diligently pursue such process, or that
they or we can obtain any required clearance or approval. Any such failure, or
any material delay in obtaining the clearance or approval, could harm our
business, financial condition and results of operations.
In addition, our failure or the failure of our collaborators to comply with
regulatory requirements applicable to our products could result in significant
sanctions, including:
+ injunctions;
+ recall or seizure of products;
+ withdrawal of marketing clearances or approvals; and
+ fines, civil penalties and criminal prosecutions.
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RISK FACTORS
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RESTRICTIONS ON REIMBURSEMENT MAY LIMIT OUR RETURNS ON PRODUCTS IN SOME MARKETS.
Our ability to earn sufficient returns on our products in certain markets, such
as clinical diagnostics, will depend in part on the extent to which
reimbursement for our products and related treatments will be available from:
+ government health administration authorities;
+ private health coverage insurers;
+ managed care organizations; and
+ other organizations.
If appropriate reimbursement cannot be obtained, it could prevent us from
successfully commercializing some of our potential products.
There are efforts by governmental and third-party payors to contain or reduce
the costs of health care through various means. Additionally, third-party payors
are increasingly challenging the price of medical products and services. If
purchasers or users of our products are not able to obtain adequate
reimbursement for the cost of using our products, they may forego or reduce
their use. Significant uncertainty exists as to the reimbursement status of
newly approved health care products and whether adequate third-party coverage
will be available.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO
COMPETE.
We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these persons could seriously
harm our product development and commercialization efforts. In addition, we will
require additional skilled personnel in areas such as manufacturing, quality
control, project management, microbiology, software engineering, mechanical
engineering and electrical engineering. Our business is located in Silicon
Valley, California, where demand for personnel with these skills is extremely
high and is likely to remain high. As a result, competition for and retention of
personnel, particularly for employees with technical expertise, is intense and
the turnover rate is high. If we are unable to hire, train and retain a
sufficient number of qualified employees, our ability to conduct and expand our
business could be seriously reduced. The inability to retain and hire qualified
personnel could also hinder the planned expansion of our business.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH, WHICH COULD HARM OUR
BUSINESS.
We have experienced a period of rapid and substantial growth that has placed
and, if sustained, will continue to place a strain on our human and capital
resources. If we are unable to manage this growth effectively, our losses could
increase, which could harm our business. The number of our employees increased
from 14 on December 31, 1997 to 76 on March 31, 2000. Our ability to manage our
operations and growth effectively requires us to continue to expend funds to
improve our operational, financial and management controls, reporting systems
and procedures and to attract and retain sufficient numbers of talented
employees. If we are unable to implement improvements to our management
information and control systems in an efficient or timely manner or if we
encounter deficiencies in existing systems and controls, then management may not
receive all the information necessary to manage our day-to-day operations.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR SYSTEMS AND MAY ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS THAT COULD RESULT IN LOST REVENUE.
We intend initially to manufacture our own systems. We currently have limited
manufacturing capacity for our systems. If we fail to manufacture and deliver
products in a timely manner, our relationships
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RISK FACTORS
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with our customers could be seriously harmed, and revenue would decline. We have
only recently begun to manufacture our Smart Cycler systems and are continuing
to develop our quality control procedures. We cannot assure you that
manufacturing or quality control problems will not arise as we attempt to
scale-up our production of Smart Cycler systems or that we can scale-up
manufacture and quality control in a timely manner or at commercially reasonable
costs. If we are unable to manufacture Smart Cycler systems or our disposable
reaction tubes consistently on a timely basis because of these or other factors,
our product sales will decline. Our Smart Cycler systems largely require manual
assembly. We are currently manufacturing Smart Cycler systems and disposable
reaction tubes in-house, in limited volumes. If demand for our products
increases significantly, we will either need to expand our in-house
manufacturing capabilities or outsource to other manufacturers.
Our manufacturing facilities are subject to periodic regulatory inspections by
the FDA and other federal and state regulatory agencies. These facilities are
subject to Quality System Regulations, or QSR, requirements of the FDA. If we
fail to maintain facilities in accordance with QSR regulations, other
international quality standards or other regulatory requirements, then the
manufacturing process could be suspended or terminated, which would impair our
business.
WE RELY ON SINGLE SOURCE SUPPLIERS FOR SOME OF OUR PRODUCT COMPONENTS THAT COULD
IMPAIR OUR MANUFACTURING ABILITY.
We depend on single source suppliers for several components used in the
manufacture of our products. If we need alternative sources for key component
parts for any reason, such component parts may not be immediately available. If
alternative suppliers are not immediately available, we will have to identify
and qualify alternative suppliers, and production of such components may be
delayed. We may not be able to find an adequate alternative supplier in a
reasonable time period, or on commercially acceptable terms, if at all. Our
inability to obtain a key source supplier for the manufacture of our potential
products may force us to curtail or cease operations.
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE OUR
ABILITY TO COMPETE AND RESULT IN LOWER REVENUE.
We anticipate that our existing capital resources and the net proceeds from this
offering will enable us to maintain currently planned operations through at
least the year 2001. However, we premise this expectation on our current
operating plan, which may change as a result of many factors, including market
acceptance of our Smart Cycler system and future opportunities with
collaborators. Consequently, we may need additional funding sooner than
anticipated. Our inability to raise capital would seriously harm our business
and product development efforts.
In addition, we may choose to raise additional capital due to market conditions
or strategic considerations even if we believe we have sufficient funds for our
current or future operating plans. To the extent that additional capital is
raised through the sale of equity or convertible debt securities, the issuance
of these securities could result in dilution to our shareholders.
We currently have no credit facility or committed sources of capital. To the
extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the development
and commercialization of our technologies. These funds may not be available on
favorable terms, or at all. If adequate funds are not available on attractive
terms, we may be required to curtail operations significantly or to obtain funds
by entering into financing, supply or collaboration agreements on unattractive
terms.
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RISK FACTORS
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IF A NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITIES WE MAY BE UNABLE TO
MANUFACTURE OUR PRODUCTS FOR A SUBSTANTIAL AMOUNT OF TIME AND WE WOULD
EXPERIENCE LOST REVENUE.
Our manufacturing facilities are located in Sunnyvale, California. The
facilities and some pieces of manufacturing equipment are difficult to replace
and could require substantial replacement lead-time. Our manufacturing
facilities may be affected by natural disasters such as earthquakes and floods.
Earthquakes are of particular significance since the manufacturing facilities
are located in an earthquake-prone area. In the event our existing manufacturing
facilities or equipment is affected by man-made or natural disasters, we may be
unable to manufacture products for sale, meet customer demands or sales
projections. If our manufacturing operations were curtailed or ceased, it would
seriously harm our business.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND
COSTLY.
Our research and development processes involve the controlled storage, use and
disposal of hazardous materials, including biological hazardous materials. We
are subject to federal, state and local regulations governing the use,
manufacture, storage, handling and disposal of materials and waste products.
Although we believe that our safety procedures for handling and disposing of
these hazardous materials comply with the standards prescribed by law and
regulation, the risk of accidental contamination or injury from hazardous
materials cannot be eliminated completely. In the event of an accident, we could
be held liable for any damages that result, and any liability could exceed the
limits or fall outside the coverage of our insurance. We may not be able to
maintain insurance on acceptable terms, or at all. We could be required to incur
significant costs to comply with current or future environmental laws and
regulations.
WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE.
We face an inherent business risk of exposure to product liability and other
claims. We may not be able to obtain insurance for such potential liability on
acceptable terms with adequate coverage or may be excluded from coverage under
the terms of the policy. We may not be able to maintain insurance on acceptable
terms, or at all.
RISKS RELATED TO THIS OFFERING
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the book value
per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $ in net tangible
book value per share of common stock, based on the initial public offering price
of $ per share. In addition, the number of shares available for issuance
under our stock option and employee stock purchase plans will automatically
increase without shareholder approval. You will incur additional dilution upon
the exercise of outstanding stock options and warrants. See "Dilution" for a
more detailed discussion of the dilution you will incur in this offering.
OUR STOCK PRICE COULD BE VOLATILE, AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE.
The trading price of our common stock is likely to be volatile and could be
subject to wide price fluctuations in response to various factors, many of which
are beyond our control, including:
+ announcements or introduction of technological innovations by us or our
competitors;
+ changes in financial estimates by securities analysts;
+ conditions or trends in the biotechnology and pharmaceutical industries;
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RISK FACTORS
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+ announcements by us of significant acquisitions, financings or strategic
partnerships; and
+ sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market and the
biotechnology industry market in particular, has experienced significant price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of those companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, securities class action litigation has
often been instituted following periods of volatility in the market price of a
company's securities. A securities class action suit against us could result in
substantial costs, potential liabilities and the diversion of our management's
attention and resources.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL SHAREHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.
Following this offering our directors, entities affiliated with our directors
and our executive officers will beneficially own, in the aggregate approximately
% of our outstanding common stock. These shareholders as a group will be able
to influence our management and affairs and, if acting together, will be able to
significantly influence most matters requiring the approval by our shareholders,
including the election of directors, any merger, consolidation or sale of all or
substantially all of our assets and any other significant corporate transaction.
This concentration of ownership may also delay or prevent a change of control of
our company at a premium price if these shareholders oppose it. See "Principal
shareholders" for details on our stock ownership.
OUR ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE POTENTIAL TAKEOVER ATTEMPTS AND
THUS LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY FOR OUR COMMON STOCK IN
THE FUTURE.
Certain provisions of our articles of incorporation and the California General
Corporation Law could discourage a third party from acquiring, or make it more
difficult for a third party to acquire, control of us without approval of our
board of directors. Such provisions could also limit the price that certain
investors might be willing to pay for shares of our common stock in the future.
Certain of such provisions empower our board of directors to authorize the
issuance of preferred stock with rights superior to our common stock.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
following this offering could cause the market price of our common stock to
decline. If there are more shares of our common stock offered for sale than
buyers are willing to purchase, then the market price of our common stock may
decline to a market price at which buyers are willing to purchase the offered
shares of common stock and sellers remain willing to sell the shares.
There will be shares of common stock outstanding immediately
after this offering, or shares if the representatives of the
underwriters exercise their over-allotment option in full. All of the shares
sold in the offering will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by our
"affiliates" as defined in Rule 144 of the Securities Act.
All of our existing shareholders have executed lock-up agreements. Those lock-up
agreements restrict all of our existing shareholders from selling, pledging or
otherwise disposing of their shares for a period of 180 days after the date of
this prospectus without the prior written consent of Warburg Dillon Read LLC.
However, Warburg Dillon Read LLC may, in its sole discretion, release all or any
portion of the common stock from the restrictions of the lock-up agreements.
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Forward-looking information
Some of the statements under "Prospectus summary," "Risk factors," "Management's
discussion and analysis of financial condition and results of operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from those expressed or
implied by any forward-looking statements. Some of these factors are listed
under "Risk factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "intends," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of those statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus to conform them to actual results.
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Use of proceeds
We estimate that the net proceeds from the sale of the shares of common stock we
are offering will be approximately $ million at an assumed initial public
offering price of $ per share after deducting the underwriting discounts and
commissions and estimated offering expenses. If the underwriters' over-allotment
option is exercised in full, we estimate that the net proceeds will be
approximately $ million.
We currently intend to use the net proceeds to fund our research and development
activities, expand manufacturing and customer service for existing products and
continue development and manufacturing of additional products, for other working
capital and general corporate purposes and for capital expenditures, including
expansion of our facilities. Although we have no current plans, agreements or
commitments with respect to any acquisition, we may, if the opportunity arises,
use an unspecified portion of the net proceeds to acquire or invest in products,
technologies or companies. Our management may spend the proceeds from this
offering in ways which the shareholders may not deem desirable.
The timing and amount of our actual expenditures will be based on many factors,
including cash flows from operations and the growth of our business.
Until we use the net proceeds of this offering for the above purposes, we intend
to invest the funds in short-term, investment grade, interest-bearing
securities. We cannot predict whether the proceeds invested will yield a
favorable return.
Dividend policy
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain any earnings to support operations and to finance
the growth and development of our business. Therefore, we do not expect to pay
cash dividends in the foreseeable future. Any future determination relating to
our dividend policy will be made at the discretion of our board of directors and
will depend on a number of factors, including future earnings, capital
requirements, financial conditions and future prospects and other factors the
board of directors may deem relevant.
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Capitalization
The following table sets forth our capitalization as of March 31, 2000:
+ on an actual basis;
+ on a pro forma basis as of such date to reflect the automatic conversion
prior to the closing of this offering of all outstanding shares of preferred
stock into 13,326,636 shares of common stock and the filing of amended and
restated articles of incorporation to increase the number of common shares
authorized; and
+ on a pro forma as adjusted basis to reflect the sale of the common stock
offered by this prospectus at an assumed initial public offering price of
$ per share, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by us, and to reflect the use of the
offering proceeds.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment financing, less current portion................ $ 1,071 $ 1,071 $ 1,071
-------- -------- --------
Shareholders' equity:
Preferred stock, no par value, no shares authorized,
issued or outstanding, actual and pro forma; 5,000,000
authorized, no shares issued and outstanding, pro forma
as adjusted............................................ -- -- --
Convertible preferred stock, no par value, 14,000,000
shares authorized, actual; no shares authorized, pro
forma and pro forma as adjusted; 13,326,636 shares
issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... 32,680 -- --
Common stock, no par value, 30,000,000 shares authorized,
and actual pro forma; 100,000,000 pro forma as
adjusted; 7,188,794 shares issued and outstanding,
actual; 20,515,430 shares issued and outstanding, pro
forma; shares issued and outstanding, pro forma
as adjusted............................................ 698 33,378
Additional paid-in capital............................... 6,318 6,318 6,318
Note receivable from shareholder......................... (69) (69) (69)
Deferred stock-based compensation........................ (5,324) (5,324) (5,324)
Deficit accumulated during the development stage......... (15,757) (15,757) (15,757)
-------- -------- --------
Total shareholders' equity..................... 18,546 18,546
-------- -------- --------
Total capitalization........................... $ 19,617 $ 19,617 $
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of March 31, 2000 and excludes:
+ 540,276 shares issuable upon the exercise of options at a weighted average
exercise price of $2.39 per share;
+ 320,397 shares issuable upon the exercise of warrants at a weighted average
exercise price of $2.49 per share;
+ 892,930 additional shares available for future grant under our 1997 Stock
Option Plan;
+ 200,000 additional shares available for future grant under our 2000
Non-Employee Directors' Stock Option Plan; and
+ 200,000 additional shares available for future purchase under our 2000
Employee Stock Purchase Plan.
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Dilution
Our historical net tangible book value as of March 31, 2000 was approximately
$18.5 million, or $2.58 per share, based on the number of common shares
outstanding as of March 31, 2000. Historical net tangible book value per share
is equal to the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding as of March 31,
2000.
Our pro forma net tangible book value as of March 31, 2000 was approximately
$18.5 million, or $0.90 per share, based on the pro forma number of shares
outstanding as of March 31, 2000 of 20,515,430, calculated after giving effect
to the automatic conversion of 13,326,636 shares of our preferred stock
outstanding as of March 31, 2000 into 13,326,636 shares of our common stock.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards, after giving effect to the sale of
shares in this offering. This represents an immediate increase in
pro forma net tangible book value of $ per share to existing stockholders
and in immediate dilution in pro forma net tangible book value of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Historical net tangible book value per share as of March
31, 2000............................................... $ 2.58
Decrease attributable to conversion of preferred stock.... (1.68)
------
Pro forma net tangible book value per share as of March
31, 2000............................................... 0.90
Increase attributable to the offering.....................
------
Net tangible book value per share after the offering........
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000, after
giving effect to this offering, the total number of shares of common stock
purchased from us and the total consideration and the average price per share
paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Existing shareholders.......... 20,515,430 % $33,500,923 % $
New investors
---------- ---- ----------- ----
Total..................... 100% $100%
========== ==== =========== ====
</TABLE>
The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of March 31, 2000 and excludes:
+ 540,276 shares issuable upon the exercise of options at a weighted average
exercise price of $2.39 per share;
+ 320,397 shares issuable upon the exercise of warrants at a weighted average
exercise price of $2.49 per share;
+ 892,930 additional shares available for future grant under our 1997 Stock
Option Plan;
+ 200,000 additional shares available for future grant under our 2000
Non-Employee Directors' Stock Option Plan; and
+ 200,000 additional shares available for future purchase under our 2000
Employee Stock Purchase Plan.
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Selected consolidated financial data
The following tables contain selected consolidated financial data as of and for
each of the three fiscal periods ended December 31, 1997, 1998 and 1999 and have
been derived from our consolidated financial statements, which have been audited
by Ernst & Young LLP, independent auditors. The consolidated statement of
operations data for the three month periods ended March 31, 1999 and 2000 and
the consolidated balance sheet data as of March 31, 2000 are derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus and include all adjustments consisting only of normal, recurring
adjustments, which we consider necessary for a fair presentation of the data.
The selected consolidated financial data should be read in conjunction with our
consolidated financial statements and the notes to those consolidated financial
statements and Management's discussion and analysis of financial condition and
results of operations included elsewhere in this prospectus. Historical results
are not necessarily indicative of the results to be expected in the future.
The pro forma net loss per share and shares used in computing pro forma net loss
per share are calculated as if all of our convertible preferred stock was
converted into shares of common stock on the date of their issuance. The
statement of operations for the year ended December 31, 1997 included
approximately $95,000 of expenses incurred from our inception (March 5, 1996)
through December 31, 1996 related to fund raising activities. Although we were
formed in March 1996, we did not receive our initial financing until March 1997.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 5, 1996) (MARCH 5, 1996)
THROUGH YEAR ENDED THROUGH THREE MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
CONSOLIDATED STATEMENT 1997 1998 1999 1999 1999 2000
OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............... $ 1,445 $ 3,577 $ 3,595 $ 8,617 $ 615 $ 916
Operating costs and expenses:
Cost of product sales...... -- -- 97 97 -- 131
Research and development... 2,220 5,990 10,262 18,472 2,282 3,467
Selling, general and
administrative........... 583 1,178 1,297 3,058 289 730
------- ------- ------- --------- ------- -------
Total costs and operating
expenses................... 2,803 7,168 11,656 21,627 2,571 4,328
------- ------- ------- --------- ------- -------
Loss from operations......... (1,358) (3,591) (8,061) (13,010) (1,956) (3,412)
Interest income.............. 88 325 250 663 104 202
Interest expense............. (4) (45) (108) (157) (19) (43)
------- ------- ------- --------- ------- -------
Net loss..................... (1,274) (3,311) (7,919) (12,504) (1,871) (3,253)
Deemed dividend to preferred
shareholders............... -- -- -- -- -- 19,114
------- ------- ------- --------- ------- -------
Net loss allocable to common
shareholders............... $(1,274) $(3,311) $(7,919) $(12,504) $(1,871) $(22,367)
------- ------- ------- --------- ------- -------
------- ------- ------- --------- ------- -------
Basic and diluted net loss
per common share........... $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Shares used in computing
basic and diluted net loss
per common share........... 167 2,414 4,164 3,415 5,065
Pro forma basic and diluted
net loss per common
share...................... $ (0.71) $ (1.22)
------- -------
------- -------
Shares used in computing pro
forma basic and diluted net
loss per common share...... 11,111 18,391
</TABLE>
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19
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SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
1997 1998 1999 2000
(In thousands)
CONSOLIDATED BALANCE SHEET DATA
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash, cash equivalents and short term investments........ $ 1,120 $ 8,676 $ 1,493 $ 18,420
Restricted cash.......................................... 300 300 -- --
Working capital.......................................... 1,188 8,347 732 17,264
Total assets............................................. 2,453 11,042 4,886 22,087
Long-term debt, net of current portion................... 88 531 1,205 1,071
Deficit accumulated during development stage............. (1,274) (4,586) (12,504) (15,757)
Total shareholders' equity............................... 1,909 9,175 1,557 18,546
</TABLE>
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20
<PAGE> 25
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Management's discussion and analysis of financial condition
and results of operations
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and the
notes to those consolidated financial statements included elsewhere in this
prospectus. This discussion may contain forward-looking statements that involve
risks and uncertainties. As a result of many factors, such as those set forth
under "Risk factors," and elsewhere in this prospectus, our actual results may
differ materially from those anticipated in these forward-looking statements.
OVERVIEW
From inception in March 1996 through March 2000, our operating activities were
primarily devoted to research and development of our core technologies,
development of our first-generation products such as the Smart Cycler system and
the GeneXpert system, recruiting personnel, business development, raising
capital and acquiring assets. In the last half of 1999, we recognized revenue
from our first product sales when we sold prototype versions of our Smart Cycler
system for DNA amplification and detection to two customers for technology
evaluation. In the first half of 2000, Fisher Scientific, our distributor to the
life sciences research market, will launch our Smart Cycler system.
Since inception, we have incurred significant losses and, as of March 31, 2000,
we had an accumulated deficit of $15.8 million. We anticipate incurring
additional losses, which may increase, for the foreseeable future as we increase
our commercialization activity. Our losses have resulted principally from
research and development, manufacturing scale-up and selling, general and
administrative costs associated with our operations. We expect to incur
increasing research and development and manufacturing scale-up costs. We expect
that our selling, general and administrative expenses will increase as we
commercialize our products and incur the obligations of a public reporting
company. In 2000 we expect to incur additional costs resulting from facilities
expansion. As a result, we will need to generate significantly higher revenue to
achieve profitability.
Our revenue has been derived principally from grants and government-sponsored
research, and research and development contracts with commercial partners.
Although we are planning to introduce our Smart Cycler system in the first half
of 2000 and are developing new products and plan to introduce future products,
we cannot assure you that we will be successful in these efforts.
We anticipate that our quarterly results of operations will fluctuate for the
foreseeable future due to several factors, including market evaluation and
acceptance of current or new products, the success and timing of signing new
customer or collaboration agreements, the timing of commercial availability of
new applications for our products and the timing and extent of our research and
development efforts.
Deferred stock-based compensation represents the difference between the fair
value of our common stock and the exercise price of options on the date of
grant. The fair value of our common stock for purposes of this calculation was
determined based on our review of the primary business factors underlying the
value of our common stock on the date such option grants were made, viewed in
light of this offering and the expected initial public offering price per share.
During the year ended December 31, 1999, we recorded deferred stock-based
compensation totaling $736,000. Additional deferred stock-based compensation
totaling $5.4 million was recorded for options granted during the quarter ended
March 31, 2000. These amounts are included as a reduction to shareholders'
equity and
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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are being amortized over the respective vesting periods of the individual stock
options. We recorded amortization of deferred compensation of $184,000 for the
year ended December 31, 1999 and $615,000 for the three months ended March 31,
2000. We expect to record amortization expense for deferred compensation with
respect to options granted as of March 31, 2000 as follows: $2.6 million during
the remainder of 2000, $1.7 million during 2001, $768,000 during 2002, $245,000
during 2003 and $3,000 during 2004. The amount of deferred compensation expense
to be recorded in future periods may decrease if unvested options for which
deferred compensation has been recorded are subsequently canceled.
We determined compensation for options granted to non-employees in accordance
with Statement of Financial Accounting Standards No. 123 and the Emerging Issues
Task Force Consensus No. 96-18 as the fair value of the equity instruments
issued. We record compensation for options granted to non-employees as the
related services are rendered, and the value of the compensation may be
periodically remeasured and the expense adjusted accordingly as the underlying
options vest. We recorded an aggregate of $30,000 as a research and development
expense in the year ended December 31, 1999 and $165,000 for the three months
ended March 31, 2000 for non-employee stock-based compensation. The aggregate
value of $1.6 million, based on the deemed fair value of our common stock at
March 31, 2000, will be recorded as a research and development expense over the
period of the related services, which is generally three months to two years.
This expense will be based on the fair value of the stock option using the
Black-Scholes option valuation model and may be periodically remeasured and the
expense adjusted accordingly as the underlying options vest.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
Revenues increased to $916,000 in the three months ended March 31, 2000 from
$615,000 in the three months ended March 31, 1999. The components of this
increase were a $391,000 increase in grant and government-sponsored research
revenue, a $151,000 increase in product sales, and a decrease of $241,000 in
research and development revenue from commercial partners.
COST OF PRODUCT SALES
In the three months ended March 31, 2000, we sold initial versions of our Smart
Cycler to five collaborators with cost of sales of $131,000. There were no
product sales in the three months ended March 31, 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $3.5 million in the three months
ended March 31, 2000 from $2.3 million in the three months ended March 31, 1999.
This $1.2 million increase included $409,000 of non-cash charges related to the
amortization of deferred stock-based compensation and $165,000 of non-cash
non-employee stock-based compensation. The remaining increase of $611,000 was
primarily attributed to increased salaries and related personnel costs from the
addition of software engineering employees as well as outside services engaged
to complete the development of the software for our Smart Cycler systems.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $730,000 in the three
months ended March 31, 2000 from $289,000 in the three months ended March 31,
1999. This $441,000 increase included $206,000 of non-cash charges related to
the amortization of deferred stock-based compensation. The remaining $235,000
increase was primarily due to the addition of customer service
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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and support capabilities in anticipation of the launch of our Smart Cycler
systems, expected to occur in the first half of 2000.
INTEREST INCOME (EXPENSE), NET
Net interest income increased to $159,000 in the three months ended March 31,
2000 from $85,000 in the three months ended March 31, 1999. This increase was
due to increases in cash and cash equivalents as a result of our equity
financing in the three months ended March 31, 2000.
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
Revenues were $3.6 million in 1999 and $3.6 million in 1998. In 1999, research
and development revenue from commercial partners increased by $480,000 and
revenue from product sales increased by $160,000, offset by a $621,000 decrease
in grant and government-sponsored research revenue.
COST OF PRODUCT SALES
In 1999 we sold initial versions of our Smart Cycler systems to two
collaborators. We recorded cost of sales of $97,000.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $10.3 million in 1999 from $6.0
million in 1998. These expenses include salaries and related costs of research
and development personnel as well as the costs of consultants, parts and
supplies associated with research and development projects. The increase was
primarily attributable to an increase of $2.7 million in salaries and related
personnel costs from the addition of employees as well as additional supplies
and consulting costs required to develop, assemble, build and test prototypes of
Smart Cycler systems.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1.3 million in 1999
from $1.2 million in 1998. These expenses consisted primarily of increased
salaries and related costs.
INTEREST INCOME (EXPENSE), NET
Net interest income consists of income from our cash and investments offset by
interest expense related to our equipment financing. Net interest income
decreased to $142,000 in 1999 from $280,000 in 1998. This decrease resulted from
a declining cash and investment balance and increased debt obligations.
INCOME TAXES
As of December 31, 1999, we had federal net operating loss carryforwards of
approximately $11.9 million. We also had federal research and development tax
credit carryforwards of approximately $300,000. The net operating loss and
credit carryforwards will expire at various dates beginning on 2006 through
2019, if not utilized. Utilization of the net operating losses and credits may
be substantially limited due to the change in ownership provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
As of December 31, 1998 and 1999, we had deferred tax assets of approximately
$2.1 million and $5.1 million, respectively. The net deferred tax asset has been
fully offset by a valuation allowance. The net valuation allowance increased by
$3.0 million during the year ended December 31, 1999. Deferred tax assets relate
primarily to net operating loss carryforwards, research credit carryforwards and
capitalized research and development costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues increased to $3.6 million in 1998 from $1.4 million in 1997. Of this
increase, $1.5 million was due to increased grant and government-sponsored
research revenue, and $662,000 was due to increased research and development
revenue from commercial partners, primarily pursuant to the Development and
Supply Agreement with Innogenetics, which we entered into in November 1998.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses increased to $6.0 million in 1998 from
$2.2 million in 1997. The increase was principally due to $2.8 million related
to compensation for additional scientific personnel as well as supplies and
consulting costs due to increased activities in government, commercial and
internal projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1.2 million in 1998
from $583,000 in 1997. The increase was principally due to hiring of additional
personnel to support our growing business activities.
INTEREST INCOME (EXPENSE), NET
Net interest income increased to $280,000 in 1998 from $84,000 in 1997. This
increase was due to increases in cash and investment balances as a result of our
equity financing in April 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through private sales
of preferred stock, contract payments to us under government and commercial
research and development agreements and equipment financing arrangements. As of
March 31, 2000, we received net proceeds of $33.2 million from issuances of
common and preferred stock and $8.8 million from commercial research and
development agreements and government grants and contracts. In addition, through
March 31, 2000 we had financed equipment purchases and leasehold improvements
totaling approximately $2.1 million. As of March 31, 2000, we had $1.6 million
in equipment financing obligations. These obligations are secured by the
equipment financed, bear interest at a weighted-average fixed rate of 12.48% and
are due in monthly installments through June 2003. Under the terms of the
equipment financing agreement a balloon payment is due at the end of each loan
term. This equipment financing facility has expired.
As of March 31, 2000, we had $18.4 million in cash and cash equivalents, as
compared to $1.5 million as of December 31, 1999. We used $7.1 million for
operations in the year ended December 31, 1999 and $2.2 million for the three
months ended March 31, 2000. In 1999, this consisted of the net loss for the
period of $7.9 million offset in part by non-cash charges of $214,000 related to
stock-based compensation of $498,000, amortization and depreciation expense, and
working capital changes of $104,000. For the three months ended March 31, 2000,
this amount consisted of $3.3 million in net loss for the period, offset in part
by $780,000 related to stock-based compensation, amortization and depreciation
of $172,000 and working capital changes of $142,000. In 1999, cash provided by
investing activities was $421,000, which consisted of $1.6 million of proceeds
from the maturities of marketable securities, $300,000 related to the expiration
of a standby letter of credit, offset by $1.5 million of capital expenditures.
We used $254,000 in investing activities for the three months ended March 31,
2000, which consisted of capital expenditures. We received $1.1 million from
financing activities for the year ended December 31, 1999 and $19.3 million for
the three months ended March 31, 2000. In
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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1999, this amount was attributed to proceeds from equipment financing of $1.3
million, offset by repayment of our equipment financing arrangement of $270,000.
In the three months ended March 31, 2000, the amount was related to our receipt
of $19.5 million from the issuance of preferred and common stock, offset by
repayment of our equipment financing arrangement of $118,000.
We expect to have negative cash flow from operations through at least 2002. We
expect to incur increasing research and development expenses, as well as
expenses for additional personnel for production and commercialization efforts.
Our future capital requirements depend on a number of factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, continued progress of our research and development of potential
products, the need to acquire licenses to new technology and the availability of
other financing. We believe that our current cash balances, together with the
net proceeds of this offering and revenue to be derived from product sales and
research and development collaborations will be sufficient to fund our
operations at least through the year 2001. To the extent our capital resources
are insufficient to meet future capital requirements, we will need to raise
additional capital or incur indebtedness to fund our operations. There can be no
assurance that additional debt or equity financing will be available on
acceptable terms, if at all. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate our research and development
programs, reduce our commercialization efforts or obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to certain technologies or products that we might otherwise
seek to develop or commercialize.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Financial
Instruments and for Hedging Activities, or SFAS 133, which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and is not anticipated to have an impact on our
results of operations or financial condition when adopted, as we hold no
derivative financial instruments and do not currently engage in hedging
activities.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, or SOP 98-1. SOP 98-1 requires that
entities capitalize certain costs related to internal use software once certain
criteria have been met. We adopted the provisions of SOP 98-1 on January 1,
1999. Through December 31, 1999, we have capitalized approximately $350,000
relating to the purchase and installation of enterprise resource planning,
accounting, cadcam and documentation systems for internal use. The assets are
depreciated using the straight-line method over a useful life of five years.
In December 1999, the Securities and Exchange Commission, or SEC, issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB
101. SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition. The adoption of SAB 101 had no
impact on the Company's historical revenue recognition policy.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of
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the securities that we invest in may have market risk. This means that a change
in prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of investment-grade securities,
including commercial paper, money market funds and government and non-government
debt securities. At December 31, 1999 and March 31, 2000 we held no investments
in marketable securities.
We have operated primarily in the United States and all sales to date have been
made in US dollars. Accordingly, we have not had any exposure to foreign
currency rate fluctuations.
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
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Business
OVERVIEW
Cepheid develops, manufactures and markets microfluidic systems that integrate,
automate and accelerate biological testing. Our systems combine
microinstrumentation technologies with molecular biology to create miniaturized
systems that rapidly perform all of the steps required to analyze complex
biological samples -- including sample preparation, amplification and
detection -- on a single platform. We are initially focused on the detection and
analysis of nucleic acids in samples such as blood, urine, cell cultures, food
and industrial water.
We believe our technology has applications in many markets, including life
sciences research, clinical diagnostics, industrial testing and
pharmacogenomics. Our systems can perform a broad range of functions that
includes automated purification of DNA, screening for disease-causing agents,
rapid detection of food and water contaminants and genetic profiling. Our
systems are designed for a wide variety of laboratory and field settings,
enabling users to perform tests where and when they are needed.
We expect to release our first product, the Smart Cycler, during the first half
of 2000. The Smart Cycler is a fast, versatile DNA amplification and detection
system initially directed to the life sciences research market. During the
second half of 2000, we intend to release the Smart Cycler XC, a portable
version of this instrument. Our GeneXpert system, currently in development, is
designed to integrate automated sample preparation with our amplification and
detection technology in a disposable cartridge format. We believe our integrated
systems allow us to perform analysis of biological samples faster and more
efficiently than any other products currently available. We are collaborating
with strategic partners to co-develop assays, or biological tests, and to
provide marketing and sales support across a broad range of markets.
INDUSTRY BACKGROUND
OVERVIEW
Nucleic acids are molecules found inside cells. Nucleic acids, such as DNA and
RNA, contain the unique blueprint, or genes, of each living creature. Advances
in molecular biology have led to the development of techniques for reading the
genome and for detecting the presence of a known DNA sequence. The most widely
used method for DNA analysis is first to amplify the target DNA and subsequently
to detect the DNA with the use of fluorescent dyes. The most common
amplification technique is polymerase chain reaction, or PCR.
The biochemicals used to test for the presence of DNA from a specific organism
are DNA probes. Probes have been developed for identifying strep, HIV,
gonorrhea, syphilis, chlamydia, anthrax, E.coli and salmonella. In fact, probes
can be designed for any unique DNA sequence and have been developed for
virtually every infectious disease organism and many DNA mutations associated
with human cancer and with inherited human characteristics.
The life sciences research, clinical diagnostics, industrial testing and
pharmacogenomics industries use assays extensively to detect and quantify
certain nucleic acids, proteins or genes in biological samples. With the recent
advances in the field of genomics and the availability of vast DNA sequence
libraries, there has been a marked shift towards gene-based testing. Gene-based
testing offers a level of sensitivity and specificity unmatched by other
technologies and is the fastest growing segment in these
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markets. The growth of gene-based testing has been limited by technical
complexity, labor intensity, cost and lack of automation.
AMPLIFICATION AND DETECTION
For samples with low concentrations of target organisms, culturing is routinely
used to naturally grow enough copies of the organism for detection and
identification. However, culturing is a very slow amplification process, which
may require several days to generate a million or more copies.
The discovery of PCR and other amplification techniques dramatically improved
the turnaround and time sensitivity of DNA probe assays. PCR acts on a target
molecule to generate a million or more copies of the target nucleic acid
sequence through repeated cycles of heating and cooling. Originally, this
thermal cycling was accomplished by manually moving the sample between hot and
cold water baths. Detection is typically accomplished by tagging the DNA with
fluorescent dyes and manually placing the amplified sample on a gel to read it.
Later, thermal cyclers were developed to automate the heating and cooling
functions, and fluorimeters were developed to read the fluorescent signal.
SAMPLE PREPARATION
Before a laboratory can perform PCR and other nucleic acid tests, a sequence of
labor intensive, complex and time consuming sample preparation procedures must
be performed to isolate the target cells and to separate and purify their
nucleic acids. These sample preparation procedures include cell separation and
washing, cell lysing, and DNA or RNA purification. Each of the procedures
involves many reagent handling and mixing steps and the use of assorted
laboratory equipment such as balances, centrifuges, vortexers, pipettors,
microplates, bead columns and plate readers. Kits containing reagents and
consumables for DNA and RNA purification simplify these procedures, but they
remain manually intensive and are subject to operator error and specimen
cross-contamination. The sample preparation market for nucleic acids was
estimated to be over $722 million in 1999 and is expected to grow at a rate of
9.5% per year.
Most samples require lysis, which is the rupturing of a cell membrane to release
the DNA contained inside. Rapid, efficient, versatile lysis of cells and
organisms to extract DNA, RNA or proteins is not an easy process. Today, this
step can be one of the most time consuming and complex steps in bio-analysis.
For example, red blood cells are extremely easy to lyse, but they do not contain
any nucleic acids and are rarely of interest to genetic researchers. On the
other hand, white blood cells do contain nucleic acids, including the complete
human genome. White blood cells are more difficult to lyse and must be separated
from the red blood cells, which contain PCR-inhibiting chemicals. Organisms such
as spores, tuberculosis cells, chlamydia and other bacteria are even more
difficult to lyse, and researchers today typically use harsh, PCR-inhibiting
chemicals, at elevated temperatures for long periods of time in order to
accomplish this task.
LIMITATIONS
Despite the shift to DNA-based testing in our target markets, current
technologies have inherent limitations including one or more of the following:
LONG TIME TO RESULT
Current sample preparation, amplification and detection processes are slow.
Sample preparation typically requires up to eight hours to complete.
Amplification and detection can require an additional two hours or more to
complete. The overall time required is often days, especially when cell
culturing is needed.
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EXPENSIVE, LARGE AND INFLEXIBLE EQUIPMENT
Most currently available equipment is expensive, large and inflexible and is
typically configured to accommodate only one assay protocol. As a result, in
order to operate this equipment cost-effectively, it must be run in a batch
mode.
SKILLED TECHNICIANS, LABORATORY REQUIRED
The majority of currently available equipment and methods require skilled
scientists and technicians and a laboratory setting. In many cases, separate
rooms are required for sample preparation and amplification to prevent
contamination from one sample to another.
SAMPLE VOLUME CONSTRAINTS
The challenge of DNA testing is to ensure that the target molecule, if present
in the sample, is captured. If the target molecule is present and is not
captured, the test will provide a false negative. Existing microfluidic
technologies, including arrays and biochips, accept and process only very small
sample volumes and therefore require significant sample preparation efforts. For
example, one nanoliter of human blood, approximately one fifty-thousandth of a
drop, may be sufficient to detect human DNA. However, more than a milliliter of
blood, which is a million times larger than a nanoliter, may be necessary to
establish the presence or absence of pathogens such as bacteria and viruses.
LACK OF INTEGRATION
Currently available amplification and detection systems do not integrate sample
preparation and are configured in ways that complicate the future integration of
sample preparation.
In summary, DNA testing is currently a complicated, time consuming process that
requires expensive, specialized equipment and highly trained staff. We believe
that DNA assays will only achieve their full market potential upon the
development of advanced instruments and integrated processes that are both rapid
and automated.
THE CEPHEID SOLUTION
We have developed integrated microfluidic instruments designed to incorporate
our automated sample preparation, amplification and detection technologies and
handle a variety of different biological samples. We believe our systems
represent significant advances in the tools needed in the life sciences
research, clinical diagnostics, industrial testing and pharmacogenomics markets.
Our systems will allow practitioners in these markets to make use of the vast
new libraries of nucleic acid sequences now being generated by genomics
researchers.
Our platform technologies address each of the limitations set forth above in the
following manner:
RAPID RESULTS
Our proprietary I-CORE technology, incorporated into our Smart Cycler and
GeneXpert systems, generally achieves amplification and detection in under 25
minutes through:
+ faster heating and cooling rates; and
+ immediate access to individual test results without having to wait for the
completion of a batch.
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Our GeneXpert system will further reduce the time to result by incorporating our
automated sample preparation technology. We have accomplished sample preparation
in our GeneXpert prototype in as little as 5 minutes and a final result in less
than 30 minutes.
INEXPENSIVE, MODULAR, FLEXIBLE
Our systems are flexible platforms that are designed to run many different types
of assays simultaneously. In addition, as many as four different target
molecules can be simultaneously detected in the same reaction tube. This
flexibility enables our systems to perform assays more cost-effectively than
other currently available systems. Our systems are modular, enabling us to build
products to meet the varying needs of our target markets.
EASY TO OPERATE, PORTABLE
Our systems are easy to use and less labor intensive than other systems
currently available. The Smart Cycler integrates amplification and detection,
which eliminates the risk of cross-contamination inherent when using two
instruments. The GeneXpert will provide an even greater level of integration and
automation by combining sample preparation with amplification and detection.
This level of integration will permit operation by less skilled personnel and
enable testing at the point of use, outside of a laboratory setting.
WIDE RANGE OF SAMPLE VOLUMES
Our GeneXpert system incorporates our automated sample preparation technology
into disposable cartridges. These cartridges are designed to handle a wide range
of sample volumes, concentrating and purifying the target DNA in a sample and
removing extraneous materials, thereby increasing the sensitivity of the
resulting assay. We are developing sample preparation systems that effectively
concentrate the target molecules to levels suitable to interface with a wide
range of other microfluidic technologies, including arrays and biochips.
INTEGRATION OF KEY STEPS
All of our component systems have been designed for integration. The GeneXpert
system is designed to integrate sample preparation, amplification and detection
into one system.
MARKETS
Laboratory experimentation in life sciences research, clinical diagnostics,
industrial testing and pharmacogenomics still relies on primitive tools such as
test tubes, beakers and other equipment that require extensive manual
manipulation. These methods are expensive and often imprecise and present
significant productivity challenges. We believe that there is a significant need
for simpler, faster and more accurate laboratory tests in all of these markets.
LIFE SCIENCES RESEARCH
The life sciences industry employs more than 100,000 molecular biology
researchers worldwide focusing on basic biomedical, pharmaceutical,
environmental, agricultural and clinical diagnostics research. In recent years
significant research efforts have focused on identifying genes and determining
their function. This field, which is known as genomics, has accelerated the
understanding of the molecular mechanisms of genetics, diseases and disease
treatment. DNA and RNA sample preparation, target amplification, and detection
technologies are increasingly important and widely used procedures in the life
sciences research field.
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CLINICAL DIAGNOSTICS
Numerous breakthroughs in molecular biology and genomics have provided new
insights into the nature of human diseases and new therapies for treating them.
As a result, DNA-based testing is being rapidly adopted in the field of clinical
diagnostics to detect, identify and characterize pathogens, to determine
antibiotic resistance and to identify genetic abnormalities, such as cancer.
PATHOGEN DETECTION
Detection and identification of pathogens in a variety of clinical specimens
rely on culture and biochemical identification techniques that have evolved over
the past 200 years. Specimens, such as blood, urine, feces or swab extracts, are
applied to growth media capable of selectively supporting the growth of
microorganisms. The material is incubated for one or more days to allow the
microorganisms to grow. Additional tests are then performed to identify the
microorganism or to determine if antimicrobial drug resistance is present. These
techniques are typically manually intensive. Even in cases where some degree of
automation has been introduced, results may still not available for several
days.
Patients infected with pathogens, such as bacteria, viruses and fungi, may die
if untreated before laboratory results are available. Moreover, in recent years
resistance to antibiotic and antiviral therapies has become an important health
issue. In order to appropriately treat a patient, clinicians need to detect
pathogens with specificity and rapidly determine if a candidate drug is
effective against the pathogen in that patient. We believe our products will
address a wide range of applications where rapid testing will dramatically
impact the clinical management of acute infectious diseases.
BLOOD PRODUCT QUALITY
Nucleic acid amplification techniques have been developed to detect bacteria and
major blood viruses, such as HIV, HCV, HBV and HTLV, in donor blood. Current
tests typically require one or more days to complete. Rapid pathogen testing
will reduce the time spent waiting for test results and enable immediate blood
pooling and component separation.
PRE-TRANSFUSION BLOOD TESTING
All donated blood is currently tested for viruses, but blood and blood products
can become contaminated with bacteria after donation. The American Red Cross has
recommended that platelets and other blood components be tested for bacteria
immediately prior to transfusion to minimize the risk of patient infection from
contaminated blood. Currently, this testing typically requires one or more days
to complete. We believe that our technology will enable rapid bacterial testing
and potentially extend the shelf life of blood products.
CANCER
Diagnosis and prognosis of cancer currently depends on the pathological
examination of tissue sections using special stains or specific antibody-based
reagents to detect evidence of abnormal cell morphology or proliferation.
Biopsies for staging cancer operations are obtained surgically, typically in the
hospital or in specialized in-patient oncology clinics. The information obtained
during these procedures and subsequent molecular analyses that determine the
treatment may not be available in a timely manner. We believe integrated
analysis systems that can rapidly and automatically process cells or tissues and
detect cancerous genetic abnormalities will be required to meet the needs of the
growing oncology field.
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INDUSTRIAL TESTING
The detection and identification of bacterial and viral pathogens as well as
general contaminants in food raw materials, industrial product materials,
processing or assembly lines and water continue to depend on conventional
culturing techniques. These techniques typically require two to three days and
thus do not alert industrial producers to quality control problems until well
after the fact. Currently no industrial producer can detect and control the
sudden introduction of a pathogen or contaminant in a time-critical manner.
FOOD AND BIOPROCESSING
We believe rapid, on-site testing will provide considerable economic value to
food producers by ensuring high product quality, greater yields, elimination of
product recalls and reduced treatment costs. To achieve these benefits, we
believe integrated, easy-to-use biological analysis systems are required.
WATER SUPPLIES
Water supply quality management is a critical need in a wide range of
industries, including food, pulp and paper, cosmetics, personal hygiene
products, metals and plastics, petrochemical and power generation. With greater
pressure to recycle water, minimize the use of antibacterials and maintain
quality discharges, manufacturers are seeking technologies to rapidly identify
contamination problems at the source. For example, cryptosporidium parvum is a
water-borne pathogen infective at a dose of a single organism. It is responsible
for frequent widespread outbreaks of intestinal disease that can be life
threatening for individuals with compromised immune systems. To detect the
presence of organisms such as cryptosporidium, there is a need for rapid
biological testing systems that can concentrate the organisms from several
gallons of water. We believe that on-site, rapid testing systems, such as the
ones we are developing, will play an important role in further enabling the
detection of these types of pathogens.
FORENSIC AND IDENTITY TESTING
The use of DNA "fingerprinting" techniques for identifying individuals is
increasing. These techniques typically utilize PCR and sample preparation from
whole blood or cells. In addition to human applications, there are important
plant and animal identity applications, such as detection of
genetically-modified organisms, or GMOs, and the verification of plant and
animal strains. We believe integrated, easy-to-use instruments for both the
laboratory and field will be needed to satisfy the growing demand for this type
of testing.
PHARMACOGENOMICS
Major pharmaceutical companies spent more than $35 billion worldwide in 1998 on
drug discovery and development. Sales of instrumentation and supplies for
genomic- and proteomic-related research reached $2.8 billion in 1998.
DRUG DISCOVERY AND DEVELOPMENT
Pharmaceutical and genomic companies are continually seeking more efficient,
high-throughput technologies to accelerate drug discovery and development. New
molecular tools, including microarrays, biochips and microfluidic devices are
being introduced that allow the probing of a very large number of DNA targets.
However, nearly all of these tools require sample preparation and nucleic acid
amplification prior to their use. We believe these new molecular tools will be
more widely adopted when there is a viable and cost-effective integration of
sample preparation with amplification and detection. Our systems are designed to
automate, integrate and accelerate these procedures.
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PREDICTIVE MEDICINE
A natural outgrowth of the genomic research undertaken to support drug discovery
is the identification of genetic markers, such as single nucleotide
polymorphisms, or SNPs. These markers correlate directly to an individual's
response to a specific drug or its side effects. We believe pharmaceutical
companies will be integrating pharmacogenomic profiling into their drug
development and clinical studies protocols. We believe that, as a result,
regulatory approval for these new drugs will require use of companion genetic
tests to ensure the presence or absence of specific markers. This will improve
patient management by allowing physicians to prescribe the right drugs for the
right patients.
THE CEPHEID STRATEGY
Our objective is to become the leading provider of microfluidic systems that
integrate, automate and accelerate biological testing. We intend to develop our
platform technologies for the emerging life sciences research, clinical
diagnostics, industrial testing and pharmacogenomics markets. We are applying
our technologies to all key processing steps in biological testing: sample
preparation, amplification and detection. Key elements of our strategy include:
APPLY CORE TECHNOLOGIES BROADLY
We intend to integrate our proprietary I-CORE and automated sample preparation
technologies to provide rapid biological analysis platforms with applicability
across a number of markets. Our unique capabilities for rapid sample preparation
through the use of biochips and microfluidics will streamline the
labor-intensive "front end" of the laboratory. We are developing our Smart
Cycler and GeneXpert systems to improve speed and flexibility in some markets
and to address other markets that historically have been served by traditional
microbiological culturing techniques, immunoassays or empirical analysis. Our
target markets include life sciences research, clinical diagnostics, industrial
testing and pharmacogenomics.
INTRODUCE PRODUCTS IN STAGES
We intend to establish an initial market position in the life sciences research
market through the introduction of our Smart Cycler. We have entered into a
distribution agreement with Fisher Scientific under which Fisher has agreed to
market our Smart Cycler. We intend to introduce our GeneXpert system next. This
system will integrate automated sample preparation with amplification and
detection technology. We will also provide our I-CORE modules on an OEM basis to
manufacturers of clinical diagnostic equipment for use with their sample
preparation and assay components.
FOCUS INITIALLY ON NUCLEIC ACID ANALYSIS
We are initially focusing on the development and application of our platform
technologies to the field of rapid nucleic acid analysis. We intend to adapt our
platforms to provide purified nucleic acids to other analysis systems such as
capillary electrophoresis, hybridization arrays and other high-density testing
technologies. We will adapt our sample preparation and amplification
technologies to improve throughput, lower costs and provide greater sensitivity,
thus providing applications in drug development and the emerging field of
predictive medicine.
COLLABORATE WITH PARTNERS
We intend to market our systems to each of our targeted market segments
principally through partners to provide marketing, sales, service and
distribution. We have entered into a number of non-exclusive collaborations
whereby our partners have agreed to provide funding to support the development
and engineering efforts required to adapt our systems to meet their specific
market needs. In certain
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markets, we will retain the rights to market directly to end customers. We will
utilize our partners to develop chemistries for assays.
GENERATE RECURRING REVENUE FROM CONSUMABLES
We expect to generate recurring revenue from the manufacture and sale of our
single use reaction tubes and integrated sample preparation cartridges. We
intend to manufacture these consumables in our own facilities using advanced
assembly processes based on robotics and continuous flow processing to minimize
labor costs and ensure product quality.
THE CEPHEID TECHNOLOGY
AUTOMATED SAMPLE PREPARATION
Automated sample preparation remains the last major hurdle in creating fully
integrated nucleic acid analysis systems. Most automated sample preparation
instruments available today utilize robotics, with machines merely duplicating
the steps technicians would perform in laboratories. These systems have been
beneficial to high throughput, single assay applications, but require large
capital investments and skilled personnel in a laboratory.
We believe our proprietary automated sample preparation technology will be the
first to integrate the basic chemistry and physics required to prepare a raw
sample for analysis. We have developed microfluidic technologies that perform
these steps in a disposable cartridge. The key steps in sample preparation
together with our corresponding technologies are as follows:
ADDING REAGENTS
We manufacture disposable sample preparation cartridges that can contain
reagents needed for the amplification process as well as probes for specific
nucleic acid targets. Our low-cost, injection-molded cartridges also incorporate
a proven fluid delivery system.
MEASURING SAMPLE VOLUME AND MIXING
We use pressure differences to flow liquids through our cartridges and use
proprietary mechanical valving mechanisms to produce precise fluid flow control.
Our flow-through technology allows the sample to be processed on a continuous
basis and is critical to our ability to accommodate the larger sample sizes
required for high sensitivity pathogen detection. Our cartridges mix fluids
through a versatile, proprietary, plastic valve assembly that can accommodate a
variety of sample preparation protocols.
SEPARATING SPECIFIC CELLS OR TARGETS
Our cartridges incorporate filters and filter assemblies that can perform
functions ranging from basic sample clean-up to specific cell or target capture.
LYSING CELLS
We have developed a very rapid proprietary lysis technology capable of releasing
DNA from the cells of organisms that are difficult to lyse, such as spores. This
technology does not require harsh chemicals, and therefore eliminates the
difficult and time-consuming purification steps that are required by
conventional technologies. This technology is incorporated in our GeneXpert
system and will allow lysis procedures, that now may take hours, to be performed
in seconds. We have developed and delivered a number of self-contained
prototypes to select strategic collaborators.
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CAPTURING AND CONCENTRATING DNA
We have developed a micromachined silicon chip specifically designed for
effective molecular capture and concentration. These chips, approximately 4mm by
4mm, contain thousands of identical, tall pillars (typically 5 to 10 microns in
diameter, 200 microns tall, spaced 5 to 10 microns apart). Traditional
solid-phase materials widely used in current sample preparation techniques for
DNA capture, such as glass fibers, bind and hold molecules with varying
efficiencies. In contrast, the uniform forest of identical pillars on our
extraction and concentration chip results in extremely uniform binding, allowing
rapid and efficient release of the captured DNA.
Because our chips are operated in a flow-through mode, they can capture and
concentrate DNA or other chemicals from large liquid sample volumes. We have
increased the concentration of target DNA by a factor as large as 20 in samples
as large as one milliliter. All material in the sample other than the target DNA
is moved to a waste chamber in the cartridge.
PREPARING FOR ANALYSIS
We integrate the sample preparation cartridge with our proprietary reaction
tube, the same tube designed for our I-CORE and Smart Cycler for amplification
and detection. After capturing and concentrating the DNA from the sample, our
cartridge automatically mixes the DNA with amplification reagents and moves the
DNA to the reaction tube for amplification and detection.
AMPLIFICATION AND DETECTION
In 1996, we licensed a technology from Lawrence Livermore National Laboratories
that allows us to integrate amplification and detection. Our commercial version
of the technology is called the Integrated, Cooling/Heating Optics Reaction
module, or I-CORE module, a single chamber module measuring approximately 1 inch
by 4 inches by 5 inches. An I-CORE is a complete, independent,
temperature-controlled fluorimeter for performing and continuously monitoring
chemical reactions such as PCR, and is a key element of both our Smart Cycler
and GeneXpert systems. The temperature of the sample can be controlled rapidly
and accurately, allowing faster reactions and more accurate results. The I-CORE
technology also allows the analysis of samples to be performed with much lower
power than traditional methods. This permits our systems to become truly
portable, giving our customers the capability to obtain bioanalytical results
when and where they are needed. The modular nature of the I-CORE allows us to
design a variety of flexible instrument platforms, optimized to meet the needs
of many of our customers.
INDEPENDENT CONTROL
One of the key distinguishing features of our I-CORE technology is that in a
system composed of multiple I-COREs, each I-CORE can be operated and controlled
independently. This is not possible with any other system currently on the
market. In contrast to traditional thermal cycling systems, in which all the
samples are subjected to the same time/temperature/optical protocol, each sample
in an I-CORE-based instrument can be subjected to a different protocol. This
allows the operator to perform many different assays or experiments at the same
time on the same instrument.
POWERFUL OPTICAL ANALYSIS
Each I-CORE module includes a powerful, four-channel optical analysis system
capable of complex, multiplexed, chemical assays. This allows the detection and
quantification of multiple fluorescent dyes and multiple target molecules in the
same reaction tube. Continuous optical monitoring during amplification also
allows the user to stop the reaction as soon as a target is detected, thereby
shortening the time to result. For example, a single I-CORE reaction could
simultaneously detect and quantify staphylococcus aureus, detect the presence or
absence of the methicillin-resistance gene and measure the response of a
separate internal control to validate the entire test in one tube.
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PATENTED REACTION TUBE
Our disposable patented reaction tube is used in conjunction with the I-CORE
module and has been optimized to provide rapid temperature cycling and long
optical path lengths for optimum optical sensitivity. In addition, the tube is
designed to eliminate entrapped air, which can interfere with the optical
signal. This feature minimizes optical noise, makes assays more uniform and
reproducible and minimizes the need for optical normalization.
PRODUCTS
We are developing two families of products, the Smart Cycler and GeneXpert
families, that incorporate our core technologies. The following table sets forth
our amplification and detection products:
<TABLE>
<CAPTION>
NAME DESCRIPTION STATUS
---- ----------- ------
<S> <C> <C>
I-CORE Module Complete thermal cycling microinstrument for In Production
DNA amplification and detection
Smart Cycler Laboratory-based DNA analysis instrument In Production
containing 16 I-CORE modules
Smart Cycler XC Portable, battery-operated DNA analysis In Development
instrument containing 16 I-CORE modules for use
in the field
Notebook Smart Cycler Portable, battery-operated DNA analysis In Development
instrument containing two I-CORE modules
integrated with a notebook computer
Smart Cycler Reaction Disposable I-CORE reaction tubes optimized for In Production
Tubes (25 micronL and research and diagnostic applications
100 micronL)
</TABLE>
The following table sets forth our family of products that integrate sample
preparation, amplification and detection:
<TABLE>
<CAPTION>
NAME DESCRIPTION STATUS
---- ----------- ------
<S> <C> <C>
GeneXpert Automated system for sample preparation, In Development
amplification and detection from raw biological
samples
Briefcase GeneXpert Portable, battery-operated version of the In Development
GeneXpert
GXPT-1 Disposable cartridge for spores and bacteria in In Development
aqueous-based solutions
GXPT-2 Disposable cartridge for genomic DNA in blood In Development
GXPT-3 Disposable cartridge for viral pathogens in Future Development
clinical swabs
GXPT-4 Disposable cartridge for bacterial DNA in blood Future Development
GXPT-5 Disposable cartridge for viral pathogens in Future Development
blood
</TABLE>
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I-CORE MODULE
Our I-CORE module is a low-cost, self-contained instrument assembly that
combines fast and versatile temperature control with flexible, multi-color
optical fluorescence analysis. I-CORE modules can be configured into a variety
of DNA analysis instruments or can be sold to manufacturers of large clinical
and research instruments for incorporation into their instrument platforms. The
I-CORE module is a key component in both our Smart Cycler and GeneXpert families
of products. We expect to incorporate our I-CORE technology into future systems.
SMART CYCLER FAMILY
Our Smart Cycler system contains 16 I-CORE modules arranged into a rapid,
flexible, multi-purpose instrument capable of performing DNA amplification and
detection by means of a number of available fluorescent chemical techniques. In
1998, we received an R&D 100 award from R&D Magazine for the design of the Smart
Cycler. To date, we have placed 27 Smart Cyclers with 17 different collaborators
for technology evaluation. We anticipate the commercial launch of the Smart
Cycler in the first half of 2000, and we have a co-exclusive agreement with
Fisher Scientific to distribute the Smart Cycler.
Our Smart Cycler XC (eXtreme Conditions) is a portable, battery-operated version
of the Smart Cycler targeted toward military, law enforcement and certain
industrial testing markets. The development of the Smart Cycler XC was funded by
the US Army under a development contract. To date, we have placed two systems in
the field for technology evaluation.
Our Notebook Smart Cycler is a battery-operated prototype thermal cycler in
which two I-CORE modules have been integrated with a notebook computer to
further increase portability for the point-of-use market.
REACTION TUBES
One of our patented reaction tubes is required for each assay run using our
I-CORE or Smart Cycler family of products. We offer two types of patented
reaction tubes for use with these systems. Both are designed to be disposed of
after a single use and represent opportunities for recurring revenue from an
installed base of instruments. We manufacture and sell a 25 microliter tube,
typically preferred in the life sciences research market, and a 100 microliter
tube, which is typical for applications that might require larger liquid
reaction volumes.
GENEXPERT SYSTEM
Our GeneXpert family of products combines sample preparation with the
amplification and detection functions performed by our I-CORE module into an
integrated, automated DNA analysis instrument. These products are designed to
purify, concentrate, detect and identify targeted DNA sequences, from sample to
result, in less than 30 minutes. Current techniques for accomplishing this same
complex series of procedures require extensive manual labor by skilled
technicians and can take anywhere from six hours to three days.
Our GeneXpert technology platform is designed to accept cartridges with several
different internal configurations, each designed to perform a different class of
assay. Each cartridge will be labeled with bar codes that instruct the
instrument how to direct the fluids through the cartridge and activate the
various mixing, lysing, amplification, detection and other functions as
required. Furthermore, the GeneXpert system is compact, uses low power and is
suitable for applications requiring portability.
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DISPOSABLE ASSAY CARTRIDGES
We have two disposable assay cartridges under development:
SPORES AND BACTERIA IN AQUEOUS-BASED SOLUTIONS
Our GXPT-1 cartridge will be a general-purpose device optimized for rapidly
extracting, concentrating and detecting spores and bacteria from aqueous-based
samples. We have successfully demonstrated the usefulness of this cartridge for
applications such as detecting infectious organisms in urine, bacteria from
swabs and spores in environmental samples. We anticipate this cartridge will
also be used to detect bacteria in food, spores in industrial products and to
replace bacterial cultures. We are optimizing this cartridge to improve speed
and sensitivity when targets are present in low concentration in a large volume.
GENOMIC DNA IN BLOOD
Our GXPT-2 cartridge will be optimized for extracting and concentrating genomic
DNA from blood or cell cultures. This cartridge will have broad applications in
HLA (human leukocyte antigen) analysis, genetic analysis and SNP detection and
analysis. This cartridge will extract white blood cells from whole blood,
automatically lyse these cells, extract and concentrate the genomic DNA, then
selectively amplify and detect several genomic regions containing the SNPs of
interest. While complex hybridization arrays and electrophoretic chips are
useful for research on SNP mutations, the practical realization of SNP
information in routine medical testing will require simple, cost-effective
disposables such as this cartridge.
In addition to our own development efforts, we are working with collaborators to
co-develop the methodologies and chemistries to be used in certain specific
assays incorporated in these cartridges. Our cartridge design supports a
strategy in which a continuous introduction of new assays and new disposable
cartridges can be launched over a period of time, expanding the panel of tests
that can be implemented on an installed base of GeneXpert instruments. We
anticipate developing three additional disposable cartridges in the future:
VIRAL PATHOGENS IN SWABS
We intend to design our GXPT-3 cartridge to accept nasal swab extracts or other
respiratory secretions, capture the viral pathogens, lyse the viruses and
perform real-time PCR. We believe there will be widespread adoption of rapid
respiratory virus testing, such as for flu and childhood viral pathogens, as new
antiviral treatments become available.
BACTERIAL DNA IN BLOOD
We intend to design our GXPT-4 cartridge to accept up to 10 milliliters of whole
blood and extract and concentrate bacterial DNA. This will enable detection of
the presence of bacteria. Bacterial contamination in blood causes over 20,000
deaths per year in the United States. Relatively large volumes of blood are
necessary to achieve the required diagnostic sensitivity. In addition, this
cartridge in the GeneXpert system will be able to rapidly and simultaneously
detect antibiotic resistance.
VIRAL PATHOGENS (DNA AND RNA) IN BLOOD
We intend to design our GXPT-5 cartridge to accept up to 10 milliliters of whole
blood, separate and concentrate viruses and their nucleic acids. This will
enable the rapid screening of donor blood for transfusions and blood from organ
donors. We believe that this cartridge will also be utilized for monitoring
therapeutic response to antiviral drugs.
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RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on refining and enhancing of
our existing systems, significantly improving our basic technology and
developing key future technologies and systems. As with our core technologies
and products, we are concentrating our efforts in the areas of sample
preparation, amplification and detection.
SAMPLE PREPARATION
+ New micromachined components for improved performance of nucleic acid
purification;
+ Large and small-scale microfluidic systems for automated fluid handling;
+ New processing methodologies and chemistries, including viral capture; and
+ Parallel, high-density sample handling and processing systems.
AMPLIFICATION
+ Enhanced performance of reaction components and systems; and
+ Alternative amplification chemistries.
DETECTION
+ Distinguishing a larger number of fluorescent probes;
+ Alternative detection systems such as electrophoretic separation and in-situ
hybridization. These include solid-state optical detection systems with
applicability beyond current homogeneous methodologies;
+ Alternative nucleic acid and other biomolecule detection techniques; and
+ Further miniaturization of optical detection systems.
SALES AND MARKETING
Our commercialization strategy is to sell our products principally through
distribution partners across a wide range of markets, including life sciences
research, clinical diagnostics, industrial testing and pharmacogenomics. We may
market our products directly to key customers in the pharmaceutical industry and
the US government.
Our distribution partners are continually looking for innovative new products.
We plan to partner with them to gain access to their marketing resources and
their proprietary reagents and assays. We will retain the rights to manufacture
the key components and consumables for our systems. We currently have eight
employees engaged in marketing, sales and service activities and are planning to
hire additional personnel before the end of the year.
COLLABORATIONS
We have entered into collaborations with commercial entities and have received
grants and research contracts from US government agencies. We have entered into
the following significant commercial collaborations:
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FISHER SCIENTIFIC
We intend to launch our first product, the Smart Cycler system, in the first
half of 2000 into the US life sciences research market through the Life Sciences
group of Fisher Scientific, Inc. Fisher has distribution rights to the US life
sciences research market and the option to extend those rights into Canada and
certain European countries. Fisher will sell under the Cepheid label and trade
dress. We will establish the end user list price for the system, accessories and
disposable reaction tubes. This three year arrangement may be extended by mutual
agreement.
Our agreement with Fisher is subject to Fisher's ongoing fulfillment of minimum
purchase requirements. We also retain the ability to market, directly or through
a collaborator, a private-label version of the system to the life sciences
research market.
INNOGENETICS
We have entered into a Development and Supply Agreement with Innogenetics, a
Belgian biotechnology company. The focus of this collaboration is the
development of products integrating our proprietary technologies for sample
preparation, rapid amplification and detection and Innogenetics' proprietary
methods for genetic testing and viral genotyping. Any resulting products will be
sold on a worldwide basis by Innogenetics, through their direct sales
organizations in the US and Europe and through distributor organizations.
INFECTIO DIAGNOSTIC
We have formed Aridia Corp., a joint venture we own equally with Infectio
Diagnostic (I.D.I.), Inc., a Canadian diagnostic company. Aridia is developing a
line of proprietary molecular diagnostic tests for the rapid, time critical
identification of bacterial and fungal infections, such as group B strep,
antibiotic resistant bacteria, meningitis and sepsis. The first products from
this venture, a line of assays adapted to our Smart Cycler system, will be
directed primarily to hospital laboratories. Products incorporating our sample
preparation cartridge technology will follow and will enable diagnostic
procedures to be performed closer to the patient. These products will require
FDA approval or clearance, or other applicable regulatory approval or clearance,
which has not been obtained or sought.
US GOVERNMENT
Fast DNA testing, available when and where it is needed, is of great interest to
the US government, primarily for biological warfare defense, but also for
medical diagnostics, food testing, forensics and other applications. We have
received grants and research contracts with a number of US government agencies
that have funded much of our fundamental technology development, including:
+ Defense Advanced Research Projects Agency;
+ United States Army Medical Research Institute of Infectious Diseases;
+ Soldier Biological Chemical Command; and
+ Lawrence Livermore National Laboratory.
In addition, the following US government agencies are evaluating prototypes of
our products:
+ Center for Disease Control;
+ Federal Bureau of Investigation; and
+ Armed Forces Institute of Pathology.
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MANUFACTURING
Our manufacturing processes were established in compliance with ISO 9001 quality
control procedures. Our facilities and manufacturing processes are designed to
comply with FDA's Quality Systems Requirements to enable us to market our
systems in the future into the clinical diagnostics and industrial testing
markets. We perform final assembly, calibration and test of our instruments. We
produce our patented consumable tubes on a custom, automated assembly line. This
line can be expanded to deliver up to 20 million tubes per year with a single
shift. Our new manufacturing facility provides increased capacity for assembly,
test and inventory of our products.
COMPETITION
Several companies provide instruments for DNA amplification or detection. PE
Biosystems and Hoffmann La Roche sell systems integrating amplification and
detection to the commercial market. Organon Teknika, Promega and Qiagen are
competitors in the area of sample preparation, selling both sample preparation
kits and robotic systems.
We expect to encounter intense competition from a number of companies that offer
various products for sample preparation, amplification and detection. We
anticipate that our competitors will come primarily from the following two
sectors:
+ companies providing conventional products based on established technologies;
and
+ companies developing their own microfluidics technologies.
In order to compete against vendors of conventional products, we will need to
demonstrate the advantages of our products over alternative well-established
technologies and products. We will also need to demonstrate the potential
economic value of our products relative to these conventional technologies and
products.
We will also need to compete effectively with companies developing their own
microfluidics technologies and products, such as ACLARA Biosciences, Caliper,
Nanogen and Orchid Biosciences. Other companies we are aware of that are
involved in microfluidic research include Affymetrix, Motorola, 3M and PE
Biosystems. Microfluidic technologies have undergone and are expected to
continue to undergo rapid and significant change. Our future success will depend
on our ability to establish and maintain a competitive position in these and
future technologies. Rapid technological development may result in our products
or technologies becoming obsolete. Products we offer could be made obsolete
either by less expensive or more effective products based on similar or other
technologies.
In many instances, our competitors have or will have substantially greater
financial, technical, research and other resources and larger, more established
marketing, sales, distribution and service organizations than we do. Moreover,
competitors may have greater name recognition than we do, and may offer
discounts as a competitive tactic. We cannot assure you that our competitors
will not succeed in developing or marketing technologies or products that are
more effective or commercially attractive than our products, or that would
render our technologies and products obsolete. Also, we may not have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. Our success will depend in
large part on our ability to maintain a competitive position with our
technologies.
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BUSINESS
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GOVERNMENT REGULATION
For our initial commercial market, the biomedical research market, we do not
anticipate the need for FDA or other regulatory approval. We have not applied
for FDA or other regulatory approvals with respect to any of our products under
development. We anticipate, however, the manufacturing, labeling, distribution
and marketing of some or all of the diagnostic products under development or
diagnostic products we may develop and commercialize in the future will be
subject to regulation in the United States and in other countries. In addition
to clinical diagnostics markets, we also may pursue forensic, agricultural,
environmental, laboratory and industrial applications for our products which may
be subject to different government regulation. Aspects of our manufacturing and
marketing activities may also be subject to federal, state and local regulation
by various governmental authorities.
In the United States, the FDA regulates, as medical devices, most diagnostic
tests and in vitro reagents that are marketed as finished test kits and
equipment. Pursuant to the Federal Food, Drug and Cosmetic Act, and the
regulations promulgated thereunder, the FDA regulates the preclinical and
clinical testing, design, manufacture, labeling, distribution and promotion of
medical devices. We will not be able to commence marketing or commercial sales
in the United States of new medical devices under development that fall within
the FDA's jurisdiction until we receive clearance or approval from the FDA,
which can be a lengthy, expensive, and uncertain process. Noncompliance with
applicable requirements can result in, among other things, administrative or
judicially imposed sanctions such as injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing clearances or approvals, or criminal prosecution.
INTELLECTUAL PROPERTY
PATENTS AND PATENTS PENDING
We hold an exclusive license to key technologies from the Lawrence Livermore
National Laboratory, or LLNL, in the fields of nucleic acid analysis and ligand
binding assays with integrated optical detection. These technologies have
resulted in one issued US patent and include one pending US patent application
and two pending international counterpart patent application. The LLNL
technologies are the basis of our I-CORE module and encompass the key I-CORE
features.
We also have an issued US patent on our disposable reaction tube. We have an
additional 12 pending US patent applications and six pending international
counterpart applications relating to our technologies. Our pending patent
applications relate to our I-CORE module, reaction tubes, lysing technology,
nucleic acid concentration chip and microfluidic devices, and methods and
systems as applied to sample processing and automated DNA analysis.
OUTSIDE TECHNOLOGIES REQUIRED
We have obtained a thermal cycling authorization from PE Biosystems for sale of
the I-CORE module in the life sciences research market. In addition, we are in
discussions with PE Biosystems regarding a license to their US patent covering
thermal cycling systems for other fields.
In the area of human diagnostics for PCR-based applications, we rely on partners
who have negotiated or are negotiating the appropriate licenses from Hoffmann La
Roche for application to this field. There are also numerous non-PCR
amplification methods that can be adapted to our systems and we are pursuing
collaborations with developers of these methods.
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BUSINESS
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EMPLOYEES
As of March 31, 2000, we had 76 full-time employees of whom seven hold PhD
degrees and seven hold other advanced degrees. Approximately 37 employees are
engaged in research and product development, 24 of whom are in engineering and
13 in biotechnology. None of our employees are represented by a labor union. We
place a high value on our human capital and consider our employee relations to
be good.
FACILITIES
We occupy approximately 33,000 square feet of leased and sub-leased office and
laboratory space in Sunnyvale, California as the base for our manufacturing,
product support and research and development efforts. All our space is leased
through at least mid 2003 and is expected to meet our currently anticipated
facilities needs at least through 2001. If necessary, we believe we will be able
to obtain additional facilities space on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
SCIENTIFIC ADVISORY BOARD
We have assembled a group of scientific advisors who are leaders in fields
related to microbiology, microfluidics, instrumentation technologies and
systems. Our Scientific Advisory Board meets periodically with our scientific
and development personnel and management to discuss our present and long-term
research and development activities. Scientific Advisory Board members include:
+ R. Bruce Darling, PhD, Professor of Electrical Engineering, University of
Washington. Dr. Darling is an expert in the areas of microfabrication,
microfluidic systems, modeling and instrumentation.
+ Stanley Falkow, PhD, Professor Microbiology and Immunology, Geographic
Medicine and Infectious Diseases, Stanford University School of Medicine. Dr.
Falkow focuses his research efforts on microbial pathogenicity and
investigates the natural history of infectious diseases at molecular and
genetic levels.
+ Gregory Kovacs, MD, PhD, Associate Professor of Electrical Engineering and,
by courtesy, of Medicine, Stanford University. Dr. Kovacs develops
micromachined sensors and fluidic devices for biomedical applications,
clinical and research instrumentation and specialized devices for detection
of environmental pathogens and toxins. Dr. Kovacs serves as the chair of our
Scientific Advisory Board.
+ Dorian Liepmann, PhD, Associate Professor, Bioengineering and Mechanical
Engineering, University of California, Berkeley. Dr. Liepmann's research
areas include experimental fluid mechanics, biofluid mechanics, microfluidic
systems, bio-MEMS, mixing, free surface flows and hydroacoustics.
+ David A. Relman, MD, Assistant Professor Medicine, Stanford University. Dr.
Relman's research focuses on molecular mechanisms of pathogenesis and
advanced molecular methods for microbial pathogen discovery.
+ Ann Warford, PhD, Director of Laboratory Operations, SRA Life Sciences. Dr.
Warford is an expert in the practical application of advanced clinical
diagnostics in hospital settings.
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BUSINESS
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+ Richard Zare, PhD, Marguerite Blake Wilbur Professor in Natural Science at
Stanford University, Department of Chemistry, Stanford University. Dr. Zare
investigates chemical reactions at the molecular level, including molecular
collision processes and dedicates a good deal of his time to advancing
chemical analysis technologies through such techniques as laser-induced
fluorescence and high performance capillary electrophoresis.
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Management
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
Thomas L. Gutshall........................... 62 Chairman of the Board, Chief Executive
Officer and Director
Kurt Petersen, PhD .......................... 52 President, Chief Operating Officer and
Director
M. Allen Northrup, PhD ...................... 45 Vice-President, Research and Chief Technical
Officer
Catherine A. Smith........................... 44 Vice-President, Finance and Chief Financial
Officer
Gerald S. Casilli(1)......................... 60 Director
Cristina H. Kepner(1)........................ 53 Director
Ernest Mario, PhD(1) ........................ 61 Director
Dean O. Morton(2)............................ 68 Director
Hollings C. Renton(2)........................ 53 Director
</TABLE>
- ---------------
(1) Member of the audit committee
(2) Member of the compensation committee
Thomas L. Gutshall Mr. Gutshall is a co-founder and has served us as Chairman
of the Board and Chief Executive Officer since August 1996. From January 1995 to
August 1996, he was President and Chief Operating Officer of CV Therapeutics.
From 1989 to 1994, he was Executive Vice President at Syntex Corporation and a
member of the Pharmaceutical Executive Committee. His responsibilities while at
Syntex included managing Syva Company, Syntex Agribusiness, Pharmaceutical and
Chemical Operations and Services, Syntex Pharmaceutical Intl. Ltd. and
Environmental Health and Safety. He is also a member of the board of directors
of Catalytica Pharmaceuticals and CV Therapeutics.
Kurt Petersen, PhD Dr. Petersen is a co-founder and has served us as President
and Chief Operating Officer since August 1996. From 1985 to 1995, he served as
Vice President, Technology for NovaSensor. While at NovaSensor he was
responsible for commercializing many innovative micromachined devices and
fundamental fabrication processes. He holds 19 patents and has authored over 80
papers and presentations.
M. Allen Northrup, PhD Dr. Northrup is a co-founder and has served us as Vice
President, Research and Chief Technology Officer since May 1997. From 1991 to
1997, he served as the Principal Engineer at the Microtechnology Center of
Lawrence Livermore National Laboratory, where he demonstrated the first
micromachined and optically interrogated PCR system. He holds 17 patents, has
authored 50 publications and serves on several national and international
committees in the areas of biotechnology and microinstrumentation.
Catherine A. Smith Ms. Smith is our Vice President, Finance and Chief Financial
Officer and joined us as Vice President in January 1998. From 1992 to 1997, she
was a consultant to numerous private and public biotechnology, pharmaceutical,
diagnostic and device companies, providing interim or part-time financial
management. She began her career at the international public accounting firm
Deloitte + Touche, where she served as an audit manager from 1979 to 1984. She
also served as the Controller for Thoratec Laboratories Corporation from 1984 to
1989.
Gerald A. Casilli Mr. Casilli joined us as a director in April 1997. Mr.
Casilli has served as Chairman of the Board of IKOS Systems, Inc. since 1989 and
as Chief Executive Officer from 1989 to 1995. From 1986 to 1989, he was a
general partner at Trinity Ventures, Ltd., a venture capital firm. Mr. Casilli
was a general partner of Genesis Capital, a venture capital firm from 1982 to
1990. In
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MANAGEMENT
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1973, Mr. Casilli founded Millennium Systems, a manufacturer of microprocessor
development systems, and served as its President and Chief Executive Officer
until 1982. Mr. Casilli currently serves as a director of Evans & Sutherland.
Cristina H. Kepner Ms. Kepner joined us as a director in May 1998. She is
Executive Vice President and director of Invemed Associates LLC, an investment
bank. She has been with Invemed since 1978, where she also serves as Corporate
Finance Director. She is currently on the boards of ViroLogic, Inc. and Quipp,
Inc.
Ernest Mario, PhD Dr. Mario joined us as a director in March 2000. He has been
the Chairman of the Board since 1997 and Chief Executive Officer of ALZA
Corporation since 1993. From 1993 to 1997, he was Co-Chairman of the Board of
ALZA. Prior to joining ALZA, he served as Chief Executive of Glaxo Holdings plc,
a pharmaceutical corporation, from 1989 to 1993, and as Deputy Chairman from
1992 to 1993. From 1988 to 1989, he served as Chairman of the Board and Chief
Executive Officer of Glaxo, Inc., a subsidiary of Glaxo Holdings, and from 1986
to 1988 as President and Chief Operating Officer of Glaxo, Inc. He currently
serves on the boards of Catalytica, Inc., COR Therapeutics, Inc., Pharmaceutical
Product Development, Inc. and SonoSite, Inc.
Dean O. Morton Mr. Morton joined us as a director in July 1997. He was Executive
Vice President, Chief Operating Officer and a director of Hewlett-Packard
Company. He is currently a member of the board of directors of ALZA Corporation,
BEA Systems, Inc., Centigram Communications Corporation, The Clorox Company and
KLA-Tencor Corporation. He is a trustee of the State Street Research group of
mutual funds and a director of the Metropolitan Series Fund, Inc. and State
Street Research Portfolios, Inc. He serves on the Board of Monterey Bay Aquarium
Research Institute and the Board of Kaiser Foundation Health Plan and Hospitals.
He is a trustee of the David and Lucille Packard Foundation and Chairman of The
Center for Excellence in Non Profits.
Hollings C. Renton Mr. Renton joined us as a director in March 2000. Since 1993,
he has served as the President and Chief Executive Officer and a director of
Onyx Pharmaceuticals, Inc. From 1991 to 1993, he served as President and Chief
Operating Officer of Chiron Corporation following their acquisition of Cetus
Corporation. Prior to the acquisition, he served as President of Cetus from 1990
to 1993 and as Chief Operating Officer of Cetus from 1987 to 1990.
BOARD COMPOSITION
We will have nine authorized directors upon the closing of this offering. In
accordance with the terms of our amended and restated articles of incorporation,
the terms of office of the board of directors will be divided into three
classes:
+ Class I directors, whose term will expire at the annual meeting of
shareholders to be held in 2001;
+ Class II directors, whose term will expire at the annual meeting of
shareholders to be held in 2002; and
+ Class III directors, whose term will expire at the annual meeting of
shareholders to be held in 2003.
The Class I directors will be Mr. Morton and Dr. Petersen, the Class II
directors will be Mr. Casilli and Ms. Kepner and the Class III directors will be
Dr. Mario, Mr. Gutshall and Mr. Renton. There will be two vacancies on the board
of directors. At each annual meeting of shareholders after the initial
classification, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election. The authorized number of directors may be
increased only by resolution of the board of directors and a majority vote of
our shareholders. Any additional directorships resulting from an increase in the
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MANAGEMENT
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number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the directors. This
classification of our board of directors may have the effect of delaying or
preventing changes in control or management of our company.
BOARD COMMITTEES
The audit committee of our board of directors was established in September 1998
and reviews, acts on and reports to the board of directors on various auditing
and accounting matters, including the recommendation of our independent
auditors, the scope of our annual audits, fees to be paid to our independent
auditors, the performance of our independent auditors and our accounting
practices. The members of our audit committee are Mr. Casilli, Ms. Kepner and
Dr. Mario, each of whom is an independent director.
The compensation committee of the board of directors was established in
September 1998 and reviews and approves the salaries and stock options
recommended by our Human Resources Department for our employees, consultants,
directors and other individuals compensated by us. Mr. Morton and Mr. Renton,
each of whom is an independent director, are currently the members of the
compensation committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee has ever been at any time an officer or
employee of ours, and none of our executive officers serves as a member of the
board of directors or compensation committee of any entity that has one or more
officers serving as a member of our board of directors or compensation
committee.
DIRECTOR COMPENSATION
We reimburse our non-employee directors for expenses incurred in connection with
attending board and committee meetings but do not compensate them for their
services as board or committee members. We have in the past granted non-employee
directors options to purchase our common stock pursuant to the terms of our
stock plans, and our board continues to have the discretion to grant options to
new non-employee directors. In 1999, none of our non-employee directors were
granted any options. In March 2000, upon joining our board, Dr. Mario and Mr.
Renton each received an option to purchase 48,000 shares of our common stock.
Beginning in April 2000, our non-employee directors will each receive
nondiscretionary, automatic grants of options to purchase 15,000 shares of our
common stock upon joining the board of directors and nondiscretionary, automatic
grants of options to purchase 5,000 shares of our common stock each year
pursuant to the 2000 Non-Employee Directors' Stock Option Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our amended and restated articles of incorporation limit the liability of
directors to the maximum extent permitted by California law. California law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
+ breach of their duty of loyalty to the corporation or its shareholders;
+ acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law;
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+ unlawful payments of dividends or unlawful stock repurchases or redemptions;
or
+ any transaction from which the director derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors, officers, employees
and other agents to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the bylaws permit such indemnification.
We intend to enter into agreements to indemnify our directors, in addition to
the indemnification provided for in our bylaws. These agreements, among other
things, will indemnify our directors for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such director in
any action or proceeding, including any action by or in our right, arising out
of such person's services as one of our directors, to any of our subsidiaries or
to any other company or enterprise to which the director provides services at
our request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors.
There is no pending litigation or proceeding involving any of our directors or
officers in which indemnification is required or permitted, and we are not aware
of any threatened litigation or proceeding that may result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
The following table shows all compensation received during 1999 by our Chief
Executive Officer and our other most highly compensated executive officers, who
received salary and bonus compensation of more than $100,000 during 1999,
collectively referred to as the Named Executive Officers. There was no other
compensation to the Named Executive Officers in 1999.
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS
<S> <C> <C>
- --------------------------------------------------------------------------------
Thomas L. Gutshall.......................................... $170,000 --
Chairman of the Board and Chief Executive Officer
Kurt Petersen, PhD.......................................... $170,000 --
President and Chief Operating Officer
M. Allen Northrup, PhD...................................... $160,000 $64,625
Vice President, Research and Chief Technical Officer
Catherine A. Smith.......................................... $140,000 --
Vice President, Finance and Chief Financial Officer
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to any of the Named Executive Officers during the fiscal
year ended December 31, 1999.
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AGGREGATED OPTION EXERCISES IN THE YEAR DECEMBER 31, 1999 AND YEAR-END OPTION
VALUES
As of December 31, 1999, none of the Named Executive Officers held any options.
None of the Named Executive Officers exercised any options during the fiscal
year ended December 31, 1999.
EMPLOYEE BENEFIT PLANS
1997 STOCK OPTION PLAN
Our board of directors adopted our 1997 Stock Option Plan on January 31, 1997.
This plan provides for the grant of incentive stock options to our employees and
nonstatutory stock options to our employees, directors and consultants. As of
March 31, 2000, 2,800,000 shares of common stock were reserved for issuance
under this plan. Of these shares, 1,366,794 shares had been issued upon exercise
of stock options, 540,276 shares were subject to outstanding options and 892,930
shares were available for future grant.
Our board of directors administers this plan and determines the terms of options
granted, including the exercise price, the number of shares subject to
individual option awards and the vesting period of options. The exercise price
of nonstatutory options must generally be at least 85% of the fair market value
of our common stock on the date of grant. The exercise price of incentive stock
options cannot be lower than 100% of the fair market value of our common stock
on the date of grant and, in the case of incentive stock options granted to
holders of more than 10% of our voting power, not less than 110% of the fair
market value. The term of an incentive stock option cannot exceed 10 years, and
the term of an incentive stock option granted to a holder of more than 10% of
our voting power cannot exceed five years.
Our board of directors may not, materially amend, modify or terminate this plan
without the consent of a majority of our shareholders. This plan will terminate
in 2007 unless terminated earlier by our board of directors and our
shareholders.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our 2000 Employee Stock Purchase Plan in April
2000. This plan provides our employees with an opportunity to purchase our
common stock through accumulated payroll deductions.
A total of 200,000 shares of common stock has been reserved for issuance under
this plan. In addition, this plan provides for annual increases in the number of
shares available for issuance under the plan on the first day of each year,
beginning January 1, 2001, equal to the lesser of:
+ 200,000 shares;
+ 0.75% of the outstanding shares of our capital stock on that date;
+ such lesser amount as may be determined by our board of directors.
Our board of directors, or a committee appointed by the board, administers this
plan. Our board or its committee has full and exclusive authority to interpret
the terms of this plan and determine eligibility.
Employees are eligible to participate in this plan if they are employed by us or
any participating subsidiary for at least 20 hours per week for at least 22
weeks in any calendar year. However, an employee may not be granted an option to
purchase stock under the purchase plan if such employee immediately after grant
owns stock possessing five percent or more of the total combined voting power or
value of all classes of our capital stock or of any subsidiary.
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This plan, which is intended to qualify under Section 424 of the Internal
Revenue Code of 1986, as amended, allows for favorable tax treatment of
participants, offering periods of up to 24 months, as determined by the plan
administrator. The offering periods will generally start on January 1 of each
year, except that the first offering period will commence on the first trading
day before the effective date of this offering, will end on the last trading day
on or before December 31, 2000, and will have two purchase periods ending on the
last trading days of December 2000 and June 2001.
This plan permits participants to purchase our common stock though payroll
deductions of up to 15% of the participant's compensation, up to a maximum of
$25,000 per year. Compensation is defined as the participant's base straight
time gross earnings and commissions, but excludes payments for overtime, shift
premium payments, incentive compensation, incentive payments, bonuses and other
compensation.
Amounts deducted and accumulated for the participant's account are used to
purchase shares of our common stock on the last trading day of each purchase
period at a price of 85% of the lower of the fair market values of the common
stock at the beginning of the offering period and the end of the purchase
period. Participants may reduce their withholding percentage to zero at any time
during an offering period and may increase their withholding percentage or
decrease it, but to more than zero, on the first day of each purchase period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under this plan other than by
will, the laws of descent and distribution or as otherwise provided under the
plan.
This plan provides that if we merge with or into another corporation or effect a
sale of substantially all of our assets, a successor entity may assume or
substitute for each outstanding purchase right. If the successor entity refuses
to assume or substitute the outstanding purchase rights, the offering period
then in progress will be shortened, and a new exercise date will be set.
This plan will terminate in 2020. Our board of directors has the authority,
however, to amend or terminate this plan at any time and may apply any action to
affect their outstanding rights to purchase stock under this plan.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our board adopted the 2000 non-employee directors' stock option plan in March
2000. This plan provides for the automatic grant to our non-employee directors
of options to purchase shares of our common stock.
SHARE RESERVE
We have reserved a total of 200,000 shares of our common stock for issuance
under this plan. If an optionholder does not purchase the shares subject to his
or her option before the option expires or otherwise terminates, the shares that
are not purchased will again become available for issuance under this plan.
ADMINISTRATION
The board administers this plan. The board has the authority to construe,
interpret and amend this plan, but this plan specifies the essential terms of
the options, including:
+ the option recipients;
+ the grant dates;
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+ the number of shares subject to the option;
+ the exercisability and vesting of the option;
+ the exercise price; and
+ the type of consideration.
ELIGIBILITY
Options will automatically be granted under this plan to our non-employee
directors as follows:
+ Each non-employee director who is elected to the board following the adoption
of this plan will be granted an option for 15,000 shares on the date of
election to the board; and
+ On the date of the next board meeting following each year's annual meeting of
shareholders, each non-employee director who is continuing as a non-employee
director and has been a director for longer than six months, will be granted
an additional option for 5,000 shares.
As long as the non-employee director continues to serve with us or with an
affiliate of ours (whether in the capacity of a director, consultant, or an
employee) each option granted under this plan to such person will vest
commencing one month after the date of its grant, at the rate of one
thirty-sixth of the total number of shares each month for the initial 15,000
share grants and one-twelfth of the total number of shares each month for the
annual 5,000 share grants until fully vested and will remain exercisable
throughout its term.
OPTION TERMS
Options have an exercise price equal to 100% of the fair market value of our
common stock on the grant date. The option term is ten years but it generally
will terminate three months after the optionholder's service terminates. If
termination is due to the optionholder's disability or death, however, the
post-termination exercise period is extended to 12 months.
The optionholder may not transfer the option. The optionholder may designate a
beneficiary to exercise the option following the optionholder's death.
Otherwise, the option exercise rights will pass by the optionholder's will or by
the laws of descent and distribution.
PLAN TERMINATION
This plan terminates in March 2010.
401(k) PLAN
In July 1997, our board of directors adopted a Retirement Savings and Investment
Plan covering our full-time employees located in the United States. This plan is
intended to qualify under Section 401(k) of the Internal Revenue Code of 1986,
as amended, so that contributions to this plan by employees, and the investment
earnings thereon, are not taxable to our employees until withdrawn. Pursuant to
this plan, employees may elect to reduce their current compensation by up to the
lesser of 20% of their annual compensation or the statutory prescribed annual
limit, $10,000 in 1999 and $10,500 in 2000, and to have the amount of such
reduction contributed to their plan. We do not currently make matching
contributions on behalf of plan participants.
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Related party transactions
SALES OF SECURITIES
+ In February 1997, we sold to various investors a total of 2,530,000 shares of
Series A preferred stock at a purchase price of $1.25 per share.
+ In April 1998, we sold to various investors a total of 3,666,658 shares of
Series B preferred stock at a purchase price of $2.25 per share.
+ In November 1998, we sold to Innogenetics, a collaborator, a total of 750,000
shares of Series C preferred stock at a purchase price of $3.00 per share.
+ In January through March 2000, we sold to various investors a total of
6,379,978 shares of Series C preferred stock at a purchase price of $3.00 per
share.
The following is a description of transactions since inception to which we have
been a party, in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our capital stock had
or will have a direct or indirect material interest, other than compensation
arrangements which are described under "Management."
The following persons or entities purchased securities in the amounts set forth,
on an as-converted to common stock basis, in the chart below. We sold shares of
our Series A preferred stock between January 1997 and March 1997. We sold shares
of our Series B preferred stock between March 1998 and April 1998. We sold
shares of our Series C preferred stock between November 1998 and March 2000.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
- ---------------------------------------------------------------------------------------------------------------------
PURCHASER(1) COMMON STOCK SERIES A SERIES B SERIES C WARRANTS
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
DIRECTORS AND PRINCIPAL SHAREHOLDERS
Gerald S. Casilli............................. 80,000 140,000 23,000 65,306 --
Cristina H. Kepner(4)......................... -- -- 1,580,000 34,000 239,480
Invemed Associates LLC(4)..................... -- -- 1,580,000 34,000 239,480
Dean O. Morton................................ 48,000 40,000 25,000 25,000 --
EXECUTIVE OFFICERS
Thomas L. Gutshall............................ 1,000,000(2) 6,000 2,000 6,000 --
Kurt Petersen, PhD............................ 1,200,000(2) -- -- -- --
M. Allen Northrup, PhD........................ 1,200,000(2)(3) -- -- -- --
Catherine A. Smith............................ 259,000(2) -- -- -- --
OTHER TRANSACTION INFORMATION
Price per share............................... $0.005 to $1.50 $1.25 $2.25 $3.00 $2.58
</TABLE>
(1) See "Principal shareholders" for more detail on shares held by these
purchasers.
(2) These shares were purchased pursuant to a stock purchase agreement that
provided for a right of repurchase held by us.
(3) During 1997, we loaned $138,000 to Dr. Northrup for the purchase of common
stock from the exercise of the employee's stock options. Dr. Northrup paid
4% of the total exercise price, and we loaned Dr. Northrup the remaining 96%
of the purchase price. The loan bears interest at 7%.
(4) Includes 1,555,000 shares of common stock owned by Invemed Fund L.P., a fund
for which Invemed Associates LLC is the sole general partner, but only holds
a 0.5 percent partnership interest. In connection with the sale of Series B
preferred stock in April 1998, Invemed Associates acted as our agent and
received a warrant to purchase 233,248 shares of our common stock at $2.58
per share, which was transferred to Invemed Fund L.P., and Cristina H.
Kepner received a warrant to purchase 6,232 shares of our common stock at
$2.58 per share.
We have entered into, or prior to this offering will enter into, indemnification
agreements with our directors and executive officers for the indemnification of
and advancement of expenses to these
- --------------------------------------------------------------------------------
52
<PAGE> 57
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
persons to the fullest extent permitted by law. We also intend to enter into
these agreements with our future directors and executive officers.
Holders of our preferred stock are entitled to registration rights with respect
to the shares of our common stock that they will hold following this offering.
We believe that all transactions between us and our officers, directors,
principal shareholders and other affiliates have been and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
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53
<PAGE> 58
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Principal shareholders
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2000 (assuming
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering and as adjusted to reflect the sale of the shares
offered by this prospectus) by:
+ each person or group of affiliated persons who is known by us to beneficially
own more than 5% of our common stock;
+ each of our directors;
+ each Named Executive Officer listed in the "Summary compensation" table
above; and
+ all of our executive officers and directors as a group.
Percentage of ownership is based on 20,515,430 shares outstanding as of March
31, 2000 assuming conversion of our preferred stock, and shares
outstanding after this offering, assuming no exercise of the underwriters'
over-allotment options. All shares of the common stock subject to options
currently exercisable or exercisable within 60 days after March 31, 2000 are
deemed to be outstanding for the purpose of computing the percentage of
ownership of the person holding such options, but are not deemed to be
outstanding for computing the percentage of ownership of any other person.
Unless otherwise indicated below, each shareholder named in the table has sole
or shared voting and investment power with respect to all shares beneficially
owned, subject to applicable community property laws. Unless otherwise indicated
in the table, the address of each individual listed in the table is c/o Cepheid,
1190 Borregas Avenue, Sunnyvale, CA 94089.
<TABLE>
<CAPTION>
PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER TOTAL NUMBER OFFERING OFFERING
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Gerald S. Casilli(1)......................... 295,896 1.4%
Cristina H. Kepner(2)........................ 1,853,480 8.9%
Ernest Mario, PhD(3)......................... 48,000 *
Dean O. Morton(4)............................ 148,000 *
Hollings Renton(5)........................... 48,000 *
Thomas L. Gutshall(6)........................ 1,058,000 5.1%
Kurt Petersen, PhD(7)........................ 1,119,000 5.5%
M. Allen Northrup, PhD(8).................... 1,200,000 5.8%
Catherine A. Smith(9)........................ 259,000 1.3%
All executive officers and directors as a
group (9 persons).......................... 6,029,376 29.2%
FIVE PERCENT SHAREHOLDERS
Invemed Associates LLC(2).................... 1,788,248 8.6%
Wheatley Partners II, LP(10)................. 2,224,989 10.8%
</TABLE>
* Less than one percent.
(1) Includes an immediately exercisable option to acquire 10,000 shares of
common stock. As of March 31, 2000, we have the right to repurchase 9,167
of the shares issuable upon exercise of this option and 20,000 shares of
common stock owned by Mr. Casilli if he ceases to be one of our directors.
Mr. Casilli's business address is c/o IKOS, 19050 Pruneridge Avenue,
Cupertino, CA 95014.
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54
<PAGE> 59
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
(2) Includes 1,555,000 shares of common stock owned by Invemed Fund, L.P., a
fund for which Invemed Associates LLC is the sole general partner but only
holds a 0.5 percent partnership interest. Invemed Fund, L.P. holds warrants
to purchase an additional 233,248 shares. Ms. Kepner shares voting and
investment power over the shares held by Invemed Fund, L.P. and disclaims
beneficial ownership of these shares. Ms. Kepner's business address is c/o
Invemed Associates, 375 Park Avenue, New York, NY 10152.
(3) Consists of an immediately exercisable option to purchase 48,000 shares. As
of March 31, 2000, we have the right to repurchase 47,000 of the shares
issuable upon exercise of this option if Dr. Mario ceases to be one of our
directors. Dr. Mario's business address is c/o ALZA Corporation, 1900
Charleston Road, Mountain View, CA 94043.
(4) Includes an immediately exercisable option to acquire 10,000 shares of
common stock. As of March 31, 2000, we have the right to repurchase 9,167
of the shares issuable upon exercise of this option and 15,000 shares of
common stock owned by Mr. Morton if he ceases to be one of our directors.
Mr. Morton's business address is c/o Hewlett-Packard Corporation, 3200
Hillview Avenue, Palo Alto, CA 94304.
(5) Consists of an immediately exercisable option to purchase 48,000 shares. As
of March 31, 2000, we have the right to repurchase 48,000 of the shares
issuable upon exercise of this option if Mr. Renton ceases to be one of our
directors. Mr. Renton's business address is c/o Onyx Pharmaceuticals, Inc.,
3031 Research Drive, Richmond, CA 94806.
(6) Includes an immediately exercisable option to purchase 50,000 shares. As of
March 31, 2000, we have the right to repurchase 45,834 of the shares
issuable upon exercise of this option and 62,500 shares of common stock
owned by Mr. Gutshall if he ceases to be an employee, director or
consultant for us.
(7) As of March 31, 2000, we have the right to repurchase 75,000 shares of
common stock owned by Dr. Petersen if he ceases to be an employee, director
or consultant for us.
(8) As of March 31, 2000, we have the right to repurchase 300,000 shares of
common stock owned by Dr. Northrup if he ceases to be an employee or
consultant for us.
(9) As of March 31, 2000, we have the right to repurchase 92,292 shares of
common stock owned by Ms. Smith if she ceases to be an employee or
consultant for us.
(10) The business address of Wheatley Partners II, LP is 80 Cuttermill Road,
Suite 311, Great Neck, NY 11021.
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55
<PAGE> 60
- --------------------------------------------------------------------------------
Description of capital stock
The following information describes our common stock and preferred stock, and
provisions of our amended and restated articles of incorporation and our bylaws,
all as will be in effect upon the closing of this offering. This description is
only a summary. You should also refer to the amended and restated articles and
bylaws which have been filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part. The descriptions of our common
stock and preferred stock reflect changes to our capital structure that will
occur upon the closing of this offering in accordance with the terms of the
amended and restated articles.
Upon completion of this offering, our authorized capital stock will consist of
100,000,000 shares of common stock, no par value, and 5,000,000 shares of
preferred stock, no par value.
COMMON STOCK
As of March 31, 2000, there were 7,188,794 shares of our common stock
outstanding and held of record by 96 shareholders. There will be
shares of our common stock outstanding upon the closing of this offering, which
gives effect to the issuance of shares of common stock offered by
us under this prospectus and the conversion of preferred stock discussed below.
Each share of our common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our shareholders and are entitled to one vote for each
share of common stock held. The holders of our common stock will not have
cumulative voting rights.
Subject to the prior rights and preferences, if any, applicable to shares of our
preferred stock or any series of preferred stock, the holders of our common
stock are entitled to receive such dividends, payable in cash, stock or
otherwise, as may be declared by our board of directors out of any funds legally
available for the payment of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the holders
of our common stock will be entitled to receive after distribution in full of
the preferential amounts, if any, to be distributed to the holders of our
preferred stock or any series of preferred stock, all of the remaining assets
available for distribution ratably in proportion to the number of shares of
common stock held by them. Holders of our common stock have no preferences or
any preemptive conversion or exchange rights and there will be no redemption or
sinking fund provisions applicable to our common stock.
PREFERRED STOCK
As of March 31, 2000, there were 13,326,636 shares of preferred stock
outstanding. Upon the closing of this offering, all outstanding shares of
preferred stock will be converted into 13,326,636 shares of our common stock and
will be held of record by 134 shareholders. These shares of preferred stock will
no longer be authorized, issued or outstanding.
Our board of directors is authorized to provide for the issuance of shares of
preferred stock in one or more series, and to fix for each series such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be provided in a
resolution or resolutions adopted by the board. The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that we may issue in the future. Our board of
directors may authorize the issuance of shares of preferred stock with terms and
conditions that could discourage a takeover or other transaction that holders of
some or a
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56
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
majority of shares of our common stock might believe to be in their best
interests or in which holders of common stock might receive a premium for their
shares over the then market price.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement entered into between us and holders
of shares of common stock issuable upon conversion of our Series
A, Series B and Series C preferred stock, we are obligated, under limited
circumstances and subject to specified conditions and limitations, to use our
reasonable best efforts to register the registrable shares.
We must use our best efforts to register the registrable shares:
+ if we receive written notice from holders of 50% or more of the registrable
shares requesting that we effect a registration with respect to at least 20%
of the registrable shares then held by the holders requesting registration;
+ if we decide to register our own securities; or
+ if we receive written notice from any holder or holders of the registrable
shares requesting that we effect a registration on Form S-3 (a shortened form
of registration statement) with respect to the registrable shares and we are
then eligible to use Form S-3 (which at the earliest could occur twelve
calendar months after the closing of this offering).
However, in addition to certain other conditions and limitations, if requested
by the underwriters to decrease the number of shares registered, we can limit
the number of registrable shares included in the registration. The underwriters
have requested that no registrable shares be registered in this offering. In
addition, the holders of these registration rights have entered into lock-up
agreements and waived their registration rights for a period of 180 days
following this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated articles of incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law. Under California law, a director's liability
to a company or its shareholders may not be limited:
+ for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
+ for acts or omissions that a director believes to be contrary to the best
interests of the company or its shareholders or that involve the absence of
good faith on the part of the director;
+ for any transaction from which a director derived an improper personal
benefit;
+ for acts or omissions that show a reckless disregard for the director's duty
to the company or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing the
director's duties, of a risk of serious injury to the company or its
shareholders;
+ for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the company or its
shareholders;
+ under Section 310 of the California General Corporation Law concerning
contracts or transactions between the company and a director; or
+ under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.
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57
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our share holders for any violation by a
director of the director's fiduciary duty to us or our shareholders.
Our articles of incorporation also include an authorization for us to indemnify
our "agents," as defined in Section 317 of the California General Corporation
Law, through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, our amended and restated bylaws
provide for indemnification of our directors, officers and employees. In
addition, we may, at our discretion, provide indemnification to persons whom we
are not obligated to indemnify. The amended and restated bylaws also allow us to
enter into indemnity agreements with individual directors, officers, employees
and other agents. Indemnity agreements have been entered into with all directors
and certain executive officers and provide the maximum indemnification permitted
by law. We also intend to obtain directors' and officers' liability insurance.
These agreements, together with our amended and restated bylaws and amended and
restated articles of incorporation, may require us, among other things, to
indemnify our directors and executive officers, other than for liability
resulting from willful misconduct of a culpable nature, and to advance expenses
to them as they are incurred, provided that they undertake to repay the amount
advanced if it is ultimately determined by a court that they are not entitled to
indemnification. Section 317 of the California General Corporation Law and our
amended and restated bylaws and our indemnification agreements make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities, including reimbursement of expenses incurred, arising under the
Securities Act. We are not currently aware of any pending litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification will be required or permitted. Moreover, we are not
currently aware of any threatened litigation or proceeding that might result in
a claim for such indemnification. We believe that the foregoing indemnification
provisions and agreements are necessary to attract and retain qualified persons
and directors and executive officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
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58
<PAGE> 63
- --------------------------------------------------------------------------------
Shares eligible for future sale
Prior to this offering, there has been no public market for our common stock.
The market price of our common stock after this offering could decline as a
result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Such sales also could
make it more difficult for us to sell equity securities in the future at a time
and price that we deem appropriate. Based on the number of shares outstanding at
March 31, 2000, after this offering, we will have outstanding shares
of common stock. Of these shares, the shares being offered hereby are freely
tradable. The remaining 20,515,430 shares are eligible for sale in the public
market at various times after 180 days from the date of this prospectus,
subject, in some cases, to volume limitations under Rule 144.
All of the holders of our common stock, together with the holders of options to
purchase 540,276 shares of common stock and the holders of warrants to purchase
320,397 shares of our stock, have entered into lock-up agreements under which
they have agreed with the underwriters not to offer, sell, contract to sell,
hedge or otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act of 1933 relating to, any of its
common stock or securities convertible into or exchangeable for shares of common
stock during the period from the date of this prospectus continuing through the
date 180 days after the date of this prospectus, without the prior written
consent of Warburg Dillon Read LLC.
In general, under Rule 144 of the Securities Act of 1933, a person or persons
whose shares are required to be aggregated, including an affiliate, whose shares
have been owned for at least one year is entitled to sell, within any
three-month period after the date of this prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of common
stock -- approximately shares immediately after this offering -- or
the average weekly trading volume in our common stock during the four calendar
weeks preceding the date on which notice of such sale is filed, subject to
certain restrictions. In addition, a person who is not deemed to have been an
affiliate of ours at any time during the 90 days preceding a sale and whose
shares have been beneficially owned by nonaffiliates for at least two years
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from one
of our affiliates, such person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.
Following 90 days after the date of this prospectus, shares issued upon exercise
of options that we granted prior to the date of this offering will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance upon
Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule 144.
As of March 31, 2000, options to purchase a total of 540,276 shares of our
common stock were outstanding, all of which were currently exercisable. Of these
540,276 shares, 535,276 shares may be eligible for sale in the public market at
various times after 90 days from the date of this prospectus.
Approximately 180 days after the date of this prospectus, we intend to file a
registration statement to register for resale the 1,433,206 shares of common
stock reserved for issuance under our stock option plans and employee stock
purchase plan. We expect the registration statement to become effective
immediately upon filing.
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59
<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Shares issued upon the exercise of stock options granted under our stock option
plans will be eligible for resale in the public market from time to time subject
to vesting and, in the case of certain options, the expiration of the lock-up
agreements referred to above.
Holders of our preferred stock, whose shares will be converted into 13,326,636
shares of our common stock upon the closing of this offering and holders of
warrants to purchase 320,397 shares of our common stock have the right, subject
to various conditions and limitations, to include their shares in registration
statements relating to our securities. By exercising their registration rights
and causing a large number of shares to be registered and sold in the public
market, these holders may cause the price of the common stock to fall. In
addition, any demand to include such shares in our registration statements could
have a material adverse effect on our ability to raise needed capital. See
"Management -- Benefit plans," "Principal stockholders," "Shares eligible for
future sale" and "Underwriting."
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60
<PAGE> 65
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Underwriting
Cepheid and the underwriters for the offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC, Prudential
Securities Incorporated and Invemed Associates LLC are the representatives of
the underwriters.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
<S> <C>
- --------------------------------------------------------------------------
Warburg Dillon Read LLC.....................................
Prudential Securities Incorporated..........................
Invemed Associates LLC......................................
------------
Total.............................................
============
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Per share................................................... $ $
Total................................................ $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $ .
Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
Cepheid and all of its shareholders have agreed with the underwriters not to
offer, sell, contract to sell, hedge or otherwise dispose of, directly or
indirectly, or file with the SEC a registration statement under the Securities
Act relating to, any of its common stock or securities convertible into or
exchangeable for shares of common stock during the period from the date of this
prospectus continuing through the date 180 days after the date of this
prospectus, without the prior written consent of Warburg Dillon Read LLC.
The underwriters have reserved for sale, at the initial public offering price,
up to shares of our common stock being offered for sale to our
customers and business partners. At the discretion of
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61
<PAGE> 66
UNDERWRITING
- --------------------------------------------------------------------------------
our management, other parties, including our employees, may participate in the
reserve shares program. The number of shares available for sale to the general
public in the offering will be reduced to the extent these persons purchase
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares in this
offering.
As of March 31, 2000, Invemed Associates LLC, one of the underwriters, held
1,555,000 shares of Series B preferred stock through Invemed Fund, L.P., a fund
for which Invemed Associates is the general partner. These shares were purchased
in April 1998 at $2.25 per share. Certain affiliates of Invemed Associates hold
188,580 shares of Series B preferred stock, all of which were purchased in April
1998 at $2.25 per share, and 318,000 shares of Series C preferred stock, all of
which were purchased in January 2000 at $3.00 per share. An affiliate of Warburg
Dillon Read LLC, one of the underwriters, holds an aggregate of 33,333 shares of
Series C preferred stock, all of which were purchased in January 2000 at $3.00
per share. Certain affiliates of Prudential Securities Incorporated, one of the
underwriters, hold 10,000 shares of Series B preferred stock, all of which were
purchased in April 1998 at $2.25 per share, and 51,666 shares of Series C
preferred stock, all of which were purchased in January or February 2000 at
$3.00 per share. The aforementioned affiliated shareholders have agreed, for a
period of 180 days following the date of this prospectus, that they will not
sell, transfer, assign, pledge, hypothecate or otherwise transfer these shares
without the prior written consent of Warburg Dillon Read LLC.
Prior to this offering, there has been no public market for the common stock.
The initial public offering price will be negotiated by us and the
representatives. The principal factors to be considered in determining the
initial public offering price include:
+ the information set forth in this prospectus and otherwise available to the
representatives;
+ the history and the prospects for the industry in which we compete;
+ the ability of our management;
+ our prospectus for future earnings, the present state of our development, and
our current financial position;
+ the general condition of the securities markets at the time of this offering;
and
+ the recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies.
In connection with the offering, the underwriters may purchase and sell shares
of our common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of our common stock while the offering
is in progress.
The underwriters may also impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or affect the
market price of our common stock. As a result, the price of our common stock may
be higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the
- --------------------------------------------------------------------------------
62
<PAGE> 67
UNDERWRITING
- --------------------------------------------------------------------------------
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect thereof.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
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63
<PAGE> 68
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Legal matters
The validity of the common stock offered hereby will be passed upon for us by
Heller Ehrman White & McAuliffe LLP, Palo Alto, California. Heller Ehrman White
& McAuliffe LLP owns 51,875 shares of our common and preferred stock, and HEWM
Investors, an entity affiliated with Heller Ehrman White & McAuliffe LLP, owns
39,444 shares of our common and preferred stock. Certain legal matters will be
passed upon for the underwriters by Dewey Ballantine LLP, New York, New York.
Experts
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements at December 31, 1998 and 1999, for the periods from inception (March
5, 1996) through December 31, 1997 and 1999, and for the years ended December
31, 1998 and 1999, as set forth in their report. We've included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The statements in this prospectus as set forth under the captions "Risk
factors -- Our products could infringe on the intellectual property rights of
others, which may require costly litigation and, if we are not successful, could
also cause us to pay substantial damages and limit our liability to sell some or
all of our products" and "-- The rights we rely upon to protect the intellectual
property underlying our products may not be adequate, which could enable third
parties to use the technology and would reduce our ability to compete in the
market" and in "Business -- Intellectual Property" have been passed upon by
Heller Ehrman White & McAuliffe LLP, our patent counsel and experts on such
matters, and are included herein in reliance upon its review and approval.
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64
<PAGE> 69
- --------------------------------------------------------------------------------
Where you can find more information
We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
shares of common stock to be sold in this offering. This prospectus does not
contain all of the information set forth in the registration statement. For
further information with respect to us and the common stock to be sold in this
offering, reference is made to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. Whenever a reference is made
in this prospectus to any contract or other document of ours, the reference may
not be complete, and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.
You may read and copy all or any portion of the registration statement or any
other information Cepheid files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, DC 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http:\\www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.
This prospectus includes statistical data that were obtained from industry
publications. These industry publications generally indicate that the authors of
these publications have obtained information from sources believed to be
reliable, but do not guarantee the accuracy and completeness of their
information. While we believe these industry publications to be reliable, we
have not independently verified their data.
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CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
- --------------------------------------------------------------------------------
F- 1
<PAGE> 71
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cepheid
We have audited the accompanying consolidated balance sheets of Cepheid (a
development stage company) as of December 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended December 31, 1998 and 1999 and the periods from inception (March
5, 1996) through December 31, 1997 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cepheid at
December 31, 1998 and 1999 and the consolidated results of its operations and
its cash flows for the years ended December 31, 1998 and 1999 and the periods
from inception (March 5, 1996) through December 31, 1997 and 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 20, 2000
- --------------------------------------------------------------------------------
F- 2
<PAGE> 72
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY
MARCH 31,
DECEMBER 31, MARCH 31, 2000
1998 1999 2000 (NOTE 1)
- -------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 7,079,031 $ 1,493,313 $ 18,420,495
Short term investments................. 1,596,529 -- --
Accounts receivable.................... 764,495 566,033 574,134
Inventory.............................. -- 285,433 505,019
Prepaid expenses and other current
assets............................... 172,110 434,998 163,638
----------- ------------ ------------
Total current assets..................... 9,612,165 2,779,777 19,663,286
Property and equipment, net.............. 1,100,164 2,077,844 2,160,512
Other assets............................. 330,010 28,299 263,250
----------- ------------ ------------
Total assets............................. $11,042,339 $ 4,885,920 $ 22,087,048
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current
liabilities.......................... $ 847,267 $ 1,192,793 $ 1,327,026
Accrued compensation................... 239,572 345,796 544,448
Current portion of equipment
financing............................ 174,536 496,742 512,414
Current portion of deferred rent....... 4,128 12,313 14,992
----------- ------------ ------------
Total current liabilities................ 1,265,503 2,047,644 2,398,880
Equipment financing, less current
portion................................ 530,836 1,205,066 1,070,933
Deferred rent, less current portion...... 71,320 76,357 71,716
Commitments
Shareholders' equity:
Convertible preferred stock, no par
value; designated in series;
14,000,000 shares authorized;
6,946,658, 6,946,658 and 13,326,636
shares issued and outstanding at
December 31, 1998 and 1999 and March
31, 2000, respectively (none pro
forma); aggregate liquidation value
of $13,662,481 and $32,802,415 at
December 31, 1999 and March 31, 2000,
respectively......................... 13,565,965 13,565,965 32,679,594 $ --
Common stock, no par value;
30,000,000 shares authorized,
6,764,930, 6,871,177 and 7,188,794
shares issued and outstanding at
December 31, 1998 and 1999 and March
31, 2000, respectively (20,515,430
shares pro forma).................... 297,943 350,690 698,443 33,378,037
Additional paid-in capital............. -- 766,005 6,317,630 6,317,630
Note receivable from shareholder....... (103,500) (69,000) (69,000) (69,000)
Deferred stock-based compensation...... -- (552,466) (5,323,655) (5,323,655)
Deficit accumulated during the
development stage.................... (4,585,728) (12,504,341) (15,757,493) (15,757,493)
----------- ------------ ------------ ------------
Total shareholders' equity............... 9,174,680 1,556,853 18,545,519 $ 18,545,519
----------- ------------ ------------ ============
Total liabilities and shareholders'
equity................................. $11,042,339 $ 4,885,920 $ 22,087,048
=========== ============ ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 3
<PAGE> 73
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 5, 1996) (MARCH 5, 1996)
THROUGH THROUGH THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
- ---------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales................... $ -- $ -- $ 159,451 $ 159,451 $ -- $ 151,388
Grant and government sponsored
research revenue.............. 1,400,081 2,869,540 2,248,935 6,518,556 263,746 654,905
Research and development
revenue....................... 45,206 706,969 1,187,138 1,939,313 351,538 109,665
----------- ----------- ----------- ------------ ------------ ------------
Total revenues.................... 1,445,287 3,576,509 3,595,524 8,617,320 615,284 915,958
Operating costs and expenses:
Cost of product sales........... -- -- 97,088 97,088 -- 130,585
Research and development
(including charges for
stock-based compensation of
$169,288 in 1999 and $409,235
for the three months ended
March 31, 2000)............... 2,220,688 5,990,127 10,261,332 18,472,147 2,282,050 3,467,207
Selling, general and
administrative (including
charges for stock-based
compensation of $14,251 in
1999 and $206,201 for the
three months ended March 31,
2000)......................... 582,702 1,178,318 1,297,731 3,058,751 288,972 730,155
----------- ----------- ----------- ------------ ------------ ------------
Total costs and operating
expenses........................ 2,803,390 7,168,445 11,656,151 21,627,986 2,571,022 4,327,947
----------- ----------- ----------- ------------ ------------ ------------
Loss from operations.............. (1,358,103) (3,591,936) (8,060,627) (13,010,666) (1,955,738) (3,411,989)
Interest income................... 87,690 325,244 250,135 663,069 104,043 202,214
Interest expense.................. (3,745) (44,878) (108,121) (156,744) (19,318) (43,377)
----------- ----------- ----------- ------------ ------------ ------------
Net loss.......................... (1,274,158) (3,311,570) (7,918,613) (12,504,341) (1,871,013) (3,253,152)
Deemed dividend to Series C
preferred shareholders (Note
10)............................. -- -- -- -- -- (19,113,629)
----------- ----------- ----------- ------------ ------------ ------------
Net loss allocable to common
shareholders.................... $(1,274,158) $(3,311,570) $(7,918,613) $(12,504,341) $ (1,871,013) $(22,366,781)
=========== =========== =========== ============ ============ ============
Basic and diluted net loss per
common share.................... $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
=========== =========== =========== ============ ============
Shares used in computing basic and
diluted net loss per common
share........................... 167,390 2,414,087 4,163,963 3,415,273 5,064,632
Pro forma basic and diluted net
loss per common share,
(unaudited)..................... $ (0.71) $ (1.22)
=========== ============
Shares used in computing pro forma
basic and diluted net loss per
common share, (unaudited)....... 11,110,621 18,391,268
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 4
<PAGE> 74
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM INCEPTION (MARCH 5, 1996) THROUGH MARCH 31, 2000
<TABLE>
<CAPTION>
DEFICIT
NOTE ACCUMULATED
ADDITIONAL RECEIVABLE DEFERRED DURING THE TOTAL
PREFERRED COMMON PAID-IN FROM STOCK-BASED DEVELOPMENT SHAREHOLDERS'
STOCK STOCK CAPITAL SHAREHOLDER COMPENSATION STAGE EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of 4,548,000 shares
of common stock at $0.005
per share for cash to
founders and directors
between December 1996 and
February 1997.............. $ -- $ 22,740 $ -- $ -- $ -- $ -- $ 22,740
Issuance of 1,328,000 shares
of common stock at
$0.05 - $0.12 per share for
cash and a promissory note
to founders and directors
in March, June and August
1997....................... -- 153,760 -- (138,000) -- -- 15,760
Issuance of 2,530,000 shares
of Series A convertible
preferred stock to
investors at $1.25 per
share for cash in March
1997, net of issuance costs
of $17,500................. 3,145,000 -- -- -- -- -- 3,145,000
Net loss and comprehensive
loss for period from
inception (March 5, 1996)
through December 31,
1997....................... -- -- -- -- -- (1,274,158) (1,274,158)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 1997... 3,145,000 176,500 -- (138,000) -- (1,274,158) 1,909,342
Issuance of 888,930 shares of
common stock at
$0.05 - $0.30 per share for
cash under employee and
consultant option plans.... -- 121,443 -- -- -- -- 121,443
Issuance of 3,666,658 shares
of Series B convertible
preferred stock to
investors at $2.25 per
share in April 1998 for
cash, net of issuance costs
of $58,650................. 8,191,330 -- -- -- -- -- 8,191,330
Issuance of 750,000 shares of
Series C convertible
preferred stock to a
research collaborator at
$3.00 per share in November
1998 for cash, net of
issuance costs of
$20,365.................... 2,229,635 -- -- -- -- -- 2,229,635
Payment on note receivable
from related party......... -- -- -- 34,500 -- -- 34,500
Net loss and comprehensive
loss....................... -- -- -- -- -- (3,311,570) (3,311,570)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 1998... 13,565,965 297,943 -- (103,500) -- (4,585,728) 9,174,680
Issuance of 106,247 shares of
common stock at
$0.12 - $0.50 per share for
cash under employee and
consultant plans and to
other investors, net of
repurchases................ -- 52,747 -- -- -- -- 52,747
Payment on note receivable
from related party......... -- -- -- 34,500 -- -- 34,500
Deferred stock-based
compensation............... -- -- 736,005 -- (736,005) -- --
Amortization of deferred
stock-based compensation... -- -- -- -- 183,539 -- 183,539
Issuance of options to
purchase common stock for
services rendered.......... -- -- 30,000 -- -- -- 30,000
Net loss and comprehensive
loss....................... -- -- -- -- -- (7,918,613) (7,918,613)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 1999... 13,565,965 350,690 766,005 (69,000) (552,466) (12,504,341) 1,556,853
Issuance of 317,617 shares of
common stock at
$0.12 - $1.50 per share for
cash under employee and
consultant option plans
(unaudited)................ -- 347,753 -- -- -- -- 347,753
Issuance of 6,379,978 shares
of Series C convertible
preferred stock to
investors at $3.00 per
share in January 2000 for
cash, net of issuance costs
of $26,371 (unaudited)..... 19,113,629 -- -- -- -- -- 19,113,629
Deferred stock-based
compensation (unaudited)... -- -- 5,386,625 -- (5,386,625) -- --
Amortization of deferred
stock-based compensation
(unaudited)................ -- -- -- -- 615,436 -- 615,436
Issuance of options to
purchase common stock for
services rendered
(unaudited)................ -- -- 165,000 -- -- -- 165,000
Net loss and comprehensive
loss (unaudited)........... -- -- -- -- -- (3,253,152) (3,253,152)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at March 31, 2000
(unaudited).................. $32,679,594 $698,443 $6,317,630 $ (69,000) $(5,323,655) $(15,757,493) $18,545,519
=========== ======== ========== ========= =========== ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 5
<PAGE> 75
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 5, 1996) (MARCH 5, 1996)
THROUGH THROUGH THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
- --------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................... $(1,274,158) $(3,311,570) $(7,918,613) $(12,504,341) $(1,871,013) $(3,253,152)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 28,106 220,905 498,228 747,239 101,265 171,643
Amortization of deferred
stock-based compensation....... -- -- 183,539 183,539 -- 615,436
Issuance of options to purchase
common stock for services
rendered....................... -- -- 30,000 30,000 -- 165,000
Deferred rent.................... 9,496 65,952 13,222 88,670 (312) (1,962)
Changes in operating assets and
liabilities:
Accounts receivable............ (448,653) (315,842) 198,462 (566,033) 230,984 (8,101)
Inventory...................... -- -- (285,433) (285,433) -- (219,586)
Prepaid expenses and other
assets....................... (105,502) (96,618) (261,177) (463,297) (67,429) 36,409
Accounts payable and other
current liabilities.......... 369,121 478,146 345,526 1,192,793 243,424 134,233
Accrued compensation........... 53,467 186,105 106,224 345,796 68,483 198,652
----------- ----------- ----------- ------------ ----------- -----------
Net cash used in operating
activities....................... (1,368,123) (2,772,922) (7,090,022) (11,231,067) (1,294,598) (2,161,428)
----------- ----------- ----------- ------------ ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures............... (507,169) (842,006) (1,475,908) (2,825,083) (502,436) (254,311)
Proceeds from maturities of
marketable securities............ 1,220,776 4,717,429 1,596,529 7,534,734 1,596,529 --
Purchase of marketable
securities....................... (2,040,323) (5,494,411) -- (7,534,734) -- --
Restricted cash.................... (300,000) -- 300,000 -- -- --
----------- ----------- ----------- ------------ ----------- -----------
Net cash (used in) provided by
investing activities............. (1,626,716) (1,618,988) 420,621 (2,825,083) 1,094,093 (254,311)
----------- ----------- ----------- ------------ ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from the sales of
preferred and common shares...... 3,183,500 10,542,408 52,747 13,778,655 23,412 19,461,382
Repayment on note receivable from
shareholder...................... -- 34,500 34,500 69,000 -- --
Proceeds from loan arrangements.... 116,898 690,282 1,266,287 2,073,467 -- --
Principle payments under loan
arrangements..................... (4,990) (96,818) (269,851) (371,659) (39,341) (118,461)
----------- ----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities............. 3,295,408 11,170,372 1,083,683 15,549,463 (15,929) 19,342,921
----------- ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash
and cash equivalents............. 300,569 6,778,462 (5,585,718) 1,493,313 (216,434) 16,927,182
Cash and cash equivalents at
beginning of period.............. -- 300,569 7,079,031 -- 7,079,031 1,493,313
----------- ----------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of
period........................... $ 300,569 $ 7,079,031 $ 1,493,313 $ 1,493,313 $ 6,862,597 $18,420,495
=========== =========== =========== ============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest........... $ 3,747 $ 44,878 $ 108,121 $ 156,746 $ 19,318 $ 43,377
=========== =========== =========== ============ =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock under
promissary note................ $ 138,000 $ -- $ -- $ 138,000 $ -- $ --
=========== =========== =========== ============ =========== ===========
Conversion of accounts payable to
convertible preferred stock.... $ 30,000 $ -- $ -- $ 30,000 $ -- $ 30,000
=========== =========== =========== ============ =========== ===========
Deferred stock-based compensation
related to certain stock
options........................ $ -- $ -- $ 736,005 $ 736,005 $ -- $ 5,386,625
=========== =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 6
<PAGE> 76
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Cepheid (the "Company") was incorporated in the State of California on March 5,
1996. The Company was organized to develop new technology platforms that exploit
the advantages of micromachining, microelectronics, and microfluidic
technologies to create automated, integrated, miniaturized instrument systems
for life sciences research, clinical diagnostics, industrial testing and
pharmacogenomics markets.
The Company's activities to date have consisted principally of raising capital,
arranging for facilities, acquiring equipment and licensing rights, recruiting
managerial and technical personnel, implementing document control and designing
and developing instrument systems. Accordingly, the Company is considered to be
in the development stage at March 31, 2000. The statement of operations for the
year ended December 31, 1997 included approximately $95,000 of expenses incurred
from our inception (March 5, 1996) to December 31, 1996 related to fundraising
activities. Although we were formed in March 1996, we did not receive our
initial financing until March 1997.
At December 31, 1999 and March 31, 2000, the Company had incurred an accumulated
deficit of approximately $12,500,000 and $15,757,000, respectively. The Company
has and expects to continue to finance its activities principally through
revenue sources, sales of its equity securities (see Note 10), and capital
equipment financing.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Cepheid include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany balances
and transactions have been eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from these estimates.
UNAUDITED PRO FORMA INFORMATION
In February 2000, the Board of Directors authorized the management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is consummated under the terms presently
anticipated, all of the preferred stock outstanding will automatically be
converted into common stock. Unaudited pro forma shareholders' equity at March
31, 2000, as adjusted for the assumed conversion of the preferred stock, is set
forth on the balance sheet.
INTERIM FINANCIAL DATA
The consolidated financial information at March 31, 2000 and for the three
months ended March 31, 1999 and 2000 is unaudited but has been prepared on the
same basis as the annual consolidated
- --------------------------------------------------------------------------------
F- 7
<PAGE> 77
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financial statements and, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the consolidated financial position at such
dates and the consolidated operating results and cash flows for such periods.
Results for the interim periods are not necessarily indicative of the results to
be expected for any subsequent period.
REVENUE RECOGNITION
Contract revenues related to best efforts, research and development agreements
and government grants are recognized as the related services are performed.
Under these agreements, the Company is required to perform specific research and
development activities and is reimbursed based on the costs associated with each
specific contract over the term of the agreement. Milestone related revenues are
recognized upon the achievement of the specified milestone. Deferred revenue is
recorded when funds are received in advance of services to be performed.
Product revenue is recognized upon delivery and the transfer of title to
customers, net of allowances for estimated returns, if any.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for
company-sponsored and collaborative research and development activities. These
costs include direct and research-related overhead expenses. Research and
development expenses under collaborative agreements and government grants
approximate the revenue recognized under such agreements. The Company expenses
research and development costs as such costs are incurred.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities
of three months or less. At December 31, 1998, 1999 and March 31, 2000, the
Company had $6,929,634, $1,493,015 and $18,343,332, respectively, in a money
market fund which invests in various U.S. government securities including
Treasury bills, notes and bonds.
SHORT-TERM INVESTMENTS
The Company classifies its short-term investments as available-for-sale and
records its investments at fair market value in accordance with Statement of
Financial Accounting Standards No. 115. Available-for-sale securities are
carried at amounts that approximate fair market value based on quoted market
prices. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income. Interest on securities classified as available-for-sale is also included
in interest income. The Company has experienced no realized gains or losses on
its short-term investments. At December 31, 1998, short-term investments
consisted of U.S. government securities with an average maturity of 90 days, and
a fair value of $1,596,529, which approximated amortized cost. There were no
short-term investments as of December 31, 1999 and March 31, 2000.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method, and the cost is amortized over the estimated useful lives
of the assets, which range from three to five
- --------------------------------------------------------------------------------
F- 8
<PAGE> 78
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
years. Leasehold improvements are amortized using the straight-line method over
the estimated useful lives of the assets or the term of the lease, whichever is
shorter.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"), the Company reviews long-lived assets,
including property and equipment, for impairment whenever events or changes in
business circumstances indicate that the carrying amounts of the assets may not
be fully recoverable. Under SFAS 121, an impairment loss would be recognized
when estimated undiscounted future cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount.
Impairment, if any, is assessed using discounted cash flows. Through March 31,
2000, there have been no such losses.
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company has elected to account
for stock options granted to employees and directors using the intrinsic value
method and; accordingly, does not recognize compensation expense for stock
options granted to employees with exercise prices equal to the fair value of the
underlying common shares. Options granted to non-employees have been accounted
for in accordance with SFAS 123 and Emerging Issues Task Force Consensus No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling, Goods or Services," and
may be periodically re-measured with the resulting value charged to expense over
the period of the related services being rendered.
INVENTORIES
Inventories are stated at the lower of standard cost (which approximates actual
cost) or market. At December 31, 1999 and March 31, 2000, inventories consisted
mainly of raw materials.
COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities to be included in other comprehensive income. For the years ended
December 31, 1998 and 1999 and the three months ended March 31, 1999 and 2000,
comprehensive loss equaled net loss as other comprehensive income (loss) was
zero.
SEGMENT REPORTING
Effective in January 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers. The Company has
determined that it operates in only one segment and accordingly, the adoption of
SFAS 131 had no impact on the financial statements.
- --------------------------------------------------------------------------------
F- 9
<PAGE> 79
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET LOSS PER SHARE
Basic net loss per share has been calculated based on the weighted-average
number of common shares outstanding during the period, less shares subject to
the Company's right of repurchase. Diluted net loss per share would give effect
to the dilutive effect of common stock equivalents consisting of convertible
preferred stock, stock options and warrants (calculated using the treasury stock
method). Potentially dilutive securities have been excluded from the computation
of diluted net loss per share as their inclusion would be antidilutive.
The computation of pro forma basic and diluted net loss per share includes
shares issuable upon the conversion of outstanding shares of convertible
preferred stock (using the as-if converted method) from the original date of
issuance.
The following table presents the calculation of basic, diluted and pro forma
basic and diluted net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION (MARCH 5, THREE MONTHS
1996) THROUGH YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, 1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Net loss allocable to common
shareholders............... $(1,274,158) $(3,311,570) $(7,918,613) $(1,871,013) $(22,366,781)
=========== =========== =========== =========== ============
Basic and diluted:
Weighted-average shares of
common stock
outstanding.............. 5,112,493 6,501,013 6,834,552 6,791,443 6,871,177
Less: weighted-average
shares subject to
repurchase............... (4,945,103) (4,086,926) (2,670,589) (3,376,170) (1,806,545)
----------- ----------- ----------- ----------- ------------
Shares used in computing
basic and diluted net
loss per share........... 167,390 2,414,087 4,163,963 3,415,273 5,064,632
=========== =========== =========== =========== ============
Basic and diluted net loss
per share.................. $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
=========== =========== =========== =========== ============
Pro forma basic and diluted:
Shares used above.......... 4,163,963 5,064,632
Pro forma adjustment to
reflect weighted-average
effect of assumed
conversion of preferred
stock (unaudited)........ 6,946,658 13,326,636
----------- ------------
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)........ 11,110,621 18,391,268
=========== ============
Pro forma basic and diluted
net loss per share
(unaudited)................ $ (0.71) $ (1.22)
=========== ============
</TABLE>
- --------------------------------------------------------------------------------
F- 10
<PAGE> 80
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During all periods presented, the Company had securities outstanding which could
potentially dilute basic earnings per share in the future, but were excluded
from the computation of diluted net loss per share, as their effect would have
been antidilutive. These outstanding securities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Convertible preferred stock...... 2,530,000 6,946,658 6,946,658 6,946,658 13,326,636
Outstanding options.............. 495,920 199,880 289,360 176,330 540,276
Warrants......................... 32,000 306,797 320,397 320,397 320,397
---------- ---------- ---------- ---------- -----------
Total................... 3,057,920 7,453,335 7,556,415 7,443,385 14,187,309
========== ========== ========== ========== ===========
Weighted average exercise price
of options..................... $ 0.11 $ 0.18 $ 0.39 $ 0.26 $ 2.39
========== ========== ========== ========== ===========
Weighted average exercise price
of warrants.................... $ 1.75 $ 2.49 $ 2.49 $ 2.49 $ 2.49
========== ========== ========== ========== ===========
</TABLE>
SIGNIFICANT CONCENTRATIONS
Financial instruments that potentially subject the company to concentrations of
credit risk primarily consist of cash equivalents and marketable securities.
The Company relies on several companies as the sole source of various materials
in its manufacturing process. Any extended interruption in the supply of these
materials could result in the failure to meet customer demand.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on the
Company's results of operations or financial condition when adopted as the
Company holds no derivative financial instruments and does not currently engage
in hedging activities.
In March 1998, the ACIPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires that the entities capitalize certain costs related to internal
use software once certain criteria have been met. The Company adopted the
provisions of SOP 98-1 on January 1, 1999. Through December 31, 1999, the
Company has capitalized approximately $350,000 relating to the purchase and
installation of enterprise resource planning, accounting, cadcam and
documentation systems for internal use. The assets are depreciated using the
straight line method over a useful life which is expected to be five years.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 summarizes the SEC's views in applying generally accepted accounting
principles to revenue recognition. The adoption of SAB 101 had no impact on the
Company's historical revenue recognition policy.
- --------------------------------------------------------------------------------
F- 11
<PAGE> 81
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LICENSE AGREEMENT
The Company has a worldwide exclusive license with Lawrence Livermore National
Laboratory (LLNL) to use or sublicense certain patent rights and to make, have
made, import, and use certain licensed products relating to the patent rights
for the use of rapid thermal cycling technology with real time optical detection
for nucleic acid amplification.
In consideration for this technology, the Company paid LLNL an issue fee of
$150,000 in 1997, which is included in research and development expense in that
year. Upon commercialization of any product containing the licensed technology,
including the Smart Cycler system, the Company will pay royalties to LLNL based
on net sales.
3. GRANT AND OTHER GOVERNMENT SPONSORED RESEARCH AGREEMENTS
THE EDGEWOOD RESEARCH, DEVELOPMENT AND ENGINEERING CENTER
In September 1996, The Company entered into a research and development contract
with the Edgewood Research, Development and Engineering Center ("ERDEC"), a
department of the U.S. government. The agreement provides for research and
development funding as well as certain milestone payments to the Company upon
the occurrence of specific events as defined in the agreement. The agreement and
its related service agreement terminated in February 2000.
Total revenue of $1,325,081 (95% of total grant and government-sponsored
research revenue), $1,112,925 (39% of total grant and government-sponsored
research revenue), $54,328 (2% of total grant and government-sponsored research
revenue) and $2,212 (1% of total grant and government-sponsored research
revenue) was recognized for the period from inception (March 5, 1996) through
December 31, 1997, for the years ended December 31, 1998 and 1999, and for the
three months ended March 31, 2000, respectively.
US DEPARTMENT OF THE ARMY
In November 1997, the Company entered into an agreement with the US Army to
conduct research and development services relating to the design and development
of a specified device. The agreement was modified in May 1998 and in August
1998. The agreement provides for research and development cost-plus-fixed-fee
funding and is performed on the "best-efforts" basis. The aggregate funding for
the agreement, including all modifications, totaled $1,349,545. The contract
termination date has been extended to January 2001 and includes additional
funding. Revenue recognized under this research agreement was $262,412 (9% of
total grant and government sponsored research revenue), $976,071 (43% of total
grant and government sponsored research revenue) and $111,062 (17% of total
grant and government-sponsored research revenue) for the years ended December
31, 1998 and 1999, and for the three months ended March 31, 2000, respectively.
GRANT FROM THE DEFENSE ADVANCED RESEARCH PROJECTS AGENCY
In May 1998, the Company received a three-year grant of approximately $5,000,000
from the Defense Advanced Research Projects Agency ("DARPA") to perform research
and development on the design and development of a specific device. Over the
three year period, approximately $1,000,000 of this
- --------------------------------------------------------------------------------
F- 12
<PAGE> 82
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
amount directly funds work by the United States Military Institute for
Infectious Disease ("USAMRIID"), a subcontractor to the Company under the grant.
The Company estimates that up to an additional $750,000 funded to the Company
will in turn fund other subcontractors under the grant over the same period. The
associated revenue and expense related to these subcontractors will appear in
the Company's statement of operations. The three-year grant is subject to annual
funding approval. For the first and second years of the program, $1,057,254 and
$1,643,013, respectively have been awarded. Such amounts exclude funding for the
USAMRIID subcontract. Costs associated with the research and development
activities under this grant for the years ended December 1998 and 1999, and for
the three months ended March 31, 2000, approximate the revenue recognized of
$882,213 (31% of total grant and government sponsored research revenue),
$968,348 (43% of total grant and government sponsored research revenue) and
$395,813 (60% of total grant and government-sponsored research revenue),
respectively.
4. RESEARCH AND DEVELOPMENT ARRANGEMENT
In November 1998, the Company entered into a joint research and development
collaboration and supply agreement with Innogenetics NV which provides funding
for best efforts research and development activities to the Company. Funding
under this arrangement approximates $1.4 million and revenue recognized under
this research arrangement was $476,125, $730,817 and $109,665 for the years
ended December 31, 1998 and 1999, and for the three months ended March 31, 2000,
respectively.
In November 1998, in conjunction with the agreement, Innogenetics purchased
750,000 shares of Series C preferred stock at $3.00 per share.
5. DISTRIBUTION AGREEMENT
In January 2000, the Company entered into a co-exclusive, multi-year agreement
with Fisher Scientific Company L.L.C. ("Fisher") to market the Cepheid Smart
Cycler(R) system in the United States. Under the terms of the agreement, the
Company granted to Fisher the co-exclusive right to distribute the Company's
thermal cyclers, accessories and reaction tubes in the United States and certain
foreign countries into the life science market. The term of the agreement
extends for three years from the date of the Company's initial product launch
and remains in force for successive six month periods unless either party gives
written notice of non-renewal. The Company may also terminate the co-exclusivity
of the distribution rights if Fisher fails to achieve certain sales targets.
6. JOINT VENTURE AGREEMENT
In February 2000, the Company entered into a joint venture shareholder agreement
with Infectio Diagnostics (I.D.I.) Inc. ("Infectio"). The joint venture, Aridia
Corp., was created primarily to engage in the business of developing, producing
and exploiting a series of innovative human diagnostic systems and products for
rapid identification of pathogens responsible for human infectious diseases.
Both the Company and Infectio hold an equal portion in the joint venture. In
conjunction with this
- --------------------------------------------------------------------------------
F- 13
<PAGE> 83
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreement, a Joint Technology and Collaboration Agreement was also signed
between Aridia Corp. and both Infectio and the Company.
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
<S> <C> <C>
- --------------------------------------------------------------------------------------
Scientific equipment........................................ $ 613,033 $1,496,683
Office furniture, computers and equipment................... 638,541 1,025,233
Leasehold improvements...................................... 97,601 303,167
---------- ----------
1,349,175 2,825,083
Less accumulated depreciation and amortization.............. (249,011) (747,239)
---------- ----------
$1,100,164 $2,077,844
========== ==========
</TABLE>
8. EQUIPMENT FINANCING
In July 1997, the Company entered into an initial equipment financing agreement
with a financing company for up to $1,000,000. In March 1999, the equipment line
was increased to $2,530,000 with an expiration date of December 31, 1999. As of
December 31, 1998 and 1999, the Company had financed $807,180 and $2,073,467,
respectively, in equipment purchases under this agreement. The equipment loans
are to be repaid over 42 months at interest rates ranging from 11.49% to 12.90%
and are secured by the related equipment.
In November 1999, $306,000 of the financed amount was deposited with the
financing company in accordance with a negative covenant pledge agreement which
stipulated that such a payment is required if the Company failed to meet certain
on-hand cash requirements during the life of the agreement. The deposit was
refunded to the Company in March 2000 upon meeting those requirements. As of
December 31, 1999, this deposit was included in "prepaid expenses and other
current assets."
In conjunction with the original agreement, the Company issued the financing
company a warrant to purchase 32,000 shares of the Company's Series A Preferred
Stock at $1.75 per share (see Note 10). The warrant is exercisable immediately.
In conjunction with a March 1999 amendment to the agreement, the Company issued
the financing company a warrant to purchase 13,600 shares of the Company's
common stock at an exercise price of $2.35 per share. The warrant is exercisable
immediately. The value of all warrants issued to the financing company,
determined using a Black-Scholes valuation model, was immaterial for accounting
purposes; therefore, no value was recorded related to these warrants.
- --------------------------------------------------------------------------------
F- 14
<PAGE> 84
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum principal payments under the equipment financing arrangement at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C>
- ------------------------------------------------------------------------
2000................................................... $ 681,947
2001................................................... 685,604
2002................................................... 539,513
2003................................................... 152,138
----------
Total minimum payments............................ 2,059,202
Amount representing interest........................... (357,394)
----------
Present value of future payments....................... 1,701,808
Current portion of equipment financing................. (496,742)
----------
Noncurrent portion of equipment financing.............. $1,205,066
==========
</TABLE>
9. FACILITY LEASE
The Company leases its facilities under an operating lease. This lease expires
July 31, 2003 with renewal option at the end of the initial term of the lease.
Lease payments under this operating lease are subject to future increases based
on the Consumer Price Index. In connection with the facility lease agreement the
Company obtained an irrevocable standby letter of credit in the amount of
$300,000 to secure its building lease, which is included in "other assets" at
December 31 1998. This requirement was terminated in March 1999.
Minimum annual rental commitments under the operating leases at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C>
- ------------------------------------------------------------------------
2000................................................... $ 424,598
2001................................................... 434,688
2002................................................... 444,672
2003................................................... 262,080
----------
Total minimum payments............................ $1,566,038
==========
</TABLE>
Rent expense for the period from inception (March 5, 1996) through December 31,
1997, and for the years ended December 31, 1998 and 1999 was $111,117, $401,952
and $423,493, respectively.
In March 2000, the Company leased additional facilities adjacent to the existing
property primarily for manufacturing and customer service operations. The term
of the lease is two years commencing on May 1, 2000. Minimum annual rental
commitments under the operating lease is $209,050, $319,225 and $107,350 for the
years ended December 31, 2000, 2001 and 2002, respectively.
- --------------------------------------------------------------------------------
F- 15
<PAGE> 85
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY
COMMON STOCK
In January 2000, the Company's Board of Directors approved an amendment to the
Company's articles of incorporation which increased the number of authorized
shares of common stock to 30,000,000 shares.
FOUNDERS AND DIRECTORS' SHARES
From August 1996 to August 1997, the Company issued 5,876,000 shares of common
stock to founders and directors of the Company. Generally, these common shares
are subject to the Company's lapsing right of repurchase. This right lapses
ratably over a period of 48 months from the date of purchase. There are
1,568,040 and 960,000 shares subject to repurchase by the Company as of December
31, 1999 and March 31, 2000.
CONVERTIBLE PREFERRED STOCK
The following table describes information with respect to the series of
convertible preferred stock outstanding:
<TABLE>
<CAPTION>
SHARES ISSUED ISSUANCE PRICE PREFERENCE IN
AND OUTSTANDING PER SHARE LIQUIDATION
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Series A..................................... 2,530,000 $1.25 $ 3,162,500
Series B..................................... 3,666,658 2.25 8,249,981
Series C..................................... 750,000 3.00 2,250,000
---------- -----------
Balance, December 31, 1999................... 6,946,658 13,662,481
Series C..................................... 6,379,978 3.00 19,139,934
---------- -----------
Balance, March 31, 2000...................... 13,326,636 $32,802,415
========== ===========
</TABLE>
Series A, B and C convertible preferred shareholders are entitled to
noncumulative annual dividends, when and if declared by the board of directors,
of $.08, $.14 and $.18 per share, respectively, payable in preference to common
stock dividends. No dividends have been declared or paid by the Company to date.
Series A, B and C convertible preferred shares have a liquidation preference of
$1.25, $2.25 and $3.00 per share, respectively, plus all declared but unpaid
dividends. Upon liquidation, after payment of the full liquidation preference
has been made to the Series A, B and C shareholders, the remaining assets of the
Company, if any, shall be distributed ratably among the common shareholders. If
the assets available for distribution to the preferred shareholders are
insufficient to pay such shareholders the full preferential amount, then the
available assets shall be ratably distributed first to the shareholders of
Series B and C as a single class, with any remaining assets payable to Series A
preferred shareholders.
Preferred stock is convertible at any time at the option of the shareholder. As
of March 2000, each share of Series A, B and C convertible stock is convertible
into one share of common stock plus any accumulated and unpaid dividends. The
conversion ratio is adjustable under certain circumstances including stock
splits or dividends. Each share of Series A, B and C convertible preferred stock
- --------------------------------------------------------------------------------
F- 16
<PAGE> 86
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
automatically converts into common stock at the conversion rate in the event of
an underwritten public offering of the Company's common stock at an offering
price of not less than $5.00 per share and with aggregate net proceeds to the
Company, after deduction of underwriting commissions and expenses, of at least
$10,000,000 or upon approval by the majority of the preferred shareholders of
each series. Each share of convertible preferred stock votes equally with shares
of common stock on an "if-converted" basis.
CHANGE IN AUTHORIZED SHARES
In January 2000, the Board of Directors increased the authorized number of
shares of Series C Preferred Stock to 7,130,000 shares. In March 2000, the Board
of Directors approved an amendment to the Company's articles of incorporation.
In that amendment, the Company is authorized to issue 100,000,000 shares of its
common and 5,000,000 shares of preferred stock. This amendment to the articles
of incorporation is subject to stockholder approval.
DEEMED DIVIDEND
In January through March 2000, the Company consummated the sale of 6,379,978
shares of Series C convertible preferred stock from which the Company received
proceeds of approximately $19.1 million or $3.00 per share. At the date of
issuance, the Company believed the per share price of $3.00 represented the fair
value of the preferred stock. Subsequent to the commencement of the Company's
initial public offering process, Cepheid re-evaluated the fair value of its
common stock as of January and March 2000. Accordingly, the increase in fair
value has resulted in a beneficial conversion feature of $19.1 million, that has
been recorded as a deemed dividend to preferred shareholders in 2000. The
Company recorded the deemed dividend at the date of issuance by offsetting
charges and credits to additional paid-in-capital, without any effect on total
shareholders' equity. The preferred stock dividend increases the net loss
allocable to common shareholders in the calculation of basic and diluted net
loss per common share for the three months ended March 31, 2000. The guidelines
set forth in the Emerging Issues Task Force Consensus No. 98-5 limit the amount
of the deemed dividend to the amount of the proceeds of the related financing.
WARRANTS
In connection with the equipment financing agreement entered into in October
1997 and amended in March 1999, the Company issued warrants to purchase 32,000
shares of Series A convertible preferred stock at an exercise price of $1.75 per
share and 13,600 shares of common stock at an exercise price of $2.35 per share.
The Series A warrant expires on the earliest of October 9, 2003, or the day
prior to the effectiveness of a registration statement covering an underwritten
offering of the Company's securities with aggregate proceeds of at least
$15,000,000, or a merger or sale of substantially all of the Company's assets.
The common stock warrant expires March 16, 2005. The warrants are exercisable
immediately. The value of the warrants was insignificant for accounting
purposes.
In connection with the Series B Preferred Stock offering in 1998, the Company
issued warrants to purchase 274,797 shares of common stock at an exercise price
of $2.58 per share to the private placement agent for the Series B Preferred
Stock financing. The warrants expire on April 30, 2003. The warrants are
exercisable immediately as of the issue date of April 22, 1998. Because these
warrants are considered equity issuance costs, no value was recorded since the
net impact on Shareholders' equity would have been zero.
- --------------------------------------------------------------------------------
F- 17
<PAGE> 87
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of warrants to purchase stock at December 31, 1999 and March 31, 2000
is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
DESCRIPTION STOCK WARRANTS PRICE EXPIRATION
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Lease financing arrangements.................. Series A Preferred 32,000 $1.75 2003
Issuance of Series B.......................... Common 274,797 $2.58 2003
Lease financing arrangements.................. Common 13,600 $2.35 2005
-------
320,397
=======
</TABLE>
Stock Option Plan
On April 16, 1997, the Board of Directors approved a stock option plan (the
"Plan") and initially reserved 2,000,000 shares for issuance thereunder. In
January 2000, the Board of Directors and the shareholders approved an amendment
to reserve an additional 800,000 shares for issuance under the Plan. As of
December 31, 1999 and March 31, 2000, 711,463 and 892,930 shares remain
available for future grant, respectively. Under the Plan, incentive stock
options may be granted to employees, and nonstatutory stock options may be
granted to employees, directors and consultants. Options are granted at an
exercise price of not less than the fair value per share of the common stock on
the date of grant and expire not later than ten years from the date of grant.
The options may be exercised immediately upon grant, however, the shares
issuable upon exercise of the options are subject to a lapsing right of
repurchase by the Company. Options under the Plan generally vest 25% one year
after the date of grant and then on a pro rata basis over the following 36
months. An aggregate 483,205 and 701,978 shares are subject to repurchase at an
aggregate repurchase price of $102,919 and $408,315 as of December 31, 1999 and
March 31, 2000, respectively. Such repurchase rights will lapse at a minimum
rate of 25% per annum and over a period of time not to exceed four years from
the date the option was granted.
Pro forma net loss and net loss per share information has been determined as if
the Company had accounted for its employee stock options granted under the fair
value method of SFAS 123. The fair value of these options was estimated at the
date of grant using the Black-Scholes option pricing model, with the following
weighted-average assumptions: risk-free interest rates of 6.5%, 5.75% and 6.0%
for grants in fiscal 1997, 1998 and 1999, respectively; a weighted-average
expected life of five years; and a dividend yield of zero. The weighted-average
fair value of options granted during 1997, 1998, and 1999 was $0.03, $0.05 and
$2.99, respectively.
- --------------------------------------------------------------------------------
F- 18
<PAGE> 88
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting periods. The Company's pro forma
information is as follows (in thousands except for per share data):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 5, 1996)
THROUGH
DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1998 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net loss attributable to common shareholders:
As reported......................................... $(1,274) $(3,312) $(7,919)
Pro forma........................................... $(1,276) $(3,317) $(7,939)
Basic and diluted net loss per share:
As reported......................................... $ (7.61) $ (1.37) $ (1.90)
Pro forma........................................... $ (7.62) $ (1.37) $ (1.91)
</TABLE>
The fair value option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of employee stock options.
- --------------------------------------------------------------------------------
F- 19
<PAGE> 89
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
SHARES WEIGHTED
AVAILABLE AVERAGE
FOR FUTURE NUMBER EXERCISE
GRANT OF SHARES PRICE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Authorized............................................. 2,000,000 -- --
Granted................................................ (503,720) 503,720 $0.11
Forfeited.............................................. 7,800 (7,800) $0.05
--------- --------
Balance, December 31, 1997............................... 1,504,080 495,920 $0.11
Granted................................................ (615,690) 615,690 $0.19
Exercised.............................................. -- (888,930) $0.14
Forfeited.............................................. 22,800 (22,800) $0.09
--------- --------
Balance, December 31, 1998............................... 911,190 199,880 $0.18
Granted below fair value............................... (266,950) 266,950 $0.50
Exercised.............................................. -- (122,470) $0.45
Forfeited.............................................. 55,000 (55,000) $0.35
Repurchased............................................ 12,223 -- $0.35
--------- --------
Balance, December 31, 1999............................... 711,463 289,360 $0.39
Authorized (unaudited)................................. 1,000,000 -- --
Granted below fair value (unaudited)................... (632,450) 632,450 $2.41
Exercised (unaudited).................................. -- (381,534) $0.92
Repurchased (unaudited)................................ 13,917 -- $0.14
--------- --------
Balance, March 31, 2000 (unaudited)...................... 1,092,930 540,276 $2.39
========= ========
</TABLE>
The following table summarizes information about exercisable options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
WEIGHTED AVERAGE
NUMBER CONTRACTUAL LIFE
EXERCISE PRICE OF SHARES REMAINING (IN YEARS)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
$0.05....................................................... 7,200 7.16
0.12....................................................... 45,380 6.89
0.22....................................................... 30,500 8.57
0.30....................................................... 5,800 8.73
0.35....................................................... 16,930 8.96
0.50....................................................... 183,550 6.83
-------- -----
289,360 7.20
-------- -----
-------- -----
</TABLE>
STOCK-BASED COMPENSATION
During the year ended December 31, 1999 and the three months ended March 31,
2000, in connection with stock option grants to employees, deferred stock
compensation was recorded totaling $736,005,
- --------------------------------------------------------------------------------
F- 20
<PAGE> 90
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $5,386,625, respectively, representing the difference between the deemed
fair value of the common stock for financial reporting purposes and the exercise
price of the underlying options. This amount is recorded as a reduction of
shareholders' equity and is being amortized over the vesting period of the
individual options, generally four years. The Company recorded amortization of
deferred stock compensation of $183,539 and $615,436 for the year ended December
31, 1999 and the three months ended March 31, 2000, respectively.
During the years ended December 31, 1998 and 1999 and during the three months
ended March 31, 2000, the Company granted 21,200, 4,800 and 9,600 nonqualified
common stock options to consultants at exercise prices that range from $0.12 to
$1.50 per share for services rendered, respectively. Such options are included
in the option tables disclosed above. The options generally vest over two years
and have expiration dates which range from the end of the term of the consulting
agreements to ten years after the grant date. Expense of $30,000 and $165,000
was recognized in 1999 and for the three months ended March 31, 2000,
respectively, related to these transactions. The related expense in 1998 was not
material. The fair value of these options was estimated using the Black-Scholes
model, with the following weighted-average assumptions: risk-free interest rate
of 5.75%, 6.0% and 6.0% for grants in fiscal 1998, 1999 and in the three months
ended March 31, 2000, respectively; a weighted-average expected life of five
years; a dividend yield of zero and expected volatility of the Company's common
stock of 0.7.
RESERVED SHARES
The Company has reserved shares of common stock for future issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
<S> <C> <C>
- ----------------------------------------------------------------------------------------
Stock Options:
Options outstanding....................................... 289,360 540,276
Reserved for future grants................................ 711,463 1,092,930
Convertible preferred stock:
Issued and outstanding.................................... 6,946,658 13,326,636
Warrants outstanding........................................ 320,397 320,397
--------- ----------
8,267,878 15,280,239
========= ==========
</TABLE>
NOTE RECEIVABLE FROM SHAREHOLDER
During 1997, the Company loaned $138,000 to an employee for the purchase of
common stock upon the exercise of the employee's stock options. The employee
paid 4% of the total exercise price, and the Company loaned the employee the
remaining 96% of the purchase price subject to a full-recourse note. The loan
bears interest at 7.0%. The principle sum of the note is due on April 16, 2001
along with all unpaid interest. At December 31, 1997, 1998 and 1999, the
balances of $138,000, $103,500 and $69,000, respectively, were outstanding on
the promissory note.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
On March 21, 2000, the Company adopted the 2000 Nonemployee Directors Stock
Option Plan ("the Directors Plan") and reserved a total of 200,000 shares of
common stock for issuance thereunder.
- --------------------------------------------------------------------------------
F- 21
<PAGE> 91
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Each nonemployee director who becomes a director of the Company will be
automatically granted a nonstatutory stock option to purchase 15,000 shares of
common stock on the date on which such person first becomes a director. At the
first board meeting following each annual shareholders meeting, beginning with
the first board meeting after the first Annual Shareholders Meeting, each
nonemployee director then in office for over six months will automatically be
granted a nonstatutory option to purchase 5,000 shares of common stock. The
exercise price of options under the Directors Plan will be equal to the fair
market value of the common stock on the date of the grant. The term of these
options is 10 years. The Directors Plan will terminate in March 2010, unless
terminated earlier in accordance with the provisions of the Directors Plan.
11. INCOME TAXES
The Company has no provision for U.S. federal or state income taxes for any
period as it has incurred operating losses in all periods and for all
jurisdictions.
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $11,900,000. The Company also had federal
research and development tax credit carryforwards of approximately $300,000. The
net operating loss and credit carryforwards will expire at various dates
beginning in 2006 through 2019, if not utilized.
Utilization of the net operating losses and credit carryforwards may be subject
to a substantial annual limitation due to ownership change provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carry forwards........................... $1,800,000 $4,500,000
Research and other credit carry forwards.................... 200,000 500,000
Other -- Net................................................ 100,000 100,000
---------- ----------
Total deferred tax assets................................... 2,100,000 5,100,000
Valuation allowance for deferred tax assets................. (2,100,000) (5,100,000)
---------- ----------
Net deferred tax assets..................................... $ -- $ --
========== ==========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
approximately $600,000 and $1,500,000 during the periods ended December 31, 1997
and December 31, 1998, respectively.
12. BENEFIT PLAN
Effective January 1, 1998, the Company adopted a 401(k) plan that allows
eligible employees to contribute up to $10,000 of their qualified compensation
subject to IRS limits. The Company has the
- --------------------------------------------------------------------------------
F- 22
<PAGE> 92
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
discretion to make matching contributions each year. For the years ended
December 31, 1998 and 1999, the Company did not make any matching contributions.
13. SUBSEQUENT EVENTS
In April 2000, the Board of Directors adopted the 2000 Employee Stock Purchase
Plan (the "Purchase Plan"). A total of 200,000 shares of the Company's common
stock have been reserved for issuance under the Purchase Plan. The Purchase Plan
permits eligible employees to purchase common stock at a discount up to a
maximum of 15% of compensation through payroll deductions during defined
offering periods. The price at which stock is purchased under the Purchase Plan
is equal to 85% of the fair market value of the common stock on the first or
last day of the offering period, whichever is lower. The initial offering period
will commence on the effective date of the initial public offering and will end
in June 2002. In addition, the Purchase Plan provides for annual increases in
the number of shares available for issuance under the Purchase Plan on the first
business day of each year, beginning January 1, 2001, equal to the lesser of
200,000 shares, 0.75% of the outstanding shares on the date of the annual
increase or such amount as may be determined by the Board.
- --------------------------------------------------------------------------------
F- 23
<PAGE> 93
Description of artwork
Inside back cover, p. 6
Full page photograph of Smart Cycler System, including Smart Cycler instrument,
computer monitor, mini-centrifuge, tube racks, cooling block and reaction tubes.
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
<PAGE> 94
[CEPHEID LOGO]
<PAGE> 95
- --------------------------------------------------------------------------------
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth all expenses to be paid by Cepheid, other than
the underwriting discounts and commissions payable by Cepheid in connection with
the sale of the common stock being registered. All amounts shown are estimates
except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
<S> <C>
- ---------------------------------------------------------------------
Registration fee............................................ $24,288
NASD filing fee............................................. 9,700
Nasdaq National Market listing fee..........................
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Director and officer liability insurance....................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
Total............................................. $
=======
</TABLE>
- -------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 315 of the California General Corporation Law permits indemnification of
officers and directors and other corporate agents under certain circumstances
and subject to certain limitations. Our Articles of Incorporation and Bylaws
provide that we will indemnify our directors, officers, employees and agents to
the full extent permitted by California General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
California law. In addition, we intend to enter into indemnification agreements
with our directors and officers that require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service (other than liabilities arising from willful misconduct of a
culpable nature). The indemnification provisions in our Articles of
Incorporation and Bylaws and the indemnification of our officers and directors
under the indemnification agreements may be sufficiently broad to permit
indemnification of our officers and directors for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act. In
addition, the underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Company and
our officers and directors for certain liabilities arising under the Securities
Act, or otherwise. Reference is made to Item 17 of this Registration Statement
for additional information regarding indemnification of officers and directors.
We also intend to maintain director and officer liability insurance, if
available on reasonable terms, to insure our directors and officers against the
cost of defense, settlement or payment of a judgment under certain
circumstances. In addition, the underwriting agreement filed as Exhibit 1.1 to
this Registration Statement provides for indemnification by the underwriters of
the Company and our officers and directors for certain liabilities arising under
the Securities Act, or otherwise.
- --------------------------------------------------------------------------------
II- 1
<PAGE> 96
PART II
- --------------------------------------------------------------------------------
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our incorporation in August 1996, we have sold and issued the following
securities:
1. In February 1997, we sold 2,530,000 shares of Series A preferred stock to 30
investors for aggregate consideration of $2,530,000.
2. In April 1998, we sold 3,666,658 shares of Series B preferred stock to 38
investors for aggregate consideration of $8,249,980.
3. In November 1998, we sold 750,000 shares of Series C preferred stock to
Innogenetics, N.V. for an aggregate consideration of $2,250,000.
4. In January to March 2000, we sold 6,379,978 shares of Series C preferred
stock to 150 investors for aggregate consideration of $19,140,000.
5. From inception through March 31, 2000, we issued 7,188,794 shares of common
stock at prices ranging from $0.005 to $1.50, and we have options outstanding
to purchase an aggregate of 540,276 shares of common stock with exercise
prices ranging from $0.05 to $6.00 per share. From inception through March
31, 2000, options to purchase 1,366,794 shares of common stock were exercised
for aggregate consideration of approximately $524,000 net of repurchased
shares.
There were no underwriters employed in connection with any of the transactions
set forth in Item 15.
The issuances of securities described in Items 1 through 5 were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act and Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering. With respect to the of
stock options described in Item 5, an exemption from registration was
unnecessary in that none of the transactions involved a "sale" of securities as
this term is used in Section 2(3) of the Securities Act. The sale and issuance
of securities and the exercise of options described in Item 5 are deemed to be
exempt from registration under the Securities Act by virtue of Rule 701
promulgated thereunder in that they were offered and sold either pursuant to a
written compensatory benefit plan or pursuant to a written contract relating to
compensation, as provided in Rule 701. The recipients of securities in each such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were fixed to the share certificates and other
instruments issued in such transactions. All recipients either received adequate
information about us or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
- ----------------------------------------------------------------------
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation
3.2* Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2* Specimen Common Stock Certificate
5.1* Opinion of Heller Ehrman White & McAuliffe LLP
10.1 Standard Industrial Lease, dated October 21, 1997, between
Cepheid and Marin County Employees Retirement Association.
</TABLE>
- --------------------------------------------------------------------------------
II- 2
<PAGE> 97
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.2 Consent of Landlord and Lease Agreement among Cepheid, AMB
Property, L.P. and SIMCO Electronics, dated March 28, 2000.
10.3 1997 Stock Option Plan, as amended
10.4 2000 Employee Stock Purchase Plan
10.5 2000 Non-Employee Directors' Stock Option Plan.
10.6 Form of Indemnification Agreement between Cepheid and its
officers and directors.
10.7 Promissory Note, dated June 4, 1997 between Cepheid and M.
Allen Northrup, Ph.D.
10.8 Amended and Restated Investor Rights Agreement, dated
January 21, 2000 among Cepheid and certain shareholders of
Cepheid.
10.9+ License Agreement, dated January 16, 1996, between Cepheid
and The Regents of the University of California, Lawrence
Livermore National Laboratory.
10.10+ Letter Agreement, dated January 10, 2000, between Cepheid
and Fisher Scientific Company LLC.
10.11* Development and Supply Agreement, dated November 17, 1998,
between Cepheid and Innogenetics N.V.
10.12 Joint Technology and Collaboration Agreement, dated February
4, 2000, among Cepheid, Aridia Corp. and Infectio Diagnostic
(I.D.I.) Inc.
10.13 Shareholders Agreement, dated February 4, 2000, among
Cepheid, Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
10.14+ License and Supply Agreement, dated February 4, 2000,
between Cepheid and Aridia Corp.
10.15+ License and Supply Agreement, dated February 4, 2000,
between Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Heller Ehrman White & McAuliffe LLP. Reference is
made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment
+ Confidential treatment requested
(b) FINANCIAL STATEMENT SCHEDULE.
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
- --------------------------------------------------------------------------------
II- 3
<PAGE> 98
PART II
- --------------------------------------------------------------------------------
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the Offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
- --------------------------------------------------------------------------------
II- 4
<PAGE> 99
PART II
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Sunnyvale, California, on the 6th day
of April 2000.
CEPHEID
By: /s/ THOMAS L. GUTSHALL
------------------------------------
Thomas L. Gutshall
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Thomas L. Gutshall and Kurt Petersen and
each of them acting individually, as his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him in any and all capacities,
to sign any and all amendments to this Registration Statement (including
post-effective amendments or any abbreviated registration statement and any
amendments thereto filed pursuant to Rule 462(b) increasing the number of
securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION STATEMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS L. GUTSHALL Chairman of the Board, April 6, 2000
- -------------------------------------------------------- Chief Executive Officer
Thomas L. Gutshall and Director
(Principal Executive Officer)
/s/ KURT PETERSEN, PH.D. President, Chief Operating April 6, 2000
- -------------------------------------------------------- Officer and Director
Kurt Petersen, Ph.D.
/s/ CATHERINE A. SMITH Vice-President of Finance and April 6, 2000
- -------------------------------------------------------- Chief Financial Officer
Catherine A. Smith (Principal Financial and
Accounting Officer)
</TABLE>
- --------------------------------------------------------------------------------
II- 5
<PAGE> 100
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GERALD S. CASILLI Director April 6, 2000
- --------------------------------------------------------
Gerald S. Casilli
/s/ CRISTINA H. KEPNER Director April 6, 2000
- --------------------------------------------------------
Cristina H. Kepner
/s/ ERNEST MARIO, PH.D. Director April 7, 2000
- --------------------------------------------------------
Ernest Mario, Ph.D.
/s/ DEAN O. MORTON Director April 6, 2000
- --------------------------------------------------------
Dean O. Morton
/s/ HOLLINGS C. RENTON Director April 5, 2000
- --------------------------------------------------------
Hollings C. Renton
</TABLE>
- --------------------------------------------------------------------------------
II- 6
<PAGE> 101
PART II
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation
3.2* Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2* Specimen Common Stock Certificate
5.1* Opinion of Heller Ehrman White & McAuliffe LLP
10.1 Standard Industrial Lease, dated October 21, 1997, between
Cepheid and Marin County Employees Retirement Association.
10.2 Consent of Landlord and Lease Agreement among Cepheid, AMB
Property, L.P. and SIMCO Electronics, dated March 18, 2000.
10.3 1997 Stock Option Plan, as amended
10.4 2000 Employee Stock Purchase Plan
10.5 2000 Non-Employee Director's Stock Option Plan.
10.6 Form of Indemnification Agreement between Cepheid and its
officers and directors.
10.7 Promissory Note, dated June 4, 1997 between Cepheid and M.
Allen Northrup, Ph.D.
10.8 Amended and Restated Investor Rights Agreement, dated
January 21, 2000 among Cepheid and certain shareholders of
Cepheid.
10.9+ License Agreement, dated January 16, 1996, between Cepheid
and The Regents of the University of California, Lawrence
Livermore National Laboratory.
10.10+ Letter Agreement, dated January 10, 2000, between Cepheid
and Fisher Scientific Company LLC.
10.11* Development and Supply Agreement, dated November 17, 1998,
between Cepheid and Innogenetics N.V.
10.12 Joint Technology and Collaboration Agreement, dated February
4, 2000, among Cepheid, Aridia Corp. and Infectio Diagnostic
(I.D.I.) Inc.
10.13 Shareholders Agreement, dated February 4, 2000, among
Cepheid, Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
10.14+ License and Supply Agreement, dated February 4, 2000,
between Cepheid and Aridia Corp.
10.15+ License and Supply Agreement, dated February 4, 2000,
between Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
23.1 Consent of Ernst & Young, LLP Independent Auditors.
23.2* Consent of Heller Ehrman White & McAuliffe LLP. Reference is
made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment
+ Confidential treatment requested
- --------------------------------------------------------------------------------
II- 7
<PAGE> 1
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CEPHEID
Kurt Petersen and August J. Moretti hereby certify as follows:
1. They are the President and Secretary, respectively, of Cepheid, a
california corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation are amended and
restated to read as follows:
ARTICLE 1. NAME
The name of the Corporation is Cepheid.
ARTICLE 2. PURPOSE
The purpose of this Corporation is to engage in any lawful acts or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporation Code (the "Code").
ARTICLE 3. AUTHORIZED CAPITAL
The Corporation is authorized to issue two classes of shares, designated
"Common Stock" and "Preferred Stock" respectively. The total number of shares of
Common Stock which this Corporation is authorized to issue is 100,000,000 and
the total number of shares of Preferred Stock which this Corporation is
authorized to issue is 5,000,000.
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Preferred Stock and Common
Stock are as follows:
<PAGE> 2
1. PREFERRED STOCK
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the board of directors may
determine. Each series shall be so designated as to distinguish the shares
thereof from the shares of all other series and classes. Except as may be
expressly provided in these Amended and Restated Articles of Incorporation,
including any certificate of designations for a series of Preferred Stock,
different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purpose of voting by classes.
The board of directors is expressly authorized, subject to the limitations
prescribed by law and the provisions of these Amended and Restated Articles of
Incorporation, to provide for the issuance of all or any shares of the Preferred
Stock, in one or more series, each with such designations, preferences, voting
powers (or no voting powers), relative, participating, optional or other special
rights and privileges and such qualifications, limitations or restrictions
thereof as shall be stated in the resolution or resolutions adopted by the board
of directors to create such series, and a certificate of designations setting
forth a copy of said resolution or resolutions shall be filed in accordance with
the California Corporations Code. The authority of the board of directors with
respect to each such series shall include without limitation of the foregoing
the right to specify the number of shares of each such series and to authorize
an increase or decrease in such number of shares and the right to provide that
the shares of each such series may be: (i) subject to redemption at such time or
times and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the corporation; (iv) convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock of the corporation at such price or prices or at such rates
of exchange and with such adjustments, if any; (v) entitled to the benefit of
such limitations, if any, on the issuance of additional shares of such series or
shares of any other series of Preferred Stock; or (vi) entitled to such other
preferences, powers, qualifications, rights and privileges, all as the board of
directors may deem advisable and as are not inconsistent with law and the
provisions of these Amended and Restated Articles of Incorporation. The number
of authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of such holder is
required pursuant to the terms of any Preferred Stock designation.
2
<PAGE> 3
2. COMMON STOCK
(a) Relative Rights of Preferred Stock and Common Stock. All
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and qualifications, limitations, or restrictions of the
Common Stock are expressly made subject and subordinate to those that may be
fixed with respect to any shares of the Preferred Stock.
(b) Voting Rights. Except as otherwise required by law or these
Amended and Restated Articles of Incorporation, each holder of Common Stock
shall have one vote in respect of each share of stock held by such holder of
record on the books of the corporation for the election of directors and on all
matters submitted to a vote of stockholders of the corporation; provided,
however, that, except as otherwise required by law, holders of Common Stock
shall not be entitled to vote on any amendment to these Amended and Restated
Articles of Incorporation (including any certificate of designations relating to
any series of Preferred Stock) that relates solely to the terms of one or more
outstanding series of Preferred Stock if the holders of such affected series are
entitled, either separately or together as a class with the holders of one or
more other such series, to vote thereon pursuant to these Amended and Restated
Articles of Incorporation (including any certificate of designations relating to
any series of Preferred Stock).
(c) Cumulative Voting. At such time as the Corporation becomes a
"listed corporation" within the meaning of Section 301.5 of the California
Corporations Code, holders of stock of any class or series of the corporation
shall not be entitled to cumulate their votes for the election of directors or
any other matter submitted to a vote of the stockholders, unless such cumulative
voting becomes required pursuant to Section 301.5 of the California Corporations
Code, in which event each such holder shall be entitled to as many votes as
shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to such holder's shares of stock multiplied by the number
of directors to be elected by such holder, and the holder may cast all of such
votes for a single director or may distribute them among the number of directors
to be voted for, or for any two or more of them as such holder may see fit, so
long as the name of the candidate for director shall have been placed in
nomination prior to the voting and the stockholder, or any other holder of the
same class or series of stock, has given notice at the meeting prior to the
voting of the intention to cumulate votes.
(d) Dividends. Subject to the preferential rights of the Preferred
Stock, the holders of shares of Common Stock shall be entitled to receive, when
and if declared by the board of directors, out of the assets of the corporation
which are by law available therefor, dividends payable either in cash, in
property or in shares of capital stock.
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(e) Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or these Amended and Restated
Articles of Incorporation, including any certificate of designations for a
series of Preferred Stock, to receive all of the remaining assets of the
corporation of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively.
ARTICLE 4. ELECTION OF DIRECTORS
At such time as the Corporation becomes a "listed corporation" within the
meaning of Section 301.5 of the California Corporations Code, the Board of
Directors shall be divided into three classes, each serving for a period of
three years and elected pursuant to the following schedule:
Class I: Elected in 2000, 2003 and every three years thereafter.
Class II: Elected in 2001, 2004 and every three years thereafter.
Class III: Elected in 2002, 2005 and every three years thereafter.
ARTICLE 5. LIMITATION OF DIRECTORS' LIABILITY
The liability of directors of the corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law. If, after
the effective date of this Article, California law is amended in a manner which
permits a corporation to limit the monetary or other liability of its directors
in such case to a greater extent than is permitted on such effective date, the
reference in this Article to "California law" shall to that extent be deemed to
refer to California law as so amended.
ARTICLE 6. INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS
1. INDEMNIFICATION OF DIRECTORS.
The Corporation shall, to the maximum extent and in a manner permitted by
the Code, indemnify each of its Directors against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code), arising by reason of the fact that such person
is or was a Director of the Corporation. For purposes of this Article 6, a
"Director" of the Corporation includes any person (i) who is or was a Director
of the Corporation, (ii) who is or was serving at the request of the
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Corporation as a director of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director of a corporation which was a predecessor corporation of the Corporation
or of another enterprise at the request of such predecessor corporation.
2. INDEMNIFICATION OF OTHERS.
The Corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees, officers, and agents
(other than Directors) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an employee,
officer, or agent of the Corporation. For purposes of this Article 6, an
"employee" or "officer" or "agent" of the Corporation (other than a Director)
includes any person (i) who is or was an employee, officer, or agent of the
Corporation, (ii) who is or was serving at the request of the Corporation as an
employee, officer, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee, officer, or agent of a corporation which was a predecessor corporation
of the Corporation or of another enterprise at the request of such predecessor
corporation.
3. PAYMENT OF EXPENSES IN ADVANCE.
Expenses and attorneys' fees incurred in defending any civil or criminal
action or proceeding for which indemnification is required pursuant to Section 1
of this Article 6, or if otherwise authorized by the Board of Directors, shall
be paid by the Corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the indemnified
party to repay such amount if it shall ultimately be determined that the
indemnified party is not entitled to be indemnified as authorized in this
Article 6.
4. INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article 6 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or Directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a Director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such person.
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5. INSURANCE INDEMNIFICATION.
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or agent of the
Corporation against any liability asserted against or incurred by such person in
such capacity or arising out of that person's status as such, whether or not the
Corporation would have the power to indemnify that person against such liability
under the provisions of this Article 6.
6. CONFLICTS.
No indemnification or advance shall be made under this Article 6, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(a) That it would be inconsistent with a provision of these Articles, a
resolution of the shareholders or an agreement in effect at the time of the
accrual of the alleged cause of the action asserted in the proceeding in which
the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
7. RIGHT TO BRING SUIT.
If a claim under this Article is not paid in full by the Corporation
within 90 days after a written claim has been received by the Corporation
(either because the claim is denied or because no determination is made), the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expenses of prosecuting such
claim. The Corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it
permissible under the Code for the Corporation to indemnify the claimant for the
claim. Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have a determination prior to
the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he or she has met the applicable
standard of conduct, if any, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) that the claimant has not met the applicable standard of conduct,
shall be a defense to such action or create a presumption for the purposes of
such action that the claimant has not met the applicable standard of conduct.
8. INDEMNITY AGREEMENTS.
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The Board of Directors is authorized to enter into a contract with any
Director, officer, employee or agent of the Corporation, or any person who is or
was serving at the request of the Corporation as a Director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, or any person who was a Director,
officer, employee or agent of a corporation which was a predecessor corporation
of the Corporation or of another enterprise at the request of such predecessor
corporation, providing for indemnification rights equivalent to or, if the Board
of Directors so determines and to the extent permitted by applicable law,
greater than, those provided for in this Article 6.
9. AMENDMENT, REPEAL OR MODIFICATION.
Any amendment, repeal or modification of any provision of this Article 6
shall not adversely affect any right or protection of a Director, officer,
employee or agent of the Corporation existing at the time of such amendment,
repeal or modification.
10. AMENDMENT OF CALIFORNIA LAW.
If, after the effective date of this Article, California law is amended in
a manner which permits a corporation to authorize indemnification of, or
advancement of such defense expenses to, its directors or other persons, in any
such case to a greater degree than is permitted on such effective date, the
references in this Article to "California law" shall to that extent be deemed to
refer to California as so amended.
3. The foregoing Amendment and Restatement of Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing Amendment and Restatement of Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the Code. The Corporation has two classes of
stock outstanding. The total number of outstanding shares of Common Stock of
this Corporation is [6,742,030], the total number of outstanding shares of
Series A Preferred Stock of the Corporation is 2,530,000, the total number of
outstanding shares of Series B Preferred Stock of the Corporation is 3,666,658,
and the total number of outstanding shares of Series C
7
<PAGE> 8
Preferred Stock of the Corporation is. The number of shares voting in favor of
the amendment and restatement equaled or exceeded the vote required, such
required vote being (i) more than 50% of the outstanding shares of Common Stock
and Preferred Stock voting together as a class, (ii) more than 50% of the
outstanding shares of Series A Preferred voting as a separate class, (iii) more
than 50% of the outstanding shares of Series B Preferred voting as a separate
class, (iv) more than 50% of the outstanding shares of Series C Preferred voting
as a separate class, and (v) more than 50% of the outstanding shares of Common
Stock voting as a separate class.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: April __, 2000
---------------------------------------
Kurt Petersen, President
---------------------------------------
August J. Moretti, Secretary
8
<PAGE> 1
EXHIBIT 10.1
STANDARD INDUSTRIAL LEASE
BY AND BETWEEN
MARIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION
AND
CEPHEID
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
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1. Parties................................................................. 1
2. Premises and Parking.................................................... 1
2.1 Premises......................................................... 1
2.2 Vehicle Parking.................................................. 1
2.3 Common Areas - Definition........................................ 1
3. Term.................................................................... 2
3.1 Term............................................................. 2
3.2 Delay in Delivery of Possession.................................. 2
3.2 Early Possession................................................. 3
3.3 Option to Extend Term............................................ 3
4. Rent.................................................................... 4
4.1 Base Rent........................................................ 4
4.2 Adjustment to Base Ren........................................... 5
4.3 Operating Expenses............................................... 5
4.4 Additional Rent.................................................. 7
5. Security and Letter of Credit........................................... 7
7
5.1 Security Deposit................................................. 7
5.2 Contingent Letter of Credit...................................... 7
6. Use..................................................................... 8
6.1 Use.............................................................. 8
6.2 Compliance with Law.............................................. 9
6.3 Condition of Premises............................................ 9
7. Maintenance, Repairs and Alterations.................................... 9
7.1 Lessor's Obligations............................................. 9
7.2 Lessee's Obligations............................................. 10
7.3 Alterations and Additions........................................ 11
8. Insurance; Indemnity.................................................... 12
8.1 Lessee's Insurance............................................... 12
8.2 Lessor's Insurance............................................... 13
8.3 Blanket Policy................................................... 13
8.4 Insurance Policies............................................... 13
8.5 Waiver of Subrogation............................................ 14
8.6 Indemnity........................................................ 14
8.7 Exemption of Lessor from Liability............................... 14
9. Damage or Destruction................................................... 15
</TABLE>
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<TABLE>
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9.1 Definitions...................................................... 15
9.2 Premises Partial Damage.......................................... 15
9.3 Premises Total Destruction....................................... 16
9.4 Abatement of Rent; Lessee's Remedies............................. 16
9.5 Termination - Advance Payments................................... 16
9.6 Waiver........................................................... 16
9.7 Lessee's Property................................................ 16
9.8 Notice of Damage................................................. 16
9.9 Replacement Cost................................................. 17
10. Real Property Taxes..................................................... 17
10.1 Payment of Taxes................................................. 17
10.2 Payment of Taxes; Additional Improvements........................ 17
10.3 Definition of "Real Property Tax"................................ 17
10.4 Personal Property Taxes.......................................... 18
11. Utilities............................................................... 18
12. Assignment and Subletting............................................... 18
12.1 Documentation.................................................... 18
12.2 Terms and Conditions............................................. 19
12.3 Partnership...................................................... 19
12.4 Corporation...................................................... 19
12.5 Lessor's Remedies................................................ 20
12.6 Permitted Transfers.............................................. 20
13. Default; Remedies....................................................... 20
13.1 Default.......................................................... 20
13.2 Remedies......................................................... 22
13.3 Default by Lessor................................................ 23
13.4 Late Charges..................................................... 23
13.5 No Relief From Forfeiture After Default.......................... 23
14. Condemnation............................................................ 23
15. Broker's Fee............................................................ 24
16. Estoppel Certificate.................................................... 24
17. Lessor's Liability...................................................... 25
18. Severability............................................................ 25
19. Interest on Past-due Obligations........................................ 25
20. Time of Essence......................................................... 25
</TABLE>
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<TABLE>
<S> <C> <C>
21. Incorporation of Prior Agreements; Amendments........................... 25
22. Notices................................................................. 26
23. Waivers................................................................. 26
24. Recording............................................................... 26
25. Holding Over............................................................ 26
26. Cumulative Remedies..................................................... 26
27. Covenants and Conditions................................................ 26
28. Binding Effect; Choice of Law........................................... 26
29. Subordination........................................................... 27
30. Hazardous Materials..................................................... 27
30.1 Use of Hazardous Materials....................................... 27
30.2 Lessee's Indemnification......................................... 27
30.3 Hazardous Materials Documents.................................... 28
30.4 Notices.......................................................... 28
30.5 Definition....................................................... 28
30.6 Asbestos......................................................... 29
31. Attorneys' Fees......................................................... 29
32. Lessor's Access......................................................... 29
33. Signs................................................................... 29
34. Merger.................................................................. 29
35. Security Measures....................................................... 30
36. Easements............................................................... 30
37. Authority............................................................... 30
38. Offer................................................................... 30
39. Interpretation.......................................................... 30
40. Attachments............................................................. 30
</TABLE>
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EXHIBITS
Exhibit A - The Premises
Exhibit B - Letter of Credit
Exhibit C - Asbestos Notification
Exhibit D - Common Area (Parking Designation)/Site Plan
iv
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STANDARD INDUSTRIAL LEASE
1. Parties. This Lease, dated for reference purposes only, as of
October 21, 1997 is made by and between MARIN COUNTY EMPLOYEES RETIREMENT
ASSOCIATION, a pension fund ("LESSOR") and CEPHEID, a California corporation
("LESSEE").
2. Premises and Parking.
2.1 Premises. Lessor hereby leases to Lessee, and Lessee leases
from Lessor, for the term, at the rental, and upon all of the conditions set
forth herein, those certain premises commonly known as 1190 Borregas Avenue,
Sunnyvale, California (the "PREMISES"), including the building ("BUILDING")
located on that certain real property (the "PROPERTY") as outlined on Exhibit A
attached hereto, including rights to the Common Areas (as hereinafter specified)
but not including the roof or the exterior walls of the Building. Lessor and
Lessee agree that for purposes of this Lease the interior of the Building
contains 19,200 square feet. The Premises do not include any rights to the
airspace above the Premises.
2.2 Vehicle Parking. Lessee shall be entitled to the non-exclusive
use of seventy-six (76) vehicle parking spaces, unreserved and unassigned, on
those portions of the Common Areas designated by Lessor for parking as shown on
Exhibit D. Lessee shall not use more than such number of parking spaces. Said
parking spaces shall be used only for parking by vehicles no larger than full
size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited
activities described in Section 2.2 of this Lease, then Lessor shall have the
right, without notice, in addition to such other reasonable rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
thereof to Lessee, which costs shall be immediately payable upon demand by
Lessor as additional rent hereunder.
2.3 Common Areas - Definition. The term "Common Areas" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Property on which the Premises are located that are
provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and of other lessees of the Property and
their respective employees, suppliers, shippers, customers and invitees,
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways and landscaped areas.
2.3.1 Common Areas - Lessee's Rights. Lessor hereby grants to
Lessee, for the benefit of Lessee and its employees, suppliers, shippers,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Common Areas established from time to
time by Lessor, subject to the provisions of
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Section 2.3.2. Under no circumstances shall the right herein granted to Lessee
to use the Common Areas be deemed to include the right to store any property,
temporarily or permanently, in the Common Areas. Any such storage shall be
permitted only by the prior written consent of Lessor or Lessor's designated
representative, which consent may be revoked at any time. In the event that any
unauthorized storage shall occur, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove the property and charge the reasonable cost thereof to Lessee, which cost
shall be immediately payable upon demand by Lessor.
2.3.2 Common Areas - Rules and Regulations. Lessor or such
other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
establish, modify, amend and enforce reasonable, non-discriminatory, rules and
regulations with respect thereto. No such rules and regulations shall materially
impair or conflict with the rights of Lessee under this Lease. Lessee agrees to
abide by and conform to all such rules and regulations upon reasonable written
notice of such rules and regulations, and to cause its employees, suppliers,
shippers, customers, and invitees to so abide and conform.
2.3.3 Common Areas - Changes. Provided that none of the
following shall materially impair or conflict with the rights of Lessee under
the Lease, Lessor shall have the right, in Lessor's sole discretion, from time
to time: (a) to make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways, provided such changes do not reduce
the number of available parking spaces; (b) to close temporarily any of the
Common Areas for maintenance purposes so long as reasonable access to the
Premises remains available; (c) to designate other land outside the boundaries
of the Premises to be a part of the Common Areas; (d) to add additional
improvements to the Common Areas; (e) to use the Common Areas while engaged in
making additional improvements, repairs or alterations to the Building, or any
portion thereof; (f) to do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Premises as Lessor may
deem to be appropriate; and (g) to remove areas from use as Common Areas.
3. Term.
3.1 Term. The term of this Lease shall be for sixty-eight (68)
months commencing on December 1, 1997 (the "COMMENCEMENT DATE") and ending at
midnight on July 31, 2003 (the "INITIAL TERM"), unless sooner terminated
pursuant to the provisions hereof or extended pursuant to Section 3.4 hereof.
3.2 Delay in Delivery of Possession. Lessor shall use its best
efforts to deliver possession of the Premises to Lessee on or before December 1,
1997. Lessee and the current tenant, Alexon Biomedical, Inc. ("ALEXON"), have
agreed that Alexon will have the right to remain in a portion of the Premises
subject to a Sublease between Lessee and Alexon, which must be consented to by
Lessor pursuant to the terms of this Lease. Accordingly, Lessee agrees to accept
possession of the Premises with Alexon still occupying the Premises. If Lessor,
for any reason whatsoever, cannot deliver possession of the Premises to Lessee
on the anticipated Commencement Date, this Lease shall not be void or voidable,
nor shall Lessor be liable to Lessee by any loss or damage resulting therefrom.
In such event, Lessee shall be relieved of its obligations to pay rent for the
period of delay and the Commencement Date and expiration date of the Lease term
and each date for an adjustment to Base Rent shall be postponed for a period of
time equal the period of time from the
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scheduled Commencement Date to the date on which Lessor shall deliver to Lessee
possession of the Premises, and all other dates affected thereby shall be
revised to conform to the first date on which Lessor can deliver possession of
the Premises, which date shall be the Commencement Date, provided, that if
possession is not delivered to Lessee by December 31, 1997, and the cause of the
delay in delivering possession of the Premises is not caused by Alexon, Lessee
shall have the option to cancel this Lease by providing written notice to Lessor
on or before January 15, 1998. Following the Commencement Date, Lessor and
Lessee shall execute a memorandum confirming the date of commencement and date
of expiration of the term of this Lease.
3.2 Early Possession. Upon Lessor's written consent, Lessee may
enter upon the Premises prior to the Commencement Date for the limited purpose
of installing Lessee's furniture, fixtures, equipment and supplies, provided
that such limited entry shall be performed only at times and in areas of the
Premises designated by Lessor and that such limited entry shall not damage the
Premises or Building. As a condition precedent to any such entry by Lessee,
Lessor may require that Lessee deliver to Lessor evidence of the insurance to be
maintained by Lessee pursuant to Section 8.1 and that Lessee expressly assume
the risk of loss or damage to Lessee's furniture, fixtures, equipment and
supplies brought into the Premises. Lessee shall not be obligated to pay any
Base Rent or additional rent during the period of any such limited entry. If
Lessor permits Lessee to occupy the Premises prior to the Commencement Date of
the term of this Lease for the purpose of conducting its business operations,
such occupancy shall be subject to all provisions of this Lease, such occupancy
shall not advance the termination date, and Lessee shall pay rent for such
period at the initial monthly rates set forth in Article 4.
3.3 Option to Extend Term.
3.3.1 At the expiration of the Initial Term hereof, Lessee may
extend the term of this Lease for one (1) additional term of five (5) years
commencing immediately following the Initial Term (the "EXTENDED TERM"). Lessee
shall exercise this option, if at all, by giving Lessor notice of Lessee's
intention to do so during the period from February 1, 2003 to February 28, 2003.
In no event shall any purported exercise of such option by Lessee be effective
if any Event of Default has occurred during the period from the date Lessee
exercises its option hereunder up to and including the commencement of any
Extended Term unless such Event of Default is cured prior to the commencement of
the Extended Term. The Extended Term shall be upon all of the terms and
conditions of the Lease, except that the Base Rent and method of rental
adjustments for the Extended Term shall be determined as set forth below in
Section 3.3.2.
3.3.2 Upon the commencement of the Extended Term, the Base
Rent shall be one hundred percent (100%) of the then fair market rent for the
Premises as of the commencement of the Extended Term; provided, however, Base
Rent shall not be less than the Base Rent for the month prior to the
commencement of the Extended Term. The parties shall have thirty (30) days after
Lessee exercises its option to extend for the Extended Term to mutually agree on
the fair market rent for the Premises and method of rental adjustments for the
Extended Term. If the parties fail to reach agreement during such thirty (30)
day period, the fair market rent and the method of rental adjustments for the
Extended Term shall be determined by appraisal in the manner hereafter set
forth.
In the event it becomes necessary under this subparagraph to determine the
fair market rent for the Premises, and the method of rental adjustments of the
Premises by appraisal, Lessor and Lessee each shall appoint a real estate
appraiser who shall be a member of the American Institute of Real
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Estate Appraisers ("AIREA") and shall have at least five (5) years experience in
appraising the rent for commercial properties in Santa Clara County, and such
appraisers shall each determine the fair market monthly Base Rent for the
Premises taking into account the value of the Premises as improved and
prevailing comparable rentals and rental adjustment practices in the Sunnyvale
and Santa Clara region for comparable properties with improvements of similar
age and configuration. Such appraisers shall, within twenty (20) business days
after their appointment, complete their appraisals and submit their appraisal
reports to Lessor and Lessee. If the fair market monthly Base Rent of the
Premises established in the two (2) appraisals varies by five percent (5%) or
less of the higher rental, the average of the two shall be controlling and the
two (2) appraisers shall have an additional five (5) business days in an attempt
to mutually agree on the method of rental adjustments for the Extended Term. If
said fair market monthly Base Rent varies by more than five percent (5%) of the
higher rental or the method of rental adjustments could not be mutually agreed
to during such additional five (5) business day period, said appraisers, within
ten (10) days after submission of the last appraisal, shall appoint a third
appraiser who shall be a member of the AIREA and shall have at least five (5)
years experience in appraising the rent for commercial properties in Santa Clara
County. Such third appraiser shall, within twenty (20) business days after his
appointment, determine by appraisal the fair market monthly Base Rent of the
Premises, if the initial appraisals varied by more than five percent (5%) of the
higher rental, and/or the method of rental adjustments, taking into account the
same factors referred to above, and submit his appraisal report to Lessor and
Lessee. If a third appraiser is appointed to determine the fair market monthly
Base Rent, the fair market monthly Base Rent determined by the third appraiser
for the Premises shall be controlling, unless it is less than that set forth in
the lower appraisal previously obtained, in which case the value set forth in
said lower appraisal shall be controlling, or unless it is greater than that set
forth in the higher appraisal previously obtained, in which case the rental set
forth in said higher appraisal shall be controlling. If a third appraiser is
appointed to determine the method of rental adjustments, the method of rental
adjustments determined by the third appraiser for the Premises shall be
controlling. If either Lessor or Lessee fails to appoint an appraiser, or if an
appraiser appointed by either of them fails, after his appointment, to submit
his appraisal within the required period in accordance with the foregoing, the
appraisal submitted by the appraiser properly appointed and timely submitting
his appraisal shall be controlling. If the two appraisers appointed by Lessor
and Lessee are unable to agree upon a third appraiser within the required period
in accordance with the foregoing, application shall be made within twenty (20)
days thereafter by either Lessor or Lessee to the AIREA, which shall appoint a
member of said institute willing to serve as appraiser. Each party shall pay the
cost of the appraiser selected by such party and the parties shall each pay
fifty percent (50%) of the cost of the third appraiser.
4. Rent.
4.1 Base Rent. Lessee shall pay to Lessor, as Base Rent for the
Premises, without offset or deduction, notice or demand, commencing and
continuing thereafter on the first (1st) day of each month of the term of this
Lease, monthly payments in advance in the following amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
12/1/97 thru 7/31/98 $24,000
8/1/98 thru 7/31/99 $33,600
8/1/99 thru 7/31/2003 $33,600, as adjusted pursuant to
Section 4.2 hereof
</TABLE>
Base Rent for any period during the term of this Lease which is for less
than one month shall be a pro rata portion of the Base Rent for such month. Base
Rent shall be payable in lawful money of the United States to Lessor at the
address stated herein or to such other persons or at such other
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places as Lessor may designate from time to time to Lessee in writing.
Notwithstanding the foregoing, Lessee shall prepay to Lessor the Base Rent for
the first month of the Initial Term upon execution of this Lease.
4.2 Adjustment to Base Rent. The Base Rent shall be adjusted on
August 1, 1999 and every twelve (12) months thereafter, excluding any extensions
of the initial term of this Lease (the "Rental Adjustment Dates"), to reflect
any increase in the cost of living from the end of July 31, 1999, or the
immediately preceding Rental Adjustment Date for all subsequent adjustments (the
"Base Dates"). The adjustment or adjustments, if any, shall be calculated upon
the basis of the United States Department of Labor, Bureau of Labor Statistics
Consumer Price Index for All-Urban Consumers, for San Francisco/Oakland/San Jose
(1982-1984 = 100), hereafter referred to as the "Index." The applicable Index
for each adjustment made under this Section 4.2 shall be the latest published
Index as of the applicable Base Date and the applicable Rental Adjustment Date.
On each Rental Adjustment Date, the Base Rent then in effect shall be increased
by an amount equal to the Base Rent then in effect multiplied by the percentage
increase in the Index during the twelve (12) month period between the Base Date
immediately preceding such Rental Adjustment Date and such Rental Adjustment
Date. When the adjusted Base Rent is determined upon each Rental Adjustment
Date, Lessor shall give Lessee written notice to that effect indicating how the
new Base Rent figure was computed in accordance with this Section 4.2. In no
event shall the adjusted Base Rent be less than one hundred three percent (103%)
or more than one hundred seven percent (107%) of the Base Rent during the month
immediately preceding the Rental Adjustment Date. If the Index does not exist on
any Rental Adjustment Date in the same format as referred to in this paragraph,
Lessor shall substitute in lieu thereof an index reasonably comparable to the
Index then published by the Bureau of Labor Statistics, or successor or similar
governmental agency, or if no governmental agency then publishes an index,
Lessor shall substitute therefor any comparable index then published by a
reputable private organization.
4.3 Operating Expenses. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Pro Rata Share (as defined in
Section 4.5 hereof) of Operating Expenses, as hereinafter defined, during each
calendar year of the term of this Lease, in accordance with the following
provisions:
4.3.1 "OPERATING EXPENSES" shall include:
(a) All costs and expenses paid or incurred by
Landlord for the ownership, operation, maintenance, repair and replacement of
the Building and the Common Areas, including, but not limited to: (i)
maintaining, cleaning, repairing and resurfacing the roof (including repair of
leaks) and the exterior surfaces (including painting) of the Building, (ii)
maintaining, operating and replacing when necessary HVAC equipment, if Lessor so
elects under Section 7.2.1 below, utility facilities and other building service
equipment, (iii) complying with all Laws (as hereinafter defined), (iv)
operating, maintaining, repairing, cleaning, painting, restripping and
resurfacing the Common Areas, (v) replacement or installation of lighting
fixtures, direction or other signs and signals, irrigation systems, trees,
shrubs, ground cover and other plant materials and all landscaping the Common
Areas, (vi) management fees paid by Lessor with respect to the management of the
Building, and (vii) any other service provided by Lessor that is elsewhere in
this Lease stated to be an Operating Expense; provided, that any cost for a
replacement of a portion of the Building or the Common Areas that may be
capitalized under generally acceptable accounting principles ("GAAP") shall be
amortized by Lessor over the useful life of such replacement as determined by
the manufacturer of the replacement or the contractor installing the
replacement, and
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only the monthly amortized amount of such cost, plus interest on the unamortized
balance of such cost at the rate of ten percent (10%) per annum, shall be
included as an Operating Expense;
(b) The cost of the premiums for the insurance
policies maintained by Lessor pursuant to Article 8 hereof and all increases in
such premiums during the term of this Lease;
(c) The amount of the Real Property Taxes to be paid
by Lessor pursuant to Section 10.1 hereof;
(d) The cost of providing water, gas, electricity,
sanitary sewer, storm drain, and other utility services to the Premises which
are not paid directly by Lessee; and
(e) Deductibles on the liability and property
(including flood and earthquake) insurance policies to be maintained by Lessor
pursuant to Article 8 hereof.
4.3.2 Notwithstanding anything in Section 4.3.1 to the
contrary, the following shall not constitute Operating Expenses for the purposes
of this Lease:
(a) Legal fees, brokerage commissions, advertising
costs and other related expenses incurred in connection with the leasing of the
Premises;
(b) The cost of (i) repair of damage or destruction to
the Premises, and (ii) maintenance of the Premises, to the extent such cost is
covered by any insurance policy carried by Lessor or any warranty held by
Landlord, in connection with the Premises.
(c) Lessor's general overhead expenses not related to
the Premises, including executive salaries of Lessor above the manager level
(this exclusion shall not affect the management fees Operating Expenses pursuant
to Section 4.3.1(a)(v) hereof;
(d) Payments of principal or interest on any mortgage
or other encumbrance including ground lease payments and points, and commissions
and legal fees associated with financing;
(e) Depreciation of any portion of the Premises
(except as otherwise expressly set forth herein);
(f) Interest, penalties or other costs arising out of
Lessor's failure to make timely payments of its obligations, unless Lessee fails
to pay any amounts due under this Lease; and
(g) Management fees in any year which are in excess of
four percent (4%) of the base rent due under all leases on the Building for such
year.
4.3.3 The inclusion of the improvements, facilities and
services set forth in the definition of Operating Expenses shall not be deemed
to impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the Premises already has the same
or Lessor has agreed elsewhere in this Lease to provide the same.
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4.3.4 Operating Expenses shall be payable by Lessee to Lessor
within ten (10) business days after a statement of the actual annual Operating
Expenses incurred by Lessor is delivered to Lessee by Lessor. Provided, however,
at Lessor's option, Lessor may require Lessee to pay monthly an amount estimated
by Lessor from time to time to be one-twelfth (1/12) of Lessor's estimate of the
annual Operating Expenses, and the same shall be payable during each calendar
year of the Lease term on the same day as the Base Rent is due hereunder. In the
event that Lessee is required to pay Lessor's estimate of Operating Expenses as
aforesaid, Lessor shall deliver to Lessee within ninety (90) days after the
expiration of each calendar year a statement showing the actual Operating
Expenses incurred during the preceding calendar year and the amount of the
estimated payments made by Lessee. If Lessee's estimated payments under this
Section 4.3.3 during said preceding year exceed the actual Operating Expenses as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Operating Expenses next falling due until such amount
is fully credited, or if no such payments shall be due by reason of the
expiration of the term of this Lease, the amount of such overpayment shall be
paid to Lessee by Lessor within ninety (90) days following the date of
expiration of the term of this Lease. If Lessee's estimated payments under this
Section 4.3.3 during said preceding calendar year were less than the actual
Operating Expenses as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) business days after delivery by
Lessor to Lessee of said statement.
4.4 Additional Rent. All monetary obligations of Lessee to Lessor
under the terms of this Lease, including, but not limited to Operating Expenses
shall be deemed to be rent.
4.5 Lessee's Pro Rata Share. "Lessee's Pro Rata Share" shall mean
a fraction, the numerator of which shall be the amount of rentable square feet
in the Premises and the denominator of which shall be the total amount of
rentable square feet of the Building.
5. Security and Letter of Credit.
5.1 Security Deposit. Upon execution of this Lease by Lessee,
Lessee shall deposit with Lessor the cash sum of Twenty-Four Thousand Dollars
($24,000), as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, beyond any
applicable notice and cure period, Lessor may use, apply or retain all or any
portion of said deposit for the payment of any rent or other charge in default
or for the payment of any other sum which Lessor may become obligated by reason
of Lessee's default, or to compensate Lessor for any loss or damage which Lessor
may suffer by reason of Lessee's default. If Lessor so uses or applies all or
any portion of said deposit, Lessee shall within ten (10) days after written
demand deposit with Lessor in cash an amount sufficient to restore said deposit
to the full original amount. Lessor shall not be required to keep said deposit
separate from its general accounts or to pay interest on said deposit. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much thereof
as has not theretofore been applied or retained by Lessor pursuant to this
Section 5.1, shall be returned to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest under this Lease) at the expiration of
the term of this Lease, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
deposit.
5.2 Contingent Letter of Credit. Upon execution of this Lease by
Lessee, Lessee shall post an irrevocable letter of credit (the "Letter of
Credit") in the initial amount of Three Hundred Thousand Dollars ($300,000). The
Letter of Credit shall be maintained for the entire term of the Lease, except as
expressly set forth in the following sentence. Lessee shall be entitled to have
the
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Letter of Credit returned to Lessee prior to the expiration of the Lease upon
the satisfaction of the following conditions: (i) in the event that no Event of
Default (as defined in Section 13 below) has occurred during the term of this
Lease, and (ii) Lessee is "Acquired" (as hereinafter defined), or has completed
an initial public offering or other offering of the shares of the capital stock
of Lessee (the "Equity Infusion") together with proof satisfactory to Lessor
that the acquiring company or Lessee, immediately following the Equity Infusion,
has a net worth of at least Seven Million Dollars ($7,000,000) for a period of
six (6) consecutive months, with such net worth to consist of cash and tangible
assets, exclusive of any value attributable to contract rights, good will and
technology rights and exclusive of any promissory notes, receivables or credits
from affiliated entities. Lessor agrees that Lessee's delivery to Lessor of six
(6) consecutive monthly financial statements including a balance sheet prepared
in accordance with GAAP, consistently applied, during such period as the Letter
of Credit is outstanding (with at least one such financial statement to be an
audited statement) shall be an acceptable means (but not necessarily the only
acceptable means) of establishing that Lessee has complied with such net worth
requirement. For the purpose of this Lease, "Acquired" means any sale, license,
or other disposition of all or substantially all of the assets of Lessee, or any
reorganization, consolidation, or merger of Lessee where the holders of the
Lessee's securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction. The
Letter of Credit shall be issued by a financial institution reasonably
acceptable to Lessor, shall show Lessor as the account party and shall have a
term of not less than six (6) months. The Letter of Credit shall be in the form
of Exhibit B attached hereto.
5.2.1 The Letter of Credit shall be renewed from time to time
during the period that the Letter of Credit must be maintained pursuant to this
Section 5.2. Such renewals shall be for a period of not less than six (6)
months. The amount of each renewal Letter of Credit shall be equal to the amount
required pursuant to this Section 5.2. The term "Letter of Credit" shall, for
the purposes of this Lease, include any replacement or renewal Letter of Credit.
5.2.2 Upon issuance of the Letter of Credit to Lessor pursuant
to this Section 5.2, Lessor may draw against the Letter of Credit if (a) Lessee
is in default of any term, provision, covenant or condition of this Lease
provided that Lessor has given written notice to Lessee under the terms of this
Lease and the applicable period of cure (if any) under this Lease for such
default has expired and the default of Lessee has not been cured, or (b) Lessee
shall fail to deliver or cause to be delivered to Lessor any renewal or
replacement Letter of Credit required under this Section 5.2 not later than
thirty (30) business days prior to the date of expiration of the Letter of
Credit then held by Lessor.
6. Use.
6.1 Use.
6.1.1 Subject to applicable laws and covenants, conditions and
restrictions of record applicable to the Premises, the Premises shall be used
and occupied only for manufacturing, general office, research and development,
warehouse and any other legal use which is reasonably comparable or related
thereto, and for no other purpose, unless approved in writing by Lessor, which
approval shall not be unreasonably withheld or delayed.
6.1.2 Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction, or going out of business, fire
or bankruptcy sale upon the Premises without first having obtained Lessor's
prior written consent.
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6.1.3 Lessee, at Lessee's sole cost and expense, shall obtain
and maintain in force during the term of this Lease all permits, licenses and
approvals required or necessary for the conduct of the activities of Lessee on
the Premises.
6.2 Compliance with Law. During the term of this Lease, Lessee
shall, at Lessee's expense, promptly comply with all statutes, ordinances,
rules, regulations, orders of governmental authorities, covenants and
restrictions of record, and requirements of any fire insurance underwriters or
rating bureaus, now in effect or which may hereafter come into effect ("Laws"),
whether or not they reflect a change in policy from that now existing, relating
to, imposed by reason of or applicable to the condition of the Premises or
Lessee's use or occupancy of the Premises, or any alteration, improvement or
change made to the Premises by Lessee, including any alterations that might be
required solely to bring the Premises in compliance with the Americans with
Disabilities Act ("ADA"). Lessee shall not use, nor permit its employees,
agents, contractors or invitees to use, the Premises in any manner that will
tend to create a waste or a nuisance or shall tend to disturb the occupants of
properties adjoining the Premises.
6.3 Condition of Premises.
6.3.1 Notwithstanding anything in this Lease to the contrary,
Lessor shall deliver the Premises (including, but not limited to HVAC,
electrical, plumbing, sewer and other Building systems, and the exterior walls,
roof, parking area, landscaping and walkways) to Lessee: (i) in good, clean
condition and working order (ii) in compliance with all applicable Laws, and the
exterior of the Premises in compliance with ADA requirements; provided, however,
if a non-compliant situation exists, Lessee shall provide Lessor written notice
of such non-compliance within forty-five (45) days following the Commencement
Date, and if Lessee does not give Lessor written notice of such non-compliance
within the allotted time period, correction of any such non-compliant situation
shall be the obligation of Lessee at Lessee's sole cost and expense.
6.3.2 Except as otherwise expressly provided in this Lease and
subject to Section 6.3.1, Lessee hereby accepts the Premises, the Building, and
all improvements thereon, in their existing condition, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and regulating the use of the Premises, and any covenants or restrictions of
record, and accepts this Lease subject to all of the foregoing and to all
matters disclosed in this Lease. Other than as expressly set forth in this
Lease, Lessee acknowledges that neither Lessor nor Lessor's agent has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of the Lessee's business or the uses proposed by
Lessee.
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Articles 9
(Damage and Destruction) and 14 (Condemnation) and Section 7.2 (Lessee's
Obligations), and except to the extent any damage is caused by any negligent or
intentional act or omission of Lessee or Lessee's employees, customers, or
invitees (which is not covered by insurance carried by Lessor), Lessee shall
repair any such damage at Lessee's expense, Lessor shall keep in good condition
and repair the structural portion of the exterior walls (other than cleaning or
painting of the exterior surface of such exterior walls, which maintenance or
painting shall be the responsibility of Lessee), foundations, the roof of the
Building, and the Common Areas. The cost and expense of any repairs made by
Lessor shall be reimbursed by Lessee as an Operating Expense. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair
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or replace windows, doors or plate glass of the Premises. Lessor shall have no
obligation to make repairs under this Section 7.1 until a reasonable time after
receipt of written notice from Lessee of the need for such repairs. Lessee
expressly waives the benefits of any statute now or hereafter in effect which
would otherwise afford Lessee the right to make repairs at Lessor's expense or
to terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair; provided that if the condition materially
interferes with the conduct of Lessee's business and Lessor has not repaired the
condition in a timely manner, Lessee may exercise its legal rights and seek an
appropriate remedy in equity. Lessor shall not be liable for damages or loss of
any kind or nature by reason of Lessor's failure to furnish any such services,
except where such failure is caused by the sole, active negligence or
intentional misconduct of Lessor or the agents, employees, contractors or
invitees of Lessor, or the breach of this Lease by Lessor.
7.2 Lessee's Obligations.
7.2.1 Subject to the provisions of Articles 9 (Damage and
Destruction) and 14 (Condemnation) and Section 7.1 (Lessor's Obligations),
Lessee, at Lessee's expense, shall keep in good order, condition and repair the
Premises and every part thereof including, without limiting the generality of
the foregoing, all plumbing, heating, ventilating and air conditioning systems
serving the Premises (Lessee shall procure and maintain, at Lessee's expense, a
ventilating and air conditioning system maintenance contract reasonably
acceptable to Lessor), electrical and lighting facilities and equipment within
or serving the Premises, fixtures, interior walls and interior and exterior
surfaces of exterior walls, ceilings, windows, doors, plate glass, and skylights
located within the Premises, the parking lots, walkways, driveways, landscaping,
fences, signs, and utility installations of the Premises and all parts thereof.
Lessor reserves the right to maintain the ventilating and air conditioning
system maintenance contract for the heating, ventilating and air conditioning
system serving the Premises and, if Lessor so elects, Lessee shall reimburse
Lessor, upon demand, for the reasonable cost thereof.
7.2.2 If Lessee fails to perform Lessee's obligations under
this Section 7.2 or under any other paragraph of this Lease where such failure
presents, in Lessor's good faith judgment, an emergency or a default of Lessor's
obligations under any loan documents which Lessor is a party, then Lessor may
enter upon the Premises, perform such obligations on Lessee's behalf and put the
Premises in good order, condition and repair, and the reasonable cost of such
performance, together with interest thereon at the rate set forth in Article 19,
shall be due and payable as additional rent to Lessor upon demand.
7.2.3 On the last day of the term of this Lease, or on the
date of any sooner termination, Lessee shall surrender the Premises to Lessor in
clean condition and in the same condition as received, clean and free of debris,
except for ordinary wear and tear, casualty damage (as provided in Article 9),
condemnation (as provided in Article 14) and damage due to the sole active
negligence or intentional act or omission of Lessor or Lessor's employees,
agents or contractors. Any damage or deterioration of the Premises shall not be
deemed ordinary wear and tear if the same could have been prevented by customary
and ordinary maintenance practices. On or prior to termination of the Lease,
Tenant shall have the right to remove from the Premises any specialized tenant
improvements installed by and paid for by Tenant. Prior to expiration of the
term of this Lease or the date of any sooner termination, Lessee shall repair
any damage to the Premises occasioned by the installation or removal of Lessee's
trade fixtures (including any specialized tenant improvements or laboratory
fixtures installed by and paid for by Lessee), furnishings, equipment
Alterations (as defined below), Installations (as defined below) and personal
property.
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Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave any air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, heating, ventilating, and air conditioning
systems and equipment, and plumbing system and fixtures located on the Premises
which Lessee is not permitted to remove under the terms of this Lease in good
operating condition and repair. Lessee acknowledges that Lessor has no
obligation to provide safety and security devices, services or programs under
this Lease and Lessee assumes the full risk of all criminal acts or other losses
in, on or about the Premises.
7.3 Alterations and Additions.
7.3.1 Other than as provided in Section 7.3.5, Lessee shall
not, without Lessor's prior written consent, which consent shall not be
unreasonably withheld or delayed, make any alterations, improvements, additions
(collectively, "ALTERATIONS"), or Installations in, on or about the Premises.
Any Alterations or Installations made by Tenant shall not interfere with the
operation of any mechanical apparatus or electrical or plumbing systems in the
Building. As used in this Section 7.3 the term "INSTALLATION" shall mean
carpeting, window coverings, air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, and plumbing.
Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense,
payment and performance bonds in an amount equal to one and one-half times the
estimated costs of such Alterations or Installations to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure payment and
performance of the work. Except as expressly permitted in this Section 7.3.1 and
in Section 7.3.5, should Lessee make any Alterations or Installations without
the prior approval of Lessor, Lessor any, at any time during the term of this
Lease, require that Lessee remove any or all of the same.
7.3.2 Any Alterations or Installations that Lessee desires to
make in or about the Premises and which requires the consent of Lessor shall be
presented to Lessor in written form for Lessor's approval, with proposed
detailed plans and specifications therefor prepared at Lessee's sole cost.
Lessor shall have thirty (30) days after receipt of Lessee's written request to
make an Alteration or Installation in accordance with the preceding sentence to
approve or disapprove such Alterations or Installations, and unless Lessor
objects within such period, Lessor shall be deemed to have consented. Any
consent by Lessor thereto shall be deemed conditioned upon Lessee's acquisition
of all permits required to make such Alterations or Installations from all
appropriate governmental agencies, the furnishing of copies thereof to Lessor
prior to commencement of the work, and the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner, all at Lessee's
sole cost. Upon completion of any such Alterations or Installations, Lessee
shall, at Lessee's sole cost, immediately deliver to Lessor "as-built" plans and
specifications therefor. All construction work required or permitted to be done
by Lessee shall be performed by a licensed contractor approved by Lessor, which
approval shall not be unreasonably withheld or delayed, and in a prompt,
diligent, and good and workmanlike manner. All such construction work shall
conform in quality and design with the Premises existing as of the Commencement
Date and shall not diminish the value of the Building or the Premises. All such
construction work shall be performed in compliance with all applicable
Governmental Regulations. Notwithstanding any other provision of this Lease, if
any Alterations or Installations (including any restoration work required in
connection with the removal of Lessee's specialized tenant improvements and
laboratory fixtures at the expiration of the term of this Lease or if the Lease
is terminated at Lessor's sole discretion) require upgrades to the Premises or
the Common Areas, including without limitation structural upgrades, for
earthquakes, sprinklers, ADA requirements, asbestos removal or any other
Governmental
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Regulations' requirements, Lessee shall be required to complete such upgrades at
Lessee's sole cost as a condition to installing any such Alterations or
Installations.
7.3.3 Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises. Lessee shall give Lessor not less than ten (10) days'
written notice prior to the commencement of any work in the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand and post a bond in the full amount of
such lien, claim or demand, then Lessee shall, at its sole cost and expense,
defend itself and Lessor against the same and shall pay and satisfy any judgment
that may be rendered thereon before the enforcement thereof against Lessor or
the Premises. In addition, Lessor may require Lessee to pay Lessor's reasonable
attorneys' fees and costs, upon demand, in participating in such action if
Lessor shall decide it is in Lessor's best interest to do so. All work in the
Premises performed by or at the request of Lessee shall be performed in
compliance with all applicable Laws and covenants, conditions and restrictions
of record against the Premises.
7.3.4 All Alterations and Installations shall be removed from
the Premises by Lessee at the expiration or sooner termination of the term of
this Lease at Lessor's sole discretion, unless Lessor requires that the same
remain and be surrendered with the Premises pursuant to Section 7.3.1.
Notwithstanding the provisions of this Section 7.3.4, Lessee's machinery, trade
fixtures, personal property and equipment, including specialized tenant
improvements installed by and paid for by Lessee and laboratory fixtures, shall
remain the property of Lessee and shall be removed by Lessee subject to the
provisions of Section 7.2.3.
7.3.5 Notwithstanding anything to the contrary contained in
this Section 7.3, Lessee shall have the right, without obtaining the prior
written consent of Lessor, to make interior, non-structural Alterations or
Installations in, on, or about the Premises, provided that all such Alterations
or Installations made by Lessee during any calendar year shall not have a cost
in excess of Ten Thousand Dollars ($10,000) and do not affect the roof or roof
membrane. All such Alterations and Installations shall be subject to all of the
requirements of Section 7.3.3 and Section 7.3.4.
8. Insurance; Indemnity.
8.1 Lessee's Insurance.
8.1.1 Lessee shall, at Lessee's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
and property damage insurance insuring Lessee and Lessor against any liability
arising out of the use, occupancy or maintenance of the Premises and the Common
Areas. Such insurance shall have limits of liability of not less than Three
Million Dollars ($3,000,000.00) per occurrence and shall name Lessor as an
additional insured. The policy shall contain broad form contractual liability
coverage applicable to Lessee's obligations under the indemnity provision of
this Article 8. The limits of said insurance shall not, however, limit the
liability of Lessee under this Lease.
8.1.2 Lessee shall, at Lessee's expense, obtain and keep in
force during the term of this Lease a policy or policies of insurance covering
loss or damage to Lessees' furniture, fixtures, equipment, inventory and other
personal property located in or on the Premises and all Alterations and
Installations in or about the Premises made by Lessee, in an amount not less
than the full
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replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event the
Building is located in a designated flood hazard area) special extended perils
("all risk," or "special" causes of loss as such terms are used in the insurance
industry), and such other insurance coverages as Lessor from time to
time reasonably deems advisable.
8.2 Lessor's Insurance.
8.2.1 Lessor may obtain and keep in force during the term of
this Lease a policy of comprehensive public liability and property damage
insurance, insuring Lessor, but not Lessee, against any liability arising our of
the ownership, use, occupancy or maintenance of the Building and the Common
Areas with limits of liability as determined by Lessor in its sole discretion.
It is specifically acknowledged and agreed that all liability insurance required
to be provided by Lessee is and shall be considered primary and first to
respond, and any liability insurance of Lessor is and shall be considered
secondary to such insurance provided by Lessee. In addition to the obligations
of Article 8.4 hereof, Lessee shall obtain and provide Lessor with evidence of a
primary insurance endorsement indicating that Lessee has obtained such coverage.
It is further agreed that the insurance maintained by Lessor pursuant to this
Section 8.2.1 shall not be contributory with the insurance maintained by Lessee
pursuant to Section 8.1.1.
8.2.2 Lessor shall obtain and keep in force during the term of
this Lease a policy or policies of insurance covering first party loss or damage
to the Building and the other improvements within the Premises, but not Lessee's
personal property, fixtures, equipment, Installations or Alterations, in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event the Building is located in a designated flood hazard area and
flood insurance is required by a lender having a lien on the Premises) special
extended perils ("all risk," or "special" causes of loss as such terms are used
in the insurance industry) and such other insurance coverages, including
earthquake insurance, as Lessor from time to time reasonably deems advisable so
long as it is available at commercially reasonable rates. In addition, Lessor
may obtain and keep in force, during the term of this Lease, a policy of rental
value insurance covering one hundred percent (100%) of all Base Rent, additional
rent (including Operating Expenses) and other sums payable by Lessee under this
lease period of one (1) year, with loss payable to Lessor. The amount of the
rental value insurance shall be reviewed annually and adjusted to reflect any
changes in the amount of the Base Rent or the additional rent.
8.3 Blanket Policy. Notwithstanding anything to the contrary
contained in this Lease, Lessee's obligation to carry insurance may be satisfied
by coverage under a so-called "blanket policy" or policies of insurance,
provided that Lessor shall be named as an additional insured per the terms of
the Lease, the coverage afforded Lessor shall not be reduced or diminished from
that otherwise required by this Lease, and all requirements set forth in this
Lease are otherwise satisfied by such blanket policy or policies.
8.4 Insurance Policies. Insurance required hereunder shall be in
companies holding a rating of at least A, or such other rating as may be
required by any lender having a lien on the Premises, as set forth in the most
current issue of Best's Insurance Reports. Lessee shall not do or permit to be
done anything which shall invalidate or render unenforceable any portion of the
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insurance policies carried by Lessee or by Lessor. Lessee shall deliver to
Lessor certificates of insurance or copies of insurance policies evidencing the
existence and amounts of insurance required under this Article 8 not less than
seven (7) days prior to the Commencement Date of this Lease; provided, however,
Lessee shall immediately deliver full copies of insurance policies if Lessor so
elects and upon written request. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days'
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with certificates of insurance,
renewals, "binders" or new policies evidencing the insurance to be maintained by
Lessee. If Lessee provides certificates of insurance to evidence the insurance
to be maintained by Lessee pursuant to Section 8.1, then within fifteen (15)
days after Lessor's written request, Lessee shall deliver to Lessor full copies
of the insurance policies. Any failure of Lessor to demand or obtain any
certificate, policy or other matter provided for in this Lease shall not
constitute a waiver of any kind, and shall not constitute a defense for Lessee
under any circumstances.
8.5 Waiver of Subrogation. Lessee and Lessor each hereby releases
and relieves the other, and waives its right of subrogation against the other,
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the alleged or
actual negligence of Lessor, Lessee or their agents, employees contractors
and/or invitees, to the extent of the insurance coverage received by the waiving
party. Lessee shall give notice to all insurance carriers that the foregoing
mutual waiver of subrogation is contained in this Lease, and shall obtain from
such insurance carriers a waiver of the rights of subrogation.
8.6 Indemnity. Except to the extent caused by the negligent acts
or omissions or intentional misconduct of Lessor, Lessee shall indemnify, defend
and hold harmless Lessor from and against any and all claims, liabilities,
causes of action, judgments and settlements, including attorneys' fees and
costs, arising from the Premises, or from the conduct of Lessee's business or
from any activity, work or thing done, permitted or suffered by Lessee in, on or
about the Premises, the Common Areas or elsewhere, and shall further indemnify
and hold harmless Lessor from and against any and all claims, liabilities,
causes of action, judgments and settlements, including attorneys' fees and
costs, arising from any breach or default in the performance of any obligation
to be performed by Lessee under the terms of this Lease, or arising from any act
or omission of Lessee, or any of Lessee's agents, contractors, employees, or
invitees. In the event any action or proceeding of any kind is brought against
Lessor in connection with any of the foregoing matters, Lessee shall defend the
same at Lessee's expense, with counsel reasonably satisfactory to Lessor, and
Lessor shall cooperate with Lessee in such defense; provided, however, that
Lessor shall have the right to defend itself, at Lessee's expense, with counsel
of Lessor's choice and Lessee shall reimburse Lessor for all fees and costs of
defense upon demand. Lessee, as a material part of the consideration to Lessor
for the execution of this Lease by Lessor, hereby assumes all risk of damage to
property of Lessee or of Lessee's employees, agents, customers and invitees, or
injury to persons, in, upon or about the Premises or the Common Areas, arising
from any cause whatsoever, except such damage or injury arising from the sole,
active negligence or intentional misconduct of Lessor. Otherwise, Lessee hereby
waives all claims and liabilities whatsoever against Lessor. This indemnity is
intended to be as broad as permitted by law. The parties acknowledge that parol
or extrinsic evidence of the intent of this provision shall not be admissible in
a court of law.
8.7 Exemption of Lessor from Liability. Except for the sole,
active negligence or intentional misconduct of Lessor, its agents, employees or
contractors, Lessee hereby agrees that Lessor shall not be liable for damage to
the goods, wares, merchandise or other property of Lessee, Lessee's employees,
agents, contractors or invitees, or any other person in or about the Premises,
nor
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shall Lessor be liable for injury to Lessee or Lessee's employees, agents,
contractors or invitees, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, heating, ventilating or air conditioning systems or equipment or
lighting fixtures, or from any other cause, whether said damage or injury
results from conditions arising upon the Premises, or from other sources or
places and regardless of whether the cause of such damage or injury or the means
of repairing the same is inaccessible to Lessee; provided, however, in no event
shall Lessor be liable to Lessee, or to Lessee's employees, agents, contractors
or invitees, for lost profits or other consequential or speculative losses or
damages claimed or incurred by Lessee or by Lessee's employees, agents,
contractors or invitees, and Lessee waives and releases all such claims against
Lessor for lost profits or other consequential or speculative losses or damages
by Lessee and agrees to indemnify Lessor pursuant to Section 8.6 against such
claims by Lessee's employees, agents, contractors or invitees.
9. Damage or Destruction.
9.1 Definitions.
9.1.1 "PREMISES PARTIAL DAMAGE" shall mean the Premises are
damaged or destroyed to the extent that the cost of repair is less than
twenty-five percent (25%) of the then replacement cost of the Premises.
9.1.2 "PREMISES TOTAL DESTRUCTION" shall mean the Premises are
damaged or destroyed to the extent that the cost of repair is twenty-five
percent (25%) or more of the then replacement cost of the Premises.
9.1.3 "INSURED LOSS" shall mean damage or destruction which
was caused by an event covered by the insurance described in Section 8.2.2. The
fact that an Insured Loss is subject to a deductible amount shall not make the
loss an uninsured loss.
9.1.4 "REPLACEMENT COST" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring, excluding all
improvements made by lessees.
9.2 Premises Partial Damage.
9.2.1 Insured Loss: If at any time during the term of this
Lease there is damage which is an Insured Loss and which falls into the
classification of Premises Partial Damage, then Lessor shall, at Lessor's
expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment, tenant improvements, alterations, improvements, Alterations or
Installations, as soon as reasonably possible and this Lease shall continue in
full force and effect.
9.2.2 Uninsured Loss: If at any time during the term of this
Lease there is damage which is not an Insured Loss and which falls within the
classification of Premises Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee
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within sixty (60) days after the date of the occurrence of such damage of
Lessor's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage.
9.3 Premises Total Destruction. If at any time during the term of
this Lease there is damage, whether or not it is an Insured Loss, which falls
into the classifications of Premises Total Destruction, then Lessor may, at
Lessor's option, either (i) repair such damage or destruction to the Premises,
but not Lessee's fixtures, equipment, tenant improvements, alterations,
improvements, Alterations or Installations, as soon as reasonably possible at
Lessor's expense, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within sixty (60) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall be canceled and terminated as of the date
of the occurrence of such damage.
9.4 Abatement of Rent; Lessee's Remedies. In the event Lessor
repairs or restores the Premises pursuant to the provisions of this Article 9,
the Base Rent and Additional Rent payable hereunder for the period from the date
of such damage and during which such damage, repair or restoration continues
shall be abated in proportion to the degree to which Lessee's use of the
Premises is impaired and, provided that Lessor has obtained the rental value
insurance to be maintained by Lessor pursuant to Section 8.2.2, such abatement
shall be limited to the amount of the proceeds of such rental value insurance
actually received by Lessor. Any dispute between Lessor and Lessee as to the
degree to which Lessee's use of the Premises is impaired which is not resolved
between Lessor and Lessee within fifteen (15) days of the date Lessee makes a
claim for such rental abatement to Lessor shall be jointly submitted by Lessor
and Lessee to JAMS Endispute ("JAMS"), who shall use a single referee to try
such dispute using the then current rules of JAMS. The cost of such arbitration
shall be initially borne equally by Lessor and Lessee, but upon a ruling by the
referee, the party, whose determination of the degree to which Lessee's use of
the Premises is impaired is furthest from that determination of the referee,
shall reimburse the other party for all costs of the arbitration. Except for
abatement of Base Rent and Additional Rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
9.5 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Article 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor, within 30 days.
9.6 Waiver. Lessor and Lessee waive the provisions of California
Civil Code Sections 1932(2) and 1933(4), and any similar or successor laws or
statutes relating to termination of leases in the event of damage or destruction
of the leased property, and agree that the rights and obligations of the parties
in such event shall be solely governed by the terms of this Lease.
9.7 Lessee's Property. Notwithstanding anything in the Lease to
the contrary, Lessor shall have no obligation to rebuild or restore Lessee's
trade fixtures, tenant improvements, specialized tenant improvements or
laboratory fixtures, equipment, merchandise, or any Alterations or Installations
made by Lessee to the Premises.
9.8 Notice of Damage. Lessee shall notify Lessor within five (5)
days after the occurrence thereof of any damage to all or any portion of the
Premises. In no event shall Lessor have any obligation to repair or restore the
Premises pursuant to this Article 9 prior to receipt of notice hereunder.
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9.9 Replacement Cost. The reasonable determination in good faith
by Lessor of the estimated cost of repair of any damage, or of the replacement
cost, shall be conclusive for purposes of this Article 9.
9.10 Lessee's Right to Terminate. If at any time during the term of
this Lease there is damage or destruction, whether or not it is an Insured Loss,
which Lessor's contractor reasonably estimates cannot be repaired in one hundred
eighty (180) days, then Lessee may give written notice to Lessor within twenty
(20) days of Lessee receiving such estimate of Lessee's intention to cancel and
terminate this Lease, in which case this Lease shall be canceled and terminated
as of the date of the occurrence of such damage.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay all Real Property Taxes (as
defined in Section 10.3), applicable to the Premises and the Common Areas,
subject to reimbursement by Lessee of such Real Property Taxes in accordance
with the provisions of Section 4.3, except as otherwise provided in Section
10.2.
10.2 Payment of Taxes; Additional Improvements. Real Property Taxes
shall be an Operating Expense payable pursuant to Section 4.3. Lessee shall,
however, pay to Lessor at the time that Operating Expenses are payable under
Section 4.3.3 the entirety of any increase in Real Property Taxes assessed by
reason of improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 Definition of "Real Property Taxes." As used herein the term
"REAL PROPERTY TAXES" shall include any form of tax, levy or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax imposed on the Premises or
any portion thereof by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement, benefit or
service district, as against any legal or equitable interest of Lessor in the
Premises or the Building or in any portion thereof, as against Lessor's right to
rent or other income therefrom, and as against Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include (a) any tax, fee,
levy, assessment or charge (i) in substitution of, partially or totally, any
tax, fee, levy, assessment or charge hereinabove included within the definition
of "REAL PROPERTY TAXES," (ii) the nature of which was hereinbefore included
within the definition of "REAL PROPERTY TAXES," (iii) which is imposed as a
result of a transfer, either partial or total, of Lessor's interest in the
Premises or which is added to a tax or charge hereinbefore included within the
definition of "REAL PROPERTY TAXES" by reason of such transfer, or (iv) which is
imposed by reason of this transaction, any modifications or changes hereto, or
any transfer hereof, and (b) any possessory interest or other tax, fee, levy,
assessment or charge levied in lieu of any tax, fee, levy, assessment or charge
hereinabove included within the definition of "REAL PROPERTY TAXES" by reason of
the tax exempt or other status of Lessor. The term "REAL PROPERTY TAXES" shall
not include any interest or penalties resulting from the failure of Lessor to
pay any tax, levy, or assessment, provided that Lessee has timely paid Real
Property Taxes as provided in this Article 10, or any inheritance, estate, gift,
personal or corporate income (unless in substitution for any other taxes
hereinabove included within the definition of "REAL PROPERTY TAXES"), succession
or documentary transfer taxes of Lessor. Any assessments levied against the
Premises after the date of this Lease which can be paid over time shall be
treated, for the purposes of determining Real Property Taxes, as if Lessor
elected to pay such assessments over the longest period allowed by law,
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and only the amount of such assessments, together with interest at the rate of
permitted by law where such assessments are paid over time rather than in a
single payment, which is allocable to each calendar year during the term of this
Lease shall be included in term "REAL PROPERTY TAXES."
10.4 Personal Property Taxes.
10.4.1 Lessee shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings, equipment,
inventory and all other personal property of Lessee located in, on or about the
Premises or the Building. When possible, Lessee shall cause said trade fixtures,
furnishings, equipment, inventory and all other personal property to be assessed
and billed separately from the Real Property Taxes.
10.4.2 If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee's said personal property within ten (10) days after
receipt of a written statement setting forth the taxes applicable to Lessee's
personal property.
11. Utilities. Lessee shall contract and pay for all water, gas, heat,
light, power, telephone, trash removal and disposal and other utilities and
services required by Lessee and supplied to the Premises, together with any
taxes or surcharges thereon. Lessor shall have no liability to Lessee for the
interruption, discontinuance, reduction, or curtailment of any utility or
service provided to the Premises, and any such interruption, discontinuance,
reduction or curtailment shall not be grounds for abatement of rent under this
Lease.
12. Assignment and Subletting. Lessee shall not assign, transfer,
encumber, grant any concession or license or hypothecate the leasehold estate
under this Lease, or any interest therein, and shall not sublet the Premises, or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person or entity to occupy or use the Premises, or any portion thereof (a
"Transfer") without, in each case, the prior written consent of Lessor, which
consent will not be unreasonably withheld. Notwithstanding the foregoing to the
contrary, Lessor shall be entitled to terminate this Lease with respect to all
or such portion of the Premises which Lessee proposes to Transfer, except for a
permitted Transfer not requiring Lessor's consent as set forth in Section 12.6
hereof, by written notice given to Lessee within thirty (30) days following
receipt by Lessor of written notice from Lessee of Lessee's proposal to
Transfer; provided, however, that Lessee shall have the right to withdraw its
proposal to Transfer and to nullify Lessor's election to terminate by written
notice given to Lessor within five (5) days following receipt of Lessor's notice
of termination. Any such termination shall be effective thirty (30) days after
Lessor's notice of termination. Upon such termination, any prior subleases of
portions of the Premises, at the option of the Lessor, shall also concurrently
terminate.
12.1 Documentation. Prior to any Transfer which Lessee desires to
make, Lessee shall provide to Lessor in writing the name and address of the
proposed transferee, the balance sheet and income statement (and statement of
change in financial condition) of the proposed transferee for the prior three
(3) years to the extent available, true and complete copies of all documents
relating to Lessee's prospective agreement to Transfer and shall specify all
consideration to be received by Lessee for such Transfer in the form of lump sum
payments, installments of rent, or otherwise, and such other information as
Lessor shall reasonably request in connection with the proposed Transfer within
thirty (30) days following receipt by Lessor of Lessee's proposal to Transfer.
For purpose of this Section 12.1, the term "CONSIDERATION" shall include,
without limitation, all monies or other
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consideration of any kind, including, but not limited to, bonus money, and
payments (in excess of book value thereof) for Lessee's assets, fixtures,
inventory, accounts, equipment, furniture, general intangibles, and any capital
stock or other equity ownership of Lessee. Within fifteen (15) business days
after the receipt of such documentation and other information, Lessor shall
notify Lessee in writing that Lessor either (a) consents to the proposed
Transfer subject to the terms and conditions hereinafter set forth, or (b)
refuses such consent.
12.2 Terms and Conditions. As a condition to Lessor granting its
consent to any Transfer, (a) Lessor may require that Lessor receive fifty
percent (50%) of the amount by which all consideration to be received by Lessee
in connection with said Transfer, less any reasonable broker's commissions and
reasonable legal fees paid by Lessee relating to such Transfer, exceeds the Base
Rent payable by Lessee to Lessor for the period of such Transfer (the "Bonus
Rent"), (b) if an Event of Default has occurred, then Lessor may require that
the proposed transferee make all rent payments under the Transfer directly to
Lessor, provided Lessor pays to Lessee fifty percent (50%) of any Bonus Rent,
(c) Lessee and the proposed transferee must demonstrate to Lessor's reasonable
satisfaction that the transferee is financially responsible and capable of
performing the obligations imposed under this Lease, (d) that proposed use of
the Premises is permitted under the provisions of this Lease, and (e) that the
proposed Transfer, or the use of the Premises by the proposed transferee, shall
not expose Lessor to any additional liability or risk of loss. The parties
acknowledge that in connection with any subletting of the Premises, Lessee may
agree to provide a sublessee with certain services such as telephone answering
and receptionist services, and the parties agree the fair market value for such
services shall not constitute Bonus Rent. Each Transfer agreement to which
Lessor has consented shall be an instrument in writing in form satisfactory to
Lessor, and shall be executed by both Lessee and the transferee, as the case may
be. Each such Transfer agreement shall recite that it is and shall be subject
and subordinate to the provisions to this Lease, that the transferee accepts
such Transfer and agrees to perform all of the obligations of Lessee hereunder
(or in the case of a sublease, to the extent such obligations related to the
portion of the Premises subleased), and that the termination of this Lease
shall, at Lessor's sole election, constitute a termination of every such
Transfer. In the event Lessor shall consent to a Transfer, Lessee shall
nonetheless remain primarily liable for all obligations and liabilities of
Lessee under this Lease, including but not limited to the payment of rent. No
Transfer shall relieve any guarantor of this Lease. Lessee agrees to reimburse
Lessor upon demand for reasonable attorneys' fees and costs incurred by Lessor
in connection with the negotiation, review and documentation of any such
requested Transfer in an amount not to exceed One Thousand Dollars ($1,000).
12.3 Partnership. In the event this Lease is assigned to a
partnership, a transfer or transfers, voluntary or involuntary, which in the
aggregate consists of a majority interest or any general partner interest in the
partnership, or the dissolution of the partnership, shall be deemed a Transfer
requiring Lessor's prior written consent.
12.4 Corporation. Subject to Section 12.6, If Lessee is a
corporation, any dissolution, merger, consolidation, or other reorganization of
Lessee, or the transfer, of a controlling percentage of the capital stock of
Lessee, or the sale or series of sales within any twelve month period of all or
substantially all of Lessee's assets located in, on, or about the Premises,
shall be deemed a Transfer. The phrase "CONTROLLING PERCENTAGE" means the
ownership of, and the right to vote, stock possessing twenty-five percent (25%)
or more of the total combined voting power of all classes of Lessee's capital
stock issued, outstanding and entitled to vote for the election directors. The
provisions of this paragraph shall not apply to the transfer of the shares of
Lessee through a national securities exchange (as the term is used in the
Securities Exchange Act of 1934, as amended), provided that
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such transfer is not effected for the purpose of obtaining effective control of
Lessee or for the purpose of obtaining a controlling percentage of the shares of
Lessee.
12.5 Lessor's Remedies. Except as provided for in Section 12.4
above, any Transfer without Lessor's prior written consent shall at Lessor's
election be void, and shall constitute a default under this Lease. The consent
by Lessor to any Transfer shall not constitute a waiver of the provisions of
this Article 12, including the requirement of Lessor's prior written consent,
with respect to any subsequent Transfer. If Lessee shall purport to Transfer,
without Lessor's prior written consent or without complying with the provisions
of this Article, Lessor may collect rent from the person or persons then or
thereafter occupying the Premises and apply the net amount collected against the
rent reserved in this Lease, but such collection shall not be deemed a waiver of
Lessor's rights and remedies under this Article 12, or the acceptance of any
such purported transferee, or a release of Lessee from the further performance
by Lessee of covenants set forth in this Lease, or a release of any guarantor of
this Lease.
12.6 Permitted Transfers. Notwithstanding anything to the contrary
contained in this Article 12, Lessee may make a sublease of all or any portion
of the Premises, or may make an assignment of this Lease, without Lessor's
consent: (a) to a wholly owned or controlled subsidiary or entity; (b) to a
corporation or any other entity or person(s) which wholly owns or controls
Lessee; (c) to a corporation or any other entity wholly owned or controlled by
or which wholly owns or controls a corporation or other entity or person(s)
described in the preceding clauses (a) and (b); (d) to any corporation or other
entity or person(s) into which Lessee or any corporations, entities or persons
described in the preceding clauses (a), (b) and (c) is merged or consolidated,
or to which all or substantially all of Lessee's assets or stock or the assets
or stock of any of the corporations, entities or person(s) described in such
preceding clauses are sold or transferred; provided that the combined tangible
net worth and the net income (as determined by using the Net Income Formula
defined below) of any such transferee is not less than the tangible net worth
and net income (as determined by using the Net Income Formula) of Lessee at the
time of execution of this Lease or as it exists immediately prior to any such
Transfer, whichever is greater, and such transferee possesses, in Lessor's
reasonable judgment, comparable business experience and credit worthiness.
Lessee shall give Lessor not less than thirty (30) days' prior written notice of
any transaction permitted under this Section 12.6, including the identity of the
parties involved, their relationship, the clause of this Section 12.6 which
permits such transaction and such other information as Lessor may reasonably
request with respect to the requirements of this Section 12.6. No Transfer
permitted under this Section 12.6 shall result in the release of Lessee from
liability under this Lease. Any Transfer permitted under this Section 12.6
without Lessor's written consent shall be subject to all of the other
restrictions contained in this Article 12. For purposes of this Section 12.6,
"Net Income Formula" shall mean the same formula for the calculation of net
income required by a company in a Form 10Q filing with the Securities and
Exchange Commission.
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13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following
events shall constitute a default of this Lease by Lessee (an "Event of
Default"):
13.1.1 The vacation for thirty (30) consecutive days or
abandonment of the Premises by Lessee.
13.1.2 The failure by Lessee to make any payment of rent or
any other payment required to be made by Lessee hereunder, as and when due,
where such failure shall continue for a period of five (5) business days after
written notice thereof from Lessor to Lessee; provided, that, such five (5)
business day cure period shall apply only to the first two (2) failures to pay
rent occurring during any calendar year and thereafter the cure period for all
other failures to pay rent shall be three (3) days. In the event that Lessor
serves Lessee with a notice to pay rent or quit pursuant to applicable unlawful
detainer statutes, such notice to pay rent or quit shall also constitute the
notice required by this paragraph.
13.1.3 Except as otherwise provided in this Lease, the failure
by Lessee to observe or perform any of the covenants, conditions or provisions
of this Lease to be observed or performed by Lessee, other than described in
Sections 13.1.1 and 13.1.2 above, where such failure shall continue for a period
of thirty (30) days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's noncompliance is such that
more than thirty (30) days are reasonably required for its cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion. To the extent permitted by law, such thirty (30) day notice shall
constitute the sole and exclusive notice required to be given to Lessee under
applicable unlawful detainer statutes.
13.1.4 (a) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (b) Lessee becomes a "debtor"
as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (c), the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; (d) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days or the date of any sooner sale of any of such assets; (e) Lessee shall not
pay its debts as they become due; (f) Lessee shall be insolvent; or (g) Lessee
shall become subject to any proceeding in bankruptcy or insolvency.
13.1.5 The failure of Lessee to renew the Letter of Credit
within thirty (30) days prior to its expiration date; the failure of the
financial institution which has issued the Letter of Credit to honor the Letter
of Credit; or the issuance of any notice by the financial institution which as
issued the Letter of Credit declaring that the Letter of Credit has been or will
be withdrawn or terminated and the failure of Lessee to provide a replacement
Letter of Credit reasonably satisfactory to Lessor at least ten (10) days prior
to the existing Letter of Credit being withdrawn or terminated.
13.1.6 The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, or
any successor in interest of Lessee, was materially false or misleading.
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13.2 Remedies. Upon an Event of Default, Lessor may at any time
thereafter, with or without notice or demand and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default;
13.2.1 Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee:
(a) the worth at the time of award of the unpaid rent
which had been earned at the time of termination of this Lease;
(b) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination of the
Lease until the time of award exceeds the amount of rental loss that Lessee
proves could have been reasonably avoided;
(c) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of rental loss that Lessee proves could be reasonably
avoided; and
(d) any other amount necessary to compensate Lessor
for all detriment proximately caused by Lessee's default including, but not
limited to, the cost of recovering possession of the Premises, reasonable
expenses of reletting, including renovation and alteration of the Premises,
reasonable attorneys' fees, that portion of the leasing commission paid by
Lessor pursuant to Article 15 applicable to the unexpired term of this Lease,
and any real estate commission incurred in reletting the Premises.
As used in Sections 13.2.1(a) and 13.2.1(b), the phrase "worth at the time of
award" shall include interest at the rate of ten percent (10%) per annum. As
used in Section 13.2.1(c), the phrase "worth at the time of award" shall be
computed by discounting such amount by the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award plus one percent (1%).
13.2.2 Maintain Lessee's right to possession in which case
this Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event, Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder. No action by Lessor shall be deemed a
termination of this Lease except written notice by Lessor delivered to Lessee
expressly declaring a termination of this Lease. If Lessor maintains Lessee's
right to possession, Lessor may thereafter elect to terminate this Lease.
13.2.3 Terminate this Lease and, in addition to any recoveries
Lessor may seek under Section 13.2.1, bring an action to reenter and regain
possession of the Premises in the manner provided by the laws of unlawful
detainer of the State of California then in effect.
13.2.4 Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the State of California. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.
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13.3 Default by Lessor. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable time,
but in no event earlier than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust encumbering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Operating Expenses or other sums due hereunder
will cause Lessor to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult to ascertain. Such costs include,
but are not limited to, processing and accounting charges, and late charges
which may be imposed on Lessor by the terms of any mortgage or trust deed
covering the Premises. Accordingly, if any installment of Base Rent, Operating
Expenses or any other sum due from Lessee shall not be received by Lessor or
Lessor's designee within five (5) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to ten percent (10%) of such overdue amount. The parties hereby
agree that such charge by Lessor shall in no event constitute a waiver of
Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding Section 4.1 or any other provision of this Lease
to the contrary.
13.5 No Relief From Forfeiture After Default. Lessee waives all
rights of redemption or relief from forfeiture under California Code of Civil
Procedure Sections 1174 and 1179, and under any other present or future laws or
statutes, in the event Lessee is evicted or Lessor otherwise lawfully takes
possession of the Premises by reason of any default by Lessee under this Lease.
14. Condemnation. If the Premises or any portion thereof or the Premises
are taken under the power of eminent domain, or sold under the threat of the
exercise of said power (collectively, "CONDEMNATION"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than thirty three and
one-third percent (33 1/3%) of the floor area of the Building, or more than
thirty three and one-third percent (33 1/3%) of that portion of the Premises
designated as parking for the Building, is taken by condemnation, then either
Lessor or Lessee, within ten (10) days after the condemning authority shall have
taken possession, may elect to terminate this Lease as of the date the
condemning authority takes such possession by written notice given to the other
party. If neither Lessor and Lessee so elects to terminate this Lease, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
No reduction of rent shall occur if the only area taken is that which does not
have the Premises located thereon. Any award for the taking of all or any part
of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the sole property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures and removable personal property, loss of good
will, the unamortized book value or cost (whichever is less) of the
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improvements made to the Premises by Lessee at Lessee's sole cost and expense
and relocation costs. In the event that this Lease is not terminated by reason
of such condemnation and as permitted by applicable law, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation,
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damage
required to complete such repair.
Lessor and Lessee waive the provisions of California Code of Civil
Procedure Sections 1265.110, 1265.120 and 1265.130, and any similar or successor
statutes relating to termination of leases in the event of condemnation, and
agree that the rights and obligations of the parties in such event shall be
governed by the terms of this Lease.
15. Broker's Fee. Lessor and Lessee each warrant and represent to the
other that no broker or finder other than BT Commercial Real Estate and
CBC/Madison (collectively "BROKERS"), have been engaged or used by Lessor or
Lessee in connection with this Lease or the Premises. Lessor agrees to pay
Brokers a commission in connection with this Lease pursuant to Lessor's
agreement with BT Commercial Real Estate and such commission shall be split
equally between the Brokers. The warranties and representations contained in
this Article 15 shall survive the termination of this Lease.
16. Estoppel Certificate.
16.1 Each party (as "RESPONDING PARTY") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("REQUESTING
PARTY") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by the requesting party and any prospective purchaser or encumbrancer of the
Premises or of the business of the requesting party to the extent of the
representations contained in such statement.
16.2 At the requesting party's option, the failure to deliver such
statement within such time shall be a default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
16.3 If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Notwithstanding the foregoing to the
contrary, if Lessee is a public company having shares that trade on a national
securities exchange, Lessee shall only be required to deliver such financial
statements that are otherwise available to the public. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
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17. Lessor's Liability. The term "LESSOR" as used herein shall mean only
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Premises, and in the event of any transfer of
such title or interest, the Lessor herein named (and in case of any subsequent
transfers, then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed by Lessor under this Lease, provided that any funds held by Lessor or
the then transferor at the time of such transfer under the provisions of this
Lease shall be delivered to the transferee and that such transferee assumes in
full the obligations of the "Lessor" under this Lease which are to be performed
from and after the effective date of the transfer. The obligations contained in
this Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
Notwithstanding any provision of this Lease to the contrary, Lessee agrees
that it shall look solely to the estate and property of the Lessor in the
Premises (including, but not limited to, any proceeds derived from the sale of
the Premises or any portion of the Premises), subject to the prior rights of any
mortgagee or holder of a deed of trust encumbering the Premises or any portion
thereof and subject to the Lessor's rights under a leasehold interest in the
Premises or any part thereof, if any, for the collection of any judgment (or
other judicial process) requiring the payment of money by Lessor in the event of
any default by Lessor with respect to any of the terms, covenants and conditions
of this Lease to be observed or performed by Lessor, and no other asset of
Lessor shall be subject to any levy, execution or other process for the
satisfaction of Lessee's remedies under this Lease. No officer, director,
administrator, employee, agent, or attorney of Lessor shall be personally liable
for any default of Lessor under this Lease.
18. Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any amount due to Lessor not paid
when due shall bear interest at the lesser of a floating rate equal to the
"prime" or "reference" rate of Bank of America, N.T. & S.A., in effect from time
to time plus two percent (2%), or the maximum rate than allowable by law, from
the date such amount is due until such amount is received by Lessor. Payment of
such interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee.
20. Time of Essence. Time is of the essence with respect to the
obligations to be performed under this Lease.
21. Incorporation of Prior Agreements; Amendments. This Lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only, signed by
the parties in interest at the time of the modification. Except as otherwise
stated in this Lease, Lessee hereby acknowledges that neither the real estate
broker listed in Article 15 hereof nor any cooperating broker on this
transaction nor the Lessor or any employee or agents of any of said persons has
made any oral or written warranties or representations to Lessee relative to the
terms of this Lease or the condition or use by Lessee of the Premises and Lessee
acknowledges that Lessee assumes all responsibilities regarding the Occupational
Safety Health Act, the Americans With Disabilities Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease, except as otherwise
expressly stated in this Lease.
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22. Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery, overnight courier,
facsimile followed by overnight delivery or certified mail and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes, except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at all such addresses as
Lessor may from time to time hereafter designate by notice to Lessee. Notice
shall be deemed effective upon receipt or refusal of receipt as shown on the
return receipt or bill of lading.
23. Waivers. No waiver by Lessor or any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach of Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge or such preceding breach at the time of
acceptance of such rent.
24. Recording. This Lease shall not be recorded by either Lessor or
Lessee.
25. Holding Over. If Lessee, with Lessor's consent remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month-to-month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that Base Rent shall
be increased to an amount equal to two hundred percent (200%) of the Base Rent
paid during the last month of the term, and any other sums due hereunder shall
be due and payable in the amount and at the time specified in this Lease.
If Lessee holds over in the Premises after the expiration or sooner
termination of the term of this Lease without the prior written consent of
Lessor, Lessee shall be a trespasser, and Lessee shall indemnify, defend,
protect and hold harmless Lessor from and against any and all claims for damages
by any succeeding tenant as the result of the failure of Lessee to surrender the
Premises in the condition required by this Lease upon the expiration or sooner
termination of the term of this Lease.
26. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. Covenants and Conditions. Each provision of this Lease performable
by Lessee shall be deemed both a covenant and a condition.
28. Binding Effect; Choice of Law. Subject to any provision hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Article 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State of
California and any litigation concerning this Lease between the parties hereto
shall be initiated in the County of Santa Clara, California.
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29. Subordination.
29.1 This Lease and the rights of Lessee hereunder, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Premises or any
portion thereof and to any and all advances made on the security thereof and to
all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default beyond any
applicable notice and cure period and so long as Lessee shall pay the rent and
observe and perform all of the terms and provisions of this Lease, unless this
Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee
or ground lessor shall elect to have this Lease prior or superior to the lien of
its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of
trust or ground lease, whether this Lease is dated prior to or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
29.2 Lessee agrees to execute any documents required to effectuate
an attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be; provided that any
holder of any mortgage, deed of trust or similar security instrument or any
ground lessor shall agree in writing that in the event any mortgage, deed of
trust or security instrument is foreclosed or a conveyance in lieu of
foreclosure is made, or any ground lease or underlying lease terminates,
Lessee's quiet enjoyment and possession of the Premises and other rights under
this Lease shall not be disturbed so long as Lessee is not in default under the
terms and provisions of this Lease beyond any applicable notice and cure period
and subject to any standard exclusions to Lessee's rights under the Lease which
any holder or any ground lessor may require in such writing. Lessee's failure to
execute such documents within ten (10) business days after written demand shall
constitute a default by Lessee hereunder without further notice to Lessee.
30. Hazardous Materials.
30.1 Use of Hazardous Materials. During the term of this Lease,
Lessee shall not generate, handle, place, store, or use, or permit (either
knowingly or as the result of the negligence of Lessee) the generation,
handling, storage, disposal or use of, Hazardous Materials in, on, about, or
under the Premises, including without limitation the soils and groundwater
thereunder, without Lessor's written consent. Lessee shall not dispose of,
discharge or release any Hazardous Materials in, on or about the Premises or any
adjoining property, or into the air above, or the ground or groundwater below,
the Premises or any adjoining property. Notwithstanding any provision of this
Article 30 to the contrary, Lessee shall have the right to store and use
reasonable quantities of normal office and cleaning supplies on the Premises.
All such office and cleaning supplies shall be stored, used and disposed of in
compliance with all laws.
30.2 Lessee's Indemnification. Lessee hereby indemnifies, and
agrees to protect, defend and hold Lessor harmless from and against all
liability, costs, claims, judgments, losses, demands, causes of action,
proceedings or hearings, including Lessor's reasonable attorneys' fees and court
costs, relating to Lessee or its agents, employees, contractors or invitees'
generation, handling, placement, discharge, release, storage, disposal, or use
of Hazardous Materials on or about the Premises by Lessee or its agents,
employees, contractors or invitees during the term of this Lease. Lessee shall
reimburse Lessor upon demand for (a) all losses in or reductions to rental
income or value of the Premises resulting from the generation, handling,
placement, discharge, release, storage, disposal, or use of Hazardous Materials
on or about the Premises during the term of this Lease;
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(b) all costs of cleanup or other alterations to the Premises necessitated by
the generation, handling, placement, discharge, release, storage, disposal, or
use of Hazardous Materials by Lessee or its agents, employees, contractors or
invitees on or about the Premises during the term of this Lease, including, but
not limited to, all civil and criminal fines, penalties and sanctions; and (c)
all reasonable attorneys fees and court costs incurred by Lessor in connection
with the generation, handling, placement, discharge, release, storage, disposal,
or use of Hazardous Materials by Lessee or its agents, employees, contractors or
invitees on or about the Premises during the term of this Lease.
30.3 Hazardous Materials Documents. Prior to the Commencement Date,
Lessee shall deliver to Lessor in writing (a) a list of all Hazardous Materials
which Lessee proposes to generate, handle, store, dispose of, or otherwise use
in, on or about the Premises, including the proposed quantities of each
Hazardous Material, the proposed location for the storage of each Hazardous
Material and the proposed method for storage and security of each Hazardous
Material, (b) copies of all governmental permits, authorizations, approvals and
consents required with respect to the proposed generation, handling, storage, or
use of Hazardous Materials by Lessee in, on or about the Premises, or the
disposal of Hazardous Materials by Lessee, (c) any Hazardous Materials
management plan required to be prepared by Lessee with respect to Lessee's
generation, handling, storage, or use of Hazardous Materials in, on or about the
Premises, or the disposal of Hazardous Materials by Lessee, and (d) the methods
proposed by Lessee for the transportation and disposal of Hazardous Materials
generated, handled, stored, or used (or the wastes or by-products of Lessee's
operations) in, on or about the Premises, including the names, addresses and
telephone numbers of all licensed transportation and disposal contractors to be
used by Lessee and copies of the contracts between Lessee and such licensed
transportation and disposal contractors. Lessee shall give Lessor written notice
prior to bringing onto the Premises any Hazardous Materials which are not listed
on the list of Hazardous Materials previously provided to and approved in
writing by Lessor or prior to increasing the quantity of any Hazardous Materials
generated, handled, stored or used in, on or about the Premises. Lessee's shall
provide to Lessor updated information regarding Lessee's generation, handling,
storage, disposal, and use of Hazardous Materials upon the written request of
Lessor, but in all events not less frequently than semi-annually.
30.4 Notices. Either party shall promptly after receipt thereof
deliver to the other party a copy of any notice received by such party from any
governmental agency or entity proposing or threatening remedial action or
alleging a violation of any law, rule or regulation relating to the physical or
environmental condition of the Premises including, but not limited to, any
alleged generation, handling, placement, discharge, release, storage, disposal,
or use of Hazardous Materials in, on or about the Premises or any adjoining
property. Lessee shall, with the concurrence and reasonable approval of Lessor,
perform any and all clean-up, remediation, or other action required by an
governmental agency or entity required in connection with the generation,
handling, placement, discharge, release, storage, disposal or use of Hazardous
Materials by Lessee or its agents, employees, contractors or invitees in, on or
about the Premises or any adjoining property.
30.5 Definition. As used herein, the term "Hazardous Materials"
means any substance, material, waste, chemical, mixture or compound which: (a)
is flammable, ignitable, radioactive, hazardous, toxic, corrosive or reactive,
and which is regulated under law or by a public entity, (b) is a "Hazardous
Substance" as defined or listed under the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), or any regulations
promulgated thereunder, as amended, (c) is crude oil, petroleum, natural gas, or
distillates or fractions thereof, and/or (d) damages or threatens to damage
health, safety, or the environment, or is required by any
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law or public entity to be remediated, including remediation which such law or
public entity requires in order for property to be put to any lawful purpose.
30.6 Asbestos. Pursuant to applicable law, Lessor hereby notifies
Lessee of the presence of asbestos containing materials in, on or about the
Premises. Such notification is more fully set forth in Exhibit C attached
hereto.
31. Attorneys' Fees. In the event of any dispute between the parties
arising under this Lease, or the breach of any covenant or condition under this
Lease, then the prevailing party shall be entitled to have and recover from the
party not so prevailing, the prevailing party's reasonable costs and reasonable
attorneys' fees incurred in any dispute, collection or attempted collection,
negotiation relative to the obligations contained herein, or action or
proceeding brought to enforce this Lease, whether such costs and fees are
incurred in taking any action under this Lease or in any judicial proceeding
(including appellate proceeding). "Prevailing party" for the purposes of this
Article 31 shall include, without limitation, the party who receives from the
other party the sums allegedly due, performance of the covenants allegedly
breached, consideration substantially equal to that which was demanded, or
substantially the relief or consideration sought, whether or not any judicial
proceeding is commenced or prosecuted to final judgment, or a party who
dismisses a judicial action in return for substantially the performance or
relief sought or in the payment of the sums allegedly due.
32. Lessor's Access. Upon not less than twenty-four (24) hours' prior
notice to Lessee, except in the event of an emergency in which event no notice
shall be required, Lessor and Lessor's agents shall have the right to enter the
Premises at all reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises of which they
are part as Lessor may deem reasonably necessary or desirable. Lessor may during
the last nine (9) months of the term of this Lease, or during any period that
Lessee is in default under this Lease after the giving of any required notice
and the elapse of any period of cure provided for in Section 13.1 of this Lease,
place on or about the Premises any ordinary "For Sale" or "For Lease" signs. All
reasonable activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
In the event of an emergency, Lessor and Lessor's agents shall have the right to
enter upon the Premises by any means including, but not limited to, forcible
entry. In exercising such right of entry, Lessor shall use reasonable efforts to
minimize any interference with the business operations of Lessee on the Premises
occasioned by any such entry.
33. Signs. Lessee, at its sole cost and expense, shall have the
exclusive right to place a sign on the Premises and on the monument sign with
Lessor's prior written consent as to content, size and form, which consent shall
not be unreasonably withheld or delayed. Under no circumstances shall Lessee
place a sign on any roof of the Building. All of Lessee's signs shall comply
with the requirements of the covenants, conditions and restrictions of record
and the requirements of the City of Sunnyvale, California. All sign(s) shall be
removed by Lessee and the Premises restored, at the sole cost and expense of
Lessee, upon the expiration or sooner termination of the term of this Lease.
34. Merger. The voluntary or other surrender of this Lease by Lessee or
a mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
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35. Security Measures. Lessee hereby acknowledges that Lessor shall have
no obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises. Lessee assumes all responsibility for the
protection of Lessee, its employees, agents, and invitees and the property of
Lessee and of Lessee's employees, agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Premises or any part thereof, in
which event the cost thereof shall be included within the definition of
Operating Expenses, as set forth in Section 4.3.1.
36. Easements. Lessor reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not materially
and permanently interfere with the use or access to of the Premises by Lessee as
permitted under this Lease. Lessee shall sign any of the aforementioned
documents upon request of Lessor and failure to do so shall constitute a
material default of this Lease by Lessee without the need for further notice to
Lessee.
37. Authority. If either party is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If either Lessor or Lessee is a
corporation, trust or partnership, it shall, concurrently with the execution of
this Lease, deliver to the other party hereto satisfactory evidence of such
authority.
38. Offer. Preparation of this Lease by Lessor or Lessor' agent and
submission of same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed and
delivered by Lessor and Lessee.
39. Interpretation. This Lease has been reviewed by both parties and
their respective legal counsel and this Lease shall be construed as a whole
according to its fair meaning, and not strictly for or against either Lessor or
Lessee.
40. Attachments. Attached to this Lease and made a part hereof are the
following:
Exhibit A - The Premises
Exhibit B - Letter of Credit
Exhibit C - Asbestos Notification
Exhibit D - Common Area (Parking Designation)/Site Plan
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY LESSOR OR ITS AGENTS OR
30
<PAGE> 36
EMPLOYEES OR BY THE REAL ESTATE BROKER(S) AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO;
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be
executed by their duly authorized representatives as of the day and year first
above written.
"LESSOR":
MARIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION
By: WOODMONT REAL ESTATE SERVICES, L.P.
a California limited partnership
Its: Management Agent
By: /s/ ROBERT ROUSE
----------------------------------
Robert Rouse,
President
LESSOR'S ADDRESS FOR NOTICES AND RENT:
c/o Woodmont Realty Advisors, Inc.
1050 Ralston Avenue
Belmont, California 94002
Attention: Chairman
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: James E. Anderson, Esq.
"LESSEE":
CEPHEID, a California corporation
By: /s/ THOMAS GUTSHALL
--------------------------------------
Thomas Gutshall, CEO
LESSEE'S ADDRESS FOR NOTICES:
The Premises
31
<PAGE> 37
EXHIBIT A
The Premises
All that certain real property, including improvements located thereon,
located in the City of Sunnyvale, County of Santa Clara, State of California,
described as follows:
Parcels 2, 3 and 4 as shown on that certain map entitled "Parcel Map for
Guy P. Atkinson Company being a portion of Rancho Pastoria De Los Borregas,
Grossman Sub. No. 2, T. J. Murphy Sub. No. 3" which map was filed for record in
the Office of the Recorder of the County of Santa Clara, State of California,
September 13, 1966, in Book 214 of Maps at Pages 20-23.
32
<PAGE> 38
EXHIBIT B
Letter of Credit
NAME AND ADDRESS OF FINANCIAL INSTITUTION
IRREVOCABLE CREDIT NO. ________________________
DATE OF ISSUE_____________________, 19__
APPLICANT:
Cepheid
__________________________
__________________________
BENEFICIARY:
Marin County Employees Retirement Association
c/o Woodmont Realty Advisors, Inc.
1050 Ralston Avenue
Belmont, California 94002
AMOUNT OF CREDIT:
______________________ UNITED STATES DOLLARS (US $_____)
EXPIRATION DATE:
___________________, 19__
(not less than six (6) months from the Date of Issuance)
Gentlemen:
We hereby authorize you to draw upon ______________ (Name of Financial
Institution) for the account of Cepheid ____ ("Cepheid") in the amount as
certified below, up to the aggregate amount of US $______ (United States
Dollars _____________) available by your draft at sight to be accompanied by
the following document:
A written statement certified under penalty of perjury as true by an
officer of Woodmont Realty Advisors, Inc. or Marin County Employees Retirement
Association stating that:
(1) Lessee (as defined in the Lease) is in default in payment of Base Rent
under that certain Standard Industrial Lease by and between Cepheid and Marin
County Employees Retirement Association dated as of September __, 1997 (the
"Lease"), that the applicable period for cure (if any) of such default has
expired and that the default of Lessee has not been cured, OR
33
<PAGE> 39
EXHIBIT B
(2) Lessee is in default of any term, provision, covenant or condition of
the Lease, that the applicable period for cure (if any) of such default has
expired, that the default of Lessee has not been cured, OR
(3) Cepheid has failed to renew or replace this Letter of Credit as
required under the provisions of the Lease not less than thirty (30) business
days prior to the date of expiration of this Letter of Credit.
AND further stating the amount to cure and/or compensate Marin County Employees
Retirement Association for any default of Lessee under the Lease as of the date
of the certification. Cepheid's failure to renew or replace the Letter of
Credit pursuant to Paragraph 3 above shall result in the entire amount of the
Letter of Credit being paid to Marin County Employees Retirement Association,
as an additional security deposit under the Lease.
Partial drawings are permitted.
Drafts under this credit must be marked "Drawn under ______________ (Name
of Financial Institution) Credit No. _______ dated ___________ (Date of Letter
of Credit) and presented to its office at _____________________ (Address of
Financial Institution) not later than _________________, 19__ (Expiration Date
of Letter of Credit).
This Letter of Credit must accompany any draft and documents presented to
us for payment.
Unless otherwise expressly stated, this credit is subject to the "Uniform
Custom and Practice For Documentary Credits (1983 Revision), International
Chamber of Commerce.
We hereby undertake that drafts drawn in compliance with the terms of this
Credit will be duly honored by us.
(Name of Financial Institution)
___________________________
Authorized Officer
___________________________
Authorized Officer
34
<PAGE> 40
EXHIBIT C
Asbestos Notification
NOTICE TO EMPLOYEES, LESSEES AND CONTRACTORS
1190 BORREGAS AVENUE, SUNNYVALE, CA
California Health and Safety Code Sections 25915, 25916, 25917, 25920,
25924, 25915.1, 25915.2, 25916.5 and 25923.1, effective, as amended, September
26, 1989, require that certain notifications be given annually to tenants,
employees and contractors regarding commercial and public buildings in which
asbestos-containing materials (ACM) are present. We are providing this annual
notice to you in compliance with this law.
The FPE Group, an independent environmental engineering firm has reviewed
1190 Borregas Avenue, Sunnyvale, CA and has confirmed that ACMs are present. The
building's floor tiles, linoleum and their glues contain asbestos. Roof patching
material from around pipes on the roof contain asbestos. Some roofing felts also
contain asbestos.
Building Management has formulated an asbestos operations and maintenance
plan regarding policies, plans and work procedures for work in or to areas of
the building in which ACM is located. Building Management has prepared rules for
tenants and contractors, which are part of the asbestos operations and
maintenance plan and which require tenants, contractors and other workers to
obtain work permits for work which may distribute ACM, and to perform such work
in compliance with the asbestos work procedures. The asbestos operations and
maintenance plan is designed to protect the health and safety of tenants,
employees, contractors and others. Any and all work in the building shall be
performed in compliance with the asbestos operations and maintenance plan and
these attached work rules.
Inhalation of asbestos fibers has been associated with an increased risk
of developing cancer, or asbestosis among workers who have been exposed to high
levels of asbestos for long periods of time. The known risks of low-level
non-occupational asbestos exposure which one might encounter inside buildings is
very low as long as the ACMs are not damaged or disturbed and the fibers do not
become airborne. Asbestos is listed by the State of California as a chemical
known to cause cancer (as listed under 22CCR Section 12000). The major reason
for implementing the asbestos operations and maintenance plan is to prevent
airborne asbestos exposure of building occupants. If you would like to obtain
further information regarding potential risks or impacts of airborne asbestos,
please contact the California Occupational Safety and Health Administration at
(415) 557-1677.
ACM survey reports which collectively identify the presence, type and
location of ACM in the Building, and include a description of the polarized
light microscopy bulk sample analyses procedures of suspected ACM have been
completed and are maintained at the corporate offices in Belmont. A summary of
these results is contained in the attached "Asbestos Work Rules." These
documents covered by the notification law are available for you to review.
Copies may be obtained upon request at a cost of $.20 per page. Please do not
hesitate to call Robert Rouse at (415) 592-3960 if you wish to arrange for
access to these materials. If you or your employees are unable to come to the
corporate offices, we will work with you to make mutually convenient alternate
arrangements.
34
<PAGE> 41
RE: AB 3713/
AMENDMENT: AB 1564
ASBESTOS WORK RULES FOR TenantS & CONTRACTORS
1190 BORREGAS AVENUE, SUNNYVALE, CA
The above referenced building has been reviewed by our independent
environmental engineering firm, The FPE Group. This review indicates that the
linoleum backing, floor tiles and their glue contain asbestos. Roofing patching
material from around pipes on the roof contain asbestos. We have been advised
that the asbestos-containing materials (ACM) do not represent a problem unless
their fibers are damaged or disturbed and the fibers become airborne. Compliance
with this notice should ensure that the ACM will not become airborne.
The ACM floor tiles should not be power sanded, power grinded, power
scraped, sawed or otherwise removed.
Neither the tenant nor his contractor shall perform any construction
maintenance activity that may damage or disturb ACMs without prior written
authorization from the building owner. Such written request for permission to
disturb ACMs shall include the qualifications and previous experience of the
contractor who will do the work, a detailed description of his work procedures,
plans for monitoring and responding to any airborne asbestos fiber release that
may be created by the work, and names and credentials of any third party
consultants hired to monitor the work. The tenant and his contractors shall
provide other information as the owner may reasonably request from time to time
relating to the subject work.
If you should have any questions regarding this notice, please call Robert
Rouse at the Woodmont office (415) 592-3960.
Hazardous Materials Warning
California Health and Safety Code Section 25359.7(b) requires any tenant
of real property who knows, or has reasonable cause to believe, that due to his
activities or the activities of others, that any release of a hazardous
substance has come to be located on or beneath such real property to give
written notice of such condition to the owner. Tenant shall comply with the
requirements of Section 25359.7(b) and any successor statute thereto and with
all other statutes, laws, ordinances, rules, regulations and orders of
governmental authorities with respect to hazardous substances. Landlord shall
have the right to pursue all legal and equitable remedies available to it in the
event of failure of Tenant to comply with the requirements of this Section.
Asbestos. Certain construction materials used in this building have been
identified as containing asbestos (hereinafter referred to as "ACM"). Those
materials that have been identified as ACM are certain roofing materials, roof
sealants, square vinyl floor tiles and linoleum and their mastic/glue. In order
to preserve the air quality of the Building, Landlord has established, and from
time to time may modify, rules and regulations governing the manner in which
alterations and improvements are to be undertaken in the areas where ACMs are
located. Tenant shall comply with all such rules and regulations established by
Landlord. Landlord hereby specifically reserves the right of access for
35
<PAGE> 42
inspection, repair, removal and/or abatement to all areas of the Premises where
ACM in any form may be found or is suspected to exist at any time during the
term hereof. If any governmental entity promulgates or advises a statute,
ordinance, code or regulation, or imposes mandatory or voluntary controls or
guidelines with respect to any ACMs in the Building, or if the Landlord is
required or elects to make alterations to or to remove any ACMs in the Building,
Landlord may in its sole discretion, comply with such mandatory or voluntary
controls or guidelines or make such alterations or remove such ACMs. Neither
such compliance, nor the making of alterations, nor the removal of all or a
portion of any ACMs, shall in any event, entitle Tenant to any damages, relieve
Tenant of the obligation to pay any sums due hereunder or perform any other of
Tenant's obligations hereunder, or constitute or be construed as a constructive
or other eviction of Tenant or interference with Tenant's right to quiet
enjoyment of the Premises. To the extent that such compliance is necessitated
by, or its cost is increased by, any act, error or omission of Tenant or
Tenant's agents, employees, representatives or contractors, Tenant shall pay
Landlord the cost, or increased cost of such compliance or alteration and such
cost shall not be included as an expense of building operations. In compliance
with Section 25915 of the Health and Safety Code (Connelly Bill), you are hereby
provided with a "Notice to Employees, Tenants and Contractors" and "Asbestos
Work Rules for Tenants & Contractors," attached hereto, respectively, as Exhibit
"A" and Exhibit "B". In accordance with Proposition 65 and the regulations
promulgated thereunder which require that persons subject to "environmental
exposure" to certain designated chemicals, such as asbestos, receive warnings,
you are advised that:
WARNING: THIS BUILDING CONTAINS ASBESTOS, A CHEMICAL KNOWN TO THE STATE OF
CALIFORNIA TO CAUSE CANCER.
36
<PAGE> 43
EXHIBIT D
Common Area (Parking Designation)/Site Plan
[TO BE ATTACHED]
<PAGE> 1
EXHIBIT 10.2
CONSENT OF LANDLORD
Pursuant to a Lease Agreement (the "Lease") dated for reference purposes as
of October 7, 1998 between AMB Property, L.P., a Delaware limited partnership
("Landlord") and SIMCO Electronics, a California corporation ("Tenant") relating
to premises commonly known as 1178 Bordeaux Drive, Sunnyvale, California and
consisting of 31,320 square feet of leaseable area as more fully described in
the Lease, in the County of Santa Clara (the "Premises"), Tenant has requested
that Landlord consent to Tenant's Sublease to Cepheid, a California corporation
("Subtenant") of the northwesterly half of the Premises, consisting of
approximately 14,125 square feet of leaseable area as more fully described in
Exhibit 2 attached to the Sublease (the "Subleased Premises") on the terms and
conditions set forth in the Sublease dated March 9, 2000 and attached to this
Consent as Exhibit "A" (the "Sublease").
In consideration of Tenant's and Subtenant's execution of this Consent of
Landlord and agreement to the terms and conditions set forth in this Consent,
Landlord consents to the Sublease of the Subleased Premises on the following
terms and conditions:
1. SUBRENT: Tenant represents and warrants to Landlord that the Sublease
contains a complete and accurate statement of all subrent and other
consideration received or to be received from Subtenant.
2. NO WAIVER: This Consent does not constitute consent to any subsequent
subletting or assignment, nor a waiver of the restriction on assignment and
subletting contained in the Lease.
3. TENANT'S PRIMARY OBLIGATIONS: Nothing herein shall release or alter
the primary obligations of Tenant under the Lease, nor shall this Consent be
deemed to create contractual obligations on the part of Landlord to the
Subtenant. By executing this Consent, Subtenant agrees to assume all obligations
of Tenant under the Lease related to the Subleased Premises arising after the
date hereof and to remain jointly and severally liable therefore with Tenant.
4. COSTS AND ATTORNEY'S FEES: This consent is conditional upon Landlord's
receipt of the Landlord's reasonable costs and attorney's fees, to which
Landlord is entitled under the Lease. Tenant shall immediately reimburse
Landlord for such fees and costs upon receipt of Landlord's statement.
5. NO EFFECT ON LEASE: In no event shall Landlord's consent to this
Sublease be, or be construed as, a modification of the terms of the Lease, and
in the event of any inconsistency between any term of the Sublease and the terms
of the Lease, the terms of the Lease shall prevail.
<PAGE> 2
CONSENT OF LANDLORD
- --------------------------------------------------------------------------------
6. HAZARDOUS MATERIALS: (a) Subtenant, at its sole cost, shall comply
with all laws relating to the storage, use, and disposal of Hazardous Materials
(as defined in the Lease) that Subtenant, its agents, employees, contractors,
or invitees bring or permit to be brought on to the Subleased Premises or on
the Premises or the Property. If Subtenant does store, use, or dispose of any
Hazardous Materials, Subtenant shall notify Landlord in writing at least five
(5) days prior to their first appearance on the Subleased Premises, and unless
disclosed prior to the execution of this Consent in a response provided by
Subtenant to Landlord's Hazardous Materials Questionnaire or other written
disclosure, such Hazardous Materials shall not be stored, used, or disposed of
on the Subleased or Premises without Landlord's advance written approval.
Subtenant shall be subject to all obligations of Tenant under the Lease
relating to Hazardous Materials (as defined therein).
(b) Subtenant shall be responsible for and shall defend, indemnify, and
hold Landlord and its agents harmless from and against all claims, costs and
liabilities, including attorney's fees and costs, arising out of or in
connection with the storage, use, or disposal of Hazardous Materials in or
about the Subleased Premises, the Premises, or the Property by Subtenant, its
agents, employees, contractors, or invitees which occur prior to or after the
Effective Date, but Tenant shall remain responsible for any such matters to the
extent set forth in the Lease, and Subtenant's responsibility and duty as set
forth above shall not relieve Tenant of its responsibilities and duties
pursuant to the Lease.
7. CONSTRUCTION AND SIGNAGE: Any and all construction to be performed by
Tenant or Subtenant on the Subleased Premises shall be subject to the advance
written approval of Landlord as set forth in the Lease. Any signage called for
in the Sublease shall be subject to Landlord's approval as per the terms of the
Lease, and subject to the procurement of approval and permits from the City of
Sunnyvale. By approving the Sublease, Landlord shall not be deemed to have
approved any signage or construction referenced therein.
8. INSURANCE: The Subtenant shall comply with all of the provisions of
the Lease in regard to insurance as if it were the Tenant named thereunder, and
shall name the Landlord as an additional insured on all policies of insurance
required by the Sublease and the Lease, and provide the Landlord with a
documentary proof thereof as required by the Lease.
9. USE: Subtenant shall use the Subleased Premises only for the
following uses and for no other purpose: Uses described in Paragraph 12.2 of
the Sublease, but no uses that are not allowed under the Lease.
10. ASSIGNMENT OF TENANT'S RIGHTS: Tenant irrevocably assigns to Landlord,
<PAGE> 3
CONSENT OF LANDLORD
- --------------------------------------------------------------------------------
as security for the performance of each and all of Tenant's obligations under
the Lease, all rent and other consideration received or to be received from
Subtenant. Landlord, as assignee of Tenant, or a receiver appointed on
Landlord's application, may (but is not required to) collect such rent or other
consideration, provided, however, that until and unless Tenant commits an Event
of Tenant's Default under the Lease, Tenant shall have the right to collect such
rent or other consideration (subject to any obligation set forth in the Lease
whereby Tenant is to pay all or a part of such rent or other consideration to
Landlord). Such assignment shall be subject to the following terms and
conditions:
(a) Landlord may collect such rent or other consideration from
Subtenant only so long as Tenant shall continue to be in default of its
obligations under the Lease.
(b) Upon Landlord's written request following the occurrence of an
Event of Default under the Lease, Tenant shall execute such documents as
are reasonably requested by Landlord for the purpose of confirming to
Subtenant that Landlord has the right to collect all rent and other
consideration otherwise due to Tenant from such subtenant or assignee.
(c) Subtenant has the right and duty to pay rent or other
consideration otherwise due to Tenant directly to Landlord upon receipt
from Landlord of a written statement that an Event of Default exists under
the Lease, and in such event, each payment made by Subtenant to Landlord
shall be deemed to satisfy the obligations of Subtenant to Tenant, but only
to the extent of such payment.
(d) Subtenant's payment to Landlord pursuant to this assignment shall
not create or evidence any direct landlord tenant relationship between
Subtenant and Landlord, and Landlord may exercise all remedies to terminate
the Lease (including termination of Subtenant's possession of the Premises
or the Subleased Premises) in the event of any Event of Default by Tenant,
notwithstanding its receipt of any payment from Subtenant pursuant to this
assignment, unless the receipt of such payment completely cures Tenant's
default. The acceptance of a payment from Subtenant pursuant to this
assignment shall not affect Landlord's right to its remedies for Tenant's
default.
11. TERMINATION: This Sublease is and remains subject and subordinate to
the Lease, and a termination of the Lease for any reason (including but not
limited to a default of Tenant) shall terminate the Sublease.
- --------------------------------------------------------------------------------
<PAGE> 4
CONSENT OF LANDLORD
- --------------------------------------------------------------------------------
12. BROKERAGE COMMISSIONS: Notwithstanding anything set forth in the
Sublease, Landlord has no obligation to pay and will not pay commissions or
fees to any broker or finder in regard to the Sublease or Landlord's consent
thereto. Tenant and Subtenant will hold Landlord harmless and indemnify and
defend Landlord against any claims for brokerage commissions arising in regard
to the Sublease or Landlord's consent thereto.
LANDLORD: TENANT:
AMB PROPERTY, L.P., a Delaware SIMCO ELECTRONICS, a California
limited partnership corporation
By: AMB Property Corporation, a /s/ B.G. PHILLIPS
Maryland corporation, its --------------------------------------
general partner By B. G. Phillips, CFO
-----------------------------------
[Print Name and Title]
By: /s/ JOHN L. ROSSI Dated: 3/23/00
---------------------------- --------------------------------
SUBTENANT
Its: Vice President Cepheid, a California corporation
Dated: 3/28/00 /s/ THOMAS GUTSHALL
---------------------------- --------------------------------------
By Thomas Gutshall, CEO & GM
--------------------------------------
[Print Name and Title]
Dated: 3/23/00
--------------------------------------
<PAGE> 5
EXHIBIT A
[STANDARD INDUSTRIAL SUBLEASE LETTERHEAD]
1. PARTIES. This Sublease, dated, for reference purposes only, March 9, 2000,
is made by and between Simco Electronics (herein called "Sublessor") and
Cepheid (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Santa Clara, State of California, commonly known by the street address of
1178 Bordeaux Drive, and described as the north-westerly half of 1178 Bordeaux
Drive, Sunnyvale, CA 94089, consisting of approx. 14,125 square feet, as
depicted in Exhibit 2, hereto. Said real property, including the land and all
improvements thereon, is hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for 2 years commencing on
May 1, 2000 and ending on April 30, 2002 unless sooner terminated pursuant to
any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date, Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Lease or the obligations of Sublessee
hereunder or extend the term hereof, but in such case Sublessee shall not be
obligated to pay rent until possession of the Premises is tendered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within thirty (30) days from said commencement date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the parties
shall be discharged from all obligations thereunder. If Sublessee occupies the
Premises prior to said commencement date, such occupancy shall be subject to
all provisions hereof, such occupancy shall not advance the termination date
and Sublessee shall pay rent for such period at the initial monthly rates set
forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $See #12.1, in advance, on the first day of each month of
the term hereof. Sublessee shall pay Sublessor upon the execution hereof
$26,131.25 as rent for May, 2000. Rent must be paid without demand, deduction,
set-off or counter claim. Rent for any period during the term hereof which is
for less than one month shall be a prorata portion of the monthly installment.
Rent shall be payable in lawful money of the United States to Sublessor at the
address stated herein or to such other persons or at such other places as
Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $26,837.50 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all
or any portion of said deposit, Sublessee shall within ten (10) days after
written demand therefore deposit cash with Sublessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Sublessee's
failure to do so shall be a material breach of this Sublease. Sublessor shall
not be required to keep said deposit separate from its general accounts. If
Sublessee performs all of Sublessee's obligations hereunder, said deposit, or
so much thereof as has not theretofore been applied by Sublessor, shall be
returned, without payment of interest or other increment for its use to
Sublessee (or at Sublessor's option to the last assignee, if any, of
Sublessee's interest hereunder) at the expiration of the term hereof, and after
Sublessee has vacated the Premises. No trust relationship is created herein
between Sublessor and Sublessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for see Item #12.2
and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.2 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the
date of the execution hereof, subject to all applicable zoning, municipal,
county and state laws, ordinances, and regulations governing and regulating the
use of the Premises, and accepts this Sublease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Sublessee
acknowledges that neither Sublessor nor Sublessor's agents have made any
representation or warranty as to the suitability of the Premises for the
conduct of Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated 10/7, 1998 wherein AMB Property, L.P., a
Delaware Limited Partnership is the lessor, hereinafter referred to as the
"Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the words Lessor or
Landlord are used it shall be deemed to mean the Sublessor herein and wherever
in the Master Lease the words "Lessee" or "tenant" are used it shall be deemed
to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: 1.1 to 1.9, 1.11, 3, 12 + First Addendum #'s 1, 2, 3, 5, 7.
<PAGE> 6
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and affect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice form the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request form Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee
for any such rents so paid by Sublessee.
8.4 No changes or modification shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor, then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease or a separate consent to sublease, thereby giving its
consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantee sign this Sublease thereby giving guarantors consent
to this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any
one else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent of this Sublease shall not constitute a consent to
any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document or on a separate consent to sublease, shall constitute
their consent to the terms of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default
within ten service of such notice of default on Sublessee. If such default is
cured by Sublessee then Sublessee shall have the right to reimbursement and of
set from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to Bristol
Commercial Real Estate a licensed real estate broker, (herein called "Broker"),
a fee as set forth in a separate agreement between Sublessor and Broker, or in
the event there is no separate agreement between Sublessor and Broker, the sum
of $N/A for brokerage services rendered by Broker to Sublessor in this
transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor, herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, or if
Broker is the procuring cause of any lease, sublease, or sale pertaining to the
Premises or any adjacent property which Sublessor may own or in which Sublessor
has an interest, then as to any of said transactions Sublessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of the execution of this Sublease. Notwithstanding the foregoing
Sublessor's obligation under this Paragraph 10.2 is limited to a transaction in
which Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to
renew the Master Lease to purchase the Premises or any part thereof, or to lease
of purchase adjacent property which Master Lessor may own or in which Master
Lessor has an interest, or if Broker is the procuring cause of any other lease
or sale entered into between Sublessee and Master Lessor pertaining to the
Premises, any part thereof, or any adjacent property which Master Lessor owns
or in which it has an interest, then as to any of said transactions Master
Lessor shall pay to Broker a fee, in cash. In accordance with the schedule of
Broker in effect at the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any extension
on or renewal; upon the execution of any new lease, as to a new lease
transaction of the exercise of a right of first refusal to lease; or at the
close of escrow as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof,
shall be deemed to have assumed the respective obligations of Sublessor or
Master Lessor under this Paragraph 10. Broker shall be deemed to be a third
party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing
party in any such action, on trial and appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the Broker
named herein who seeks to enforce a right hereunder.
<PAGE> 7
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there
are additional provisions place the same here.]
See attached 12.1 through 12.14
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION RELATING
THERETO.
Executed at Sunnyvale, CA Simco Electronics
---------------------------- -----------------------------------
on March 13, 2000 By /s/ [SIGNATURE ILLEGIBLE], CFO
------------------------------------ ---------------------------------
address see Section 12.10 By
-------------------------------- ---------------------------------
--------------------------------
"SUBLESSOR" (CORPORATE SEAL)
Executed at Sunnyvale, CA Cepheid
---------------------------- -----------------------------------
By /s/ THOMAS L. GUTSHALL CEO,
on March 13, 2000 Chairman
------------------------------------ ---------------------------------
address see Section 12.10 By
-------------------------------- ---------------------------------
--------------------------------
"SUBLESSEE" (CORPORATE SEAL)
Executed at
---------------------------- -----------------------------------
on By
------------------------------------ ---------------------------------
address By
-------------------------------- ---------------------------------
--------------------------------
"MASTER LESSOR" (CORPORATE SEAL)
Executed at
---------------------------- -----------------------------------
on
------------------------------------ ---------------------------------
address By
-------------------------------- ---------------------------------
-------------------------------- "GUARANTORS"
<PAGE> 8
ATTACHMENT TO SUBLEASE BETWEEN SIMCO ELECTRONICS AND CEPHEID DATED MARCH 9,
2000 FOR A PORTION OF 1178 BORDEAUX DRIVE, SUNNYVALE, CA
12. ADDITIONAL PROVISIONS. In addition to the provisions of the Master Lease,
the following provisions apply to this Sublease:
12.1 RENT. Sublessee shall pay Sublessor base rent, on a "triple net" basis, as
follows:
(a) May 1, 2000 through April 30, 2001 - $1.85 per square foot per month
(b) May 1, 2001 through April 30, 2002 - $1.90 per square foot per month
12.2 USE OF PREMISES. Research and development, light assembly, materials
handling, sales and marketing, administration, demonstration laboratory and
other legal, related uses in accordance with the zoning and use regulations of
the City of Sunnyvale and any applicable Covenants, Conditions and Restrictions.
12.3 SUBLESSEE SHARE OF OPERATING EXPENSES. Sublessee will share Building and
Industrial Center operating expenses, real property taxes and other Landlord
common charges, as billed to sublessor by Landlord under the Master Lease, at
the rate of 45.1%. These amounts will be paid to Sublessor monthly in addition
to the rental specified above at the time and place designated for payment of
rent.
12.4 SUBLESSEE SHARE OF BUILDING UTILITIES AND SIMILAR COMMON COSTS.
(a) Sublessee will pay 45.1% of all Building utilities (e.g., water, gas,
electric) and maintenance (e.g., garbage collection, fire protection, HVAC
preventative maintenance agreement), excluding HVAC maintenance (other than the
preventative maintenance agreement), repair and replacement. Sublessee's share
of HVAC maintenance (other than the preventative maintenance agreement referred
to above) and repair will be 33.7% and will be limited to $2,000.00 per year. In
addition, Sublessor will pay for any required HVAC replacement, except for any
part(s) of HVAC (e.g., new air conditioning units) which Sublessee elects to
install at their own expense (with prior approval of Sublessor and Landlord).
For HVAC installed by Sublessee, Sublessee will pay 100% of all replacement
costs. Sublessor will invoice Sublessee monthly for these amounts and Sublessee
agrees to pay Sublessor within 10 days of receipt of an invoice.
(b) Sublessee will separately contract and pay for those services that are
not common to Sublessor and Sublessee (e.g., Sublessee telephone, janitorial,
etc.)
(c) Sublessee agrees to cooperate and coordinate with the Sublessor
regarding use of existing Premises security systems. Sublessee may install its
<PAGE> 9
own security system provided that it does not interfere in any way with the
existing Premises security system.
(d) Sublessor will contract and pay for maintenance (to include janitorial,
window cleaning, light replacement, etc.) of the Building common areas (break
room, lavatories, vending machine area and lobby) and will invoice Sublessee for
45.1% of the per square foot cost of such maintenance monthly. Sublessee agrees
to pay Sublessor within 10 days of receipt of an invoice.
12.5 SUBLESSOR ACCESS TO SUBLESSEE PREMISES. Sublessee agrees to afford
Sublessor 24-hour/7 day-per-week access to certain electrical closets located
within the subleased premises. Sublessor agrees to limit such access to 2
responsible managers.
12.6 LOBBY ACCESS. The Building lobby will be open to the public from 8 AM to 5
PM weekdays only (excluding Sublessor holidays: New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the day
following, and Christmas Day and the workday preceding or following as
determined annually by Sublessor). Sublessee agrees to provide their own lobby
access control to the subleased premises; Sublessor assumes no responsibility
for access control to any part of Sublessee's portion of the premises.
12.7 SUBLESSEE USE OF COMMON AREAS. Sublessee agrees to assume full
responsibility for the acts of its employees as relates to the common areas.
Sublessee agrees to fully cooperate with Sublessor in dealing with and resolving
any problems or issues relating to the common areas. Sublessor and Sublessee
agree to inform their employees that access to each other's portion of the
Premises is not permitted, except in cases of emergency (e.g., fire) or specific
invitation.
12.8 ENVIRONMENTAL. Sublessee will be responsible for insuring that only those
Hazardous Substances identified in the attached Exhibit 3 and approved for use
by the Landlord and the City of Sunnyvale will be kept in the premises or on
the common areas of the Industrial Center.
12.9 PAYMENT OF RENT. All amounts payable by Sublessee to Sublessor shall, until
further notice from Sublessor, be paid to:
SIMCO ELECTRONICS
POST OFFICE BOX 49108
SAN JOSE, CA 95161-9108
12.10 NOTICE. All notices will be made to the following addresses:
<PAGE> 10
CHIEF EXECUTIVE OFFICER
SIMCO ELECTRONICS
1178 BORDEAUX DRIVE
SUNNYVALE, CA 94089
(b) For Sublessee:
CHIEF EXECUTIVE OFFICER
CEPHEID
1190 BORREGAS AVENUE
SUNNYVALE, CA 94089
12.11 HOLDING OVER
Should Sublessee retain possession of the Premises or any part thereof beyond
the expiration of this sublease so that the Sublessor becomes liable for the
Rent Adjustment referred to in section 12 of the Master Lease, then Sublessee
will be liable to Sublessor for the full amount of said revaluation for the
entire Building, dollar for dollar, over the remaining term of the Master Lease
(May 1, 2002 through April 30, 2005) plus a 50% premium over that amount on the
portion of the premises occupied by Sublessee for the number of months actually
held over. Should a termination of the Master Lease as referred to in section
12 of the Master Lease result from a Holdover by Sublessee, Sublessee will be
liable for all costs and damages suffered by Sublessor (e.g., moving costs,
higher rental costs, etc.), including reasonable attorney fees, as a
consequence of having to leave the Premises.
12.12 SUBLETTING. Sublessee may not sublet their portion of the premises.
12.13 INSURANCE. Sublessee will provide Sublessor and Landlord with
certificates evidencing coverage as required in the Master Lease at least 10
days prior to occupancy. Sublessee and Landlord will be named as additional
insureds.
12.14 SIGNAGE. Sublessee will be entitled to use 45% of Sublessor's space
allowance on the Industrial Center's street sign ("monument"). Such monument
signage must comply with Landlord's specifications. Landlord and Sublessor
approval must be obtained in order to place any signage on the exterior of the
Premises. Any signage installed by Sublessee must be removed completely prior
to the end of the Sublease term. Sublessee agrees to pay any and all costs
associated with repairing any damage caused by installation and/or removal of
signage.
<PAGE> 1
EXHIBIT 10.3
1997 STOCK OPTION PLAN
OF
CEPHEID
1. PURPOSES OF THE PLAN.
The purposes of the 1997 Stock Option Plan (the "Plan") of Cepheid, a
California corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to
improve operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to accept
or continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS.
Every person who at the date of grant of an Option is a full-time
employee of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQOs or ISOs under this Plan. Every person who at the date
of grant is a consultant to, or non-employee director of, the Company or any
Affiliate (as defined below) of the Company is eligible to receive NQOs under
this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN.
Subject to the provisions of Section 6.1.1 of the Plan, the total
number of shares of stock which may be issued under options granted pursuant to
this Plan shall not exceed 2,000,000 shares of Common Stock. The shares covered
by the portion of any grant under the Plan which expires unexercised shall
become available again for grants under the Plan.
<PAGE> 2
4. ADMINISTRATION.
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or, either in its entirety or only insofar as required
pursuant to Section 4(b) hereof, by a committee (the "Committee") of at least
two Board members to which administration of the Plan, or of part of the Plan,
is delegated (in either case, the "Administrator").
(b) From and after such time as the Company registers a class of
equity securities under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), it is intended that this Plan shall be
administered in accordance with the disinterested administration requirements of
Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 16b-3"),
or any successor rule thereto.
(c) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its discretion: (i) to grant Options; (ii) to
determine the fair market value of the Common Stock subject to Options; (iii) to
determine the exercise price of Options granted; (iv) to determine the persons
to whom, and the time or times at which, Options shall be granted, and the
number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(d) All questions of interpretation, implementation, and application
of this Plan shall be determined by the Administrator. Such determinations shall
be final and binding on all persons.
(e) With respect to persons subject to Section 16 of the Exchange
Act, if any, transactions under this Plan are intended to comply with the
applicable conditions of Rule 16b-3, or any successor rule thereto. To the
extent any provision of this Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator. Notwithstanding the above, it shall be
the responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule 16b-3 or
any successor rule thereto, or if any such person incurs any liability under
Section 16 of the Exchange Act.
2
<PAGE> 3
5. GRANTING OF OPTIONS; OPTION AGREEMENT.
(a) No Options shall be granted under this Plan after ten years from
the date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option
agreement, in form satisfactory to the Company, executed by the Company and the
person to whom such Option is granted; provided, however, that the failure by
the Company, the optionee, or both to execute such an agreement shall not
invalidate the granting of an Option, although the exercise of each option shall
be subject to Section 6.1.3.
(c) The stock option agreement shall specify whether each Option it
evidences is an NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator
may approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NQOs shall be also subject to the terms and
conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.
6.1.2 Corporate Transactions.
(a) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify the Optionee at least thirty (30) days prior to such proposed action. To
the extent it has not been previously exercised, all Options will terminate
immediately prior to the consummation of such proposed action.
3
<PAGE> 4
(b) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company:
(i) Options. Each Option shall be assumed or an
equivalent option substituted by the successor corporation (including as a
"successor" any purchaser of substantially all of the assets of the Company) or
a parent or subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, the
Optionee shall have the right to exercise the Option as to all of the shares of
Common Stock covered by the Option, including Shares as to which it would not
otherwise be exercisable. If an Option is exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option shall terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets,
the option confers the right to purchase or receive, for each share of Common
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its parent entity, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Common Stock
subject to the Option, to be solely common stock of the successor corporation or
its parent entity equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.
(ii) Shares Subject to Right of Repurchase. Any Shares
subject to a Right of Repurchase of the Company shall be exchanged for the
consideration (whether stock, cash, or other securities or property) received in
the merger or asset sale by the holders of Common Stock for each share held on
the effective date of the transaction, as described in the preceding paragraph.
If in such exchange the Optionee receives shares of stock of the successor
corporation or a parent or subsidiary of such successor corporation, and if the
successor corporation has agreed to assume or substitute for Options as provided
in the preceding paragraph, such exchanged shares shall continue to be subject
to a Right of Repurchase as provided in the Optionee's Stock Option Plan stock
purchase agreement. If, as provided in the preceding paragraph, the Optionee
shall have the right to exercise an Option as to all of the shares of Common
Stock covered thereby, all Shares that are subject to a Right of Repurchase of
the Company shall be released from such Right of Repurchase and shall be fully
vested.
6.1.3 Time of Option Exercise. Subject to Section 5 and Section
6.3.4, Options granted under this Plan shall be exercisable (a) immediately as
of the effective date of the stock option agreement granting the Option, or (b)
in accordance with a schedule related to the date of the grant of the Option,
the date of first employment, or such other date as may be set by the
Administrator (in any case, the "Vesting Base Date") and specified in the
written stock option agreement relating to such Option; provided, however, that
the right to
4
<PAGE> 5
exercise an Option must vest at the rate of at least 20% per year over five
years from the date the Option was granted. In any case, no Option shall be
exercisable until a written stock option agreement in form satisfactory to the
Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. Except in the case of advance approvals
described in Section 5(d), the date of grant of an Option under this Plan shall
be the date as of which the Administrator approves the grant.
6.1.5 Nonassignability of Option Rights. No Option granted under
this Plan shall be assignable or otherwise transferable by the optionee except
by will or by the laws of descent and distribution. During the life of the
optionee, an Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion after
considering any tax or accounting consequences, may authorize any one or more of
the following additional methods of payment:
(a) Acceptance of the optionee's full recourse promissory
note for all or part of the Option price, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the
minimum interest rate specified under the Code at which no additional interest
would be imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without limitation,
by a security interest in the shares of the Company); and
(b) Delivery by the optionee of Common Stock already owned
by the optionee for all or part of the Option price, provided the value
(determined as set forth in Section 6.1.11) of such Common Stock is equal on the
date of exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock; provided, however, that if an
optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.
6.1.7 Termination of Employment.
(a) If for any reason other than death or disability, an
optionee ceases to be employed by the Company or any of its Affiliates (such
event being called a "Termination"), Options held at the date of Termination (to
the extent then exercisable) may be exercised in whole or in part at any time
within three months of the date of such Termination, or such other period of not
less than thirty days after the date of such Termination as is specified in the
Option Agreement (but in no event after the Expiration Date); provided, that if
such exercise of the Option would result in liability for the optionee under
Section 16(b) of the Exchange Act, then such three-month period automatically
shall be extended until the tenth day following the
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last date upon which optionee has any liability under Section 16(b) (but in no
event after the Expiration Date).
(b) If an optionee dies while employed by the Company or an
Affiliate or within the period that the Option remains exercisable after
Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative, or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within twelve months after the
death of the optionee, or such other period of not less than six months from the
date of Termination as is specified in the Option Agreement (but in no event
after the Expiration Date).
(c) If an optionee ceases to be employed by the Company as
a result of his or her disability, the optionee may, but only within six (6)
months from the date of Termination (and in no event after the Expiration Date),
exercise the Option to the extent otherwise entitled to exercise it at the date
of Termination; provided, however, that if such disability is not a "disability"
as such term is defined in Section 22(e)(3) of the Code, in the case of an ISO
such ISO shall automatically convert to an NQO on the day three months and one
day following such Termination. To the extent that the optionee was not entitled
to exercise the Option at the date of Termination or if the optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) For purposes of this Section 6.1.7, "employment"
includes service as a director or as a consultant. For purposes of this Section
6.1.7, an optionee's employment shall not be deemed to terminate by reason of
sick leave, military leave, or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
6.1.8 Repurchase of Stock. At the option of the Administrator,
the stock to be delivered pursuant to the exercise of any Option granted to an
employee, director or consultant under this Plan may be subject to a right of
repurchase in favor of the Company with respect to any employee, or director or
consultant whose employment, or director or consulting relationship with the
Company is terminated. Such right of repurchase either:
(a) shall be at the Option exercise price and (i) shall
lapse at the rate of at least 20% per year over five years from the date the
Option is granted (without regard to the date it becomes exercisable), and must
be exercised for cash or cancellation of purchase money indebtedness within 90
days of such termination and (ii) if the right is assignable by the Company, the
assignee must pay the Company upon assignment of the right (unless the assignee
is a 100% owned subsidiary of the Company or is an Affiliate) cash equal to the
difference between the Option exercise price and the value (determined as set
forth in Section 6.1.11) of the stock to be purchased if the Option exercise
price is less than such value; or
(b) shall be at the higher of the Option exercise price or
the value (determined as set forth in Section 6.1.11) of the stock being
purchased on the date of
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termination, and must be exercised for cash or cancellation of purchase money
indebtedness within 90 days of termination of employment, and such right shall
terminate when the Company's securities become publicly traded.
Determination of the number of shares subject to any such right of
repurchase shall be made as of the date the employee's employment by, director's
director relationship with, or consultant's consulting relationship with, the
Company terminates, not as of the date that any Option granted to such employee,
director or consultant is thereafter exercised.
6.1.9 Withholding and Employment Taxes. At the time of exercise
of an Option or at such other time as the amount of such obligations becomes
determinable (the "Tax Date"), the optionee shall remit to the Company in cash
all applicable federal and state withholding and employment taxes. If authorized
by the Administrator in its sole discretion after considering any tax or
accounting consequences, an optionee may elect to (i) deliver a promissory note
on such terms as the Administrator deems appropriate, (ii) tender to the Company
previously owned shares of Stock or other securities of the Company, or (iii)
have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option,
subject to the following limitations:
(a) Any election pursuant to clause (iii) above by an
optionee subject to Section 16 of the Exchange Act shall either (x) be made at
least six months before the Tax Date and shall be irrevocable; or (y) shall be
made in (or made earlier to take effect in) any ten-day period beginning on the
third business day following the date of release for publication of the
Company's quarterly or annual summary statements of earnings and shall be
subject to approval by the Administrator, which approval may be given at any
time after such election has been made. In addition, in the case of (y), the
Option shall be held at least six months prior to the Tax Date.
(b) Any election pursuant to clause (ii) above, where the
optionee is tendering Common Stock issued pursuant to the exercise of an Option,
shall require that such shares be held at least six months prior to the Tax
Date.
Any of the foregoing limitations may be waived (or additional
limitations may be imposed) by the Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations are not required (or
that such additional limitations are required) in order that the transaction
shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3,
or any successor rule thereto. In addition, any of the foregoing limitations may
be waived by the Administrator, in its sole discretion, if the Administrator
determines that Rule 16b-3, or any successor rule thereto, is not applicable to
the exercise of the Option by the optionee or for any other reason.
Any securities tendered or withheld in accordance with this Section
6.1.9 shall be valued by the Company as of the Tax Date.
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6.1.10 Other Provisions. Each Option granted under this Plan may
contain such other terms, provisions, and conditions not inconsistent with this
Plan as may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code. If Options provide for a right of first refusal in favor of the
Company with respect to stock acquired by employees, directors or consultants,
such Options shall provide that the right of first refusal shall terminate upon
the earlier of (i) the closing of the Company's initial registered public
offering to the public generally, or (ii) the date ten years after the grant
date as set forth in Section 6.1.4.
6.1.11 Determination of Value. For purposes of the Plan, the
value of Common Stock or other securities of the Company shall be determined as
follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System, its fair market value shall be the
closing sales price for such stock or the closing bid if no sales were reported,
as quoted on such system or exchange (or the largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
Wall Street Journal or similar publication.
(b) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the stock,
the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry and its management, and the values of stock
of other corporations in the same or a similar line of business.
6.1.12 Option Term. Subject to Section 6.3.5, no Option shall be
exercisable more than ten years after the date of grant, or such lesser period
of time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").
6.1.13 Exercise Price. The exercise price of any Option granted
to any person who owns, directly or by attribution under the Code currently
Section 424(d), stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate (a "Ten
Percent Stockholder") shall in no event be less than 110% of the fair market
value (determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
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6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section 6.1.13, the
exercise price of an NQO shall be not less than 85% of the fair market value
(determined in accordance with Section 6.1.11) of the stock subject to the
Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.1.13, the
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by exercise
of an ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within the meaning of Section 422 of the Code, the holder of the
stock immediately before the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 Vesting. Notwithstanding any other provision of this Plan,
ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured on the grant dates(s)) in any calendar year. For purposes of the
preceding sentence, an option "vests" when it first becomes exercisable. If, by
their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, the vesting
limitation described above shall be applied by deferring the exercisability of
those ISOs or portions of ISOs which have the highest per share exercise prices;
but in no event shall more than $100,000 in fair market value of stock (measured
on the grant date(s)) vest in any calendar year. The ISOs or portions of ISOs
whose exercisability is so deferred shall become exercisable on the first day of
the first subsequent calendar year during which they may be exercised, as
determined by applying these same principles and all other provisions of this
Plan including those relating to the expiration and termination of ISOs. In no
event, however, will the operation of this Section 6.3.4 cause an ISO to vest
before its terms or, having vested, cease to be vested.
6.3.5 Term. Notwithstanding Section 6.1.12, no ISO granted to any
Ten Percent Stockholder shall be exercisable more than five years after the date
of grant.
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7. MANNER OF EXERCISE.
(a) An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 6.1.6. The date the Company
receives written notice of an exercise hereunder accompanied by payment of the
exercise price will be considered as the date such Option was exercised.
(b) Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a shareholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP.
Nothing in this Plan or any Option granted thereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. FINANCIAL INFORMATION.
The Company shall provide to each optionee during the period such
optionee holds an outstanding Option, and to each holder of Common Stock
acquired upon exercise of Options granted under the Plan for so long as such
person is a holder of such Common Stock, annual financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall include, at a
minimum, a balance sheet and an income statement, and shall be delivered as soon
as practicable following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES.
Shares of Common Stock shall not be issued pursuant to the exercise of
an Option unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").
11. NONEXCLUSIVITY OF THE PLAN.
The adoption of the Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options other than under the Plan.
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12. MARKET STANDOFF.
Each Optionee, if so requested by the Company or any representative of
the underwriters in connection with any registration of the offering of any
securities of the company under the Securities Act shall not sell or otherwise
transfer any shares of Common Stock acquired upon exercise of Options during the
180-day period following the effective date of a registration statement of the
company filed under the Securities Act; provided, however, that such restriction
shall apply only to the first two registration statements of the Company to
become effective under the Securities Act which includes securities to be sold
on behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restriction until the end of such
180-day period.
13. AMENDMENTS TO PLAN.
The Board may at any time amend, alter, suspend or discontinue this
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding Options except to conform
this Plan and ISOs granted under this Plan to the requirements of federal or
other tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require shareholder approval unless (a)
shareholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
shareholder approval is advisable.
14. EFFECTIVE DATE OF PLAN.
This Plan shall become effective upon adoption by the Board provided,
however, that no Option shall be exercisable unless and until written consent of
the shareholders of the Company, or approval of shareholders of the Company
voting at a validly called shareholders' meeting, is obtained within 12 months
after adoption by the Board. If such shareholder approval is not obtained within
such time, Options granted hereunder shall terminate and be of no force and
effect from and after expiration of such 12-month period. Options may be granted
and exercised under this Plan only after there has been compliance with all
applicable federal and state securities laws.
Plan adopted by the Board of Directors on: January 31, 1997
Plan approved by Shareholders on: January 31, 1997
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EXHIBIT 10.4
CEPHEID
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. This Plan is intended to provide Employees of the Company and
its Designated Subsidiaries an opportunity to purchase Common Stock through
accumulated payroll deductions.
2. Definitions.
(a) "Administrator" means the Board or the persons appointed by the
Board to administer this Plan pursuant to Section 13.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means Cepheid, a California corporation.
(f) "Compensation" means all regular, straight-time gross earnings of
a Participant, including commissions but exclusive of payments for overtime,
shift premium, incentive compensation, incentive payments, bonuses and other
compensation.
(g) "Continuous Employment" means the absence of any interruption or
termination of service as an Employee. Continuous Employment shall not be
considered interrupted in the case of a leave of absence agreed to in writing by
the Company, provided that either (i) the leave does not exceed 90 days or (ii)
re-employment upon expiration of the leave is guaranteed by contract or statute.
(h) "Designated Subsidiaries" means the Subsidiaries that have been
designated by the Board from time to time in its sole discretion to participate
in this Plan.
(i) "Employee" means any person, including an officer, who is
employed for at least 20 hours per week by the Company or one of its Designated
Subsidiaries during at least 22 weeks in any calendar year. Whether an
individual qualifies as an Employee shall be determined by the Administrator, in
its sole discretion, by reference to Section 3401(c) of the Code and the
regulations promulgated thereunder; unless the Administrator makes a contrary
determination, the Employees of the Company shall, for all purposes of this
Plan, be those individuals who satisfy the customary employment criteria set
forth above and are carried as employees by the Company or a Designated
Subsidiary for regular payroll purposes.
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(j) "Purchase Date" means such business days during each Offering
Period of this Plan as may be identified by the Administrator pursuant to
Section 8.
(k) "Interim Offering Date" means the first business day following a
Purchase Date other than the last Purchase Date of an Offering Period.
(l) "Offering Date" means the first business day of an Offering
Period.
(m) "Offering Period" means a period established by the Administrator
pursuant to Section 4 during which payroll deductions are accumulated from one
or more Participants and applied to the purchase of Common Stock.
(n) "Participant" means an Employee who has elected to participate in
this Plan pursuant to Section 5.
(o) "Plan" means this Cepheid 2000 Employee Stock Purchase Plan.
(p) "Purchase Right" means a right to purchase Common Stock granted
pursuant to Section 7.
(q) "Subsidiary" means, from time to time, any corporation, domestic
or foreign, of which not less than 50% of the voting shares are held by the
Company or another Subsidiary of the Company.
3. Eligibility.
(a) Regular Participation. Any person who is, or will be, an Employee
on an Offering Date shall be eligible to participate in this Plan during the
corresponding Offering Period, subject to the requirements of Section 5(a).
(b) Interim Participation. Any person who becomes an Employee after
an Offering Date shall be eligible to participate in this Plan during the
corresponding Offering Period, but only on and beginning with the first Interim
Offering Date.
(c) No Participation by Five-Percent Stockholders. Notwithstanding
paragraphs (a) and (b) of this Section 3, an Employee shall not participate in
this Plan during an Offering Period if immediately after the grant of a Purchase
Right on the Offering Date or Interim Offering Date, the Employee (or any other
person whose stock would be attributed to the Employee under Section 424(d) of
the Code) would own stock possessing five percent or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary. For this purpose, an Employee is treated as owning stock that he or
she could purchase by exercise of Purchase Rights or other options.
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4. Offering Periods.
Unless otherwise determined by the Administrator:
(a) the first Offering Period under this Plan shall begin on the
first business day before the effective date of a firmly underwritten initial
public offering of Common Stock and shall end on the last business day of June
2002;
(b) the duration of each Offering Period (other than the first
Offering Period) shall be 24 months (measured from the first business day of the
first month to the last business day of the 12th month);
(c) a new Offering Period shall begin on the first business day after
the last Purchase Date of an Offering Period; and
(d) an Offering Period shall terminate on the first date that no
Participants are enrolled in it.
5. Participation.
(a) An Employee may become a Participant in this Plan by completing a
subscription agreement, in such form or forms as the Administrator may approve
from time to time, and delivering it to the Administrator within 15 days before
the applicable Offering Date or Interim Offering Date, unless another time for
filing the subscription agreement is set by the Administrator for all Employees
with respect to a given Offering Period. The subscription agreement shall
authorize payroll deductions pursuant to this Plan and shall have such other
terms as the Administrator may specify from time to time.
(b) At the end of an Offering Period, each Participant in the
Offering Period who remains an Employee shall be automatically enrolled in the
next succeeding Offering Period (a "Re-enrollment") unless, in a manner and at a
time specified by the Administrator, but in no event later than the day before
the Offering Date of such succeeding Offering Period, the Participant notifies
the Administrator in writing that the Participant does not wish to be
re-enrolled. Re-enrollment shall be at the withholding percentage specified in
the Participant's most recent subscription agreement unless the Participant
changes that percentage by timely written notice. No Participant shall be
automatically re-enrolled whose participation has terminated by operation of
Section 10.
6. Payroll Deductions.
(a) Each Participant shall have withheld a percentage of his or her
Compensation received during an Offering Period. Withholding shall be in whole
percentages of such Compensation, up to a maximum (not to exceed 15%)
established by the Administrator from time to time, as specified by the
Participant in his or her subscription agreement. Payroll deductions for a
Participant during an Offering Period shall begin with the first payroll
following
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the Offering Date or Interim Offering Date and shall end on the last Purchase
Date of the Offering Period, unless sooner terminated by the Participant as
provided in Section 10.
(b) All payroll deductions made by a Participant shall be credited to
the Participant's account under this Plan. A Participant may not make any
additional payments into such account.
(c) A Participant may reduce the rate of his or her payroll
deductions to 0% at any time during an Offering Period, effective 15 days after
the Participant files with the Administrator a new subscription agreement
authorizing the change. A Participant may make other changes to the rate of his
or her payroll deductions during an Offering Period effective the day after the
first Purchase Date that is at least 15 days after the Administrator's receipt
of a new subscription agreement authorizing the change.
7. Purchase Rights.
(a) Grant of Purchase Rights. On the Offering Date, or (if
applicable) Interim Offering Date of each Offering Period, the Participant shall
be granted a Purchase Right to purchase during the Offering Period the number of
shares of Common Stock determined by dividing (i) $25,000 multiplied by the
number of (whole or part) calendar years in the Offering Period by (ii) the fair
market value of a share of Common Stock on the Offering Date or Interim Offering
Date.
(b) Terms of Purchase Rights. Except as otherwise determined by the
Administrator, each Purchase Right shall have the following terms:
(i) The per-share price of the shares subject to a Purchase
Right shall be 85% of the lower of the fair market values
of a share of Common Stock on (a) the Offering Date, or
Interim Offering Date, on which the Purchase Right was
granted and (b) the Purchase Date. The fair market value of
the Common Stock on a given date shall be the closing price
as reported in the Wall Street Journal; provided, however,
that if there is no public trading of the Common Stock on
that date, then fair market value shall be determined by
the Administrator in its discretion.
(ii) Payment for shares purchased by exercise of Purchase Rights
shall be made only through payroll deductions under Section
6.
(iii) Upon purchase or disposition of shares acquired by exercise
of a Purchase Right, the Participant shall pay, or make
provision adequate to the Administrator for payment of, all
tax (and similar) withholdings that the Administrator
determines, in its discretion, are required due to the
acquisition or disposition, including without limitation
any such withholding that the Administrator determines in
its discretion is necessary to allow the Company and its
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Subsidiaries to claim tax deductions or other benefits in
connection with the acquisition or disposition.
(iv) During his or her lifetime, a Participant's Purchase Right
is exercisable only by the Participant.
(v) The Purchase Rights will in all respects be subject to the
terms and conditions of this Plan, as interpreted by the
Administrator from time to time.
8. Purchase Dates; Purchase of Shares; Refund of Excess Cash.
(a) The Administrator shall establish one or more Purchase Dates for
each Offering Period. Unless otherwise determined by the Administrator,
(i) the last business days of December 2000, June 2001,
December 2001 and June 2002 shall be the Purchase Dates of
the initial Offering Period under this Plan, and
(ii) the last trading day of each December and June during a
subsequent Offering Period shall be a Purchase Date.
(b) Each Participant's Purchase Right shall be exercised
automatically on each Purchase Date during the Offering Period, to purchase the
maximum number of full shares at the applicable price using the Participant's
accumulated payroll deductions.
(c) The shares purchased upon exercise of a Purchase Right shall be
deemed to be transferred to the Participant on the Purchase Date.
(d) Any cash remaining in a Participant's payroll deduction account
after the purchase of shares on a Purchase Date shall be carried forward in that
account for application on the next Purchase Date; provided that upon
termination of an Offering Period, any such cash shall be promptly refunded to
the Participant.
9. Registration and Delivery of Share Certificates.
(a) Shares purchased by a Participant under this Plan will be
registered in the name of the Participant, or in the name of the Participant and
his or her spouse, or in the name of the Participant and joint tenant(s) (with
right of survivorship), as designated by the Participant.
(b) As soon as administratively feasible after each Purchase Date,
the Company shall deliver to the Participant a certificate representing the
shares purchased upon exercise of a Purchase Right. If approved by the
Administrator in its discretion, the Company may instead (i) deliver a
certificate (or equivalent) to a broker for crediting to the Participant's
account or (ii) make a notation in the Participant's favor of non-certificated
shares on the Company's stock records.
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10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all, but not less than all, the
payroll deductions credited to his account under this Plan at any time before a
Purchase Date by giving written notice to the Administrator in a form the
Administrator prescribes from time to time. The Participant's Purchase Right
will automatically terminate on the date of receipt of the notice, all payroll
deductions credited to the Participant's account will be refunded promptly
thereafter, and no further payroll deductions will be made during the Offering
Period.
(b) Upon termination of a Participant's Continuous Employment for any
reason, including retirement or death, the payroll deductions credited to the
Participant's account will be promptly refunded to the Participant or, in the
case of death, to the person or persons entitled thereto under Section 14 of
this Plan, and the Participant's Purchase Right will automatically terminate.
(c) A Participant's withdrawal from an offering will not affect the
Participant's eligibility to participate in a succeeding offering or in any
similar plan that may be adopted by the Company.
11. Use of Funds; No Interest.
Amounts withheld from Participants' Compensation under this Plan shall
constitute general funds of the Company, may be used for any corporate purpose,
and need not be segregated from other funds. No interest shall accrue on a
Participant's payroll deductions.
12. Number of Shares Reserved.
(a) The following number of shares of Common Stock are reserved for
issuance under this Plan, and such number may be issued at any time before
termination of this Plan:
(i) Beginning the date of approval of this Plan by the
stockholders of the Company, 200,000 shares of Common
Stock; and
(ii) Beginning the first business day of each calendar year
starting January 1, 2001, the lesser of an additional (i)
200,000 shares of Common Stock, (ii) 0.75% of the
outstanding shares of capital stock on such date or (iii)
an amount determined by the Board.
(b) If the total number of shares that would otherwise be subject to
Purchase Rights granted on an Offering Date exceeds the number of shares then
available under this Plan (after deduction of all shares for which Purchase
Rights have been exercised or are then outstanding), the Administrator shall
make a pro-rata allocation of the available shares in a manner that it
determines to be as uniform and equitable as practicable. In such event, the
Administrator shall give written notice of the reduction and allocation to each
Participant.
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(c) The Administrator may, in its discretion, transfer shares
reserved for issuance under this Plan into a plan or plans of similar terms, as
approved by the Board, providing for the purchase of shares of Common Stock to
employees of Subsidiaries designated by the Board that do not (or do not
thereafter) participate in this Plan. Such additional plans may, without
limitation, provide for variances from the terms of this Plan to take into
account special circumstances (such as foreign legal restrictions) affecting the
employees of the designated Subsidiaries.
13. Administration.
This Plan shall be administered by the Board or by such directors,
officers, and employees of the Company as the Board may select from time to time
(the "Administrator"). All costs and expenses incurred in administering this
Plan shall be paid by the Company, provided that any taxes applicable to an
Employee's participation in this Plan may be charged to the Employee by the
Company. The Administrator may make such rules and reg ulations as it deems
necessary to administer this Plan and to interpret any provision of this Plan.
Any determination, decision, or action of the Administrator in connection with
the construction, interpretation, administration, or application of this Plan or
any right granted under this Plan shall be final, conclusive, and binding upon
all persons, and no member of the Administrator shall be liable for any such
determination, decision, or action.
14. Designation of Beneficiary.
(a) A Participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the Participant's account under
this Plan in the event of the Participant's death.
(b) A designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant, and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of the Participant's death, the Administrator shall deliver such shares
and/or cash to the executor or administrator of the Participant's estate, or if
no such executor or administrator has been appointed (to the Administrator's
knowledge), the Administrator, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant or, if no spouse, dependent, or relative is known to the
Administrator, then to such other person as the Administrator may designate.
15. Transferability.
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of a Purchase Right or to receive shares
under this Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way (other than by will, the laws of descent and distribution or as
provided in Section 14) by the Participant. Any such attempt at assignment,
transfer, pledge, or other disposition shall be without effect, except that the
Administrator may treat such act as an election to withdraw funds in accordance
with Section 10.
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16. Reports.
Individual accounts will be maintained for each Participant in this
Plan. Statements of account will be given to Participants promptly following
each Purchase Date, setting forth the amounts of payroll deductions, per-share
purchase price, number of shares purchased, and the remaining cash balance, if
any.
17. Adjustments upon Changes in Capitalization.
(a) Subject to any required action by the stockholders of the
Company, the number of shares of Common Stock covered by each Purchase Right
that has not yet been exercised and the number of shares of Common Stock that
have been authorized for issuance under this Plan but have not yet been placed
under a Purchase Right (collectively, the "Reserves"), as well as the price per
share of Common Stock covered by each Purchase Right that has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Administrator, whose determination shall be final, binding, and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to a Purchase
Right.
(b) In the event of the proposed dissolution or liquidation of the
Company, the then-current Offering Period will terminate immediately before the
consummation of such proposed action, unless otherwise provided by the Board or
the Administrator (if the Administrator is not the Board). In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation (if stockholders of the
Company own less than 50% of the total outstanding voting power in the surviving
entity or a parent of the surviving entity after the merger), each Purchase
Right shall be assumed or an equivalent purchase right shall be substituted by
the successor corporation or a parent or subsidiary of the successor
corporation, unless the successor corporation does not agree to assume the
Purchase Right or to substitute an equivalent purchase right, in which case the
Administrator may, in lieu of such assumption or substitution, accelerate the
exercisability of Purchase Rights and allow Purchase Rights to be exercisable
(if the Board approves) as to shares as to which the Purchase Right would not
otherwise be exercisable, on terms and for a period that the Administrator
determines in its discretion. To the extent that the Administrator accelerates
exercisability of Purchase Rights as described above, it shall promptly so
notify all Participants in writing.
(c) The Administrator may, in its discretion, also make provision for
adjusting the Reserves, as well as the price per share of Common Stock covered
by each outstanding
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Purchase Right, if the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of shares
of its outstanding Common Stock, or if the Company consolidates with or merges
into any other corporation.
18. Amendment or Termination.
(a) The Board may at any time terminate or amend this Plan. No
amendment may be made without prior approval of the stockholders of the Company
(obtained in the manner described in paragraph 20) if it would:
(i) Increase the number of shares that may be issued under this
Plan; or
(ii) Change the designation of the employees (or class of
employees) eligible for participation in this Plan.
(b) The Board may elect to terminate any or all outstanding Purchase
Rights at any time, except to the extent that exercisability of such Purchase
Rights has been accelerated pursuant to Section 17(b). If this Plan is
terminated, the Board may also elect to terminate Purchase Rights upon
completion of the next purchase of shares on the next Purchase Date or to permit
Purchase Rights to expire in accordance with their terms (with participation to
continue through such expiration dates). If Purchase Rights are terminated
before expiration, any funds contributed to this Plan that have not been used to
purchase shares shall be refunded to Participants as soon as administratively
feasible.
19. Notices.
All notices or other communications by a Participant to the Company or
the Administrator under or in connection with this Plan shall be deemed to have
been duly given when received in the form specified by the Administrator at the
location, or by the person, designated by the Administrator for that purpose.
20. Stockholder Approval.
This Plan shall be submitted to the stockholders of the Company for
their approval within 12 months after the date this Plan is adopted by the
Board.
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21. Conditions upon Issuance of Shares.
(a) Shares shall not be issued with respect to a Purchase Right
unless the exercise of such Purchase Right and the issuance and delivery of such
shares pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of a Purchase Right, the Company
may require the person exercising such Purchase Right to represent and warrant
at the time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned applicable provisions of law.
22. Term of Plan.
This Plan shall become effective upon the earlier to occur of its
adoption by the Board of Directors or its approval by the stockholders of the
Company as described in Section 20. It shall continue in effect for a term of 20
years unless sooner terminated under Section 19.
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EXHIBIT 10.5
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
OF
CEPHEID
1. PURPOSES OF THE PLAN
The purposes of the 2000 Non-Employee Directors' Stock Option Plan
of Cepheid, a California corporation, are: (a) to encourage Nonemployee
Directors to accept or continue their association with the Company; and (b) to
increase the interest of Nonemployee Directors in the Company's operations and
increased profits through participation in the growth in value of the Common
Stock of the Company.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the entity, either the Board or a
committee appointed by the Board, responsible for administering this Plan, as
provided in Section 5.
(b) "Affiliate" shall mean a parent or subsidiary corporation as
defined in the applicable provisions of the Code.
(c) "Annual Option" shall have the meaning set forth in Section
6(b).
(d) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Common Stock" shall mean the Common Stock of the Company.
(g) "Company" shall mean Cepheid, a California corporation.
(h) "Director Fee" shall mean the cash amount, if any, a
Nonemployee Director shall be entitled to receive for serving as a director of
the Company in any fiscal year.
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(i) "Fair Market Value" shall mean, as of the date in question,
the last transaction price quoted by the NASDAQ National Market System on the
date of grant; provided, however, that if the Common Stock is not traded on such
market system or the foregoing shall otherwise be inappropriate, then the Fair
Market Value shall be determined by the Administrator in good faith at its sole
discretion and on such basis as it shall deem appropriate. Such determination
shall be conclusive and binding on all persons.
(j) "Initial Option" shall have the meaning set forth in Section
6(a).
(k) "Nonemployee Director" shall mean any person who is a member
of the Board but is not an employee of the Company or any Parent or Subsidiary
of the Company and has not been an employee of the Company or any Parent or
Subsidiary of the Company at any time during the preceding 12 months.
(l) "Option" shall mean a stock option granted pursuant to this
Plan.
(m) "Option Agreement" shall mean the written agreement described
in Section 6(c) evidencing the grant of an Option to a Nonemployee Director and
containing the terms, conditions and restrictions pertaining to such Option.
(n) "Option Shares" shall mean the Shares subject to an Option
granted under this Plan.
(o) "Optionee" shall mean a Nonemployee Director who holds an
Option.
(p) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(q) "Plan" shall mean this 1999 Nonemployee Directors Stock Option
Plan of Cepheid, as it may be amended from time to time.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission, or any successor rule thereto.
(s) "Section" unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.
(t) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 7(a).
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(u) "Subsidiary" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section 424(f)
of the Code, but only for so long as it is a "subsidiary corporation".
3. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a Nonemployee
Director is eligible to receive Options under this Plan.
4. STOCK SUBJECT TO THIS PLAN
Subject to Section 7(a) of this Plan, the maximum aggregate number
of Shares which may be issued on exercise of Options granted pursuant to this
Plan is 200,000 Shares. The Shares covered by the portion of any grant under the
Plan which expires unexercised shall become available again for grants under the
Plan.
5. ADMINISTRATION
(a) This Plan shall be administered by the Board, or by a
committee (the "Committee") of at least two Board members to which
administration of the Plan is delegated (in either case, the "Administrator"),
in accordance with the requirements of Rule 16b-3.
(b) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its sole discretion: (i) to determine
the Fair Market Value of the Shares subject to Option; (ii) to interpret this
Plan; (iii) to prescribe, amend and rescind rules and regulations relating to
this Plan; (iv) to defer (with the consent of the Optionee) or accelerate the
exercise date of any Option; (v) to authorize any person to execute on behalf of
the Company any instrument evidencing the grant of an Option; and (vi) to make
all other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation and
application of this Plan shall be determined by the Administrator. Such
determination shall be final and binding on all persons.
6. GRANT OF OPTIONS
(a) Grant for Initial Election or Appointment to Board. Subject to
the terms and conditions of this Plan, if any person who is not an officer or
employee of the Company is first elected or appointed as a member of the Board
and is otherwise
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considered a "Nonemployee Director" as defined herein, then the Company shall
grant to such Nonemployee Director on such day an Option to purchase 15,000
Shares ("Initial Option") at an exercise price equal to the Fair Market Value of
such Shares on the date of such Initial Option grant, subject to the limitation
of Section 7(i).
(b) Grant for Re-election to Board. Subject to the terms and
conditions of this Plan, on the date of the first meeting of the Board
immediately following each annual meeting of stockholders of the Company (even
if held on the same day as the meeting of stockholders) the Company shall grant
to each Nonemployee Director then in office for longer than six months, an
Option to purchase 5,000 shares (the "Annual Option") at an exercise price equal
to the Fair Market Value of such Shares.
(c) No Option shall be granted under this Plan after ten years
from the date of adoption of this Plan by the Board. Each Option shall be
evidenced by a written Option Agreement, in form and substance satisfactory to
the Company, executed by the Company and the Optionee. Failure by the Company,
the Nonemployee Director, or both to execute an Option Agreement shall not
invalidate the granting of an Option; however, the Option may not be exercised
until the Option Agreement has been executed by both parties.
7. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms
and conditions set forth in this Section 7.
(a) Changes in Capital Structure. Subject to subsection 7(b), if
the Common Stock is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, or converted into or exchanged for other
securities as a result of a merger, consolidation, or reorganization,
appropriate adjustments shall be made in: (i) the number and class of shares of
Common Stock subject to this Plan and each Option outstanding under this Plan;
and (ii) the exercise price of each outstanding Option; provided, however, that
the Company shall not be required to issue fractional shares as a result of any
such adjustment. Each such adjustment shall be subject to approval by the
Administrator in its sole discretion.
(b) Time of Option Exercise. Subject to the other provisions of
this Plan, each Option shall be for a term of ten years. Each Option shall be
exercisable in full on the date of grant. At the discretion of the
Administrator, the Company shall have a right of repurchase of Option Shares.
The Administrator shall have the discretion to specify the times at which such
right of repurchase shall lapse; provided, however, that
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the right of repurchase must lapse at the rate of at least 20% per year over
five years from the date the option was granted.
(c) Limitation on Other Grants. The Administrator shall have no
discretion to grant Options under this Plan other than as set forth in Sections
6(a) and 6(b).
(d) Nonassignability of Option Rights. No Option shall be
assignable or otherwise transferable by the Optionee, except by will or the laws
of descent and distribution. During the life of an Optionee, an Option shall be
exercisable only by the Optionee.
(e) Payment. Except as provided below, payment in full, in cash,
shall be made for all Option Shares purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. Payment may also be made pursuant to a
cashless exercise/sale procedure. At the time an Option is granted or exercised,
the Administrator, in its absolute discretion, may authorize any one or more of
the following additional methods of payment: (i) acceptance of the Optionee's
full recourse promissory note for all or part of the Option price, less any par
value per share, which must be paid in cash, payable on such terms and bearing
such interest rate as determined by the Administrator (but in no event less than
the minimum interest rate specified under the Code at which no additional
interest on debt instruments of such type would be imputed), which promissory
note may be either secured or unsecured in such manner as the Administrator
shall approve (including, without limitation, by a security interest in the
Shares); (ii) delivery by the Optionee of Common Stock already owned by the
Optionee for all or part of the Option price, provided the Fair Market Value of
such Common Stock is equal on the date of exercise to the Option price, or such
portion thereof as the Optionee is authorized to pay by delivery of such stock;
provided, however, that if an Optionee has exercised any portion of any Option
granted by the Company by delivery of Common Stock, the Optionee may not, within
six months following such exercise, exercise any Option granted under this Plan
by delivery of Common Stock; and (iii) any other consideration and method of
payment to the extent permitted under the California Corporations Code.
(f) Termination as Director. Unless determined otherwise by the
Administrator in its absolute discretion, to the extent not already expired or
exercised, an Option shall terminate at the earlier of: (i) the expiration of
the term of the Option; or (ii) three months after the last day served by the
Optionee as a director of the Company; provided, that an Option shall be
exercisable after the date of termination of service as a director only to the
extent exercisable on the date of termination; and provided further,
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that if termination of service as a director is due to the Optionee's death or
"disability" (as determined in accordance with Section 22(e)(3) of the Code),
the Optionee, or the Optionee's personal representative (or any other person who
acquires the Option from the Optionee by will or the applicable laws of descent
and distribution), may at any time within 12 months after the termination of
service as a director (or such lesser period as is specified in the Option
Agreement but in no event after the expiration of the term of the Option),
exercise the rights to the extent they were exercisable on the date of the
termination.
(g) Withholding and Employment Taxes. At the time of exercise of
an Option (or at such later time(s) as the Administrator may prescribe), the
Optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. If authorized by the Administrator in its sole
discretion, an Optionee shall be permitted to elect, by means of a form of
election to be prescribed by the Administrator, to have shares of Common Stock
which are acquired upon exercise of the Option withheld by the Company or to
tender to the Company other shares of Common Stock or other securities of the
Company owned by the Optionee on the date of determination of the amount of tax
to be withheld as a result of the exercise of such Option (the "Tax Date") to
pay the amount of withholding taxes due. Any securities so withheld or tendered
shall be valued by the Company as of the Tax Date.
(h) Option Term. Each Option shall expire ten years after the date
of grant.
(i) Exercise Price. The exercise price of any Option granted to
any person who owns, directly or by attribution under the Code currently Section
424(d), stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Affiliate (a "Ten Percent
Stockholder") shall in no event be less than 110% of the fair market value
(determined in accordance with 2(i) of the stock covered by the Option at the
time the Option is granted.
8. MANNER OF EXERCISE
(a) An Optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 7(e) and, if required, by payment
of any federal or state withholding or employment taxes required to be withheld
due to exercise of the Option. The date the Company receives written notice of
an exercise accompanied by payment of the exercise price and any required
federal or state withholding or employment taxes will
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be considered as the date such Option was exercised. Unless otherwise provided
by the Administrator, Options may be exercised only twice in any calendar year.
(b) Promptly after the date an Option is exercised, the Company
shall, without stock issue or transfer taxes to the optionee or other person
entitled to exercise the Option, deliver to the Optionee or such other person a
certificate or certificates for the requisite number of shares of Common Stock.
An Optionee or transferee of an Optionee shall not have any privileges as a
stockholder with respect to any Common Stock covered by the Option until the
date of issuance of a stock certificate.
9. NO RIGHT TO DIRECTORSHIP
Neither this Plan nor any Option shall confer upon any Optionee any
right with respect to continuation of the Optionee's membership on the Board or
shall interfere in any way with provisions in the Company's Certificate of
Incorporation, as amended, and Bylaws, as amended, relating to the election,
appointment, terms of office, and removal of members of the Board.
10. FINANCIAL INFORMATION
The Company shall provide to each Optionee during the period the
Optionee holds an outstanding Option a copy of the financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall be delivered as soon
as practicable following the end of the Company's fiscal year during the period
Options are outstanding.
11. LEGAL REQUIREMENTS
The Company shall not be obligated to offer or sell any Shares upon
exercise of any Option unless the Shares are at that time effectively registered
or exempt from registration under the federal securities laws and the offer and
sale of the Shares are otherwise in compliance with all applicable securities
laws and the regulations of any stock exchange on which the Company's securities
may then be listed. The Company shall have no obligation to register the Shares
covered by this Plan under the federal securities laws or take any other steps
as may be necessary to enable the Shares covered by this Plan to be offered and
sold under federal or other securities laws. Upon exercising all or any portion
of an Option, an Optionee may be required to furnish representations or
undertakings deemed appropriate by the Company to enable the offer and sale of
the Shares or subsequent transfers of any interest in the Shares to comply with
applicable securities laws. Certificates evidencing Shares acquired upon
exercise of Options shall
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<PAGE> 8
bear any legend required by, or useful for purposes of compliance with,
applicable securities laws, this Plan or the Option Agreements.
12. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may adversely affect outstanding Options. No amendment
shall require stockholder approval unless:
(a) stockholder approval is required to meet the exemptions
provided by Rule 16b-3, or any successor rule thereto or under applicable state
statutes; or
(b) the Board otherwise concludes that stockholder approval is
advisable.
13. STOCKHOLDER APPROVAL; TERM
This Plan shall become effective upon adoption by the Board of
Directors; provided, however, that no Option shall be exercisable unless and
until written consent of holders of a majority of the outstanding shares of
capital stock of the Company, or approval by holders of a majority of shares of
capital stock of the Company present, or represented, and entitled to vote at a
validly called stockholders' meeting (or such greater number as may be required
by law or applicable governmental regulations or orders) is obtained within 12
months after adoption by the Board. This Plan shall terminate ten years after
adoption by the Board unless terminated earlier by the Board. The Board may
terminate this Plan at any time without stockholder approval. No Options shall
be granted after termination of this Plan, but termination shall not affect
rights and obligations under then-outstanding Options.
Adopted by the Board of Directors: March 17, 2000
Approved by the Stockholders: _______, 2000
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EXHIBIT 10.6
CEPHEID
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made as of this ____
day of March, 2000, by and between Cepheid, a California corporation (the
"Company"), and ________________, a [DIRECTOR/OFFICER] of the Company (the
"INDEMNITEE").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors or officers.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is beyond the personal resources of
directors and officers.
D. The Company believes that it is unfair for its directors and
officers to assume the risk of huge judgments and other expenses which may occur
in cases in which the director or officer received no personal profit and in
cases where the director or officer was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company are often
related to the knowledge, motives, and intent of such director or officer, that
he or she is usually the only witness with knowledge of the essential facts and
exculpating circumstances regarding such matters and that the long period of
time which usually elapses before the trial or other disposition of such
litigation often extends beyond the time that the director or officer can
reasonably recall such matters and may extend beyond the normal time for
retirement for such director or officer with the result that he or she, after
retirement or in the event of death, his or her spouse, heirs, executors or
administrators, may be faced with
<PAGE> 2
limited ability and undue hardship in maintaining an adequate defense, which may
discourage such a director or officer from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "BOARD") has concluded that, to retain and attract
talented and experienced individuals to serve as directors and officers of the
Company and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company to contractually
indemnify its directors and officers, and to assume for itself maximum liability
for expenses and damages in connection with claims against such directors and
officers in connection with their service to the Company, and has further
concluded that the failure to provide such contractual indemnification could
result in great harm to the Company and the Company's shareholders.
G. Section 317 of the California Corporations Code (the "CODE"), under
which the Company is organized ("SECTION 317"), empowers the Company to
indemnify persons who serve, at the request of the Company, as the directors,
officers, employees or agents of other corporations or enterprises, and
expressly provides that the indemnification provided by Section 317 is not
exclusive.
H. The Company is investigating obtaining director's and officer's
liability insurance ("D&O INSURANCE"). The Company believes that the interests
of the Company's shareholders would best be served by a combination of such
insurance as the Company may obtain in the future pursuant to the Company's
obligations hereunder and the indemnification by the Company of the directors
and officers of the Company.
I. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director of the Company free from undue concern for
claims for damages arising out of or related to such services to the Company.
J. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he or she is furnished the indemnity provided for herein.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
1.1 "AGENT" of the Company shall mean any person who is or was a
director, officer, employee or other agent of the Company or a Subsidiary (as
defined below); or is or was serving at the request of, for the convenience of,
or to represent the interests of the Company or a Subsidiary as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other
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enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
Subsidiary or was a director, officer, employee or agent of another enterprise
at the request of, for the convenience of, or to represent the interests of such
predecessor corporation.
1.2 "EXPENSES" shall mean all direct and indirect costs of any
type or nature whatsoever (including, without limitation, all attorneys' fees
and related disbursements, other out of pocket costs and reasonable compensation
for time spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party) actually and reasonably incurred
by the Indemnitee in connection with either the investigation, defense or appeal
of a proceeding or establishing or enforcing a right to indemnification under
this Agreement, Section 317 or otherwise; provided, however, that expenses shall
not include any judgments, fines, ERISA excise taxes or penalties or amounts
paid in settlement of a proceeding.
1.3 "PROCEEDING" shall mean any threatened, pending, or completed
action, suit or other proceeding, whether civil, criminal, administrative,
investigative or any other type whatsoever.
1.4 "SUBSIDIARY" shall mean any corporation of which more than 50%
of the outstanding voting securities is owned directly or indirectly by the
Company, by the Company and one or more other subsidiaries, or by one or more
other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve as a director and/or officer of the Company, at its will, so long as
the Indemnitee is duly appointed or elected and qualified in accordance with the
applicable provisions of the by laws of the Company or until such time as the
Indemnitee tenders his/her resignation in writing.
3. FUTURE LIABILITY INSURANCE. The Company hereby covenants and agrees
that the Company shall use its reasonable best efforts consistent with prudent
business practice to obtain and maintain in full force and effect D&O Insurance
in reasonable amounts from established and reputable insurers. The parties
acknowledge that such insurance may not be available at an acceptable price or
at all.
4. MANDATORY INDEMNIFICATION.
4.1 THIRD PARTY ACTIONS. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any Proceeding (other than an
action by or in the right of the Company) by reason of the fact that the
Indemnitee is or was an Agent of the Company, or by reason of anything done or
not done by the Indemnitee in any such capacity, the Company shall indemnify the
Indemnitee against any and all Expenses and liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA
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excise taxes or penalties, and amounts paid in settlement) actually and
reasonably incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of such proceeding if the Indemnitee acted in good
faith and in a manner the Indemnitee reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful.
4.2 DERIVATIVE ACTIONS. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any Proceeding by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that the Indemnitee is or was an Agent of the Company, or by reason of anything
done or not done by the Indemnitee in any such capacity, the Company shall
indemnify the Indemnitee against any amounts paid in settlement of any such
proceeding and all Expenses actually and reasonably incurred by the Indemnitee
in connection with the investigation, defense, settlement, or appeal of such
proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company; except that no indemnification under this subsection shall be made in
respect of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable to the Company by a court of competent
jurisdiction due to willful misconduct of a culpable nature in the performance
of a duty to the Company unless and only to the extent that the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
court shall deem proper.
4.3 ACTIONS WHERE INDEMNITEE IS DECEASED. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
Proceeding by reason of the fact that the Indemnitee is or was an Agent of the
Company, or by reason of anything done or not done by the Indemnitee in any such
capacity, the Company shall indemnify the Indemnitee against any and all
Expenses and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by or for the Indemnitee in
connection with the investigation, defense, settlement or appeal of such
proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, prior to, during the pendency or after completion of such
proceeding Indemnitee is deceased, except that in a proceeding by or in the
right of the Company no indemnification shall be due under the provisions of
this subsection in respect of any claim, issue or matter as to which such person
shall have been finally adjudged to be liable to the Company, by a court of
competent jurisdiction, due to willful misconduct of a culpable nature in the
performance of his duty to the Company, unless and only to the extent that the
court in which such proceeding was brought shall determine upon
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application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
4.4 PAYMENTS FROM D&O INSURANCE. Notwithstanding the foregoing,
the Company shall not be obligated to indemnify the Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by D&O Insurance.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by the Indemnitee in the investigation, defense,
settlement or appeal of a proceeding but not entitled, however, to
indemnification for all of the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for that portion thereof to which the
Indemnitee is entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 10.1 below,
the Company shall advance all Expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an Agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined pursuant to Section 8 hereof that the Indemnitee
is not entitled to be indemnified by the Company as authorized hereby, and such
undertaking should be deemed to satisfy the requirements of Section 317(f) of
the Code. The advances to be made hereunder shall be paid by the Company to the
Indemnitee within 20 days following delivery of a written request therefor by
the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 COMMENCEMENT OF PROCEEDING. Promptly after receipt by the
Indemnitee of notice of the commencement of, or the threat of commencement of,
any Proceeding, the Indemnitee shall, if the Indemnitee believes that
indemnification with respect thereto may be sought from the Company under this
Agreement, notify the Company of the commencement or threat of commencement
thereof.
7.2 NOTICE TO INSURERS. If, at the time of the receipt of a notice
of the commencement of a Proceeding pursuant to Section 7.1 hereof, the Company
has D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such Proceeding to the insurers in accordance with the
procedures set forth in the respective
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<PAGE> 6
policies. The Company shall thereafter take all necessary or desirable action to
cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as
a result of such Proceeding in accordance with the terms of such policies.
7.3 ASSUMPTION OF DEFENSE. If the Company shall be obligated to
pay the Expenses of any Proceeding against the Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such Proceeding, with
counsel approved by the Indemnitee, upon the delivery to the Indemnitee of
written notice of its election so to do. After delivery of such notice, approval
of such counsel by the Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to the Indemnitee under this Agreement
for any fees of counsel subsequently incurred by the Indemnitee with respect to
the same Proceeding, provided that: (i) the Indemnitee shall have the right to
employ his counsel in any such Proceeding at the Indemnitee's expense; and (ii)
if (A) the employment of counsel by the Indemnitee has been previously
authorized by the Company, (B) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of any such defense or (C) the Company shall not, in fact, have
employed counsel to assume the defense of such Proceeding, the fees and expenses
of Indemnitee's counsel shall be at the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 APPEAL OF PROCEEDING. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding referred to
in Sections 4.1, 4.2, or 4.3 of this Agreement or in the defense of any claim,
issue or matter described therein, the Company shall indemnify the Indemnitee
against Expenses actually and reasonably incurred by him/her in connection with
the investigation, defense, or appeal of such Proceeding.
8.2 NO INDEMNIFICATION. In the event that Section 8.1 is
inapplicable, the Company shall also indemnify the Indemnitee unless, and only
to the extent that, the Company shall prove by clear and convincing evidence to
a forum listed in Section 8.3 below that the Indemnitee has not met the
applicable standard of conduct required to entitle the Indemnitee to such
indemnification.
8.3 SELECTION OF FORUM. The Indemnitee shall be entitled to select
the forum in which the validity of the Company's claim under Section 8.2 hereof
that the Indemnitee is not entitled to indemnification will be heard from among
the following:
(a) A quorum of the Board consisting of directors who are
not parties to the proceeding for which indemnification is being sought;
(b) The shareholders of the Company;
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(c) Legal counsel selected by the Indemnitee, and reasonably
approved by the Board, which counsel shall make such determination in a written
opinion; or
(d) A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of whom
is selected by the first two arbitrators so selected.
8.4 SUBMISSION OF CLAIM. As soon as practicable, and in no event
later than 30 days after written notice of the Indemnitee's choice of forum
pursuant to Section 8.3 above, the Company shall, at its own expense, submit to
the selected forum in such manner as the Indemnitee or the Indemnitee's counsel
may reasonably request, its claim that the Indemnitee is not entitled to
indemnification; and the Company shall act in the utmost good faith to assure
the Indemnitee a complete opportunity to defend against such claim.
8.5 BINDING JUDGMENT. If the forum listed in Section 8.3 hereof
selected by Indemnitee determines that Indemnitee is entitled to indemnification
with respect to a specific Proceeding, such determination shall be final and
binding on the Company. If the forum listed in Section 8.3 hereof selected by
Indemnitee determines that Indemnitee is not entitled to indemnification with
respect to a specific Proceeding, the Indemnitee shall have the right to apply
to the court in which that Proceeding is or was pending or any other court of
competent jurisdiction, for the purpose of enforcing the Indemnitee's right to
indemnification pursuant to this Agreement.
8.6 INTERPRETATION OF AGREEMENT. Notwithstanding any other
provision in this Agreement to the contrary, the Company shall indemnify the
Indemnitee against all Expenses incurred by the Indemnitee in connection with
any Proceeding under this Section 8 involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other Proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless a court
of competent jurisdiction finds that each of the claims and/or defenses of the
Indemnitee in any such Proceeding was frivolous or made in bad faith.
9. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No Proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any Subsidiary against the Indemnitee, Indemnitee's spouse, heirs, estate,
executors or administrators after the expiration of one year from the act or
omission of the Indemnitee upon which such Proceeding is based; however, in a
case where the Indemnitee fraudulently conceals the facts underlying such cause
of action, no Proceeding shall be brought and no cause of action shall be
asserted after the expiration of one year from the earlier of: (i) the date the
Company or any Subsidiary of the Company discovers such
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facts; or (ii) the date the Company or any Subsidiary of the Company could have
discovered such facts by the exercise of reasonable diligence. Any claim or
cause of action of the Company or any Subsidiary of the Company, including
claims predicated upon the negligent act or omission of the Indemnitee, shall be
extinguished and deemed released unless asserted by filing of a legal action
within such period. This Section 9 shall not apply to any cause of action which
has accrued on the date hereof and of which the Indemnitee is aware on the date
hereof, but as to which the Company has no actual knowledge apart from the
Indemnitee's knowledge.
10. EXCEPTIONS. Any other provisions herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
10.1 CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to the Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to Proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 317 but such indemnification or advancement of Expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or
10.2 LACK OF GOOD FAITH. To indemnify the Indemnitee for any
Expenses incurred by the Indemnitee with respect to any Proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such Proceeding was made in bad faith or was frivolous; or
10.3 UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a Proceeding effected
within seven calendar days after delivery by the Indemnitee to the Company of
the notice provided for in Section 7.1 hereof, unless the Company consents to
such settlement.
11. NON-EXCLUSIVITY. The provisions for indemnification and advancement
of Expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Articles of Incorporation or Bylaws, the vote of the Company's
shareholders or disinterested directors, other agreements, or otherwise, both as
to action in Indemnitee's official capacity and to action in another capacity
while occupying the position as an Agent of the Company, and the Indemnitee's
rights hereunder shall continue after the Indemnitee has ceased acting as an
Agent of the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
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12. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
13. SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever: (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 12 hereof.
14. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.
16. NOTICE. All notices, requests, demand and other communications under
this Agreement shall be in writing and shall be deemed duly given: (i) if
delivered by hand and receipted for by the party addressee; or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Address for notice to either party are as shown on the
signature pages of this Agreement, or as subsequently modified by written
notice.
17. GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
18. CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the state and federal courts in the
State of California for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be brought only in the state or federal
courts in the State of California.
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IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first above written.
CEPHEID
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
INDEMNITEE:
-----------------------------------
[NAME OF OFFICER/DIRECTOR]
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<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE AND PLEDGE AGREEMENT
$138,000.00 April 16, 1997
FOR VALUE RECEIVED, the undersigned ("Payee"), promises to pay to Cepheid,
a California corporation ("Cepheid" or "Creditor"), or its nominee, at the
offices of Creditor at 3410 Garrett, Santa Clara, CA 95054, or at such other
place as Creditor or its nominee may designate in writing, the principal sum of
One Hundred Thirty-Eight Thousand Dollars ($138,000.00), together with unpaid
and accrued interest thereon.
1. Interest and Term. Simple interest shall accrue during the term of
this Promissory Note at the rate of seven percent (7%) per annum. The principal
sum of this Promissory Note shall be due on April 16, 2001 along with all
unpaid and accrued interest on the unpaid principal. Prepayment of principal,
or any portion thereof, together with all unpaid and accrued interest thereon,
may be made at any time without penalty. Notwithstanding any provision set
forth above, the entire unpaid principal sum of this Promissory Note, together
with all unpaid and accrued interest thereon, shall become immediately due and
payable upon the occurrence of the following:
A. the commission of any act of bankruptcy by Payee, the execution
by Payee of a general assignment for the benefit of creditors, the filing by or
against Payee of any petition in bankruptcy or any petition for relief under the
provisions of the Federal Bankruptcy Act or any other state or federal law for
the relief of debtors and the continuation of such petition without dismissal
for a period of twenty (20) days or more, the appointment of a receiver or
trustee to take possession of any property or assets of Payee, or the attachment
of or execution against any property or assets of Payee;
B. any default of Payee's obligations under this Promissory Note,
including the failure to pay, when due the amounts payable hereunder.
2. Pledge and Escrow. As security for Payee's obligations under the
Promissory Note, Payee hereby pledges and escrows, with Cepheid, in a form
transferable for delivery, the Common Shares, and such additional property
received or distributed in respect of such Common Shares (collectively the
Pledged Shares and such additional property is referred to herein as the
"Pledged Collateral"). The certificate representing the Pledged Shares shall be
accompanied by a duly executed Assignment Separate From Certificate in a form
acceptable to Cepheid.
<PAGE> 2
3. Rights in Pledged Shares. So long as there shall exist no condition,
event or act which, with notice and lapse of time, would constitute a breach,
default or an event of default of or under, the Promissory Note, Payee shall be
entitled to exercise the voting power with respect to the Pledged Shares.
4. Termination of Pledge and Escrow. Upon payment in full of the
Promissory Note, the Payee shall be entitled to the return of the Pledged
Collateral. This Agreement shall terminate at the time when all of the Pledged
Collateral held hereunder has been delivered by Cepheid to Payee as provided in
this Agreement.
5. Successor and Assigns. This Promissory Note shall be binding upon and
inure to the benefit of Creditor and its successors and assigns.
6. Attorney's Fees. In the event of any action to enforce payment of
this Note, in addition to all other relief, the prevailing party in such action
shall be entitled to its reasonable attorneys' fees and expenses.
7. Governing Law. This Note shall be construed in accordance with the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
8. Amendment. This Note shall only be amended with the written consent
of Cepheid and Payee.
9. Waivers. Payee hereby waives presentment, protest, demand, notice of
dishonor, and all other notices, and all defenses and pleas on the grounds of
any extension or extensions of the time of payments or the due dates of this
Promissory Note, in whole or in part, before or after maturity, with or without
notice. No renewal or extension of this Promissory Note, no release or
surrender of any collateral given as security for this Promissory Note, and no
delay in enforcement of this Promissory Note or in exercising any right or
power hereunder, shall affect the liability of Payee.
IN WITNESS WHEREOF, this Promissory Note has been duly executed by the
undersigned, on the day and year first set forth above.
/s/ ALLEN NORTHRUP
----------------------------------------
Allen Northrup
<PAGE> 1
EXHIBIT 10.8
CEPHEID
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the
"Agreement") is made as of January 21, 2000, by and among CEPHEID, a California
corporation (the "Company"), and the persons listed on the attached Schedule 1.1
who become signatories to this Agreement (collectively, the "Investors"), and
amends and restates that certain Information and Registration Rights Agreement
dated February 3, 1997, as amended April 20, 1998 and November 23, 1998 (the
"Existing Agreement").
A. The Company and certain of the Investors previously entered
into the Existing Agreement in connection with the Series A Preferred Stock,
Series B Preferred and Series C Preferred Stock financings of the Company (the
"Prior Investors").
B. The Existing Agreement provides for the rights of the Prior
Investors with respect to information about the Company, registration of the
Common Stock issued upon conversion or exercise of the Prior Preferred Stock,
and certain other rights.
C. The Company is proposing to issue and sell Series C Preferred
Stock of the Company to certain of the Investors pursuant to the terms of the
Series C Preferred Stock Purchase Agreement dated January 21, 2000.
D. The Company and the Prior Investors desire to amend and
restate the Existing Agreement, and to bring all of the Investors within the
terms of the Existing Agreement as so amended and restated.
THE PARTIES AGREE AS FOLLOWS:
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
1.1 "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time of Registration administering
the Securities Act.
1.2 "CONVERTIBLE SECURITIES" shall mean securities of the Company
convertible into or exchangeable for Common Stock of the Company or into other
securities that are convertible into or exchangeable for Common Stock.
<PAGE> 2
1.3 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
1.4 "FORM S-3" shall mean Form S-3 issued by the Commission or
any substantially similar form then in effect.
1.5 "HOLDER" shall mean any holder of outstanding Registrable
Securities which have not been sold to the public, but only if such holder is
one of the Investors or an assignee or transferee of Registration rights as
permitted by Section 13.
1.6 "INITIATING HOLDERS" shall mean Holders who in the aggregate
hold at least 50% of the Registrable Securities.
1.7 "MATERIAL ADVERSE EVENT" shall mean an occurrence having a
consequence that either (a) is materially adverse as to the business, properties
or financial condition of the Company or (b) is reasonably foreseeable, has a
reasonable likelihood of occurring, and if it were to occur might materially
adversely affect the business, properties or financial condition of the Company.
1.8 "NEW SECURITIES" shall mean any Common Stock or Preferred
Stock of the Company, whether now authorized or not, and rights, options, or
warrants to purchase any Common Stock or Preferred Stock of the Company and
securities of any type whatsoever that are, or may become, convertible into
Common Stock or Preferred Stock; provided, however, that "New Securities" does
not include (i) securities offered to the public in a firmly underwritten
offering pursuant to a registration statement filed under the Securities Act,
(ii) securities issued pursuant to the acquisition of another entity by the
Company by merger, purchase of substantially all of the assets, or other
reorganization, (iii) shares of the Company's Common Stock (or related options)
issued to officers, directors, employees or consultants of the Company or to
vendors of services or products used by the Company pursuant to any stock
offering, plan or arrangement approved by the Board of Directors, or (iv)
securities issued in connection with any stock split, stock dividend or
recapitalization by the Company.
1.9 The terms "REGISTER", "REGISTERED", and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
1.10 "REGISTRABLE SECURITIES" shall mean all Common Stock not
previously sold to the public and issued or issuable upon conversion or exercise
of any of the Company's Convertible Securities purchased by or issued to the
Investors, including
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Common Stock issued pursuant to stock splits, stock dividends and similar
distributions, and any securities of the Company granted registration rights
pursuant to Section 14 of this Agreement.
1.11 "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Sections 7 or 8 of this Agreement, including,
without limitation, all federal and state registration, qualification, and
filing fees, printing expenses, fees and disbursements of counsel for the
Company and one special counsel for Holders (if different from the Company),
blue sky fees and expenses, and the expense of any special audits incident to or
required by any such registration.
1.12 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.13 "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement.
2. FINANCIAL STATEMENTS; REPORTS TO SHAREHOLDERS.
The Company shall deliver to each Investor (i) as soon as
practicable after the end of each fiscal year of the Company, and in any event
within 120 days thereafter, an audited consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of such year and audited
consolidated statements of income, shareholders, equity and cash flow for such
year, which year-end financial reports shall be in reasonable detail and shall
be prepared in accordance with generally accepted accounting principles and
accompanied by the opinion of independent public accountants of recognized
standing selected by the Company, and (ii) as soon as practicable after the end
of each of the first three fiscal quarters of each fiscal year, and in any event
within 60 days thereafter, unaudited consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such quarter, and consolidated
statements of income and cash flow for such quarter and for the current fiscal
year to date, prepared in accordance with generally accepted accounting
principles (other than for accompanying notes and subject to changes resulting
from year-end audit adjustment). In addition, the Company shall deliver as soon
as available to the Investors: (a) contemporaneously with delivery to holders of
Common Stock, a copy of each report of the Company delivered to holders of
Common Stock, and (b) an annual capitalization summary.
3. TERMINATION OF COVENANTS.
The covenants of the Company set forth in Section 2 shall be
terminated and be of no further force or effect upon the earliest of (a)
immediately prior to the
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closing of the first public offering of the Common Stock of the Company that is
effected pursuant to a Registration Statement filed with, and declared effective
by, the Commission under the Securities Act (other than either a public offering
limited solely to employees of the Company or an offering pursuant to Rule 145
under the Securities Act), (b) a merger or consolidation in which the Company is
not the surviving corporation or (c) the date the Company registers any
securities under the Securities and Exchange Act of 1934, and such covenants
shall terminate as to any Investor as of the date such Investor no longer holds
any shares of the capital stock of the Company.
4. DEMAND REGISTRATION.
4.1 REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3. Subject
to the terms of this Agreement, if the Company shall receive from the Initiating
Holders at any time after the earlier of January 31, 2001 or six months after
the effectiveness of the Company's initial public offering of shares of Common
Stock under a Registration Statement, a written request that the Company effect
any Registration with respect to all or a part of the Registrable Securities on
a Form other than Form S-3 for an offering with a reasonably anticipated
aggregate offering price to the public exceeding $10,000,000, the Company shall
(i) promptly give written notice of the proposed Registration to all other
Holders and shall (ii) as soon as practicable, use its best efforts to effect
Registration of the Registrable Securities specified in such request, together
with any Registrable Securities of any Holder joining in such request as are
specified in a written request given within 20 days after written notice from
the Company. The Company shall not be obligated to take any action to effect any
such registration pursuant to this Section 4.1 (i) during the period starting
with the date 60 days prior to the Company's estimated date of filing, and
ending on the date six months immediately following the effective date of a
Registration pertaining to securities of the Company (other than a registration
of securities in a Rule 145 transaction or with respect to an employee benefit
plan) provided that the Company is employing all reasonable efforts in good
faith to cause such Registration to become effective or (ii) after the Company
has effected one such Registration pursuant to this Section 4.1 and such
Registration has been declared effective.
4.2 RIGHT OF DEFERRAL OF REGISTRATION. The Company shall not be
obligated to file a registration statement pursuant to this Section 4:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
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(ii) if the Company, within 10 days of the receipt of
the request of the Initiating Holders, gives notice of its bona fide intention
to effect the filing of a registration statement with the Commission within 60
days of receipt of such request (other than with respect to a registration
statement relating to a Rule 145 transaction or an offering solely to
employees), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(iii) within six months immediately following the
effective date of any registration statement pertaining to the securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan); or
(iv) if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed 120 days
from the receipt of the request to file such registration by such Holder
provided that the Company shall not exercise the right contained in this
paragraph (iv) more than once in any 12 month period.
4.3 REQUEST FOR REGISTRATION ON FORM S-3. If the Initiating
Holders request that the Company file a Registration Statement on Form S-3 (or
any successor form to Form S-3) for a public offering of shares of Registrable
Securities the reasonably anticipated aggregate price to the public of which,
net of Selling Expenses, would not be less than $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use all reasonable efforts to cause such
Registrable Securities to be Registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Initiating Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than two Registrations pursuant to this
Section 4.3 in any six month period. The substantive provisions of Section 4.5
shall be applicable to each registration initiated under this Section 4.3.
4.4 REGISTRATION OF OTHER SECURITIES IN DEMAND REGISTRATION. Any
Registration Statement filed pursuant to the request of the Initiating Holders
under this Section 4 may, subject to the provisions of Section 4.5, include
securities of the Company other than Registrable Securities.
4.5 UNDERWRITING IN DEMAND REGISTRATION.
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(a) NOTICE OF UNDERWRITING. If the Initiating Holders
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 4, and the Company shall include such
information in the written notice referred to in Section 4.1 or 4.3. The right
of any Holder to Registration pursuant to Section 4 shall be conditioned upon
such Holder's agreement to participate in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting.
(b) INCLUSION OF OTHER HOLDERS IN DEMAND REGISTRATION.
If the Company, officers or directors of the Company holding Common Stock other
than Registrable Securities, or holders of securities other than Registrable
Securities, request inclusion in such Registration, the Initiating Holders, to
the extent they deem advisable and consistent with the goals of such
Registration, may, on behalf of all Holders, offer to any or all of the Company,
such officers or directors, and such holders of securities other than
Registrable Securities that such securities other than Registrable Securities be
included in the underwriting and may condition such offer on the acceptance by
such persons of the terms of this Section 5.
In the event, however, that the number of shares
so included exceeds the number of shares of Registrable Securities included by
all Holders, such Registration shall be treated as governed by Section 5 hereof
rather than Section 4, and it shall not count as a Registration for purposes of
Section 4.1 hereof.
(c) SELECTION OF UNDERWRITER IN DEMAND REGISTRATION. The
Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement with
the representative ("Underwriter's Representative") of the underwriter or
underwriters selected for such underwriting by the Holders of a majority of the
Registrable Securities being registered by the Initiating Holders and agreed to
by the Company.
(d) MARKETING LIMITATION IN DEMAND REGISTRATION. In the
event the Underwriter's Representative advises the Initiating Holders in writing
that market factors (including, without limitation, the aggregate number of
shares of Common Stock requested to be Registered, the general condition of the
market, and the status of the persons proposing to sell securities pursuant to
the Registration) require a limitation of the number of shares to be
underwritten, then (i) first the Common Stock (other than Registrable
Securities) held by officers or directors of the Company, (ii) next the
securities other than Registrable Securities, and (iii) last the securities
requested to be registered by the Company, shall be excluded from such
Registration to not less than 20% of the securities included in such
Registration (based on aggregate market values). If a limitation of the number
of shares is still required, the Initiating Holders shall so advise
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all Holders and the number of shares of Registrable Securities that may be
included in the Registration and underwriting shall be allocated among all
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities entitled to inclusion in such Registration held by such
Holders at the time of filing the Registration Statement. No Registrable
Securities or other securities excluded from the underwriting by reason of this
Section 4.5(d) shall be included in such Registration Statement.
(e) RIGHT OF WITHDRAWAL IN DEMAND REGISTRATION. If any
Holder of Registrable Securities, or a holder of other securities entitled (upon
request) to be included in such Registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
days prior to the effective date of the Registration Statement. The securities
so withdrawn shall also be withdrawn from the Registration Statement.
4.6 BLUE SKY IN DEMAND REGISTRATION. In the event of any
Registration pursuant to Section 4, the Company will exercise its reasonable
best efforts to Register and qualify the securities covered by the Registration
Statement under such other securities or Blue sky laws of such jurisdictions as
shall be reasonably appropriate for the distribution of such securities;
provided, however, that (i) the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders such expenses shall be payable pro rata by selling shareholders.
5. PIGGYBACK REGISTRATION.
5.1 NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF REGISTRABLE
SECURITIES. Subject to the terms of this Agreement, if the Company decides to
Register any of its Common Stock (either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights) on a form that would be suitable for a registration involving solely
Registrable Securities, the Company will: (i) promptly give each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable Blue
Sky or other state securities laws) and (ii) include in such Registration (and
any related qualification under Blue Sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request delivered to the Company by any Holder within 15 days after
delivery of such written notice from the Company.
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5.2 UNDERWRITING IN PIGGYBACK REGISTRATION.
(a) NOTICE OF UNDERWRITING IN PIGGYBACK REGISTRATION. If the
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to Section 5.1. In such event, the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable Securities in such underwriting
to the extent provided in this Section 5. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement with the Underwriter's Representative for such
offering. The Holders shall have no right to participate in the selection of the
underwriters for an offering pursuant to this Section 5.
(b) MARKETING LIMITATION IN PIGGYBACK REGISTRATION. If the
Underwriter's Representative advises the Holders seeking registration of
Registrable Securities pursuant to Section 5 in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered the general condition of the market, and the status
of the person's proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative (subject to the allocation priority set forth in
Section 5.2(c) may:
(i) in the case of the Company's initial Registered
public offering, exclude some or all Registrable Securities from such
registration and underwriting; and
(ii) in the case of any Registered public offering
subsequent to the initial public offering, limit the number of shares of
Registrable Securities to be included in such Registration and underwriting to
not less than 20% of the securities included in such Registration (based on
aggregate market values).
(c) ALLOCATION OF SHARES IN PIGGYBACK REGISTRATION. If the
Underwriter's Representative limits the number of shares to be included in a
Registration pursuant to Section 5.2(b), the number of shares to be included in
such Registration shall be allocated (subject to Section 5.2(b)) in the
following manner: The shares (other than Registrable Securities) held by
officers or directors of the Company shall be excluded from such registration
and underwriting to the extent required by such limitation. If a limitation of
the number of shares is still required after such exclusion, the number of
shares that may be included in the Registration and underwriting by selling
shareholders shall be allocated among all Holders and other holders of
securities other than Registrable Securities requesting and legally entitled to
include shares in such Registration, in
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proportion, as nearly as practicable, to the respective amounts of securities
(including Registrable Securities) which such Holders and such other holders
would otherwise be entitled to include in such Registration. No Registrable
Securities or other securities excluded from the underwriting by reason of this
Section 5.2(c) shall be included in the Registration Statement.
(d) WITHDRAWAL IN PIGGYBACK REGISTRATION. If any Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the underwriter
delivered at least seven days prior to the effective date of the Registration
Statement. Any Registrable Securities or other securities excluded or withdrawn
from such underwriting shall be withdrawn from such Registration.
(e) BLUE SKY IN PIGGYBACK REGISTRATION. In the event of any
Registration of Registrable Securities pursuant to this Section 5, the Company
will exercise its reasonable best efforts to Register and qualify the securities
covered by the Registration Statement under such other securities or Blue Sky
laws of such jurisdictions (not exceeding 20 unless otherwise agreed to by the
Company) as shall be reasonably appropriate for the distribution of such
securities; provided, however, that (i) the Company shall not be required to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions, and (ii) notwithstanding anything in this
Agreement to the contrary, in the event any jurisdiction in which the securities
shall be qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by selling shareholders.
6. EXPENSES OF REGISTRATION.
All Registration Expenses incurred in connection with one
Registration pursuant to Section 4 (other than a Registration on Form S-3), two
Registrations pursuant to Section 4.3 and unlimited Registrations pursuant to
Section 5, shall be borne by the Company. All Registration Expenses incurred in
connection with any other registration, qualification, or compliance, shall be
apportioned among the Holders and other holders of the securities so registered
on the basis of the number of shares so registered. Notwithstanding the above,
the Company shall not be required to pay for any expenses of any Registration
proceeding begun pursuant to Section 4 if the Registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (which Holders shall bear such
expenses), unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 4;
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a Material Adverse Event with respect to the Company not known
to the Holders at the time of their request, then the Holders shall not
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be required to pay any of such expenses and shall retain their rights pursuant
to Section 4. All Selling Expenses shall be borne by the holders of the
securities Registered pro rata on the basis of the number of shares Registered.
7. REPORTS UNDER EXCHANGE ACT.
With a view to making available to the Holders the benefits of
Rule 144 promulgated under the Securities Act and any other rule or regulation
of the Commission that may at any time permit a Holder to sell securities of the
Company to the public without registration or pursuant to a registration on Form
S-3, the Company agrees to:
(i) use its reasonable best efforts to make and keep
public information available, as those terms are understood and defined in
Commission Rule 144, at all times after 90 days after the effective date of the
first registration statement under the Act filed by the Company for the offering
of its securities to the general public;
(ii) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for offering of its securities to the general public is declared
effective;
(iii) use its reasonable best efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and
(iv) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of Commission
Rule 144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), the Securities Act and the Exchange Act (at any time after
it has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested by a
Holder in availing itself of any rule or regulation of the Commission which
permits a Holder to sell any such securities without registration or pursuant to
such form.
8. TERMINATION OF REGISTRATION RIGHTS.
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The rights to cause the Company to register securities granted
under Sections 4 and 5 of this Agreement shall terminate, with respect to each
Holder, on the earlier of (i) the date four years after the closing date of the
Company's initial public offering, (ii) upon such Holder holding less than 1% of
the outstanding Registrable Securities provided such Holder's Registrable
Securities can be sold pursuant to Rule 144 within a three-month period without
compliance with the registration requirements of the Securities Act.
9. REGISTRATION PROCEDURES AND OBLIGATIONS.
Whenever required under this Agreement to effect the registration
of any Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such Registration Statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such Registration Statement effective for up to 120
days.
(ii) Prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement.
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(iv) Use its reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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(vi) Notify each Holder of Registrable Securities
covered by such Registration Statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(vii) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such Registration Statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.
(viii) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Agreement, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement, (i) an opinion, dated
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders, and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
10. INFORMATION FURNISHED BY HOLDER.
It shall be a condition precedent of the Company's obligations
under this Agreement that each Holder of Registrable Securities included in any
Registration furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder or Holders as the Company may
reasonably request.
11. INDEMNIFICATION.
11.1 COMPANY'S INDEMNIFICATION OF HOLDERS. To the extent
permitted by law, the Company will indemnify each Holder, each of its officers,
directors, and constituent partners, legal counsel for the Holders, and each
person controlling such Holder, with respect to which Registration,
qualification, or compliance of Registrable Securities has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of the Securities Act against all
claims, losses, damages, or liabilities (or actions in respect thereof) to the
extent such claims, losses, damages, or liabilities arise out of or are based
upon any untrue statement (or alleged untrue statement) of a material fact
contained in any
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prospectus or other document (including any related Registration Statement)
incident to any such Registration, qualification, or compliance, or are based on
any omission (or alleged omission) to state therein a material fact requited to
be stated therein or necessary to make the statements therein not misleading, or
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law, or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law
applicable to the Company and relating to action or inaction required of the
Company in connection with any such Registration, qualification, or compliance;
and the Company will pay as incurred to each such Holder, each such underwriter,
and each person who controls any such Holder or underwriter or other party
entitled to indemnification herein, any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action; provided, however, that the indemnity contained in
this Section 11.1 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if settlement is effected without the
consent of the Company (which consent shall not unreasonably be withheld); and
provided further, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability, or expense arises out of or
is based upon any untrue statement or omission based upon written information
furnished to the Company by such Holder, underwriter, or other party entitled to
indemnification herein, or controlling person and stated to be for use in
connection with the offering of securities of the Company.
11.2 HOLDER'S INDEMNIFICATION OF COMPANY. To the extent
permitted by law, each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such Registration,
qualification or, compliance is being effected pursuant to this Agreement,
indemnify the Company, each of its directors and officers, each legal counsel
and independent accountant of the Company, each underwriter, if any, of the
Company's securities covered by such a Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other such Holder, each of its officers, directors, and
constituent partners, and each person controlling such other Holder, against all
claims, losses, damages, and liabilities (or actions in respect thereof) arising
out of or based upon any untrue statement (or alleged untrue statement) of a
material fact contained in any such Registration Statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation or alleged violation by such
Holder of the Securities Act, the Exchange Act, any state securities law, or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law applicable to such Holder and relating to action or
inaction required of such Holder in connection with any such Registration,
qualification, or compliance, and will pay as incurred to the Company, such
Holders, such directors, officers, partners, persons, law
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and accounting firms, underwriters or control persons, any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case only to the extent
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, prospectus, offering circular,
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use in
connection with the offering of securities of the Company; provided, however,
that the indemnity contained in this Section 11.2 shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability, or action if
settlement is effected without the consent of such Holder (which consent shall
not unreasonably be withheld); provided, further, that such Holder's liability
under this Section 11.2 shall not exceed such Holder's proceeds from the
offering of securities made in connection with such Registration.
11.3 INDEMNIFICATION PROCEDURE. Promptly after receipt by an
indemnified party under this Section 11 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 11, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
shall be entitled to select counsel for the defense of such claim with the
approval of any parties entitled to indemnification, which approval shall not be
unreasonably withheld; provided further, however, that if either party
reasonably determines that there may be a conflict between the position of the
Company and the Holders in conducting the defense of such action, suit, or
proceeding by reason of recognized claims for indemnity under this Section 11,
then counsel for such party shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interest of such party. The failure to notify an indemnifying party promptly of
the commencement of any such action, if prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying party,
to the extent so prejudiced, of any liability to the indemnified party under
this Section 11, but the omission so to notify the indemnifying party will not
relieve such party of any liability that such party may have to any indemnified
party otherwise than under this Section 11.
11.4 CONTRIBUTION. If the indemnification provided for in this
Section 11 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the
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relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties, relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
11.5 CONFLICTS. Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
11.6 SURVIVAL. The obligations of the Company and Holders under
this Section 11 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement or otherwise.
12. LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES.
From and after the date of this Agreement, the Company shall not
enter into any agreement with any holder or prospective holder of any securities
of the Company providing for the granting to such holder of any information or
Registration rights, except that, with the consent of the Holders of a majority
of the aggregate of the Convertible Securities and Registrable Securities then
outstanding, additional holders may be added as parties to this Agreement with
regard to any or all securities of the Company held by them. Any such additional
parties shall execute a counterpart of this Agreement, and upon execution by
such additional parties and by the Company, shall be considered an Investor for
all purposes of this Agreement. The additional parties and the additional
Registrable Securities shall be identified in an amendment to Schedule A hereto.
13. TRANSFER OF RIGHTS.
The rights granted by the Company to the Investors under this
Agreement may be assigned by any Holder to a transferee or assignee of any
Convertible Securities or Registrable Securities not sold to the public
acquiring at least 10,000 shares of such Holder's Registrable Securities
(equitably adjusted for any stock splits, subdivisions, stock dividends,
changes, combinations or the like); provided, however, that (i) the shares of
Convertible Securities or Registrable Securities acquired by said transferee
must constitute at least 20% of Holder's aggregate of Convertible Securities and
Registrable Securities immediately prior to the transfer, (ii) the Company must
receive written notice
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prior to the time of said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
information and Registration rights are being assigned, and (iii) the transferee
or assignee of such rights must not be a person deemed by the Board of Directors
of the Company, in its best judgment, to be a competitor or potential competitor
of the Company. Notwithstanding the limitation set forth in the foregoing
sentence respecting the minimum number of shares which must be transferred, any
Holder which is a partnership may transfer such Holder's Registration rights to
such Holder's constituent partners without restriction as to the number or
percentage of shares acquired by any such constituent partner.
14. MARKET STAND-OFF.
Each Holder hereby agrees that, if so requested by the
Underwriter's Representative (if any) in connection with the Company's initial
public offering, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company without the prior
written consent of the Company and the Underwriter's Representative for such
period of time (not to exceed 180 days) following the effective date of a
Registration Statement of the Company filed under the Securities Act as may be
requested by the Underwriter's Representative. The obligations of Holders under
this Section 14 shall be conditioned upon similar agreements being in effect
with each other shareholder who is an officer, director, or selling shareholder.
15. NO-ACTION LETTER OR OPINION OF COUNSEL IN LIEU OF REGISTRATION;
CONVERSION OF PREFERRED STOCK.
Notwithstanding anything else in this Agreement, if the Company
shall have obtained from the Commission a "no-action" letter in which the
Commission has indicated that it will take no action if, without Registration
under the Securities Act, any Holder disposes of Registrable Securities covered
by any request for Registration made under this Section in the specific manner
in which such Holder proposes to dispose of the Registrable Securities included
in such request (such as including, without limitation, inclusion of such
Registrable Securities in an underwriting initiated by either the Company or the
Holders), or if in the opinion of counsel for the Company concurred in by
counsel for such Holder, which concurrence shall not be unreasonably withheld,
no Registration under the Securities Act is required in connection with such
disposition, the Registrable Securities included in such request shall not be
eligible for Registration under this Agreement; provided, however, that any
Registrable Securities not so disposed of shall be eligible for Registration in
accordance with the terms of this Agreement with respect to other proposed
dispositions to which this Section 15 does not apply. The Registration rights of
the Holders of the Registrable Securities set forth in this Agreement are
conditioned upon the conversion of the Registrable Securities with respect to
which
16
<PAGE> 17
Registration is sought into Common Stock prior to the effective date of the
Registration Statement.
16. RIGHT OF FIRST REFUSAL.
16.1 INVESTOR RIGHT OF FIRST REFUSAL. The Company hereby grants
to each Investor the right of first refusal to purchase its pro rata share of
New Securities that the Company may from time to time to time propose to sell
and issue after the date of this Agreement. For the issuance of New Securities,
such Investor's pro rata share is the ratio of the number of shares of Preferred
Stock owned by the Investor to the total number of shares of capital stock then
outstanding (assuming conversion into Common Stock of all Convertible
Securities).
16.2 GENERAL CONDITIONS. If the Company proposes to undertake an
issuance of New Securities, it shall give the Investors written notice of its
intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. The Investors shall
have 20 days from the date of mailing of any such notice to agree to purchase
their respective pro rata shares of such New Securities for the price, and upon
the general terms specified in the notice, by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
17. MISCELLANEOUS.
17.1 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
constitutes the entire agreement between the Company and the Investors relative
to the subject matter hereof. Any previous agreements between the Company and
any Investor concerning Registration rights are superseded by this Agreement.
Subject to the exceptions specifically set forth in this Agreement, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective executors, administrators, heirs, successor, and assigns of
the parties.
17.2 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.
17.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.4 HEADINGS. The headings of the Sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.
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<PAGE> 18
17.5 NOTICES. Any notice to or from a U.S. or non-U.S. resident,
required or permitted hereunder shall be given in writing and shall be
conclusively deemed effectively given upon personal delivery, or (x) five days
after deposit in the United States mail, by registered or certified mail if to a
United States resident and (y) if to a party resident outside the United States,
ten days after the date of sending by first class courier, postage prepaid,
addressed (i) if to the Company, as set forth below the Company's name on the
signature page of this Agreement, and (ii) if to an Investor, at such Investor's
address as set forth on Schedule A, or at such other address as the Company or
such Investor may designate by 10 days' advance written notice to the Investors
or the Company, respectively.
17.6 AMENDMENT OF AGREEMENT. Any provision of this Agreement may
be amended only by a written instrument signed by the Company and by persons
holding at least 60% of the Registrable Securities as defined in Section 1 of
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Company: CEPHEID
By:
--------------------------------------------
Kurt Petersen, President
Address: 1190 Borregas Avenue
Sunnyvale, CA 94089-1302
Investor:
-----------------------------------------------
[Print Full Name of Entity or Individual]
By:
--------------------------------------------
[Signature]
Name:
------------------------------------------
[If signing on behalf of entity]
Title:
-----------------------------------------
[If signing on behalf of entity]
Address:
---------------------------
---------------------------
---------------------------
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 20
SCHEDULE 1.1
INVESTOR PURCHASE PRICE NUMBER OF SHARES
- -------- -------------- ----------------
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.9
*CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
LIMITED EXCLUSIVE PATENT LICENSE AGREEMENT
FOR
A MICROFABRICATED
SLEEVE TYPE CHEMICAL REACTION CHAMBER
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
CEPHEID
LLNL CASE NO. TL-1355-96
LAWRENCE LIVERMORE NATIONAL LABORATORY
UNIVERSITY OF CALIFORNIA
P.O. BOX 808, L-795, LIVERMORE, CA 94551
INDUSTRIAL PARTNERSHIPS AND COMMERCIALIZATION
MARCH 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. BACKGROUND.............................................................................. 1
2. DEFINITIONS............................................................................. 2
3. LICENSE GRANT........................................................................... 5
4. LICENSE FEES, ROYALTIES, AND PAYMENTS................................................... 6
5. DUE DILIGENCE........................................................................... 7
6. PROGRESS AND ROYALTY REPORTS............................................................ 8
7. BOOKS AND RECORDS....................................................................... 12
8. LIFE OF THE AGREEMENT................................................................... 12
9. TERMINATION............................................................................. 12
10. PATENT PROSECUTION AND MAINTENANCE...................................................... 14
11. PATENT INFRINGEMENT..................................................................... 15
12. USE OF NAMES AND TRADEMARKS............................................................. 17
13. LIMITED WARRANTY........................................................................ 17
14. INDEMNIFICATION AND INSURANCE........................................................... 18
15. WAIVER.................................................................................. 20
16. ASSIGNABILITY........................................................................... 20
17. LATE PAYMENTS........................................................................... 20
18. NOTICES................................................................................. 21
19. DISPUTES AND GOVERNING LAWS............................................................. 22
20. PATENT MARKING.......................................................................... 22
21. GOVERNMENT APPROVAL OR REGISTRATION..................................................... 22
22. EXPORT CONTROL LAWS..................................................................... 23
23. FORCE MAJEURE........................................................................... 23
24. UNITED STATES PREFERENCE................................................................ 23
25. CONFIDENTIALITY......................................................................... 23
26. MISCELLANEOUS........................................................................... 24
EXHIBIT A - LICENSED PATENTS................................................................ 26
EXHIBIT B - LICENSE GRANT................................................................... 27
EXHIBIT C - ISSUE FEE AND ROYALTIES......................................................... 29
EXHIBIT D - MUTUAL NONDISCLOSURE AGREEMENT.................................................. 32
</TABLE>
i
<PAGE> 3
LIMITED EXCLUSIVE PATENT LICENSE AGREEMENT
FOR
A MICROFABRICATED
SLEEVE TYPE CHEMICAL REACTION CHAMBER
This Agreement effective as of the Effective Date is between The Regents of the
University of California ("THE REGENTS"), under its U.S. Department of Energy
Contract No. W-7405-ENG-48 to manage and operate Lawrence Livermore National
Laboratory ("LLNL"), and Cepheid ("LICENSEE"), a California corporation having
its principal place of business at 3410 Garrett Drive, Santa Clara, CA 95054.
THE REGENTS is a corporation organized and existing under the laws of the State
of California, with its principal office at 300 Lakeside Drive, Oakland, CA
94612-3550. THE REGENTS and LICENSEE are referred to jointly as "Parties".
1. BACKGROUND
1.1 Certain Inventions are described in U.S. Patent Number 5,589,136, its
Continuation in Part (IL-9707B), and PCT/US96/10453 (herein referred to
as "Invention") relating to a sleeve-type chemical reaction chamber that
may be utilized in any chemical reaction system for synthesis or
processing of organic, inorganic, or biochemical reactions, such as the
polymerase chain reaction and/or other DNA reactions which are examples
of a synthetic, thermal-cycling-based reaction. The reaction chamber may
also be used in synthesis instruments, particularly those for DNA
amplification and synthesis. The Invention was made in the course of
research at Lawrence Livermore National Laboratory and is covered by THE
REGENTS' Patent Rights as defined in Article 2 (DEFINITIONS).
1.2 The U.S. Department of Energy (DOE) was a sponsor of the invention
development. Thus, this Agreement is subject to overriding obligations
to the Federal Government under the provisions of the applicable grant
or regulations.
1.3 LICENSEE is a start-up company in San Jose, California, that will sell
Licensed Products and become a supplier of Licensed Products to a
variety of companies for worldwide markets. LICENSEE intends to
specialize in the development and
1
<PAGE> 4
manufacture of three types of products: heating cooling optics
micro-modules (HCOM), small thermal cycler instruments containing HCOMs,
and hand-held instruments containing HCOMs. THE REGENTS is willing to
grant rights to the Invention so that it may be developed and used by
LICENSEE to the fullest extent for the benefit of the U.S. economy and
the general public.
1.4 The Parties hope to combine THE REGENTS' Invention with the LICENSEE's
technical and commercial capabilities and inventions for application of
the Invention to the area of nucleic acid amplification and ligand
binding assays.
The Parties agree as follows:
2. DEFINITIONS
2.1 "Affiliate" means any business entity that LICENSEE directly or
indirectly controls, or is under common control with, or is controlled
by at least fifty percent (50%) of the outstanding stock or other voting
rights entitled to elect directors. In any country where local law does
not permit foreign equity participation of at least fifty percent (50%),
then an Affiliate includes any company in which the controlling entity
owns or controls, directly or indirectly, the maximum percentage of that
outstanding stock or voting rights permitted by local law. In this
definition, "control" includes ownership.
2.2 "Joint Venture" means any separate entity established pursuant to an
agreement between a third party and LICENSEE to constitute a vehicle for
conducting business, in which the separate entity manufactures, uses,
purchases, sells, or acquires Licensed Products from LICENSEE.
2.3 "THE REGENTS' Patent Rights" are THE REGENTS' rights in Licensed Patents
under applicable patent laws.
2.4 "Licensed Patents" are:
2
<PAGE> 5
2.4.1 the patent and patent applications specified in Exhibit A and
resulting patent;
2.4.2 reissues and continuations of 2.4.1 above; and
2.4.3 foreign patent applications and resulting patents per Article 10
(PATENT PROSECUTION AND MAINTENANCE) of this Agreement.
2.5 "Licensed Products" are products that incorporate or are produced by the
practice of subject matter claimed in Licensed Patents or whose
manufacture, use, sale, export, or offer for sale would constitute an
infringement of any claim in THE REGENTS' Patent Rights but for the
license granted under this Agreement. Licensed Products are considered
sold when invoiced or, if not invoiced, when delivered to a third party.
2.6 "LICENSEE" means Cepheid, and its Affiliates and Joint Ventures.
2.7 "Net Selling Price(s)" as used in this Agreement to compute royalties,
means the gross invoice selling prices of Licensed Products from Sale of
Licensed Products by LICENSEE or a sublicensee to independent third
parties for cash or other form of consideration in accordance with
generally accepted accounting principles limited to the following
deductions (if not already deducted from the gross invoice price and at
rates customary within the industry):
2.7.1 Allowances (actually paid and limited to rejections, returns, and
prompt payment and volume discounts granted to customers of
Licensed Products, whether in cash or Licensed Products in lieu of
cash); and
2.7.2 freight, transport packing, insurance charges associated with
transportation; and
2.7.3 taxes, tariff, or import/export duties based on sales when
included in gross sales, but not value-added taxes or taxes
assessed on income derived from such sales.
3
<PAGE> 6
No deductions will be made from Net Selling Price for commissions paid
to individuals whether they be with independent sales agencies or
regularly employed by LICENSEE and on its payroll, or for cost of
collections.
No deductions will be made from Net Selling Price for a service
contract.
Where LICENSEE distributes Licensed Products for end use to itself, an
Affiliate, a Joint Venture, or a sublicensee, then such distribution
will be considered a sale at list price normally charged to independent
third parties, and THE REGENTS will be entitled to collect a royalty on
such sale in accordance with Article 4 (LICENSE FEES, ROYALTIES, AND
PAYMENTS). Where LICENSEE distributes Licensed Products for resale to an
Affiliate, a Joint Venture, or a sublicensee, THE REGENTS will be
entitled to collect a royalty based on the resale Net Selling Price.
The Net Selling Price of Licensed Products that are not sold, but are
otherwise disposed of for value, is the selling price at which LICENSEE
is currently offering for sale products of similar kind and quality,
sold in similar quantities. If LICENSEE is not currently offering
comparable products for sale, then the Net Selling Price will be the
average selling price at which products of similar kind and quality,
sold in similar quantities, are currently offered for sale by other
manufacturers. If comparable products are not currently sold or offered
for sale by others, then the Net Selling Price will be LICENSEE's cost
of manufacture determined by LICENSEE's customary accounting procedures,
plus LICENSEE's standard markup.
2.8 "Net Sales" as used in this Agreement to compute royalties, means the
total Net Selling Prices of Licensed Products sold by LICENSEE or a
sublicensee.
2.9 "Exclusive Field-of-Use" is the exclusive application or use defined in
Exhibit B.
2.10 "Effective Date" means the date of execution by the last signing party.
4
<PAGE> 7
2.11 "Ligand-binding Assays" are reactions between antibodies and antigens or
between receptors and their ligands which may be detected by means
including, but not limited to, agglutination, fluorescence quenching,
chemiluminescence, or luminescence quenching.
3. LICENSE GRANT
3.1 Subject to the terms and conditions of this Agreement, THE REGENTS
grants to the LICENSEE a nontransferable, royalty-bearing license to
make, have made, import, use, and sell Licensed Products covered by the
Licensed Patents in the Exclusive Field-of-Use as specified in Exhibit B
where patent rights exist.
3.2 The U.S. Government has a paid-up, royalty-free, non-transferable,
worldwide, irrevocable license for government use to practice or have
practiced by or on behalf of the U.S., Licensed Patents. The U.S.
Government has certain other rights under 35 U.S.C. Sections 200-212 and
applicable regulations.
3.3 THE REGENTS reserves the right to use THE REGENTS' Patent Rights and
associated technology for noncommercial, educational, and research
purposes.
3.4 THE REGENTS also grants to LICENSEE the right to issue royalty-bearing
sublicenses to third parties to make, have made, import, use, and sell
Licensed Products in the Exclusive Field-of-Use, provided LICENSEE has
current exclusive rights under this Agreement at the time of such
sublicenses. LICENSEE must sublicense in the Exclusive Field-of-Use if
LICENSEE cannot adequately supply market requirements.
3.5 Any sublicenses granted by LICENSEE will include all of the rights and
obligations due THE REGENTS that are contained in this Agreement.
3.6 LICENSEE will provide THE REGENTS with a copy of each sublicense issued
hereunder within thirty (30) days after issuance; collect payment of all
royalties due THE REGENTS from the sale of Licensed Product by any
sublicensees; pay THE REGENTS
5
<PAGE> 8
the amounts due and collected from sublicensees according to the
schedule set forth in Article 6 (PROGRESS AND ROYALTY REPORTS) of this
Agreement; and summarize and deliver all reports due THE REGENTS from
sublicensees according to the schedule set forth in Article 6 (PROGRESS
AND ROYALTY REPORTS) of this Agreement.
3.7 The sublicenses granted hereunder will be subject to all the applicable
provisions of the license granted back to the United States Government
(see Section 3.2 above).
4. LICENSE FEES, ROYALTIES, AND PAYMENTS
4.1 LICENSEE will pay the University a nonrefundable license issue fee as
set forth in Exhibit C.
4.2 As further consideration for rights granted to LICENSEE hereunder,
LICENSEE will pay to THE REGENTS an earned royalty on Net Sales of
Licensed Products sold by LICENSEE in or outside the United States,
including a minimum annual royalty as defined in Exhibit C. The minimum
annual royalty is due by February 28 of each year and is credited
against earned royalties until consumed for that year.
4.3 LICENSEE will pay THE REGENTS an earned royalty, as defined in Exhibit
C, on all Licensed Products sold by any sublicensee.
4.4 If this Agreement terminates, then all shipments made on or before the
day of termination that have not been billed are considered sold and
subject to royalty. Royalties paid on Licensed Products which are not
accepted by the customer are credited to LICENSEE.
4.5 LICENSEE will pay earned royalties to THE REGENTS no later than February
28, May 31, August 31, and November 30 of each calendar year. Each
payment will be for all royalties accrued within the most recently
completed quarter.
6
<PAGE> 9
4.6 LICENSEE will pay in U.S. dollars collectible at par in San Francisco,
California. When Licensed Products are sold for currencies other than
U.S. dollars, earned royalties will first be determined in the foreign
currency of the country in which the Licensed Products were sold and
then converted into equivalent U.S. dollars. The exchange rate is that
rate quoted in the Wall Street Journal on the last business day of the
reporting period and is quoted as local currency per U.S. dollar.
4.7 Royalties for sales occurring in any country outside the U.S. are not
reduced by any value-added taxes, fees, or other charges assessed on
income derived from such sales imposed by the government of such
country. LICENSEE is responsible for all bank transfer charges.
4.8 Not withstanding the provisions of Article 23 (FORCE MAJEURE), if legal
restrictions prevent the LICENSEE from prompt payment of part or all
royalties on sales of a Licensed Product in any country outside the
U.S., LICENSEE will convert the amount owed to THE REGENTS into U.S.
funds and pay THE REGENTS directly from its U.S. source of funds.
4.9 THE REGENTS will not collect royalties on Licensed Products distributed
to or used by the U.S. Government. LICENSEE will reduce the amount
charged for Licensed Products distributed to or used by the U.S.
Government by an amount equal to the royalty otherwise due THE REGENTS.
5. DUE DILIGENCE
5.1 LICENSEE will use reasonable commercial efforts to develop, manufacture
and sell Licensed Products. LICENSEE will use reasonable commercial
efforts to market those products within a reasonable time after this
Agreement is executed and in sufficient quantities to meet market
demands and to comply with the minimum royalties specified in paragraph
C of Exhibit C. LICENSEE must demonstrate a continuing effort to market
7
<PAGE> 10
Licensed Products to meet market demands following LICENSEE's first
offer of Licensed Products for sale.
5.2 If LICENSEE is unable to perform the schedule and conditions set forth
in Exhibit B, THE REGENTS will notify LICENSEE of such inability and if
such inability is not cured within sixty (60) days after such notice,
THE REGENTS may terminate this Agreement or change the license grant to
a nonexclusive license.
5.3 LICENSEE will be entitled to exercise prudent and reasonable business
judgment in meeting its due diligence obligations in accordance with
this Agreement. LICENSEE will conduct normal, continuous business
operations. However, if LICENSEE must seek protection under any United
States bankruptcy proceedings, LICENSEE will notify THE REGENTS after
LICENSEE files for bankruptcy, and THE REGENTS will receive that
notification no later than seventy-two (72) hours after the bankruptcy
filing. Bankruptcy will be grounds for termination of this Agreement.
6. PROGRESS AND ROYALTY REPORTS 6.1 Upon execution of this Agreement,
LICENSEE will submit to THE REGENTS a semi-annual progress report
covering LICENSEE activities in meeting the commercialization conditions
set forth in Article 5 (DUE DILIGENCE) and Exhibit B of this Agreement.
The report will include at a minimum the following information:
License Number
Name of Licensee
Date of Report
Reporting period
Summary of work completed
Key scientific discoveries
Summary of work in progress
Current schedule of anticipated events or milestones
Description of Licensed Products
Expected market introduction date of Licensed Products
8
<PAGE> 11
A summary of resources (dollar value) spent in the reporting period
Name(s), addresses, and activities of sublicensees, if any
9
<PAGE> 12
The report will be due to THE REGENTS according to the following schedule:
<TABLE>
<S> <C>
- -----------------------------------------------------------
DUE DATE FOR PERIOD
- -----------------------------------------------------------
February 28 July 1 -December 31
- -----------------------------------------------------------
August 31 January 1 - June 30
- -----------------------------------------------------------
</TABLE>
6.2 LICENSEE will report to THE REGENTS the first commercial sale of each
type of Licensed Product in the U.S. and in each country outside the
U.S. by LICENSEE or its sublicensees. Such report will include at a
minimum, the following information:
License Number
Name of Licensee or Sublicensee
Date of Report
Company's fiscal year
Date of First Commercial Sale
Place of First Commercial Sale
Description of Licensed Product(s) sold
6.3 After the first commercial sale of a Licensed Product anywhere in the
world by LICENSEE or sublicensees, LICENSEE will submit quarterly
written royalty reports to THE REGENTS on February 28, May 31, August
31, and November 30 of each calendar quarter for sales by LICENSEE or
sublicensees during the most recently completed calendar quarter. If
neither LICENSEE nor sublicensees has sold or used any Licensed Products
during the reporting period, LICENSEE will so state in the royalty
report filed for such period. The royalty report will include at a
minimum the following information:
License Number
Name of Licensee or Sublicensee
Date of Report
What is company's fiscal year?
What is the calendar quarter for this report?
Did earned royalties exceed minimum royalties?
10
<PAGE> 13
Report of revenue from commercial contracts and technology access
fees
Report of sales of Licensed Products
Domestic sales:
Products
Domestic sales:
Description of Licensed Product(s)
Unit price (sale and/or use)
Units sold in US
Gross sales in US
Net Sales in US
Royalties due THE REGENTS in $US
Foreign sales:
Country of sales
Description of Licensed Product(s)
Unit price (sale and/or use)
Units sold in each country
Units leased in each country
Gross sales in each country
Net Sales in each country
Monetary exchange rate
Royalties due THE REGENTS in $US
US Government Sales:
Description of Licensed Product(s)
Unit price (sale and/or use)
Units sold
Gross sales
Net Sales in each country
6.4 LICENSEE will provide THE REGENTS with an annual statement of LICENSEE
royalty accounts certified by LICENSEE's Chief Financial Officer, for
each calendar year during the term of this Agreement. LICENSEE will also
provide to THE REGENTS an annual statement of royalty accounts from any
sublicensees certified by sublicensee's Chief Financial Officer for each
calendar year during the term of this Agreement. All such statements
will be due to THE REGENTS on February 28 of the calendar year next
after the year to which such statements relates. Such statements will be
deemed business sensitive information of LICENSEE.
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<PAGE> 14
7. BOOKS AND RECORDS
7.1 LICENSEE will keep books and records accurately showing all Licensed
Products manufactured, used, or sold under this Agreement. LICENSEE will
preserve those books and records for at least five (5) years from the
date of the royalty payment to which they apply. The books and records
will be open for inspection by representatives or agents of THE REGENTS
at all reasonable times, with reasonable notice given by THE REGENTS to
the LICENSEE.
7.2 THE REGENTS will pay the costs incurred by its representatives or agents
to examine the LICENSEE's books and records. If there is an underpayment
to THE REGENTS in the royalty accounting of more than five percent (5%)
of the total royalties due for any such year, then LICENSEE will pay the
reasonable costs incurred for THE REGENTS' examination. All information
obtained in such inspection will be protected as Business Sensitive
Information, and not disseminated to other parties.
7.3 LICENSEE will provide THE REGENTS with an annual audited or certified
financial statement of LICENSEE's balance sheet and operating statement
or annual report. Such statements or annual reports will be due to THE
REGENTS within one hundred twenty (120) days following the close of
LICENSEE's fiscal year to which such statement relates. Such statements
will be deemed business sensitive information of LICENSEE.
8. LIFE OF THE AGREEMENT
Unless terminated by operation of law or by acts of the Parties under
this Agreement, this Agreement is in effect from the Effective Date
until the expiration of the Licensed Patents (on a country-by-country
basis) under this Agreement.
9. TERMINATION
9.1 The right to terminate this Agreement, if exercised by THE REGENTS,
supersedes the rights granted in Article 3 (LICENSE GRANT). If the
LICENSEE should fail to
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<PAGE> 15
perform any material term or covenant of this Agreement, THE REGENTS may
give written notice that if the LICENSEE should fail to remedy with
satisfaction and provide tangible evidence to THE REGENTS that the
deficiency has been cured within sixty (60) days of the effective date
of receipt of the notice, this Agreement will terminate. The LICENSEE's
failure to pay any royalty or other fee within ten (10) business days
after the date(s) required under Exhibit C will be considered to be a
material breach subject to termination of the license.
9.2 Should LICENSEE terminate this Agreement before LICENSEE has paid the
entire Issue Fee due under this Agreement as specified in Exhibit C, the
full remainder of the Issue Fee will be due immediately, unless LICENSEE
terminates as a result of a reduction or narrowing of the claims of the
pending patent application in Licensed Patents such that Licensed
Patents do not cover Licensed Products, in which case the remainder of
the Issue Fee will be forgiven.
9.3 Termination of this Agreement will not relieve the LICENSEE of any other
obligation or liability accrued hereunder prior to such termination, or
rescind any payments due or paid to THE REGENTS hereunder prior to the
time such termination becomes effective. Such termination will not
affect, in any manner, any rights of THE REGENTS arising under this
Agreement prior to such termination.
9.4 LICENSEE may terminate this Agreement by giving written notice to THE
REGENTS and payment of all amounts due THE REGENTS. Notice of
termination is subject to Article 18 (NOTICES), and termination is
effective thirty (30) days from the effective date of that notice.
9.5 Termination will not affect the rights, liabilities, and obligations
accrued under this Agreement as set forth in the following Articles:
<TABLE>
<S> <C>
Article 4 License Fees, Royalties, and Payments
Article 7 Books and Records
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C>
Article 9 Termination
Article 10 Patent Prosecution and Maintenance
Article 12 Use of Names and Trademarks
Article 14 Indemnification and Insurance
Article 17 Late Payments
Article 22 Export Control Laws
Article 25 Confidentiality
Exhibit D Mutual Nondisclosure Agreement
</TABLE>
9.6 If LICENSEE and sublicensees cease to produce the Licensed Product(s),
this Agreement will terminate upon notice by THE REGENTS.
9.7 Upon termination of this Agreement for any reason during LICENSEE's term
of exclusivity, THE REGENTS, at its sole discretion, will determine
whether any or all sublicenses will be canceled or assigned to THE
REGENTS. Any sublicensee not in default may request a license from THE
REGENTS with terms no greater than provided herein.
9.8 LICENSEE will provide THE REGENTS with a written inventory of all
Licensed Products in process of manufacture or in stock within thirty
(30) days of the effective date of termination by either party. LICENSEE
will dispose of those Licensed Products within one hundred and twenty
(120) days of the effective date of termination. All sales of Licensed
Products are subject to the terms of this Agreement.
10. PATENT PROSECUTION AND MAINTENANCE
10.1 THE REGENTS will diligently prosecute and maintain the U.S. Licensed
Patents using counsel of its choice. The Licensed Patents are held in
the name of THE REGENTS.
10.2 THE REGENTS will pay costs of preparing, filing, prosecuting, and
maintaining the U.S. Licensed Patents.
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<PAGE> 17
10.3 LICENSEE will have the right to request that THE REGENTS obtain patent
protection on Licensed Patents in foreign countries if available.
LICENSEE must notify THE REGENTS within seven (7) months of the filing
of the corresponding United States application of its decision to obtain
foreign patents. This notice concerning foreign filing will be in
writing and must identify the countries desired. The absence of such a
notice to THE REGENTS will be considered an election not to secure
foreign rights.
10.4 After execution of this Agreement, the expense for preparation, filing
and prosecuting of all foreign patent applications filed at LICENSEE's
request, as well as the maintenance of all resulting patents, will be
shared equally among the LICENSEES that request license rights under
such foreign patents. Such patents will be held in the name of THE
REGENTS and will be obtained using counsel of THE REGENTS' choice.
10.5 LICENSEE's obligation to underwrite and to pay foreign patent
prosecution costs will continue for so long as this Agreement remains in
effect, provided, however, that LICENSEE may terminate its obligations
with respect to any given patent application or patent in any country
upon thirty (30) days' written notice to THE REGENTS. THE REGENTS will
use its best efforts to curtail patent costs when such a notice is
received from LICENSEE. THE REGENTS may continue prosecution and/or
maintenance of such application(s) or patent(s) at its sole discretion
and expense; provided, however, that LICENSEE will have no further right
or licenses thereunder.
10.6 THE REGENTS will have the right to file patent applications at its own
expense in any country in which LICENSEE has not elected to secure
patent rights, and such applications and resultant patents will not be
subject to this Agreement.
11. PATENT INFRINGEMENT
11.1 In the event that LICENSEE learns of the infringement of the Licensed
Patents, LICENSEE will call THE REGENTS' attention thereto in writing
and will provide THE REGENTS with reasonable evidence of such
infringement. LICENSEE agrees that
15
<PAGE> 18
during the period and in a jurisdiction where LICENSEE has exclusive
rights under this Agreement, LICENSEE will not notify a third party of
the infringement of any Licensed Patents without first obtaining consent
of THE REGENTS. Both parties will use reasonable commercial efforts in
cooperation with each other to terminate such infringement without
litigation.
11.2 LICENSEE may request that THE REGENTS take legal action against the
infringement of THE REGENTS' Patent Rights. Such request will be made in
writing and will include reasonable evidence of such infringement and
damages to LICENSEE. If the infringing activity has not been abated
within ninety (90) days following the effective date of such request,
THE REGENTS will have the right to:
11.2.1 Commence suit on their own account; or
11.2.2 Refuse to participate in such suit, and THE REGENTS will give
notice of their election in writing to LICENSEE by the end of the
one-hundredth (100th) day after receiving notice of such request
from LICENSEE. LICENSEE may thereafter bring suit for patent
infringement, if and only if, THE REGENTS elect not to commence
suit and if the infringement occurred during the period and in a
jurisdiction where LICENSEE has exclusive rights under this
Agreement. However, in the event LICENSEE elects to bring suit in
accordance with this Article 11, THE REGENTS may thereafter join
such suit at its own expense.
11.3 Such legal action as is decided upon will be at the expense of the party
on account of whom suit is brought and all recoveries thereby will
belong to such party, provided, however, that legal action brought
jointly by THE REGENTS and LICENSEE and fully participated in by both
will be at the joint expense of the parties and all recoveries will be
shared jointly by them in proportion to the share of expense paid by
each party.
11.4 Each party agrees to cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party on account of whom
suit is brought. Such
16
<PAGE> 19
litigation will be controlled by the party bringing the suit, except
that THE REGENTS may be represented by counsel of its choice in any suit
brought by LICENSEE.
12. USE OF NAMES AND TRADEMARKS
Neither Party has any right to use any name, trade name, trademark, or
other designation of the other party (including any contraction,
abbreviation, or simulation) in advertising, publicity, or other
commercial promotional activities. The use of the name "LLNL," or "The
Regents of the University of California," or the name of any University
of California campus in advertising, publicity or other commercial
promotional activities is expressly prohibited.
13. LIMITED WARRANTY
13.1 THE REGENTS has the right to grant this license.
13.2 THIS LICENSE AND THE ASSOCIATED LICENSED PATENTS ARE PROVIDED WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY
OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS AND DOE MAKE NO
REPRESENTATION OR WARRANTY THAT LICENSED PRODUCTS WILL NOT INFRINGE ANY
PATENT, COPYRIGHT, OR OTHER PROPRIETARY RIGHT.
13.3 IN NO EVENT WILL THE REGENTS OR DOE BE LIABLE FOR ANY INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS
LICENSE OR THE USE OF THE LICENSED PATENTS OR LICENSED PRODUCTS.
13.4 Nothing in this Agreement will be interpreted as:
13.4.1 A warranty or representation by THE REGENTS as to the validity or
scope of any of THE REGENTS' rights in Licensed Patents; or
17
<PAGE> 20
13.4.2 A warranty or representation that anything made, used, sold, or
otherwise disposed of under any license granted in this Agreement
is or will be free from infringement of patents or copyrights of
third parties; or
13.4.3 Any obligation to bring suit against a third party for patent
infringement; or
13.4.4 Conferring by implication, estoppel, or otherwise any license or
rights under any patents of THE REGENTS other than Licensed
Patents as defined in this Agreement, regardless of whether such
patents are dominant or subordinate to Licensed Patents; or
13.4.5 An obligation to furnish any know-how or improvements not
specifically provided in this Agreement.
14. INDEMNIFICATION AND INSURANCE
14.1 LICENSEE and its sublicensees must indemnify, hold harmless, and defend
THE REGENTS, its officers, employees, and agents; the sponsors of the
research that led to the invention; and the inventors against any
claims, suits, losses, damages, costs, fees, and expenses resulting from
or arising out of exercise of any license granted under this Agreement.
LICENSEE will pay all costs incurred by the University to enforce this
indemnification, including reasonable attorney fees.
14.2 LICENSEE will insure its activities relating to this Agreement at its
own cost with an insurance company acceptable to THE REGENTS. LICENSEE
will obtain, keep in force, and maintain Comprehensive or Commercial
Form General Liability Insurance, including contractual liability and
products liability and maintain coverage as follows:
14.2.1 Prior to first commercial sale:
14.2.1.1 Each occurrence coverage of not less than one million
dollars (USD $1,000,000); and
14.2.1.2 Product Liability Insurance: Completed operations
aggregate coverage of not less than one million dollars
(USD $1,000,000); and
18
<PAGE> 21
14.2.1.3 Personal and Advertising Injury: Coverage of not less than
one million dollars (USD $1,000,000); and
14.2.1.4 General Aggregate (Commercial Form Only): Coverage of not
less than two million dollars (USD $2,000,000).
14.2.2 Upon the first commercial sale:
14.2.2.1 Each occurrence coverage of not less than one million
dollars (USD $1,000,000); and
14.2.2.2 Product Liability Insurance: Completed operations
aggregate coverage of not less than five million dollars
(USD $5,000,000); and
14.2.2.3 Personal and Advertising Injury: Coverage of not less than
one million dollars (USD $1,000,000); and
14.2.2.4 General Aggregate (Commercial Form Only): Coverage of not
less than five million dollars (USD $5,000,000).
These coverages will not limit the liability of LICENSEE in any way.
LICENSEE will provide THE REGENTS, upon request, with certificates of
insurance, including renewals, that show compliance with these
requirements. LICENSEE's failure to maintain this insurance will be
considered a material breach of this Agreement.
14.3 If the insurance is written on a claims-made form, coverage must provide
a retroactive date of placement before or coinciding with the Effective
Date of this Agreement.
14.4 LICENSEE will maintain the general liability insurance specified in this
Article during:
14.4.1 the period that the Licensed Products are being commercially
distributed or sold by LICENSEE, and
14.4.2 a reasonable period thereafter, but in no event less than five
(5) years.
14.5 Insurance coverage required under this Article must:
19
<PAGE> 22
14.5.1 Provide for thirty (30) days advance written notice to THE
REGENTS of cancellation or any modification by LICENSEE; and
14.5.2 Indicate that DOE, The Regents of the University of California,
and their officers, employees, students, and agents, are endorsed
on the policy as additional named insureds; and
14.5.3 Include a provision that the coverage is primary and does not
participate with or is in excess of any valid and collectible
insurance, program, or self-insurance carried or maintained by
THE REGENTS.
15. WAIVER
15.1 No provision of this Agreement is deemed waived and no breach excused
unless such waiver or consent is made in writing and signed by the party
to have waived or consented.
15.2 Failure on the part of either Party to exercise or enforce any right of
such Party under this Agreement will not be a waiver by such Party of
any right, or operate to bar the enforcement or exercise of the right at
any time thereafter.
16. ASSIGNABILITY This Agreement is binding on and inures to the benefit of
THE REGENTS, its successors and assigns, but is personal to LICENSEE.
This Agreement is not assignable by the LICENSEE without prior written
consent of THE REGENTS which will not be unreasonably withheld.
17. LATE PAYMENTS
If THE REGENTS does not receive payments or fees when due, LICENSEE will
pay interest charges at the annual rate of ten percent (10%) from the
date on which the payment was originally due.
20
<PAGE> 23
18. NOTICES
Any report, payment, notice, or other communication that either party
receives must be in writing and will be properly given and effective on
the date of delivery if delivered in person, or the fifth (5th) day
after mailing if mailed by first-class certified mail, postage paid, to
the addresses given below (or to an address designated by written notice
to the other party):
In the case of LICENSEE: CEPHEID
3410 Garrett Drive
Santa Clara, CA 95054
Phone: (408) 274-3834
Fax: (408) 274-8818
Attention: President
with a copy to: Heller Ehrman White & McAuliffe
525 University Avenue
11th Floor
Palo Alto, California 94301
Attn: Neil Flanzraich
In the case of THE REGENTS
All correspondence and
reports: LAWRENCE LIVERMORE
NATIONAL LABORATORY
Industrial Partnerships &
Commercialization
7000 East Ave.
P.O. Box 808, L-795
Livermore, CA 94550
Attention: Director, IPAC
Payments and corresponding
copies of royalty reports: LAWRENCE LIVERMORE
NATIONAL LABORATORY
P.O. Box 5517
Livermore, CA 94550
21
<PAGE> 24
19. DISPUTES AND GOVERNING LAWS
The Parties will attempt to jointly resolve any disputes arising from
this Agreement. Such joint resolution may include binding or non-binding
arbitration. If the Parties are unable to resolve a dispute within a
reasonable time, then either party may commence proceedings in a court
of competent jurisdiction. United States federal law will govern this
Agreement to the extent that there is such law. To the extent there is
no applicable federal law, this Agreement and performance hereunder will
be governed by the laws of the State of California, USA, without regard
to the State's conflict of laws provisions. If THE REGENTS institutes
arbitration, the proceedings will take place in Santa Clara County,
California. If LICENSEE institutes arbitration, the proceedings will
take place in Alameda County, California.
20. PATENT MARKING
LICENSEE will mark all Licensed Products and their containers that are
made, used, sold, or otherwise disposed of under this Agreement in
accordance with applicable patent marking laws.
21. GOVERNMENT APPROVAL OR REGISTRATION
If this Agreement or any associated transaction is required by the law
of any nation to either be approved, permitted, or registered with any
governmental agency, LICENSEE assumes all legal obligations to do so.
LICENSEE will notify THE REGENTS if LICENSEE becomes aware that this
Agreement is subject to a United States or foreign government reporting,
permitting, or approval requirement. LICENSEE will make all necessary
findings and pay all costs including fees, penalties, and all other
out-of-pocket costs associated with such reporting, permitting, or
approval process.
22
<PAGE> 25
22. EXPORT CONTROL LAWS
LICENSEE will observe all applicable United States and foreign laws and
regulations concerning the transfer of Licensed Products and related
technical data, including International Traffic in Arms Regulations
(ITAR) and Export Administration Regulations.
23. FORCE MAJEURE
This Agreement is not breached and no liability is created when THE
REGENTS or LICENSEE fails to perform an obligation under this Agreement
if the failure or omission arises from a cause beyond the control of THE
REGENTS or LICENSEE. These causes include, but are not limited to, the
following: Acts of God; acts or omissions of any government or
governmental agency; compliance with requirements, rules, regulations,
or order of any governmental authority or any office, department,
agency, or instrumentality thereof; fire, storm, flood, earthquake;
accident; acts of the public enemy, war, rebellion, insurrection, riot,
sabotage, invasion; quarantine, restriction; transportation embargoes;
or failures or delays in transportation.
24. UNITED STATES PREFERENCE
The parties acknowledge that the market for Licensed Produces is
worldwide. Any Licensed Products for use or sale in the United States
under a United States Patent will be practiced or manufactured
substantially in the United States.
25. CONFIDENTIALITY
25.1 LICENSEE and THE REGENTS respectively will treat and maintain the
proprietary business, patent prosecution, software, engineering
drawings, process and technical information and other business sensitive
information ("Proprietary Information") of the other party in confidence
using at least the same degree of care as that party uses to protect its
own proprietary information of a like nature for a period from the date
of disclosure until five (5) years after date of termination of this
Agreement. This
23
<PAGE> 26
confidentiality obligation will also apply to the information defined as
"Proprietary Information" under the Mutual Nondisclosure Agreement
provided in Exhibit D.
25.2 All Proprietary Information will be labeled or marked proprietary or as
otherwise similarly appropriate by the disclosing party, or if the
Proprietary Information is orally disclosed, it will be identified as
Proprietary Information at the time of disclosure and the disclosing
Party shall, within thirty (30) days thereafter, confirm in writing the
oral disclosure, referencing the date and type of Proprietary
Information disclosed.
25.3 It is understood that THE REGENTS will be free to release to the
inventors and senior administrative officials employed by THE REGENTS
the terms of this Agreement upon their request. If such release is made,
THE REGENTS will request that such terms will be kept in confidence in
accordance with the provisions of Article 25 and not be disclosed to
others. It is further understood that should a third party inquire
whether a license to THE REGENTS' Patent Rights is available THE REGENTS
may disclose the existence of this Agreement and the extent of the grant
in Article 3 (LICENSE GRANT) and Exhibit B to such third party, but will
not disclose the name of LICENSEE, except where THE REGENTS is required
to release such information under either the California Public Records
Act or other applicable law.
26. MISCELLANEOUS
26.1 The headings of the articles are for reference only and do not affect
the interpretation of this Agreement.
26.2 Any amendment or modification of this Agreement must be in writing and
signed on behalf of each party.
26.3 This Agreement and the attached Exhibits A-D embody the entire
understanding of the Parties with respect to the subject matter of this
Agreement, and supersedes all earlier
24
<PAGE> 27
communication, representation, or understandings, either oral or
written, between the Parties with respect to such subject matter.
26.4 If any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect, that invalidity, illegality, or
unenforceability will not affect any other provisions of the Agreement.
This Agreement will be construed as if the invalid, illegal, or
unenforceable provision were never in this Agreement.
26.5 Neither Party is an agent of the other and neither will have any power
to contract for the other Party for any purpose.
26.6 THE REGENTS will release information concerning this Agreement if
required by law.
26.7 The exchange of information between the Parties is governed by an
existing Mutual Nondisclosure Agreement which is attached as Exhibit D.
IN WITNESS WHEREOF, both THE REGENTS and the LICENSEE have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
CEPHEID THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA
By: By:
-------------------------------- -----------------------------------
(Signature) (Signature)
Name: Name:
-------------------------------- -----------------------------------
Title: Title:
-------------------------------- -----------------------------------
Date: Date:
-------------------------------- -----------------------------------
25
<PAGE> 28
EXHIBIT A - LICENSED PATENTS
"Licensed Patents" means the patent, patent application and the resulting patent
listed below and any foreign patent applications filed and the resulting
patents.
United States Patent Application
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Patent Silicon-Based Sleeve Devices for Issue Date: M. Allen Northrup, Raymond
5,589,136 Chemical Reactions 12/31/96 P. Mariella, Anthony V.
IL-9707 Carrano,
Joseph W. Balch
Continuation in Microfabricated Sleeve Devices M. Allen Northrup
Part for Chemical Reactions Date Filed:
08/763,465 12/12/96
IL-9707B
- ---------------------------------------------------------------------------------------------
Foreign Patent Application
- ---------------------------------------------------------------------------------------------
PCT/US96/10453 Silicon-Based Sleeve Devices for Date Filed: Europe
Chemical Reactions 6/17/96 Canada
Japan
Republic of Korea
Singapore
- ---------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
EXHIBIT B - LICENSE GRANT
NOTICE
THIS EXHIBIT B CONTAINS FINANCIAL AND COMMERCIAL INFORMATION DEEMED BUSINESS
SENSITIVE. THE PARTIES AGREE NOT TO USE OR TO DISCLOSE THE TERMS OF THIS EXHIBIT
TO ANY THIRD PARTY WITHOUT THE EXPRESS WRITTEN CONSENT OF THE OTHER PARTY,
EXCEPT AS NECESSARY TO ENABLE THE PARTIES TO PERFORM UNDER THIS AGREEMENT OR AS
MAY BE REQUIRED BY THE REGENTS' CONTRACT WITH THE U.S. DEPARTMENT OF ENERGY
UNDER THE SAME RESTRICTIONS.
A. EXCLUSIVE RIGHTS GRANTED
Subject to the terms and conditions of this Agreement, THE REGENTS
grants to the LICENSEE a limited exclusive, nontransferable,
royalty-bearing license to make, have made, import, use, and sell
Licensed Products covered by the Licensed Patents in the Exclusive
Field-of-Use where patent rights exist. If LICENSEE or its sublicensees
lease Licensed Products, LICENSEE must obtain prior written amendment to
this Agreement from THE REGENTS.
"Exclusive Field-of-Use" as used in this Agreement means nucleic acid
amplification methods, including but not limited to PCR, and
Ligand-binding Assays, carried out in 1) a sleeve reaction chamber
without or with integral means of detecting reaction substrates or
products, and which reaction chamber is not coupled to electrophoresis,
and 2) a sleeve reaction chamber with integral means of detecting
reaction substrates or products and which reaction chamber is coupled to
electrophoresis.
B. SUBLICENSING RIGHTS GRANTED
THE REGENTS grants to LICENSEE the right to issue royalty-bearing
sublicenses to third parties to make, have made, import, use, and sell
Licensed Products in the Exclusive Field-of-Use provided LICENSEE has
current exclusive rights under this Agreement at the time of such
sublicenses. LICENSEE must grant sublicenses in the Exclusive
Field-of-Use if LICENSEE cannot meet market demand for the Licensed
Product(s).
C. RIGHTS EXCLUDED
27
<PAGE> 30
"Excluded Field-of-Use" as used in this Agreement means 1) nucleic acid
amplification methods, including but not limited to PCR, and
Ligand-binding Assays, carried out in a sleeve reaction chamber without
integral means of detecting reaction substrates or products, and which
reaction chamber is coupled to electrophoresis, and 2) all other uses
not expressly granted in the Exclusive Field-of-Use.
The right to lease Licensed Products is expressly excluded from this
Agreement.
D. CONDITIONS AND SCHEDULE [MILESTONES]
Within one (1) Year from Effective Date, LICENSEE will have completed
the following: (1) A prototype of a Licensed Product in the Exclusive
Field-of-Use (2) A detailed business plan for marketing and selling such
Licensed Products. By the end of calendar year 1998, LICENSEE will have
Licensed Products available for sale in the Exclusive Field-of-Use.
LICENSEE will achieve gross sales according to the following schedule:
<TABLE>
<CAPTION>
--------------------------------- ------------------------------
GROSS SALES YEARS FROM EFFECTIVE DATE
--------------------------------- ------------------------------
<S> <C>
Greater than $3 million 3
--------------------------------- ------------------------------
Greater than $7 million 4
--------------------------------- ------------------------------
Greater than $10 million 5
--------------------------------- ------------------------------
</TABLE>
LICENSEE agrees to use reasonable commercial efforts to market Licensed
Product(s) and provide THE REGENTS proof thereof by providing THE
REGENTS with an annual progress report in the format specified in
Article 6 (PROGRESS AND ROYALTY REPORTS).
LICENSEE will also provide annually copies of annual reports,
advertisements, catalogs, and information on trade show demonstrations
in which the Licensed Product(s) were featured during the previous year.
28
<PAGE> 31
EXHIBIT C - ISSUE FEE AND ROYALTIES
NOTICE
THIS EXHIBIT C CONTAINS FINANCIAL AND COMMERCIAL INFORMATION DEEMED BUSINESS
SENSITIVE. THE PARTIES AGREE NOT TO USE OR TO DISCLOSE THE TERMS OF THIS EXHIBIT
TO ANY THIRD PARTY WITHOUT THE EXPRESS WRITTEN CONSENT OF THE OTHER PARTY,
EXCEPT AS NECESSARY TO ENABLE THE PARTIES TO PERFORM UNDER THIS AGREEMENT OR AS
MAY BE REQUIRED BY THE REGENTS' CONTRACT WITH THE U.S. DEPARTMENT OF ENERGY
UNDER THE SAME RESTRICTIONS.
A. ISSUE FEE
LICENSEE will pay THE REGENTS a nonrefundable License Issue Fee of [**]
Dollars ($[**]) to be paid in accordance with Article 4 (LICENSE FEES,
ROYALTIES, AND PAYMENTS) and Article 6 (PROGRESS AND ROYALTY REPORTS)
and the following schedule:
<TABLE>
<CAPTION>
----------------------------- ----------------------------------------------------
INSTALLMENT AMOUNT DUE DATE
----------------------------- ----------------------------------------------------
<S> <C>
[**] Within ten (10) days after Effective Date
----------------------------- ----------------------------------------------------
[**] Within sixty (60) days after Effective Date
----------------------------- ----------------------------------------------------
[**] Within one (1) year after Effective Date
----------------------------- ----------------------------------------------------
[**] Within eighteen (18) months after Effective Date
or within thirty (30) days after first commercial
sale, whichever is earlier
----------------------------- ----------------------------------------------------
[**] Within ninety (90) days after first commercial sale
----------------------------- ----------------------------------------------------
</TABLE>
The License Issue Fee is not creditable toward any other fees owed by
LICENSEE to THE REGENTS under this Agreement.
LICENSEE has the option of paying a reduced License Issue Fee of [**]
DOLLARS ($[**]) if LICENSEE pays such Issue Fee in full by the end of
one (1) year after the Effective Date.
B. EARNED ROYALTIES
29
<PAGE> 32
As consideration for this license, LICENSEE and each sublicensee will
pay to THE REGENTS an earned annual royalty as shown below on all
Licensed Products and in accordance with Article 4 (LICENSE FEES,
ROYALTIES, AND PAYMENTS) and Article 6 (PROGRESS AND ROYALTY REPORTS).
<TABLE>
<CAPTION>
- ------------------------------- --------------------------------- -------------------------
TYPE OF SALES ANNUAL SALES BY LICENSEE ROYALTIES DUE THE
REGENTS ON NET SALES BY
LICENSEE
- ------------------------------- --------------------------------- -------------------------
<S> <C> <C>
OEM and Direct Sales 0- [**] [**]
including commercial
contracts* or technology
access fees
- ------------------------------- --------------------------------- -------------------------
OEM and Direct Sales $[**]- [**] [**]
including commercial
contracts* or technology
access fees
- ------------------------------- --------------------------------- -------------------------
OEM and Direct Sales $[**] and beyond [**]
including commercial
contracts* or technology
access fees
- ------------------------------------- ---------------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ---------------------------------
TYPE OF SALES ROYALTIES DUE
- ----------------------------------------------------------- ---------------------------------
<S> <C>
Sublicense Fees except for earned or minimum royalties. [**] or [**] of equivalent cash
value
- ----------------------------------------------------------- ---------------------------------
Sublicensing royalty rate due to THE REGENTS on Net Sales [**]
by sublicensees
- ----------------------------------------------------------- ---------------------------------
Sales to federal agency [**]
- ----------------------------------------------------------- ---------------------------------
</TABLE>
*A commercial contract does not include a contract for a prototype or
preproduction models used to set customer specifications prior to first
commercial sale.
**This royalty will be a [**] percent ([**]) pass through from a
sublicensee to LICENSEE to THE REGENTS. Any royalties over [**] percent
([**]) remain with LICENSEE. Sublicensee sales are not totaled with
LICENSEE sales and have no impact on the calculation of LICENSEE's
royalty rate.
30
<PAGE> 33
If LICENSEE is required to pay a royalty to another party or parties
that in total exceeds [**] percent ([**]) of Net Sales on the
manufacture, use or sale of Licensed Products, LICENSEE may request that
THE REGENTS adjust the royalty rates presented above. THE REGENTS will
consider each such request on a case by case basis.
C. MINIMUM ANNUAL ROYALTIES
Independent of the License Issue Fee required by Paragraph A, LICENSEE
will pay to THE REGENTS a minimum annual royalty for the life of this
Agreement according to the schedule below. This minimum annual royalty
will be paid even if earned royalties required by Paragraph B are less
than the minimum required. The minimum annual royalty is due by February
28 of each year and is credited against earned royalties until consumed
for that year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CALENDAR YEAR MINIMUM ANNUAL ROYALTY
- ------------------------------------------------------------------------------
<S> <C>
1997 [**]
- ------------------------------------------------------------------------------
1998 [**]
- ------------------------------------------------------------------------------
1999 [**]
- ------------------------------------------------------------------------------
2000 [**]
- ------------------------------------------------------------------------------
2001 [**]
- ------------------------------------------------------------------------------
All subsequent calendar years [**]
for the life of this Agreement plus 4% inflation factor each year
- ------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
EXHIBIT D - MUTUAL NONDISCLOSURE AGREEMENT
32
<PAGE> 1
EXHIBIT 10.10
*CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
Fisher Scientific Company L.L.C.
2000 Park Lane Drive
Pittsburgh, PA 15275-1126
Tel: 412-490-8300
Fax: 412-490-8990
[FISHER SCIENTIFIC LOGO]
January 10, 2000
CEPHEID CORPORATION
1190 Borregas Avenue
Sunnyvale, CA 94089-1302
Attn: Thomas L. Gutshall, Chairman & CEO
Dear Mr. Gutshall:
This letter is to confirm discussions between representatives of both firms
concerning the Smart Cycler(TM) System, accessories, and reaction tubes
developed by and made by or for Cepheid ("SUPPLIER") and the terms of our
agreement for Fisher Scientific Company L.L.C. ("FISHER") to distribute those
products.
1. Product Line. The "Products" shall include the Smart Cycler(TM) System
described in Exhibit A, the accessories listed in Exhibit A, and the reaction
tubes described in Exhibit A. The "Products" shall further include additional,
upgraded and improved Smart Cycler(TM) Systems, accessories and reaction tubes
introduced by Supplier as a replacement for existing Products and intended for
sale in the life science research market (the "Field"). Additional thermal
cyclers, accessories, and reaction tubes offered by Supplier shall become
"Products" only upon agreement of the parties. All Products shall conform to
SUPPLIER's specifications as have been disclosed to FISHER. All outer shipping
cartons shall conform to applicable Department of Transportation specifications.
2. Distribution Rights. SUPPLIER grants to FISHER the right to distribute the
Products in the United States (including Puerto Rico) into the life science
research market (the "Field"). Such right shall be exclusive, except for: (a)
SUPPLIER's reserved right to sell directly to the end user customers listed in
Exhibit B and (b) SUPPLIER's right to make OEM sales of thermal cyclers,
accessories and/or reaction tubes similar to Products which SUPPLIER may sell
and ship to a firm for resale under that firm's label. In addition, SUPPLIER
grants to FISHER rights to distribute the PRODUCTS in the countries outside of
the United States (including Puerto Rico) listed in Addendum 1, according to the
terms outlined in Addendum 1.
2a. Definition of Field. Rights are granted by the SUPPLIER to FISHER for
distribution into the Field of life science research. Specifically excluded from
the Field are human and veterinary diagnostics (including applications subject
to regulatory labeling including "For Investigational Use Only" or "For Research
<PAGE> 2
Use Only"), environmental testing, quality assurance and control testing,
identity and forensic testing, and testing for biothreat agents.
2b. Exclusive Supplier. While the exclusive distribution rights under
Paragraph 2 remain in force, SUPPLIER will be the exclusive supplier to FISHER
of systems capable of performing thermal cycling with real-time optical
detection.
2c. Sales Targets; Loss of Exclusivity. The parties have set minimum worldwide
sales targets for FISHER, in terms of units of Smart Cycler(TM) Systems (units
defined as the total number of 16-site Smart Cycler(TM) processing blocks,
either as part of a Starter System or as Add-On Blocks). Such sales targets
shall not represent commitments to purchase; but if FISHER fails to achieve a
sales target, SUPPLIER may, by written notice to FISHER terminate the
exclusivity of FISHER's distribution rights under Paragraph 2. Such written
notice shall be given within 90 days after the end of the sales target period
and shall become effective 30 days after FISHER's receipt of the notice. Such
termination of exclusivity shall be SUPPLIER's sole remedy for FISHER's failure
to achieve sales targets. The sales targets are as follows:
<TABLE>
<CAPTION>
Year 1 Year 2
------ ------
<S> <C>
[**] units [**] units
</TABLE>
FISHER shall provide SUPPLIER within 30 days after the first of each March,
June, September, and December a true and accurate accounting report of Products
(including units sold and selling price) sold on a country-by-country basis
during the preceding 3 months. In addition, FISHER shall provide to SUPPLIER on
a monthly basis an updated customer and contact list.
FISHER shall also provide SUPPLIER with one year (comprised of four quarters)
worldwide forecasts that will be updated on a quarterly basis and will include
projections for each of the upcoming three months. While the forecast will not
be binding in total, the projections provided for the upcoming quarter will
represent a purchase commitment.
3. Product Price. The Product list prices and transfer prices to Fisher shall
be as listed in Exhibit A. These prices shall be firm through December 31, 2000.
Thereafter, prices may be increased once annually to be effective January 1 of
the upcoming calendar year by negotiation between the parties, with SUPPLIER
giving FISHER no less than one hundred twenty (120) days prior written notice of
proposed new prices. In no event shall the annual price increase for a Product
exceed the percentage price increase in the Producer Price Increase (excluding
food and energy) published by the U.S. Department of Commerce; however, any
price increases directly resulting from an increase in the price of the computer
as purchased by the SUPPLIER, will not be subject to this price increase limit.
<PAGE> 3
Each shipment shall be billed at the price in effect at the time of order
placement. Notice of price changes shall be sent to:
MARKETING SERVICES DEPARTMENT
Fisher Scientific
2000 Park Lane
Pittsburgh, Pennsylvania 15275
With a copy to: Central Purchasing
3a. Payment Terms. Payment terms shall be 1% ten, net forty-five days from
receipt of valid invoice.
4. Warranty. SUPPLIER shall warrant all Smart Cycler(TM) System Products for
12 months from delivery to FISHER's customer and all accessories (except the
computer) for 12 months from delivery to FISHER's customer. The warranty
provided for the computer by the computer manufacturer will be transferred to
FISHER's customer. SUPPLIER shall provide or reimburse FISHER's Fisher Service
Division for parts used in making repairs during the warranty period and shall
make parts available after the warranty period to such Fisher Service Division
at a discount of [**] from Supplier's list price for such parts. SUPPLIER shall
reimburse FISHER for travel and labor reasonably incurred for repairs during the
warranty period at terms negotiated from time to time between SUPPLIER and such
Fisher Service Division, though the hourly labor rate for support received from
the US Fisher Service Division through December 31, 2000 will be $[**].
SUPPLIER also warrants that the Smart Cycler(TM) System to be distributed by
FISHER in the Field shall be an "authorized thermal cycler" under the terms of
the Thermal Cycling Authorization Program administered by PE Biosystems, a
division of PE Corporation.
5. Shipping. At the time of initial launch and for three months following
launch, SUPPLIER shall ship all initial customer orders of Smart Cycler(TM)
System Products (systems, accessories, and reaction tubes) directly to FISHER's
customers, FOB Sunnyvale, CA, freight charged to FISHER, within 30 days of order
receipt. Also, at the time of initial launch and for three months following
initial launch, SUPPLIER shall ship accessories and reaction tube Products FOB
Sunnyvale, CA to FISHER's distribution centers (freight collect) within 14 days
of order receipt, in order to fulfill customer re-orders received during this
time period. Beginning three months from initial launch, SUPPLIER will ship all
Smart Cycler(TM) System Products (systems, accessories and reaction tubes) FOB
Sunnyvale, CA to FISHER's distribution center in Santa Clara, CA (freight
collect), in order to fulfill all customer orders and re-orders. SUPPLIER shall
follow FISHER routing guide in the shipment of Products.
<PAGE> 4
6. Stocking Levels. SUPPLIER shall maintain sufficient inventory of Products
to assure its ability to fill emergency direct shipment orders for FISHER's
customers, including, but not limited to, accessories and reaction tube
Products.
7. Marketing support. SUPPLIER and FISHER shall each provide Marketing
Support, as described in Exhibit C (for U.S. distribution) and Addendum 1 (for
ex-U.S. distribution). There will be single worldwide contact point within
FISHER for the coordination of transmission of forecasts to SUPPLIER and for
marketing support activities between SUPPLIER and FISHER.
8. Term. The term of this Agreement shall be from the date of mutual
execution of this Letter Agreement and extending for three years from the date
of initial product launch. Thereafter, the Agreement shall remain in force for
successive six month periods, unless either party gives written notice of
non-renewal to the other at least sixty (60) days prior to the current
expiration date.
9. Termination. In the event of breach, the non-breaching party shall give
the breaching party (30) days written notice of breach. If the breach is not
cured within the thirty (30) day notice period, the non-breaching party may, at
its sole discretion, terminate the agreement.
10. Continuing Guaranty. SUPPLIER shall execute and abide by the terms of
DISTRIBUTOR's Continuing Guaranty, a copy of which is attached hereto as Exhibit
D and incorporated herein by reference. The terms and provisions of the
Continuing Guaranty shall survive the termination of this Agreement.
11. Amendments. Any terms or conditions of SUPPLIER's standard forms or
otherwise introduced by SUPPLIER shall not be binding unless agreed to in
writing by FISHER. Any amendment to this Agreement shall not be effective unless
in writing and signed by an authorized representative of SUPPLIER and of FISHER.
12. Public Announcements. SUPPLIER shall not issue or cause to be issued any
press release or public announcement or otherwise disclose the existence of
<PAGE> 5
this Agreement or the transactions contemplated hereby except as and to the
extent that FISHER and its parent jointly agree, in writing.
Please signify your acceptance of this Agreement by signing below and returning
one original to Jim Mortimer.
Yours truly,
------------------------
J. Bradley Mahood
Vice President
Strategic Sourcing
Agreed And Accepted:
CEPHEID CORPORATION
By: /s/ THOMAS L. GUTSHALL
---------------------------------
Name: Thomas L. Gutshall
Title: Chairman & CEO
1-10-00
- ------------------------------------
Date
Exhibits A - Products and Prices
B - End User Customers Excluded From Exclusivity Provision
C - Marketing Support
D - Continuing Guarantee
Addendum 1 - List of Fisher International Affiliates
<PAGE> 6
EXHIBIT A
SMART CYCLER(TM) SYSTEM
(see attached flyer for description and specifications)
<TABLE>
<CAPTION>
Part # Description List Price** Fisher Price
- ------ ----------- ------------ ------------
<S> <C> <C> <C>
SC1000N1-1 Smart Cycler(TM) Starter System [**] [**] of List
(includes one 16-site processing
block, accessory pack*, and
desk-top computer)
SC1000N3-1 Smart Cycler(TM) Processing Block [**] [**] of List
(one 16-site processing block and
USB interface cable)
</TABLE>
* Accessory pack includes 1 mini-centrifuge, four reaction tube racks, one
cooling block, software, users manual.
ACCESSORIES:
- -----------
<TABLE>
<CAPTION>
Part # Description List Price** Fisher Price
- ------ ----------- ------------ ------------
<S> <C> <C> <C>
SCCENT Mini-Centrifuge [**] [**] of List
SCRACKS Tube Racks (pack of 4) [**] [**] of List
SCBLOCK Cooling Block [**] [**] of List
</TABLE>
REACTION TUBES:
- --------------
<TABLE>
<CAPTION>
Part # Description List Price** Fisher Price
- ------ ----------- ------------ ------------
<S> <C> <C> <C>
900-0003 1 Bag of 25 (greek mu)L Smart Cycler(TM) [**] [**] of List
Reaction Tubes (50 tubes/bag)
900-0004 1 Bag of 100 (greek mu)L Smart Cycler(TM) [**] [**] of List
Reaction Tubes (50 tubes/bag)
SCT25 1 Carton of 25 (greek mu)L Smart Cycler(TM) [**] [**] of List Reaction
Tubes (20 bags of 50 tubes ea)
SCT100 1 Carton of 100 (greek mu)L Smart Cycler(TM) [**] [**] of List Reaction
Tubes (20 bags of 50 tubes ea)
</TABLE>
** List prices subject to change by no more than +/- 10% by the time of launch
***List prices subject to change by no more than +/- 15% by the time of launch
<PAGE> 7
EXHIBIT B
U.S. End User Customers Excluded From The Exclusivity Provisions Of Paragraph 2
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME: ADDRESS:
- ---- -------
<S> <C>
United States Department of Defense Various
Including but not limited to USAMRIID, JPOCMO,
U.S. Marine Corps Systems Command, NRL, SBCCOM,
Naval Research & Development Command, Armed Forces
Institute of Pathology, U.S. Army Nuclear & Chemical
Agency, Special Operations and Low-Intensity Conflict Group,
Dugway Proving Ground, USAMMDA
United States Department of Justice Various
Including but not limited to FBI Hazardous Material
Response Unit, Defense Threat Reduction Agency,
FBI Technical Support Working Group, National Domestic
Preparedness Office.
National Guard Various
Including but not limited to: RAID Teams, Consequence
Management Program, Integration Office, Bureau Readiness
Center, Office of Weapons of Mass Destruction.
Central Intelligence Agency Washington, DC
Centers for Disease Control, BioTerrorism Response Atlanta, GA
MKI Systems Dumfries, VA
Maxwell Technologies San Diego, CA
Litton Systems, Inc. Woodland Hills, CA
Battelle Institute/National Security Division Columbus, OH
DynCorp Various
</TABLE>
<PAGE> 8
EXHIBIT C
Sales & Marketing Support- Respective Roles and Responsibilities of FISHER and
SUPPLIER (U.S. Distribution)
- ------------------------------------------------------------------------------
During the term of this Agreement, FISHER shall use its reasonable best efforts
to actively promote the Products of this Agreement in the United States and
Puerto Rico through its sales force and through its life science specialists.
FISHER shall support such sales at its own expense via the following activities:
o Launch package/training material sent to entire sales and customer
service organization
o Training of Life Science Specialists at Life Science meetings or
designated and agreed upon training sessions
o Full page advertisement in issues of BioTrack publication, according
to the following schedule: [**]
o Product information put on "What's New" section of Fisher web-site
o Include Cepheid on supplier lists for Fisher web-site, Life Science
brochures and publications
o Display Products at trade shows where appropriate
o Include Products in Fisher sponsored catalogues, brochures, and
literature
o Provide targeted sales incentive and commission program to support
Product sales
During the term of this agreement, the following activities will also be
undertaken by both parties, as described below:
o Fisher and Cepheid will participate in a business review meeting on
a quarterly basis, or on another agreed upon timeframe
o Cepheid will have primary responsibility for providing technical
support for its products, although the Fisher Life Science
Specialists will be trained by Cepheid to provide basic response,
should they be contacted directly by Fisher customers
o Cepheid will provide Fisher with product and application literature
at its own costs, although Fisher will offer printing services at
cost
o Cepheid shall provide Fisher with [**] demo units at no cost to
Fisher. Additional units will be provided at terms to be negotiated
between the parties
o Fisher will provide a single, designated point of contact in the
United States to provide worldwide forecasts and sales reports, and
to help manage any issues arising from the worldwide distribution
agreement (from the US sales and service organization, non-US
affiliates, and worldwide customers)
<PAGE> 9
EXHIBIT C (CONTINUED)
In addition, Cepheid may choose, at its own discretion and cost, to participate
in the following promotional activities:
o Participate in the Fisher New Lab Start-Up Program
o Attend and have a booth at Fisher's National Sales Meeting
o Participate in account specific vendor shows
o Participate is scheduled work days with Fisher sales representatives
and Life Science Specialists
o Advertise and exhibit in other life science research focused
publications and meetings, making reference to Fisher as the
distribution source.
<PAGE> 10
ADDENDUM 1
1. Canada, upon execution of an addendum between Cepheid and Fisher
Scientific Limited
2. United Kingdom, upon execution of an addendum between Cepheid and
Fisher Scientific UK Limited
3. France, Germany, Belgium and Netherlands, upon execution of an
addendum between Cepheid and Fisher Bioblock
<PAGE> 11
[FISHER SCIENTIFIC LOGO]
EXHIBIT D
CONTINUING GUARANTY
A. CEPHEID CORPORATION (hereinafter referred to as "SUPPLIER"), having its
principal office and place of business at 1190 Borregas Avenue, Sunnyvale,
CA 94089-1302 hereby guarantees that all Products (including their
packaging, labeling and shipping) comprising each shipment or other
delivery hereinafter made by SUPPLIER (hereinafter referred to as
"Products") to or on the order of Fisher Scientific Company L.L.C., a
Delaware limited liability company, having its principal place of business
at 2000 Park Lane, Pittsburgh, PA 15275 or to any of its branches,
divisions, subsidiaries, affiliates, or any of their customers (hereinafter
collectively referred to as "Fisher"), are, as of the date of such shipment
or delivery, in compliance with applicable federal, state and local laws,
and any regulations, rules, declarations, interpretations and orders issued
thereunder, including, without limitation, the Federal Food, Drug and
Cosmetic Act, as amended, and conform to representations and warranties
made by SUPPLIER in its advertising, product labeling and literature.
B. Further, with respect to any Product that is privately labeled for Fisher.
SUPPLIER agrees to make no change in such Products or the Fischer artwork
on the labeling or packaging relating thereto without first obtaining the
written consent of Fisher. SUPPLIER recognizes that Fisher is the owner of
the trademarks and trade names connoting Fisher which it may elect to use
in the promotion and sale of such private label Products and that SUPPLIER
has no right or interest in such trademarks or trade names. SUPPLIER shall
periodically analyze and review packaging and labeling for any Products
which are private labeled for Fischer to ensure conformity with the
provisions of paragraph A hereof and the adequacy of Product warnings and
instructions.
C. SUPPLIER hereby agrees that it will reimburse Fisher for all reasonable
out-of-pocket costs and expenses incurred in connection with any product
corrective action or recall relating to the Products which is requested by
SUPPLIER or required by any government entity.
D. SUPPLIER agrees to procure and maintain on an occurrence form basis product
liability issuance with respect to the Products and contractual liability
coverage relating to this Guaranty, with insurer(s) having Best's rating(s)
of A-or better, naming Fisher as an additional insured (Broad Form Vendors
Endorsement), with minimum limits in each case of $1,000,000. SUPPLIER
shall promptly furnish to Fisher a certificate of insurance and renewal
certificate of insurance evidencing the foregoing coverages and limits. The
insurance shall not be canceled, reduced or otherwise changed without
providing Fisher with at least ten (10) days prior written notice. Fisher
agrees to maintain corresponding levels of insurance and to provide
certificates of such issuance to SUPPLIER and further agrees that Fisher's
insurance coverage shall be primary to the extent that a claim is based
upon the negligent acts and omissions or willful misconduct of Fisher.
E. SUPPLIER agrees to and shall protect, defend, indemnify and hold harmless
Fisher (and with respect to Subparagraph E. (i) below, Fisher's customers)
from any and all claims, actions, costs, expenses and damages, including
attorney's fees and expenses arising out of: (i) any actual or alleged
patent, trademark or copyright infringement in the design, composition, use
by itself or in accordance with SUPPLIER's instructions, sale, advertising
or packaging of the Products, (ii) any breach of the representations or
warranties set forth in this Guaranty; (iii) the sale or use of the
Products where such liability results from the act or omission of SUPPLIER
(whether for breach of warranty, strict liability in tort, negligence or
otherwise), except to the extent that such liability is caused by the
negligent acts or omissions or willful misconduct of Fisher. Fisher agrees
to and shall protect, defend, indemnify and hold harmless SUPPLIER to the
extent that any such liability is caused by the negligent acts or omissions
or willful misconduct of Fisher.
F. SUPPLIER agrees to and shall provide to Fisher Material Safety Data Sheets
and other information concerning any Product as required by then applicable
federal, state or local law.
G. If the Products to be furnished by SUPPLIER are to be used in the
performance of a U.S. government contract or subcontract, those clauses of
the applicable U.S. Government procurement regulation which are mandatorily
required by Federal Statute to be included in U.S. Government subcontracts
shall be incorporated herein by reference including, without limitation,
the Fair Labor Standards Act of 1938, as amended.
H. The representations and obligations set forth herein shall be continuing
and shall be binding upon the SUPPLIER and his or its heirs, executors,
administrators, successors and/or assigns, whichever the case may be, and
shall inure to the benefit of Fisher, its successors and assigns and to the
benefit of its officers, directors, agents and employees and their heirs,
executors, administrators and assigns.
I. The agreements and obligations of SUPPLIER set forth in this Guaranty are
in consideration of purchases made by Fisher from SUPPLIER and said
obligations are in addition to (and supersede to the extent of any
conflict) any obligations of SUPPLIER to Fisher or Fisher to SUPPLIER. This
Guaranty shall be effective upon the first sale to Fisher of any Product by
SUPPLIER, and the obligations of SUPPLIER under this Guaranty shall survive
and be enforceable in accordance with its terms.
SUPPLIER
CEPHEID CORPORATION
/s/ THOMAS L. GUTSHALL
--------------------------------------
Signature of Authorized Representative
CEO & CHAIRMAN 1-10-00
---------------------------------------
TITLE
FISHER SCIENTIFIC COMPANY LLC.
/s/ [SIGNATURE ILLEGIBLE]
----------------------------------------
Signature of Authorized Representative
VP Strategic Merchandising 1/13/00
----------------------------------------
Title
<PAGE> 1
EXHIBIT 10.12
JOINT TECHNOLOGY AND COLLABORATION AGREEMENT entered into as of the 4th day of
February 2000.
BETWEEN: ARIDIA CORP., a corporation incorporated under the laws of the
Province of Nova Scotia (hereinafter the "Corporation")
AND: INFECTIO DIAGNOSTIC (I.D.I.) INC., a corporation incorporated under
the laws of the Province of Quebec (hereinafter "IDI")
AND: CEPHEID, a corporation incorporated under the laws of the state of
California (hereinafter "Cepheid")
WHEREAS, IDI has expertise and know-how relating to certain nucleic acid
sequences for identification and diagnosis of certain human infectious disease
parameters as hereinafter described;
WHEREAS, Cepheid has expertise and know-how relating to systems, subsystems and
non-reagent consumables (such as disposable reaction tube), for diagnosing human
disease parameters;
WHEREAS IDI and Cepheid have granted to the Corporation exclusive licenses in
the Field relating to their respective technology;
WHEREAS IDI, Cepheid and the Corporation have entered into a Shareholders
Agreement dated February 4, 2000; and
WHEREAS IDI and Cepheid desire to cooperate in the discovery and development of
innovative diagnostic systems based on the integration of their respective
technologies;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the parties
hereby agree as follows:
<PAGE> 2
- 2 -
ARTICLE 1
DEFINITIONS
As used in this agreement:
1.1 "AFFILIATE(s)" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein
means ownership directly or through one or more Affiliates, of fifty
percent (50%) or more of the shares of stock entitled to vote for the
election of directors, in the case of any corporation, or fifty percent
(50%) or more of the equity interests in the case of any other type of
legal entity, status as a general partner in any partnership, or any other
arrangement whereby a party controls or has the right to control the board
of directors or equivalent governing body of a corporation or other
entity.
1.2 "CEPHEID" shall include all of the divisions, subsidiaries and Affiliates
of Cepheid.
1.3 "CEPHEID INTELLECTUAL PROPERTY" shall mean all technology rights and
patents rights (a) owned by Cepheid, existing as of the date hereof or
developed subsequent to the date hereof and (b) relating to systems,
subsystems and non reagent consumables for diagnosing human disease
parameters including without limitations the patents and patents
applications listed and described on Appendix A hereto. The Cepheid
Intellectual Property shall also include any improvements, refinements,
updates, discoveries or inventions related to Cepheid Intellectual
Property and intellectual property developed by Cepheid in the course of
the Collaboration Program.
1.4 "COLLABORATION PROGRAM" means any research program and associated
activities contemplated by the parties during the term of this Agreement
which program and activities shall, from time to time, be attached to this
Agreement as Appendix B.
1.5 "COLLABORATIVE PRODUCTS" means any products which are discovered in whole
or in part as a result of the Collaboration Program and made of Joint
Technology.
1.6 "FIELD" shall mean the rapid diagnosis of human infectious diseases
including but not limited to bacteria, fungi, antibiotic resistance and
related disorders with systems integrating IDI Intellectual Property and
Cepheid Intellectual Property.
1.7 "IDI" shall include all of the divisions, subsidiaries and Affiliates of
IDI.
1.8 "IDI INTELLECTUAL PROPERTY" shall mean all technology rights and patent
rights (a) owned by IDI, existing as of the date hereof or developed
subsequent to the date hereof and (b) relating to nucleic acid sequences
useful for the identification and/or diagnosis of human infectious disease
parameters, including, without limitation, the patents and patent
applications listed and described on Appendix C hereto. The IDI
Intellectual Property shall also include any improvements, refinements,
updates, discoveries or inventions related to IDI Intellectual Property
and intellectual property developed by IDI in the course of the
Collaboration Program.
1.9 "JOINT TECHNOLOGY" shall have the meaning ascribed to such term in section
2.6.3. hereof.
1.10 "SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement between
IDI, Cepheid and the Corporation dated February 4, 2000, and any addenda
and amendments of said agreement.
<PAGE> 3
- 3 -
ARTICLE 2
COLLABORATION PROGRAM
2.1 BASIC PROVISIONS
The Collaboration Program shall aim at the development and
commercialization of innovative diagnostic systems based on the
integration of IDI Intellectual Property and Cepheid Intellectual
Property.
2.2 COOPERATION
Each party shall keep the board of directors of the Corporation fully
informed about the status of the Collaboration Program, and scientists at
IDI and Cepheid shall cooperate in the performance of the Collaboration
Program and, subject to any confidentiality obligations to third parties,
shall exchange information and materials as necessary to carry out the
Collaboration Program.
2.3 EXPENSES
IDI and Cepheid shall each bear all expenses of their participation in the
Collaboration Program.
2.4 RESEARCH AND DEVELOPMENT
The parties agree to jointly develop and prepare a written plan for any
Collaboration Program which plan shall include without limitation:
o Product description and specifications
o Development Plan with specified tasks and milestones, including
identified responsibilities of the respective parties
o Resourcing plan, budget and funding plan
o Regulatory plan
o Production plan
o Cost targets and analysis
2.5 DISCLOSURE OF INVENTION
Each party shall promptly inform the other of all inventions that are
conceived, made or developed in the course of carrying out the
Collaboration Program by employees or consultants of either of them or
their Affiliates alone or jointly with employees or consultants of the
other party or its Affiliates. The following provisions shall apply to
rights in the intellectual property developed by IDI or Cepheid, or both,
during the course of carrying out the Collaboration Program.
2.6 OWNERSHIP
The Corporation shall not own any intellectual property developed in the
course of the Collaboration Program, which shall be owned as follows:
2.6.1 IDI Technology
IDI shall have sole and exclusive ownership of all rights, title and
interest on a worldwide basis in and to any technology solely
developed or created by employees or consultants of IDI or through
the use of IDI Intellectual Property
<PAGE> 4
- 4 -
in the course of the Collaboration Program. This technology shall be
included in IDI License.
2.6.2 Cepheid Technology
Cepheid shall have sole and exclusive ownership of all rights, title
and interest on a worldwide basis in and to any technology solely
developed or created by employees or consultants of Cepheid or
through the use of Cepheid Intellectual Property in the course of
the Collaboration Program. This technology shall be included in
Cepheid License.
2.6.3 Joint Technology
IDI and Cepheid shall jointly own all technology jointly conceived,
reduced to practice or developed jointly by employees or consultants
of both IDI and Cepheid during the course of the Collaboration
Program (the "Joint Technology") and shall jointly own all joint
patent rights. The Joint Technology shall be included in IDI License
and in Cepheid License. Technology shall be considered "jointly"
conceived, reduced to practice, or developed if and only if it is
the subject of a patent application showing authorship by at least
one employee of each of Cepheid and IDI.
2.7 COMMERCIALIZATION RIGHTS
The Corporation shall have the exclusive worldwide right to develop and
commercialize Joint Technology and the Collaborative Products in the
Field.
2.8 JOINT TECHNOLOGY OUTSIDE THE FIELD
IDI and Cepheid shall not use the Joint Technology and the Collaborative
Products outside the Field without the prior written consent of the other
party.
2.9 FIRST NEGOTIATION RIGHT
During the term of this Agreement, each party shall promptly disclose to
the Corporation after the filing of a patent application any new
intellectual property developed by such party (the "Inventor Party")
outside the Collaboration Program which is subject to such patent
application, but only to the extent that such property is of material use
in the Field. The Corporation shall benefit of a first negotiation right
over any third party to use, make, offer to sell and sell such new
intellectual property in the Field. Upon receipt of a written notice from
the Inventor Party, the Corporation shall have 30 days to notify the
Inventor Party that it wishes to enter into negotiations. If the
Corporation does not notify the Inventor Party within 30 day period that
it wishes to enter into negotiations, then the Inventor Party shall be
free to offer its new intellectual property to any third party on any
terms. In the event that the Corporation exercises its right of first
negotiation, the Inventor Party and the Corporation shall enter into good
faith negotiations in order to conclude an agreement within 90 days from
the expiration of the 30-day period. If the Corporation and the Inventor
Party cannot reach an agreement despite good faith negotiations, then on
or before the 90th day described in the preceding sentence, the
Corporation shall deliver to the Inventor Party a detailed written offer
of terms and conditions upon which it is willing, without additional
negotiation, to acquire the right use, make, offer to sell, and sell the
new intellectual property in the Field, and after the 90th day, the
Inventor Party shall be free to offer the new intellectual property to any
third party on terms and conditions not more favorable to the third party
than the terms and
<PAGE> 5
- 5 -
conditions so offered by the Corporation. If the Corporation does not
deliver such a written offer within 90-day period, then the Inventor Party
may offer the new intellectual property to any third party on any terms.
ARTICLE 3
PROVISIONS CONCERNING THE FILING, PROSECUTION
AND MAINTENANCE OF PATENT RIGHTS
3.1 FILING OF PATENTS
In consultation with the board of directors of the Corporation, IDI will
determine what patents will be filed on IDI Technology and Cepheid will
determine what patents will be filed on Cepheid Technology developed in
the course of the Collaboration Program. Each party will be responsible
for the prosecution (including the defense of interferences and similar
proceedings) of patent protection for its owned intellectual property,
provided that the other party will have the opportunity to provide
substantive review and comment on any such prosecution. Responsibility for
prosecution of patent protection (including the defense of interferences
and similar proceedings) on Joint Technology will be determined by the
board of directors of the Corporation.
3.2 EXPENSES
Each party shall bear all attorneys' fees, filing and maintenance fees and
other out-of-pocket costs incurred by it pursuant to Section 3.1 to the
extent they relate to its Intellectual Property except for Joint
Technology in which case the Corporation shall bear all such costs.
3.3 RIGHT TO PROSECUTE ABANDONED RIGHTS
If either party at any time elects (or causes the Corporation to elect)
not to seek or continue to seek, use or maintain patent protection on any
Joint Technology in any country, the other party shall have the exclusive
right, at its expense, to file, procure, maintain and enforce in such
countries patents on such intellectual property. Each party agrees to
advise the other party of all decisions taken in a timely manner in order
to allow a party to protect its rights under this Article 3. If a party
elects not to file a patent application or application for a certificate
of invention, not to maintain a patent or certificate of invention, or to
abandon a pending patent application or application for a certificate of
invention, it shall advise the other party of such election in a timely
manner, and such other party shall have the right, at its own expense, of
filing such application, maintaining such patent or certificate of
invention or continuing to attempt to obtain protection on the subject
matter disclosed in such pending application.
<PAGE> 6
- 6 -
ARTICLE 4
CONFIDENTIALITY AND NON-DISCLOSURE
The parties agree that the Confidentiality provisions contained in the
Shareholders Agreement apply to this Agreement, with the necessary changes
having been made.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM
This Agreement shall continue in full force and effect until the
expiration of the 6 month period following receipt by IDI or Cepheid of a
notice of winding up sent pursuant to Article 4 of the Shareholders
Agreement.
5.2 SURVIVAL OF OBLIGATIONS
Article 4 of this Agreement shall survive the termination of this
Agreement.
ARTICLE 6
DISPUTES
6.1 NEGOTIATION AND MEDIATION
If a dispute arises out of or relates to this Agreement or its breach (the
"Matter"), the parties agree to resolve the Matter as follows:
(a) A party (the "Initiating Party") shall submit written notice of the
Matter to the other parties and request negotiation.
(b) The parties shall attempt in good faith to resolve any Matter
arising out of or relating to this Agreement promptly by negotiation
between representatives which the parties may appoint, and
(c) If the Matter has not been resolved within 60 days of a party's
request for negotiation, either party may request that the Matter be
submitted to a sole mediator selected by the parties for mandatory
mediation of not more than five days' duration;
6.2 ARBITRATION
If the Matter has not been resolved by such mediation, either party may
submit the Matter for binding arbitration, to a sole arbitrator in
accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce as in effect on the date hereof, (the
"ICC Rules"), except where such ICC Rules conflict with the provisions of
Article 6 in which event the provisions of this Article 6 shall prevail.
<PAGE> 7
- 7 -
6.3 APPOINTMENT OF ARBITRATOR
If the parties fail to agree on the appointment of the sole arbitrator
within 20 days after one party has served the other party, a written
notice to concur in the appointment of the single arbitrator nominated by
the serving party, the sole arbitrator shall be appointed in accordance
with the ICC Rules. If IDI is the Initiating Party, then the sole
arbitrator shall be a member of the California Bar with at least 10 years
of experience in corporate commercial or intellectual property law. If
Cepheid is the Initiating Party, then the sole arbitrator shall be a
member of the Quebec Bar with at least 10 years of experience in corporate
commercial or intellectual property law. The arbitrator shall render any
final award within 20 days following the completion of evidence and
arguments on the Matter.
6.4 ADMISSIBILITY OF EVIDENCE IN OTHER PROCEEDINGS
The parties shall not be entitled to rely on or introduce as evidence
before any arbitral proceedings whether or not such proceedings relate to
the Matter that is the subject of the negotiations:
(a) views expressed or suggestions made by another party in respect of a
possible settlement of the Matter;
(b) admissions or proposals made by another party in the course of
negotiations; or
(c) the fact that the other party had indicated his willingness to
accept a proposal for settlement made by another party.
6.5 LOCATION
The mediation and arbitration shall be held in Montreal, Quebec. The
parties, their representatives, the mediator and the arbitrator shall hold
the existence, content and results of any negotiation, mediation or
arbitration in confidence unless disclosure is required by law or
regulation, and in such case the parties shall take reasonable precautions
to only disclose what is required by law or governmental regulation
6.6 AWARD
Any award of the Arbitration shall be final and binding on the parties and
shall be enforceable in any court having jurisdiction over the party from
whom enforcement is requested.
ARTICLE 7
NOTICES
Any notice, request, instruction or other document to be given hereunder
shall be deemed validly given if in writing, and delivered personally,
sent by overnight courier, or sent by certified mail, postage prepaid,
return receipt requested (in which event it shall be deemed received on
the third business day following mailing), as follows:
<PAGE> 8
- 8 -
If to IDI:
---------
Infectio Diagnostic (I.D.I.), Inc.
2050 Rene Levesque Blvd. West
Ste-Foy, Quebec, Canada G1V 2K8
Attn: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
if to Cepheid:
-------------
Cepheid
1190 Borregas Avenue
Sunnyvale, CA, USA, 94089-1302
Attn: Thomas L. Gutshall
Facsimile: (408) 541-4192
and if to the Corporation:
-------------------------
Aridia Corp.
2050 Rene Levesque Blvd. West
Ste-Foy, Quebec, Canada G1V 2K8
Attn: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
With copy to Thomas L. Gutshall
Facsimile: (408) 541-4192
Alternatively, notices and other communications may be sent by facsimile
transmission with a confirmation copy sent by one of the forms of
delivery set forth above. Except as provided above, all notices and
other communications shall be deemed delivered on the date of actual
receipt.
ARTICLE 8
MISCELLANEOUS
8.1 ENTIRE AGREEMENT
This Agreement along with the Shareholders Agreement and the exclusive
licenses between IDI and the Corporation and Cepheid and the Corporation
constitutes the entire understanding between the parties with respect to
the subject matter hereof and supersedes and replaces all prior
agreements, understandings, writings and discussions between the parties
relating to said subject matter. Only a written instrument executed by the
parties may amend this Agreement.
8.2 WAIVER
The failure of either party at any time or times to require performance of
any provision hereof shall in no manner affect its rights at a later time
to enforce the same. No waiver by either party of any condition or term in
any one or more
<PAGE> 9
- 9 -
instances shall be construed as a further or continuing waiver of such
condition or term or any other condition or term.
8.3 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
assigns and neither IDI, Cepheid or the Corporation shall assign this
Agreement without the prior written consent of the other parties, which
cannot be unreasonably withheld.
8.4 FORCE MAJEURE
Any delays in or failure of performance by either party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God; acts, regulations, or
laws of any government; strikes or other considered acts of workers;
fires; floods; explosions; riots; wars; rebellion; and sabotage; and any
time for performance hereunder shall be extended by the actual time of
delay caused by such occurrence.
8.5 SEVERABILITY
If any provision(s) of this Agreement are or become invalid, or ruled
illegal by any court of competent jurisdiction, or are deemed
unenforceable under then current applicable law from time to time in
effect during the term hereof, it is the intention of the parties that the
remainder of this Agreement shall not be affected thereby. It is further
the intention of the parties that in lieu of each such provision which is
invalid, illegal, or unenforceable, there be substituted or added as part
of this Agreement, a provision which shall be as similar as possible in
economic and business objectives as intended by the parties to such
invalid, illegal, or unenforceable provision, but which shall be valid,
legal, and enforceable, and shall be mutually agreed by the parties.
8.6 HEADINGS
The headings contained herein are for reference purposes only and shall
not in any way affect the meaning of this Agreement.
8.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
8.8 NO AGENCY
Nothing contained in this Agreement shall be deemed to create a
partnership between the Corporation, IDI and Cepheid. Neither party shall
be liable for the act of the others unless each other parties expressly
authorizes such act in writing.
8.9 GOVERNING LAW
As to matters affecting Cepheid Intellectual Property, this Agreement
shall be governed by and construed in accordance with the laws of the
State of California, without regard to the application of principles of
conflicts of laws thereof. As to other matters, this Agreement shall be
governed by and construed in accordance with the laws of the Province of
Quebec, without regard to the application of principles of conflicts of
laws thereof.
<PAGE> 10
- 10 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INFECTIO DIAGNOSTIC (I.D.I.) INC ARIDIA CORP.
Per: /s/ PIERRE COULOMBE Per: /s/ PIERRE COULOMBE
------------------------------ ------------------------------
Dr. Pierre Coulombe Dr. Pierre Coulombe
Per: /s/ THOMAS L. GUTSHALL
------------------------------
Thomas L. Gutshall
CEPHEID
Per: /s/ THOMAS L. GUTSHALL
------------------------------
Thomas L. Gutshall
<PAGE> 11
APPENDIX A
CEPHEID INTELLECTUAL PROPERTY
<PAGE> 12
APPENDIX A
TO THE JOINT TECHNOLOGY AND COLLABORATION AGREEMENT
BETWEEN AND ARIDIA CORP., INFECTIO DIAGNOSTIC (I.D.I.) INC. AND CEPHEID
COLLABORATION PROGRAM
I. Reaction vessel for heat-exchanging chemical processes.
<TABLE>
<CAPTION>
PATENT
COUNTRY NUMBER ISSUES
------- ------ ------
<S> <C> <C>
UNITED STATES US 5,958,349 Sept. 28, 1999
</TABLE>
<PAGE> 13
APPENDIX B
COLLABORATION PROGRAM
<PAGE> 14
APPENDIX B
TO THE JOINT TECHNOLOGY AND COLLABORATION AGREEMENT
BETWEEN AND ARIDIA CORP., INFECTIO DIAGNOSTIC (I.D.I.) INC. AND CEPHEID
COLLABORATION PROGRAM
<PAGE> 15
APPENDIX C
IDI INTELLECTUAL PROPERTY
<PAGE> 16
APPENDIX C
TO THE JOINT TECHNOLOGY AND COLLABORATION AGREEMENT
BETWEEN AND ARIDIA CORP., INFECTIO DIAGNOSTIC (I.D.I.) INC. AND CEPHEID
IDI PATENT RIGHTS AND APPLICATIONS
I. Specific and universal probes and amplification primers to rapidly detect
and identify common bacterial pathogens and antibiotic resistance genes
from clinical specimens for routine diagnosis in microbiology
laboratories.
<TABLE>
<CAPTION>
APPLICATION FILING
COUNTRY NUMBER DATE STATUS
<S> <C> <C> <C>
AUSTRALIA 34 681/95 Sept 12, 1995 292494
BRAZIL 08/304732 Sept 12, 1995 Pending
CANADA 1529278 April 2, 1998 Pending
CHINA CN1161060A Oct 1, 1997 Pending
UNITED STATES US526840 Nov 4, 1996 6,001,564
EUROPE 95 931 109.3-2116 Pending
INDIA 2153CAL97 Pending
JAPAN 504973/98 May 19, 1998 Pending
MEXICO 97/01847 June 18, 1997 Pending
NORWAY 971111 Sept. 1, 1998 Pending
NEW ZEALAND JP207909 August 12, 1998 292494
SINGAPORE 9701090-4 Sept. 12, 1995 9701090-4
</TABLE>
<PAGE> 17
II. Species-specific, genus-specific and universal DNA probes and
amplification primers to rapidly detect and identify common bacterial and
fungal pathogens and associated antibiotic resistance genes from clinical
specimens for diagnosis in microbiology laboratories.
<TABLE>
<CAPTION>
APPLICATION FILING
COUNTRY NUMBER DATE STATUS
<S> <C> <C> <C>
ARGENTINA P970105357 Nov. 14, 1997 Pending
AUSTRALIA 48598/97 Nov. 14, 1997 Pending
BRAZIL PI 9713494-5 Nov. 14, 1997 Pending
CANADA 5044400 July 22, 1999 Pending
CHINA 97180194.0 Nov. 4, 1997 Pending
UNITED STATES WO98/20157 Nov. 4, 1997 Pending
EUROPE 97911094.7 - 2116 Pending
INDIA 2153CAL97 Nov. 13, 1997 Pending
JAPAN May 6, 1999 Pending
MEXICO 99-4119 May 3, 1999 Pending
NORWAY 19991976 April 26, 1999 Pending
NEW ZEALAND 335548 June 4, 1999 Pending
SINGAPORE 9901915-0 Nov. 4, 1997 Pending
</TABLE>
<PAGE> 18
III. Highly conserved genes and their use to generate species-specific,
genus-specific, family-specific, group-specific and universal nucleic acid
probes and amplification primers to rapidly detect and identify bacterial,
fungal and parasitical pathogens from clinical specimens for diagnosis.
<TABLE>
<CAPTION>
APPLICATION FILING
COUNTRY NUMBER DATE STATUS
<S> <C> <C> <C>
CANADA CAN 2,283,458 Sept. 28, 1999 Pending
</TABLE>
<PAGE> 19
IV. Specific and universal probes to rapidly detect and identify common
bacteria form urinary or any other biological samples in the routine
microbiology laboratory.
<TABLE>
<CAPTION>
APPLICATION FILING
COUNTRY NUMBER DATE STATUS
<S> <C> <C> <C>
UNITED STATES 85-586-9001-2 Sept. 12, 1994 08/304,732
UNITED STATES S.N. 850586.90012 Sept. 11, 1995 08/526,840
</TABLE>
<PAGE> 20
V. Species-specific and universal DNA probes and amplification primers to
rapidly detect and identify common bacterial pathogens and associated
antibiotic resistance genes from clinical specimens for routine diagnosis
in microbiology laboratories.
<TABLE>
<CAPTION>
APPLICATION FILING
COUNTRY NUMBER DATE STATUS
<S> <C> <C> <C>
UNITED STATES US 743,637 Nov. 4, 1996 5,994,066
</TABLE>
<PAGE> 1
EXHIBIT 10.13
SHAREHOLDERS AGREEMENT entered into as of the 4th day of February, 2000.
BETWEEN INFECTIO DIAGNOSTIC (I.D.I.) INC., a corporation incorporated under the
laws of the Province of Quebec ("IDI")
AND CEPHEID, a corporation incorporated under the laws of the state of
California ("Cepheid")
AND ARIDIA CORP., a corporation incorporated under the laws of the Province
of Nova Scotia ("Corporation")
WHEREAS the Corporation is a company incorporated under the Nova Scotia
Companies Act by Certificate of Incorporation dated the 4th day of February,
2000, and is qualified as a Nova Scotia Unlimited Liability Company;
WHEREAS the share capital of the Corporation consists of a limited number of
1,000,000 common shares of which 200 common shares have been issued and are
presently outstanding and registered as follows:
<TABLE>
<CAPTION>
NAME COMMON SHARES
---- -------------
<S> <C>
IDI 100
Cepheid 100
</TABLE>
WHEREAS IDI and the Corporation have entered concurrently with the execution of
this Agreement into a License and Supply Agreement;
WHEREAS Cepheid and the Corporation have entered concurrently with the execution
of this Agreement into a License and Supply Agreement;
WHEREAS the parties wish to enter into this Agreement in order to record their
mutual understanding as to the manner in which the affairs of the Corporation
shall be conducted and to provide for their respective rights and obligations;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the parties
hereby agree as follows:
<PAGE> 2
-2-
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
The capitalized words and expressions used in this Agreement or in its
Schedules, or in any deed or agreement supplemental or ancillary hereto,
unless there be something in the subject or the context inconsistent
therewith, shall have the meanings respectively:
"AFFILIATE" shall mean any corporation or other business entity controlled
by or in common Control of a party. "Control" as used herein means
ownership directly or through one or more Affiliates, of fifty percent
(50%) or more of the shares of the share capital entitled to vote for the
election of directors, in the case of any corporation, or fifty percent
(50%) or more of the equity interests in the case of any other type of
legal entity, status as a general partner in any partnership, or any other
arrangement whereby a party controls or has the right to control the board
of directors or equivalent governing body of a corporation other entity.
"AUDITORS" means the auditors of the Corporation appointed pursuant to the
provisions of Section 3.6 hereof;
"BOARD" means the board of directors of the Corporation;
"BUSINESS DAY" means any day excluding Saturday, Sunday and any other day
which in the city of Quebec, Canada or in the State of California is a
legal holiday or a day on which financial institutions are authorized by
law or by local proclamation to close;
"CEPHEID DIRECTOR" means the Directors appointed pursuant to the
provisions of subsection 3.2.1 hereof;
"CEPHEID LICENSE" means the License and Supply Agreement between Cepheid
and the Corporation dated February 4, 2000;
"COLLABORATION AGREEMENT" means the Joint Technology and Collaboration
Agreement between IDI, Cepheid and the Corporation dated February 4, 2000;
"CONTROL" means ownership directly or through one or more Affiliates, of
fifty percent (50%) or more of the shares of the share capital entitled to
vote for the election of directors, in the case of any corporation, or
fifty percent (50%) or more of the equity interests in the case of any
other type of legal entity, status as a general partner in any
partnership, or any other arrangement whereby a party controls or has the
right to control the board of directors or equivalent governing body of a
corporation or other entity;
"DIRECTOR" or "DIRECTORS" means a member or the members of the Board;
"EFFECTIVE DATE" means February 4, 2000;
"FISCAL YEAR" shall have the meaning ascribed to such term in Section
3.2.8 hereof;
<PAGE> 3
-3-
"HEADS OF AGREEMENT" means the Heads of Agreement between IDI and Cepheid
dated August 5, 1999;
"IDI DIRECTORS" means the directors appointed pursuant to the provisions
of subsection 3.2.1 hereof;
"IDI LICENSE" means the License and Supply Agreement between IDI and the
Corporation dated February 4, 2000;
"LIEN" means any interest in property or the income or profits therefrom
securing an obligation owed to, or a claim by, a Person other than the
owner (which for the purposes hereof shall include a possessor under a
title retention agreement and a lessee under a lease hereinbelow
described) of such property, whether such interest is based on civil law,
common law, statute or contract, and including but not limited to any
security interest, hypothec, mortgage, pledge, lien, claim, charge,
cession, transfer, assignment, encumbrance, title retention agreement,
lessor's interest under a lease which would be capitalized on a balance
sheet of the owner of such property or analogous interest in, of or on any
property or the income or profits therefrom of a Person;
"PERSON OR PERSON" means any individual, company, corporation,
partnership, firm, trust, sole proprietorship, government or entity
howsoever designated or constituted;
"SHARES" means shares in the share capital of the Corporation which have
been issued and are outstanding at any time and from time to time;
"SHAREHOLDERS" means the parties to this Agreement and each Person to whom
any Shares may at any time and from time to time be issued, each
transferee of Shares and the respective representatives, administrators,
successors and assigns of each of the above-mentioned Persons;
"THIS AGREEMENT", the "AGREEMENT", "HERETO", "HEREIN", "HEREBY",
"HEREUNDER" and similar expressions mean or refer to this Shareholders
Agreement as amended from time to time and any indenture, agreement or
instrument supplemental or ancillary hereto or in implementation hereof,
and the expressions "SECTION", "SUBSECTION" and "CLAUSE" followed by a
number or letter mean and refer to the specified section, subsection or
paragraph of this Agreement;
1.2 GENERAL INTERPRETATION
Unless there be something in the subject or the context inconsistent
therewith, words importing the singular only shall include the plural and
vice versa, and words importing the masculine gender shall include the
feminine gender, and vice versa, and all references to dollars shall mean
Canadian dollars, the legal currency of Canada.
1.3 DIVISION INTO ARTICLES
The division of this Agreement into articles, sections, subsections,
paragraphs and subparagraphs and the insertion of titles are only meant to
be reference and do not affect the meaning or the interpretation of this
Agreement.
<PAGE> 4
-4-
1.4 ACCOUNTING PRINCIPLES
All calculations required to be made under the terms hereof and all
financial statements shall be prepared in accordance with the generally
accepted accounting principles applied in Canada on a consistent basis.
1.5 GOVERNING LAW
This Agreement and the interpretation and enforcement thereof shall be
governed by the laws of the Province of Quebec without regard to any
conflicts of law principles and the federal laws of Canada applicable
therein.
ARTICLE 2
PURPOSE OF THE CORPORATION
2.1 PURPOSE OF THE CORPORATION
The Corporation was created by IDI and Cepheid in order to engage
primarily in the business of developing, producing and exploiting a series
of innovative human diagnostic systems and products for rapid
identification of pathogens responsible for human infectious diseases
based on the integration of proprietary technologies of IDI and Cepheid.
ARTICLE 3
ORGANIZATION AND MANAGEMENT OF THE CORPORATION
3.1 SHAREHOLDERS
The Shareholders shall each vote all Shares from time to time held by each
of them and otherwise exercise their rights as Shareholders and, to the
extent permitted by applicable law, cause their respective nominees to the
Board to act, so that at all times the general provisions of the by-laws
and the conditions, restrictions, limitations and prohibitions on the
business and corporate affairs of the Corporation set forth in this
Agreement shall apply and be given full effect.
3.2 GENERAL BY-LAWS
The Articles of Association of the Corporation shall provide for the
following continuing provisions with respect to the organization and
management of the Corporation:
3.2.1 Number of Directors
The Board shall consist of 6 Directors who shall be nominated and
elected as follows:
(a) IDI shall be entitled to nominate and have elected 3 Directors
(the "IDI Directors"); and
<PAGE> 5
-5-
(b) Cepheid shall be entitled to nominate and have elected 3
Directors (the "Cepheid Directors").
3.2.2 Meetings of Directors
Subject to the provisions of applicable law, the following
procedures shall apply to meetings of Directors of the Corporation
(a) Regular meetings of the Board shall be held at least 4 times
per year, with a minimum period of 2 months and a maximum
period of 3 months between each meetings. Other meetings of
the Board shall be held at such time as may be requested by
any Director;
(b) A meeting of the Board may be called by any Director, provided
at least 3 Business Days prior written notice is sent to all
Directors. A Director may waive notice of a meeting of the
Board, and the attendance of a Director at a meeting shall
constitute a waiver of notice of the meeting (except where a
Director attends a meeting for the express purpose of
objecting to the transaction of business on the grounds that
the meeting is not properly called) Meetings may be held by
conference telephone call;
(c) A quorum of a meeting of the Board shall consist of 6
Directors;
3.2.3 Unanimous Vote to Govern - Directors' Meetings
All decisions of the Board shall be decided by the unanimous vote of
all the Directors present in person.
3.2.4 Ostensible Authority
No officer or Director of the Corporation may enter into any
contract for or on behalf of the Corporation which involves the
payment or obligation by the Corporation of an aggregate amount in
excess of $10,000, or has an aggregate term (including any renewal
term or extended term) of more than 12 months, without the prior
approval of the Board, evidenced by resolution of the said Board.
The Shareholders shall take the appropriate measures to ensure that
the officers and the Directors of the Corporation comply with this
provision.
3.2.5 Business transaction
Until any vacancy on the Board is filled in accordance with Section
3.4, the Directors shall not transact any business.
3.2.6 Meetings of Shareholders
A meeting of the Shareholders may be called by the Board, provided
at least 10 Business Days prior written notice is sent to the
Shareholders. A Shareholder may waive notice of a meeting of the
Shareholders, and the attendance of a Shareholder at a meeting shall
constitute a waiver of notice of the meeting (except where a
Shareholder attends a meeting for the express purpose of objecting
to the transaction of business on the grounds that the meeting is
not properly called).
<PAGE> 6
-6-
3.2.7 Quorum of Meetings of Shareholders
A quorum of a meeting of the Shareholders of the Corporation shall
consist of all the Shareholders.
3.2.8 Fiscal Year
The fiscal year end of the Corporation shall be December 31 of each
year.
3.2.9 Amendment or repeal
The Directors shall not make, amend or repeal any by-laws except if
the Shareholders have unanimously voted for such by-law, amendment
or repeal.
3.3 FIRST DIRECTORS
The first IDI Directors shall be:
Dr. Michel. G. Bergeron
Dr. Pierre Coulombe
Mr. Jacques Millette
and the first Cepheid Directors shall be:
Mr. Thomas L. Gutshall
Mr. Cris McReynolds
Dr. Kurt Petersen.
3.4 ELECTION, REMOVAL AND VACANCIES
The Shareholders shall each vote the Shares from time to time held by each
of them and otherwise exercise their rights to ensure that Directors are
elected or appointed and maintained in office and vacancies on the Board
are filled in conformity with the provisions of Section 3.2.1 hereof. Each
of the Shareholders shall have the right to remove any Director previously
proposed by it and, if requested to do so, the other Shareholder shall
vote the Shares from time to time held by it for the removal of any such
Director and in favor of any substitute proposed by the Shareholder
requesting such removal.
3.5 OFFICERS
The officers of the Corporation shall be:
Dr. Pierre Coulombe President
Mr. Thomas L. Gutshall Chairman of the Board
Mr. Francois Duchesneau Secretary
and such other officers as may be appointed from time to time by the
Board. The officers of the Corporation shall be appointed annually.
3.6 AUDITOR
PricewaterhouseCoopers LLP shall be the auditors of the Corporation. Each
of the Shareholders may from time to time request the auditors to perform,
at the cost of such Shareholder, accounting and auditing tasks in addition
to those functions that the auditors would ordinarily perform.
<PAGE> 7
-7-
3.7 ACCOUNTING
The books of account and all other financial records of the Corporation
shall be kept and maintained at all times at the principal business office
of the Corporation in the Province of Quebec. The Shareholders, or their
agents, representatives and employees, shall be entitled to have access to
and inspect all such books and records during normal business hours. They
shall also be entitled, at their own expense, to obtain copies of such
books and records.
3.8 CORPORATION
The Corporation agrees to carry out and be bound by the provisions of this
Agreement as it applies to it to the fullest extent permitted by law.
3.9 UNITED STATES TAX STATUS
The Corporation shall make any election requested by Cepheid regarding its
status as a corporation or a partnership for United Sates tax purposes.
ARTICLE 4
RESTRICTIONS ON TRANSFER OF SHARES AND EXIT RIGHTS
4.1 GENERAL RESTRICTION ON TRANSFER
No Shareholder may sell, transfer, alienate or otherwise dispose or divest
itself of or create, incur, assume or suffer to exist any Lien on all or
part of its Shares except in conformity with the provisions of this
Article 4.
4.2 EXIT RIGHTS
Each of the Shareholders (the "Petitioner") shall be entitled at any time
after 18 months after the Effective Date to send a written notice to the
other Shareholder and the Corporation requesting the winding up of the
Corporation (the "Winding up Notice"). The Shareholders and the
Corporation agree in advance that the winding up of the Corporation shall
be effective 6 months after the receipt by the other Shareholder and the
Corporation of the Winding up Notice.
4.3 EFFECT OF WINDING UP NOTICE
Upon the receipt by the other Shareholder and the Corporation of a Winding
up Notice, the other Shareholder and the Corporation shall have 30 days to
notify in writing the Petitioner that they will collaborate to wind up the
Corporation, in which case the winding up of the Corporation shall be
effective 180 days after receipt of the Winding up Notice.
4.3.1 Rules of voluntary winding up
If the other Shareholder and the Corporation have agreed to
collaborate to voluntary wind up the Corporation, the following
rules shall apply:
(a) The Shareholders and the Corporation shall take all acts
necessary or useful to voluntary wind up the Corporation
within 180 days after the receipt of the Winding up Notice.
<PAGE> 8
-8-
(b) The Corporation shall carry on business until 180 days after
receipt by a Shareholder and the Corporation of the Winding up
Notice. At the expiration of the 180 day period, the
Corporation shall cease to carry on business except to the
extent necessary for the finalization of the winding up of the
Corporation.
(c) During the 180 day period, the Corporation shall take all
appropriate measures to complete the sale of any Collaborative
Products and Products to third party pursuant to any then
outstanding agreements and the Shareholders agree to negotiate
in good faith to restructure any agreements to which the
Corporation was a party for the distribution and sale of the
Collaborative Products and Products or to put in place new
agreements to enable continued supply of the Collaborative
Products and Products sold by the Corporation to a third party
distributor after the Corporation has ceased to carry on
business.
4.3.2 Expiration of the 180 day period
At the expiration of the 180 day period:
(a) The Corporation shall cease to use IDI Intellectual Property
and Cepheid Intellectual Property.
(b) IDI shall have a fully paid-up, worldwide license under
Cepheid Intellectual Property to use, offer to sell and sell
products based upon Cepheid Intellectual Property in the
Field, which license shall be in conformity with the terms and
conditions of the Cepheid License.
(c) Cepheid shall have a fully paid-up worldwide license under IDI
Intellectual Property to use, offer to sell and sell products
based upon IDI Intellectual Property in the Field, which
license shall be in conformity with the terms and conditions
of the IDI License.
(d) Cepheid and IDI will negotiate in good faith for supply
agreements pursuant to which IDI would supply Cepheid with IDI
Products and Cepheid would supply IDI with Cepheid Products.
4.4 APPLICATION TO THE COURT
If the other Shareholder and/or the Corporation have (i) failed within the
30 day period set forth in Subsection 4.3.1 to notify the Petitioner that
they will collaborate in the winding up of the Corporation, (ii) notified
the Petitioner that they will not collaborate in the winding up of the
Corporation, or (iii) notified the Petitioner that they will collaborate
in the winding up of the Corporation but failed to do so at the
satisfaction of the Petitioner, then the parties hereby irrevocably agree
that upon application to the Trial Division of the Supreme Court of the
Province of Nova Scotia, the Court shall render an order for winding up of
the Corporation according to the rules set forth in Section 4.3 and in
accordance with the Companies Winding Up Act (Nova Scotia).
<PAGE> 9
-9-
4.5 SALE, MERGER AND ACQUISITION OF CONTROL
In addition to the Exit Rights provided in Section 4.2 and following, a
Shareholder may send at any time a Winding up Notice to the other
Shareholder and the Corporation in the event of (i) the transfer or sale
of all or substantially all of the asset of the other Shareholder, (ii)
the merger of the other Shareholder with a third party; (except for
mergers solely for the purpose of changing the legal domicile of a party)
or (iii) the acquisition by a third party of the Control of the other
Shareholder and the provisions of Sections 4.3 and 4.4 shall apply to any
such Winding up Notice.
4.6 NO REGISTRATION
Without prejudice to any other recourses that may be exercised in such a
case, any Lien created, incurred, assumed or suffered to exist, directly
or indirectly, in contravention of this Agreement, and any sale, transfer,
assignment, alienation or other disposition of the Shares effected in
contravention hereof (whether directly or indirectly) shall, for all
intents and purposes, with regard to the other Shareholder and the
Corporation, be null, void and without effect and shall not be registered
in the books of the Corporation, any such registration being without
effect
4.7 LEGEND OF SHARE CERTIFICATES
All of the share certificates of the share capital of the Corporation
shall bear the following conspicuous inscription:
"Ownership, conveyance and encumbrance of the Shares represented by
this certificate are subject to the terms of the Shareholders
Agreement dated February 4, 2000."
4.8 DEFINITIONS
All terms used in this Article 4 which are defined in the Collaboration
Agreement, the IDI License and the Cepheid License are used herein with
the meanings defined therein.
ARTICLE 5
CONFIDENTIALITY
5.1 UNDERTAKING
The Shareholders hereby acknowledge and agree that they have been and will
be given access to or otherwise come into contact with information
relating to the businesses, operations, properties, assets, liabilities
and financial conditions of the Corporation, of business partners of the
Corporation, of a Shareholder or of a shareholder of a Shareholder,
including without limitation, information relating to business plans and
ideas, trade secrets, invention, processes, methods, know-how, policies,
materials, results of operations, financial and statistical information,
personnel data and customer, supplier and price lists, which are
considered by
<PAGE> 10
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the Corporation, the business partner of the Corporation, the Shareholder
or the shareholder of a Shareholder, as the case may be, to be valuable,
secret and confidential (hereinafter referred to as the "Confidential
Information"). Each of the Shareholders hereby agrees that it will not,
for any purpose, at any time that it is a Shareholder and for a period of
5 years following the date upon which it ceases to be a Shareholder, allow
one of its shareholders, directors, officers, employees or agents during
the same period, to make public, disclose, divulge, furnish, transfer,
sell, release or otherwise make available to any Person, firm,
association, partnership, syndicate, company or corporation any of the
Confidential Information or otherwise use any of the Confidential
Information or allow any of the Confidential Information to be used for
any purpose other than, during the period during which a party hereto
remains a Shareholder, for the purposes of advancing the interests of and
for the entire benefit of the Corporation.
The foregoing non-use and non-disclosure obligations assumed by each party
shall not apply to information which (i) was in its possession prior to
the date of execution of the Heads of Agreement, (ii) is disclosed to it
by a third party not bound by obligations of confidentiality to the party
disclosing the information or to any third party, or (iii) is generally
available to the public.
5.2 SURVIVAL
The undertaking set forth in Section 5.1 shall survive and continue in
full force the winding up of the Corporation.
ARTICLE 6
MISCELLANEOUS
6.1 SUCCESSORS AND ASSIGNS
The provisions of this Agreement shall, except as otherwise provided
herein, enure to the benefit of and be binding upon the parties hereto and
their respective representatives, successors assigns and each and every
Person so bound shall make, execute and deliver all documents necessary to
carry out this Agreement.
6.2 NOTICES
Any notice or other communication to be given hereunder may be effectively
given to a party by delivering the same at the addresses hereinafter set
forth or by sending the same by prepaid registered mail, prepaid courier
or telecopy or e-mail (in the case of telecopy or e-mail with confirmation
of receipt) to such party at such addresses. Any notice so mailed shall be
deemed to have been received on the third Business Day following the
mailing thereof and if given by delivery or telecopy the same shall be
deemed to have been received upon delivery or upon transmission. The
mailing and telecopy address of the parties for the purpose hereof shall
be:
<PAGE> 11
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(a) as to the Corporation:
---------------------
Aridia Corp.
2050 Rene-Levesque Blvd. West
4th floor
Sainte-Foy, Quebec
G1V 2K8
Attention: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
And copy to: Thomas L. Gutshall
Facsimile: (408) 541-4192
(b) as to IDI:
---------
Infectio Diagnostic (I.D.I.) Inc.
2050 Rene-Levesque Blvd. West
4th floor
Sainte-Foy, Quebec
G1V 2K8
Attention: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
(c) as to Cepheid:
-------------
Cepheid
1190 Borregas Avenue
Sunnyvale, CA, 94089-1302
Attention: Thomas L. Gutshall
Facsimile: (408) 541-4192
6.3 WAIVERS
The rights and remedies of the Shareholders under this Agreement shall be
cumulative and not exclusive of any rights or remedies which they would
otherwise have and no failure or delay by any Shareholder in exercising
any right shall operate as a waiver thereof, not shall any single or
partial exercise of any power or right preclude its other or further
exercise or the exercise of any other power or right.
6.4 AMENDMENTS
This Agreement may be amended only by written agreement duly executed by
all the parties hereto.
6.5 TIME OF ESSENCE
Time shall be of the essence of this Agreement.
<PAGE> 12
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6.6 COUNTERPARTS
This Agreement may be executed in one or more counterparts each of which
when so executed shall be deemed to be an original and such counterparts
together shall constitute but one of the same instrument.
6.7 SEVERABILITY
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity
or unenforceability of such provision in any other jurisdiction.
6.8 REPLACEMENT OF HEADS OF AGREEMENT
The present Agreement replaces and supersedes the Heads of Agreement and
all other verbal or oral agreements, understandings and undertakings
between the parties hereto relating to the transaction contemplated
herein.
6.9 LANGUAGE
The parties hereto have expressly required that this Agreement and all
deeds, documents and notice relating thereto be drafted in the English
Language. Les parties aux presentes ont expressement exige que la presente
convention et tous les autres contrats, documents ou avis qui y sont
afferents soient rediges en langue anglaise.
6.10 CONFLICT
In the event of any conflict between the provisions of this Agreement on
the one hand and the Memorandum and Articles of Association on the other,
the provisions of this Agreement shall govern. Each Shareholder agrees to
vote or cause to be voted the Shares owned by him as necessary so as to
cause the Memorandum and Articles of Association to be amended to resolve
any such conflict in favor of the provisions of this Agreement.
IN WITNESS WHEREOF this Agreement has been executed on the date
hereinabove first set forth.
INFECTIO DIAGNOSTIC (I.D.I.) INC. ARIDIA CORP.
Per: /s/ DR. PIERRE COULOMBE Per: /s/ DR. PIERRE COULOMBE
---------------------------- -----------------------------
Dr. Pierre Coulombe Dr. Pierre Coulombe
CEPHEID
Per: /s/ THOMAS L. GUTSHALL
-----------------------------
Thomas L. Gutshall
Per: /s/ THOMAS L. GUTSHALL
------------------------------
Thomas L. Gutshall
<PAGE> 1
EXHIBIT 10.14
*CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
LICENSE AND SUPPLY AGREEMENT entered into as of the 4th day of February 2000.
BETWEEN: ARIDIA CORP., a corporation incorporated under the laws of the
Province of Nova Scotia (hereinafter the "Corporation")
AND: CEPHEID, a corporation incorporated under the laws of the state of
California (hereinafter "Cepheid")
WHEREAS, Cepheid has expertise and know-how relating to systems, subsystems and
consumables (such as disposable reaction tube), for diagnosing human disease
parameters;
WHEREAS Infectio Diagnostic (I.D.I.) Inc. ("IDI") has granted to the Corporation
an exclusive license to make, use, offer to sell and sell certain nucleic acid
sequences in combination with Cepheid proprietary technology for identification
and diagnosis of certain human infectious disease parameters;
WHEREAS, Cepheid and the Corporation desire to enter into an agreement whereby
JV Products will be developed and commercialized with Cepheid systems,
subsystems and consumables for use with IDI nucleic acid sequences;
WHEREAS IDI, Cepheid and the Corporation have entered into a Joint Technology
and Collaboration Agreement dated February 4, 2000; and
WHEREAS IDI, Cepheid and the Corporation have entered into a Shareholders
Agreement dated February 4, 2000.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the parties
hereby agree as follows:
<PAGE> 2
-2-
ARTICLE 1
DEFINITIONS
As used in this agreement:
1.1 "AFFILIATE(s)" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein
means ownership directly or through one or more Affiliates, of fifty
percent (50%) or more of the shares of the share capital entitled to vote
for the election of directors, in the case of any corporation, or fifty
percent (50%) or more of the equity interests in the case of any other
type of legal entity, status as a general partner in any partnership, or
any other arrangement whereby a party controls or has the right to control
the board of directors or equivalent governing body of a corporation or
other entity.
1.2 "CEPHEID" shall include all of the divisions, subsidiaries and Affiliates
of Cepheid.
1.3 "CEPHEID INTELLECTUAL PROPERTY" shall mean all technology rights and
patents rights (a) owned by Cepheid, existing as of the date hereof or
developed subsequent to the date hereof and (b) relating to systems,
subsystems and consumables for diagnosing human disease parameters
including without limitations the patents and patents applications listed
and described on Appendix A hereto. The Cepheid Intellectual Property
shall also include any improvements, refinements, updates, discoveries or
inventions related to Cepheid Intellectual Property and intellectual
property developed by Cepheid in the course of the Collaboration Program
as defined in the Collaboration Agreement.
1.4 "CEPHEID PRODUCTS" shall mean any products developed by Cepheid including
but not limited to systems, subsystems and non reagent consumables to be
incorporated in the JV Products.
1.5 "COLLABORATION AGREEMENT" shall mean the Joint Technology and
Collaboration Agreement between the Corporation, IDI and Cepheid dated
February 4, 2000;
1.6 "COST" shall mean [to be provided by the parties and shall take into
account adjustment mechanisms]
1.7 "FIELD" shall mean the rapid diagnosis of human infectious diseases,
including but not limited to bacteria, fungi, antibiotic resistance and
related disorders, with systems integrating both IDI Intellectual Property
and Cepheid Intellectual Property.
1.8 "IDI" shall include all of the divisions, subsidiaries and Affiliates of
IDI.
1.9 "IDI INTELLECTUAL PROPERTY" shall mean all technology rights and patent
rights (a) owned by IDI, existing as of the date hereof or developed
subsequent to the date hereof and (b) relating to nucleic acid sequences
useful for the identification and/or diagnosis of human infectious disease
parameters, including, without limitation, the patents and patent
applications listed and
<PAGE> 3
-3-
described on Appendix B hereto. The IDI Intellectual Property shall also
include any improvements, refinements, updates, discoveries or inventions
related to IDI Intellectual Property and intellectual property developed
by IDI in the course of the Collaboration Program as defined in the
Collaboration Agreement.
1.10 "JV PRODUCTS" shall mean any of the Corporation Products integrating both
Cepheid Intellectual Property and IDI Intellectual Property.
1.11 "SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement between
IDI, Cepheid and the Corporation dated February 4, 2000, and any addenda
and amendments of said agreement.
1.12 "TERRITORY" shall mean all of the countries in the world, including their
respecting territories and possessions.
1.13 "TRANSFER PRICE" shall mean with respect to any Cepheid Product the price
at which Cepheid will sell Cepheid Product to the Corporation as provided
in Article 3 hereof.
ARTICLE 2
LICENSE AND TECHNOLOGY TRANSFER
2.1 LICENSE GRANT
(a) Cepheid hereby grants to the Corporation a fully paid-up,
royalty-free, exclusive right and license in the Territory, with the
right to grant sublicenses, in and to all Cepheid Intellectual
Property and Cepheid Products to make, use, offer to sell and sell
JV Products in the Field.
(b) If the Corporation grants a sublicense to a third party, the
Corporation guarantees that such sublicense shall be in conformity
with the terms and conditions of this Agreement and the Corporation
shall not be relieved of its obligations pursuant to this Agreement
as a result of such sublicense.
2.2 LIMITED RIGHTS
Notwithstanding Section 2.1, the Corporation and IDI acknowledge and
covenant that Cepheid can make, have made, use, offer for sale, and sell
outside the Field in the Territory, directly or indirectly, Cepheid
Intellectual Property and Cepheid Products for use with technology other
than IDI Intellectual Property.
2.3 CEPHEID WARRANTY
To the best knowledge of Cepheid, Cepheid Intellectual Property and
Cepheid Products do not infringe patents of any third party other than
certain patents owned by Perkin Elmer for which Cepheid is currently
negotiating a license.
<PAGE> 4
-4-
ARTICLE 3
SUPPLY AND USE OF CEPHEID PRODUCTS
3.1 EXCLUSIVE PURCHASE
The Corporation shall exclusively purchase Cepheid Products required for
the manufacturing and sale of the Product from Cepheid and shall not use
any third party product or technology other than Cepheid Products and
Cepheid Intellectual Property for the manufacture and sale of JV Products
except for IDI Intellectual Property.
3.2 PRODUCTION
Cepheid declares that it is and shall be in a position to produce or cause
to be produced Cepheid Products in a quantity necessary to meet the
Corporation's reasonable projected sales forecast projections with
reserves to include back-up supplies in the event such may be required.
3.3 TRANSFER PRICE
The Transfer Prices at which Cepheid shall sell Cepheid Product to the
Corporation shall be as follows: the transfer price of Cepheid instruments
shall be equal to the Cost of said Cepheid Instruments plus [**]; the
transfer price of Cepheid consummables shall be established as agreed by
both IDI and Cepheid to enable their equitable sharing of revenues and
profits generated by the Corporation. Transfer pricing formulas will be
periodically reviewed and adjusted as necessary upon agreement by both IDI
and Cepheid to ensure their equitable sharing of revenues and profits
generated by the Corporation.
3.4 TITLE TO CEPHEID PRODUCTS
To secure the payment of all amounts due hereunder and the observance and
performance of all the terms, provisions, agreements and covenants of this
Agreement, Cepheid reserves ownership of all Cepheid Products sold to the
Corporation under the terms of this Agreement until the earlier of the
dates on which the Corporation shall have (i) resold such Cepheid Products
to a customer or (ii) made payment in full to Cepheid of all amounts due
hereunder. Such reservation of ownership shall operate to the maximum
extent permitted under the laws of the country in which the respective
Cepheid Product is physically located, and the Corporation shall comply
with all formalities required to give effect thereto.
3.5 FORECASTS
For the purposes of Section 3.1, the Corporation shall provide Cepheid on
a calendar quarterly basis with an updated two year forecast in order to
enable Cepheid to develop realistic production requirements of Cepheid
Products for future periods.
<PAGE> 5
-5-
3.6 DELAY IN SUPPLY
In the event that Cepheid would encounter circumstances out of its control
where the supply of the Cepheid Products could not be provided to the
Corporation, IDI shall so advise the Corporation, in the best of delays,
and in such a case the parties shall attempt to find alternatives to
supply the required Cepheid Products to the Corporation during the period
in question.
3.7 TRANSPORTATION
All Cepheid Products to be supplied by Cepheid to the Corporation shall be
delivered to the Corporation F.O.B. Sunnyvale, California, at the premises
of the Corporation. Subject to the following, the parties agree that the
term "F.O.B." shall be interpreted in accordance with the Uniform
Commercial Code. Without limiting the generality of the foregoing, Cepheid
Products shall be at Corporation's sole risk and responsibility as of the
moment that Cepheid Products have been placed on board the carrier
specified by the Corporation.
3.8 EXPORT/IMPORT LICENSE
Notwithstanding any provisions to the contrary, the obtainment of any and
all export and/or import licenses as well as any and all required
governmental consents are the sole responsibility of the Corporation,
Cepheid declaring, however that it shall collaborate with the Corporation
in this regard.
ARTICLE 4
INFRINGEMENT
4.1 INFRINGEMENT
(a) Each party shall promptly report in writing to the other party
during the term of this Agreement any known infringement or
suspected infringement of any Product, Cepheid Intellectual Property
or Cepheid Products by a third party of which it becomes aware, and
shall provide the other party with all available evidence supporting
said infringement or suspected infringement.
(b) Except as provided in paragraph (d), the Corporation shall have the
right to initiate an infringement or other appropriate suit against
any third party who at any time has infringed, or is suspected of
infringing, any Product, Cepheid Intellectual Property or Cepheid
Products. The Corporation shall give Cepheid sufficient advance
notice of its intent to file said suit and the reasons therefor, and
shall provide Cepheid with an opportunity to make suggestions and
comments regarding such suit. The Corporation shall keep Cepheid
properly informed, and shall from time to time consult with Cepheid,
regarding the status of any such suit.
(c) The Corporation shall have the sole and exclusive right to select
counsel for any suit referred to in paragraph (b) and shall pay all
<PAGE> 6
-6-
expenses of the suit, including without limitation attorney's fees
and court costs. If necessary, Cepheid shall join as a party to the
suit but shall be under no obligation to participate except to the
extent that such participation is required as the result of being a
named party to the suit. Cepheid shall offer reasonable assistance
to the Corporation in connection therewith at no charge to the
Corporation except for reimbursement of reasonable out-of-pocket
expenses (not including salaries of Cepheid personnel) incurred in
rendering such assistance. Cepheid shall have the right to
participate and be represented in any such suit by its own counsel
at its own expense. The Corporation shall not settle any such suit
involving rights of IDI without obtaining the prior written consent
of Cepheid, which consent shall not be unreasonably.
(d) In the event that the Corporation elects not to initiate an
infringement or other appropriate suit pursuant to paragraph (b),
the Corporation shall promptly advise Cepheid of its intent not to
initiate such suit, and Cepheid shall have the right, at the expense
of Cepheid, of initiating an infringement or other appropriate suit
against any third party who at any time has infringed, or is
suspected of infringing, any Product, Cepheid Intellectual Property
or Cepheid Products. In exercising its rights pursuant to this
paragraph (d), Cepheid shall have the sole and exclusive right to
select counsel and shall pay all expenses of the suit, including
without limitation, attorney's fees and court costs, and shall be
entitled to receive and retain any damages, royalties, settlement
fees or other consideration. If necessary, the Corporation shall
join as a party to the suit but shall be under no obligation to
participate except to the extent that such participation is required
as a result of being a named party of the suit. At Cepheid's
request, the Corporation shall offer reasonable assistance to
Cepheid at no charge to Cepheid except for reimbursement of
reasonable out-of-pocket expenses (not including salaries of the
Corporation personnel) incurred in rendering such assistance. The
Corporation shall have the right to participate and be represented
in any such suit by its own counsel at its own expense.
4.2 CLAIMED INFRINGEMENT
Notwithstanding anything to the contrary in this Agreement, in the event
that any action, suit or proceeding is brought against Cepheid or the
Corporation, licensee or sublicensee of the Corporation alleging the
infringement of the intellectual property rights of a third party by
reason of the manufacture, use, sale or offer for sale of Cepheid
Products, Cepheid Intellectual Property or JV Products by the Corporation,
the Corporation will have the obligation to defend itself and Cepheid in
such action, suit or proceeding at the Corporation's expense. Cepheid
shall have the right to separate counsel at its own expense in any such
action or proceeding. The parties will cooperate with each other in the
defense of any such suit, action or proceeding. The parties will give each
other prompt written notice of the commencement of any such suit, action
or proceeding or claim or infringement and will furnish
<PAGE> 7
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each other a copy of each communication relating to the alleged
infringement, but the failure to do so shall not affect the Corporation's
obligations under this Article and under Article 5 except to the extent
the Corporation is actually damaged thereby. The Corporation shall not
compromise, litigate, settle or otherwise dispose of any such suit, action
or proceeding which involves the use of Cepheid Product or Cepheid
Intellectual Property without Cepheid's advice and prior written consent,
provided that Cepheid shall not unreasonably withhold its consent to any
settlement which will provide an unconditional release of Cepheid.
4.3 LIMITED LIABILITY
Notwithstanding anything else in this Agreement or otherwise, neither
Cepheid nor the Corporation will be liable with respect to any subject
matter of this Agreement under any contract, negligence, strict liability
or other legal or equitable theory for any indirect, incidental,
consequential or punitive damages or lost profits.
4.4 WARRANTY DISCLAIMER
The Corporation agrees that there does not exist any warranty, guarantee,
declaration or condition, express or implied, made by Cepheid, including
implicit warranties as to merchantability, market quality, commercial
value and fitness for any particular purpose whatsoever relative to
Cepheid Intellectual Property or Cepheid Products or to the incorporation
of Cepheid Products in the JV Products.
ARTICLE 5
INDEMNIFICATION
The Corporation shall indemnify, defend and hold harmless Cepheid and its
and their respective directors, officers, employees, and agents and their
respective successors, heirs and assigns (the "Cepheid Indemnitees"),
against any liability, damage, loss or expense (including reasonable
attorneys' fees and expenses of litigation) incurred by or imposed upon
the Cepheid Indemnitees, or any of them, in connection with any claims,
suits, actions, demands or judgments of third parties, including without
limitation, personal injury and product liability matters (except in cases
where such claims, suits, actions, demands or judgments result from
willful misconduct, gross negligence or material breach of this Agreement
on the part of Cepheid Indemnitees) arising out of the development,
testing, production, manufacture, promotion, import, sale or use by any
person of any JV Products, Cepheid Products or Cepheid Intellectual
Property manufactured or sold by the Corporation or by a licensee,
sublicensee, distributor or agent of the Corporation. The Corporation
shall have no obligation under this Article 5 with respect to incidental,
indirect, or consequential damages or lost profits of Cepheid.
<PAGE> 8
-8-
ARTICLE 6
CONFIDENTIALITY AND NON-DISCLOSURE
The parties agree that the Confidentiality provisions contained in the
Shareholders Agreement apply to this Agreement with the necessary changes
having been made.
ARTICLE 7
TERM AND TERMINATION
7.1 TERM AND TERMINATION
This Agreement shall continue in full force and effect until the
expiration of the 6 month period following receipt by IDI or Cepheid of a
notice of winding up sent pursuant to Article 4 of the Shareholders
Agreement.
7.2 SURVIVAL OF OBLIGATIONS
Articles 4, 5 and 6 of this Agreement shall survive its termination.
7.3 RETURN OF CEPHEID PRODUCTS
Cepheid shall have the right at its option to repurchase all or any part
of the inventories of Cepheid Products in the Corporation's possession as
of the termination of this Agreement at Cepheid's invoice price to the
Corporation for such Cepheid Products less any appropriate amount for
excessive wear and tear. Cepheid shall exercise its option by notifying
the Corporation in writing no later than 30 days after the effective
termination date.
ARTICLE 8
DISPUTES
8.1 NEGOTIATION AND MEDIATION
If a dispute arises out of or relates to this Agreement or its breach (the
"Matter"), the parties agree to resolve the Matter as follows:
(a) A party shall submit written notice of the Matter to the other
parties and request negotiation.
(b) The parties shall attempt in good faith to resolve any Matter
arising out of or relating to this Agreement promptly by negotiation
between representatives which the parties may appoint, and
(c) If the Matter has not been resolved within 60 days of a party's
request for negotiation, either party may request that the Matter be
submitted
<PAGE> 9
-9-
to a sole mediator selected by the parties for a mandatory 1 day
mediation;
8.2 ARBITRATION
If the Matter has not been resolved by such mediation, either party may
submit the Matter for binding arbitration, to a sole arbitrator in
accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce as in effect on the date of commencement
of such arbitration, (the "ICC Rules") if Cepheid initiates such
arbitration, and pursuant to the Rules of the American Arbitration
Association as in effect on the date of commencement of such arbitration
(the "AAA Rules") if Corporation initiates such arbitration, except where
such ICC Rules conflict with the provisions of Article 8 in which event
the provisions of this Article 8 shall prevail.
8.3 APPOINTMENT OF ARBITRATOR
If the parties fail to agree on the appointment of the sole arbitrator
within 20 days after one party has served the other party, a written
notice to concur in the appointment of the single arbitrator nominated by
the serving party, the sole arbitrator shall be appointed in accordance
with the ICC Rules or AAA Rules, as the case may be. The sole arbitrator
shall be a member of the Quebec Bar if the ICC Rules apply or the
California Bar if the AAA Rules apply with at least 10 years of experience
in corporate commercial or intellectual property law. The arbitrator shall
render any final award within 20 days following the completion of evidence
and arguments on the Matter.
8.4 ADMISSIBILITY OF EVIDENCE IN OTHER PROCEEDINGS
The parties shall not be entitled to rely on or introduce as evidence
before any arbitral proceedings whether or not such proceedings relate to
the Matter that is the subject of the negotiations:
(a) Views expressed or suggestions made by another party in respect of a
possible settlement of the Matter;
(b) Admissions or proposals made by another party in the course of
negotiations; or
(c) The fact that the other party had indicated his willingness to
accept a proposal for settlement made by another party.
8.5 LOCATION
The mediation and arbitration shall be held in Montreal, Quebec. if
Cepheid initiates the arbitration and in San Francisco, California if the
Corporation initiates the arbitration. The parties, their representatives,
the mediator and the arbitrator shall hold the existence, contend and
results or any negotiation, mediation or arbitration in confidence unless
disclosure is required by law or regulation, and in such case the parties
shall take reasonable precautions to only disclose what is required by law
or governmental regulation. All proceedings and all pleadings shall be in
English.
<PAGE> 10
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8.6 AWARD
Any award of the Arbitration shall be final and binding on the parties and
shall be enforceable in any court having jurisdiction over the party from
whom enforcement is requested.
ARTICLE 9
NOTICES
Any notice, request, instruction or other document to be given hereunder
shall be deemed validly given if in writing, and delivered personally,
sent by overnight courier, or sent by certified mail, postage prepaid,
return receipt requested, as follows:
If to Cephied:
-------------
Cepheid
1190 Borregas Avenue
Sunnyvale, CA, 94089-1302
Attn: Thomas L. Gutshall
Facsimile: (408) 541-4192
and if to the Corporation:
-------------------------
Aridia Corp.
2050 Rene Levesque Blvd. West
Ste-Foy, Quebec, Canada G1V 2K8
Attn: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
And copy to: Thomas L. Gutshall
Facsimile: (408) 541-4192
and copy to IDI:
---------------
Infectio Diagnostic (I.D.I.) Inc.
2050 Rene Levesque Blvd. West
Ste-Foy, Quebec, Canada G1V 2K8
Attn: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
Alternatively, notices and other communications may be sent by facsimile
transmission with a confirmation copy sent by one of the forms of
delivery set forth above. All notices and other communications shall be
deemed delivered on the date of actual receipt.
<PAGE> 11
-11-
ARTICLE 10
MISCELLANEOUS
10.1 ENTIRE AGREEMENT
This Agreement along with the Collaboration Agreement, the Shareholders
Agreement and the License and Supply Agreement between IDI and the
Corporation constitutes the entire understanding between the parties with
respect to the subject matter hereof and supersedes and replaces all prior
agreements, understandings, writings and discussions between the parties
relating to said subject matter. Only a written instrument executed by the
parties may amend this Agreement.
10.2 WAIVER
The failure of either party at any time or times to require performance of
any provision hereof shall in no manner affect its rights at a later time
to enforce the same. No waiver by either party of any condition or term in
any one or more instances shall be construed as a further or continuing
waiver of such condition or term or any other condition or term.
10.3 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
assigns and Cepheid shall not assign this Agreement without the prior
written consent of the Corporation which cannot be unreasonably withheld.
10.4 FORCE MAJEURE
Any delays in or failure of performance by either party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God; acts, regulations, or
laws of any government; strikes or other considered acts of workers;
fires; floods; explosions; riots; wars; rebellion; and sabotage; and any
time for performance hereunder shall be extended by the actual time of
delay caused by such occurrence.
10.5 SEVERABILITY
If any provision(s) of this Agreement are or become invalid, or ruled
illegal by any court of competent jurisdiction, or are deemed
unenforceable under then current applicable law from time to time in
effect during the term hereof, it is the intention of the parties that the
remainder of this Agreement shall not be affected thereby. It is further
the intention of the parties that in lieu of each such provision which is
invalid, illegal, or unenforceable, there be substituted or added as part
of this Agreement, a provision which shall be as similar as possible in
economic and business objectives as intended by the parties to such
invalid, illegal, or unenforceable provision, but which shall be valid,
legal, and enforceable, and shall be mutually agreed by the parties.
<PAGE> 12
-12-
10.6 HEADINGS
The headings contained herein are for reference purposes only and shall
not in any way affect the meaning of this Agreement.
10.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
10.8 NO AGENCY
Nothing contained in this Agreement shall be deemed to create a
partnership between the Corporation and Cepheid. Neither party shall be
liable for the act of the other party unless the other party expressly
authorizes such act in writing.
10.9 GOVERNING LAW
As to matters affecting Cepheid Intellectual Property, this Agreement
shall be governed by and construed in accordance with the laws of the
State of California, without regard to the application of principles of
conflicts of laws thereof. As to other matters, this Agreement shall be
governed by and construed in accordance with the laws of the Province of
Quebec, without regard to the application of principles of conflicts of
laws thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CEPHEID ARIDIA CORP.
Per: /s/ THOMAS L. GUTSHALL Per: /s/ DR. PIERRE COULOMBE
------------------------------ -------------------------------
Thomas L. Gutshall Dr. Pierre Coulombe
Per: /s/ THOMAS L. GUTSHALL
-------------------------------
Thomas L. Gutshall
IDI Inc. intervenes to declare that it has taken cognizance of this Agreement
and that it accepts to be bound by Sections 2.2, 3.3 and 7.1.
INFECTIO DIAGNOSTIC (I.D.I.) INC.
Per: /s/ DR. PIERRE COULOMBE
-------------------------------
Dr. Pierre Coulombe
<PAGE> 13
APPENDIX A
CEPHEID INTELLECTUAL PROPERTY
<PAGE> 14
APPENDIX A
TO THE LICENSE AND SUPPLY AGREEMENT
BETWEEN ARIDIA CORP. AND CEPHEID
CEPHEID PATENT RIGHTS AND APPLICATIONS
I. Reaction vessel for heat-exchanging chemical processes.
<TABLE>
<CAPTION>
PATENT
COUNTRY NUMBER ISSUED
<S> <C> <C>
UNITED STATES US 5,958,349 Sept. 28, 1999
</TABLE>
<PAGE> 15
APPENDIX B
IDI INTELLECTUAL PROPERTY
<PAGE> 1
EXHIBIT 10.15
*CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
LICENSE AND SUPPLY AGREEMENT entered into as of the 4th day of February 2000.
BETWEEN: ARIDIA CORP., a corporation incorporated under the laws of the
Province of Nova Scotia (hereinafter the "Corporation")
AND: INFECTIO DIAGNOSTIC (I.D.I.) INC., a corporation incorporated under
the laws of the Province of Quebec (hereinafter "IDI")
WHEREAS, IDI has expertise and know-how relating to certain nucleic acid
sequences for identification and diagnosis of certain human infectious disease
parameters as hereinafter described;
WHEREAS, Cepheid has granted to the Corporation an exclusive license to make,
use, offer to sell and sell its systems, subsystems and consumables (such as
disposable reaction tube), in combination with IDI proprietary technology for
diagnosing human disease parameters;
WHEREAS, IDI and the Corporation desire to enter into an agreement whereby JV
Products will be developed and commercialized with nucleic acid sequences from
IDI for use with devices and systems from Cepheid;
WHEREAS IDI, Cepheid and the Corporation have entered into a Joint Technology
and Collaboration Agreement dated February 4, 2000; and
WHEREAS IDI, Cepheid and the Corporation have entered into a Shareholders
Agreement dated February 4, 2000.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the parties
hereby agree as follows:
<PAGE> 2
-2-
ARTICLE 1
DEFINITIONS
As used in this agreement:
1.1 "AFFILIATE(s)" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein
means ownership directly or through one or more Affiliates, of fifty
percent (50%) or more of the shares of the share capital entitled to vote
for the election of directors, in the case of any corporation, or fifty
percent (50%) or more of the equity interests in the case of any other
type of legal entity, status as a general partner in any partnership, or
any other arrangement whereby a party controls or has the right to control
the board of directors or equivalent governing body of a corporation or
other entity.
1.2 "CEPHEID" shall include all of the divisions, subsidiaries and Affiliates
of Cepheid.
1.3 "CEPHEID INTELLECTUAL PROPERTY" shall mean all technology rights and
patents rights (a) owned by Cepheid, existing as of the date hereof or
developed subsequent to the date hereof and (b) relating to systems,
subsystems and consumables for diagnosing human disease parameters
including without limitations the patents and patents applications listed
and described on Appendix A hereto. The Cepheid Intellectual Property
shall also include any improvements, refinements, updates, discoveries or
inventions related to Cepheid Intellectual Property and intellectual
property developed by Cepheid in the course of the Collaboration Program
as defined in the Collaboration Agreement.
1.4 "COLLABORATION AGREEMENT" shall mean the Joint Technology and
Collaboration Agreement between the Corporation, IDI and Cepheid dated
February 4, 2000;
1.5 "COST" shall mean [to be provided by the parties and shall take into
account adjustment mechanisms]
1.6 "FIELD" shall mean the rapid diagnosis of human infectious diseases
including but not limited to bacteria, fungi, antibiotic resistance and
related disorders with systems integrating both IDI Intellectual Property
and Cepheid Intellectual Property.
1.7 "IDI" shall include all of the divisions, subsidiaries and Affiliates of
IDI.
1.8 "IDI INTELLECTUAL PROPERTY" shall mean all technology rights and patent
rights (a) owned by IDI, existing as of the date hereof or developed
subsequent to the date hereof and (b) relating to nucleic acid sequences
useful for the identification and/or diagnosis of human infectious disease
parameters, including, without limitation, the patents and patent
applications listed and described on Appendix B hereto. The IDI
Intellectual Property shall also include any improvements, refinements,
updates, discoveries or inventions related to IDI Intellectual Property
and intellectual property developed by IDI
<PAGE> 3
-3-
in the course of the Collaboration Program as defined in the Collaboration
Agreement.
1.9 "IDI PRODUCTS" shall mean any products developed by IDI including but not
limited to reagents or other assay materials to be incorporated in the
Products.
1.10 "JV PRODUCTS" shall mean any of the Corporation Products integrating
Cepheid Intellectual Property and IDI Intellectual Property.
1.11 "SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement between
IDI, Cepheid and the Corporation dated February 4, 2000, and any addenda
and amendments of said agreement.
1.12 "TERRITORY" shall mean all of the countries in the world, including their
respecting territories and possessions.
1.13 "TRANSFER PRICE" shall mean with respect to any IDI Product the price at
which IDI will sell IDI Product to the Corporation as provided in Article
3 hereof.
ARTICLE 2
LICENSE AND TECHNOLOGY TRANSFER
2.1 LICENSE GRANT
(a) IDI hereby grants to the Corporation a fully paid-up, royalty-free,
exclusive right and license in the Territory, with the right to
grant sublicenses, in and to all IDI Intellectual Property and IDI
Products to make, use, offer to sell and sell JV Products in the
Field.
(b) If the Corporation grants a sublicense to a third party, the
Corporation guarantees that such sublicense shall be in conformity
with the terms and conditions of this Agreement and the Corporation
shall not be relieved of its obligations pursuant to this Agreement
as a result of such sublicense.
2.2 LIMITED RIGHTS
Notwithstanding Section 2.1, the Corporation and Cepheid acknowledge and
covenant that IDI can make, have made, use, offer for sale, and sell
outside the Field in the Territory, directly or indirectly, IDI
Intellectual Property and IDI Products for use with technology other than
Cepheid Intellectual Property.
2.3 IDI WARRANTY
To the best knowledge of IDI, IDI Intellectual Property and IDI Products
do not infringe patents of third party.
<PAGE> 4
-4-
ARTICLE 3
SUPPLY AND USE OF IDI PRODUCTS
3.1 EXCLUSIVE PURCHASE
The Corporation shall exclusively purchase IDI Products required for the
manufacturing and sale of the Product from IDI and shall not use any third
party product or technology other than IDI Products and IDI Intellectual
Property for the manufacture and sale of JV Products except for Cepheid
Intellectual Property.
3.2 PRODUCTION
IDI declares that it is and shall be in a position to produce or cause to
be produced IDI Products in a quantity necessary to meet the Corporation's
reasonable projected sales forecast projections with reserves to include
back-up supplies in the event such may be required.
3.3 TRANSFER PRICE
The Transfer Prices at which IDI shall sell IDI Products to the
Corporation shall be equal to the Cost of IDI Products plus [**]. Transfer
pricing formulas will be periodically reviewed and adjusted as necessary
upon agreement by both IDI and Cepheid to ensure their equitable sharing
of revenues and profits generated by the Corporation.
3.4 TITLE TO IDI PRODUCTS
To secure the payment of all amounts due hereunder and the observance and
performance of all the terms, provisions, agreements and covenants of this
Agreement, IDI reserves ownership of all IDI Products sold to the
Corporation under the terms of this Agreement until the earlier of the
dates on which the Corporation shall have (i) resold such IDI Products to
a customer or (ii) made payment in full to IDI of all amounts due
hereunder. Such reservation of ownership shall operate to the maximum
extent permitted under the laws of the country in which the respective IDI
Product is physically located, and the Corporation shall comply with all
formalities required to give effect thereto.
3.5 FORECASTS
For the purposes of Section 3.1, the Corporation shall provide IDI on a
calendar quarterly basis with an updated two year forecast in order to
enable IDI to develop realistic production requirements of IDI Products
for future periods.
3.6 DELAY IN SUPPLY
In the event that IDI would encounter circumstances out of its control
where the supply of the IDI Products could not be provided to the
Corporation, IDI shall so advise the Corporation, in the best of delays,
and in such a case the parties shall attempt to find alternatives to
supply the required IDI Products to the Corporation during the period in
question.
<PAGE> 5
-5-
3.7 TRANSPORTATION
All IDI Products to be supplied by IDI to the Corporation shall be
delivered to the Corporation F.O.B. Quebec, at the premises of the
Corporation. Subject to the following, the parties agree that the term
"F.O.B." shall be interpreted in accordance with the Incoterms 2000.
Without limiting the generality of the foregoing, IDI Products shall be at
the Corporation's sole risk and responsibility as of the moment that IDI
Products have been placed on board the carrier specified by the
Corporation.
3.8 EXPORT/IMPORT LICENSE
Notwithstanding any provisions to the contrary, the obtainment of any and
all export and/or import licenses as well as any and all required
governmental consents are the sole responsibility of the Corporation, IDI
declaring, however that it shall collaborate with the Corporation in this
regard.
ARTICLE 4
INFRINGEMENT
4.1 INFRINGEMENT
(a) Each party shall promptly report in writing to the other party
during the term of this Agreement any known infringement or
suspected infringement of any Product, IDI Intellectual Property or
IDI Products by a third party of which it becomes aware, and shall
provide the other party with all available evidence supporting said
infringement or suspected infringement.
(b) Except as provided in paragraph (d), the Corporation shall have the
right to initiate an infringement or other appropriate suit against
any third party who at any time has infringed, or is suspected of
infringing, any Product, IDI Intellectual Property or IDI Products.
The Corporation shall give IDI sufficient advance notice of its
intent to file said suit and the reasons therefor, and shall provide
IDI with an opportunity to make suggestions and comments regarding
such suit. The Corporation shall keep IDI properly informed, and
shall from time to time consult with IDI, regarding the status of
any such suit.
(c) The Corporation shall have the sole and exclusive right to select
counsel for any suit referred to in paragraph (b) and shall pay all
expenses of the suit, including without limitation attorney's fees
and court costs. If necessary, IDI shall join as a party to the suit
but shall be under no obligation to participate except to the extent
that such participation is required as the result of being a named
party to the suit. IDI shall offer reasonable assistance to the
Corporation in connection therewith at no charge to the Corporation
except for reimbursement of reasonable out-of-pocket expenses (not
including
<PAGE> 6
-6-
salaries of IDI personnel) incurred in rendering such assistance.
IDI shall have the right to participate and be represented in any
such suit by its own counsel at its own expense. The Corporation
shall not settle any such suit involving rights of IDI without
obtaining the prior written consent of IDI, which consent shall not
be unreasonably.
(d) In the event that the Corporation elects not to initiate an
infringement or other appropriate suit pursuant to paragraph (b),
the Corporation shall promptly advise IDI of its intent not to
initiate such suit, and IDI shall have the right, at the expense of
IDI, of initiating an infringement or other appropriate suit against
any third party who at any time has infringed, or is suspected of
infringing, any Product, IDI Intellectual Property or IDI Products.
In exercising its rights pursuant to this paragraph (d), IDI shall
have the sole and exclusive right to select counsel and shall pay
all expenses of the suit, including without limitation, attorney's
fees and court costs, and shall be entitled to receive and retain
any damages, royalties, settlement fees or other consideration. If
necessary, the Corporation shall join as a party to the suit but
shall be under no obligation to participate except to the extent
that such participation is required as a result of being a named
party of the suit. At IDI's request, the Corporation shall offer
reasonable assistance to IDI at no charge to IDI except for
reimbursement of reasonable out-of-pocket expenses (not including
salaries of the Corporation personnel) incurred in rendering such
assistance. The Corporation shall have the right to participate and
be represented in any such suit by its own counsel at its own
expense.
4.2 CLAIMED INFRINGEMENT
Notwithstanding anything to the contrary in this Agreement, in the event
that any action, suit or proceeding is brought against IDI or the
Corporation, licensee or sublicensee of the Corporation alleging the
infringement of the intellectual property rights of a third party by
reason of the manufacture, use, sale or offer for sale of IDI Products,
IDI Intellectual Property or JV Products by the Corporation, the
Corporation will have the obligation to defend itself and IDI in such
action, suit or proceeding at the Corporation's expense. IDI shall have
the right to separate counsel at its own expense in any such action or
proceeding. The parties will cooperate with each other in the defense of
any such suit, action or proceeding. The parties will give each other
prompt written notice of the commencement of any such suit, action or
proceeding or claim or infringement and will furnish each other a copy of
each communication relating to the alleged infringement, but the failure
to do so shall not affect the Corporation's obligations under this Article
and under Article 5 except to the extent the Corporation is actually
damaged thereby. The Corporation shall not compromise, litigate, settle or
otherwise dispose of any such suit, action or proceeding which involves
the use of IDI Product or IDI Intellectual Property without IDI's advice
and prior written consent, provided that IDI shall not unreasonably
withhold its consent to any settlement which will provide an unconditional
release of IDI.
<PAGE> 7
-7-
4.3 LIMITED LIABILITY
Notwithstanding anything else in this Agreement or otherwise, neither IDI
nor the Corporation will be liable with respect to any subject matter of
this Agreement under any contract, negligence, strict liability or other
legal or equitable theory for any indirect, incidental, consequential or
punitive damages or lost profits.
4.4 WARRANTY DISCLAIMER
The Corporation agrees that there does not exist any warranty, guarantee,
declaration or condition, express or implied, made by IDI, including
implicit warranties as to merchantability, market quality, commercial
value and fitness for any particular purpose whatsoever relative to IDI
Intellectual Property or IDI Products or to the incorporation of IDI
Products in the JV Products.
ARTICLE 5
INDEMNIFICATION
The Corporation shall indemnify, defend and hold harmless IDI and its and
their respective directors, officers, employees, and agents and their
respective successors, heirs and assigns (the "IDI Indemnitees"), against
any liability, damage, loss or expense (including reasonable attorneys'
fees and expenses of litigation) incurred by or imposed upon the IDI
Indemnitees, or any of them, in connection with any claims, suits,
actions, demands or judgments of third parties, including without
limitation, personal injury and product liability matters (except in cases
where such claims, suits, actions, demands or judgments result from
willful misconduct, gross negligence or material breach of this Agreement
on the part of IDI Indemnitees) arising out of the development, testing,
production, manufacture, promotion, import, sale or use by any person of
any JV Products, IDI Products or IDI Intellectual Property manufactured or
sold by the Corporation or by a licensee, sublicensee, distributor or
agent of the Corporation. The Corporation shall have no obligation under
this Article 5 with respect to incidental, indirect, or consequential
damages or lost profits of IDI.
ARTICLE 6
CONFIDENTIALITY AND NON-DISCLOSURE
The parties agree that the Confidentiality provisions contained in the
Shareholders Agreement apply to this Agreement with the necessary changes
having been made.
<PAGE> 8
-8-
ARTICLE 7
TERM AND TERMINATION
7.1 TERM AND TERMINATION
This Agreement shall continue in full force and effect until the
expiration of the 6 month period following receipt by IDI or Cepheid of a
notice of winding up sent pursuant to Article 4 of the Shareholders
Agreement.
7.2 SURVIVAL OF OBLIGATIONS
Articles 4, 5 and 6 of this Agreement shall survive its termination.
7.3 RETURN OF IDI PRODUCTS
IDI shall have the right at its option to repurchase all or any part of
the inventories of IDI Products in the Corporation's possession as of the
termination of this Agreement at IDI's invoice price to the Corporation
for such IDI Products less any appropriate amount for excessive wear and
tear. IDI shall exercise its option by notifying the Corporation in
writing no later than 30 days after the effective termination date.
ARTICLE 8
DISPUTES
8.1 NEGOTIATION AND MEDIATION
If a dispute arises out of or relates to this Agreement or its breach (the
"Matter"), the parties agree to resolve the Matter as follows:
(a) A party shall submit written notice of the Matter to the other
parties and request negotiation.
(b) The parties shall attempt in good faith to resolve any Matter
arising out of or relating to this Agreement promptly by negotiation
between representatives which the parties may appoint, and (c) If
the Matter has not been resolved within 60 days of a party's request
for negotiation, either party may request that the Matter be
submitted to a sole mediator selected by the parties for a mandatory
1 day mediation;
8.2 ARBITRATION
If the Matter has not been resolved by such mediation, either party may
submit the Matter for binding arbitration, to a sole arbitrator in
accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce as in effect on the date of commencement
of such arbitration, (the "ICC Rules") if the Corporation initiates the
arbitration and pursuant to the Rules of the American Arbitration
Association as in effect on the date of
<PAGE> 9
-9-
commencement of such arbitration if IDI initiates the arbitration (the
"AAA Rules"), except where such ICC Rules or AAA Rules, as the case may
be, conflict with the provisions of Article 8 in which event the
provisions of this Article 8 shall prevail.
8.3 APPOINTMENT OF ARBITRATOR
If the parties fail to agree on the appointment of the sole arbitrator
within 20 days after one party has served the other party, a written
notice to concur in the appointment of the single arbitrator nominated by
the serving party, the sole arbitrator shall be appointed in accordance
with the ICC Rules or AAA Rules, as the case may be. The sole arbitrator
shall be a member of the Quebec Bar if the ICC Rules apply or the
California Bar if the AAA Rules apply, with at least 10 years of
experience in corporate commercial or intellectual property law. The
arbitrator shall render any final award within 20 days following the
completion of evidence and arguments on the Matter.
8.4 ADMISSIBILITY OF EVIDENCE IN OTHER PROCEEDINGS
The parties shall not be entitled to rely on or introduce as evidence
before any arbitral proceedings whether or not such proceedings relate to
the Matter that is the subject of the negotiations:
(a) Views expressed or suggestions made by another party in respect of a
possible settlement of the Matter;
(b) Admissions or proposals made by another party in the course of
negotiations; or
(c) The fact that the other party had indicated his willingness to
accept a proposal for settlement made by another party.
8.5 LOCATION
The mediation and arbitration shall be held in Montreal, Quebec if the
Corporation initiates the arbitration and in San Francisco, California if
IDI initiates the arbitration. The parties, their representatives, the
mediator and the arbitrator shall hold the existence, contend and results
or any negotiation, mediation or arbitration in confidence unless
disclosure is required by law or regulation, and in such case the parties
shall take reasonable precautions to only disclose what is required by law
or governmental regulation. All proceedings and all pleadings shall be in
English.
8.6 AWARD
Any award of the Arbitration shall be final and binding on the parties and
shall be enforceable in any court having jurisdiction over the party from
whom enforcement is requested.
<PAGE> 10
-10-
ARTICLE 9
NOTICES
Any notice, request, instruction or other document to be given hereunder
shall be deemed validly given if in writing, and delivered personally,
sent by overnight courier, or sent by certified mail, postage prepaid,
return receipt requested, as follows:
If to IDI:
---------
Infectio Diagnostic (I.D.I.), Inc.
2050 Rene Levesque Blvd. West
Ste-Foy, Quebec, Canada G1V 2K8
Attn: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
and if to the Corporation:
-------------------------
Aridia Corp.
2050 Rene Levesque Blvd. West
Ste-Foy, Quebec, Canada G1V 2K8
Attn: Dr. Pierre Coulombe
Facsimile: (418) 681-5254
And copy to: Thomas L. Gutshall
Facsimile: (408) 541-4192
and copy to Cepheid:
-------------------
Cepheid
1190 Borregas Avenue
Sunnyvale, CA, 94089-1302
Attn: Thomas L. Gutshall
Facsimile: (408) 541-4192
Alternatively, notices and other communications may be sent by facsimile
transmission with a confirmation copy sent by one of the forms of
delivery set forth above. All notices and other communications shall be
deemed delivered on the date of actual receipt.
<PAGE> 11
-11-
ARTICLE 10
MISCELLANEOUS
10.1 ENTIRE AGREEMENT
This Agreement along with the Collaboration Agreement, the Shareholders
Agreement and the License and Supply Agreement between Cepheid and the
Corporation constitutes the entire understanding between the parties with
respect to the subject matter hereof and supersedes and replaces all prior
agreements, understandings, writings and discussions between the parties
relating to said subject matter. Only a written instrument executed by the
parties may amend this Agreement.
10.2 WAIVER
The failure of either party at any time or times to require performance of
any provision hereof shall in no manner affect its rights at a later time
to enforce the same. No waiver by either party of any condition or term in
any one or more instances shall be construed as a further or continuing
waiver of such condition or term or any other condition or term.
10.3 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
assigns and IDI shall not assign this Agreement without the prior written
consent of the Corporation which cannot be unreasonably withheld.
10.4 FORCE MAJEURE
Any delays in or failure of performance by either party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God; acts, regulations, or
laws of any government; strikes or other considered acts of workers;
fires; floods; explosions; riots; wars; rebellion; and sabotage; and any
time for performance hereunder shall be extended by the actual time of
delay caused by such occurrence.
10.5 SEVERABILITY
If any provision(s) of this Agreement are or become invalid, or ruled
illegal by any court of competent jurisdiction, or are deemed
unenforceable under then current applicable law from time to time in
effect during the term hereof, it is the intention of the parties that the
remainder of this Agreement shall not be affected thereby. It is further
the intention of the parties that in lieu of each such provision which is
invalid, illegal, or unenforceable, there be substituted or added as part
of this Agreement, a provision which shall be as similar as possible in
economic and business objectives as intended by the parties to such
invalid, illegal, or unenforceable provision, but which shall be valid,
legal, and enforceable, and shall be mutually agreed by the parties.
<PAGE> 12
-12-
10.6 HEADINGS
The headings contained herein are for reference purposes only and shall
not in any way affect the meaning of this Agreement.
10.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
10.8 NO AGENCY
Nothing contained in this Agreement shall be deemed to create a
partnership between the Corporation and IDI. Neither party shall be liable
for the act of the other party unless the other party expressly authorizes
such act in writing.
10.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Quebec, without regard to the application of
principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INFECTIO DIAGNOSTIC (I.D.I.) INC ARIDIA CORP.
Per: /s/ DR. PIERRE COULOMBE Per: /s/ DR. PIERRE COULOMBE
------------------------------ ----------------------------
Dr. Pierre Coulombe Dr. Pierre Coulombe
Per: /s/ THOMAS L. GUTSHALL
----------------------------
Thomas L. Gutshall
Cepheid intervenes to declare that it has taken cognizance of this Agreement and
that it accepts to be bound by Sections 2.2, 3.3 and 7.1.
CEPHEID
Per: /s/ THOMAS L. GUTSHALL
-------------------------------
Thomas L. Gutshall
<PAGE> 13
-13-
APPENDIX A
CEPHEID INTELLECTUAL PROPERTY
<PAGE> 14
APPENDIX A
TO THE LICENSE AND SUPPLY AGREEMENT
BETWEEN INFECTIO DIAGNOSTIC (I.D.I.) INC. AND ARIDIA CORP.
CEPHEID PATENT RIGHTS AND APPLICATIONS
I. Reaction vessel for heat-exchanging chemical processes.
<TABLE>
<CAPTION>
PATENT
COUNTRY NUMBER ISSUED
<S> <C> <C>
UNITED STATES US 5,958,349 Sept. 28, 1999
</TABLE>
<PAGE> 15
-14-
APPENDIX B
IDI INTELLECTUAL PROPERTY
<PAGE> 16
APPENDIX B
TO THE LICENSE AND SUPPLY AGREEMENT
BETWEEN INFECTIO DIAGNOSTIC (I.D.I.) INC. AND ARIDIA CORP.
IDI PATENT RIGHTS AND APPLICATIONS
I. Specific and universal probes and amplification primers to rapidly detect
and identify common bacterial pathogens and antibiotic resistance genes
from clinical specimens for routine diagnosis in microbiology
laboratories.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY APPLICATION FILING DATE STATUS
NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIA 34 681/95 Sept 12, 1995 292494
BRAZIL 08/304732 Sept 12, 1995 Pending
CANADA 1529278 April 2, 1998 Pending
CHINA CN1161060A Oct 1, 1997 Pending
UNITED STATES US526840 Nov 4, 1996 6,001,564
EUROPE 95 931 109.3-2116 Pending
INDIA 2153CAL97 Pending
JAPAN 504973/98 May 19, 1998 Pending
MEXICO 97/01847 June 18, 1997 Pending
NORWAY 971111 Sept. 1, 1998 Pending
NEW ZEALAND JP207909 August 12, 1998 292494
SINGAPORE 9701090-4 Sept. 12, 1995 9701090-4
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
II. Species-specific, genus-specific and universal DNA probes and
amplification primers to rapidly detect and identify common bacterial and
fungal pathogens and associated antibiotic resistance genes from clinical
specimens for diagnosis in microbiology laboratories.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY APPLICATION FILING DATE STATUS
NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ARGENTINA P970105357 Nov. 14, 1997 Pending
AUSTRALIA 48598/97 Nov. 14, 1997 Pending
BRAZIL PI 9713494-5 Nov. 14, 1997 Pending
CANADA 5044400 July 22, 1999 Pending
CHINA 97180194.0 Nov. 4, 1997 Pending
UNITED STATES WO98/20157 Nov. 4, 1997 Pending
EUROPE 97911094.7 - 2116 Pending
INDIA 2153CAL97 Nov. 13, 1997 Pending
JAPAN May 6, 1999 Pending
MEXICO 99-4119 May 3, 1999 Pending
NORWAY 19991976 April 26, 1999 Pending
NEW ZEALAND 335548 June 4, 1999 Pending
SINGAPORE 9901915-0 Nov. 4, 1997 Pending
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
III. Highly conserved genes and their use to generate species-specific,
genus-specific, family-specific, group-specific and universal nucleic acid
probes and amplification primers to rapidly detect and identify bacterial,
fungal and parasitical pathogens from clinical specimens for diagnosis.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY APPLICATION FILING DATE STATUS
NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CANADA CAN 2,283,458 Sept. 28, 1999 Pending
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
IV. Specific and universal probes to rapidly detect and identify common
bacteria form urinary or any other biological samples in the routine
microbiology laboratory.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY APPLICATION FILING DATE STATUS
NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES 85-586-9001-2 Sept. 12, 1994 08/304,732
UNITED STATES S.N. 850586.90012 Sept. 11, 1995 08/526,840
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
V. Species-specific and universal DNA probes and amplification primers to
rapidly detect and identify common bacterial pathogens and associated
antibiotic resistance genes from clinical specimens for routine diagnosis
in microbiology laboratories.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY APPLICATION FILING DATE STATUS
NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES US 743,637 Nov. 4, 1996 5,994,066
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
March 20, 2000 in the Registration Statement (Form S-1) and related Prospectus
of Cepheid for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 6, 2000
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 1,493,313 18,420,495
<SECURITIES> 0 0
<RECEIVABLES> 566,033 574,134
<ALLOWANCES> 0 0
<INVENTORY> 285,433 505,019
<CURRENT-ASSETS> 2,779,777 19,663,286
<PP&E> 2,825,083 3,079,394
<DEPRECIATION> (747,239) (918,882)
<TOTAL-ASSETS> 4,885,920 22,087,048
<CURRENT-LIABILITIES> 2,047,644 2,398,880
<BONDS> 1,205,066 1,070,933
0 0
13,565,965 32,679,594
<COMMON> 350,690 698,443
<OTHER-SE> (12,359,802) (14,832,518)
<TOTAL-LIABILITY-AND-EQUITY> 4,885,920 18,545,519
<SALES> 159,451 151,388
<TOTAL-REVENUES> 3,595,524 915,958
<CGS> 97,088 130,585
<TOTAL-COSTS> 11,656,151 4,327,947
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (108,121) (43,377)
<INCOME-PRETAX> (7,918,613) (3,253,152)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,918,613) (3,253,152)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,918,613) (3,253,152)
<EPS-BASIC> (1.90) (4.42)
<EPS-DILUTED> (1.90) (4.42)
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