-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OT/tM/WEKC/mCUnQ3Y2OaCT1zwMZNoxglFPgXcKISPlfxi67BYMADea0FSoiXMXk aQwPI9lRETDhCCq/yq/gtA== 0000891618-99-004540.txt : 19991018 0000891618-99-004540.hdr.sgml : 19991018 ACCESSION NUMBER: 0000891618-99-004540 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19991012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIPER TECHNOLOGIES CORP CENTRAL INDEX KEY: 0001014672 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330675808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-88827 FILM NUMBER: 99726988 BUSINESS ADDRESS: STREET 1: 605 FAIRCHILD DRIVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6506230700 MAIL ADDRESS: STREET 1: 605 FAIRCHILD DRIVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CALIPER TECHNOLOGIES CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3826 33-0675808 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
------------------------ 605 FAIRCHILD DRIVE MOUNTAIN VIEW, CA 94043-2234 (650) 623-0700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DANIEL L. KISNER, M.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER 605 FAIRCHILD DRIVE MOUNTAIN VIEW, CA 94043-2234 (650) 623-0700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: ROBERT L. JONES, ESQ. JONATHAN L. KRAVETZ, ESQ. BRETT D. WHITE, ESQ. MINTZ, LEVIN, COHN, FERRIS, COOLEY GODWARD LLP GLOVSKY AND POPEO, P.C. FIVE PALO ALTO SQUARE ONE FINANCIAL CENTER 3000 EL CAMINO REAL BOSTON, MA 02111 PALO ALTO, CA 94306-2155 (617) 542-6000 (650) 843-5000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. 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, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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 this 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 this 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
- ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM AGGREGATE AMOUNT OF TITLE OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------- Common Stock, $0.001 par value.............................. $60,000,000 $16,680 - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) 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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS 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 PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED OCTOBER 12, 1999 Shares Caliper TechnologiesCorp.Logo Common Stock ------------------ Caliper Technologies Corp. is selling shares of common stock. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $ and $ per share. We have applied to list our common stock on The Nasdaq Stock Market's National Market under the symbol "CLPR." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS CALIPER ------------------- ------------------- ------------------- Per Share............................................ $ $ $ Total................................................ $ $ $
Delivery of the shares of common stock will be made on or about , 1999. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. CREDIT SUISSE FIRST BOSTON CIBC WORLD MARKETS HAMBRECHT & QUIST The date of this prospectus is , 1999. 3 [DESCRIPTION OF GRAPHICS] Captions Headline: CALIPER'S LABCHIP SYSTEMS PUTTING THE LAB ON A CHIP Illustration: This illustration, centered on the page, depicts Caliper's LabChip technology by showing how laboratory experimental functions, processes and equipment can be miniaturized, integrated and automated and put on a microfluidic chip. In the top half of the illustration, a cross-section of a laboratory environment is pictured in which five researchers at various lab stations are shown carrying out various steps of experiments manually, using various pieces of equipment. The various processes and pieces of equipment they are using are identified with a number in a color dot that corresponds to the legend and captions on the page. Below the illustration of the lab is an illustration of a LabChip. The activities of the researchers that are carried out on the chip are identified with connecting lines to the area on the chip where they take place. The dimensions of the chip are also described. Caption: We are a leader in lab-on-a-chip technologies. We believe our LabChip systems can assemble the power and reduce the size of entire laboratories full of equipment and people. Our LabChip systems miniaturize, integrate and automate many laboratory processes and put them on a chip that can fit in the palm of a child's hand. Each chip contains a network of microscopic channels through which fluids and chemicals are moved, using electricity or pressure, in order to perform experiments. We believe our LabChip systems have the potential to revolutionize experimentation in a wide range of industries by enabling individuals and organizations to perform laboratory experiments at a speed, cost and scale previously unattainable. Caption for side of chip: Actual size ~ 1" Legend: Red dot#1 Glassware and plasticware such as test tubes, beakers and other conventional fluid handling tools are replaced by microscopic channels in the LabChip environment. Lime dot#2 Automated liquid handling is programmed into the channel design and executed by computer control. The chip measures and mixes fluids, replacing pipets and robotic workstations. Yellow dot#3 Mixing is well-controlled and predictable. Miniaturization eliminates uncontrolled fluid interactions that can produce unreliable results. Purple dot#4 Incubation times are programmed into the microchannel design. Temperature can be independently controlled at different parts of the chip. Orange dot#5 Our chip replaces the manual work of moving samples from one lab station to another with fluidic paths that transfer the samples from one experimental step to the next. Blue dot#6 We have successfully integrated different techniques to separate molecules from each other directly on the chip. Green dot#7 When the chip is placed in an instrument, the chip presents the separated molecules to an optical system. The channel design and computer control over fluid movement ensures that each reaction is read at exactly the same time. 4 Fold-Out P.2 Inside Front Cover The series of four photographs on the right side of the page shows actual elements of Caliper's personal laboratory system, based on the HP 2100 Bioanalyzer. The first image shows a LabChip device with wells and channels. The second image shows one of the first chips that Caliper and its commercialization partner, Hewlett-Packard, are commercializing. The third image shows the chip inside the HP 2100 Bioanalyzer with the top of the HP 2100 Bioanalyzer open. The fourth image shows the entire HP 2100 Bioanalyzer system, including chips, reagents, the chip instrument and a personal computer, monitor, keyboard and printer. Top Caption: We have developed two types of LabChip systems based on distinct chip formats. Our personal laboratory systems use chips with reservoirs for the various chemical reagents which the user introduces manually. Our first personal laboratory system, the HP 2100 Bioanalyzer system, is being marketed by Hewlett-Packard, and is designed to enhance the productivity of individual researchers. Our high throughput systems use our Sipper chips that have a short glass tube, or capillary, that draws nanoliter volumes of reagents into the chip. This system is designed to generate massive quantities of information on an institutional scale. Headline Personal Laboratory System Captions: Magnified chip: Each LabChip format is created using the same microfabrication manufacturing methods used to make microchips in the computer industry. Microfabrication makes it possible to create intricate designs of extremely small interconnected channels. Each pattern is designed to produce the series of fluidic manipulations that will execute an experiment. Actual HP 2100 chip: The HP 2100 Bioanalyzer has an initial menu of three LabChip kits for DNA and RNA sizing and concentration analysis. We are developing new applications for analysis of proteins and cells as well as additional applications for DNA and RNA analysis. Chip in HP 2100: The chip is placed in the instrument, which uses software to control the movement of fluids with electricity. The instrument also has an optical system for detecting the results. Full System: The HP 2100 Bioanalyzer is a desktop instrument designed to perform a wide range of everyday scientific applications using a menu of different LabChip kits. Each kit contains chips and reagents designed specifically for the application. This system brings the benefits of miniaturized, integrated and automated experimentation to the researcher's desktop. 5 Fold-out P.3 This series of photographs shows actual elements of Caliper's high throughput system. The first image shows two Sipper chips in the palm of a hand. One chip has a single capillary or sipper, the other has 4 capillaries. The second image is a close-up photograph of the capillary of the Sipper chip poised over a 96-well plate. It is just about to draw a one nanoliter sample from one of the wells. The third image shows the assay development station that Caliper provides to customers. The fourth image shows the current high throughput system that Caliper's technology access program customers are using for drug screening. Top Caption: Same as above; text will apply to both pages Headline: High Throughput System Captions: Hand with Sipper chips: Our first high throughput system uses a Sipper chip with a single capillary. We intend to introduce chips with four and then eight or more capillaries per chip, and to offer systems that can perform more than 100,000 experiments per day. Close-up of sipper: The Sipper chip capillary draws a sample into the chip's channel network. The samples proceed through the channel network in a continuous flow to perform a complete experiment. Development station: We sell assay development systems to our technology access program customers so that they can modify experimental conditions used with our standard assay chips to be suitable for each new drug target. Full System: Our first high throughput system is based on the Caliper 110, which is designed to perform a wide range of experiments using a menu of different chips. We currently offer two Sipper chips used for performing drug screening for several classes of enzymes. 6 ------------------ TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY.................... 2 RISK FACTORS.......................... 6 SPECIAL NOTE REGARDING FORWARD- LOOKING STATEMENTS.................. 16 USE OF PROCEEDS....................... 17 DIVIDEND POLICY....................... 17 CAPITALIZATION........................ 18 DILUTION.............................. 19 SELECTED FINANCIAL DATA............... 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 21 BUSINESS.............................. 27
PAGE ---- MANAGEMENT............................ 43 CERTAIN TRANSACTIONS.................. 57 PRINCIPAL STOCKHOLDERS................ 59 DESCRIPTION OF CAPITAL STOCK.......... 61 SHARES ELIGIBLE FOR FUTURE SALE....... 64 UNDERWRITING.......................... 66 NOTICE TO CANADIAN RESIDENTS.......... 68 LEGAL MATTERS......................... 69 EXPERTS............................... 69 WHERE YOU CAN FIND MORE INFORMATION... 69 INDEX TO FINANCIAL STATEMENTS......... F-1
------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. ------------------ Unless otherwise indicated, information in this prospectus assumes the following: - the conversion of all of our outstanding shares of preferred stock into shares of common stock upon the closing of this offering - a -for- reverse stock split to be effected prior to the closing of this offering - the filing of our amended and restated certificate of incorporation immediately following the closing of this offering - no exercise of the underwriters' over-allotment option We have applied for registration of the following trademarks: Caliper, the Caliper logo, LabChip, the LabChip logo, and LibraryCard. This prospectus also includes trademarks of companies other than Caliper. ------------------ DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 7 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before buying shares in the offering. You should read the entire prospectus carefully. CALIPER We are a leader in lab-on-a-chip technologies. We develop, manufacture and sell our proprietary LabChip systems to pharmaceutical and other companies. We believe our LabChip systems can assemble the power and reduce the size of entire laboratories full of equipment and people. Our LabChip systems miniaturize, integrate and automate many laboratory processes, and put them on a chip that can fit in the palm of a child's hand. Each chip contains a network of microscopic channels through which fluids and chemicals are moved, using electricity or pressure, in order to perform experiments. The chips are the key components of our LabChip systems, which also include reagents as well as instruments and software that together control and read the chips. We believe our LabChip systems have the potential to revolutionize experimentation in a wide range of industries by enabling individuals and organizations to perform laboratory experiments at a speed, cost and scale previously unattainable. We believe that we are the first company to sell and deliver lab-on-a-chip products to customers. During 1999, we introduced our first two LabChip systems: - Personal Laboratory System. In collaboration with Hewlett-Packard, we launched the HP 2100 Bioanalyzer system, our first personal laboratory system for use by individual laboratory researchers. - High Throughput System. We have sold and delivered initial versions of our high throughput systems for drug screening to Amgen and Hoffmann-La Roche, and have contracted to deliver a high throughput system to Eli Lilly. The pharmaceutical, agriculture, clinical diagnostics and chemical industries, among others, rely on laboratory experimentation to obtain important information that can be used to discover and develop new products. We are initially focusing on the pharmaceutical industry, where industry experts believe more than $30 billion will be spent on research and development in the year 2000. Pharmaceutical companies have realized that to stay competitive and to meet their goals for growth, they will have to increase significantly the number of new drugs they introduce each year. To achieve this, pharmaceutical companies have found that they must engage in experimentation on a massive scale. These companies, however, still rely on manual, multi-step experiments that use tools such as test tubes, beakers and large pieces of equipment that utilize decades-old technology. These tools and processes are expensive and labor-intensive, rendering them inadequate to handle the accelerating needs for greater research and development productivity. We believe that our LabChip systems represent a revolutionary advance in laboratory experimentation. Our LabChip systems have the potential to expand the capabilities and improve the productivity of individual researchers and, on an institutional level, enable pharmaceutical companies to perform the massive scale experimentation they need to advance the drug discovery process. As a result, our LabChip technology has the potential to reduce the time it takes to discover and commercialize new drugs. Our LabChip systems miniaturize, integrate and automate fluidic experimentation to an unprecedented degree. Because we have great flexibility in channel design and can exert split-second computer control over fluid flow, we have the ability to create chips for a multitude of experiments, or applications. We believe the key benefits of our LabChip systems are: - High Speed. Our LabChip systems accelerate experiments as much as 10-fold or more, depending on the application. - Reduced Cost. Our LabChip systems use only a small fraction of the normal amount of expensive reagents, as little as 1/100,000th in some cases, and also reduce labor involved in each experiment. 2 8 - Expanded Individual Researcher Capability. Because our LabChip systems can collapse a multi-step, complex experiment into one step, individual researchers can perform experiments previously outside their areas of expertise. - Improved Data Accuracy. Our LabChip systems generally produce more accurate and consistent data by reducing human error and the variability caused by the use of multiple instruments. - Improved Enterprise-Wide Productivity. We believe our LabChip systems can improve data quality to the point where researchers can rely on data generated outside their laboratory or organization, thereby improving enterprise-wide productivity. Our objective is to be the leading lab-on-a-chip company. Key elements of our strategy to achieve this objective are as follows: - Focus on the pharmaceutical industry first - Rapidly build our installed customer base - Leverage our installed customer base by expanding the menu of chip applications - Generate recurring revenue from high-value chips - Build a substantial intellectual property estate - Maintain leadership in chip technology and manufacturing - Opportunistically penetrate new industries We are currently commercializing our LabChip systems through a combination of a major commercial partnership and direct sales. Hewlett-Packard is selling our first personal laboratory system, the HP 2100 Bioanalyzer system, as part of a broad strategic alliance we established in 1998. We are selling our high throughput systems directly to large pharmaceutical companies through our technology access program. In addition, we are selling screening services directly through our value added screening collaborations program. We have made substantial investments in lab-on-a-chip research since our inception, and today we are supplementing these efforts with applied product development efforts. As of September 30, 1999, we owned or held licenses to 34 issued U.S. patents and 120 pending U.S. patent applications. Caliper was incorporated in Delaware on July 26, 1995. Our principal offices and manufacturing facilities are located at 605 Fairchild Drive, Mountain View, California 94043-2234, and our telephone number is (650) 623-0700. Our website is located at http://www.calipertech.com. Information contained on our website is not a part of this prospectus. 3 9 THE OFFERING Common stock offered.................................... shares Common stock to be outstanding after the offering....... shares Use of proceeds......................................... For general corporate purposes, including capital expenditures, manufacturing scale-up, product development and technology research. See "Use of Proceeds." Proposed Nasdaq National Market symbol.................. CLPR
The number of shares to be outstanding after this offering is based on the number of shares outstanding on September 30, 1999 and excludes: - 2,605,031 shares issuable upon exercise of options outstanding as of September 30, 1999 at a weighted average exercise price of $0.52 per share - 3,133,129 additional shares that we could issue under our stock option plans, of which options to purchase 903,700 shares of common stock were granted in October 1999 at an exercise price of $2.00 per share - 450,000 shares that we could issue under our employee stock purchase plan - 116,229 shares issuable upon exercise of warrants outstanding as of September 30, 1999 at a weighted average exercise price of $0.78 per share SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM INCEPTION (JULY 26, 1995) NINE MONTHS ENDED THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, --------------------------- ----------------- 1995 1996 1997 1998 1998 1999 --------------- ------- ------- ------- ------- ------- (UNAUDITED) (UNAUDITED) STATEMENTS OF OPERATIONS DATA: Revenue.............................. $ -- $ 132 $ 2,266 $ 8,155 $ 4,425 $ 8,859 Costs and expenses................... 534 4,952 9,678 12,516 9,228 17,712 Operating loss....................... (534) (4,820) (7,412) (4,361) (4,803) (8,853) Net loss............................. (536) (4,710) (6,281) (2,975) (3,745) (8,052) Accretion on redeemable convertible preferred stock.................... -- (262) (1,470) (2,174) (1,587) (1,822) Net loss attributable to common stockholders....................... $ (536) $(4,972) $(7,751) $(5,149) $(5,332) $(9,874) Net loss per common share, basic and diluted............................ $(1.10) $ (2.50) $ (2.81) $ (1.53) $ (1.63) $ (2.36) Shares used in computing net loss per common share, basic and diluted.... 488 1,987 2,758 3,365 3,275 4,187 Pro forma net loss per share, basic and diluted (unaudited)............ $ (0.13) $ (0.34) Shares used in computing pro forma net loss per share, basic and diluted (unaudited)................ 22,381 23,738
4 10
SEPTEMBER 30, 1999 ----------------------- ACTUAL AS ADJUSTED -------- ----------- (UNAUDITED) BALANCE SHEET DATA: Cash, cash equivalents and marketable securities............ $ 27,820 $ Working capital............................................. 23,278 Total assets................................................ 34,658 Long-term obligations, less current portion................. 3,483 Redeemable convertible preferred stock...................... 50,538 -- Total stockholders' deficit................................. (25,262)
The increase in net loss attributable to common stockholders due to accretion on redeemable convertible preferred stock will not occur after this offering because all of the outstanding preferred stock will be converted to common stock at the closing of the offering. See Note 1 of notes to our financial statements for an explanation of the determination of the number of shares used in computing per share data. The as adjusted balance sheet data gives effect to the receipt and application of the net proceeds from the sale of the shares of common stock in this offering at an assumed initial public offering price of $ per share after deducting underwriting discounts and commissions and estimated offering expenses and the conversion of all outstanding preferred stock into common stock. See "Use of Proceeds" and "Capitalization." 5 11 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk. Risks and uncertainties, in addition to those we describe below, that are not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually occurs, our business, operating results and financial condition could be seriously harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment. See "Special Note Regarding Forward-Looking Statements." RISKS RELATED TO OUR BUSINESS OUR LABCHIP SYSTEMS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD CAUSE OUR REVENUE TO DECLINE. The commercial success of our LabChip systems will depend upon market acceptance of the merits of our LabChip systems by pharmaceutical and biotechnology companies, academic research centers and other companies that rely upon laboratory experimentation. Market acceptance will depend on many factors, including our ability to demonstrate the advantages and potential economic value of our LabChip systems over alternative well-established technologies and products. We have not yet demonstrated these benefits and, if we cannot do so within an acceptable time frame, our LabChip systems may not gain market acceptance and we may be unable to generate future sales. Because the products comprising our LabChip systems have been in operation for a limited period of time, their accuracy, reliability, ease of use and commercial value have not been fully established. In addition, potential customers for our high throughput systems may wait for indications from our three initial technology access program customers that our high throughput systems work effectively and generate substantial benefits. We cannot assure you that these customers' efforts to put our LabChip systems into use will continue or will be expeditious or effective. Accordingly, if the initial HP 2100 Bioanalyzer customers or our initial technology access program customers do not approve of our initial LabChip systems because these systems fail to generate the quantities and quality of data they expect, are too difficult or costly to use, or are otherwise deficient, market acceptance of these LabChip systems would suffer. If this were to happen, it would reduce or eliminate our ability to capitalize on first-mover advantages associated with the introduction of a novel technology to the marketplace. Further, such non-acceptance by the market of our initial LabChip systems could undermine not only those systems but subsequent LabChip systems as well. WE HAVE ONLY RECENTLY BEGUN SHIPPING OUR FIRST LABCHIP SYSTEMS, AND IF WE ARE UNABLE TO SUCCESSFULLY MARKET THESE INITIAL SYSTEMS WE MAY NOT GENERATE REVENUE. Our technologies are still in the early stages of development, and LabChip systems incorporating these technologies have only recently been made commercially available. The HP 2100 Bioanalyzer, launched in September 1999 by our collaboration partner Hewlett-Packard, is the only LabChip instrument that is widely available, and we currently have available for it LabChip kits for only three applications. Initial versions of our high throughput systems have been made available only through our technology access program and have been delivered to only two of our three customers in this program. If we or Hewlett- Packard are unable to successfully market our LabChip products, or if we are unable to successfully complete development of and commercialize our high throughput systems we may not generate revenue and become profitable. WE HAVE A LARGE ACCUMULATED DEFICIT, WE EXPECT TO INCUR FUTURE LOSSES AND MAY NOT ACHIEVE PROFITABILITY. We have experienced significant operating losses each year since our inception and expect these losses to continue for the foreseeable future. For example, we experienced net losses of approximately $6.3 million in 1997, $3.0 million in 1998 and $8.1 million in the first nine months of 1999. As of September 30, 1999, we had an accumulated deficit of approximately $28.3 million, which includes 6 12 $5.7 million of accretion on redeemable convertible preferred stock. Our losses have resulted principally from costs incurred in research and development and from general and administrative costs associated with our operations. These costs have exceeded our revenue and interest income which, to date, have been generated principally from collaborative research and development agreements, technology access fees, cash and investment balances and, to a lesser extent, product sales and government grants. We expect to incur substantial additional operating losses for the foreseeable future as a result of increases in expenses for manufacturing capabilities, research and product development costs and general and administrative costs. We may never achieve profitability. OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND ANY FAILURE TO MEET FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE IN OUR STOCK PRICE. Our quarterly operating results have fluctuated significantly in the past and we expect they will fluctuate in the future as a result of several factors, some of which are outside of our control. It is possible that in some future quarter or quarters, our operating results will be below the expectations of securities analysts or investors. In such event, the market price of our common stock may fall abruptly and significantly. Because our revenue and operating results are volatile and 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 operating results will be adversely affected because many of our expenses are relatively fixed. In particular, research and development and general and administrative expenses do not change significantly with variations in revenue in a quarter. Our revenue may vary from period to period. Factors that could cause our revenue to fluctuate from period to period include: - market acceptance of our LabChip systems - the volume and timing of orders for our LabChip systems - the success and timing of signing new customers to our technology access program, which has a lengthy sales cycle and large license and subscription fees - variations in revenue recognized under our technology access program agreements, including initial non-refundable license fees, annual subscription fees and development and support fees - our announcement of, or perception by others that we will introduce, new or upgraded products, which could delay customers from purchasing our products that are then available - the introduction of new products by our competitors - the timing of commercial availability of new applications for our LabChip systems Our expenses may vary from period to period. Many of our expenses do not vary with our revenue. Factors that could cause our expenses to fluctuate from period to period include: - the timing and extent of our research and development efforts - the extent and magnitude of customer development and support services necessary to successfully continue our technology access program - the availability and cost of key components for our products - the timing of personnel hiring - variations in expenses incurred in connection with the operations of our business, including legal fees, manufacturing facility scale-up costs and capital expenditures 7 13 If we incur additional expenses in a quarter in which we do not experience comparable increased revenue, our operating results would be adversely affected. WE ARE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION WHICH MAY HURT OUR COMPETITIVE POSITION, MAY BE COSTLY TO US AND MAY PREVENT US FROM SELLING OUR PRODUCTS. We have filed a suit against Aclara Biosciences, Inc. and our former patent counsel alleging that they misappropriated our trade secrets, and that our former patent counsel breached their duties to us as our attorneys. We may not be successful in our lawsuit against them, in which case we will have incurred substantial litigation costs that we will not recover. In addition, subsequent to the filing of our suit, Aclara sued us claiming we are infringing one of its patents with our LabChip systems that use electrical charges to move fluids and chemicals through the channels of the chip. We believe that we have meritorious defenses in this action. However, litigation is unpredictable and we may not prevail with any of these defenses. If we lose this case, we will need to obtain from Aclara a license to this technology in order to continue to market our products that rely on electrokinetic flow, including all products currently marketed by Hewlett-Packard. This license could be expensive, or could require us to license to Aclara some of our technology which would result in a partial loss of our competitive advantage in the marketplace, each of which could seriously harm our business, financial condition and results of operations. In addition, under our collaboration agreement with Hewlett-Packard, Hewlett-Packard may elect at any time to stop developing, manufacturing or distributing any product that it reasonably determines, on the advice of counsel, poses a substantial risk of infringing a third party patent. If Aclara is successful in its suit against us and is unwilling to grant us a license, we will be required to discontinue selling these products unless we can redesign them so they do not infringe Aclara's patent, which we may be unable to do. In addition, if we lose the patent suit, we could be required to pay Aclara damages, including treble damages, which could seriously harm our business. During the course of these lawsuits there may be public announcements of the results of hearings, motions, and other interim proceedings or developments in the litigation. If securities analysts or investors perceive these results to be not entirely in our favor, it could have a substantial negative effect on the trading price of our stock. Whether or not we are successful in these lawsuits, we expect this litigation to consume substantial amounts of our financial and managerial resources. Further, because of the substantial amount of discovery required in connection with this type of litigation, there is a risk that some of our confidential information could be compromised by disclosure. For more information on our litigation with Aclara, see "Business -- Legal Proceedings." OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, CAUSING COSTLY LITIGATION AND SERIOUSLY HARMING OUR BUSINESS Third parties may assert infringement or other intellectual property claims against us, such as in the Aclara litigation described above and under "Business-Legal Proceedings." Even if such claims are without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns. In addition, we may have to pay substantial damages, including treble 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 absent the grant of a license, which if available at all, may require us to pay substantial royalties. Assertions of infringement by third parties could seriously harm our business. We are aware of third-party patents that may relate to our technology or potential products, including microfluidic devices, methods of electrokinetic material movement, detection methods and systems, cell-based assay methods and nucleic acid sequencing and amplification methods and reagents. We may in the future receive notices from third parties claiming infringement of their patent rights, as well as invitations to take licenses under third-party patents. We cannot assure you that we will not in the future be subject to patent infringement proceedings or that we will not infringe these patents or other patents or proprietary rights of third parties, or that we would be able to obtain a license to such patents or proprietary rights on commercially acceptable terms, if at all. 8 14 Others have filed and in the future are likely to file patent applications that are similar or identical to our patent applications or those of our licensors. To determine the priority of inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial cost to us. We have been notified that third parties have attempted to provoke an interference with one issued U.S. patent that we have exclusively licensed. We cannot assure you that others' patent applications will not have priority over patent applications we have filed or we have exclusively licensed. If our patent applications do not have priority, we would lose these intellectual property rights. There is a significant number of United States and foreign patents and patent applications in our area of interest, and we believe that there will be significant litigation in the industry regarding patent and other intellectual property rights. Because of the substantial amount of discovery required in connection with any intellectual property litigation, there is a risk that our confidential information could be compromised by disclosure. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our stock price to decline. IF WE FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY LOSE THESE RIGHTS AND OUR BUSINESS MAY BE SERIOUSLY HARMED. We rely on patents to protect a large part of our intellectual property and our competitive position. We operate in an industry that is new and in which a substantial number of patent applications have been filed and patents have issued. Many of these patent applications and issued patents contain claims on similar technology. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, the patent positions in our industry are generally uncertain. Resolution of patent issues involve complex legal and factual questions, and we believe that there will be significant litigation in the industry regarding patent and other intellectual property rights. As a result, the extent of future protection for our proprietary rights is uncertain, and we cannot guarantee: - that any of our pending patent applications will result in issued patents; - that we will develop additional technologies that are patentable; - that any patents issued to us will provide a basis for commercially viable products; - that any patents issued to us will provide us with any competitive advantages; - that any patents issued to us will not be challenged by third parties; or - that any patents issued to us will not be invalidated. 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 could 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. 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, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive any of these results not to be entirely in our favor, it could have a substantial negative effect on the trading price of our stock. In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, nondisclosure agreements and other contractual provisions and technical measures to protect our intellectual property rights. Nevertheless, such measures may not be adequate to safeguard the technology underlying our products. In addition, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not 9 15 have adequate remedies for any such breach. We also may not be able to effectively protect our intellectual property rights in certain 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 and products without infringing on any of our intellectual property rights or design around our proprietary technologies. For further information on our intellectual property and the difficulties in protecting it, see "Business -- Intellectual Property." We are party to various license agreements with third parties, which give us rights to use technologies that are valuable in our business. For example, we have licensed technology related to the control of movement of fluid and other material through interconnected microchannels from Lockheed Martin Energy Research Corporation. If we fail to perform under, or materially breach, these agreements we may lose some or all of these rights. The failure to maintain some or all of the rights to these technologies could seriously harm our business. IF WE DO NOT SUCCESSFULLY INTRODUCE NEW PRODUCTS AND EXPAND THE RANGE OF APPLICATIONS FOR OUR LABCHIP SYSTEMS, WE MAY EXPERIENCE A DECLINE IN REVENUE OR SLOW REVENUE GROWTH AND OUR BUSINESS MAY BE SERIOUSLY HARMED. We intend to develop LabChip systems with increasingly high throughput capabilities and develop a broad range of applications for our LabChip technology. If we are unable to do so, our LabChip systems may not become widely used and we may experience a decline in revenue or slow revenue growth and may not be able to achieve or maintain profitability. In order for our high throughput systems to achieve the levels of throughput necessary to meet customers' demands, we need to develop and manufacture Sipper chips with more than one capillary, which we may not be able to do. Our current high throughput systems operate with Sipper chips with only one capillary, a small piece of glass tubing used to draw compounds into the chip. In order to achieve the levels of throughput that our customers desire, we will need to develop a LabChip system accommodating multiple capillaries, which we may not be able to do. If we cannot cost-effectively deliver chips with multiple capillaries, we may not be able to attract new customers to purchase our high throughput systems, which would seriously harm our future prospects. Further, our existing technology access program customers may decide not to renew their annual access subscriptions, which would seriously harm our current business. We must develop new applications for existing LabChip instruments, which we may not be able to do. The HP 2100 Bioanalyzer uses LabChip kits that we specifically design for each application. We currently have LabChip kits commercially available for only three applications relating to DNA and RNA sizing and quantification. We currently are developing LabChip kits for other applications. If we are unable to develop LabChip kits for specific applications required by potential customers, those customers will not purchase the HP 2100 Bioanalyzer. We must also continue to develop applications for our high throughput systems. If we are not able to complete the development of these applications, or if we experience difficulties or delays, we may lose our current technology access program customers and may not be able to obtain new customers. WE RELY HEAVILY ON HEWLETT-PACKARD TO MANUFACTURE, MARKET AND DISTRIBUTE THE HP 2100 BIOANALYZER. IF HEWLETT-PACKARD FAILS TO PERFORM UNDER OUR AGREEMENT OR SUCCESSFULLY COMMERCIALIZE OUR COLLABORATIVE PRODUCTS, OUR BUSINESS WILL BE SERIOUSLY HARMED. Hewlett-Packard manufactures, markets and distributes the HP 2100 Bioanalyzer under an agreement we entered into in May 1998. Our primary relationship is with Hewlett-Packard's Chemical Analysis Group, which we expect to become a part of Agilent Technologies. We also rely on Hewlett-Packard for significant financial and technical contributions in the development of products covered by the agreement. 10 16 Our ability to develop, manufacture and market these products successfully depends significantly on Hewlett-Packard's performance under this agreement. If Hewlett-Packard experiences manufacturing or distribution difficulties, does not actively market the HP 2100 Bioanalyzer, or does not otherwise perform under this agreement, our business will be seriously harmed. In addition, Hewlett-Packard may terminate the agreement at their discretion at any time after May 2001. If Hewlett-Packard terminates this agreement, we would need to obtain development funding from other sources, and we may be required to find one or more other collaborators for the development and commercialization of our products. Our inability to enter into agreements with commercialization partners or develop our own marketing, sales, and distribution capabilities would impede the commercialization of our products, increase costs, and would seriously harm our business. WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND MAY ENCOUNTER PROBLEMS OR DELAYS WHICH COULD RESULT IN LOST REVENUE. Although Hewlett-Packard manufactures the HP 2100 Bioanalyzer, we manufacture the chips used in this instrument and also currently manufacture instruments and Sipper chips for our high throughput systems. We currently have limited manufacturing capacity for our LabChip systems and products and experience variability in manufacturing yields for chips, particularly Sipper chips. If we fail to deliver chips and high throughput screening products in a timely manner, our relationship with our customers, and our business, could be seriously harmed. We currently have one manufacturing facility located in Mountain View, California. The actual number of chips we are able to sell or use depends in part upon the manufacturing yields for these chips. We have only recently begun to perform quality control for significant numbers of Sipper chips and are continuing to develop our quality control procedures for these chips. In order to offer Sipper chips with multiple capillaries for ultra high throughput applications, we will need to achieve consistently high yields in the process of inserting capillaries. We cannot assure you that manufacturing or quality control problems will not arise as we attempt to scale-up our production of chips or that we can scale-up manufacture and quality control in a timely manner or at commercially reasonable costs. If we are unable to consistently manufacture Sipper chips or chips for the HP 2100 Bioanalyzer on a timely basis because of these or other factors, our business will be seriously harmed. We are currently manufacturing high throughput instruments in-house, in limited volumes and with largely manual assembly. If demand for our high throughput instruments increases, we will either need to expand our in-house manufacturing capabilities or outsource to Hewlett-Packard or other manufacturers. IF A NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITY WE WOULD EXPERIENCE LOST REVENUE AND OUR BUSINESS WOULD BE SERIOUSLY HARMED. We rely on a single manufacturing facility to produce our chips and high throughput systems, and have no alternative facilities. The facility and some pieces of manufacturing equipment are difficult to replace and could require substantial replacement lead-time. This manufacturing facility is subject to natural disasters such as earthquakes and floods. Earthquakes are of particular significance since the manufacturing facility is located in an earthquake-prone area. In the event our existing manufacturing facility or equipment is affected by man-made or natural disasters, we would 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 EXPECT TO ENCOUNTER INTENSE COMPETITION IN THE MARKETS WE TARGET, WHICH COULD SUBSTANTIALLY LIMIT THE VOLUME OF PRODUCTS THAT WE SELL. Microfluidic technologies have undergone, and are expected to continue to undergo, rapid and significant change. Our future success will depend in large part on our ability to maintain a competitive position with respect to these and future technologies, which we may not be able to do. Rapid technological development may result in our products or technologies becoming obsolete. Products offered by us could be made obsolete either by less expensive or more effective products based on similar or other 11 17 technologies. We expect to encounter intense competition from a number of companies that offer products for laboratory experimentation. We anticipate that our competitors will come from two sectors: - companies providing products based on established technologies - companies developing their own microfluidics or lab-on-a-chip technologies To compete effectively with established technologies, we must demonstrate the advantages and potential economic value of our LabChip systems and products over alternative established technologies. In order to compete with other companies developing microfluidic technologies we must capitalize on our first to market status and develop the enhancements to our technology necessary to compete successfully with newly emerging technologies. If we are unable to do these things, our business will be seriously harmed. 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 respect to our technologies. In addition, there is the possibility that we may experience competition from Hewlett-Packard if they, or we, terminate our agreement after May 2003. Under the terms of our agreement, upon termination we will grant to Hewlett-Packard a non-exclusive license to our LabChip technologies as then developed for use in the research products field, subject to limitations. See "Business -- Competition" for a further description of the competition we face. BECAUSE A SMALL NUMBER OF CUSTOMERS AND HEWLETT-PACKARD HAVE ACCOUNTED FOR, AND ARE LIKELY TO CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF OUR REVENUE, OUR REVENUE COULD DECLINE DUE TO THE LOSS OF ONE OF THESE CUSTOMERS OR THE TERMINATION OF OUR AGREEMENT WITH HEWLETT-PACKARD. Historically we have had very few customers and one commercial partner, Hewlett-Packard, from which we have derived the majority of our revenue and, if we were to lose any one of these, our revenue would decrease substantially. Hewlett-Packard and three customers accounted for 91% of total revenue in the nine months ended September 30, 1999, and two customers and Hewlett-Packard accounted for 97% of total revenue in fiscal year 1998. We and Hewlett-Packard introduced the HP 2100 Bioanalyzer system in September 1999 and have not yet derived significant revenue from the sale of this product on a commercial scale. Although we anticipate that the introduction of the HP 2100 Bioanalyzer system will expand our revenue base, we expect that our reliance on our large customers and on Hewlett-Packard for the majority of our revenue will continue for the foreseeable future. WE DEPEND UPON SEVERAL SUPPLIERS AS THE SOLE SOURCE OF MATERIALS FOR THE MANUFACTURE OF OUR LABCHIP PRODUCTS AND, IF THEY ARE NOT ABLE OR ARE UNWILLING TO DELIVER SUCH MATERIALS, WE MAY INCUR SUBSTANTIAL DELAYS IN DELIVERING OUR PRODUCTS. THESE DELAYS COULD RESULT IN LOST REVENUE. We rely on several companies as the sole source of the materials we use in the manufacture of our LabChip products. We cannot guarantee that supply arrangements and contracts with these suppliers will not be seriously interrupted. Any extended interruption in the supply of these materials would affect our ability to meet scheduled deliveries of our LabChip products to customers, which could damage customer relationships and we could lose customers and orders. We believe that there are alternative suppliers for these materials, however, establishing a second source may take time and may result in the delay in the delivery of customer orders. 12 18 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 2000. However, we premise this expectation on our current operating plan, which may change as a result of many factors. 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 such securities could result in dilution to our stockholders. We currently have no credit facility or other committed sources of capital other than an equipment lease line with $1.7 million unused and available. 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. Such 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. WE HAVE LIMITED SALES, MARKETING AND TECHNICAL SUPPORT EXPERIENCE, WHICH MAY HURT OUR PRODUCT SELLING EFFORTS AND RESULT IN LOWER REVENUE. We are initially marketing our products and services to pharmaceutical and biotechnology companies. We currently have a limited direct sales, marketing and technical support organization and rely on Hewlett-Packard for the marketing and sale of the HP 2100 Bioanalyzer system. Our existing organization and relationships may not be sufficient, and we may be required to expand our organization and enter into additional collaboration or distribution arrangements, to commercialize our products both inside and outside the United States. We cannot assure you that: - we will be able to establish a sufficiently sized sales, marketing or technical support organization; - Hewlett-Packard will be successful in marketing and distributing the HP 2100 Bioanalyzer system; or - we will be able to establish additional collaborative or distribution arrangements to sell, market and service our products. If we fail to develop our sales, marketing and technical support capabilities our business could be seriously harmed and we could experience lower revenue. WE DEPEND ON CERTAIN KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO COMPETE. We are highly dependent on Daniel L. Kisner, M.D., our President and Chief Executive Officer, and our three founding executive officers, Calvin Y. H. Chow, Michael R. Knapp, Ph.D. and J. Wallace Parce, Ph.D., as well as the other 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, research, product development and commercialization will require additional skilled personnel in areas such as chemistry and biology, software engineering and electronic engineering. Our business is located in Silicon Valley, California, where demand for such personnel is extremely high and is likely to continue to be high for the foreseeable future. As a result, competition for and retention of personnel, particularly for employees with technical expertise, is intense and the turnover rate for these people is high. If we are unable to hire, train and retain a sufficient number of qualified employees, our business, financial condition and results of operations could be seriously harmed. The inability to retain and hire qualified personnel could also hinder the planned expansion of our business. 13 19 WE MAY NEED TO OBTAIN GOVERNMENT REGULATORY APPROVAL OR CERTIFICATION FOR OUR PRODUCTS IF WE ENTER THE DIAGNOSTICS MARKET. IF WE FAIL TO OBTAIN APPROVAL OR CERTIFICATION WE COULD NOT SELL PRODUCTS IN THIS MARKET. If we develop and sell LabChip systems for clinical diagnostic applications, these products would be subject to government regulation. The process of obtaining and maintaining required regulatory clearances and approvals and otherwise complying with regulatory guidelines and laws in the United States and other countries is lengthy, expensive, and uncertain. Applicable laws would also require that we or our collaboration partners comply with FDA regulations with respect to manufacturing facilities. Failure to comply with FDA regulations or other applicable legal requirements could lead to suspension of manufacturing, among other sanctions. We cannot assure you that our operations will comply with FDA regulations, or other applicable legal requirements or that we will not be required to incur substantial costs to comply with such requirements. If we fail to meet these regulations our business could be seriously harmed. OUR OR THIRD PARTIES' COMPUTER SYSTEMS MAY FAIL IN THE YEAR 2000, WHICH WOULD DELAY OUR PRODUCT DEVELOPMENT AND THE MANUFACTURING OF OUR PRODUCTS. Failure of our computer systems could seriously harm our product development processes and/or our ability to cost-effectively manage our business during the time required to fix such problems. In addition, computer failures could cause Hewlett-Packard to incur delays in manufacturing the HP 2100 Bioanalyzer, or our customers to postpone or cancel orders for our products. We have assessed the readiness of our computer systems to handle dates beyond the year 1999. We have not assessed the readiness of our suppliers or our customers. Unforeseen problems may arise in our own computers, our products, and embedded systems, and from customers, suppliers and other organizations with which we conduct transactions worldwide. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness" for more information on the status of our preparation relating to this issue. RISKS RELATED TO THIS OFFERING WE WILL BE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK PRICE VOLATILITY. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Due to the potential volatility of our stock price, which high technology companies have experienced recently and which we expect to be the case with our common stock, we may be the target of such litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources, which could seriously harm our business. NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price will be 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 an assumed 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 stockholder approval. Investors will incur additional dilution upon the exercise of outstanding stock options and warrants. See "Dilution" for a more detailed discussion of the dilution new investors will incur in this offering. CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS 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 stockholders as a group will be able to substantially influence the management and affairs of Caliper and, 14 20 if acting together, would be able to influence most matters requiring the approval by our stockholders, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets and any other significant corporate transaction. The concentration of ownership may also delay or prevent a change of control of Caliper at a premium price if these stockholders oppose it. See "Principal Stockholders" for details on our stock ownership. PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK. Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. These provisions include, among others: - the division of the board of directors into three separate classes - the ability of the board of directors to issue up to 5,000,000 shares of preferred stock, and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders - advance notice requirements for stockholders to nominate directors and bring stockholder proposals to a vote - the inability of stockholders to act by written consent Furthermore, because we are incorporated in Delaware, we are subject to the provisions of Section 203 of the Delaware General Corporation Law. These provisions prohibit certain large stockholders, in particular those owning 15% or more of the outstanding voting stock, from consummating a merger or combination with a corporation unless: - two-thirds of the shares of voting stock not owned by the large stockholder approve the merger or combination; or - the board of directors approves the merger or combination or the transaction that resulted in the large stockholder owning 15% or more of our outstanding voting 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. The number of shares of common stock available for sale in the public market is limited by restrictions under federal securities law and under lock-up agreements that our stockholders have entered into with the underwriters and with us. Those lock-up agreements restrict our stockholders from selling, pledging our otherwise disposing of their shares for a period of 180 days after the date of this prospectus without the prior written consent of Credit Suisse First Boston Corporation. However, Credit Suisse First Boston Corporation may, in its sole discretion, release all or any portion of the common stock from the restrictions of the lock-up agreements. The following table indicates approximately when the 24,655,168 shares of our common stock that are not being sold in the offering but which were outstanding as of September 30, 1999 will be eligible for sale into the public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET -------------------------------- On the date of this prospectus..................... 451,896 180 days after the date of this prospectus......... 24,075,572 At various times after the date of this prospectus....................................... 127,700
15 21 Additionally, of the 2,605,031 shares issuable upon exercise of options to purchase our common stock outstanding as of September 30, 1999, approximately 771,378 shares will be vested and eligible for sale 180 days after the date of this prospectus. For a further description of the eligibility of shares for sale into the public market following the offering, see "Shares Eligible for Future Sale." MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DECREASE OUR MARKET VALUE. We intend to use the net proceeds from the sale of our common stock for general corporate purposes, including capital expenditures, manufacturing scale-up, product development and technology research. In addition, although we do not have any current plans to do so, if an opportunity presents itself we could use the net proceeds for the acquisition of or investment in companies, technologies or assets that complement our business. We have not determined how the proceeds will be allocated among the anticipated uses. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering and investors will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that decrease our market value. Until the proceeds are needed, we plan to invest them in short-term, investment-grade, interest-bearing securities. The failure of management to apply these funds effectively could harm our business. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should" or "will" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results, unless required by law. 16 22 USE OF PROCEEDS Our net proceeds from the sale of the shares of common stock we are offering, at an assumed initial public offering price of $ per share, are estimated to be approximately $ after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds for general corporate purposes, including capital expenditures, manufacturing scale-up, product development and technology research. The amounts and timing of our actual expenditures will depend upon numerous factors, including the status of our product development and commercialization efforts, the amount of proceeds actually raised in this offering, the amount of cash generated by our operations, competition, and sales and marketing activities. We may also use a portion of the proceeds for the acquisition of, or investment in, companies, technologies or assets that complement our business. However, we have no present understandings, commitments or agreements with respect to any potential acquisitions and investments. Further, we have not determined the amounts we plan to spend on any of the areas listed above or the timing of these expenditures. As a result, our management will have broad discretion to allocate the net proceeds from this offering. Pending application of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY We have never paid any cash dividends on our capital stock. We currently anticipate that we will retain earnings to support operations and to finance the growth and development of our business and do not anticipate paying cash dividends for the foreseeable future. 17 23 CAPITALIZATION The following table sets forth the following information: - Our actual capitalization as of September 30, 1999 - Our pro forma capitalization after giving effect to the conversion of all outstanding shares of preferred stock into common stock upon the closing of this offering - Our pro forma as adjusted capitalization after giving effect to the sale of the shares of common stock offered by us at an assumed initial public offering price of $ per share, less the underwriting discounts and commissions and estimated offering expenses This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and notes appearing elsewhere in this prospectus.
SEPTEMBER 30, 1999 -------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Long-term obligations, less current portion............... $ 3,483 $ 3,483 $ 3,483 -------- -------- -------- Redeemable convertible preferred stock, $0.001 par value; 19,579,039 shares authorized, 18,257,756 shares issued and outstanding, actual; no shares authorized or outstanding pro forma and pro forma as adjusted......... 50,538 -- -- -------- -------- -------- Stockholders' equity (deficit): Convertible preferred stock, $0.001 par value; 1,420,961 shares authorized, 1,293,462 shares issued and outstanding, actual; 5,000,000 shares authorized, no shares issued and outstanding pro forma and pro forma as adjusted.......................................... 1 -- -- Common stock, $0.001 par value; 32,000,000 shares authorized, 5,103,950 shares issued and outstanding, actual; 70,000,000 shares authorized pro forma and pro forma as adjusted, 24,655,168 shares issued and outstanding pro forma, shares issued and outstanding pro forma as adjusted.................... 5 25 Additional paid-in capital................................ 8,872 59,391 Deferred stock compensation............................... (5,858) (5,858) (5,858) Accumulated deficit....................................... (28,282) (28,282) (28,282) -------- -------- -------- Total stockholders' equity (deficit).................... (25,262) 25,276 -------- -------- -------- Total capitalization................................. $ 28,759 $ 28,759 $ ======== ======== ========
This table excludes the following shares: - 2,605,031 shares issuable upon exercise of options outstanding as of September 30, 1999 at a weighted average exercise price of $0.52 per share - 3,133,129 additional shares that we could issue under our stock option plans, of which options to purchase 903,700 shares of common stock were granted in October 1999 at an exercise price of $2.00 per share - 450,000 shares that we could issue under our employee stock purchase plan - 116,229 shares issuable upon exercise of warrants outstanding as of September 30, 1999 at a weighted average exercise price of $0.78 per share 18 24 DILUTION The pro forma net tangible book value of our common stock on September 30, 1999, after giving effect to the conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering, was approximately $25.3 million, or approximately $1.03 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the number of shares of common stock outstanding. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of our common stock immediately afterwards. Assuming our sale of shares of common stock offered by this prospectus at an assumed initial public offering price of $ per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our net tangible book value at September 30, 1999 would have been approximately $ million or $ per share. This represents an immediate decrease in net tangible book value of $ per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share at September 30, 1999.................................... $1.03 Increase per share attributable to new investors....... ----- Pro forma net tangible book value per share after this offering.................................................. -------- Dilution per share to new investors......................... $ ========
The following table summarizes, on a pro forma basis, as of September 30, 1999, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by the new investors purchasing shares in this offering. We have assumed an initial public offering price of $ per share, and we have not deducted estimated underwriting discounts and commissions and estimated offering expenses in our calculations.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE --------------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- --------- Existing stockholders.................. 24,655,168 % $43,753,000 % $1.77 New investors.......................... ---------- ----- ----------- ----- Total............................. 100.0% $ 100.0% ========== ===== =========== ===== =====
The foregoing discussion and tables assume no exercise of any outstanding stock options or warrants. The exercise of options outstanding under our stock option plans or warrants having an exercise price less than the offering price would increase the dilutive effect to new investors. See "Capitalization," "Management -- Employee Benefit Plans" and "Description of Capital Stock." If the underwriters exercise their over-allotment in full, the following will occur: - the number of shares of common stock held by existing stockholders will decrease to approximately % of the total number of shares of our common stock outstanding - the number of shares held by new investors will increase to , or approximately % of the total number of our common stock outstanding after this offering 19 25 SELECTED FINANCIAL DATA The statements of operations data for each of the years ended December 31, 1996, 1997 and 1998, and the balance sheet data as of December 31, 1997 and 1998, have been derived from our audited financial statements included elsewhere in this prospectus which have been audited by Ernst & Young LLP, independent auditors. The statements of operations data for the nine months ended September 30, 1998 and 1999, and the balance sheet data as of September 30, 1999, have been derived from our unaudited financial statements included elsewhere in this prospectus. The balance sheet data as of December 31, 1996 have been derived from our audited financial statements not included in this prospectus. The statements of operations data for the period from inception (July 26, 1995) through December 31, 1995 and the balance sheet data at December 31, 1995 have been derived from our unaudited financial statements not included in this prospectus. Our historical results are not necessarily indicative of results to be expected for any future period. The data set forth below have been derived from financial statements that have been prepared in accordance with generally accepted accounting principles and should be read in conjunction with our financial statements, including the notes, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
PERIOD FROM INCEPTION NINE MONTHS (JULY 26, 1995) YEAR ENDED ENDED THROUGH DECEMBER 31, SEPTEMBER 30, DECEMBER 31, --------------------------- ----------------- 1995 1996 1997 1998 1998 1999 --------------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Revenue....................................... $ -- $ 132 $ 2,266 $ 8,155 $ 4,425 $ 8,859 Costs and expenses: Research and development.................... 406 2,734 7,200 9,584 7,232 12,228 General and administrative.................. 128 1,240 2,478 2,932 1,996 3,487 Amortization of deferred stock compensation.............................. -- -- -- -- -- 1,997 Acquired in-process research and development............................... -- 978 -- -- -- -- ------ ------- ------- ------- ------- ------- Total costs and expenses...................... 534 4,952 9,678 12,516 9,228 17,712 ------ ------- ------- ------- ------- ------- Operating loss................................ (534) (4,820) (7,412) (4,361) (4,803) (8,853) Interest income (expense), net................ (2) 110 1,131 1,386 1,058 801 ------ ------- ------- ------- ------- ------- Net loss...................................... (536) (4,710) (6,281) (2,975) (3,745) (8,052) Accretion on redeemable convertible preferred stock....................................... -- (262) (1,470) (2,174) (1,587) (1,822) ------ ------- ------- ------- ------- ------- Net loss attributable to common stockholders................................ $ (536) $(4,972) $(7,751) $(5,149) $(5,332) $(9,874) ====== ======= ======= ======= ======= ======= Net loss per common share, basic and diluted..................................... $(1.10) $ (2.50) $ (2.81) $ (1.53) $ (1.63) $ (2.36) ====== ======= ======= ======= ======= ======= Shares used in computing net loss per common share, basic and diluted.................... 488 1,987 2,758 3,365 3,275 4,187 Pro forma net loss per share, basic and diluted (unaudited)......................... $ (0.13) $ (0.34) ======= ======= Shares used in computing pro forma net loss per share, basic and diluted (unaudited).... 22,381 23,738
DECEMBER 31, ------------------------------------- SEPTEMBER 30, 1995 1996 1997 1998 1999 ----- ------- -------- -------- ------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and marketable securities....... $ 40 $12,450 $ 26,549 $ 31,052 $ 27,820 Working capital........................................ 74 11,783 24,679 30,074 23,278 Total assets........................................... 83 13,112 29,107 35,730 34,658 Long-term obligations, less current portion............ -- 417 1,430 2,008 3,483 Redeemable convertible preferred stock................. -- 16,913 38,283 48,716 50,538 Total stockholders' deficit............................ (536) (4,986) (12,665) (17,654) (25,262)
The increase in net loss attributable to common stockholders due to accretion on redeemable convertible preferred stock will not occur after this offering because all of the outstanding preferred stock will be converted to common stock at the closing of the offering. See Note 1 of notes to our financial statements for an explanation of the determination of the number of shares used in computing per share data. 20 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Financial Data" and our financial statements and notes included elsewhere in this prospectus. The discussion in this prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this prospectus. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed in "Risk Factors," as well as those discussed elsewhere herein. See "Risk Factors" and "Special Note Regarding Forward-Looking Statements." OVERVIEW We are a leader in lab-on-a-chip technologies that miniaturize, integrate and automate many laboratory processes. We develop, manufacture and sell our proprietary LabChip systems to pharmaceutical and other companies. We believe our LabChip systems have the potential to assemble the power and reduce the scale of entire laboratories full of equipment and people. From inception in July 1995 through September 1999, our operating activities were primarily devoted to research and development of microfluidic technologies and first- generation products, recruiting personnel, business development, raising capital and acquiring assets. In the first half of 1999, we recognized revenue from our first product sales when we sold initial versions of our high throughput system for drug screening to two of our technology access program customers. In addition, in September 1999, Hewlett-Packard, our commercial partner, introduced our first LabChip system for use by individual researchers. Since our inception, we have incurred significant losses and, as of September 30, 1999, we had an accumulated deficit of $28.3 million, which includes $5.7 million of accretion on redeemable convertible preferred stock. Our losses have resulted principally from costs incurred in research and development, manufacturing scale-up, and from general and administrative costs associated with our operations. We expect to continue to incur substantial research and development, manufacturing scale-up, and general and administrative costs. As a result, we will need to generate significantly higher revenue to achieve profitability. Our quarterly operating results will depend upon many factors, including market acceptance of our products, the success and timing of signing new customers to our technology access program, the introduction of new products by our competitors, the timing of commercial availability of new applications for our LabChip technology, and the timing and extent of our research and development efforts. For a more complete discussion of factors that could cause our quarterly operating results to vary, see "Risk Factors -- Our operating results fluctuate significantly and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our stock price." Our revenue has been derived principally from contract revenue earned under our collaboration agreement with Hewlett-Packard and from our technology access program customers. To a lesser extent, we have derived revenue from the sale of products and government grants. Although we are developing and plan to introduce future products, we cannot assure you that we will be successful in these efforts. To date, we have generated a substantial portion of our revenue from a limited number of sources. Our three technology access program customers, Hoffmann-La Roche, Amgen and Eli Lilly, and our commercial partner, Hewlett-Packard, collectively accounted for 91% of our revenue in the nine months ended September 30, 1999. Hoffmann-La Roche, Amgen and Hewlett-Packard collectively accounted for 97% of our revenue in the year ended December 31, 1998, and Hoffman-La Roche alone accounted for 94% of our revenue in the year ended December 31, 1997. Although we are seeking to expand our customer base, we cannot assure you that these efforts will be successful. Under our agreement, Hewlett-Packard funds our research and development expenditures related to the collaboration, reimburses us for our costs of supplying chips and reagents to Hewlett-Packard and pays us a share of the gross margin earned on all components of LabChip systems they sell. We recognize 21 27 revenue related to research and development funding received from Hewlett-Packard as we actually conduct the related activities. We recognize revenue related to the reimbursement of our costs of supplying chips and reagents to Hewlett-Packard when we ship these products. We expect to recognize revenue from our share of the gross margin earned on all components of LabChip systems as Hewlett-Packard ships these products. Under our technology access program agreements, we recognize as revenue non-refundable license fees upon the transfer of a license, subscription fees over the term of the subscription, product sales upon the transfer of title to the customer, and development and support fees in the period in which the costs are incurred. Payments received in advance under all of these agreements are recorded as deferred revenue until earned. As of September 30, 1999, a total of $2.4 million of revenue was deferred. We expect to recognize this deferred revenue through the third quarter of year 2000. RESULTS OF OPERATIONS Nine Months Ended September 30, 1999 and 1998 Revenue. Revenue increased to $8.9 million for the nine months ended September 30, 1999 from $4.4 million for the comparable period in 1998. The increase is due to revenue derived from our technology access program customers, each of which did not become a technology access program customer until after the nine months ended September 30, 1998, and revenue resulting from our collaboration with Hewlett-Packard, which began in May 1998. Research and Development Expenses. Research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers, material costs for prototype and test units, and other expenses related to the design, development, testing, and enhancement of our products. We expense our research and development costs as they are incurred. Research and development expenses increased to $12.2 million during the nine months ended September 30, 1999 from $7.2 million in the comparable period in 1998. The increase of $5.0 million was attributable to continued growth of research and development activities, including $3.0 million related to increased personnel and services to support our technology access program and initial product launches, and $1.6 million related to higher operating expenses as a result of our move to a larger facility in January 1999. We expect research and development spending to increase significantly over the next several years as we expand our research and product development efforts. General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruiting expenses, professional fees, and other corporate expenses including business development and general legal activities. General and administrative expenses increased to $3.5 million during the nine months ended September 30, 1999 from $2.0 million in the comparable period in 1998. The increase of $1.5 million was due to $790,000 related to compensation for general and administrative personnel and $298,000 related to higher operating expenses as a result of our move to a larger facility in January 1999. We expect general and administrative expenses to continue to increase over the next several years to support our growing business activities, the commercialization of our products, and due to the costs associated with operating a public company. Amortization of Deferred Stock Compensation. Deferred stock compensation represents the difference between the deemed fair value of our common stock for accounting purposes and the exercise price of options at the date of grant. During the year ended December 31, 1998 and the nine months ended September 30, 1999, we recorded deferred stock compensation totaling $7.9 million. We anticipate that additional deferred compensation totalling $4.7 million will be recorded for options granted in October 1999. These amounts are being amortized over the respective vesting periods of the individual stock options using the graded vesting method. We recorded amortization of deferred compensation of $2.0 million for the nine months ended September 30, 1999. We expect to record amortization expense for deferred compensation as follows: $1.8 million during the quarter ended December 31, 1999, $4.3 million during 2000, $2.4 million during 2001, $1.4 million during 2002, $630,000 during 2003 and $112,000 during 2004. The amount of deferred 22 28 compensation expense to be recorded in future periods may decrease if unvested options for which deferred compensation has been recorded are subsequently canceled. Interest Income (Expense), Net. Net interest income consists of income from our cash and investments offset by expenses related to our financing obligations. Interest income decreased to $801,000 in the nine months ended September 30, 1999 from net interest income of $1.1 million in the comparable period of 1998. This decrease resulted from a declining cash and investment balance due to cash used in operating activities and from higher financing obligation balances. Income Taxes. As of December 31, 1998, we had federal and California net operating loss carryforwards of approximately $10.3 million and $1.4 million. We also had federal research and development tax credit carryforwards of approximately $700,000. The net operating loss and credit carryforwards will expire at various dates beginning on 2002 through 2018, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial limitation 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 1997, we had deferred tax assets of approximately $6.3 million and $5.3 million. The net deferred tax asset has been fully offset by a valuation allowance. The net valuation allowance increased by $1 million during the year ended December 31, 1998. Deferred tax assets relate primarily to net operating loss carryforwards, research credit carryforwards, and capitalized research and development costs. Years Ended December 31, 1998 and 1997 Revenue. Revenue increased to $8.2 million in 1998 from $2.3 million in 1997. The increase was primarily due to revenue received through the collaboration agreement with Hewlett-Packard entered into in May 1998, and revenue received through technology access program agreements with Hoffmann-La Roche and Amgen, which we entered into at the end of 1998. Research and Development Expenses. Our research and development expenses increased to $9.6 million in 1998 from $7.2 million in 1997. The increase of $2.4 million was due to $1.4 million related to compensation for additional scientific personnel and $503,000 was due to supplies required to assemble, build and test prototypes of LabChip systems. General and Administrative Expenses. General and administrative expenses increased to $2.9 million in 1998 from $2.5 million in 1997. The increase was due to hiring of additional personnel to support our growing business activities. Interest Income (Expense), Net. Net interest income increased to $1.4 million in 1998 from $1.1 million in 1997. This increase was due to increases in cash and investment balances as a result of our equity financing in May 1998. Years Ended December 31, 1997 and 1996 Revenue. Revenue increased to $2.3 million in 1997 from $132,000 in 1996. The increase was due primarily to increased efforts devoted to our previous collaboration agreement with Hoffmann-La Roche that was executed in October 1996 and a research agreement with Perkin Elmer, each of which has since expired. Research and Development Expenses. Our research and development expenses increased to $7.2 million in 1997 from $2.7 million in 1996. The increase of $4.5 million was due to $1.6 million in compensation for research and development personnel, $1.5 million was due to sponsored research, and $554,000 was related to higher operating expenses as a result of our move to a larger facility in May 1997. General and Administrative Expenses. General and administrative expenses increased to $2.5 million in 1997 from $1.2 million in 1996. The increase was due to $933,000 in compensation and fees for additional general and administrative personnel and consultants. 23 29 Interest Income (Expense), Net. Net interest income increased to $1.1 million in 1997 from $110,000 in 1996. This increase was due to an increase in our cash and investment balances from the proceeds of our equity financings in the first half of 1997. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations from inception primarily through private sales of preferred stock, contract and milestone payments to us under our collaboration and technology access program agreements, and equipment financing arrangements. As of September 30, 1999, we had received net proceeds of $43.8 million from issuances of common and preferred stock and $21.4 million from collaborations, technology access program customers and government grants. In addition, through September 30, 1999 we had financed equipment purchases and leasehold improvements totaling approximately $6.3 million. We have used leases and loans to finance capital expenditures. As of September 30, 1999, we had $27.8 million in cash, cash equivalents and marketable securities, as compared to $31.1 million as of December 31, 1998. We used $2.2 million for operations in the nine months ended September 30, 1999. This consisted of the net loss for the period of $8.1 million offset in part by non-cash charges of $2.9 million and working capital changes of $3.2 million. We used $3.0 million in investing activities for the nine month period ended September 30, 1999, which consisted of capital expenditures. We received $2.0 million from financing activities for the nine months ended September 30, 1999, which consisted principally of proceeds from equipment financing of $2.5 million offset by repayments of equipment financing arrangements of $821,000. In January 1999 we entered into a $2.5 million financing arrangement for the purchase of property and equipment. As of September 30, 1999, we had drawn down approximately $752,000 and had $1.7 million remaining available under this arrangement. As of September 30, 1999, we had $4.6 million in capitalized lease obligations outstanding compared to $2.9 million at December 31, 1998. Our capital requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. We expect to devote substantial capital resources to continue our research and development efforts, to expand our support and product development activities, and for other general corporate activities. Although we believe that our current cash balances, together with the net proceeds of this offering and revenue to be derived from our collaboration with Hewlett-Packard and our technology access program agreements will be sufficient to fund our operations at least through the year 2000, we may require additional financing earlier than expected. Such additional funding may not be available on terms acceptable to us or at all. 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" 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 AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." 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 September 30, 1999, we had not capitalized any cost related to internal use software. 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 the 24 30 securities that we invest in may be subject to 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 securities, including commercial paper, money market funds, government and non-government debt securities. The average duration of all of our investments in 1998 was less than one year. Due to the short term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is required. We have operated primarily in the United States and all sales to date have been made in U.S. dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations. YEAR 2000 READINESS The "Year 2000 issue" refers generally to the problems that some software may have in determining the correct century for the year. For example, software with date-sensitive functions that is not Year 2000 compliant may not be able to distinguish whether "00" means 1900 or 2000, which may result in failures or the creation of erroneous results. We designed the HP 2100 Bioanalyzer to be Year 2000 compliant when configured and used in accordance with the related documentation, and provided that the underlying operating system of the host machine and any other software used with or in the host machine or our product are Year 2000 compliant. However, we have not exhaustively tested our other products for Year 2000 compliance. We continue to respond to customer questions about our products. We have defined Year 2000 compliance as the ability to: - correctly handle date information needed for the December 31, 1999 to January 1, 2000 date change - function according to the product documentation provided for this date change, without changes in operation resulting from the advent of a new century, assuming correct configuration - respond to two-digit date input in a way that resolves the ambiguity as to century in a disclosed, defined and predetermined manner - store and provide output of date information in ways that are unambiguous as to century if the date elements in interfaces and data storage specify the century - recognize year 2000 as a leap year We are seeking assurances from our vendors that licensed software is Year 2000 compliant. To date, we have received assurances from some of our vendors as to their Year 2000 compliance. Despite testing by us and current and potential customers, and assurances from developers of products incorporated into our products, our products may contain undetected errors or defects associated with Year 2000 date functions. Known or unknown errors or defects in our product could result in delay or loss of revenues, diversion of development resources, damage to our reputation, increased service and warranty costs, or liability from our customers, any of which could harm our business. Some commentators have predicted significant litigation regarding Year 2000 compliance issues. Because of the unprecedented nature of this litigation, it is uncertain whether or to what extent we may be affected by it. Congress recently passed a law that is intended to limit liability for some failures to achieve Year 2000 compliance. There can be no assurance that this bill will provide us with any protection. We have initiated an assessment of our material internal information technology systems, including both our own software products and third-party software and hardware technology. We are in the process of assessing our non-information technology systems. We expect to complete our assessment and testing and perform any needed remediation of these systems by December 1999. To the extent that we are not 25 31 able to test the technology provided by third-party vendors, we are seeking assurances from these vendors that their systems are Year 2000 compliant. We are not currently aware of any material operational issues or costs associated with preparing our internal information technology and non-information technology systems for the Year 2000. However, we may experience material unanticipated problems and costs caused by undetected errors or defects in the technology used in our internal information technology and non-information technology systems. We do not currently have any information concerning the Year 2000 compliance status of our customers. Our current or future customers may incur significant expenses to achieve Year 2000 compliance. If our customers are not Year 2000 compliant, they may experience material costs to remedy problems, or they may face litigation costs. In either case, Year 2000 issues could reduce or eliminate the budgets that current or potential customers could have for or delay purchases of our products and services. As a result, our business could be harmed. We have funded our Year 2000 plan from operating cash flows and have not separately accounted for these costs in the past. To date, these costs have not been material. We will incur additional costs related to the Year 2000 plan for administrative personnel to manage the project, outside contractor assistance, technical support for our products, product engineering and customer satisfaction. In addition, we may experience material problems and costs with Year 2000 compliance that could harm our business. We do not have a contingency plan to address situations that may result if our critical operations are not Year 2000 compliant, and we do not anticipate the need to do so. The cost of developing and implementing the plan may itself be material. In addition, we are also subject to external forces that might generally affect industry and commerce, including utility or transportation company Year 2000 compliance failure interruptions. Year 2000 issues affecting our business, if not adequately addressed by us, our third party vendors or suppliers or our customers, could have a number of "worst case" consequences. These include: - claims from our customers asserting liability, including liability for breach of warranties related to the failure of our product and services to function properly, and any resulting settlements or judgments - our inability to manage our own business 26 32 BUSINESS OVERVIEW We are a leader in lab-on-a-chip technologies. We believe our LabChip systems can assemble the power and reduce the size of entire laboratories full of equipment and people. Our LabChip systems miniaturize, integrate and automate many laboratory processes, and put them on a chip that can fit in the palm of a child's hand. Each chip contains a network of microscopic channels through which fluids and chemicals are moved, using electricity or pressure, in order to perform experiments. The chips are the key components of our LabChip systems, which also include reagents as well as instruments and software that together control and read the chips. We believe our LabChip systems have the potential to revolutionize experimentation in a wide range of industries by enabling individuals and organizations to perform laboratory experiments at a speed, cost and scale previously unattainable. Our initial commercialization focus is the pharmaceutical industry, where there is an urgent need to improve the efficiency and reduce the cost of drug discovery and development. Future target industries potentially include agriculture, clinical diagnostics, chemicals and consumer products. We believe that we are the first company to sell and deliver lab-on-a-chip products to customers. During 1999 we introduced our first two LabChip systems, a personal laboratory system and a high throughput system. INDUSTRY BACKGROUND Laboratory Technology The pharmaceutical, agriculture, clinical diagnostics and chemical industries, among others, rely on laboratory experimentation to obtain important information that can be used to discover and develop new products. Despite the critical value of laboratory results to these industries, improvements to the basic processes and tools used in laboratory experiments have only been incremental and have not kept pace with technological advances in other industries, including electronics and computing. Laboratory work still relies on manual steps and tools, such as test tubes and beakers, and large pieces of equipment that utilize technology that is decades old. These tools and processes are expensive, labor-intensive and often imprecise, presenting significant productivity and efficiency challenges for these industries. New processes and tools are needed to enable individual researchers and organizations to work more productively and efficiently. This need has been recognized and some improvements have been made. In an attempt to increase speed and reduce costs in many laboratory experiments, researchers have replaced test tubes with 96-well plates designed to facilitate parallel experimentation. Further attempts to reduce costs have led researchers to use miniaturization to replace the 96-well plate with 384- and 1536-well plates. To enhance efficiency, some suppliers have integrated multiple pieces of equipment into one large piece of equipment. Organizations that perform high value, high volume experimentation have attempted to automate processes by using liquid-handling robotics to improve the quality and quantity of data achieved in centralized testing. While these and other advances have helped researchers to work faster and more efficiently, they still represent only incremental, not revolutionary, improvements because they continue to rely on time-consuming, imprecise and labor-intensive processes that can create bottlenecks throughout the entire experimental process. A Need for Better Laboratory Technology in the Pharmaceutical Industry Industry experts predict that pharmaceutical companies will spend more than $30 billion in the year 2000 for research and development of new pharmaceuticals. Pharmaceutical companies have realized that to stay competitive and meet their goals for growth they will have to increase significantly the number of new drugs they introduce each year. To achieve this, pharmaceutical companies have found that they will have to engage in experimentation on a massive scale. Pharmaceutical companies' investment in genomics and combinational chemistry are examples of this decision. These activities are generating a wealth of potential targets and new compounds to be tested and offer the opportunity to discover many new drugs. However, they also create a technological quandary: how to perform significantly more experiments, in less 27 33 time, without unacceptable increases in research and development spending. We believe that recent incremental advances in laboratory technology are not enough to enable pharmaceutical companies to achieve their growth targets. New technologies are needed to improve the volume and quality of information generated in each stage of the drug discovery process, while simultaneously reducing the cost of experimentation. THE STAGES OF PHARMACEUTICAL DISCOVERY Target identification involves acquiring knowledge about the role a particular molecule, usually a protein, plays in the body in order to determine whether it might be a good target for further investigation. Today, this activity is most often initiated with genomics studies, in particular by DNA sequencing, RNA analysis and genetic mapping. Target validation is the demonstration that affecting the function of a particular target has a positive effect on the course of a disease. Target validation employs a variety of methods including RNA analysis, protein analysis and cell biology. Primary screening involves the large-scale testing of collections of chemical compounds, or libraries, against validated targets. The goal is to find "hits," or individual members of the compound library that bind to, inhibit, or activate a particular target. These libraries are tested using high throughput biochemical or cellular assays. The major pharmaceutical companies are moving towards screening up to 100 targets annually with libraries of up to one million compounds. Lead optimization involves sorting through the compounds that emerge from the primary screen and conducting successive rounds of chemical alterations and biological tests to find compounds likely to have appropriate drug properties. Like target validation, lead optimization involves a variety of methods, including protein analysis, cell biology, chemical synthesis, as well as high throughput biochemical or cellular assays. This stage also involves the testing of compounds for therapeutic activity in animal models of disease. Preclinical development involves testing of compounds to assure that they are safe, have appropriate distribution throughout the body and are appropriately metabolized. Formulation tests to ensure convenient delivery to patients are performed, as are tests to ensure that the compounds can be manufactured with consistent quality. Clinical development is the testing of pharmaceutical compounds in humans to demonstrate their safety and efficacy. Because clinical trials are the most expensive part of drug development, pharmaceutical companies are trying to improve the outcomes of clinical trials by using "pharmacogenetics." Pharmacogenetics entails understanding how genetic differences determine or predict responsiveness or adverse reactions to particular drugs. In order to use pharmacogenetics in a clinical trial, each patient in the trial will need his genetic make-up analyzed. This could entail analysis of approximately 100,000 different sites in a patient's DNA. For a 1,000 patient trial, this would require generating approximately 100 million data points. The drug discovery process can be summarized by the six stages described above. In each of these stages, researchers face many productivity bottlenecks due to the limitations of current laboratory technologies. Individual researchers conducting even the simplest, most common experiments must often perform labor-intensive, time-consuming, multi-step processes on multiple pieces of equipment. For example, to analyze DNA, researchers typically extract the DNA from specimens, treat the DNA with chemical reagents, pour gels and mount them in equipment to separate the DNA, load the samples into the gel, activate the gel for a precise period of time, process the gel to reveal the location of the DNA, 28 34 and image or scan the gel to see the results. The whole process takes approximately half a day and produces only a few dozen data points of genetic information. Thousands of pharmaceutical company researchers perform this experiment on a routine basis. Even "automated" experiments, such as high throughput screening, are still laborious and time-consuming. For example, to perform one high throughput screen, researchers typically need to remove thousands of compounds from storage, transfer small amounts of compounds to hundreds of new plates, add fluid to dilute them, transfer a portion of the diluted compound to another set of plates, add other reagents, move the plates to an incubation station, incubate the mixture for a precise period of time, transfer the plates to a detection instrument, scan the plates to see the results, and then discard all the plates. The whole process can take a team of researchers one to four weeks, and has to be repeated to test the same compounds against the next pharmaceutical target. As currently performed, these processes are not well suited to the massive scale-up we believe pharmaceutical companies are seeking. The number of people and pieces of equipment required would be unmanageable. More importantly, data quality has often suffered as companies have tried to implement higher throughput versions of existing procedures, such as 384-well plates in place of 96-well plates. Pharmaceutical companies need a breakthrough in tools for experimentation to free scientists from the limitations of current technology. A Broad Need Across Industries for New Laboratory Technology Other industries dependent upon biological and chemical information face technology challenges similar to those facing the pharmaceutical industry. The agricultural-biotechnology industry, for example, is adopting many of the same research strategies used by the pharmaceutical industry, including genomics, screening and combinatorial chemistry. In addition, the multi-billion dollar clinical diagnostics industry continues to search for miniaturized and automated equipment solutions that will facilitate patient point-of-care testing, as well as high throughput, automated analysis platforms for use in centralized reference laboratories. In these and other industries, technology for laboratory experimentation is limiting the ability to access information about chemicals and biochemicals, and therefore is limiting companies' ability to transform that information into novel and commercially valuable products. CALIPER SOLUTIONS We believe that our LabChip technology represents a revolutionary advance in laboratory experimentation needed by the pharmaceutical and other industries today. The chips are the key components of our LabChip systems that also include a particular LabChip instrument together with experiment-specific reagents and software. Our chips contain a network of microscopic channels through which fluids and chemicals are moved to perform experiments. A single type of chip used with particular reagents and software to perform a particular experiment make up one LabChip application. Depending on the chip format, reagents are introduced either automatically or by the user. The chip is placed in the instrument, which uses software to control the movement of fluids with pressure or electricity. The instrument also has an optical system for detecting the results. Because we have great flexibility in channel design and can exert split-second computer control over fluid flow, we have the ability to create chips for a multitude of experiments. Our LabChip systems miniaturize, integrate and automate fluidic experimentation providing, we believe, the benefits of high speed, reduced cost, expanded individual researcher capability, improved data accuracy and improved enterprise-wide productivity. Features of LabChip Systems - Miniaturization. Conventional laboratory equipment typically uses about a drop of fluid, or 50 to 100 microliters, to perform each experiment. In some LabChip applications, this volume is reduced to 1 nanoliter, an improvement of up to 100,000-fold over conventional systems. - Integration. Integration is the compression of multiple processes into a single process. Today most laboratory systems perform only one or two steps of an experimental protocol. Our LabChip 29 35 systems can integrate complete experiments involving half a dozen or more steps into one continuous process performed on a single chip. - Automation. Today most laboratory experiments are performed using multiple instruments in combination with multiple manual steps. With our LabChip systems, entire experiments can be automated and performed inside a chip using one instrument. The same instrument is used with different chips to perform other automated experiments. MINIATURIZATION, INTEGRATION AND AUTOMATION ON A SIPPER CHIP [This illustration is an actual schematic of a current Sipper chip that can be used to prepare drug samples for analysis and to determine their potency, all on the same high throughput chip. The specific functions that are part of this experiment, and where they take place on the chip, are described in the caption.] Above is a schematic of a Sipper chip that can be used to prepare drug samples for analysis and to determine their potency at high throughput. This is an example of one of the many types of complicated experiments that our chips can perform, which would normally be performed in a laboratory full of people and equipment. Potency studies are done by diluting a drug into different concentrations and testing each one for its effect on a pharmaceutical target. Higher potency drugs will reduce target activity even at low concentrations. Potency provides critical information for determining the quality of a drug candidate. We expect to make this chip commercially available in the first half of the year 2000. A one nanoliter drug sample, 1/50,000th of a drop, is drawn into the chip through a capillary attached at point (a). In assembly line fashion, a different drug enters the chip every 30 seconds, and multiple experiments are processed on the chip simultaneously. Each nanoliter is divided sequentially into four portions (b), each of which contains ten times less than the previous portion. Each portion is then diluted with an appropriate solution to restore the original volume of sample and achieve four different concentrations (c). Each of the four diluted drug samples is then mixed with the target (d), and later, another reagent (e), and incubated for precisely the same amount of time (f), to enable direct comparison of the results which are detected on all reactions simultaneously (g). Key Benefits of LabChip Systems - High Speed. Our LabChip systems accelerate experiments as much as 10-fold or more, depending on the application. Our customers can take advantage of this to increase throughput or to complete experiments faster, depending on their needs. 30 36 - Reduced Cost. Our LabChip systems use only a small fraction of the normal amount of expensive reagents, as little as 1/100,000th in some cases, and also reduce labor involved in each experiment. Saving on reagent cost and labor can enable pharmaceutical companies to expand the scale of experimentation in ways that would otherwise not be feasible. - Expanded Individual Researcher Capability. Because our LabChip systems can collapse a multi-step, complex experiment into one step, individual researchers can perform experiments previously outside their areas of expertise. - Improved Data Accuracy. Our LabChip systems generally produce more accurate and consistent data by reducing human error and the variability caused by the use of multiple instruments. With higher quality data, our customers can make better decisions. - Improved Enterprise-Wide Productivity. We believe our LabChip systems can improve data quality to the point where researchers can rely on data generated outside their laboratory or organization. This would improve enterprise-wide productivity by supporting data sharing and reducing the need to repeat experiments. We believe that our LabChip systems have the potential to expand the capabilities and improve the productivity of individual researchers and, on an institutional level, to streamline and bring greater efficiency and speed to the drug discovery and development process. Efficiency, speed and faster decision- making provide critical competitive advantages. The faster pharmaceutical companies can identify and validate targets, screen massive numbers of compounds, optimize leads and identify promising compounds to take into clinical development, the greater their chances of seeing a return on investment for their research and development dollars. LabChip technology has the potential to reduce the time it takes to discover and commercialize new drugs. In the future, we believe we can bring similar benefits to other industries. STRATEGY Our objective is to be the leading lab-on-a-chip company. Key elements of our strategy to achieve this objective include: Focus on the Pharmaceutical Industry First. We are focusing on developing our LabChip systems for the pharmaceutical industry, where the investment in research and development is large and growing and the need for new technologies to improve research and development efficiency is urgent. We are addressing the need for enhanced productivity for individual pharmaceutical researchers with our first LabChip personal laboratory system, featuring the HP 2100 Bioanalyzer, developed in collaboration with Hewlett-Packard. We also have developed a high throughput system for use by pharmaceutical companies for drug screening. We are developing ultra high throughput systems and new chip applications to bring greater efficiency to the drug discovery process. Rapidly Build Our Installed Customer Base. We intend to take advantage of our first-to-market position to rapidly build our installed customer base. Our goal is to increase customer familiarity with lab-on-a-chip technology and to establish our LabChip systems as the platform of choice. Our strategy is to offer products for applications that are practiced widely and to bring LabChip technology to market through the combination of a major commercialization partnership and direct selling. Our first commercial collaborator, Hewlett-Packard, is an established leader in analytical instrumentation and has initiated a multi-faceted sales and marketing campaign designed to achieve wide penetration. Our direct selling strategy is focused primarily on large pharmaceutical companies and is designed to encourage early adoption of our LabChip systems through our technology access program. Leverage Our Installed Customer Base by Expanding the Menu of Chip Applications. A significant portion of our internal research and development efforts is dedicated to new chip applications development. We intend to expand our menu of chip applications and sell them to customers that have already purchased LabChip instruments. For example, we are developing LabChip applications for genomics to bring significant advances in functionality to this technology-hungry area. We also intend to expand current 31 37 markets by implementing a LabChip instrumentation "operating system" strategy that encourages other companies, such as reagent manufacturers, to develop compatible products that can operate with our chips. Generate Recurring Revenue From High-Value Chips. We expect to generate recurring revenue from the sale of single-use chips for the HP 2100 Bioanalyzer. In addition, we intend to value price the chips for our high throughput systems to reflect the cost savings and other benefits that our customers may achieve, possibly through per data point pricing. While we are focused on generating revenues from the sale and use of our chips, we also will receive revenue from the sale of the HP 2100 Bioanalyzer, software and reagents. We also intend to generate recurring revenue from our technology access program through license fees and ongoing subscription fees as well as through the sale of instruments. Build a Substantial Intellectual Property Estate. We pursue an intellectual property strategy of licensing important patents and pursuing patent protection for our own inventions. As of September 30, 1999, we owned, or held licenses to, 34 issued U.S. patents and 120 pending U.S. patent applications. These patents and applications are directed to various technological areas that we believe are valuable to our business. We believe that maintaining a deep and broad intellectual property estate will be an important competitive advantage. Maintain Leadership in Chip Technology and Manufacturing. We believe that our long-term success will derive from maintaining leadership in lab-on-a-chip technology and chip manufacturing. We focus on improving the power and capabilities of our chips to increase their value. We are also working to enhance manufacturing processes to reduce our production costs. Opportunistically Penetrate New Industries. We believe that LabChip technology has the potential to transform the way that laboratory experimentation is performed across multiple industries. We expect to selectively pursue these other industries, leveraging our pharmaceutical industry experience and products. We may pursue these opportunities alone or with collaborators. PRODUCTS AND SERVICES We have developed two types of LabChip systems, personal laboratory systems and high throughput systems, based on distinct chip formats. Our personal laboratory systems use chips with reservoirs for the various chemical reagents, which the user introduces manually. Our high throughput systems use our Sipper chips that have a short glass tube, or capillary, that draws nanoliter volumes of reagents into the chip. Personal Laboratory Systems
- ----------------------------------------------------------------------------------------------- PRODUCT DESCRIPTION STATUS - ----------------------------------------------------------------------------------------------- HP 2100 Bioanalyzer Desktop LabChip instrument and Marketed by Hewlett- software Packard - ----------------------------------------------------------------------------------------------- DNA 7500 LabChip Kit Chips and reagents for analyzing Marketed by Hewlett- small DNA fragments Packard - ----------------------------------------------------------------------------------------------- DNA 12000 LabChip Kit Chips and reagents for analyzing Marketed by Hewlett- large DNA fragments Packard - ----------------------------------------------------------------------------------------------- RNA 6000 LabChip Kit Chips and reagents for analyzing Marketed by Hewlett- RNA samples Packard - ----------------------------------------------------------------------------------------------- New LabChip Kits A series of kits containing In development chips and reagents for applications in molecular and cell biology - -----------------------------------------------------------------------------------------------
HP 2100 Bioanalyzer System. Our first personal laboratory system is based on the HP 2100 Bioanalyzer, a desktop instrument designed to perform a wide range of everyday scientific applications using a menu of different LabChip kits. Each kit contains a chip and reagents designed specifically for the 32 38 application. This LabChip system brings the benefits of miniaturized, integrated and automated experimentation to the researcher's desktop. Hewlett-Packard launched this product in September 1999. Hewlett-Packard is selling the HP 2100 Bioanalyzer with an initial menu of three LabChip kits for DNA and RNA sizing and concentration analysis. For these initial applications, we believe the system's principal advantages are that it: - reduces analysis time from hours to minutes - integrates several experimentation steps into one - significantly reduces consumption of costly reagents - produces higher quality data than conventional methods Because these applications are among the most common experiments performed in genetic research, the potential customer base for these applications includes most pharmaceutical and biotechnology companies, as well as human genome research centers and other academic laboratories. We are developing new applications involving analysis of protein and cells, as well as additional applications involving DNA and RNA analysis. We believe that protein and cell applications on the HP 2100 Bioanalyzer may be particularly attractive to researchers in those disciplines because their existing tools are generally less advanced than those available to genetic researchers. High Throughput Systems
- ----------------------------------------------------------------------------------------------- PRODUCT DESCRIPTION STATUS - ----------------------------------------------------------------------------------------------- Caliper 110 Sipper System High throughput LabChip Direct sales to customers instrument and software for single capillary Sipper chips - ----------------------------------------------------------------------------------------------- Fluorogenic Assay Sipper Sipper chip for screening Direct sales to customers Chip certain types of enzyme and protein receptor targets - ----------------------------------------------------------------------------------------------- Mobility Shift Assay Sipper Sipper chip for screening other Direct sales to customers Chip types of enzyme and protein receptor targets - ----------------------------------------------------------------------------------------------- Assay Development Station Instrument system and software Direct sales to customers for developing LabChip experimental methods - ----------------------------------------------------------------------------------------------- Assay Development Chips Chips for use with the assay Direct sales to customers development station - ----------------------------------------------------------------------------------------------- Cell-based Assay Sipper Sipper chip for screening cell In development Chip receptor targets - ----------------------------------------------------------------------------------------------- Dilutor Sipper Chips Sipper chips that do sample In development preparation and screening on the same chip - ----------------------------------------------------------------------------------------------- Caliper 220 Sipper System Ultra high throughput LabChip In development instrument and software for multiple capillary Sipper chips - ----------------------------------------------------------------------------------------------- Multi-capillary Sipper Multiple capillary versions of In development Chips the Sipper chips described above - -----------------------------------------------------------------------------------------------
Our high throughput systems are being designed to perform thousands or tens of thousands of pharmaceutical experiments per day on each Sipper chip. 33 39 Caliper 110 Sipper System. Our first high throughput system is based on the Caliper 110, which uses a Sipper chip with a single capillary. Like the HP 2100 Bioanalyzer, the Caliper 110 is designed to perform a wide range of experiments using a menu of different chips. We currently offer two Sipper chips used for performing drug screening experiments for several classes of enzymes. High throughput enzyme experiments are among the most common assays used in primary drug screening. Some of the reagents used in these experiments are expensive and it can take months to produce them in the quantities required for conventional screening systems. We believe the principal advantages of the Caliper 110 are that it: - reduces costly reagent consumption up to 100,000-fold - integrates multiple experimental functions - reduces the need for user intervention - produces higher data quality than conventional methods We expect to add several more Sipper chips, enabling our technology access program customers to use the Caliper 110 for a significant percentage of the types of experiments they run. Another important advantage of the Caliper 110 is that it can be used not only for primary screening but also for lead optimization. Furthermore, the Caliper 110 is compact and could be placed in locations outside the centralized screening group, allowing for more efficient drug development efforts. Caliper 220 Ultra High Throughput System. We expect to increase throughput by increasing the number of channels and capillaries on each chip. We intend to introduce chips with four and then eight or more capillaries per chip and to enable customers to effectively utilize multiple instruments by providing integrated plate handling capabilities. We are currently testing a prototype of our Caliper 220 ultra high throughput instrument and expect to offer this product to technology access program customers in 2000. In this way, we expect to offer systems that can perform more than 100,000 experiments per day. We are also working to integrate compound storage and sample preparation into our screening systems. These activities represent major expenses for pharmaceutical companies. We believe that our LabChip systems can offer dramatic cost reductions in these areas. We intend to offer a Sipper chip which can dilute compounds in assay buffer on the chip prior to performing the screening assay. We expect that this will reduce the amount of expensive compounds used by approximately 1,000-fold and eliminate the major expense of diluting thousands of compounds in wells. The next integration step will be to enable researchers to place entire compound libraries onto our proprietary LibraryCard reagent array, and then dilute and access compounds using the capillary of our Sipper chips. For a description of our LibraryCard reagent array program, see "-- Research and Development." We sell our current high throughput systems to technology access program customers and provide training and support. We also develop initial assays for them and offer some level of customization in order to integrate our systems most effectively into each customer's production processes. We sell assay development systems to our technology access program customers so that they can modify experimental conditions used with our standard assay chips to be suitable for each new pharmaceutical target. This process is comparable to the assay development they already carry out with existing screening systems, which typically takes several weeks to a few months. In fact, we believe that the process likely will be accelerated and improved using chip-based systems. Services
- ----------------------------------------------------------------------------------------------- SERVICE DESCRIPTION STATUS - ----------------------------------------------------------------------------------------------- Value Added Screening Assay development, compound Direct sales to customers Collaborations leasing and screening services for customers' pharmaceutical targets - -----------------------------------------------------------------------------------------------
We are using our high throughput systems internally to offer screening services to pharmaceutical and biotechnology customers that prefer to outsource this activity. Under our value added screening 34 40 collaboration program, we develop LabChip assays for targets selected by a customer. We then screen the targets against the customer's compound library, our own library, or both, and provide the data to the customer. We believe that our screening services also add substantial value to our product businesses. We deploy our most advanced high throughput screening systems in our internal screening services operation. By making intensive use of those systems in this business, we can provide critical feedback to our product development groups. This accelerates development and enables us to deliver better systems to our technology access program customers. We also intend to use our screening services capability to demonstrate to potential technology access program customers how our LabChip systems can streamline screening operations and enhance productivity. COMMERCIALIZATION We currently are commercializing our first personal laboratory system, the HP 2100 Bioanalyzer system, through our collaboration with Hewlett-Packard. We are also directly selling our high throughput systems through our technology access program and are providing high throughput screening services through our value added screening collaboration program. Strategic Alliance with Hewlett-Packard We have established a broad relationship with Hewlett-Packard to create a line of commercial research products based on our LabChip technologies. Our primary relationship is with Hewlett-Packard's Chemical Analysis Group, which we expect to become a part of Agilent Technologies. This relationship provides us with the scale and expertise of a leading analytical instrumentation company to bring these novel products to market. When this relationship was established in May 1998, Hewlett-Packard and Caliper publicly stated their intention to invest over $100 million collectively to create and commercialize this line of products over the ensuing five years. In September 1999, Hewlett-Packard introduced the HP 2100 Bioanalyzer with three different LabChip kits, our first LabChip products under this agreement. In this collaboration, Caliper primarily focuses on developing core technology and LabChip applications. We also manufacture the chips and supply the chips and reagents to Hewlett-Packard. If we elect, however, not to manufacture chips for a LabChip application or we are unable to meet minimum supply commitments to be mutually established in the future, Hewlett-Packard would have the right to manufacture those chips. Hewlett-Packard primarily focuses on developing instruments and software, manufacturing instruments, and marketing, selling and supporting complete systems. Hewlett-Packard has the contractual right to develop the marketing plan under the collaboration, although to date we and Hewlett-Packard have made these decisions in a collaborative manner. Hewlett-Packard funds our product development efforts under the collaboration, reimburses our costs of supplying chips and reagents, and pays us a share of the gross margin on all components of LabChip systems. The gross margin share varies depending on the type of collaboration product, whether we or Hewlett-Packard manufacture the collaboration product, and whether such collaboration product is sold during the collaboration or after the collaboration has terminated. These financial arrangements allow us to offset a portion of the substantial risks inherent in introducing novel technologies. At the same time, they enable us to support a broad product development program and to retain a substantial financial interest in the products we create. Our agreement with Hewlett-Packard is mutually exclusive in the field of lab-on-a-chip technologies for the research products market. It requires our consent before Hewlett-Packard may offer products exceeding established sample throughput limits, and it requires Hewlett-Packard's consent before we may offer these products outside the collaboration in excess of established volume limitations. The term of the Hewlett-Packard agreement is eight years, beginning in May 1998. After three years, Hewlett-Packard may elect not to meet certain annual funding requirements, in which case either party may terminate the agreement. In any event either party may terminate the agreement after five years. If 35 41 the agreement terminates after three years, we will continue to offer the collaboration's products through Hewlett-Packard but Hewlett-Packard will have no rights to our technologies for the development of new products. If either party terminates the agreement after five years, we will grant Hewlett-Packard a non-exclusive license to use the lab-on-a-chip technologies that we have developed up to that time in order to develop new products in substantially the same field that applied during the collaboration. We will also transfer chip manufacturing know-how and receive royalties on Hewlett-Packard's sales of systems that employ our patented technologies. Regardless of whether the collaboration terminates after three or five years, both Caliper and Hewlett-Packard will have the right to sell collaboration products, with reciprocal supply arrangements. Technology Access Program Our technology access program is initially focused on high throughput systems for drug screening. In this program, we work directly with pharmaceutical company customers during the product development process to create successive generations of products. We provide technology access program customers with early access to new products, and offer technical training, support and customization services. By working closely with these customers, we focus our technology and product development efforts where we believe they can have maximum impact for the pharmaceutical marketplace. Our technology access program customers have non-exclusive access to all of the high throughput screening products we offer during the term of the agreement. These agreements generally provide for customers to pay an up-front license fee and annual subscription fees, and to reimburse us for our costs of providing development and support services. Instruments and chips are generally sold separately on a product-by-product basis, although some agreements establish prices for critical instruments or estimates of per data point charges for Sipper chips. Our technology access program customers can terminate their participation in the program and still have the right to purchase those products that we offered to them during their participation in the program. We currently have three technology access program customers for our high throughput screening systems: Eli Lilly, Amgen, and Hoffmann-La Roche. Eli Lilly. We signed our most recent technology access agreement with Eli Lilly in August 1999. The term is three years, although Eli Lilly may temporarily suspend its technology access program participation and later reinitiate participation, during which time our support and assistance obligations will also be suspended. Eli Lilly may terminate the agreement on any anniversary. Amgen. We entered into a technology access agreement with Amgen in December 1998. Under this agreement, Amgen may delay payment of its second annual subscription fee until we have delivered an initial ultra high throughput system. The term of this agreement is three years, although Amgen may terminate the agreement on any anniversary or if we fail to deliver the ultra high throughput screening system in a timely manner. Hoffmann-La Roche. We entered into a technology access agreement with Hoffmann-La Roche in November 1998, which is due to expire in July 2000. This agreement supersedes an earlier agreement under which Roche funded early development of the high throughput screening technology in exchange for certain exclusive rights to an ultra high throughput screening system. Roche now has non-exclusive rights similar to other technology access program customers. We did not receive an up-front license fee or annual subscription fee from Hoffmann-La Roche. Value Added Screening Collaboration Program In our value added screening collaboration program we offer high throughput screening services using our LabChip systems. This can enable smaller companies that may not be able to afford to participate in our technology access program to take advantage of our high throughput systems in the early phases of commercialization. Our first value added screening collaboration agreement was established with Neurocrine Biosciences in December 1998. We receive screening fees on a per data point basis, preclinical 36 42 milestones and royalties on Neurocrine products emerging from the collaboration. This agreement has a three-year term, but may be terminated by either party under certain circumstances after the first year. TECHNOLOGY We believe that we have established a leading position in three areas of lab-on-a-chip technology. Microfabrication We create lab-on-a-chip microfluidic devices using the same microfabrication manufacturing methods that are used to make microchips in the computer industry. Microfabrication makes it possible to create intricate designs of interconnected channels that are extremely small. Each pattern is designed to produce the series of fluidic manipulations that will execute an experiment. We use the principles of fluid dynamics, chemical and electrical engineering and biophysics to create initial designs using computer-aided design tools. Because we have designed, manufactured and tested hundreds of different chips, we have developed proprietary design rules that make each round of chip creation more predictable and likely to succeed. We design our chips to be disposable and relatively inexpensive to manufacture. We place the more expensive electronic controls and sensing capability in a separate instrument. Once a design pattern is completed, we use advanced photolithographic or injection molding processes so that the pattern is recreated as channels in a sheet of quartz, glass or plastic. This process creates highly precise channels with dimensions that can be varied with respect both to width and depth. A typical channel is roughly 50 microns wide and 10 microns deep, approximately the size of a strand of hair. In the next step, a second sheet of quartz, glass or plastic with a precise pattern of holes is fused to the first sheet using a proprietary process. This covers the channels and converts them to closed microfluidic conduits. The end of each channel connects to an open reservoir through which fluids are introduced. The sheets are then diced into individual chips, which can be less than one inch to a few inches on a side. The individual chips are then packaged into plastic holders that make them easier for the user to handle. We currently make two basic chip formats. In our planar chips, such as those used in the HP 2100 Bioanalyzer, the user introduces all of the chemical reagents into the reservoirs, including the various samples to be tested, using pipets. In our Sipper chips, such as those used in the Caliper 110, a small glass tube, or capillary, inserted into the chip draws a few nanoliters of each sample into the channel network. In this way, minute quantities of a large number of samples can be tested in a single chip. The samples are introduced into the capillary one after the other, spaced by buffer solution. They proceed through the channel network in a continuous flow, assembly-line fashion to perform a complete experiment. We have an issued U.S. patent claiming this assay technique. Microfluidics In our LabChip systems the microfluidics, or movement of fluid and material, is actively controlled by computer programs. We use two different methods of generating fluid motion in microchannels: electrokinetics and pressure. Electrokinetic flow is generated by placing in the reservoirs electrodes which are attached to computer-driven power supplies. When current is induced through the fluid by the power supply, fluids of the appropriate type will move by a process known as "electro-osmosis." Typical flow rates within the channel are about a millimeter per second and the flow rate can be controlled with a high degree of precision. Programs can then be written to generate highly specific and complex networks of flow. One key to designing complex systems is controlling and directing the flow at intersections. Fundamental techniques for accomplishing this were invented by Dr. J. Michael Ramsey, one of our co-founders and a member of our Scientific Advisory Board, and are covered by a series of issued and pending U.S. patent applications. We hold an exclusive license to these patents for most applications and a non-exclusive license for remaining applications. 37 43 Another electrokinetic phenomenon known as "electrophoresis" occurs in the channels. This is the movement of charged molecules or particles in an electric field. Electrophoresis is often used in conventional laboratories for analyzing molecules since they move differently according to their physical make-up. Electrophoresis can be used to move molecules in solution, or to separate molecules with very subtle differences. Electrophoresis and electro-osmosis generally occur at the same time in channels. However, we have developed proprietary techniques for minimizing either force while maintaining the other, as appropriate, for a given application. Pressure can also be used to move fluid in the channels. On the microfluidic scale, small amounts of pressure produce highly predictable and reproducible fluid flow. We use both computer-controlled pressure and electrokinetic forces to gain precise control over fluid flow in the microfluidic channel network. It is possible to use electrokinetic forces alone, pressure forces alone, or a combination of the two methods. Lab-on-a-Chip Applications Development We have developed a large amount of expertise at discovering new functions that microfluidic chips can perform. We have generated proprietary computer models of how an experiment can be carried out. We store these functional designs and we can incorporate them into new designs that simulate complete experiment pathways. In this way, we believe the value of new microfluidic inventions can be rapidly expanded across many application development projects. We have also developed expertise at making experiments work in our chips. Currently, all of our systems use fluorescent chemical reagents and optical detection instruments to read experimental results. We often need to explore chemical strategies for labeling relevant reagents that can reveal how different molecular interactions take place. Another area of investigation addresses the fact that in these small dimensions, the amount of channel surface material relative to the amount of liquid is many times higher than in a test tube or microwell plate. Because of this, the surface material can exert a chemical influence on the biochemical reactions taking place. We have created strategies to avoid the problems this can cause, or benefit from it if possible. We have developed Sipper chips that perform and analyze enzyme reactions using part of the channel design as a tiny, continuously operating electrophoresis machine. Thus, reactions with one sample are going on in one area of the chip while electrophoretic separation of the products of another sample is taking place in a different part of the chip. We have also found that, in many cases, an optical detection method called fluorescence polarization spectroscopy can be used to read reaction results without needing to electrophoretically separate the biochemicals. We have built this optical detection capability into our high throughput systems. In general, our experience is that microfabrication and microfluidics provide a rich tool set with which to create innovative new applications. RESEARCH AND DEVELOPMENT We have made substantial investments in lab-on-a-chip research and product development since our inception. We explored fundamental issues of lab-on-a-chip technology as early as possible in order to find solutions to important technical challenges and seek patent protection for our solutions. Today we are supplementing these core technology research efforts with applied product development efforts in several areas. Technology Research Our technology research activities fall into several classes. Chemical Engineering. We are increasing our understanding of the design rules guiding the development of new chips. Using the principles of chemical engineering we create patterns of interconnected channels that permit execution of the various common steps of experimentation. Designs from one chip can be used for other chips needing similar fluidic functions for a different application. Mathematics and computer models also help minimize the number of iterations necessary to achieve new functional chip designs. 38 44 Chip Manufacturing. We continue to seek ways to improve the yield and decrease the cost of manufacturing our chips. We are exploring novel fabrication techniques and the use of new materials that offer functional advantages, such as manufacturing in quartz to take advantage of its superior optical features. We have development programs in manufacturing technology for chips made of plastic. Plastic devices potentially offer cost advantages and, in some cases, offer favorable surface chemical features for certain applications. A major area of development is micromachining technology for precisely attaching capillaries to our Sipper chips to access reagents. In high throughput experimentation, the number of capillaries and channels determines the level of throughput. Accordingly we are developing high yield fabrication methods to enable us to cost-effectively manufacture chips with many capillaries to perform ultra high throughput experimentation. Engineering and Software. We use the skills of electrical engineers, optical engineers, mechanical engineers, product designers and software engineers to create new instrumentation to run our chips. These instruments control fluid movement inside the chip, present the reagents to the chip from conventional fluid sources, and detect the results of biochemical or cell-based experiments with optical methods. Software engineers write computer programs that control the sources of fluid motion, communicate between different instrument components and interpret signals from the detection system. Currently we develop the software for our high throughput systems. We collaborate with Hewlett-Packard to develop software for our personal laboratory systems. Product Development Our product development efforts are currently focused on new applications and capabilities for our existing instruments, our LibraryCard system, and high throughput genomic systems. Extensions of Existing Product Lines. For each of our first generation instruments, we are expanding the menu of applications to address other stages of the pharmaceutical development process. For the HP 2100 Bioanalyzer, we intend to introduce new applications that address everyday productivity needs in many areas of nucleic acids biochemistry, protein chemistry and cell biology. We are broadening the application menu for high throughput systems as well to include membrane receptor binding assays, DNA/protein binding assays, protein/protein binding assays, and cell-based membrane potential assays. We are also developing next generation instruments for each of these product lines. LibraryCard System. We are developing a new format for storing and accessing reagents, which we call the LibraryCard reagent array. We have learned how to reconstitute very small quantities of dried reagents stored at high density on a planar surface. We can conveniently access reagents stored in this way using our Sipper chips. The LibraryCard reagent array could produce a fundamental change in the way large libraries of reagents are used. Today, such libraries are only accessible in centralized reference-style laboratories that can conveniently work with automated warehouses of reagents. When libraries can be reduced to the size of a postcard, high throughput experimentation involving massive data acquisition can be decentralized. We believe that this will increase the size of the market for applications that run on this type of system. We believe this type of system could significantly impact several stages of the pharmaceutical development process, particularly primary screening and pharmacogenetic studies. Genomics. Genomics is the high throughput analysis of nucleic acids. Genomics applications include sequencing DNA and DNA genotyping. Genotyping is the determination of the DNA sequence variation present at a particular site in an individual's DNA. Like all experimentation processes, these applications are a combination of various fluidic manipulations, biochemical reactions, separations and detection. As such, we believe they can be performed on the same basic high throughput platform we have built for other applications. In early 1999, we began a project, funded in part by the Advanced Technology Program of the National Institute of Standards and Technology, to adapt the platform and develop chips to run high throughput nucleic acids analyses. While the specific aim of the program is to develop a diagnostics system, the first commercial products to emerge from the technology could be genomics products, such as a high throughput system for genotyping single nucleotide polymorphisms, or SNPs. Our goal is to apply 39 45 lab-on-a-chip technology to some of the most important areas of biology today, including DNA sequencing, and emerging areas such as SNP genotyping for pharmacogenetics. Our research and development expenses for the first nine months of 1999, and for the years ended 1998, 1997 and 1996, were approximately $12.2 million, $9.6 million, $7.2 million, and $2.7 million, respectively. We intend to increase our research and development budget and staffing levels during the remainder of 1999 and into 2000. As of September 30, 1999, we had 70 employees engaged in research and development, including 41 with advanced degrees. MANUFACTURING We manufacture our chips in-house and are currently manufacturing high throughput instruments in limited volumes. We rely upon Hewlett-Packard to manufacture the HP 2100 Bioanalyzer. Our high throughput instruments are generally integrated with plate stacking and handling units offered commercially by other companies. We contract with third parties to supply most reagents for the research products business. We currently depend on suppliers to supply prepared materials for use in the manufacture of chips. We intend to continue and may extend the subcontracting of portions of our manufacturing processes to subcontractors where we feel it best leverages the supplier's manufacturing experience, costs, and/or improves our ability to meet customer demands. For a discussion of the methods we use to manufacture our chips see "-- Technology" and "-- Research and Development." COMPETITION Although we believe that we are currently the only company selling and delivering lab-on-a-chip products to customers, we expect to encounter intense competition from a number of companies that offer products for laboratory experimentation. We anticipate that our competitors will come primarily from the following two sectors: - companies providing conventional products based on established technologies - companies developing their own microfluidics or lab-on-a-chip technologies In order to compete against vendors of conventional products, we will need to demonstrate the advantages of our LabChip products over alternative well-established technologies and products. We will also need to demonstrate the potential economic value of our LabChip products relative to these conventional technologies and products. Some of the companies that provide these products include PE Corp., Hewlett-Packard, Beckman-Coulter, Amersham Pharmacia Biotech, Bio-Rad Laboratories, Molecular Devices, and LJL BioSystems. We will also need to compete effectively with companies developing their own microfluidics or lab-on-a-chip technologies and products, such as Aclara Biosciences and Orchid Biocomputer. Other companies known to have initiated microfluidic programs include Motorola, 3M and PE Corp. Microfluidic technologies have undergone and are expected to continue to undergo rapid and significant change. Our future success will depend in large part on our ability to establish and maintain a competitive position with respect to these and future 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 respect to our technologies. 40 46 INTELLECTUAL PROPERTY We seek patent protection on our lab-on-a-chip technologies. As of September 30, 1999, we owned or held licenses to 34 issued U.S. patents and 120 pending U.S. patent applications, some of which derive from a common parent application. Our issued patents expire between 2012 and 2019. Foreign counterparts of many of these patents and applications have been filed and/or issued in one or more other countries, resulting in a total of more than 330 issued patents and pending patent applications in the United States and foreign countries. These patents and applications are directed to various technological areas which we believe are valuable to our business, including: - control of movement of fluid and other material through interconnected microchannels - continuous flow high throughput screening assay methods and systems - analytical and control instrumentation - analytical system architecture - chip based assay chemistries and methods - chip compatible sample accession - software for control of microfluidic based systems and data analysis - chip manufacturing processes We also rely upon copyright protection, trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain our competitive position. Our success will depend in part on our ability to obtain patent protection for our products and processes, to preserve our copyrights and trade secrets, to operate without infringing the proprietary rights of third parties and to acquire licenses related to enabling technology or products used with our lab-on-a-chip technology. We are party to various exclusive and non-exclusive license agreements with third parties which give us rights to use certain technologies. For example, we have an exclusive license in the fields we are currently operating in from Lockheed Martin Energy Research Corporation, relating to patents covering inventions by Dr. J. Michael Ramsey. A failure to maintain some or all of the rights to these technologies could seriously harm our business. EMPLOYEES As of September 30, 1999, we had a total of 101 employees, including 70 in research and development, 14 in manufacturing and 17 in administration and finance. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good. FACILITIES Our principal research and development, manufacturing and administrative facilities are currently located in approximately 53,000 square feet of leased space in Mountain View, California. The lease for this space will expire in December 2008. We believe that our current facilities are adequate for our needs through the year 2000. LEGAL PROCEEDINGS On March 22, 1999, we filed a lawsuit in California Superior Court for the County of Santa Clara (Case No. CV 780743), against Aclara Biosciences Inc., a patent attorney named Bertram Rowland and the law firm of Flehr, Hohbach, Test, Albritton and Herbert LLP, alleging that all three defendants misappropriated our trade secrets and that Mr. Rowland and Flehr Hohbach committed a breach of the duties they owed to us as our former attorneys. The suit seeks damages and equitable remedies to prevent Aclara, Mr. Rowland and Flehr Hohbach from benefiting from the alleged misappropriation and breach of 41 47 duties. While we believe that our complaint is meritorious, we cannot assure you that we will prevail in our action against any or all of the defendants, or that if we prevail, the damages or equitable remedies awarded, if any, will be commercially valuable. Furthermore, we have incurred and are likely to continue to incur substantial costs and expend substantial personnel time in pursuing our claims against Aclara, Mr. Rowland and Flehr Hohbach. On April 23, 1999, Aclara Biosciences filed a lawsuit in United States District Court for the Northern District of California (Case No. C-99-1968BZ) alleging that we are making, using, selling or offering for sale microfluidic devices that infringe United States Patent Number 5,750,015 in willful disregard of Aclara's patent rights. The Aclara action seeks damages for past and future reduced sales or lost profits based upon the making, using, selling and offering for sale of our products and processes, and seeks to enjoin our continued activities relating to these products. This action subjects us to potential liability for damages, including treble damages, and could require us to cease making, using or selling the affected products, or to obtain a license in order to continue to manufacture, use or sell the affected products. While we believe we have meritorious defenses to this action, we cannot assure you that we will prevail in this action nor can we assure you that any license required would be made available on commercially acceptable terms, if at all. Furthermore, we have incurred and are likely to continue to incur substantial costs and expend substantial personnel time in defending against the claims filed by Aclara. Failure to successfully defend ourselves against the Aclara action could have a material adverse effect on our business, financial condition and operating results. SCIENTIFIC ADVISORY BOARD We have assembled a group of scientific advisors who are leaders in fields related to microfluidics technology and systems. These advisors assist us in formulating our research, development and commercialization strategy and include: George Whitesides, Ph.D., Chair, Mallinckrodt Professor of Chemistry at Harvard University and Member of the National Academy of Sciences. Dr. Whitesides is the Chairman of our Scientific Advisory Board. J. Michael Ramsey, Ph.D., a co-founder of Caliper and Corporate Research Fellow and Head of the Laser Spectroscopy and Microinstrumentation Group in the Chemical and Analytical Sciences Division at Oak Ridge National Laboratory. Robert H. Austin, Ph.D., Professor of Physics at Princeton University. Charles P. Cantor, Ph.D., Professor of Biomedical Engineering and Biophysics at Boston University, and Member of the National Academy of Sciences. George Church, Ph.D., Senior Investigator at the Howard Hughes Medical Institute at Harvard Medical School. Jed Harrison, Ph.D., Professor of Analytical Chemistry at the University of Alberta. Richard Haugland, Ph.D., President and Corporate Research Director of Molecular Probes, Inc. James W. Jorgenson, Ph.D., Francis P. Venable Professor of Chemistry at the University of North Carolina. Barry Karger, Ph.D., James L. Waters Chair in Analytical Chemistry and Director of the Barnett Institute of Chemical Analysis and Materials Science at Northeastern University, Boston, Massachusetts. Butrus T. Khuri-Yakub, Ph.D., Professor of Electrical Engineering at the E.L. Ginzton Laboratory of Stanford University. Andreas Manz, Ph.D., SmithKline Beecham Chair of Analytical Chemistry at the Imperial College of Science, London. Stephen D. Senturia, Ph.D., Barton L. Weller Professor of Electrical Engineering at the Massachusetts Institute of Technology. Christopher T. Walsh, Ph.D., Hamilton Kuhn Professor of Biological Chemistry and Molecular Pharmacology at Harvard Medical School and Member of the National Academy of Sciences. 42 48 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND FOUNDERS The following presents information about our directors, executive officers and co-founders as of September 30, 1999.
NAME AGE POSITION ---- --- -------- Daniel L. Kisner, M.D. ................... 52 President, Chief Executive Officer and Director Calvin Y. H. Chow......................... 44 Chief Operating Officer and Co-founder James L. Knighton......................... 45 Chief Financial Officer Michael R. Knapp, Ph.D. .................. 47 Vice President of Science and Technology and Co-founder J. Wallace Parce, Ph.D. .................. 49 Vice President of Research and Co-founder William M. Wright III..................... 51 Vice President of Operations David V. Milligan, Ph.D.(1)(2)............ 59 Chairman of the Board of Directors Anthony B. Evnin, Ph.D.(1)................ 58 Director Charles M. Hartman(2)..................... 58 Director Regis P. McKenna.......................... 60 Director Robert T. Nelsen(2)....................... 36 Director Michael Steinmetz, Ph.D.(1)............... 52 Director Lawrence A. Bock.......................... 40 Co-founder J. Michael Ramsey, Ph.D. ................. 47 Co-founder
- --------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. DANIEL L. KISNER, M.D., has served as our President and Chief Executive Officer since February 1999 and as a Director since March 1999. From May 1994 to January 1999, Dr. Kisner served as President and Chief Operating Officer of Isis Pharmaceuticals, Inc., a biotechnology company. From February 1993 to May 1994, Dr. Kisner served as Executive Vice President and Chief Operating Officer of Isis Pharmaceuticals, Inc. From March 1991 to February 1993, he served as Executive Vice President of Isis Pharmaceuticals, Inc. and was responsible for business and product development, and manufacturing. From December 1988 to March 1991, Dr. Kisner served as Division Vice President of Pharmaceutical Development for Abbott Laboratories. Dr. Kisner has held a tenured position in the Division of Oncology at the University of Texas, San Antonio School of Medicine and is certified by the American Board of Internal Medicine and certified in Medical Oncology. Dr. Kisner holds a B.A. from Rutgers University and an M.D. from Georgetown University. CALVIN Y. H. CHOW, co-founded Caliper and has served as our Chief Operating Officer since February 1998. Mr. Chow also served as our Vice President of Development from September 1995 to February 1998. From October 1985 to September 1995, Mr. Chow served as Vice President of Engineering and Operations of Molecular Devices Corporation, a bioanalytical instrumentation company, where he was responsible for product development and company-wide manufacturing. Mr. Chow holds a B.S. in Electrical Engineering from Illinois Institute of Technology and an M.S. in Electrical Engineering from Stanford University. JAMES L. KNIGHTON, has served as our Chief Financial Officer since September 1999. From October 1998 to September 1999, Mr. Knighton served as Senior Vice President and Chief Financial Officer of SUGEN, Inc., a biotechnology company. From July 1997 to October 1998, Mr. Knighton served as Vice President of Investor Relations and Corporate Communications at Chiron Corporation, a biotechnology company. From 1985 to 1994, Mr. Knighton served in various operations, planning and R&D functions at 43 49 E. I. DuPont de Nemours Inc., a global, diversified chemical and life science company. Mr. Knighton holds a B.S. in Biology from the University of Notre Dame, an M.S. in Genetics from the University of Pennsylvania and an M.B.A. from the Wharton School at the University of Pennsylvania. MICHAEL R. KNAPP, PH.D., co-founded Caliper and has served as our Vice President of Science and Technology since September 1995. From November 1994 through August 1995, Dr. Knapp was engaged in activities related to forming Caliper, including securing our core technology license and procuring financing. From October 1988 to October 1994, Dr. Knapp served as President and Scientific Director at Molecular Tool, Inc., a genetics technology company he co-founded in 1988. Previously, Dr. Knapp was on the staff of the Center for Neurobiology and Behavior at Columbia University and was a Scientific Director of Genetica SARL, an affiliate of Rhone Poulenc SA in Paris, France. Dr. Knapp holds a B.S. in Biology from Trinity College (Hartford) and a Ph.D. in Medical Microbiology from Stanford University. J. WALLACE PARCE, PH.D., co-founded Caliper and has served as our Vice President of Research since October 1995. Prior to joining Caliper, Dr. Parce spent 12 years with Molecular Devices Corporation as a founder, consultant, Director of Research and Vice President of Research. From 1980 until 1984 he was an Assistant Professor in the Department of Biochemistry at Wake Forest University, from 1982 until 1987 an associate in the Department of Microbiology and Immunology, and from 1984 until 1987, an Associate Professor of Biochemistry. Dr. Parce received his B.A. in Chemistry from Western Maryland College in 1972 and his Ph.D. in Biochemistry from Wake Forest University in 1976. From 1976 until 1980 Dr. Parce was a Post Doctoral Fellow in Chemistry at Stanford University. WILLIAM M. WRIGHT III, has served as our Vice President of Operations since September 1998. From November 1995 to May 1998, Mr. Wright served as Vice President of Operations of Biocircuits Corporation, a medical diagnostic company, where he was responsible for instrument and immunoassay cartridge manufacturing. From 1984 to 1995, Mr. Wright was Vice President of Site Operations with Dade International Inc., formerly a division of Baxter International, Inc., a medical products manufacturing company, where he assisted in the start-up and launch of the Baxter International Paramax Analytical Clinical Chemistry Business. Mr. Wright holds a B.S. in Industrial Technology from California State University at Long Beach. DAVID V. MILLIGAN, PH.D., has been a Director since October 1996 and the Chairman of the Board since April 1997. He has been a Vice President and Special Limited Partner of Bay City Capital, Merchant Bank since 1997. From 1979 to 1996, Dr. Milligan served in a variety of management positions at Abbott Laboratories, a healthcare products company. During his career at Abbott Laboratories he led both the diagnostic products and pharmaceutical products research and development organizations and was Senior Vice President and Chief Scientific Officer when he retired at the end of 1996. He is also a director of ICOS Corporation and Diametrics Medical, Inc. He is a member of the chemistry department advisory boards of the University of California at Berkeley and Princeton University. Dr. Milligan holds an A.B. in Chemistry from Princeton University and an M.S. and a Ph.D. in Organic Chemistry from the University of Illinois. ANTHONY B. EVNIN, PH.D., has been a Director since June 1996. He has been a General Partner of Venrock Associates, a venture capital partnership since 1975. He is also a director of Centocor, Inc., Ribozyme Pharmaceuticals, Inc. and Triangle Pharmaceuticals, Inc. Dr. Evnin holds an A.B. from Princeton University and a Ph.D. in Chemistry from Massachusetts Institute of Technology. CHARLES M. HARTMAN, has been a Director since June 1996. He has been a General Partner of CW Group, a manager of medical venture capital funds since April 1983. From 1966 to 1983, Mr. Hartman served in various positions at Johnson & Johnson where he was responsible for identification, evaluation and negotiation situations ranging from single product opportunities to company acquisitions, both domestically and internationally. Mr. Hartman is a director of The Hastings Center, a non-profit organization devoted to the study of bioethical issues in medicine and the life sciences. Mr. Hartman holds a B.S. in Chemistry from the University of Notre Dame and an M.B.A. from the University of Chicago. 44 50 REGIS P. MCKENNA, has been a Director since September 1998. Mr. McKenna has been Chairman of The McKenna Group, an international consulting firm specializing in the application of information and telecommunications technologies to business strategies since 1973. Mr. McKenna is on the board of The Economic Strategies Institute and the Competitiveness Council. He is Chairman of the Board of the Santa Clara University Center for Science, Technology and Society and was a founding board member of Smart Valley. He is a trustee at Santa Clara University and President of the Board of Trustees for The New Children's Shelter of Santa Clara County. Mr. McKenna is on the board of directors of a number of high technology start-up companies. Mr. McKenna holds a B.A. from Duquesne University. ROBERT T. NELSEN, has been a Director since September 1995. Since July 1994, Mr. Nelsen has served as a senior principal of various venture capital funds associated with ARCH Venture Partners, including ARCH Venture Fund II, L.P., ARCH Venture Fund III, L.P. and ARCH Venture Fund IV, L.P. From April 1987 to July 1994, Mr. Nelsen was Senior Manager at ARCH Development Corporation, a company affiliated with the University of Chicago, where he was responsible for new company formation. He holds a B.S. in Biology and Economics from the University of Puget Sound and an M.B.A. from the University of Chicago. MICHAEL STEINMETZ, PH.D., has been a Director since July 1997. He has been a partner of MPM Asset Management LLC in Cambridge, MA, a venture capital firm focusing on investments in private biotechnology companies in the U.S. and Europe, since 1997. From 1997 to 1998, Dr. Steinmetz was also a partner of the Bellevue Group in Zurich, Switzerland. From 1986 to 1997, Dr. Steinmetz worked at Hoffmann-La Roche Inc. He headed the Biology Department in Basel and its worldwide biotechnology research activities. He also was Vice President of Preclinical Research and Preclinical Research and Development in Nutley, New Jersey. Dr. Steinmetz was a member of the Board of Directors at Roche USA and Millennium Pharmaceuticals. Dr. Steinmetz holds a Ph.D. in Natural Sciences from the University of Munich, has lectured at the University of Basel and is Adjunct Professor at Rutgers University. LAWRENCE A. BOCK, co-founded Caliper and served as a director of Caliper and acting Chief Executive Officer from inception until April 1997 and since then has been an advisor to Caliper. He has been a General Partner of CW Group, a medical venture capital fund since June 1998. From 1988 to 1998, Mr. Bock was General Partner of Avalon Ventures, a seed stage venture capital firm, where he founded such companies as Vertex Pharmaceuticals, Athena Neurosciences, Pharmacopeia, Neurocrine Biosciences and Argonaut Technologies. He is a founder and director of Illumina Inc. and FastTrack Systems, Inc. Mr. Bock holds a B.S. in Biochemistry from Bowdoin College and an M.B.A. from the University of California, Los Angeles. J. MICHAEL RAMSEY, PH.D., co-founded Caliper and has served on our Scientific Advisory Board since September 1995. Since February 1979 Dr. Ramsey has served on the research staff at Oak Ridge National Laboratory where he is presently a Corporate Research Fellow and Head of the Laser Spectroscopy and Microinstrumentation Group. Dr. Ramsey holds a B.S. degree in Chemistry from Bowling Green State University and a Ph.D. in Chemistry from Indiana University. BOARD COMPOSITION We currently have seven directors. Upon the closing of this offering the terms of office of the board of directors will be divided into three classes. As a result, a portion of our board of directors will be elected each year. The division of the three classes, the initial directors and their respective election dates are as follows: - the class I directors will be Anthony B. Evnin, Ph.D. and Robert T. Nelsen and their term will expire at the annual meeting of stockholders to be held in 2000 - the class II directors will be Charles M. Hartman, David V. Milligan, Ph.D. and Michael Steinmetz, Ph.D. and their term will expire at the annual meeting of stockholders to be held in 2001 45 51 - the class III directors will be Daniel L. Kisner, M.D. and Regis P. McKenna and their term will expire at the annual meeting of stockholders to be held in 2002 At each annual meeting of stockholders 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. In addition, the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the 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 the board of directors may have the effect of delaying or preventing changes in control or management of Caliper. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1998, Mr. Hartman and Drs. Milligan and Steinmetz served as members of the compensation committee of our board of directors. No member of the compensation committee serves as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Prior to the formation of the compensation committee in June 1996, our board of directors as a whole made decisions relating to compensation of our executive officers. BOARD COMMITTEES Audit Committee. Our audit committee reviews our internal accounting procedures and consults with, and reviews the services provided by, our independent auditors. Current members of our audit committee are Drs. Evnin, Milligan and Steinmetz. Compensation Committee. Our compensation committee reviews and recommends to the board of directors the compensation and benefits of all our officers and reviews general policy relating to compensation and benefits of our employees. The compensation committee also administers the issuance of stock options and other awards under our stock plans. Current members of the compensation committee are Messrs. Hartman and Nelsen and Dr. Milligan. DIRECTOR COMPENSATION Directors currently receive no cash compensation from us for their services as members of the board or for attendance at committee meetings. Directors may be reimbursed for certain expenses in connection with attendance at board of directors and committee meetings. In September of 1996, we granted Dr. Milligan, in connection with his services as one of our directors, the right to purchase 30,000 shares of common stock at $0.07 per share, subject to a right of repurchase that lapses in 60 equal monthly installments. In November 1997, we granted Dr. Milligan an additional stock option to purchase 10,000 shares of common stock at an exercise price of $0.40 per share. This option fully vested in September 1998. In April 1999, we granted Dr. Milligan an additional stock option to purchase 10,000 shares of common stock at an exercise price of $0.62 per share. This option fully vested in September 1999. In October 1999, we granted Dr. Milligan an additional stock option to purchase 10,000 shares of common stock at an exercise price of $2.00. This option will fully vest in September 2000. In September 1998, we granted Mr. McKenna, in connection with his services as one of our directors, a stock option to purchase 30,000 shares of common stock at an exercise price of $0.62 per share. This option vests in 60 equal monthly installments. In October 1999, we granted Mr. McKenna an additional stock option to purchase 5,000 shares of common stock at an exercise price of $2.00 per share. This option fully vests in September 2000. We have also entered into consulting agreements with each of Dr. Milligan and Mr. McKenna. See "Certain Transactions" for a description of these agreements. In October 1999, we adopted the 1999 Non-Employee Directors' Stock Option Plan to provide for the automatic grant of options to purchase shares of common stock to our non-employee directors who are not employees of Caliper or of any affiliate of Caliper. Any non-employee director elected after the closing of 46 52 this offering will receive an initial option to purchase 30,000 shares of common stock. Starting at the annual stockholder meeting in 2000, all non-employee directors will receive an annual option to purchase 5,000 shares of common stock and the chairman of the board will receive an annual option to purchase 10,000 shares of common stock. See "-- Employee Benefit Plans -- 1999 Non-Employee Directors' Stock Option Plan" for a more detailed explanation of the terms of these stock options. LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY Our bylaws provide that we will indemnify our directors and executive officers and may indemnify our other officers, employees and other agents to the fullest extent permitted by Delaware law. We are also empowered under our bylaws to enter into indemnification contracts with our directors and officers and to purchase insurance on behalf of any person we are required or permitted to indemnify. Pursuant to this provision, we expect to enter into indemnification agreements with each of our directors and executive officers. We intend to obtain officer and director liability insurance with respect to liabilities arising out of certain matters, including matters arising under the Securities Act. In addition, our certificate of incorporation provides that, to the fullest extent permitted by Delaware law, our directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware law. Under current Delaware law, a director's liability to us or our stockholders may not be limited with respect to any breach of the director's duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit, for improper transactions between the director and us and for improper distributions to stockholders and loans to directors and officers. This provision also does not affect a director's responsibilities under any other laws such as the federal securities laws or state or federal environmental laws. There is no pending litigation or proceeding involving a director or officer of Caliper as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer. EXECUTIVE COMPENSATION The following table sets forth summary information for the fiscal year ended December 31, 1998, regarding the compensation of each of our most highly compensated executive officers whose salary and bonus for 1998 were in excess of $100,000. We did not have a Chief Executive Officer or Chief Financial Officer during 1998. Dr. Daniel L. Kisner joined Caliper in February 1999 as our President and Chief Executive Officer, and Mr. James L. Knighton joined Caliper in September 1999 as our Chief Financial 47 53 Officer. See "-- Employment Agreements" below for a description of Dr. Kisner's and Mr. Knighton's employment arrangements. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ------------ COMPENSATION SECURITIES ------------------- UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS - --------------------------- -------- ------- ------------ Calvin Y. H. Chow......................................... $194,775 $38,000 100,000 Chief Operating Officer Michael R. Knapp, Ph.D. .................................. 165,746 22,000 50,000 Vice President of Science and Technology J. Wallace Parce, Ph.D. .................................. 186,200 22,000 50,000 Vice President of Research
Mr. Chow's bonus figure includes $19,000 received in cash and 30,645 shares of common stock received in lieu of cash. Dr. Knapp's bonus figure includes $14,740 received in cash and 11,710 shares of common stock received in lieu of cash. Dr. Parce's bonus figure includes $14,740 received in cash and 11,710 shares of common stock received in lieu of cash. OPTION GRANTS IN FISCAL YEAR 1998 The following table sets forth each grant of stock options during the fiscal year ended December 31, 1998, to each of the individuals listed in the Summary Compensation Table. The exercise price of each option was equal to the fair market value of our common stock as valued by the board of directors on the date of grant. The exercise price may be paid in cash, promissory notes, in shares of our common stock valued at fair market value on the exercise date or through a cashless exercise procedure involving a same-day sale of the purchased shares. The options granted to Mr. Chow, Drs. Knapp and Parce vest as to 20% on September 16, 1999 and 1/60th per month thereafter. The potential realizable value is calculated based on the ten-year term of the option at the time of grant. Stock price appreciation of 5% and 10% is assumed pursuant to rules promulgated by the Securities and Exchange Commission and does not represent our prediction of our stock price performance. The potential realizable values at 5% and 10% appreciation are calculated by: - multiplying the number of shares of common stock subject to a given option by the assumed initial public offering price of $ per share - assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table until the expiration of the options - subtracting from that result the aggregate option exercise price Percentages shown under "Percentage of Total Options Granted in 1998" are based on an aggregate of 660,300 options granted to employees, consultants and directors of Caliper under our stock option plans during 1998. 48 54
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED -------------------------------------------- ANNUAL RATES OF NUMBER OF STOCK PRICE SECURITIES APPRECIATION FOR UNDERLYING PERCENTAGE OF TOTAL EXERCISE OPTION TERM OPTIONS OPTIONS PRICE PER EXPIRATION --------------------- NAME GRANTED GRANTED IN 1998 SHARE DATE 5% 10% - ---- ---------- ------------------- --------- ---------- --------- --------- Calvin Y. H. Chow............ 100,000 15.14% $0.62 09/16/08 Michael R. Knapp, Ph.D. ..... 50,000 7.57 0.62 09/16/08 J. Wallace Parce, Ph.D. ..... 50,000 7.57 0.62 09/16/08
OPTION VALUES AT DECEMBER 31, 1998 The following table sets forth the number and value of securities underlying unexercised options that are held by each of the individuals listed in the Summary Compensation Table as of December 31, 1998. No shares were acquired on the exercise of stock options by these individuals during the year ended December 31, 1998. Amounts shown under the column "Value of Unexercised In-the-Money Options at December 31, 1998" are based on the assumed initial public offering price of $ , without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the exercise price payable for these shares.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998 ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Calvin Y. H. Chow.......................... 36,250 165,750 Michael R. Knapp, Ph.D..................... 47,839 115,750 J. Wallace Parce, Ph.D..................... 35,416 116,584
EMPLOYMENT AGREEMENTS In January 1999, we entered into an employment agreement with Daniel L. Kisner, M.D. to serve as our President and Chief Executive Officer at a base salary of $350,000 a year starting on February 28, 1999, with an annual discretionary bonus of up to 50% of his base salary based upon specific objectives to be agreed upon by Dr. Kisner and the board. Pursuant to the employment agreement, Dr. Kisner received an option to purchase 1,000,000 shares of our common stock at an exercise price of $0.62 per share. This option vests over a period of five years in 60 equal monthly installments. In addition, Dr. Kisner is entitled to a housing loan of up to $500,000 which may be forgiven over time, and monthly mortgage assistance to support a $500,000 mortgage, plus additional payments to compensate for the tax payable on such portions of his compensation. The employment agreement is at-will and contains a non-solicitation agreement. This agreement also provides that if Dr. Kisner is terminated without cause or Dr. Kisner voluntarily terminates his employment after a constructive termination, he will be paid his then current salary for 12 months in monthly installments or until he becomes employed, whichever is earlier, and a portion of his options will be partially accelerated. In September 1999, we entered into an employment agreement with James L. Knighton to serve as our Chief Financial Officer at a base salary of $245,000 a year starting in September, 1999, with a sign-on bonus of $50,000 and an annual discretionary bonus set by the board based upon specific objectives to be determined, with a minimum bonus of 30% of his base salary guaranteed during the first 12 months of employment. In addition, Mr. Knighton will receive a stock bonus equal to $100,000 divided by the initial public offering price at such time as our common stock trades at or above 125% of the initial public offering price for six consecutive months. Pursuant to the employment agreement, Mr. Knighton received an option to purchase 420,000 shares of our common stock at an exercise price of $2.00 per share, plus a bonus payable at the time of exercise in the amount of $1.00 per share of stock exercised, plus an 49 55 additional amount to cover taxes on the bonus. In addition, Mr. Knighton is entitled to a housing loan of up to $500,000. The employment agreement is at-will, and provides that if Mr. Knighton is terminated without cause or Mr. Knighton voluntarily terminates his employment after a constructive termination, he will be paid his base salary for 12 months in monthly installments or until he becomes employed, whichever is earlier, and a portion of his options will be partially accelerated. EMPLOYEE BENEFIT PLANS 1999 Equity Incentive Plan We adopted our 1999 equity incentive plan in October, 1999, subject to stockholder approval. The incentive plan is an amendment and restatement of our 1996 stock incentive plan. Administration. The board administers the incentive plan unless it delegates administration to a committee. The board has the authority to construe, interpret and amend the incentive plan as well as to determine: - the grant recipients - the grant dates - the number of shares subject to the award - the exercisability and vesting of the award - the exercise price - the type of consideration - the other terms of the award Share Reserve. We had reserved a total of 4,252,411 shares of our common stock for issuance under the 1996 stock incentive plan. When we amended and restated the 1996 stock incentive plan, we reserved an additional 2 million shares for issuance under the incentive plan, subject to stockholder approval, for a total of 6,252,411 shares. If the recipient of a stock award does not purchase the shares subject to such stock award before the stock award expires or otherwise terminates, the shares that are not purchased again become available for issuance under the incentive plan. On the day after each annual meeting of our stockholders for 10 years, beginning in 2000, the number of shares in the reserve automatically will be increased by the greater of: - 5% of our outstanding shares on a fully-diluted basis; or - that number of shares that have been made subject to awards granted under the incentive plan during the prior 12-month period. The automatic share reserve increase in the aggregate may not exceed 20 million shares over the 10-year period. Eligibility. The board may grant incentive stock options that qualify under Section 422 of the Internal Revenue Code to our employees and to the employees of our affiliates. The board also may grant nonstatutory stock options, stock bonuses and restricted stock purchase awards to our employees, directors and consultants as well as to the employees, directors and consultants of our affiliates. - A stock option is a contractual right to purchase a specified number of our shares at a specified price, the exercise price, for a specified period of time. - An incentive stock option is a stock option that has met the requirements of Section 422 of the Internal Revenue Code. Such an option is free from regular tax at both the date of grant and the date of exercise. If two holding period tests are met, two years between grant date and sale date and one year between exercise date and sale date, the profit on the option is long-term capital gain income. If the holding periods are not met, there has been a disqualifying disposition, and a portion 50 56 of any profit will be taxed at ordinary income rates. The difference between the fair market value on date of exercise and the exercise price is an item of alternative minimum tax unless there is a disqualifying disposition in the year of exercise. - A nonstatutory stock option is a stock option not meeting the Internal Revenue Code criteria for qualifying incentive stock options and, therefore, triggering a tax upon exercise. This type of option requires payment of state and federal income tax and, if applicable, FICA/FUTA on the difference between the exercise price and the fair market value on the exercise date. - A restricted stock purchase award is an offer to purchase shares at a price either at or near the fair market value of the shares. A stock bonus, on the other hand, is a grant of our shares at no cost to the recipient in consideration for past services rendered. However, we may reacquire the shares under either type of award at the original purchase price, which is zero in the case of a stock bonus, if the recipient's service to our affiliates and to us terminates before the shares vest. The board may not grant an incentive stock option to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or the total combined voting power of an affiliate of ours, unless the exercise price is at least 110% of the fair market value of the stock on the grant date and the option term is five years or less. Limits on Option Grants. There are limits on the number of shares that the board may grant under an option. - Section 162(m) of the Internal Revenue Code, among other things, denies a deduction to publicly held corporations for compensation paid to the chief executive officer and the four highest compensated officers in a taxable year to the extent that the compensation for each such officer exceeds $1,000,000. When we become subject to Section 162(m), in order to prevent options granted under the incentive plan from being included in such compensation, the board may not grant options under the incentive plan to an employee person covering an aggregate of more than 3 million shares in any calendar year. - In addition, an employee may not receive incentive stock options that exceed the $100,000 per year limitation set forth in Section 422(d) of the Internal Revenue Code. In calculating the $100,000 per year limitation, we determine the aggregate number of shares under all incentive stock options granted to that employee that will become exercisable for the first time during a calendar year. For this purpose, we include incentive stock options granted under the incentive plan as well as under any other stock plans that our affiliates or we maintain. We then determine the aggregate fair market value of such stock as of the grant date of the option. Taking the options into account in the order in which they were granted, we treat only the options covering the first $100,000 worth of stock as incentive stock options. We treat any options covering stock in excess of $100,000 as nonstatutory stock options. Option Terms. The board may grant incentive stock options with an exercise price of 100% or more of the fair market value of a share of our common stock on the grant date. It may grant nonstatutory stock options with an exercise price as low as 85% of the fair market value of a share on the grant date. The maximum option term is 10 years. The board may provide for exercise periods of any length in individual option grants. However, generally an option terminates three months after the optionholder's service to our affiliates and to us terminates. If such termination is due to the optionholder's disability, the exercise period generally is extended to 12 months. If such termination is due to the optionholder's death or if the optionholder dies within three months after his or her service terminates, the exercise period generally is extended to 18 months following such death. The board may provide for the transferability of nonstatutory stock options but not incentive stock options. However, the optionholder may designate a beneficiary to exercise either type of option following the optionholder's death. If the optionholder does not designate a beneficiary, the optionholder's option rights will pass by his or her will or by the laws of descent and distribution. 51 57 Terms of Other Stock Awards. The board determines the purchase price of other stock awards, which may not be less than 85% of the fair market value of our common stock on the grant date. However, the board may award stock bonuses in consideration of past services without a purchase payment. Shares that we sell or award under the incentive plan may, but need not be, restricted and subject to a repurchase option in our favor in accordance with a vesting schedule that the board determines. The board, however, may accelerate the vesting of such restricted stock. Other Provisions. Transactions not involving our receipt of consideration, such as a merger, consolidation, reorganization, stock dividend, or stock split, may change the class and number of shares subject to the incentive plan and to outstanding awards. In that event, the board will appropriately adjust the incentive plan as to the class and the maximum number of shares subject to the incentive plan, to the cap on the number of shares available for incentive stock options, and to the Section 162(m) limit. It also will adjust outstanding awards as to the class, number of shares and price per share subject to such awards. If we dissolve or liquidate, then outstanding stock awards will terminate immediately prior to such event. However, we treat outstanding stock awards differently in the following situations: - a sale, lease or other disposition of all or substantially all of our assets, - a merger or consolidation in which we are not the surviving corporation, or - a reverse merger in which we are the surviving corporation but the shares of our common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property. In these situations, the surviving entity will either assume or substitute all outstanding awards under the incentive plan. If it declines to do so, then generally the vesting and exercisability of the awards will accelerate. Stock Awards Granted. As of September 30, 1999, we had granted options to purchase 3,944,250 shares under the incentive plan, and 833,129 shares remained available for future grant. However, the number of shares remaining available for future grant will increase by 2 million shares if the stockholders approve the share reserve increase. The board has not granted any stock bonuses under the 1999 equity incentive plan. Plan Termination. The incentive plan will terminate in 2009 unless the board terminates it sooner. 1996 Equity Incentive Plan Our 1996 equity incentive plan was adopted by the board of directors in January 1996 and approved by the stockholders in August 1996. The board authorized and reserved an aggregate of 1,100,000 shares of Caliper common stock for issuance under the 1996 equity incentive plan. The 1996 equity incentive plan provides for the grant of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants of Caliper and its affiliates. The 1996 equity incentive plan provides that it will be administered by the board, or a committee appointed by the board, which determines recipients and types of options to be granted, including number of shares subject to the option and the exercisability of the shares. The terms of stock options granted under the 1996 equity incentive plan may not exceed ten years. The exercise price for a nonstatutory stock option granted under the 1996 equity incentive plan cannot be less than 85% of the fair market value of the common stock on the date of the option grant and the exercise price for an incentive stock option granted under the 1996 equity incentive plan cannot be less than 100% of the fair market value of the common stock on the date of the option grant. However, options granted in substitution for other options may be granted with a lower exercise price than that above. The options may, but need not, contain provisions for early exercise and the right of first refusal. 52 58 Options granted under the 1996 equity incentive plan vest at the rate specified in each optionee's option agreement. No stock option may be transferred by the optionee other than by will or the laws of descent or distribution or, for a nonstatutory stock option, upon the terms of the option agreement. An optionee whose relationship with Caliper or any affiliate ceases for any reason, other than by death or permanent and total disability, may exercise options in a period not to exceed three months following such cessation. When an optionee's relationship with Caliper and any affiliate ceases due to death or disability, options may be exercised for between six and eighteen months. No incentive stock option may be granted to any person who, at the time of the grant, owns, or is deemed to own, stock possessing more than 10% of the total combined voting power of Caliper or any affiliate of Caliper, unless the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and the term of the option does not exceed five years from the date of grant. No person shall be granted options covering more than 250,000 shares of Caliper's common stock in any calendar year. Upon certain changes in control of Caliper, all outstanding options under the 1996 equity incentive plan shall either be assumed or substituted by the surviving entity. If the surviving entity determines not to assume, continue or substitute such options, the time during which such options may be exercised shall be accelerated. If the options are not exercised following the acceleration, the options shall terminate. As of September 30, 1999, under the 1996 equity incentive plan (a) options to purchase 142,584 shares of common stock were outstanding and (b) options to purchase 181,635 shares had been exercised. In July 1996, the board voted that no additional grants would be made under the 1996 equity incentive plan. 1999 Non-Employee Directors' Stock Option Plan We adopted the 1999 non-employee directors' stock option plan in October, 1999, subject to stockholder approval. The directors' 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 300,000 shares of our common stock for issuance under the directors' plan. On the day after each annual meeting of our stockholders, for 10 years, starting in 2000, the share reserve will automatically be increased by a number of shares equal to the greater of: - 0.3% of our outstanding shares on a fully-diluted basis, or - that number of shares subject to options granted under the directors' plan during the prior 12-month period. If an optionholder does not purchase the shares subject to such option before the option expires or otherwise terminates, the shares that are not purchased again become available for issuance under the directors' plan. Administration. The board administers the directors' plan. The board has the authority to construe, interpret and amend the directors' plan but the directors' plan specifies the essential terms of the options, including: - the option recipients - the grant dates - the number of shares subject to the option - the exercisability and vesting of the option - the exercise price - the type of consideration 53 59 Eligibility. Each person who is first elected or appointed as a non-employee director after this initial public offering will automatically receive an option for 30,000 shares. The initial grant will be fully exercisable upon date of grant and will vest monthly over 5 years. In addition, on the day after each of our annual meetings of the stockholders, starting with the annual meeting in 2000, each non-employee director will automatically receive another option if the recipient has been a non-employee director for at least the prior six months. The annual grant will cover 10,000 shares for the chairman of the board and 5,000 shares otherwise, will be fully exercisable upon date of grant and will vest in 12 months. As long as the optionholder continues to serve with us or with an affiliate of ours, whether in the capacity of a director, an employee or a consultant, the option will continue to vest, and the optionholder may exercise the option during 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 10 years but it terminates 6 months after the optionholder's service terminates. If such termination is due to the optionholder's disability, the post-termination exercise period is extended to 12 months. If such termination is due to the optionholder's death or if the optionholder dies within three months after his or her service terminates, the post-termination exercise period is extended to 18 months following death. The optionholder may transfer the option by gift to immediate family or for estate-planning purposes. The optionholder also 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. Other Provisions. Transactions not involving our receipt of consideration, such as a merger, consolidation, reorganization, stock dividend, or stock split, may change the class and number of shares subject to the directors' plan and to outstanding options. In that event, the board will appropriately adjust the directors' plan as to the class and the maximum number of shares subject to the directors' plan and to the automatic option grants. It also will adjust outstanding options as to the class, number of shares and price per share subject to such options. If we dissolve or liquidate, then outstanding options will terminate immediately prior to such event. However, we treat outstanding options differently in the following situations: - a sale, lease or other disposition of all or substantially all of our assets; - a merger or consolidation in which we are not the surviving corporation; or - a reverse merger in which we are the surviving corporation but the shares of our common stock outstanding immediately before the merger are converted by virtue of the merger into other property, such as securities or cash. In these situations, the surviving entity will either assume or replace all outstanding options under the directors' plan. If it declines to do so, then generally the vesting and exercisability of the options will accelerate. However, if an option is assumed or replaced but the optionholder is not elected to the board of directors of the acquiring or surviving corporation at the first meeting of the board after the change in control, then the vesting of that option will accelerate by 18 months. Options Issued. The directors' plan will not be effective until the date of this initial public offering of our stock. Therefore, we have not issued any options under the directors' plan. Plan Termination. The directors' plan will terminate in 2009 unless the board terminates it sooner. 1999 Employee Stock Purchase Plan We adopted the 1999 employee stock purchase plan in October, 1999, subject to stockholder approval. 54 60 Administration. The board administers the purchase plan unless it delegates administration to a committee. The board has the authority to construe, interpret and amend the purchase plan as well as to determine the terms of rights granted under the purchase plan. Share Reserve. We authorized the issuance of 450,000 shares of our common stock pursuant to purchase rights granted to eligible employees under the purchase plan. On the day after each annual meeting of our stockholders for 10 years, beginning in 2000, the number of shares in the reserve automatically will be increased by the greater of: - 0.5% of our outstanding shares on a fully-diluted basis, or - that number of shares that have been issued under the purchase plan during the prior 12-month period. The automatic share reserve increase in the aggregate may not exceed 4,500,000 shares over the 10-year period. Eligibility. We intend to qualify the purchase plan as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. The purchase plan provides a means by which eligible employees may purchase our common stock through payroll deductions. We implement the purchase plan by offerings of purchase rights to eligible employees. Generally, all of our full-time employees and full-time employees of our affiliates incorporated in the United States who have been employed for at least 10 days may participate in offerings under the purchase plan. However, no employee may participate in the purchase plan if immediately after we grant the employee a purchase right, the employee has voting power over 5% or more of our outstanding capital stock. As of the date hereof, no shares of common stock have been purchased under the purchase plan. Offerings. Under the purchase plan, the board may specify offerings of up to 27 months. Unless the board otherwise determines, common stock is purchased for accounts of participating employees at a price per share equal to the lower of: - 85% of the fair market value of a share on the first day of the offering, or - 85% of the fair market value of a share on the purchase date. For the first offering, which will begin on the effective date of this initial public offering, we will offer shares registered on a Form S-8 registration statement. The fair market value of the shares on the first date of this offering will be the price per share at which our shares are first sold to the public as specified in the final prospectus with respect to this initial public offering. Otherwise, fair market value generally means the closing sales price, rounded up where necessary to the nearest whole cent, for such shares, or the closing bid, if no sales were reported, as quoted on the Nasdaq National Market on the trading day prior to the relevant determination date, as reported in The Wall Street Journal. The board may provide that employees who become eligible to participate after the offering period begins nevertheless may enroll in the offering. These employees will purchase our stock at the lower of: - 85% of the fair market value of a share on the day they began participating in the purchase plan, or - 85% of the fair market value of a share on the purchase date. Participating employees may authorize payroll deductions of up to 10% of their compensation for the purchase of stock under the purchase plan. Employees may end their participation in the offering at any time up to 10 days before a purchase period ends. Their participation ends automatically on termination of their employment. Other Provisions. The board may grant eligible employees purchase rights under the purchase plan only if the purchase rights together with any other purchase rights granted under other employee stock purchase plans established by us or by our affiliates, if any, do not permit the employee's rights to purchase our stock to accrue at a rate which exceeds $25,000 of fair market value of our stock for each calendar year in which the purchase rights are outstanding. 55 61 Upon a change in control, the board may provide that the successor corporation will assume or substitute for outstanding purchase rights. Alternatively, the board may shorten the offering period and provide that our stock will be purchased for the participants immediately before the change in control. Shares Issued. The purchase plan will not be effective until this initial public offering of our stock is completed. Therefore, as of the date hereof, no shares of common stock have been purchased under the purchase plan. Plan Termination. The purchase plan has no set termination date. It will terminate when all of the shares reserved thereunder have been issued unless the board terminates it earlier. 401(k) Plan We maintain a retirement and deferred savings plan for our employees that is intended to qualify as a tax-qualified plan under the Internal Revenue Code. The 401(k) Plan provides that each participant may contribute up to a statutory limit, which is $10,000 in calendar year 1999. 56 62 CERTAIN TRANSACTIONS The following executive officers, directors or holders of more than five percent of our voting securities purchased securities in the amounts as of the dates set forth below.
SHARES OF PREFERRED STOCK COMMON -------------------------------------------------------- STOCK SERIES B SERIES C SERIES D SERIES E --------------- ------------- -------------- ------------ -------- DIRECTORS AND EXECUTIVE OFFICERS Daniel L. Kisner, M.D................. 100,000 -- -- -- -- Calvin Y. H. Chow..................... 340,361 -- -- -- -- Michael R. Knapp, Ph.D................ 328,015 31,948 8,333 -- -- J. Wallace Parce, Ph.D................ 301,426 -- -- -- -- William M. Wright III................. 16,000 -- -- -- -- David V. Milligan, Ph.D............... 150,000 -- -- -- -- Charles M. Hartman.................... 12,000 -- -- -- -- Regis P. McKenna...................... 30,000 -- -- 50,000 -- 5% STOCKHOLDERS Venrock Associates(1)................. 118,844 1,657,556 69,057 86,000 -- Venrock Associates II, L.P.(1)........ 72,841 1,018,336 103,585 114,000 -- CW Partners III, L.P.(2).............. 191,685 -- -- -- -- CW Ventures II, L.P.(2)............... -- 2,207,136 141,814 -- -- Lombard Odier & Cie................... -- 638,967 1,000,000 750,000 350,000 The Dow Chemical Company.............. -- -- -- 1,625,000 -- Hoffmann-La Roche Inc................. -- -- 1,333,333 -- -- BB BioVentures, L.P.(3)............... -- -- -- 1,250,000 -- Price Per Share....................... $0.001 to $0.62 $0.7825135 $3.00 $4.00 $6.00 Date(s) of Purchase................... 8/95 to 9/99 4/96 to 10/96 10/96 to 12/96 1/97 to 3/98 5/98
- --------------- (1) Anthony B. Evnin, Ph.D., one of our directors, is a general partner of Venrock Associates. (2) Charles M. Hartman, one of our directors, is a general partner of CW Group. (3) Michael Steinmetz, Ph.D., one of our directors, is a partner of MPM Asset Management LLC, the management advisor of BB BioVentures, L.P. Amended and Restated Investors' Rights Agreement. Caliper and the preferred stockholders described above have entered into an agreement, pursuant to which these and other preferred stockholders will have registration rights with respect to their shares of common stock following this offering. Upon the completion of this offering, all shares of our outstanding preferred stock will be automatically converted into common stock on a one for one basis. See "Description of Capital Stock -- Registration Rights" for a further description of the terms of this agreement. Dow Chemical Agreement. On January 14, 1997, we entered into a development agreement with The Dow Chemical Company to work together on polymer chip manufacturing technologies. This work concluded in 1998. In consideration of Dow's contribution under the development agreement, we issued 375,000 shares of our Series D preferred stock to Dow. The remaining shares of Series D preferred stock held by Dow were purchased with cash in connection with our Series D financing. MPM Capital Advisors LLC Agreement. On July 24, 1997, we entered into an agreement with MPM Capital Advisors LLC. Under the terms of this agreement, MPM agreed to develop a strategic overview and business plan for Caliper. In consideration for these services we paid MPM $125,000 and issued 61,250 shares of our common stock. This agreement was terminated on April 23, 1998. David V. Milligan, Ph.D. Consulting Agreement. As part of our ongoing program of research and development, we entered into a twelve-month consulting agreement with Dr. David V. Milligan, our Chairman of the Board, effective April 30, 1997. The term of this agreement may be renewed annually for 57 63 up to five years. Under the terms of this agreement, Dr. Milligan has agreed to provide consultation and advice concerning our core competitive strengths and the development of optimal growth strategies. In exchange, we have agreed to pay Dr. Milligan $80,000 per year and granted Dr. Milligan a stock option to purchase 100,000 shares of our common stock at $0.30 per share. This option vests monthly over a period of five years. This agreement has been renewed and remains in effect. We have also granted Dr. Milligan stock options in connection with his services as one of our directors. See "Management -- Director Compensation." Regis P. McKenna Consulting Agreement. We entered into a twelve-month consulting agreement with Regis P. McKenna, one of our directors, on April 30, 1997. Under the terms of this agreement, Mr. McKenna agreed to provide assistance in developing our technology and business strategies. In exchange, Mr. McKenna was allowed to purchase 30,000 shares of common stock at $0.40 per share. In July 1998, Mr. McKenna was granted a stock option for 30,000 shares of common stock at $0.62 per share. In August 1999, Mr. McKenna was granted a stock option for 30,000 shares of common stock at $0.62 per share. This option vests in twelve equal monthly installments beginning in May 1999. This agreement has been renewed and remains in effect. We have also granted Mr. McKenna stock options in connection with his services as one of our directors. See "Management -- Director Compensation." Executive Employment Agreements. We have entered into employment contracts with Daniel L. Kisner, M.D. our President and Chief Executive Officer, and James L. Knighton, our Chief Financial Officer. See "Management -- Employment Agreements." Indemnification Agreements. We intend to enter into indemnification agreements with our directors and officers for the indemnification of these persons to the full extent permitted by law. We also intend to execute these agreements with our future directors and officers. Indebtedness of Management. In March 1997, we loaned Michael R. Knapp, our Vice President of Science and Technology, $200,000 in connection with the purchase of a residence. The interest on this loan is 6.61% per year and begins to accrue on January 1, 2002. The principal and accrued interest is to be repaid in five equal annual installments beginning June 30, 2002. The promissory note will accelerate and become due and payable in the event Dr. Knapp's employment with us is terminated for any reason. The promissory note is full recourse and is secured by a deed of trust on the residence. In September 1999, we loaned Daniel L. Kisner, M.D. our President and Chief Executive Officer, $425,000 in connection with the purchase of a residence. The loan has a maximum term of six years with an annual interest rate of 5.96%. The loan may be forgiven by our board based upon Dr. Kisner's performance over five years. Warrants. In October 1996, in consideration of having reached performance milestones, we issued Michael R. Knapp, Ph.D. our Vice President of Science and Technology, a warrant to purchase 30,000 shares of common stock at $0.78 per share. This warrant is exercisable until October 11, 2006. Stock Options. In October 1996, in connection with his services as a consultant to us, we granted to Charles M. Hartman, one of our directors, a stock option to purchase 12,000 shares of common stock at an exercise price $0.30 per share. We believe that all of the transactions set forth above were made on terms no less favorable to Caliper than could have been obtained from unaffiliated third parties. All future transactions, including loans, between Caliper and its officers, directors, principal stockholders and their affiliates will be approved by a majority of the board of directors, including a majority of the independent and disinterested directors, and will continue to be on terms no less favorable to Caliper than could be obtained from unaffiliated third parties. 58 64 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our common stock as of September 30, 1999, and as adjusted to reflect the sale of our common stock offered by this prospectus, by: - each of the individuals listed in the "Summary Compensation Table" above - each of our directors - each person, or group of affiliated persons, who is known by us to own beneficially five percent or more of our common stock - all current directors and executive officers as a group Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of September 30, 1999 are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares shown as beneficially owned by them. Percentage of ownership is based on 24,655,168 shares of common stock outstanding on September 30, 1999 and shares of common stock outstanding after completion of this offering. This table assumes no exercise of the underwriters' over-allotment option. Unless otherwise indicated in the footnotes, the address of each of the individuals named below is: c/o Caliper Technologies Corp., 605 Fairchild Drive, Mountain View, California 94043.
BENEFICIAL OWNERSHIP PRIOR TO OFFERING --------------------------------- SHARES ISSUABLE PURSUANT TO OPTIONS AND WARRANTS PERCENTAGE EXERCISABLE BENEFICIALLY NUMBER OF WITHIN OWNED SHARES 60 DAYS OF -------------------- BENEFICIALLY SEPTEMBER 30, BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER OWNED 1999 OFFERING OFFERING - ------------------------------------ ------------ ----------------- -------- -------- DIRECTORS AND EXECUTIVE OFFICERS Daniel L. Kisner, M.D.(1).......................... 100,000 50,000 * Calvin Y. H. Chow(2)............................... 340,361 8,384 1.4% Michael R. Knapp, Ph.D.(3)......................... 368,296 46,717 1.7 J. Wallace Parce, Ph.D.(4)......................... 301,426 15,884 1.3 David V. Milligan, Ph.D.(5)........................ 150,000 -- * Anthony B. Evnin, Ph.D.(6)......................... 3,240,219 -- 13.1 Charles M. Hartman(7).............................. 2,552,635 -- 10.4 Regis P. McKenna(8)................................ 80,000 52,000 * Robert T. Nelsen(9)................................ 1,105,787 -- 4.5 Michael Steinmetz, Ph.D.(10)....................... 1,311,250 -- 5.3 5% STOCKHOLDERS Venrock Associates(6).............................. 3,240,219 -- 13.1 Lombard Odier & Cie(11)............................ 2,738,967 -- 11.1 CW Group(7)........................................ 2,540,635 -- 10.3 The Dow Chemical Company(12)....................... 1,625,000 -- 6.6 Hoffmann-La Roche Inc.(13)......................... 1,333,333 -- 5.4 BB BioVentures, L.P.(10)........................... 1,311,250 -- 5.3 All directors and executive officers as a group (12 persons)(14)..................................... 9,565,974 175,651 39.2%
59 65 - --------------- * Represents beneficial ownership of less than 1 percent. (1) Includes 60,000 shares held by The Kisner Revocable Trust u/a/d 9/23/99, of which Dr. Kisner is a trustee, 20,000 shares held by The Jordan Renee Kisner Exempt Irrevocable Trust u/a/d 9/23/99, of which Dr. Kisner is a trustee and 20,000 shares held by The Griffin Daniel Kisner Exempt Irrevocable Trust u/a/d 9/23/99, of which Dr. Kisner is a trustee. (2) Includes 40,361 shares that are held by Tiffany Chow, 20,000 shares held by Harrison Chow and 20,000 shares held by Stephanie Chow, the children of Mr. Chow. Also includes 40,000 shares subject to repurchase by Caliper. (3) Includes 7,500 shares subject to repurchase by Caliper. (4) Includes 20,000 shares held by Charles Andrew Parce and 20,000 shares held by Laura Marie Parce, the children of Dr. Parce. Also includes 44,000 shares subject to repurchase by Caliper. (5) Includes 50,000 shares subject to repurchase by Caliper within 60 days of September 30, 1999. (6) Consists of 1,931,457 shares held by Venrock Associates, and 1,308,762 shares held by Venrock Associates II, L.P. Venrock Associates is located at 30 Rockefeller Plaza, Suite 5508, New York, NY 10112. Dr. Evnin is a general partner of Venrock Associates and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest in these shares. (7) Includes 191,685 shares held by CW Partners III, L.P., and 2,348,950 shares held by CW Ventures II, L.P. CW Group is located at 1041 Third Avenue, 2nd Floor, New York, NY 10021. Mr. Hartman is a general partner of CW Ventures and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest in these shares. (8) Includes 50,000 shares held by The Regis P. and Dianne T. McKenna Trust, of which Mr. McKenna is a trustee. (9) Consists of 1,105,787 shares held by ARCH Venture Fund II, L.P., a limited partnership managed by ARCH Management Partners II, L.P. ARCH Venture Partners, L.P. is the general partner of ARCH Management Partners II, L.P. Mr. Nelsen is a Managing Director of ARCH Venture Corporation, which is the general partner of ARCH Venture Partners, L.P. ARCH Venture Fund II, L.P. is located at 8725 W. Higgins Road, Suite 290, Chicago, Illinois 60631. (10) Includes 1,250,000 shares held by BB BioVentures, L.P. BB BioVentures, L.P. is located at One Cambridge Center, 9th Floor, Cambridge, MA 02142. Dr. Steinmetz is a partner of MPM Asset Management LLC, the management advisor of BB BioVentures, L.P. Dr. Steinmetz disclaims beneficial ownership of these shares. Also includes 61,250 shares held by MPM Capital Advisors LLC, a wholly owned subsidiary of MPM Capital L.P. MPM Capital L.P. also owns 51% of MPM Asset Management LLC. Dr. Steinmetz disclaims beneficial ownership of these shares except to the extent of his proportional partnership interest in these shares. (11) Lombard Odier & Cie is located at 11, Rue de la Corraterie, 1204 Geneva, Switzerland. (12) The Dow Chemical Company is located at 2030 Dow Center, Midland, Michigan 48674. (13) Hoffmann-La Roche Inc. is located at 340 Kingland Street, Nutley, New Jersey 07110. (14) Total number of shares includes 8,197,891 shares of common stock held by entities affiliated with directors and executive officers. See footnotes 1 through 10 above. 60 66 DESCRIPTION OF CAPITAL STOCK Upon completion of this offering, our authorized capital stock will consist of 70,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value. COMMON STOCK As of September 30, 1999, there were 24,655,168 shares of common stock outstanding held of record by 158 stockholders. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefore, subject to the rights of the holders of preferred stock. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of Caliper, holders of the common stock are entitled to share ratably in all assets remaining after payment of liabilities and amounts due to the holders of preferred stock as described below. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and non-assessable. PREFERRED STOCK The board of directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon such preferred stock, including dividend rights, conversion rights, terms of redemption, liquidation preference, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by the stockholders. The board of directors, without stockholder approval, can issue preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of Caliper. We have no present plan to issue any shares of preferred stock. WARRANTS As of September 30, 1999, one warrant to purchase 51,117 shares of Series B preferred stock was outstanding at an exercise price of $0.78 per share. This warrant expires upon the earlier of May 10, 2002 or three years after completion of this offering. The warrant contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations and reclassifications and consolidations. Upon the closing of this offering, the warrant to purchase Series B preferred stock will become exercisable for common stock at the rate of one share of common stock for each share of preferred stock underlying the warrant. As of September 30, 1999, three warrants to purchase a total of 65,112 shares of common stock were outstanding at an exercise price of $0.78 per share. One of the warrants expires on the earlier of January 3, 2002 or the closing of a merger or acquisition of Caliper. Two of the warrants expire on October 11, 2006. Each warrant contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrants in the event of stock dividends, stock splits, reorganizations and reclassifications and consolidations. REGISTRATION RIGHTS On the date 180 days after the completion of this offering, the holders of 18,509,995 shares of common stock or their transferees will be entitled to rights to register these shares under the Securities Act of 1933. If we propose to register any of our securities under the Securities Act, either for our own account or for the account of other securityholders, the holders of these shares will be entitled to notice of the registration and will be entitled to include, at our expense, their shares of common stock. In addition, the holders of these shares may require us, at our expense and on not more than two occasions at any time 61 67 beginning approximately six months from the date of the closing of this offering, to file a registration statement under the Securities Act with respect to their shares of common stock, and we will be required to use our best efforts to effect the registration. Further, the holders may require us at our expense to register their shares on Form S-3 when this form becomes available. These rights shall terminate on the earlier of five years after the effective date of this offering, or when a holder is able to sell all its shares pursuant to Rule 144 under the Securities Act in any 90-day period. These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under certain circumstances. ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS Delaware Law We are subject to Section 203 of the Delaware General Corporation Law. In general, this statute prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless: - prior to the date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - on or subsequent to the date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines "business combination" to include: - any merger or consolidation involving the corporation and the interested stockholder; - any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; - subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or - the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person. Charter Provisions Our certificate of incorporation and bylaws include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of Caliper. First, our certificate of incorporation provides that all stockholder actions upon completion of this offering must be effected at a duly called meeting of holders and not by a consent in writing. Second, our bylaws provide that special meetings of the holders may be called only by the chairman of the board of directors, the chief executive officer, or our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors. Third, our certificate of incorporation and the bylaws provide for a 62 68 classified board of directors, in which approximately one-third of the directors would be elected each year. Consequently, any potential acquiror would need to successfully complete two proxy contests in order to take control of the board of directors. Our certificate of incorporation includes a provision requiring cumulative voting for directors only if required by applicable California law. Under cumulative voting, a minority stockholder holding a sufficient percentage of a class of shares may be able to ensure the election of one or more directors. As a result of the provisions of the certificate of incorporation and applicable California and Delaware law, unless we are subject to the California Corporations Code, stockholders will not be able to cumulate votes for directors. Finally, our bylaws establish procedures, including advance notice procedures with regard to the nomination of candidates for election as directors and stockholder proposals. These provisions of our certificate of incorporation and bylaws could discourage potential acquisition proposals and could delay or prevent a change in control or management of Caliper. TRANSFER AGENT AND REGISTRAR Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and registrar for our common stock. NATIONAL MARKET LISTING We have applied for listing of our common stock on the Nasdaq Stock Market's National Market under the symbol "CLPR." 63 69 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. Furthermore, because a large number of our shares of common stock outstanding will not be available for sale shortly after this offering because of contractual and legal restrictions on resale as described below, sales of substantial amounts of our common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding an aggregate of shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by affiliates. The remaining 24,655,168 shares of common stock held by existing stockholders are restricted securities. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration described below under Rules 144, 144(k) or 701 promulgated under the Securities Act. As a result of the contractual restrictions described below and the provisions of Rules 144, 144(k) and 701, the restricted shares will be available for sale in the public market as follows: - 451,896 shares will be eligible for immediate sale on the date the registration statement of which this prospectus is a part is declared effective - 127,700 shares will be eligible for sale 90 days from the date the registration statement of which this prospectus is a part is declared effective - 24,075,572 shares will be eligible for sale upon the expiration of the lock-up agreements, described below, 180 days after the date this offering is declared effective - 887,607 shares will be eligible for sale upon the exercise of vested options and outstanding warrants 180 days after the date this offering is declared effective - 1,833,653 shares will be eligible for sale upon the exercise of unvested options at various times on or after 180 days after the date this offering is declared effective Lock-Up Agreements All of our officers and directors, and certain of our stockholders, warrant holders and option holders, have agreed not to transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, for a period of 180 days after the date the registration statement of which this prospectus is a part is declared effective. Transfers or dispositions can be made sooner with the prior written consent of Credit Suisse First Boston Corporation. Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date the registration statement of which this prospectus is a part is declared effective, a person or persons whose shares are aggregated, who has beneficially owned restricted securities for at least one year, including the holding period of any prior owner except an affiliate, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - 1% of the number of shares of our common stock then outstanding which will equal approximately shares immediately after this offering; or - the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. 64 70 Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about Caliper. Rule 144(k) Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors, other than affiliates, who purchases or receives shares from us in connection with a compensatory stock purchase plan or option plan or other written agreement will be eligible to resell their shares beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144 without compliance with its holding period requirements. Registration Rights Upon completion of this offering, the holders of 18,509,995 shares of our common stock, or their transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act. Registration of their shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of this registration. Stock Options Immediately after this offering, we intend to file a registration statement under the Securities Act covering the shares of common stock reserved for issuance under our stock option plans and employee stock purchase plan. The registration statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under the registration statements will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, beginning 180 days after the effective date of the registration statement of which this prospectus is a part. 65 71 UNDERWRITING Under the terms and subject to the conditions contained in the underwriting agreement dated , , we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, CIBC World Markets Corp. and Hambrecht & Quist LLC are acting as representatives, the following respective number of shares of common stock:
NUMBER UNDERWRITER OF SHARES ----------- --------- Credit Suisse First Boston Corporation...................... CIBC World Markets Corp. ................................... Hambrecht & Quist LLC....................................... -------- Total............................................. ========
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares from us at the initial public offering price less the underwriting discounts and commissions. This option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock to the public initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
PER SHARE TOTAL -------------------------------- -------------------------------- WITHOUT WITH WITHOUT WITH OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT -------------- -------------- -------------- -------------- Underwriting discounts and commissions paid by us............. $ $ $ $ Expenses payable by us............... $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. We, our directors, officers and certain of our stockholders have agreed that we and they will not offer, sell, contract to sell, announce our intention to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 relating to, any additional shares of our common stock or securities convertible into or exchangeable or exercisable for any of our common stock without the prior consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except in connection with our stock option and employee stock purchase plans. The underwriters have reserved for sale, at the initial public offering price, up to shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase these reserved shares. Any 66 72 reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act of 1933 or to contribute to payments which the underwriters may be required to make in that respect. We have applied to list our shares of common stock on The Nasdaq Stock Market's National Market under the symbol "CLPR." Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiation between us and the underwriters. The principal factors to be considered in determining the public offering price include: - the information set forth in this prospectus and otherwise available to the underwriters - the history and the prospects for the industry in which we will compete - the ability of our management - the prospects for our future earnings - the present state of our development and our current financial condition - the general condition of the securities markets at the time of this offering - the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. - Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. - Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. - Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. - Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq Stock Market's National Market or otherwise and, if commenced, may be discontinued at any time. 67 73 NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. REPRESENTATIONS OF PURCHASERS Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom the purchase confirmation is received that (1) the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under these securities laws, (2) where required by law, that the purchaser is purchasing as principal and not as agent, and (3) the purchaser has reviewed the text above under "Resale Restrictions." RIGHTS OF ACTION (ONTARIO PURCHASERS) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or recission or rights of action under the civil liability provisions of the U.S. federal securities laws. ENFORCEMENT OF LEGAL RIGHTS All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or these persons. All or a substantial portion of the assets of the issuer and these persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or these persons in Canada or to enforce a judgment obtained in Canadian courts against the issuer or these persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by the purchaser in this offering. This report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from Caliper. Only one report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. TAXATION AND ELIGIBILITY FOR INVESTMENT Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 68 74 LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by Cooley Godward LLP, Palo Alto, California. As of the date of this prospectus, partners and associates of Cooley Godward LLP own an aggregate of approximately 29,166 shares of common stock through an investment partnership. The underwriters have been represented by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. EXPERTS Ernst & Young LLP, independent auditors, have audited our financial statements at December 31, 1997 and 1998, and for each of the three years in the period ended December 31, 1998, as set forth in their report. We have included our financial statements in this 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. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the shares of common stock offered by us. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some items of which are contained in exhibits to the registration statement as permitted by the rules and regulations of the Commission. For further information with respect to Caliper and the common stock offered, reference is made to the registration statement, including the exhibits, and the financial statements and notes filed as a part of the registration statement. A copy of the registration statement, including the exhibits and the financial statements and notes filed as a part of it, may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon the payment of fees prescribed by it. The Securities and Exchange Commission maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with it. 69 75 CALIPER TECHNOLOGIES CORP. INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors........... F-2 Balance Sheets.............................................. F-3 Statements of Operations.................................... F-4 Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)............................ F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7
F-1 76 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Caliper Technologies Corp. We have audited the accompanying balance sheets of Caliper Technologies Corp. as of December 31, 1997 and 1998, and the related statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1998. 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 generally accepted auditing standards. 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 financial position of Caliper Technologies Corp. at December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Palo Alto, California March 5, 1999 F-2 77 CALIPER TECHNOLOGIES CORP. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA STOCKHOLDERS' EQUITY DECEMBER 31, (DEFICIT) AT ------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1998 1999 1999 -------- -------- ------------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 312 $ 5,158 $ 3,628 Marketable securities..................................... 26,237 25,894 24,192 Accounts receivable....................................... -- 1,082 390 Inventories............................................... -- -- 206 Prepaid expenses and other current assets................. 189 600 761 -------- -------- -------- Total current assets........................................ 26,738 32,734 29,177 Property and equipment, net................................. 2,050 2,796 4,856 Deposits and other assets................................... 119 -- -- Notes receivable............................................ 200 200 625 -------- -------- -------- Total assets................................................ $ 29,107 $ 35,730 $ 34,658 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... $ 148 $ 228 $ 912 Accrued compensation...................................... 283 432 690 Other accrued liabilities................................. 1,142 493 606 Deferred revenue.......................................... -- 626 2,399 Current portion of equipment financing.................... 486 881 1,292 -------- -------- -------- Total current liabilities................................... 2,059 2,660 5,899 Noncurrent portion of equipment financing................... 1,430 2,008 3,299 Deferred rent............................................... -- -- 184 Commitments Redeemable convertible preferred stock, $0.001 par value, issuable in series; 17,308,333 shares authorized in 1997 and 19,579,039 shares authorized in 1998 and 1999 (none pro forma); 16,807,922 shares issued and outstanding in 1997, 18,257,756 shares issued and outstanding in 1998 and 1999 (none pro forma); aggregate liquidation preference of $44,810 at December 31, 1998 and September 30, 1999 (none pro forma)................................................ 38,283 48,716 50,538 $ -- Stockholders' equity (deficit): Convertible preferred stock, $0.001 par value; 1,691,667 shares authorized in 1997, 1,420,961 shares authorized in 1998 and 1999 (5,000,000 shares pro forma); 1,293,462 shares issued and outstanding in 1997, 1998, and 1999 (none pro forma); aggregate liquidation preference of $1,009 at December 31, 1998 and September 30, 1999 (none pro forma).............................................. 1 1 1 -- Common stock, $0.001 par value; 28,000,000 shares authorized in 1997, 32,000,000 shares authorized in 1998 and 1999 (70,000,000 shares pro forma); 3,866,834, 4,324,926, and 5,103,950 shares issued and outstanding in 1997, 1998, and 1999, respectively (24,655,168 shares pro forma).............................................. 4 4 5 25 Additional paid-in capital................................ 589 1,249 8,872 59,391 Deferred stock compensation............................... -- (500) (5,858) (5,858) Accumulated deficit....................................... (13,259) (18,408) (28,282) (28,282) -------- -------- -------- -------- Total stockholders' equity (deficit)........................ (12,665) (17,654) (25,262) $ 25,276 -------- -------- -------- ======== $ 29,107 $ 35,730 $ 34,658 ======== ======== ========
See accompanying notes. F-3 78 CALIPER TECHNOLOGIES CORP. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, --------------------------- ----------------- 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- (UNAUDITED) Revenue.................................................... $ 132 $ 2,266 $ 8,155 $ 4,425 $ 8,859 Costs and expenses: Research and development................................. 2,734 7,200 9,584 7,232 12,228 General and administrative............................... 1,240 2,478 2,932 1,996 3,487 Amortization of deferred stock compensation.............. -- -- -- -- 1,997 Acquired in-process research and development............. 978 -- -- -- -- ------- ------- ------- ------- ------- Total costs and expenses................................... 4,952 9,678 12,516 9,228 17,712 ------- ------- ------- ------- ------- Operating loss............................................. (4,820) (7,412) (4,361) (4,803) (8,853) Interest income............................................ 179 1,191 1,581 1,183 1,076 Interest expense........................................... (69) (60) (195) (125) (275) ------- ------- ------- ------- ------- Net loss................................................... (4,710) (6,281) (2,975) (3,745) (8,052) Accretion on redeemable convertible preferred stock........ (262) (1,470) (2,174) (1,587) (1,822) ------- ------- ------- ------- ------- Net loss attributable to common stockholders............... $(4,972) $(7,751) $(5,149) $(5,332) $(9,874) ======= ======= ======= ======= ======= Net loss per common share, basic and diluted............... $ (2.50) $ (2.81) $ (1.53) $ (1.63) $ (2.36) ======= ======= ======= ======= ======= Shares used in computing net loss per common share, basic and diluted.............................................. 1,987 2,758 3,365 3,275 4,187 Pro forma net loss per share, basic and diluted (unaudited).............................................. $ (0.13) $ (0.34) ======= ======= Shares used in computing pro forma net loss per share, basic and diluted (unaudited)............................ 22,381 23,738
See accompanying notes. F-4 79 CALIPER TECHNOLOGIES CORP. STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARES)
STOCKHOLDERS EQUITY (DEFICIT) REDEEMABLE ---------------------------------------------------- CONVERTIBLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL -------------------- ------------------ ------------------ PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ---------- ------- --------- ------ --------- ------ ---------- Balances at December 31, 1995....... -- $ -- -- $-- 650,000 $1 $ -- Issuance of common stock for cash... -- -- -- -- 1,884,870 2 25 Issuance of common stock and Series A convertible preferred stock in exchange for all of the outstanding common and preferred stock of ChemCore Corporation..... -- -- 1,293,462 1 1,058,911 1 492 Issuance of Series B redeemable convertible preferred stock for cash.............................. 8,499,589 6,651 -- -- -- -- -- Issuance of Series C redeemable convertible preferred stock for cash.............................. 3,333,333 10,000 -- -- -- -- -- Accretion on redeemable convertible preferred stock................... -- 262 -- -- -- -- -- Net loss and comprehensive net loss.............................. -- -- -- -- -- -- -- ---------- ------- --------- -- --------- -- ------- Balances at December 31, 1996....... 11,832,922 16,913 1,293,462 1 3,593,781 4 517 Issuance of Series D redeemable convertible preferred stock for cash.............................. 4,820,000 19,280 -- -- -- -- -- Issuance of Series D redeemable convertible preferred stock for services.......................... 155,000 620 -- -- -- -- -- Issuance of common stock upon exercise of stock options......... -- -- -- -- 243,053 -- 60 Issuance of common stock for cash... -- -- -- -- 30,000 -- 12 Accretion on redeemable convertible preferred stock................... -- 1,470 -- -- -- -- -- Net loss and comprehensive loss..... -- -- -- -- -- -- -- ---------- ------- --------- -- --------- -- ------- Balances at December 31, 1997....... 16,807,922 38,283 1,293,462 1 3,866,834 4 589 Issuance of Series D redeemable convertible preferred stock for services.......................... 220,000 880 -- -- -- -- -- Issuance of Series E redeemable convertible preferred stock for cash.............................. 1,229,834 7,379 -- -- -- -- -- Issuance of common stock upon exercise of stock options......... -- -- -- -- 299,277 -- 84 Issuance of common stock for services.......................... -- -- -- -- 158,815 -- 76 Accretion on redeemable convertible preferred stock................... -- 2,174 -- -- -- -- -- Deferred stock compensation......... -- -- -- -- -- -- 500 Net loss and comprehensive loss..... -- -- -- -- -- -- -- ---------- ------- --------- -- --------- -- ------- Balances at December 31, 1998....... 18,257,756 48,716 1,293,462 1 4,324,926 4 1,249 Issuance of common stock upon exercise of stock options (unaudited)....................... -- -- -- -- 764,524 1 259 Issuance of common stock for services (unaudited).............. -- -- -- 14,500 -- 9 Accretion on redeemable convertible preferred stock (unaudited)....... -- 1,822 -- -- -- -- -- Deferred stock compensation (unaudited)....................... -- -- -- -- -- -- 7,355 Amortization of deferred stock compensation (unaudited).......... -- -- -- -- -- -- -- Net loss and comprehensive loss (unaudited)....................... -- -- -- -- ---------- ------- --------- -- --------- -- ------- Balances at September 30, 1999 (unaudited)....................... 18,257,756 $50,538 1,293,462 $1 5,103,950 $5 $ 8,872 ========== ======= ========= == ========= == ======= STOCKHOLDERS EQUITY (DEFICIT) -------------------------------------------- TOTAL STOCKHOLDERS' DEFERRED STOCK ACCUMULATED EQUITY COMPENSATION DEFICIT (DEFICIT) -------------- ----------- ------------- Balances at December 31, 1995....... $ -- $ -- $ 1 Issuance of common stock for cash... -- -- 27 Issuance of common stock and Series A convertible preferred stock in exchange for all of the outstanding common and preferred stock of ChemCore Corporation..... -- -- 494 Issuance of Series B redeemable convertible preferred stock for cash.............................. -- -- -- Issuance of Series C redeemable convertible preferred stock for cash.............................. -- -- -- Accretion on redeemable convertible preferred stock................... -- (262) (262) Net loss and comprehensive net loss.............................. -- (5,246) (5,246) ------- -------- -------- Balances at December 31, 1996....... -- (5,508) (4,986) Issuance of Series D redeemable convertible preferred stock for cash.............................. -- -- -- Issuance of Series D redeemable convertible preferred stock for services.......................... -- -- -- Issuance of common stock upon exercise of stock options......... -- -- 60 Issuance of common stock for cash... -- -- 12 Accretion on redeemable convertible preferred stock................... -- (1,470) (1,470) Net loss and comprehensive loss..... -- (6,281) (6,281) ------- -------- -------- Balances at December 31, 1997....... -- (13,259) (12,665) Issuance of Series D redeemable convertible preferred stock for services.......................... -- -- -- Issuance of Series E redeemable convertible preferred stock for cash.............................. -- -- -- Issuance of common stock upon exercise of stock options......... -- -- 84 Issuance of common stock for services.......................... -- -- 76 Accretion on redeemable convertible preferred stock................... -- (2,174) (2,174) Deferred stock compensation......... (500) -- -- Net loss and comprehensive loss..... -- (2,975) (2,975) ------- -------- -------- Balances at December 31, 1998....... (500) (18,408) (17,654) Issuance of common stock upon exercise of stock options (unaudited)....................... -- -- 260 Issuance of common stock for services (unaudited).............. -- -- 9 Accretion on redeemable convertible preferred stock (unaudited)....... -- (1,822) (1,822) Deferred stock compensation (unaudited)....................... (7,355) -- -- Amortization of deferred stock compensation (unaudited).......... 1,997 -- 1,997 Net loss and comprehensive loss (unaudited)....................... -- (8,052) (8,052) ------- -------- -------- Balances at September 30, 1999 (unaudited)....................... $(5,858) $(28,282) $(25,262) ======= ======== ========
See accompanying notes. F-5 80 CALIPER TECHNOLOGIES CORP. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1996 1997 1998 1998 1999 ------- -------- -------- -------- -------- (UNAUDITED) OPERATING ACTIVITIES Net loss.................................................. $(4,710) $ (6,281) $ (2,975) $ (3,745) $ (8,052) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 87 356 921 656 935 Amortization of deferred stock compensation............. -- -- -- -- 1,997 Acquired in-process research and development............ 978 -- -- -- -- Issuance of common and preferred stock for services..... -- 620 956 951 9 Changes in operating assets and liabilities: Accounts receivable................................... -- -- (1,082) (158) 692 Notes receivable...................................... -- (200) -- -- (425) Inventories........................................... -- -- -- -- (206) Prepaid expenses and other assets..................... (58) (88) (411) (73) (161) Deposits and other assets............................. -- (119) 119 100 -- Accounts payable and other accrued liabilities........ (674) 1,022 (569) (800) 797 Accrued compensation.................................. 75 208 149 69 258 Deferred revenue...................................... 275 (275) 626 77 1,773 Deferred rent......................................... -- -- -- -- 184 ------- -------- -------- -------- -------- Net cash used in operating activities..................... (4,027) (4,757) (2,266) (2,923) (2,199) ------- -------- -------- -------- -------- INVESTING ACTIVITIES Purchases of available-for-sale securities................ (5,050) (51,448) (39,996) (35,203) (16,610) Proceeds from sales of available-for-sale securities...... -- -- 6,233 2,143 4,813 Proceeds from maturities of available-for-sale securities.............................................. 147 30,114 34,106 29,283 13,499 Capital expenditures...................................... (648) (1,845) (1,667) (1,252) (2,995) ------- -------- -------- -------- -------- Net cash used in investing activities..................... (5,551) (23,179) (1,324) (5,029) (1,293) ------- -------- -------- -------- -------- FINANCING ACTIVITIES Proceeds from equipment financing......................... 640 1,574 1,586 1,337 2,523 Payments of obligations under equipment financing......... (73) (225) (613) (404) (821) Proceeds from issuance of common and preferred stock...... 16,678 19,352 7,463 7,423 260 Repayments of notes payable............................... (160) -- -- -- -- ------- -------- -------- -------- -------- Net cash provided by financing activities................. 17,085 20,701 8,436 8,356 1,962 ------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents...... 7,507 (7,235) 4,846 404 (1,530) Cash and cash equivalents at beginning of period.......... 40 7,547 312 312 5,158 ------- -------- -------- -------- -------- Cash and cash equivalents at end of period................ $ 7,547 $ 312 $ 5,158 $ 716 $ 3,628 ======= ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid............................................. $ 69 $ 60 $ 195 $ 125 $ 275 ======= ======== ======== ======== ======== SCHEDULE OF NONCASH TRANSACTIONS Issuance of common and preferred stock upon acquisition of ChemCore................................................ $ 494 $ -- $ -- $ -- $ -- ======= ======== ======== ======== ======== Deferred stock compensation............................... $ -- $ -- $ 500 $ -- $ 7,355 ======= ======== ======== ======== ========
See accompanying notes. F-6 81 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION Caliper Technologies Corp. ("Caliper") was incorporated in the state of Delaware on July 26, 1995. Caliper develops lab-on-a-chip technologies and manufactures LabChip systems. These systems perform laboratory experiments for use in the pharmaceutical industry and other industries. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INTERIM FINANCIAL INFORMATION The financial information at September 30, 1999 and for the nine months ended September 30, 1998 and 1999 is unaudited but, in the opinion of management, has been prepared on the same basis as the annual financial statements and includes all adjustments (consisting only of normal recurring adjustments) that Caliper considers necessary for a fair presentation of the financial position at such date and the operating results and cash flows for such periods. Results for the nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for any subsequent period. UNAUDITED PRO FORMA INFORMATION If Caliper's initial public offering as described in Note 11 is consummated, all of the preferred stock outstanding will automatically be converted into common stock. The unaudited pro forma redeemable convertible preferred stock and stockholders' equity at September 30, 1999 has been adjusted for the assumed conversion of preferred stock based on the shares of preferred stock outstanding at September 30, 1999. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally five years. Furniture and equipment acquired under equipment financing is amortized over the shorter of the useful lives or the financing period. Leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term. 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"), Caliper reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount 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 September 30, 1999, there have been no such losses. F-7 82 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS AND MARKETABLE SECURITIES Caliper considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. Management determines the appropriate classification of its cash equivalents and investment securities at the time of purchase and reevaluates such determination as of each balance sheet date. Management has classified Caliper's cash equivalents and marketable securities as available-for-sale securities in the accompanying financial statements. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in a separate component of stockholders' equity, when material. Realized gains and losses are included in interest income. The cost of securities sold is based on the specific identification method. Caliper invests its excess cash in U.S. government and agency securities, debt instruments of financial institutions and corporations, and money market funds with strong credit ratings. Caliper has established guidelines regarding diversification of its investments and their maturities which should maintain safety and liquidity. STOCK-BASED COMPENSATION Caliper accounts for employee stock option grants in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Employee Stock Issued to Employees." Stock option grants to nonemployees are accounted for in accordance with Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and Emerging Issues Task Force Consensus No. 96-18. REVENUE RECOGNITION Revenues are earned from services performed pursuant to collaboration agreements, technology access program agreements and government grants. Non-refundable license fees under technology access programs are recognized as revenues upon the transfer of the license to third parties and when no further performance obligations exist. Subscription fees received under the technology access programs are recognized ratably over the subscription period. Payments received in advance under these arrangements are recorded as deferred revenue until earned. Revenue from grants and development and support activities under collaboration agreements and technology access programs are recorded in the period in which the costs are incurred. Direct costs associated with these contracts and grants are reported as research and development expense. Milestone fees are recognized upon completion of specified milestones according to contract terms. Product revenue is recognized upon the transfer of title to customers and is recorded net of discounts, rebates and allowances. INVENTORIES Inventories are stated at the lower of standard cost (which approximates actual cost) or market. At September 30, 1999, inventories consisted mainly of raw materials. COMPREHENSIVE INCOME (LOSS) As of January 1, 1998, Caliper adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires unrealized gains or losses on Caliper's available-for-sale securities to be included in other comprehensive income. For the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999, comprehensive loss approximated net loss as other comprehensive income (loss) was not material. F-8 83 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SEGMENT REPORTING Effective in January 1998, Caliper 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. Caliper has determined that it operates in only one segment. Accordingly, the adoption of SFAS 131 had no impact on Caliper's financial statements. NET LOSS PER SHARE Basic earnings per share is calculated based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share would give effect to the dilutive effect of common stock equivalents consisting of stock options and warrants (calculated using the treasury stock method). Potentially dilutive securities have been excluded from the diluted earnings per share computations as they have an antidilutive effect due to Caliper's net loss. The computation of pro forma 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. A reconciliation of shares used in the calculations is as follows (in thousands):
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------- ------------------ 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- (UNAUDITED) Basic and diluted: Net loss............................... $(4,710) $(6,281) $(2,975) $(3,745) $(8,052) Accretion on redeemable convertible preferred stock..................... (262) (1,470) (2,174) (1,587) (1,822) ------- ------- ------- ------- ------- Net loss attributable to common stockholders........................... $(4,972) $(7,751) $(5,149) $(5,332) $(9,874) ======= ======= ======= ======= ======= Weighted-average shares of common stock outstanding............................ 3,201 3,690 4,050 3,998 4,607 Less: weighted-average shares subject to repurchase............................. (1,214) (932) (685) (723) (420) ------- ------- ------- ------- ------- Weighted-average shares used in basic and diluted net loss per share............. 1,987 2,758 3,365 3,275 4,187 ======= ======= ======= ======= ======= Pro forma basic and diluted: Net loss............................... $(2,975) $(8,052) ======= ======= Shares used above........................ 3,365 4,187 Adjustment to reflect weighted-average effect of assumed conversion of preferred stock (unaudited)............ 19,016 19,551 ------- ------- Weighted-average shares used in pro forma basic and diluted net loss per share (unaudited)............................ 22,381 23,738 ======= =======
F-9 84 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following outstanding options and warrants (prior to the application of the treasury stock method), and convertible preferred stock (on an as-converted basis) were excluded from the computation of diluted net loss per share as they had an antidilutive effect (in thousands):
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------ ----------------------- 1996 1997 1998 1998 1999 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) Options and warrants................. 976 2,120 1,971 2,041 2,721 Convertible preferred stock.......... 13,126 18,101 19,551 19,551 19,551
SIGNIFICANT CONCENTRATIONS Financial instruments that potentially subject Caliper to concentrations of credit risk primarily consist of cash equivalents and marketable securities (see Note 4). In 1996, two companies represented 66% and 34% of total revenues. In 1997, one company represented 94% of total revenues. In 1998, three companies represented 40%, 40%, and 17% of total revenues. For the nine months ended September 30, 1998, two companies represented 51% and 45% of total revenues. For the nine months ended September 30, 1999, four companies represented 50%, 17%, 13% and 11% of total revenues. Caliper 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, 1999 and is not anticipated to have an impact on Caliper's results of operations or financial condition when adopted as Caliper holds no derivative financial instruments and does not currently engage in hedging activities. In March 1998, the AICPA 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 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 September 30, 1999, the Company has not capitalized any costs related to internal use software. 2. CONTRACTS AND GRANTS Strategic Alliance with Hewlett-Packard In May 1998, Caliper executed a collaboration agreement with Hewlett-Packard Company ("Hewlett-Packard") to create a line of commercial research products based on LabChip technologies. In this collaboration, Caliper primarily focuses on developing core technology and LabChip applications. Caliper also manufactures the chips and supplies the chips and reagents to Hewlett-Packard. If Caliper elects, however, not to manufacture chips for a LabChip application or is unable to meet minimum supply F-10 85 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 2. CONTRACTS AND GRANTS (CONTINUED) commitments to be mutually established in the future, Hewlett-Packard would have the right to manufacture those chips. Hewlett-Packard primarily focuses on developing instruments and software, manufacturing instruments, and marketing, selling and supporting complete systems. Hewlett-Packard funds Caliper's product development efforts under the collaboration, reimburses Caliper's costs of supplying chips and reagents, and pays Caliper a share of the gross margin on all components of LabChip systems. The gross margin share varies depending on the type of collaboration product, whether Caliper or Hewlett-Packard manufacture the collaboration product, and whether such collaboration product is sold during the collaboration or after the collaboration has terminated. Under this agreement, Hewlett-Packard purchased 833,334 shares of Caliper's redeemable convertible preferred stock Series E with an aggregate cost of $5.0 million. At December 31, 1998 this represented 3.5% of Caliper's outstanding common and convertible preferred stock. The term of the Hewlett-Packard agreement is eight years, beginning in May 1998. After three years, Hewlett-Packard may elect not to meet certain annual funding requirements, in which case either party may terminate the agreement. In any event either party may terminate the agreement after five years. Technology Access Program Caliper maintains a technology access program which provides customers with early access to new products, and offers technical training, support and customization services. Technology access program customers have non-exclusive access to all of the high throughput screening products Caliper offers during the term of the agreement. These agreements generally provide for customers to pay an up-front license fee and annual subscription fees, and to reimburse Caliper for its costs of providing development and support services. Instruments and chips are generally sold separately on a product-by-product basis, although some agreements establish prices for initial instruments or estimates of per data point charges for Sipper chips. Caliper currently has three technology access program customers for its high throughput screening systems: Eli Lilly and Company ("Eli Lilly"), Amgen, Inc. ("Amgen"), and Hoffmann-La Roche Inc. ("Roche"). Eli Lilly. Caliper signed a technology access agreement with Eli Lilly in August 1999. The term is three years, although Eli Lilly may temporarily suspend its technology access program participation and later reinitiate participation, during which time Caliper's support and assistance obligations will also be suspended. Eli Lilly may terminate the agreement on any anniversary. Amgen. Caliper entered into a technology access agreement with Amgen in December 1998. Under this agreement, Amgen may delay payment of its second annual subscription fee until Caliper has delivered an initial ultra high throughput system. The term of this agreement is three years, although Amgen may terminate the agreement on any anniversary or if Caliper fails to deliver the ultra high throughput screening system in a timely manner. Hoffmann-La Roche. Caliper entered into a technology access agreement with Hoffmann-La Roche in November 1998, which is due to expire in July 2000. This agreement supersedes an earlier agreement under which Roche funded early development of the high throughput screening technology in exchange for certain exclusive rights to an ultra high throughput screening system. Under this earlier agreement, Roche purchased 1,333,333 shares of Caliper's redeemable convertible preferred stock Series C with an aggregate cost of $4.0 million. At December 31, 1998, this represented 5.6% of Caliper's outstanding common and convertible preferred stock. Roche now has non-exclusive rights similar to other technology access program F-11 86 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 2. CONTRACTS AND GRANTS (CONTINUED) customers. Caliper did not receive an up-front license fee or annual subscription fee from Hoffmann-La Roche. Caliper 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. Value Added Screening Collaboration Program Caliper's value added screening collaboration program offers high throughput screening services using Caliper's LabChip systems. Caliper's first value added screening collaboration agreement was established with Neurocrine Biosciences in December 1998. Caliper receives screening fees on a per data point basis, preclinical milestones and royalties on Neurocrine products emerging from the collaboration. This agreement has a three-year term, but may be terminated by either party under certain circumstances after the first year. Caliper recognized approximately $132,000, $2.1 million, and $7.9 million under the above agreements in 1996, 1997, and 1998, respectively, and $4.3 million and $8.2 million for the nine months ended September 30, 1998 and 1999, respectively. Revenue earned from reimbursement of development and support activities approximated actual costs incurred. In September 1998, Caliper received a grant from the Advanced Technology Program of the National Institute of Standards and Technology ("NIST") to develop a Reference Laboratory DNA Diagnostics System based on Caliper's "lab-on-a-chip" technology of approximately $2 million over three years. The grant period began in January 1999. 3. ACQUISITION OF CHEMCORE CORPORATION In February 1996, Caliper completed the acquisition of ChemCore Corporation ("ChemCore"), an early stage research and development entity. Caliper assumed all of the liabilities of ChemCore and acquired all of the outstanding common stock and Series A preferred stock of ChemCore in exchange for 1,058,911 shares of Caliper's common stock and 1,293,462 shares of Series A preferred stock at an exchange ratio of 0.862308 to 1. The acquisition was accounted for using the purchase method. Under the purchase method, the results of operations of acquired companies are included prospectively from the date of acquisition, and the aggregate acquisition cost is allocated to the acquiree's assets, liabilities, and intangibles, if any, based upon the fair values on the date of acquisition. On the date of the acquisition, ChemCore had no significant assets, liabilities of approximately $484,000, an exclusive license under a sponsored research and development agreement, and certain patents, most of which were pending. Caliper allocated the aggregate purchase cost of $978,000 to in-process research and development. The technology acquired had no alternative future uses. F-12 87 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 4. CASH EQUIVALENTS AND MARKETABLE SECURITIES The following is a summary of cash equivalents and marketable securities at December 31, 1997 and 1998:
AMORTIZED COST AND ESTIMATED FAIR VALUE -------------------- 1997 1998 -------- -------- (IN THOUSANDS) Money market fund........................................ $ 312 $ 1,381 Bonds of the U.S. Government and its agencies............ 12,861 12,217 Commercial paper......................................... 12,355 17,454 Time deposits............................................ 1,021 -- ------- ------- $26,549 $31,052 ======= ======= Reported as: Cash equivalents....................................... $ 312 $ 5,158 Marketable securities.................................. 26,237 25,894 ------- ------- $26,549 $31,052 ======= =======
As of December 31, 1997 and 1998, the difference between the fair value and the amortized cost of available-for-sale securities was immaterial. As of December 31, 1997 and 1998, the average portfolio duration was less than one year. There were no material gross realized gains or losses from sales of securities or material unrealized gains and losses on investments at December 31, 1997 and 1998. 5. NOTES RECEIVABLE At December 31, 1998, Caliper held a note receivable of $200,000 from an officer of Caliper. This note, which bears interest at 6.61% per year from January 2002, is collateralized by certain personal assets of the officer and has certain amortization schedules for periodic payments with the final payment to be made at the end of 2006. At September 30, 1999, in addition to the $200,000 note receivable, Caliper held an unsecured promissory note of $425,000 in connection with a loan to a second officer of Caliper. The note bears interest at 5.96% per year and is repayable upon the earlier of July 29, 2005 or the voluntary termination of his employment with Caliper. F-13 88 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ----------------- 1997 1998 ------ ------- (IN THOUSANDS) Machinery, equipment, and furniture....................... $2,207 $ 3,775 Leasehold improvements.................................... 286 385 ------ ------- 2,493 4,160 Accumulated depreciation and amortization................. (443) (1,364) ------ ------- Property and equipment, net............................... $2,050 $ 2,796 ====== =======
Property and equipment at December 31, 1997 and 1998 includes assets acquired under capital leases of approximately $2.2 million and $3.8 million. Accumulated amortization related to leased assets was approximately $441,000 and $1.4 million at December 31, 1997 and 1998. 7. EQUIPMENT FINANCING AND RENTAL COMMITMENTS As of December 31, 1998, Caliper had $3.8 million of property and equipment financed through long-term obligations, and approximately $1.8 million unused and available under an equipment financing credit line. The draw down period under the equipment financing credit line expired on June 30, 1999. The obligations under the equipment financings are secured by the equipment financed, bear interest at a weighted-average fixed rate of approximately 9.5%, and are due in monthly installments through December 2003. Under the terms of one equipment financing agreement, ownership of the financed equipment may be purchased by Caliper at fair value at the end of the financing term. Other equipment financing agreements require a balloon payment at the end of each loan term. As of December 31, 1998, future minimum lease payments under operating and capital leases and principal payments on equipment loans are as follows:
CAPITAL LEASES AND OPERATING EQUIPMENT LEASES LOANS --------- -------------- (IN THOUSANDS) Years ending December 31: 1999...................................................... $ 1,664 $1,004 2000...................................................... 1,669 925 2001...................................................... 1,674 672 2002...................................................... 1,722 280 2003...................................................... 1,765 216 Thereafter................................................ 9,116 -- ------- ------ Total minimum lease and principal payments........ $17,610 3,097 ======= Amount representing interest................................ (208) ------ Present value of future payments............................ 2,889 Current portion of equipment financing...................... (881) ------ Noncurrent portion of equipment financing................... $2,008 ======
F-14 89 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 7. EQUIPMENT FINANCING AND RENTAL COMMITMENTS (CONTINUED) Rent expense relating to operating leases was approximately $97,000 in 1996, $525,000 in 1997, and $695,000 in 1998. In December 1998, Caliper entered into a 10-year facility operating lease agreement. Caliper also entered into a sublease agreement through November 1999 for a total amount of $198,000. The appropriate amount has been offset against the operating lease commitment for 1999, as shown above. In connection with the facility lease, Caliper has a $1 million standby letter-of-credit arrangement with a bank expiring on October 20, 2008. Caliper has pledged a certificate of deposit of $1 million as collateral to this letter of credit. In January 1999, Caliper entered into a $2.5 million financing agreement with Transamerica Business Credit Corporation ("Transamerica") for the purchase of property and equipment. The drawdown period under the equipment financing credit line expires on June 30, 2000. During the nine months ended September 30, 1999, Caliper drew down the remaining $1.8 million balance of the equipment financing credit line which existed as of December 31, 1998 and financed an additional $752,000 of property and equipment purchases under the financing agreement with Transamerica. These obligations will be repaid in monthly installments through June 2004. As of September 30, 1999, Caliper has approximately $1.7 million unused and available balance with Transamerica. 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK Convertible preferred stock is issuable in series, with rights and preferences designated by series. The shares designated and outstanding are as follows:
DECEMBER 31, 1997 DECEMBER 31, 1998 -------------------------------------- -------------------------------------- REDEMPTION/ REDEMPTION/ ISSUED AND LIQUIDATION ISSUED AND LIQUIDATION AUTHORIZED OUTSTANDING VALUE AUTHORIZED OUTSTANDING VALUE ---------- ----------- ----------- ---------- ----------- ----------- Convertible preferred stock: Series A........... 1,293,500 1,293,462 $ 1,008,900 1,293,462 1,293,462 $ 1,008,900 Undesignated preferred stock............ 398,167 -- -- 127,499 -- -- ---------- ---------- ----------- ---------- ---------- ----------- 1,691,667 1,293,462 1,008,900 1,420,961 1,293,462 1,008,900 ---------- ---------- ----------- ---------- ---------- ----------- Redeemable convertible preferred stock: Series B........... 8,600,000 8,499,589 7,157,964 8,550,706 8,499,589 7,515,862 Series C........... 3,333,333 3,333,333 10,600,864 3,333,333 3,333,333 11,130,907 Series D........... 5,375,000 4,975,000 20,524,486 5,195,000 5,195,000 22,460,607 Series E........... -- -- -- 2,500,000 1,229,834 7,608,461 ---------- ---------- ----------- ---------- ---------- ----------- 17,308,333 16,807,922 38,283,314 19,579,039 18,257,756 48,715,837 ---------- ---------- ----------- ---------- ---------- ----------- Total.......... 19,000,000 18,101,384 $39,292,214 21,000,000 19,551,218 $49,724,737 ========== ========== =========== ========== ========== =========== SEPTEMBER 30, 1999 -------------------------------------- REDEMPTION/ ISSUED AND LIQUIDATION AUTHORIZED OUTSTANDING VALUE ---------- ----------- ----------- Convertible preferred stock: Series A........... 1,293,462 1,293,462 $ 1,008,900 Undesignated preferred stock............ 127,499 -- -- ---------- ---------- ----------- 1,420,961 1,293,462 1,008,900 ---------- ---------- ----------- Redeemable convertible preferred stock: Series B........... 8,550,706 8,499,589 7,796,935 Series C........... 3,333,333 3,333,333 11,547,172 Series D........... 5,195,000 5,195,000 23,300,572 Series E........... 2,500,000 1,229,834 7,892,996 ---------- ---------- ----------- 19,579,039 18,257,756 50,537,675 ---------- ---------- ----------- Total.......... 21,000,000 19,551,218 $51,546,575 ========== ========== ===========
The holders of Series A, B, C, D, and E preferred stock are entitled to receive noncumulative dividends at a rate of 5% of the original issue price, if declared, prior to and in preference to the payment of dividends to holders of common stock. At December 31, 1998, no such dividends had been declared. F-15 90 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) Each share of Series A, B, C, D, and E preferred stock is convertible into common stock at the option of the holder on a one-for-one basis, subject to adjustments for antidilution purposes. Series A, B, C, D, and E preferred shares are automatically converted into common stock at the earlier of (i) the closing of Caliper's initial underwritten public offering which is at a price to the public of at least $5.00 per share and which results in aggregate proceeds to Caliper of $10 million, or (ii) a vote or written consent of a majority of the shares of preferred stock then outstanding, voting together as a single class. All preferred shares have voting rights equal to common stock on an as-if-converted basis. The holders of Series B preferred stock, voting as a separate class, are entitled to elect four members of the board of directors. The holders of Series A, B, C, D, and E preferred stock and common stock, voting together as a class, are entitled to elect the remaining members to the board of directors. At any time subsequent to February 19, 2001, Caliper shall, upon written request from the holders of a majority of the then outstanding shares of Series B, C, D, and E preferred stock, redeem in whole or in part the Series B, C, D, and E preferred stock by paying in cash a sum equal to (i) the original issue price per share, plus all declared but unpaid dividends on such shares, and (ii) an amount equal to 5% of the original issue price per annum, compounded annually, from the date such shares were originally issued through the redemption date. The carrying amount of Series B, C, D, and E preferred stock has been increased by periodic accretions so as to equal the redemption amount at the redemption date. Series B, C, D and E preferred stockholders are entitled to receive, upon liquidation, a distribution of $0.78, $3.00, $4.00 and $6.00 per share, respectively (subject to adjustment for a recapitalization) plus all declared but unpaid dividends, in preference to series A preferred stockholders and common stockholders. Following the distribution of liquidation preferences to series B, C, D and E preferred stockholders, series A preferred stockholders are entitled to receive a distribution of $0.78 per share in preference to the common stockholders. Thereafter, the remaining assets and funds, if any, shall be distributed ratably on a per share basis among all preferred and common stockholders. WARRANTS In January 1996, in connection with an equipment financing agreement, Caliper issued a warrant that entitles the holder to purchase 5,112 shares of common stock at an exercise price of $0.78 per share. This warrant is exercisable through the earlier of the effective date of a merger of Caliper or January 3, 2002. In May 1996, in connection with a capital lease agreement, Caliper granted a warrant that entitles the holder to purchase 51,117 shares of Series B preferred stock at an exercise price of $0.78 per share. This warrant is exercisable through the earlier of three years after the effective date of Caliper's initial public offering or May 10, 2002. In October 1996, in connection with certain agreements, Caliper issued two warrants that entitle the holders to purchase a total of 60,000 shares of common stock at an exercise price of $0.78 per share. These warrants are exercisable through October 11, 2006. No amounts have been recorded by Caliper for the above warrant issuances, as the amounts were determined to be immaterial at the time of issuance. COMMON STOCK SUBJECT TO REPURCHASE Common stock issued to founders of Caliper vest over varying periods at varying percentages one year from the date of grant and on a monthly, pro rata basis thereafter. From inception through December 31, 1998, the founders of Caliper have purchased 2,664,870 shares of common stock, of which 531,250 shares F-16 91 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) are unvested and remain subject to repurchase. Caliper has not repurchased any shares in accordance with these rights. STOCK OPTION PLANS On August 31, 1996, Caliper's board of directors and stockholders adopted the 1996 Stock Incentive Plan (the "Plan"). This Plan supersedes the 1996 Equity Incentive Plan and provides for the issuance of common stock and the granting of options to purchase common stock to employees, officers, directors, and consultants of Caliper. Caliper grants shares of common stock for issuance under the Plan at no less than the fair value of the stock (85% of fair value for nonqualified options). Options granted under the Plan generally vest over 5 years at a rate of 20% one year from the grant date and 1/60 monthly thereafter. Options canceled under the 1996 Equity Incentive Plan are not available for future grants. A summary of activity under the Plan is as follows:
OPTIONS OUTSTANDING WEIGHTED- ------------------------- AVERAGE OPTIONS NUMBER OF EXERCISE EXERCISE AVAILABLE OPTIONS PRICE PRICE ---------- --------- ------------ --------- Balance at inception (July 26, 1995)........... -- -- -- -- Authorized................................... 1,100,000 -- -- -- Granted...................................... (701,089) 701,089 $ 0.04-$0.30 $0.16 Exercised.................................... -- (39,000) $ 0.04-$0.30 $0.21 Canceled..................................... -- (10,000) $0.07 $0.07 ---------- --------- Balance at December 31, 1996................... 398,911 652,089 $ 0.04-$0.30 $0.16 Authorized................................... 1,500,000 -- -- -- Granted...................................... (1,388,500) 1,388,500 $ 0.30-$0.40 $0.33 Exercised.................................... -- (243,053) $ 0.04-$0.40 $0.24 Canceled..................................... 1,500 (1,500) $0.30 $0.30 ---------- --------- Balance at December 31, 1997................... 511,911 1,796,036 $ 0.04-$0.40 $0.27 Authorized................................... 2,000,000 -- -- -- Granted...................................... (660,300) 660,300 $ 0.40-$0.62 $0.55 Exercised.................................... -- (283,755) $ 0.04-$0.40 $0.29 Canceled..................................... 496,218 (509,588) $ 0.04-$0.40 $0.29 ---------- --------- Balance at December 31, 1998................... 2,347,829 1,662,993 $ 0.04-$0.62 $0.38 Granted (unaudited).......................... (1,541,950) 1,541,950 $0.62 $0.62 Exercised (unaudited)........................ -- (572,662) $ 0.04-$0.62 $0.38 Canceled (unaudited)......................... 27,250 (27,250) $ 0.40-$0.62 $0.42 ---------- --------- Balance at September 30, 1999 (unaudited)...... 833,129 2,605,031 $ 0.04-$0.62 $0.52 ========== =========
As part of the ChemCore merger in February 1996, Caliper exchanged, at the ratio of 0.862308 to 1, outstanding options to purchase 240,499 shares of ChemCore common stock at an exercise price of $0.20 for options to purchase 207,384 shares of Caliper's common stock at an exercise price $0.23 per share. F-17 92 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) These options were initially granted at the fair value of ChemCore's common stock and generally vest over five years at a rate of 20% per year. A summary of activity of options assumed as part of the ChemCore merger is as follows:
OPTIONS OUTSTANDING --------------------- NUMBER OF EXERCISE OPTIONS PRICE --------- -------- Balance at December 31, 1996 and 1997....................... 207,384 $0.23 Exercised................................................... (15,522) $0.23 -------- Balance at December 31, 1998................................ 191,862 $0.23 Exercised (unaudited)....................................... (191,862) $0.23 -------- Balance at September 30, 1999 (unaudited)................... -- ========
At December 31, 1998 and September 30, 1999, options to purchase 367,957 and 271,958 shares of common stock were exercisable at a weighted-average exercise price of $0.26 and $0.41 per share. At December 31, 1998 and September 30, 1999, the remaining contractual life of outstanding options ranged from 5.00 to 9.13 years and 6.42 to 9.84 years, respectively, with a weighted-average contractual life of 8.14 and 8.83 years, respectively. The weighted-average fair value of options granted during 1996, 1997, 1998, and for the nine months ended September 30, 1999 was $0.03, $0.08, $0.13, and $0.16, respectively. STOCK BASED COMPENSATION Pro forma information regarding net loss and net loss per share is required by SFAS 123, and has been determined as if Caliper had accounted for its employee stock options under the fair-value method of that Statement. The fair value of these options was estimated at the date of grant using the minimum value method and the following assumptions for 1996, 1997, and 1998: risk-free interest rate of 6%, an expected life of five years, and no dividends. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options using the straight-line method. Caliper's pro forma net loss and net loss per share for the years ended December 31, 1996, 1997 and 1998 are not materially different from the net loss and net loss per share reported. The effects of applying SFAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net loss for future years. Caliper has recorded deferred stock compensation of approximately $500,000 for the year ended December 31, 1998 and $7.4 million for the nine months ended September 30, 1999, representing the difference between the exercise price of the options granted and the deemed fair value of the common stock. These amounts are being amortized by charges to operations over the vesting periods of the individual stock options using the graded vesting method. Such amortization expense amounted to approximately $2.0 million for the nine months ended September 30, 1999. F-18 93 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) RESERVED STOCK As of December 31, 1998, Caliper had reserved shares of common stock for future issuance as follows: Stock options............................................ 4,202,684 Warrants................................................. 65,112 Preferred stock.......................................... 19,602,335 Stock agreement.......................................... 12,000 ---------- 23,882,131 ==========
In addition, Caliper has reserved 51,117 shares of Series B convertible redeemable preferred stock for issuance upon exercise of warrants. 9. INCOME TAXES As of December 31, 1998, Caliper had federal and California net operating loss carryforwards of approximately $10.3 million and $1.4 million. Caliper also had federal research and development tax credit carryforwards of approximately $700,000. The net operating loss and credit carryforwards will expire at various dates beginning on 2002 through 2018, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial limitation 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. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Caliper's deferred tax assets and liabilities for federal and state income taxes are as follows:
DECEMBER 31, ------------------ 1997 1998 ------- ------- (IN THOUSANDS) Net operating loss carryforwards......................... $ 2,600 $ 3,600 Research credit carryforwards............................ 500 1,000 Capitalized research and development..................... 1,700 1,600 Other, net............................................... 500 100 ------- ------- Net deferred tax assets.................................. 5,300 6,300 Valuation allowance...................................... (5,300) (6,300) ------- ------- Total.......................................... $ -- $ -- ======= =======
Because of Caliper's lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $2.1 million, $3.2 million, and $1 million, respectively during the years ended December 31, 1996, 1997, and 1998. F-19 94 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 10. LITIGATION On March 22, 1999, Caliper filed a lawsuit in California Superior Court for the County of Santa Clara against Aclara Biosciences, Inc., and Caliper's former patent counsel Bertram Rowland and the law firm of Flehr, Hohbach, Test, Albritton and Herbert LLP, alleging that all three defendants misappropriated certain of Caliper's trade secrets, and that Mr. Rowland and Flehr Hohbach committed a breach of the duties they owed to Caliper as its former attorneys. The suit seeks damages and equitable remedies to prevent Aclara, Mr. Rowland and Flehr Hohbach from benefiting from the alleged misappropriation and breach of duties. While Caliper believes that its complaint is meritorious, there can be no assurance that Caliper will prevail in its action against any or all of the defendants, or that if Caliper prevails, any damages or equitable remedies awarded, if any, will be commercially valuable. Furthermore, Caliper has incurred and is likely to continue to incur substantial costs and expend substantial personnel time in pursuing its claims against Aclara, Mr. Rowland and Flehr Hohbach. On April 23, 1999, Aclara Biosciences filed a lawsuit in United States District Court for the Northern District of California alleging that Caliper is making, using, selling or offering for sale microfluidic devices that infringe United States Patent Number 5,750,015 in willful disregard of Aclara's patent rights. The Aclara action seeks damages for past and future reduced sales or lost profits based upon the making, using, selling and offering for sale of Caliper's products and processes, and seeks to enjoin Caliper's continued activities relating to these products. This action subjects Caliper to potential liability for damages and could require Caliper to cease making, using or selling the affected products, or to obtain a license in order to continue to manufacture, use or sell the affected products. While Caliper believes that it has meritorious defenses in this action, there can be no assurance that Caliper will prevail or that any license required would be made available on commercially acceptable terms, if at all. Furthermore, Caliper has incurred and is likely to continue to incur substantial costs and expend substantial personnel time in defending against the claims filed by Aclara. Caliper's failure to successfully defend itself against the Aclara action could have a material adverse effect on Caliper's business, financial condition and operating results. 11. SUBSEQUENT EVENTS (UNAUDITED) In October 1999, the board of directors adopted, subject to stockholder approval, the 1999 Equity Incentive Plan ("1999 Equity Plan"). The 1999 Equity Plan amended and restated the 1996 Stock Incentive Plan and increased the shares reserved for issuance by an additional 2 million shares. In addition, the 1999 Equity Plan provides for an automatic increase in the shares reserved for issuance by the greater of 5% of outstanding shares on a fully-diluted basis or the number of shares that have been made subject to awards granted under the 1999 Equity Plan during the prior 12-month period. The automatic share reserve increase may not exceed 20 million shares in aggregate over the 10-year period. On October 1, 1999, options to purchase 903,700 shares were granted pursuant to the 1999 Equity Plan with an exercise price of $2.00 per share. The Company estimates that additional deferred compensation of approximately $4.7 million will be recorded as a result of these option grants and amortized to compensation expense in accordance with Caliper's policy. In October 1999, the board of directors adopted, subject to stockholder approval, the 1999 Non-Employee Directors' Stock Option Plan ("1999 Directors' Plan") which provides for the automatic grant of options to non-employee directors. A total of 300,000 shares of common stock has been reserved for issuance under this plan. The number of shares reserved for issuance will automatically increase by the greater of 0.3% of outstanding shares on a fully-diluted basis or the number of shares subject to options granted under the 1999 Directors' Plan during the prior 12-month period. The automatic share reserve increase may not exceed 3 million shares in aggregate over the 10-year period. F-20 95 CALIPER TECHNOLOGIES CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED) 11. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) In October 1999, the board of directors adopted, subject to stockholder approval, the 1999 Employee Stock Purchase Plan ("1999 Purchase Plan"). A total of 450,000 shares of common stock has been reserved for issuance under the 1999 Purchase Plan. The number of shares reserved automatically increases by the greater of 0.5% of outstanding shares on a fully-diluted basis or the number of shares issued under the 1999 Purchase Plan during the prior 12-month period. The automatic share reserve increase may not exceed 4,500,000 shares in aggregate over the 10-year period. The 1999 Purchase Plan permits eligible employees to acquire shares of Caliper's common stock through payroll deductions of up to 10% of their base compensation. No employee may participate in the 1999 Purchase Plan if immediately after the grant the employee has voting power over 5% or more of the outstanding capital stock. Under the 1999 Purchase Plan, the board may specify offerings of up to 27 months. Unless the board determines otherwise, common stock may be purchased at the lower of 85% of the fair market value of Caliper's common stock on the first day of the offering or 85% of the fair market value of Caliper's common stock on the purchase date. The initial offering period will begin on the effective date of the initial public offering. In October 1999, Caliper's board of directors authorized management to file a registration statement with the Securities and Exchange Commission to permit Caliper to sell its common stock to the public. Upon completion of Caliper's initial public offering, all of the outstanding preferred stock will be converted into shares of common stock. F-21 96 [DESCRIPTION OF GRAPHICS] Inside Back Cover: This picture was taken with a scanning electron microscope at a resolution that permits the channels of a chip to be visualized. The channels are approximately 30 microns wide (a micron is approximately one millionth of a yard). 97 [Caliper Technologies Corp. Logo] 98 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by Caliper in connection with the sale of the Common Stock being registered. All the amounts shown are estimates except for the registration fee, the NASD filing fee and the Nasdaq National Market application fee. Registration fee............................................ $ 16,680 NASD filing fee............................................. 6,500 Nasdaq National Market application fee...................... 90,000 Blue sky qualification fee and expenses..................... 5,000 Printing and engraving expenses............................. 150,000 Legal fees and expenses..................................... 400,000 Accounting fees and expenses................................ 250,000 Transfer agent and registrar fees........................... 10,000 Miscellaneous............................................... 21,820 ---------- Total.................................................. $ 950,000 ==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. As permitted by Delaware law, our amended and restated certificate of incorporation provides that no director of ours will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: - for any breach of duty of loyalty to us or to our stockholders; - for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - under Section 174 of the Delaware General Corporation Law; or - for any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation further provides that we must indemnify our directors and executive officers and may indemnify its other officers and employees and agents to the fullest extent permitted by Delaware law. We believe that indemnification under our amended and restated certificate of incorporation covers negligence and gross negligence on the part of indemnified parties. We have entered into indemnification agreements with each of our directors and officers. These agreements, among other things, require us to indemnify each director and officer for some expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding, including any action by or in the right of Caliper, arising out of person's services as our director or officer, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. The underwriting agreement will provide for indemnification by the underwriters of Caliper, our directors, our officers who sign the registration statement, and our controlling persons for some liabilities, including liabilities arising under the Securities Act. II-1 99 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since January 1, 1996, Caliper has sold and issued the following unregistered securities: (1) From January 1996 to September 1999, Caliper has granted stock options to purchase 4,291,839 shares of common stock, at a weighted average exercise price of $0.4394, to employees, consultants and directors pursuant to its 1996 Stock Incentive Plan and 1996 Equity Incentive Plan. Of these stock options, 548,338 shares have been cancelled or have lapsed without being exercised, 1,138,470 shares have been exercised in common stock, no shares of which have been repurchased and 2,605,031 shares remain outstanding. (2) In February 1996, Caliper issued an aggregate of 1,293,462 shares of Series A preferred stock and 1,058,911 shares of common stock to shareholders of ChemCore Corporation in connection with the merger of ChemCore with and into Caliper. Each share of ChemCore's Common stock and Series A preferred stock were converted into 0.862308 shares of Caliper's Common stock and Series A preferred stock, respectively. Shares of Series A preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series A preferred stock outstanding. In addition, Caliper issued options to purchase 207,384 shares of common stock at $0.23 per share, which options were exercised from March 1998 through February 1999. (3) From April 1996 to October 1996, Caliper issued an aggregate of 8,499,589 shares of Series B preferred stock to 13 purchasers at $0.7825 per share, for an aggregate purchase price of $6,651,043. In May 1996, Caliper issued a warrant to purchase 51,117 shares of Series B preferred stock to Comdisco, Inc. at an exercise price of $0.7825 per share. Shares of Series B preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series B preferred stock outstanding. (4) From January 1996 to October 1996, Caliper issued warrants to purchase an aggregate of 65,112 shares of common stock to 3 purchasers at an exercise price of $0.7825 per share. (5) From October 1996 to December 1996, Caliper issued an aggregate of 3,333,333 shares of Series C preferred stock to 16 purchasers at $3.00 per share, for an aggregate purchase price of $9,999,999. Shares of Series C preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series C preferred stock outstanding. (6) From January 1997 to April 1998, Caliper issued an aggregate of 4,820,000 shares of Series D preferred stock to 17 purchasers at $4.00 per share, for an aggregate purchase price of $19,280,000. In this period, Caliper issued an additional 375,000 shares of Series D preferred stock to Dow Chemical Company as payment for services rendered pursuant to the terms of a development agreement dated January 14, 1997. Shares of Series D preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series D preferred stock outstanding. (7) In May 1998, Caliper issued an aggregate of 1,229,834 shares of Series E preferred stock to 6 purchasers at $6.00 per share, for an aggregate purchase price of $7,379,004. Shares of Series E preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series E preferred stock outstanding. (8) In January 1996, Caliper issued an aggregate of 735,000 shares of common stock to 3 founders, at $0.001 per share. (9) From January 1996 to April 1996, Caliper issued an aggregate of 697,500 shares of common stock to 10 scientific advisors and 1 consultant at $0.001 per share. (10) From February 1996 to April 1996, Caliper issued an aggregate of 383,370 shares of common stock to 3 accredited investors in connection with the Series B preferred stock financing, at $0.04 per share. II-2 100 (11) From October 1996 to September 1997, Caliper issued 30,000 shares of common stock to one board member at $0.07 per share and 30,000 shares of common stock to another board member at $0.40 per share. (12) From January 1998 to July 1999, Caliper issued 119,250 shares of common stock to 8 individuals for services rendered to Caliper, with an aggregate value of $51,030. (13) In September 1998, Caliper issued 54,065 shares of common stock to 3 officers of Caliper in lieu of cash, with an aggregate value of $33,520. The sales and issuances of securities described in paragraphs (1), (8), (9), (11), (12) and (13) above were 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 by Rule 701. The sale and issuance of securities described in paragraphs (2) through (7) and (10) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2), Regulation D or Regulation S promulgated thereunder. With respect to the grant of stock options and restricted stock awards described in paragraphs (1), (9), (11) and (13), an exemption from registration was unnecessary in that none of the transactions involved a "sale" or securities as this term is used in Section 2(3) of the Securities Act. II-3 101 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of Caliper, filed May 19, 1998. 3.2 Amendment to Certificate of Incorporation. 3.3 Form of Certificate of Incorporation of Caliper to be filed immediately following the closing of the offering. 3.4 Bylaws of Caliper. 4.1 Reference is made to Exhibits 3.1 through 3.4. 4.2* Specimen Stock Certificate. 5.1* Opinion of Cooley Godward LLP. 10.1 Lease Agreement, dated December 1, 1998, between Caliper and 605 East Fairchild Associates, L.P. 10.2* 1996 Equity Incentive Plan. 10.3* 1999 Equity Incentive Plan. 10.4* 1999 Employee Stock Purchase Plan. 10.5* 1999 Non-Employee Directors' Stock Option Plan. 10.6 Employment Agreement, dated January 18, 1999, between Caliper and Daniel L. Kisner, M.D. 10.7 Promissory Note, dated July 29, 1999, between Caliper and Daniel L. Kisner, Ph.D. 10.8 Amended and Restated Investor Rights Agreement, dated May 7, 1998, among Caliper and certain stockholders of Caliper. 10.9 Form of Indemnification Agreement entered into between Caliper and its directors and executive officers. 10.10** Collaboration Agreement, dated May 2, 1998, between Caliper and Hewlett-Packard Company. 10.11** Termination, Transition and Technology Access Program Agreement, dated November 24, 1998, between Caliper and Hoffmann-La Roche Inc. 10.12** Technology Access Agreement, dated December 21, 1998, between Caliper and Amgen, Inc. 10.13** Technology Access Agreement, dated August 12, 1999, between Caliper and Eli Lilly and Company. 10.14** Screening Collaboration Agreement, dated December 16, 1998, between Caliper and Neurocrine Biosciences, Inc. 10.15** Sole Commercial Patent License Agreement, effective September 1, 1995, between Lockheed Martin Energy Research Corporation and Caliper, as amended (domestic). 10.16** Sole Commercial Patent License Agreement, effective September 1, 1995, between Lockheed Martin Energy Research Corporation and Caliper, as amended (international). 10.17 Consulting Agreement, dated April 30, 1997, between Caliper and Dr. David V. Milligan. 10.18 Employment Agreement, dated September 23, 1999, between Caliper and James L. Knighton. 10.19 Consulting Agreement, dated May 1, 1997, between Caliper and Regis McKenna. 10.20* Promissory Note, dated March 25, 1997, between Caliper and Michael R. Knapp, Ph.D. 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of Cooley Godward 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.
- --------------- * To be filed by amendment. ** Confidential treatment has been requested for a portion of this exhibit. II-4 102 (b) FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they are not required, they are not applicable or the information is already included in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) That for purposes of determining any liability under the Securities Act, the information omitted from the form of this 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. (2) That for purposes 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 the securities at that time shall be deemed to be the initial bona fide offering thereof. (3) Insofar as indemnification 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 15 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against these liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by a director, officer, or controlling person in connection with the securities being registered, 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 of whether the indemnification by it is against public policy as expressed in the Securities Act of 1933, and will be governed by the final adjudication of this issue. (4) To provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in the denomination and registered in the names required by the Underwriters to permit prompt delivery to each purchaser. II-5 103 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Santa Clara, State of California, on the 12th day of October, 1999. CALIPER TECHNOLOGIES CORP. By: /s/ DANIEL L. KISNER, M.D. ------------------------------------ Daniel L. Kisner, M.D. President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Daniel L. Kisner, M.D. and James L. Knighton his or her true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments and registration statements filed pursuant to Rule 462) to the Registration Statement on Form S-1, and to any registration statement filed under Securities and Exchange Commission Rule 462, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ DANIEL L. KISNER, M.D. President, Chief Executive October 12, 1999 - --------------------------------------------------- Officer and Director Daniel L. Kisner, M.D. (principal executive officer) /s/ JAMES L. KNIGHTON Chief Financial Officer October 12, 1999 - --------------------------------------------------- (principal financial and James L. Knighton accounting officer) /s/ DAVID V. MILLIGAN, PH.D. Chairman of the Board of October 12, 1999 - --------------------------------------------------- Directors David V. Milligan, Ph.D. /s/ ANTHONY B. EVNIN, PH.D. Director October 12, 1999 - --------------------------------------------------- Anthony B. Evnin, Ph.D. /s/ CHARLES M. HARTMAN Director October 12, 1999 - --------------------------------------------------- Charles M. Hartman /s/ REGIS P. MCKENNA Director October 12, 1999 - --------------------------------------------------- Regis P. McKenna /s/ ROBERT T. NELSEN Director October 12, 1999 - --------------------------------------------------- Robert T. Nelsen /s/ MICHAEL STEINMETZ, PH.D. Director October 12, 1999 - --------------------------------------------------- Michael Steinmetz, Ph.D.
II-6 104 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of Caliper, filed May 19, 1998. 3.2 Amendment to Certificate of Incorporation. 3.3 Form of Certificate of Incorporation of Caliper to be filed immediately following the closing of the offering. 3.4 Bylaws of Caliper. 4.1 Reference is made to Exhibits 3.1 through 3.4. 4.2* Specimen Stock Certificate. 5.1* Opinion of Cooley Godward LLP. 10.1 Lease Agreement, dated December 1, 1998, between Caliper and 605 East Fairchild Associates, L.P. 10.2* 1996 Equity Incentive Plan. 10.3* 1999 Equity Incentive Plan. 10.4* 1999 Employee Stock Purchase Plan. 10.5* 1999 Non-Employee Directors' Stock Option Plan. 10.6 Employment Agreement, dated January 18, 1999, between Caliper and Daniel L. Kisner, M.D. 10.7 Promissory Note, dated July 29, 1999, between Caliper and Daniel L. Kisner, Ph.D. 10.8 Amended and Restated Investor Rights Agreement, dated May 7, 1998, among Caliper and certain stockholders of Caliper. 10.9 Form of Indemnification Agreement entered into between Caliper and its directors and executive officers. 10.10** Collaboration Agreement, dated May 2, 1998, between Caliper and Hewlett-Packard Company. 10.11** Termination, Transition and Technology Access Program Agreement, dated November 24, 1998, between Caliper and Hoffmann-La Roche Inc. 10.12** Technology Access Agreement, dated December 21, 1998, between Caliper and Amgen, Inc. 10.13** Technology Access Agreement, dated August 12, 1999, between Caliper and Eli Lilly and Company. 10.14** Screening Collaboration Agreement, dated December 16, 1998, between Caliper and Neurocrine Biosciences, Inc. 10.15** Sole Commercial Patent License Agreement, effective September 1, 1995, between Lockheed Martin Energy Research Corporation and Caliper, as amended (domestic). 10.16** Sole Commercial Patent License Agreement, effective September 1, 1995, between Lockheed Martin Energy Research Corporation and Caliper, as amended (international). 10.17 Consulting Agreement, dated April 30, 1997, between Caliper and Dr. David V. Milligan. 10.18 Employment Agreement, dated September 23, 1999, between Caliper and James L. Knighton. 10.19 Consulting Agreement, dated May 1, 1997, between Caliper and Regis McKenna. 10.20* Promissory Note, dated March 25, 1997, between Caliper and Michael R. Knapp, Ph.D. 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of Cooley Godward 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.
- --------------- * To be filed by amendment. ** Confidential treatment has been requested for a portion of this exhibit. EX-3.1 2 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CALIPER TECHNOLOGIES CORP., A DELAWARE CORPORATION ARTICLE I. The name of the corporation is CALIPER TECHNOLOGIES CORP. ARTICLE II. The address of the corporation's registered office in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE III. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. ARTICLE IV. CLASSES OF STOCK. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is fifty-three million (53,000,000) shares, of which thirty-two million (32,000,000) shares shall be Common Stock, par value $0.001 per share and twenty-one million (21,000,000) shares shall be Preferred Stock, par value $0.001 per share. The Preferred Stock shall be divided into series, namely Series A Preferred Stock consisting of one million two hundred ninety-three thousand four hundred sixty-two (1,293,462) shares (the "Series A Preferred Stock"), Series B Preferred Stock consisting of eight million five hundred fifty thousand seven hundred six (8,550,706) shares (the "Series B Preferred Stock"), Series C Preferred Stock consisting of three million three hundred thirty-three thousand three hundred thirty-three (3,333,333) shares (the "Series C Preferred Stock"), Series D Preferred Stock consisting of five million one hundred ninety-five thousand (5,195,000) shares (the "Series D Preferred Stock"), and Series E Preferred Stock consisting of two million five hundred thousand (2,500,000) shares (the "Series E Preferred Stock). The remaining one hundred twenty-seven thousand four hundred ninety-nine (127,499) shares of Preferred Stock shall be undesignated. A. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The rights, preferences, restrictions and other matters relating to the Preferred Stock are as follows: 1. DIVIDEND PROVISIONS. The holders of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be entitled to receive pro rata dividends out of any assets legally available therefor prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) 1. 2 on the Common Stock of this corporation, at the rate of five percent (5%) of the Original Issue Price, as defined below, per share of each outstanding share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock per annum or, if greater (as determined on a per annum basis and an as converted basis for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock), an amount equal to that paid on any other outstanding shares of this corporation, payable quarterly when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets, capital, surplus or earnings of this corporation to the holders of Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share (as adjusted for any stock split, stock division or consolidation) equal to the sum of $.7825135 for each outstanding share of Series B Preferred Stock (the "Original Issue Price" with respect to such series), $3.00 for each outstanding share of Series C Preferred Stock (the "Original Issue Price" with respect to such series), $4.00 for each outstanding share of Series D Preferred Stock (the "Original Issue Price" with respect to such series) and $6.00 for each outstanding share of Series E Preferred Stock (the "Original Issue Price" with respect to such series), plus an amount equal to declared but unpaid dividends on each such share of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock (such amount of declared but unpaid dividends being referred to as the "Premium" with respect to the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock in proportion to the aggregate Original Issue Price of the shares of such stock owned by each such holder. (b) Upon the completion of the distribution required by subparagraph (a) of this Section 2, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share (as adjusted for any stock split, stock division or consolidation) equal to the sum of $.7825135 for each outstanding share of Series A Preferred Stock (the "Original Issue Price" with respect to such series) plus an amount equal to declared but unpaid dividends on each such share of Series A Preferred Stock (such amount of declared but unpaid dividends being referred to as the "Premium" with respect to the Series A Preferred Stock). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the remaining assets and funds of the corporation legally available for distribution shall be distributed ratably among the 2. 3 holders of the Series A Preferred Stock in proportion to the amount of such stock owned by each such holder. (c) Upon the completion of the distribution required by subparagraphs (a) and (b) of this Section 2, the remaining assets of the corporation available for distribution to stockholders shall be distributed among the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each (assuming conversion of all such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock). (i) For purposes of this Section 2, a liquidation, dissolution or winding up of this corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any merger effected exclusively for the purpose of changing the domicile of the corporation); or (B) a sale of all or substantially all of the assets of the corporation; unless the corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the corporation's acquisition or sale or otherwise) hold more than 50% of the voting power of the surviving or acquiring entity. (ii) In any of such events, if the consideration received by the corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate fair market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the corporation and the holders of at least a 3. 4 majority of the voting power of all then outstanding shares of Preferred Stock voting together as a class. (d) In the event the requirements of this Section 2 are not complied with, this corporation shall forthwith either: (i) cause such closing to be postponed until such time as the requirements of this Section 2 have been complied with; or (ii) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(e) hereof. (e) The corporation shall give each holder of record of Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders meeting called to approve such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the corporation shall thereafter give such holders prompt notice of any material changes. The transactions shall in no event take place sooner than twenty (20) days after the corporation has given the first notice provided for herein or sooner than ten (10) days after the corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of Preferred Stock voting together as a class. 3. REDEMPTION. (a) Holders of shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall have the option, but not the obligation, at any time subsequent to February 19, 2001, to require the corporation to redeem the shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, outstanding as of February 19, 2001 (the "Redemption Shares"), at the Redemption Price provided for below and otherwise pursuant to this Section 3, as requested by the holders of at least 66-2/3% of the Redemption Shares upon ninety (90) days prior written notice to the corporation (the "Redemption Request"). The Redemption Request shall specify the effective date of such redemption pursuant to this Section 3 (the "Redemption Date"). The price at which shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be redeemed pursuant to this Section 3 (the "Redemption Price") shall be the price per share, appropriately adjusted for any stock dividends, combinations or splits or similar events with respect to such shares, that is equal to the sum of (i) the Original Issue Price per share, plus all declared but unpaid dividends on such shares, and (ii) an amount equal to five percent (5%) of the Original Issue Price per annum, compounded annually, from the date such shares were originally issued through the Redemption Date or, if applicable, the actual date of redemption pursuant to Section 3(d) below. The Redemption Price 4. 5 shall be payable in cash. Notwithstanding the foregoing, the Redemption Price per share to be paid to CIP Capital L.P. shall not be greater than that permitted to be paid to a Small Business Investment Company under applicable law. (b) Within ten (10) days of receipt of any Redemption Request as provided for in this Section 3, the corporation shall cause a copy thereof to be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such copy is mailed) of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock other than the holders requesting redemption pursuant to such Redemption Request, at the address last shown on the records of the corporation for such holder. The corporation shall also include with such copy a statement notifying such holder of the facts relating to the redemption requested to be effected pursuant to this Section 3. (c) At least fifteen (15) but no more than thirty (30) days prior to the Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, at the address last shown on the records of the corporation for such holder, notifying such holder of the redemption to be effected and specifying the applicable Redemption Payment Dates, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the corporation, in the manner and at the place designated, his certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). On or after the Redemption Date, each holder of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock to be redeemed shall surrender to this corporation the certificate or certificates representing such shares, in the manner and at the place designated in the applicable Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. (d) From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series B Preferred Stock as holders of Series B Preferred Stock, the holders of shares of Series C Preferred Stock as holders of Series C Preferred Stock, the holders of shares of Series D Preferred Stock as holders of Series D Preferred Stock, and the holders of shares of Series E Preferred Stock as holders of Series E Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the corporation legally available for redemption of shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock on the Redemption Date are insufficient to redeem the total number of shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock to be redeemed on such date, the maximum amount of funds which are legally available will be used to redeem ratably among the holders of such shares to be redeemed such number of shares determined based upon the aggregate number of shares of Series B Preferred Stock, Series C Preferred Stock, Series D 5. 6 Preferred Stock and Series E Preferred Stock held by such holders. For the purpose of determining whether funds are legally available for redemption of shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock as provided herein, the corporation shall value its assets at the highest amount permissible under applicable law. The shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of shares of Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the corporation has become obliged to redeem on any Redemption Date, but which it has not redeemed. (e) On or prior to each Redemption Payment Date, the corporation shall deposit the Redemption Price payable upon such Redemption Payment Date with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the applicable Redemption Payment Date upon receipt of notification from the corporation that such holder has surrendered his share certificate to the corporation pursuant to Section 3(c) above. From and after the Redemption Date the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any moneys deposited by the corporation pursuant to this Section 3(e) for the redemption of shares thereafter converted into shares of Common Stock pursuant to Section 4 hereof prior to the Redemption Date shall be returned to the corporation forthwith upon such conversion. The balance of any moneys deposited by the corporation pursuant to this Section 3(e) remaining unclaimed at the expiration of six (6) months following the applicable Redemption Payment Date shall thereafter be returned to the corporation upon its request expressed in a resolution of its Board of Directors. 4. CONVERSION. The holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price for each share of that series by the conversion price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion (the "Conversion Price"). The initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Issue Price for the Series A Preferred Stock; the initial Conversion Price per share for shares of Series B Preferred Stock shall be the Original Issue Price for the Series B Preferred Stock; the initial Conversion Price per share for shares of Series C Preferred Stock shall be the Original Issue Price for the Series C Preferred Stock; the 6. 7 initial Conversion Price per share for shares of Series D Preferred Stock shall be the Original Issue Price for the Series D Preferred Stock; and the initial Conversion Price per share for shares of Series E Preferred Stock shall be the Original Issue Price for the Series E Preferred Stock; provided, however, that the Conversion Price for the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock shall be subject to adjustment as set forth in subsection 4(d). (b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 4(c), the corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 under the Securities Act of 1933, as amended (the "Act"), at a public offering price per share which is not less than $5.00 (adjusted to reflect subsequent stock dividends, stock splits or recapitalizations) and resulting in aggregate proceeds to the corporation of at least $10,000,000, and (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock voting together as a separate class (on an as-converted basis). (c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Preferred Stock of that series, and shall give written notice to this corporation at its principal corporate office, of the election to convert the same and shall state herein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of such Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Act, the conversion will, unless otherwise notified by the holders tendering the Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the Series A Preferred 7. 8 Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be subject to adjustment from time to time as follows: (i) (A) If the Corporation shall issue, after the date upon which any shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock were first issued (the "Purchase Date" with respect to such series), any Additional Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price for such series in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Stock so issued would purchase at such Conversion Price in effect immediately prior to such issue, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Stock so issued; and provided further that, for the purposes of this Section 4(d)(i)(A) all shares of Common Stock issuable upon conversion of outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be deemed to be Common Stock outstanding. (B) No adjustment of the Conversion Price for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall be made in an amount less than one cent ($.01) per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to 3 years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of 3 years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors irrespective of any accounting treatment. (E) In the case of the issuance (whether before, on or after the applicable Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible or exchangeable for Common Stock or options to purchase 8. 9 or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (to the extent then exercisable) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 4(d)(i)(C) and 4(d)(i)(D)), if any, received by the corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (to the extent then convertible or exchangeable) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and 4(d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this corporation upon exercise of such options or rights or upon conversions of or in exchange for such from the antidilution provisions thereof, the Conversion Price of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. 9. 10 (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E)(3) or 4(d)(i)(E)(4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) or issuable by this corporation after the Purchase Date other than: (A) Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof; (B) Common Stock issuable or issued to officers, employees, consultants, directors or vendors (if in transactions with primarily non-financing purposes) of this corporation directly or pursuant to a stock option or stock purchase plan or restricted stock plan, to the extent all such issuances do not exceed 4,600,000 shares of Common Stock, plus any additional shares unanimously approved by the Board of Directors of this corporation. (C) Common Stock issuable pursuant to exercise of any warrants outstanding prior to the Purchase Date. (D) Common Stock issued upon conversion of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock. (E) The 2,661,667 shares of Series B Preferred Stock issued pursuant to that certain Stock Purchase Agreement, dated April 26, 1996, in the Second Closing (as defined therein). (iii) In the event the corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock, or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock, or other securities or rights convertible into or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E). 10. 11 (iv) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (e) OTHER DISTRIBUTIONS. In the event this corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the corporation into which their shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the corporation entitled to receive such distribution. (f) RECAPITALIZATIONS. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 2) provisions shall be made so that the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock the number of shares of stock or other securities or property of the corporation or otherwise to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) NO IMPAIRMENT. This corporation will not by amendment of its Certificate of Incorporation nor through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. 11. 12 (h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS. (i) No fractional shares shall be issued upon the conversion of any share or shares of Preferred Stock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock pursuant to this Section 4, this corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such series of Preferred Stock. (i) NOTICES OF RECORD DATE. In the event of any taking by this corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this corporation shall mail to each holder of Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these articles. (k) All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by this corporation, be validly 12. 13 issued, fully paid and nonassessable, not subject to any preemptive or similar rights and free from all taxes, liens or charges with respect thereto created or imposed by this corporation. (l) This corporation shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of this corporation upon conversion of any shares of Preferred Stock; provided, however, that this corporation shall not be required to pay any taxes which may be payable in respect to any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the Preferred Stockholder in respect of which such shares of Preferred Stock are being issued. (m) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid and addressed to each holder of record at his address appearing on the books of this corporation. 5. VOTING RIGHTS. (a) Except as otherwise set forth in Article VI, the holder of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock could then be converted, and, with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders meeting in accordance with the bylaws of this corporation and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) The Board of Directors shall consist of six (6) members. The holders of Series B Preferred Stock, voting as a separate class, shall be entitled to elect four (4) members of the Board of Directors. The holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock, voting together as a class, shall be entitled to elect two (2) members of the Board of Directors. 6. PROTECTIVE PROVISIONS. (a) So long as shares of Series A Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock: (i) increase the authorized number of shares of Series A Preferred Stock other than an increase incident to a stock split; or 13. 14 (ii) amend or repeal any provision of this corporation's Certificate of Incorporation if such action would alter or change the preferences, rights, privileges, powers of or restrictions provided for the benefit of Series A Preferred Stock. (b) So long as any shares of Series B Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock: (i) create or issue any security containing any rights, preferences or privileges which are on a parity with or senior to the rights, preferences or privileges of the Series B Preferred Stock (ii) change or modify any of the rights, preferences or privileges of the Series B Preferred Stock (iii) permit any change of control of the corporation, including without limitation any merger, consolidation or reorganization of the corporation whereby the corporation's stockholders of record as constituted immediately prior to such change of control do not hold more than fifty percent (50%) of the voting power of the corporation immediately after such change in control; (iv) undertake any actions in which the holders of the Series A Preferred Stock are entitled to a class vote under applicable law; or (v) increase or decrease (other than by redemption pursuant to Section 3 or conversion pursuant to Section 4) the total number of authorized shares of Series B Preferred Stock. (c) So long as any shares of Series C Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock: (i) change or modify any of the rights, preferences or privileges of the Series C Preferred Stock (ii) undertake any actions in which the holders of the Series A Preferred Stock are entitled to a class vote under applicable law; or (iii) increase or decrease (other than by redemption pursuant to Section 3 or conversion pursuant to Section 4) the total number of authorized shares of Series C Preferred Stock. (d) So long as any shares of Series D Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock: 14. 15 (i) change or modify any of the rights, preferences or privileges of the Series D Preferred Stock; or (ii) increase or decrease (other than by redemption pursuant to Section 3 or conversion pursuant to Section 4) the total number of authorized shares of Series D Preferred Stock. (e) So long as any shares of Series E Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of Series E Preferred Stock: (i) change or modify any of the rights, preferences or privileges of the Series E Preferred Stock; (ii) undertake any actions in which the holders of the Series A Preferred Stock are entitled to a class vote under applicable law; or (iii) increase or decrease (other than by redemption pursuant to Section 3 or conversion pursuant to Section 4) the total number of authorized shares of Series E Preferred Stock. (f) So long as any shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least sixty-six and two thirds percent (66-2/3%) of the then outstanding shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, voting together as a class: (i) sell, abandon, transfer, lease or otherwise dispose of all or substantially all of this corporation's assets; or (ii) purchase, lease or otherwise acquire all or substantially all of the assets of another entity engaged primarily in pharmaceutical research; (iii) except as otherwise required by this Amended and Restated Certificate of Incorporation, declare or pay any dividend or make any distribution with respect to shares of its capital stock (whether in cash, shares of capital stock or other securities or property); (iv) merge or consolidate with or into, or permit any subsidiary to merge or consolidate with or into (other than with or into this corporation), any other corporation or corporations or other entity or entities; (v) voluntarily dissolve, liquidate or wind-up or carry out any partial liquidation or distribution or transaction in the nature of a partial liquidation or distribution; 15. 16 (vi) except as otherwise required by this Amended and Restated Certificate of Incorporation or in any agreement approved by the Board of Directors with a director, officer, employee, consultant or independent contractor of or to this corporation providing for the repurchase of any of its capital stock owned by such entities, redeem or otherwise repurchase any shares of this corporation's outstanding capital stock; (vii) alter or change the designations, powers, preferences, rights, qualifications, limitations or restrictions of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock. (viii) amend, alter or repeal any of the provisions of this Amended and Restated Certificate of Incorporation, which amendment, alteration or repeal materially and adversely affects the powers, preferences or rights pertaining to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock. (ix) issue or agree to issue any equity security of the corporation for consideration valued at less than $3.00 per share (or, in the case of Common Stock, at a price less than the fair market value of the Common Stock as determined in good faith by the Board of Directors), or warrant, convertible debt security or other right to purchase (other than stock options or other rights pursuant to the corporation's stock option plans) shares of the corporation's equity stock at an exercise or conversion price of less than $3.00 per share (or, in the case of Common Stock, at a price less than the fair market value of the Common Stock as determined in good faith by the Board of Directors); provided, however, that this subsection (d)(viii) shall not apply to the issuance of the corporation's Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 under the Act. (x) or issue or agree to issue any debt security which, together with any other debt securities issued in the then current calendar year, exceeds $2,500,000; (xi) adopt or approve any stock option plan, or amend or modify any existing stock option plan, of the corporation which adoption, approval, amendment or modification will have the effect of increasing the total number of shares of Common Stock issuable under all stock option plans of the corporation in any calendar year by in excess of 333,333 shares of Common Stock; or (xii) accelerate the vesting schedule or exercise date or dates of any stock option agreement, or waive or modify the corporation's repurchase rights with respect to any shares of the corporation's stock issuable pursuant to any restricted stock purchase agreement, between the corporation and its directors, officers, employees, consultants or independent contractors with respect to, collectively in the aggregate in any calendar year, in excess of 333,333 shares of the corporation's Common Stock. 7. STATUS OF CONVERTED STOCK. In the event any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be 16. 17 canceled and shall not be issuable by the corporation. The Certificate of Incorporation of this corporation shall be appropriately amended to effect the corresponding reduction in the corporation's authorized capital stock. B. COMMON STOCK. 1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of the corporation, the assets of the corporation shall be distributed as provided in Section 2 of Division (B) of this Article III hereof. 3. REDEMPTION. The Common Stock is not redeemable. 4. VOTING RIGHTS. Except as otherwise set forth in Article VI, the holder of each share of Common Stock shall have the right to one vote and shall be entitled to notice of any stockholders meeting in accordance with the Bylaws of this corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. ARTICLE V. Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the corporation. ARTICLE VI. At such time when no shares of Series B Preferred Stock shall continue to be outstanding, the number of directors of the corporation shall be fixed from time to time by a Bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders. In the event that this corporation is subject to Section 2115(b) of the California Corporations Code at any time, or from time to time, then the following shall apply: (a) Every stockholder entitled to vote in any election of directors of the corporation during such time the corporation is subject to Section 2115(b) may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder may so choose; (b) No stockholder, however, may cumulate such stockholder's votes for one or more candidates unless (i) the names of such candidates have been properly placed in nomination, in accordance with the Bylaws of the corporation, prior to the voting, (ii) the stockholder has given 17. 18 advance notice to the corporation of the intention to cumulate votes pursuant to the Bylaws, and (iii) the stockholder has given proper notice to the other stockholders at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes; and (c) If any stockholder has given proper notice, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. The candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares shall be declared elected. ARTICLE VII. Elections of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. ARTICLE VIII. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the corporation. ARTICLE IX. To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior to such repeal or modification. ARTICLE X. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 18. EX-3.2 3 AMENDMENT TO CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CALIPER TECHNOLOGIES CORP. Caliper Technologies Corp., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: The name of this Corporation is Caliper Technologies Corp. SECOND: The original Certificate of Incorporation of Caliper Technologies Corp. was filed with the Secretary of the State of Delaware on July 26, 1995. An Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 19, 1998 (the "Amended and Restated Certificate"). THIRD: The Board of Directors of the Corporation, acting in accordance with the provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Amended and Restated Certificate as follows: Article IV.A.5(b) shall be amended and restated to read in its entirety as follows: "The Board of Directors shall consist of seven (7) members. The holders of Series B Preferred Stock, voting as a separate class, shall be entitled to elect four (4) members of the Board of Directors. The holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock, voting together as a class, shall be entitled to elect three (3) members of the Board of Directors." FOURTH: thereafter pursuant to a resolution of the Board of Directors, this Certificate of Amendment was submitted to the stockholders of the Corporation for their approval, and was approved, in accordance with Section 242 of the General Corporation Law of the State of Delaware. FIFTH: All other provisions of the Amended and Restated Certificate shall remain in full force and effect. 2 IN WITNESS WHEREOF, Caliper Technologies Corp. has caused this Certificate of Amendment to be signed by the President and Chief Executive Officer and the Secretary this 29th day of March, 1999. CALIPER TECHNOLOGIES CORP. By: /s/ DANIEL L. KISNER -------------------------------------- Daniel Kisner, M.D. President and Chief Executive Officer ATTEST: /s/ ROBERT L. JONES - ----------------------------- Robert L. Jones Secretary 2. EX-3.3 4 FORM OF CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CALIPER TECHNOLOGIES CORP., A DELAWARE CORPORATION ARTICLE I. The name of the corporation is CALIPER TECHNOLOGIES CORP. ARTICLE II. The address of the corporation's registered office in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE III. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware ("DGCL"). ARTICLE IV. A. CLASSES OF STOCK. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is fifty-five million (55,000,000) shares, of which fifty million (50,000,000) shares shall be Common Stock, par value $0.001 per share, and five million (5,000,000) shares shall be Preferred Stock, par value $0.001 per share. B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate (a "Preferred Stock Designation") pursuant to the Delaware General Corporation Law, to fix or alter from time to time the designation, powers, preferences and rights (voting or otherwise) granted upon, and the qualifications, limitations or restrictions of, any wholly unissued series of Preferred Stock, and to establish from time to time the number of shares constituting any such series or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V. For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: 1. 2 A. MANAGEMENT OF BUSINESS. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted by the Board of Directors. B. BOARD OF DIRECTORS. 1. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public (the "Initial Public Offering"), the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. During such time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), this Section B.1. of this Article V shall become effective and be applicable only when the corporation is a "listed" corporation within the meaning of Section 301.5 of the CGCL. 2. In the event that the corporation is subject to Section 2115(b) of the CGCL AND is not a "listed" corporation or ceases to be a "listed" corporation under Section 301.5 of the CGCL, Section B.1. of this Article V shall not apply and all directors shall be shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. 3. No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CGCL AND is not a "listed" corporation or ceases to be a "listed" corporation under Section 301.5 of the CGCL. During this time, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. 2. 3 Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. C. REMOVAL OF DIRECTORS. 1. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. 2. At any time or times that the corporation is not subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, Section C.1. above shall no longer apply and removal shall be as provided in Section 141(k) of the DGCL. D. VACANCIES. 1. Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. 2. If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the DGCL. 3. 4 3. At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then: (a) Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or (b) The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall terminate upon that election of a successor. E. BYLAW AMENDMENTS. Subject to paragraph (i) of Section 42 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock of the corporation entitled to vote. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. F. BALLOTS. The directors of the corporation need not be elected by written ballot unless the Bylaws so provide. G. ACTION BY STOCKHOLDERS. No action shall be taken by the stockholders of the corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws; no action shall be taken by the stockholders by written consent. H. ADVANCE NOTICE. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws of the corporation. I. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the stockholders may be called only by the Chairman of the Board, the Chief Executive Officer, or a majority of the members of the Board of Directors. ARTICLE VI. A. The liability of the directors for monetary damages shall be eliminated to the fullest extent under applicable law. B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the CGCL) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CGCL, subject, at any time or times the corporation is subject to Section 2115(b) to the limits on such excess indemnification set forth in Section 204 of the CGCL. 4. 5 C. Any repeal or modification of this Article VI shall be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. ARTICLE VII. A. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation. B. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the voting stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI and VII. 5. EX-3.4 5 BYLAWS OF CALIPER 1 EXHIBIT 3.4 BYLAWS OF CALIPER TECHNOLOGIES CORP. (A DELAWARE CORPORATION) 2 TABLE OF CONTENTS
PAGE ARTICLE I OFFICES.....................................................................1 Section 1. Registered Office......................................................1 Section 2. Other Offices..........................................................1 ARTICLE II CORPORATE SEAL..............................................................1 Section 3. Corporate Seal.........................................................1 ARTICLE III STOCKHOLDERS' MEETINGS......................................................1 Section 4. Place Of Meetings......................................................1 Section 5. Annual Meetings........................................................1 Section 6. Special Meetings.......................................................4 Section 7. Notice Of Meetings.....................................................5 Section 8. Quorum.................................................................5 Section 9. Adjournment And Notice Of Adjourned Meetings...........................5 Section 10. Voting Rights..........................................................6 Section 11. Joint Owners Of Stock..................................................6 Section 12. List Of Stockholders...................................................6 Section 13. Action Without Meeting.................................................6 Section 14. Organization...........................................................7 ARTICLE IV DIRECTORS...................................................................8 Section 15. Number And Term Of Office..............................................8 Section 16. Powers.................................................................8 Section 17. Classes of Directors...................................................8 Section 18. Vacancies..............................................................9 Section 19. Resignation...........................................................10 Section 20. Removal...............................................................10 Section 21. Meetings..............................................................10 (a) Annual Meetings..............................................................10 (b) Regular Meetings.............................................................11 (c) Special Meetings.............................................................11 (d) Telephone Meetings...........................................................11
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PAGE (e) Notice Of Meetings...........................................................11 (f) Waiver Of Notice.............................................................11 Section 22. Quorum And Voting.....................................................11 Section 23. Action Without Meeting................................................12 Section 24. Fees And Compensation.................................................12 Section 25. Committees............................................................12 (a) Executive Committee..........................................................12 (b) Other Committees.............................................................12 (c) Term.........................................................................13 (d) Meetings.....................................................................13 Section 26. Organization..........................................................13 ARTICLE V OFFICERS...................................................................14 Section 27. Officers Designated...................................................14 Section 28. Tenure And Duties Of Officers.........................................14 (a) General......................................................................14 (b) Duties Of Chairman Of The Board Of Directors.................................14 (c) Duties Of President..........................................................14 (d) Duties Of Vice Presidents....................................................14 (e) Duties Of Secretary..........................................................15 (f) Duties Of Chief Financial Officer............................................15 Section 29. Delegation Of Authority...............................................15 Section 30. Resignations..........................................................15 Section 31. Removal...............................................................15 ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION............................................................16 Section 32. Execution Of Corporate Instruments....................................16 Section 33. Voting Of Securities Owned By The Corporation.........................16 ARTICLE VII SHARES OF STOCK............................................................16 Section 34. Form And Execution Of Certificates....................................16
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PAGE Section 35. Lost Certificates.....................................................17 Section 36. Transfers.............................................................17 Section 37. Fixing Record Dates...................................................17 Section 38. Registered Stockholders...............................................18 ARTICLE VIII OTHER SECURITIES OF THE CORPORATION........................................18 Section 39. Execution Of Other Securities.........................................18 ARTICLE IX DIVIDENDS..................................................................19 Section 40. Declaration Of Dividends..............................................19 Section 41. Dividend Reserve......................................................19 ARTICLE X FISCAL YEAR................................................................19 Section 42. Fiscal Year...........................................................19 ARTICLE XI INDEMNIFICATION............................................................19 Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees And Other Agents..................................19 (a) Directors And Executive Officers.............................................19 (b) Other Officers, Employees and Other Agents...................................20 (c) Expenses.....................................................................20 (d) Enforcement..................................................................20 (e) Non-Exclusivity Of Rights....................................................21 (f) Survival Of Rights...........................................................21 (g) Insurance....................................................................21 (h) Amendments...................................................................21 (i) Saving Clause................................................................21 (j) Certain Definitions..........................................................22 ARTICLE XII NOTICES....................................................................23 Section 44. Notices...............................................................23 (a) Notice To Stockholders.......................................................23 (b) Notice To Directors..........................................................23 (c) Affidavit Of Mailing.........................................................23
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PAGE (d) Time Notices Deemed Given....................................................23 (e) Methods Of Notice............................................................23 (f) Failure To Receive Notice....................................................23 (g) Notice To Person With Whom Communication Is Unlawful.........................23 (h) Notice To Person With Undeliverable Address..................................24 ARTICLE XIII AMENDMENTS.................................................................24 Section 45. Amendments............................................................24 ARTICLE XIV LOANS TO OFFICERS..........................................................24 Section 46. Loans To Officers.....................................................24
iv. 6 BYLAWS OF CALIPER TECHNOLOGIES CORP. (A DELAWARE CORPORATION) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. SECTION 5. ANNUAL MEETINGS. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or at the 1. 7 direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and 2. 8 the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice"). (c) Notwithstanding anything in the second sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation. (d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded. (e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act. (f) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act. 3. 9 SECTION 6. SPECIAL MEETINGS. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders only as set forth in Section 18(c) herein. (b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within one hundred (100) days after the receipt of the request, the person or persons properly requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. (c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in these Bylaws who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 6(c). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by Section 5(b) of these Bylaws shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no 4. 10 event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast by the holders of shares of such class or classes or series shall be the act of such class or classes or series. SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the 5. 11 adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. SECTION 13. ACTION WITHOUT MEETING. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action 6. 12 so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. (c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL. (d) Notwithstanding the foregoing, no such action by written consent may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock of the corporation (the "Initial Public Offering"). SECTION 14. ORGANIZATION. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to 7. 13 the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. SECTION 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. SECTION 17. CLASSES OF DIRECTORS. (a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the Initial Public Offering, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, this Section 17(a) shall become effective and apply only when the corporation is a "listed" corporation within the meaning of Section 301.5 of the CGCL. (b) In the event that the corporation (i) is subject to Section 2115(b) of the CGCL and (ii) is not a "listed" corporation or ceases to be a "listed" corporation under Section 301.5 of the CGCL, Section 17(a) of these Bylaws shall not apply and all directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. 8. 14 (c) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation (i) is subject to Section 2115(b) of the CGCL and (ii) is not a "listed" corporation or ceases to be a "listed" corporation under Section 301.5 of the CGCL. During this time, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. SECTION 18. VACANCIES. (a) Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 18 in the case of the death, removal or resignation of any director. (b) If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the DGCL. 9. 15 (c) At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then (1) Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or (2) The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall terminate upon that election of a successor. SECTION 19. RESIGNATION. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. SECTION 20. REMOVAL. (a) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. (b) Following any date on which the corporation is no longer subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, Section 20(a) above shall no longer apply and removal shall be as provided in Section 141(k) of the DGCL. SECTION 21. MEETINGS. (a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such 10. 16 meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors. No formal notice shall be required for regular meetings of the Board of Directors. (c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors. (d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (e) NOTICE OF MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (f) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 22. QUORUM AND VOTING. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with the Certificate of Incorporation, a quorum of the Board of Directors shall consist of a 11. 17 majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. SECTION 25. COMMITTEES. (a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation. (b) OTHER COMMITTEES. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. 12. 18 (c) TERM. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to any requirements of any outstanding series of preferred Stock and the provisions of subsections (a) or (b) of this Bylaw, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. 13. 19 ARTICLE V OFFICERS SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. SECTION 28. TENURE AND DUTIES OF OFFICERS. (a) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (c) DUTIES OF PRESIDENT. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. (d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their 14. 20 office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. SECTION 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or 15. 21 superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of 16. 22 issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. SECTION 36. TRANSFERS. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL. SECTION 37. FIXING RECORD DATES. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the 17. 23 record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have 18. 24 been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX DIVIDENDS SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law. SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X FISCAL YEAR SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by 19. 25 such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d). (b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the DGCL or any other applicable law. (c) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Section 43 or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this Section 43 to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, 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 DGCL or any other applicable law 20. 26 for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an [executive] officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law, or by any other applicable law. (f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) INSURANCE. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43. (h) AMENDMENTS. Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of 21. 27 another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law. (j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (5) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section 43. 22. 28 ARTICLE XII NOTICES SECTION 44. NOTICES. (a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (b) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. (c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by overnight delivery service, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to 23. 29 such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENTS SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock of the corporation entitled to vote. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. ARTICLE XIV LOANS TO OFFICERS SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of 24. 30 the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 25. EX-10.1 6 LEASE AGREEMENT 1 EXHIBIT 10.1 October 15, 1998 ================================================================================ LEASE AGREEMENT by and between 605 EAST FAIRCHILD ASSOCIATES, L.P., a California limited partnership ("LANDLORD") and CALIPER TECHNOLOGIES CORP., a Delaware corporation ("TENANT") Dated as of October 15, 1998 ================================================================================ 2
BASIC LEASE INFORMATION - -------------------------------------------------------------------------------- Lease Date: October 15, 1998 LANDLORD: 605 East Fairchild Associates, L.P., a California limited partnership Managing Agent: The Mozart Development Company Landlord's and c/o The Mozart Development Company Managing Agent's Address: 1068 East Meadow Circle Palo Alto, CA 94303 TENANT: Caliper Technologies Corp., a Delaware corporation Tenant's Address: FOR NOTICE: 605 East Fairchild Drive Mountain View, CA 94043 Attn: Chief Operating Officer FOR BILLING: 605 East Fairchild Drive Mountain View, CA 94043 Attn: Accounts Payable Premises: An existing two-story building located on the Land (the "Building"), as shown on Exhibit "A" attached hereto. Building Address: 605 East Fairchild Drive, Mountain View, California Land: The real property described on Exhibit "A-1" attached hereto. Project: The Building, Land and other improvements located in the area shown on Exhibit "A" attached hereto. Rentable Area of the Premises: 53,361 Rentable Square Feet ("Rentable Area"). Tenant's Use of the Premises: Tenant may use the Premises for general office, administration, light distribution, and research and development, and may use an
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BASIC LEASE INFORMATION - -------------------------------------------------------------------------------- area shown on Exhibit "H" attached hereto, not to exceed 7,000 square feet of the Premises, for light manufacturing that is incidental to the other permitted uses (excluding uses which involve the use of Hazardous Substances as defined in Paragraph 40 [Hazardous Substance Liability] beyond the levels and types allowed by Paragraph 40(d), and for no other purposes; provided, however, any proposed use which involves the use of Hazardous Substances beyond the levels and types allowed by Paragraph 40(d) shall be subject to Landlord's prior written approval, which shall not be unreasonably withheld so long as (i) the proposed use does not involve any of the chemical substances which have been associated with the investigation and remediation of those Hazardous Substances currently existing in the soil and/or groundwater within the general area of the Premises, and (ii) Landlord is provided an indemnity from an entity (which may include Tenant, a subtenant of Tenant, or an affiliate of either of the foregoing) acceptable to Landlord and any mortgagees, and in all other respects satisfactory to Landlord and any mortgagees, indemnifying and defending Landlord, its mortgagees, and all of their successors and assigns, agents, representatives, and affiliates from and against any and all loss, cost, claim, liability, or suit arising directly or indirectly in connection with the use of such Hazardous Substances. Lease Term: Commencing on the Occupancy Date and ending on the Expiration Date, with the right to extend for an additional term of five (5) years in accordance with Paragraph 43 [Option to Renew]. Scheduled Rent Commencement Date: December 1, 1998. Outside Delivery Date: January 31, 1999. Expiration Date: Ten (10) years after the Rent Commencement Date. Rent: Base Rent plus Additional Charges. Monthly Base Rent: $2.35 per Rentable Square Foot of the Rentable Area of the Premises. Base Rent Adjustment: On each anniversary of the Rent Commencement Date, the Monthly Base Rent shall increase by three percent (3%) of the
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BASIC LEASE INFORMATION - -------------------------------------------------------------------------------- Monthly Base Rent applicable to the month immediately prior to the applicable anniversary. Security Deposit: Tenant shall provide and maintain a letter of credit or cash collateral in the initial amount of One Million Dollars ($1,000,000), which amount may be reduced during the Term in accordance with Paragraph 34 [Security Deposit]. Guarantor of Lease: None Landlord's Broker: None Tenant's Broker: Cornish & Carey Commercial - Randy Scott Broker's Fee or Commission Paid By: Landlord, in accordance with Paragraph 39.
The foregoing Basic Lease Information is hereby incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the information hereinabove set forth and shall be construed to incorporate all of the terms provided under the particular paragraph pertaining to such information. In the event of any conflict between any Basic Lease Information and any other portion of the Lease, the latter shall control. LANDLORD: 605 EAST FAIRCHILD ASSOCIATES, L.P., a California limited partnership By: M-D Ventures, Inc., a California corporation, Its General Partner By: /s/ ------------------------------------- Steve Dostart Its Vice President TENANT: CALIPER TECHNOLOGIES CORP., a Delaware corporation By: /s/ ------------------------------------- Calvin Y.H. Chow Its Chief Operating Officer 5 LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into as of October 15, 1998, by and between 605 East Fairchild Associates, L.P., a California limited partnership (herein called "Landlord"), and Caliper Technologies Corp., a Delaware corporation (herein called "Tenant"). 1. LEASED PREMISES. (a) PREMISES. Upon and subject to the terms, covenants and conditions hereinafter set forth, Landlord agrees to lease to Tenant and Tenant agrees to hire from Landlord those premises (the "Premises") comprising the entire two-story building shown on Exhibit "A" attached hereto (the "Building"). The Building is located on the parcel or parcels of real property described on Exhibit "A-1" (the "Land"). The Building, together with the Land and associated improvements located on the Land, are collectively referred to as the "Project". On the Occupancy Date, the Building will include certain interior improvements, which shall be defined, collectively with the Building shell and core, as the "Base Building". (b) USE OF PROJECT. Tenant is hereby granted the non-exclusive use of certain areas and facilities within the Project that are not included in the Premises, including landscaped areas, service areas, parking areas, recreation areas, trash enclosures, plaza, walkways, driveways, sidewalks, access and perimeter roads, and the like, all subject to the Rules and Regulations described in Paragraph 18. 2. OCCUPANCY AND USE. Tenant may use and occupy the Premises for the purpose specified in the Basic Lease Information and for no other use or purpose without the prior written consent of Landlord. Landlord may grant or withhold consent to a proposed change of use in its sole discretion, except in circumstances described in the Basic Lease Information where Landlord may not unreasonably withhold its consent. 3. TERM AND POSSESSION. (a) TERM; OCCUPANCY DATE; EXPIRATION DATE. The term of this Lease (the "Term") shall commence on the Occupancy Date and, unless sooner terminated pursuant to Paragraphs 3(d), 11(c), 20, 21(b), 22, or 23, shall expire on the Expiration Date, provided that Tenant shall have an option to extend the Term in accordance with the terms and conditions of Paragraph 43 [Option to Renew]. "Occupancy Date" shall mean the date on which Landlord has tendered possession of the Premises to Tenant. Tenant shall accept the Premises in an "as-is" condition. Landlord shall have been deemed to tender possession of the Premises to Tenant if Landlord meets the following conditions: (a) Landlord provides at least three (3) days advance written notice to Tenant of the date that the Premises will be so tendered and (b) the Premises have been vacated by any prior tenant and any such tenant?s personal property (eg. furniture systems, furniture, trade fixtures, etc.) have been removed, subject to Tenant?s separate agreement(s) with Vivus, Inc. concerning a sublease of a portion of the Premises and purchase of 6 personal property. However, in no case shall Tenant be required to accept occupancy of the Premises prior to December 1, 1998. All of the rights and obligations of the parties under this Lease shall commence on the Occupancy Date. The dates upon which the Term shall actually commence and terminate with respect to the entire Premises pursuant to this Paragraph 3(a) are herein called the "Occupancy Date" and the "Expiration Date," respectively. (b) OCCUPANCY BY TENANT. Tenant shall be deemed to occupy the Premises from and after the Occupancy Date. This Paragraph 3(c) shall not be construed as an obligation of Tenant to continuously occupy the Premises. Within five (5) days after the Occupancy Date, Landlord shall deliver to Tenant a certificate confirming the Occupancy Date and the Rent Commencement Date, in the form of Exhibit "B" hereto. If Tenant does not agree with Landlord's determination of the Occupancy Date, Tenant may submit such matter to arbitration in accordance with Paragraph 41 [Arbitration of Disputes], provided that prior to the resolution of such matter by arbitration, the parties shall proceed under this Lease as if the Occupancy Date is the date designated by Landlord, with any required adjustments to the Rent Commencement Date made after the matter is ultimately determined by arbitration. (c) RENT COMMENCEMENT DATE; CERTIFICATE OF OCCUPANCY. Tenant's obligation to pay Base Rent and Additional Charges hereunder shall commence on the later to occur of (i) the Scheduled Rent Commencement Date set forth in the Basic Lease Information, or (ii) the Occupancy Date (such date being defined as the "Rent Commencement Date"). (d) EXCLUSIVE REMEDIES FOR FAILURE OF LANDLORD TO DELIVER POSSESSION. If Landlord has not delivered possession of the Premises to Tenant by the "Outside Delivery Date" as specified in the Basic Lease Information, Tenant shall have the right to terminate this Lease by written notice to Landlord at any time within five (5) business days after Landlord's failure to so deliver possession of the Premises. If Tenant does not exercise such right to terminate within such five (5) business day period, Tenant shall waive such right and this Lease shall continue in full force and effect. If Tenant exercises this termination right, Tenant shall be entitled to the remedy hereinbelow described, which shall be Tenant's sole and exclusive remedy with respect to Landlord's failure to deliver the Premises. If Tenant exercises its termination right pursuant to this Paragraph 3(d) and Landlord believes that possession of the Premises had been delivered to Tenant prior to the Outside Delivery Date, the parties agree to submit the dispute concerning Landlord's failure to deliver possession of the Premises, and Tenant's resulting right to terminate the Lease, to binding arbitration pursuant to the provisions of Paragraph 41 [Arbitration of Disputes]. Notwithstanding any other provision of this Lease, if Landlord fails to deliver possession of the Premises by the Outside Delivery Date, Tenant's sole and exclusive remedy shall be to terminate this Lease. 7 4. RENT; RENT ADJUSTMENTS; ADDITIONAL CHARGES FOR EXPENSES AND TAXES. (a) MONTHLY BASE RENT. (i) Commencing on the Rent Commencement Date, Tenant shall pay to Landlord throughout the Term Base Rent in an amount equal to the Monthly Base Rent rate specified in the Basic Lease Information multiplied by the Rentable Area of the Premises, as specified in the Basic Lease Information ("Base Rent"). (ii) Base Rent shall be payable by Tenant in equal monthly installments on or, at Tenant's election, before the first day of each month, in advance, in lawful money of the United States (without any prior demand therefor and without deduction or offset whatsoever, except for abatement as may be expressly and specifically provided for in Paragraphs 22 [Damage and Destruction] and 23 [Eminent Domain]), to Landlord at the address specified in the Basic Lease Information or to such other firm or to such other place as Landlord may from time to time designate in writing. Tenant shall pay all charges and other amounts whatsoever as provided in this Lease ("Additional Charges") to Landlord at the place where the Base Rent is payable, and Landlord shall have the same remedies for a default in the payment of Additional Charges as for a default in the payment of Base Rent. If the Rent Commencement Date occurs on a day other than the first day of a calendar month, or the Expiration Date occurs on a day other than the last day of a calendar month, then the Base Rent and Additional Charges for such fractional month shall be prorated on a daily basis. As used herein, the term "Rent" shall include all Base Rent and Additional Charges (including, without limitation, Additional Charges pursuant to Paragraph 25 [Right of Landlord to Perform]). (b) ADJUSTMENTS IN BASE RENT. The Monthly Base Rent under Paragraph 4(a) [Monthly Base Rent] shall be adjusted as provided in the Basic Lease Information. (c) ADDITIONAL CHARGES FOR EXPENSES AND TAXES. (1) DEFINITIONS OF ADDITIONAL CHARGES: For purposes of this Paragraph 4(c), the following terms shall have the meanings hereinafter set forth: (A) "TAX YEAR" shall mean each twelve (12) consecutive month period commencing January 1st of the calendar year during which the Rent Commencement Date of this Lease occurs. (B) "REAL ESTATE TAXES" shall mean all taxes, assessments and charges levied upon or with respect to the Project or any personal property of Landlord used in the operation thereof, or Landlord's interest in the Project or such personal property. Real Estate Taxes shall include, without limitation, all general real property taxes and general and special 8 assessments, charges, fees or assessments for transit (including, without limitation, shuttle fees and roadways), housing, police, fire, utilities, sewers, emergency response or other governmental services or purported benefits to the Project (provided, however, that any refunds of Real Estate Taxes paid by Tenant shall be credited against Tenant's further obligation to pay Real Estate Taxes during the Term or refunded to Tenant at the end of the Term), service payments in lieu of taxes, and any tax, fee or excise on the act of entering into this Lease, or any other lease of space in the Project, or on the use or occupancy of the Project or any part thereof, or on the rent payable under any lease or in connection with the business of renting space in the Project, that are now or hereafter levied or assessed against Landlord by the United States of America, the State of California, or any political subdivision, public corporation, district or any other political or public entity, and shall also include any other tax, fee or other excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Estate Taxes, whether or not now customary or in the contemplation of the parties on the date of this Lease. Real Estate Taxes shall not include franchise, transfer, inheritance or capital stock taxes or income taxes measured by the net income of Landlord from all sources unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, or as an addition to, in whole or in part, any other tax that would otherwise constitute a Real Estate Tax. Additionally, Real Estate Taxes shall not include any assessments or like charges to pay for any remediation of contamination from any Hazardous Substances. Real Estate Taxes shall also include reasonable legal fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce Real Estate Taxes. If any assessments are levied on the Project, Tenant shall have no obligation to pay more than that amount of annual installments of principal and interest that would become due during the Lease Term had Landlord elected to pay the assessment in installment payments, even if Landlord pays the assessment in full. (C) "EXPENSES" shall mean the total costs and reasonable expenses paid or incurred by Landlord in connection with the management, operation, maintenance and repair of the Project, including, without limitation, (i) the cost of fire, extended coverage, boiler, sprinkler, commercial general liability, property, rent, earthquake, flood, and all other insurance described in Paragraph 12(e) [Landlord's Insurance Obligations] or otherwise obtained by Landlord in connection with the Project, including, without limitation, insurance premiums and any deductible amounts paid by Landlord; (ii) the cost of air conditioning, electricity, steam, heating, mechanical, ventilating, water, gas, elevator systems and all other utilities, the cost of supplies and equipment and maintenance and service contracts in connection therewith, and the cost of refuse service, landscaping, parking lot sweeping and similar maintenance services; (iii) the cost of repairs and general maintenance and cleaning; (iv) fees, charges and other costs, including consulting fees, legal fees and accounting fees, fees for any project engineer for the Project, and fees of all independent contractors, engaged by Tenant and related solely to the operation of the Project (or, if any such costs, fees or charges are attributable to other property managed by Landlord, the portion of such costs, fees and charges allocable to the Project, as reasonably determined by Landlord); (v) the cost of any capital improvements made to the Building or Project as permitted or required by this Lease; provided that any such 9 capital improvement costs in excess of $12,807 per calendar year in the aggregate shall be amortized over the useful life of the capital item in question as determined in accordance with generally accepted accounting principles ("GAAP"), together with interest on the unamortized balance at the rate paid by Landlord on funds borrowed for the purpose of constructing such capital improvements, or, if Landlord does not elect to borrow funds, at the "prime rate" of interest announced by the Wall Street Journal for Union Bank (or, if Union Bank ceases to exist, by another bank mutually acceptable to Landlord and Tenant) (the "Interest Rate"), as reflected over the period the funds are advanced, plus two percent (2%); (vi) a management fee for Landlord's management and administrative services in connection with the Project in the amount of two percent (2.0%) of Base Rent and Additional Charges (excluding the management fee); and (vii) any other expenses of any other kind whatsoever incurred in managing, operating, maintaining and repairing the Premises and/or Project. Notwithstanding anything to the contrary herein contained, Expenses shall not include, and in no event shall Tenant have any obligation to pay for pursuant to this Paragraph 4(c) or Paragraph 9(b) [Repair and Maintenance; Tenant's Obligations], (aa) the initial costs of constructing the Base Building which were paid by Landlord; (bb) the cost of providing tenant improvements to any other tenant in the Project; (cc) debt service (including, but without limitation, interest and principal) required to be made on debt incurred by Landlord and relating to the Project other than debt service and financing charges imposed pursuant to Paragraph 4(c)(1)(C)(v) above; (dd) the portion of a management fee paid to Landlord or an affiliate in excess of two percent (2.0%) of the sum of Base Rent and Additional Charges (excluding the management fee); (ee) the cost of special services, goods or materials provided to any other tenant; (ff) depreciation; (gg) costs for which Landlord has a right to receive reimbursement from others; (hh) costs occasioned by Landlord' fraud or willful misconduct under applicable Laws; (ii) costs to correct any construction defects in the original construction of the Base Building; (jj) costs arising from a disproportionate use of any utility or service supplied by Landlord to any other occupant of the Project to the extent that Landlord has the ability to charge such other tenant for said costs under the terms of a lease comparable to terms governing said costs in this Lease; (kk) environmental pollution related costs (other than costs for which Tenant has indemnified Landlord pursuant to Paragraph 40 [Hazardous Substance Liability]); (ll) any maintenance, repair or replacement costs for which Landlord is responsible pursuant to Paragraph 9(a) [Repair and Maintenance; Landlord's Obligations]; (mm) advertising or promotional costs; (nn) leasing commissions; and (oo) reserves for expenses. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied (with accruals appropriate to Landlord's business). Expenses shall not include specific costs incurred for the account of, separately billed to and paid by specific tenants in the Project. (D) "EXPENSE YEAR" shall mean each twelve (12) consecutive month period commencing January 1 of the calendar year during which the Rent Commencement Date of the Lease occurs. Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Expenses shall be equitably adjusted for the Expense Years involved in any such change. 10 (2) PAYMENT OF REAL ESTATE TAXES (A) PAYMENT AS DUE: With reasonable promptness after Landlord has received the tax bills for any Tax Year, Landlord shall furnish Tenant with a statement (herein called "Landlord's Tax Statement") setting forth the amount of Real Estate Taxes for such Tax Year. Unless otherwise required pursuant to clause (B) below, Tenant shall pay to Landlord actual Real Estate Taxes in installments, twice each Tax Year, no later than fifteen (15) business days prior to the due date of each Real Estate Tax installment. (B) IMPOUNDS: Notwithstanding clause (A) above, if required by any Mortgagee or, at Landlord's election, after any default by Tenant in the timely payment of Real Estate Taxes, Tenant shall pay to Landlord as Additional Charges one-twelfth (1/12th) of Real Estate Taxes for each Tax Year on or before the first day of each month during such Tax Year, in advance, in an amount reasonably estimated by Landlord and billed by Landlord to Tenant. Landlord shall have the right initially to determine monthly estimates and to revise such estimates from time to time. If the actual Real Estate Taxes for such Tax Year (as shown on Landlord's Tax Statement) exceed the estimated Real Estate Taxes paid by Tenant for such Tax Year, Tenant shall pay to Landlord the difference between the amount paid by Tenant and the actual Real Estate Taxes within fifteen (15) days after the receipt of Landlord's Tax Statement, and if the total amount paid by Tenant for any such Tax Year shall exceed the actual Real Estate Taxes for such Tax Year, such excess shall be credited against the next installment of Real Estate Taxes due from Tenant to Landlord hereunder. If it has been determined that Tenant has overpaid Real Estate Taxes during the last year of the Lease Term, then Landlord shall reimburse Tenant for such overage on or before the thirtieth (30th) day following the Expiration Date. (3) PAYMENT OF EXPENSES: Tenant shall pay to Landlord as Additional Charges one-twelfth (1/12th) of the Expenses for each Expense Year on or before the first day of each month of such Expense Year, in advance, in an amount reasonably estimated by Landlord and billed by Landlord to Tenant; provided, however, that all insurance premiums which are included in Expenses shall be payable annually, in advance, by Tenant within twenty (20) days after Tenant's receipt from Landlord of a copy of the invoice with respect to such premiums. Landlord shall have the right initially to determine monthly estimates and to revise such estimates from time to time. With reasonable promptness after the expiration of each Expense Year, Landlord shall furnish Tenant with a statement (herein called "Landlord's Expense Statement"), setting forth in reasonable detail the Expenses for such Expense Year. If the actual Expenses for such Expense Year exceed the estimated Expenses paid by Tenant for such Expense Year, Tenant shall pay to Landlord the difference between the amount paid by Tenant and the actual Expenses within thirty (30) days after the receipt of Landlord's Expense Statement, and if the total amount paid by Tenant for any such Expense Year shall exceed the actual Expenses for such Expense Year, such excess shall be credited against the next installment of the estimated Expenses due from Tenant to Landlord hereunder or if the Term has ended it shall be returned to Tenant within thirty (30) days. If Tenant has overpaid Expenses during the last year of the Lease Term, then Landlord shall reimburse Tenant for such overage on or before the thirtieth (30th) day following 11 the later of the Expiration Date or the end of the last Expense Year. To the extent any item of Expenses is payable by Landlord in advance of the period to which it is applicable (e.g. insurance and tax escrows required by any Mortgagee), or to the extent that prepayment is customary for the service or matter, Landlord may (aa) include such items in Landlord's estimate for periods prior to the date such item is to be paid by Landlord, and (bb) to the extent Landlord has not collected the full amount of such item prior to the date such item is to be paid by Landlord, Landlord may include the balance of such full amount in a revised monthly estimate for Additional Charges. (4) AUDIT RIGHTS: Within ninety (90) days after receipt of any Landlord's Expense Statement or Landlord's Tax Statement, Tenant shall have the right to audit, at Landlord's office located in the San Francisco Bay Area, at Tenant's expense, Landlord's accounts and records relating to Expenses and Real Estate Taxes. Such audit shall be conducted by a certified public accountant approved by Landlord, which approval shall not be unreasonably withheld. If such audit reveals that Landlord has overcharged Tenant, Tenant shall notify Landlord within one hundred twenty (120) days after the date the applicable Landlord's Expense Statement or Landlord's Tax Statement was received by Tenant. Landlord may dispute such audit by arbitration pursuant to Paragraph 41 [Arbitration of Disputes]. If Landlord does not dispute such amount, or if Tenant prevails in any such arbitration, the amount overcharged shall be paid to Tenant within thirty (30) days thereafter, together with interest thereon at the Interest Rate, from the date Landlord's Expense Statement or Landlord's Tax Statement, as applicable, was delivered to Tenant until payment of the overcharge is made to Tenant. In addition, if Landlord's Expense Statement or Landlord's Tax Statement, as applicable, exceeds the actual Expenses and Real Estate Taxes which should have been charged to Tenant by more than five percent (5%), the cost of the audit, up to a maximum cost of Ten Thousand Dollars ($10,000), shall be paid by Landlord. If Tenant fails to object to any Landlord's Expense Statement or Landlord's Tax Statement within one hundred twenty (120) days after receipt thereof, such statement shall be final and shall not be subject to any audit, challenge or adjustment. (5) OTHER: If either the Rent Commencement Date or the Expiration Date shall occur on a date other than the first day of a Tax Year and/or Expense Year, Real Estate Taxes and Expenses for the Tax Year and/or Expense Year in which the Rent Commencement Date or the Expiration Date occurs shall be prorated. (d) LATE CHARGES; DEFAULT RATE. Tenant recognizes that late payment of any Base Rent or Additional Charges will result in administrative expenses to Landlord, the extent of which additional expense is extremely difficult and economically impractical to ascertain. Tenant therefore agrees that if any Base Rent or Additional Charges remain unpaid ten (10) days after such amount is due, the amount of such unpaid Base Rent or Additional Charges shall be increased by a late charge to be paid to Landlord by Tenant in an amount equal to five percent (5%) (or such greater amount not to exceed six percent (6%) as may be charged by any Mortgagee for a late payment of a monthly mortgage payment) of the amount of the delinquent Base Rent or Additional Charges. In addition, any outstanding Base Rent, Additional Charges, 12 late charges and other outstanding amounts shall accrue interest at an annualized rate of the greater of 10% or The Ninth Circuit Federal Reserve Discount Rate plus 5% (the "Default Rate"), until paid to Landlord. Tenant agrees that such amount is a reasonable estimate of the loss and expense to be suffered by Landlord as a result of such late payment by Tenant and may be charged by Landlord to defray such loss and expense. The provisions of this Paragraph 4(d) shall not relieve Tenant of the obligation to pay Base Rent or Additional Charges on or before the date they are due, or affect Landlord's remedies pursuant to Paragraph 21(b) [Landlord's Remedies] if any Base Rent or Additional Charges are unpaid after they are due. 5. INTENTIONALLY DELETED. 6. RESTRICTIONS ON USE. Tenant shall not use or allow the Premises or Project to be used for any unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises or Project. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises or Project. 7. COMPLIANCE WITH LAWS. (a) TENANT'S COMPLIANCE OBLIGATIONS. Tenant shall promptly, at its sole expense, maintain the Premises, any Alterations (as defined in Paragraph 8(b) [Landlord's Consent to Tenant's Alterations]) permitted hereunder and Tenant's use and operations thereon in strict compliance at all times with all present and future laws, statutes, ordinances, resolutions, regulations, proclamations, orders or decrees of any municipal, county, state or federal government or other governmental or regulatory authority with jurisdiction over the Project, or any portion thereof, whether currently in effect or adopted in the future and whether or not in the contemplation of the parties hereto (collectively, "Laws"). Such Laws shall include, without limitation, all Laws relating to health and safety and disabled accessibility including, without limitation, the Americans with Disabilities Act, 42 U.S.C. section 12101 et seq., Hazardous Substances, and all present and future life safety, fire, sprinkler, seismic retrofit, building code and municipal code requirements; provided however, that Tenant's obligation to comply with Laws relating to Hazardous Substances is subject to the terms and conditions of Paragraph 40 [Hazardous Substances Liability], and Tenant shall not be responsible for compliance with clean-up provisions of any Laws with respect to Hazardous Substances except to the extent of any release caused or permitted by the Tenant Parties (as defined in Paragraph 12(b) [Tenant Indemnity]). Notwithstanding the foregoing, Tenant shall not be required to make any structural alterations to the Base Building in order to comply with Laws unless the requirement that such alterations be made is triggered by any of the following (or if such requirement results from the cumulative effect of any of the following when added to other acts, omissions, negligence or events, to the extent such alterations are required by any of the following): (i) the installation, use or operation of any Alterations, or any of Tenant's trade fixtures or personal property; (ii) the acts, omissions or negligence of Tenant, or any of its servants, employees, contractors, agents or licensees; or (iii) the particular use or particular occupancy or manner of use or occupancy of the Premises by Tenant, or any of its servants, employees, contractors, agents or licensees. The 13 parties acknowledge and agree that Tenant's obligation to comply with all Laws as provided in this paragraph (subject to the limitations contained herein) is a material part of the bargained-for consideration under this Lease. Tenant's obligations under this Paragraph shall include, without limitation, the responsibility of Tenant to make substantial or structural repairs and alterations to the Premises (including the Base Building and any Alterations) to the extent provided above, regardless of, among other factors, the relationship of the cost of curative action to the Rent under this Lease, the length of the then remaining Term hereof, the relative benefit of the repairs to Tenant or Landlord, the degree to which the curative action may interfere with Tenant's use or enjoyment of the Premises, and the likelihood that the parties contemplated the particular Law involved. Tenant waives any rights now or hereafter conferred upon it by any existing or future Law to terminate this Lease, to receive any abatement, diminution, reduction or suspension of payment of Rent, or to compel Landlord to make any repairs to comply with any such Laws, on account of any occurrence or situation arising during the Term. (b) INSURANCE REQUIREMENTS. Tenant shall not do or permit anything to be done in or about the Project or bring or keep anything therein which will cause a cancellation of any insurance on the Project or otherwise violate any requirements, guidelines, conditions, rules or orders with respect to such insurance. Tenant shall at its sole cost and expense promptly comply with the requirements of the board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises or Project (other than in situations where compliance involves repair, maintenance or replacement of items that Landlord is expressly required to repair, maintain or replace under this Lease). (c) NO LIMITATION ON OBLIGATIONS. The provisions of this Paragraph 7 shall in no way limit Tenant's maintenance, repair and replacement obligations under Paragraph 9 [Repair and Maintenance], or Tenant's obligation to pay Expenses under Paragraph 4(c) [Additional Charges for Expenses and Taxes]. The judgment of any court of competent jurisdiction or the admission of Tenant in an action against Tenant, whether Landlord is a party thereto or not, that Tenant has so violated any such Law shall be conclusive of such violation as between Landlord and Tenant. 8. ADDITIONAL ALTERATIONS. (a) LANDLORD'S ALTERATIONS. Landlord shall not make or suffer to be made any additional alterations, additions or improvements in, on or to the Base Building or any part thereof without the prior written consent of Tenant, except as may be required by Law or as expressly required or permitted by this Lease. (b) LANDLORD'S CONSENT TO TENANT'S ALTERATIONS. Tenant may install a clean room, neutralizing facility, and related facilities, within the area outlined on Exhibit H attached hereto (such improvements, the "Approved Alterations"), without Landlord's prior consent, provided that upon the expiration or sooner termination of the Term Tenant shall remove the Approved Alterations and restore the Premises in accordance with Paragraph 9(e). Tenant shall 14 not make or suffer to be made any additional alterations, additions or improvements ("Alterations") in, on or to the Premises or any part thereof, without the prior written consent of Landlord. Failure of Landlord to give its disapproval to any Alterations within ten (10) business days after receipt of Tenant's written request for approval shall constitute approval by Landlord of such Alterations so long as Tenant's request includes the following statement in capitalized and boldfaced letters: BY FAILING TO RESPOND TO THIS REQUEST, YOU WILL BE DEEMED TO HAVE APPROVED THE TENANT'S INSTALLATION OF THE ALTERATIONS DESCRIBED IN THIS REQUEST. Any Alterations in, on or to the Premises, except for Tenant's movable furniture and equipment, trade fixtures and Alterations which may be removed without damage to the Premises, shall become the property of Landlord upon their completion without compensation to Tenant. Landlord shall not unreasonably withhold its consent to Alterations that (i) do not materially affect the structure of the Building, the Building Systems (as defined in Paragraph 9(b) below) or the Building's security or other systems, (ii) are not visible from the exterior of the Building, (iii) are consistent with Tenant's permitted use hereunder, (iv) comply with the CC&Rs and any Mortgage, and (v) do not adversely affect the value or marketability of Landlord's reversionary interest upon termination or expiration of this Lease. (c) PERMITTED ALTERATIONS. Notwithstanding Paragraph 8(b), Tenant may make Alterations to the Premises without Landlord's prior consent so long as (x) such Alterations comply with items (i) through (v) in Paragraph 8(b) [Landlord's Consent to Tenant's Alterations], and (y) the cost of each such Alteration (or group of Alterations, if occurring substantially at the same time and as part of a single project) does not exceed Fifty Thousand Dollars ($50,000) (with no more than thirty percent (30%) of such cost being for demolition), and the cost of all such Alterations in any twelve (12) month period during the Term in the aggregate does not exceed One Hundred Thousand Dollars ($100,000) (any such Alterations being defined herein as "Permitted Alterations"). (d) REQUIREMENTS FOR TENANT ALTERATIONS. Tenant shall make any Alterations consented to or permitted under this Paragraph 8 at Tenant's sole cost and expense, in compliance with the following requirements: (i) Alterations (other than the Approved Alternations and Permitted Alterations) shall be made in accordance with plans and specifications reasonably approved by Landlord, and all Alterations shall be made in accordance with the requirements of Paragraph 10 [Liens], (ii) any contractor or person selected by Tenant to make Alterations (other than the Approved Alterations and Permitted Alterations) must first be approved in writing by Landlord, in its reasonable discretion, (iii) Alterations shall be made in compliance with all applicable Laws; and (iv) Alterations shall not alter or interfere with the ceiling of the Building (all partitions being below the ceiling grid, except in areas designated by Landlord on plans and specifications), unless approved by Landlord in its sole discretion; provided, however, that Tenant may make Alterations that do not comply with the standards set forth in item (iv) above (subject to any other applicable Landlord consent requirement) if Tenant agrees to reconfigure the affected floor to such standard upon expiration or earlier termination of this Lease. By making Alterations which do not comply with the standards set forth in item (iv) 15 above, Tenant shall be deemed to have agreed to reconfigure the Premises upon expiration or termination of the Lease as provided above unless Landlord specifically agrees otherwise in writing. Upon completion of any Alterations, Tenant shall furnish Landlord with a complete set of final as-built plans and specifications, at Tenant's cost and expense. With respect to items (i) and (ii) above, failure of Landlord to give its disapproval to any plans and specifications or general contractor within ten (10) business days after receipt of Tenant's written request for approval shall constitute approval by Landlord of such matters so long as Tenant's request includes the following statement in capitalized and boldfaced letters: BY FAILING TO RESPOND TO THIS REQUEST, YOU WILL BE DEEMED TO HAVE APPROVED THE PLANS AND SPECIFICATIONS AND/OR GENERAL CONTRACTOR FOR TENANT'S ALTERATIONS DESCRIBED IN THIS REQUEST. (e) REMOVAL OF ALTERATIONS AND RESTORATION. Upon the expiration or sooner termination of the Term, Tenant shall upon demand by Landlord, at Landlord's election and at Tenant's sole cost and expense, forthwith and with all due diligence remove any Alterations made by or for the account of Tenant that are designated by Landlord to be removed and restore the Premises as required by Paragraph 26(b) [Delivery and Restoration of the Premises]. Upon the written request of Tenant prior to installation of any Alterations, Landlord shall notify Tenant of its election to require that such Alterations be removed upon the expiration or sooner termination of this Lease, so long as such written request clearly requests Landlord's election regarding the removal of such Alterations. Landlord's failure to specifically notify Tenant of Landlord's election shall be deemed Landlord's election to require removal of the Alterations upon expiration of the Term, notwithstanding any deemed approval by Landlord of the Alterations pursuant to this paragraph. (f) REIMBURSEMENT OF LANDLORD'S REVIEW COSTS. Tenant shall reimburse Landlord upon demand for any reasonable out-of-pocket expenses incurred by Landlord in connection with the review of any Alterations made by Tenant, including reasonable fees charged by Landlord's contractors or consultants to review plans and specifications prepared by Tenant. 9. REPAIR AND MAINTENANCE. (a) LANDLORD'S OBLIGATIONS. Landlord shall maintain, repair and replace, at its sole cost and expense, the following, except as provided in Paragraph 9(c) [Tenant's Obligations for Structural Maintenance]: (i) the structural portions of the exterior, roof structure and structural portions of the Building (including load bearing walls and foundations); and (ii) plumbing and electricity (located on the Project and owned by Landlord) to the point of entry into the Building. Landlord shall maintain, repair and replace, such costs to be borne as specified in Paragraph 4(c)1(C), the parking areas, courtyards, sidewalks, entry ways, lawns, landscaping and other similar facilities of the Project. Landlord's obligations under Paragraph 9(a)(i) and (ii) with respect to any particular repair, replacement or maintenance requirement, and its obligations under Paragraph 9(a)(iii) with respect to any specific repair, shall not commence until Tenant notifies Landlord in writing of any circumstances which Tenant believes may trigger Landlord's 16 obligations. (b) TENANT'S OBLIGATIONS. Tenant shall maintain, repair and replace, at its sole cost and expense, all portions of the Premises included in the Project which are not Landlord's obligations under Section 9(a) [Landlord's Obligations], including, without limitation, (i) the building systems for electrical, mechanical, HVAC and plumbing and all controls appurtenant thereto (collectively, "Building Systems"); and (ii) the interior portion of the Building and any Alterations. At Tenant's election, Tenant may, by written notice to Landlord delivered at any time after the tenth (10th) anniversary of the Rent Commencement Date, cause Landlord to assume Tenant's maintenance obligations with respect to the Building Systems under clause (i) above, which assumption by Landlord shall be effective thirty (30) days after Landlord's receipt of such notice. If Landlord assumes such obligations, all costs incurred by Landlord in connection therewith shall be deemed Additional Charges payable by Tenant in accordance with Paragraph 4(c) [Additional Charges for Expenses and Taxes]. The Building shall at all times be maintained by Tenant in the condition of a first-class office building. Tenant's obligations under this Paragraph 9 include, without limitation, the replacement, at Tenant's sole cost and expense, of any portions of the Building which are not Landlord's express responsibility under Paragraph 9(a) [Landlord's Obligations], if it would be commercially prudent to replace, rather than repair, such portions of the Building, regardless of whether such replacement would be considered a capital expenditure; provided, however, that if Landlord has assumed Tenant's maintenance obligations for Building Systems pursuant to this Paragraph 9(b), any replacement of any portion of the Building Systems which would be considered a capital expenditure and which is made at least one (1) year after Landlord assumes such obligations shall be amortized over the useful life of the capital item in question in accordance with Paragraph 4(c)(1)(C) [Expenses]. Tenant hereby waives and releases its right to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. In addition, Tenant hereby waives and releases its right to terminate this Lease under Section 1932(1) of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. (c) TENANT'S OBLIGATIONS FOR STRUCTURAL MAINTENANCE. Notwithstanding the provisions of Paragraph 9(a) [Landlord's Obligations] and without limiting Tenant's other obligations hereunder, Tenant shall bear the full cost of structural repairs or maintenance to preserve the Building in good working order and condition, to the extent such structural repair and/or maintenance is required due to the following (except to the extent any claims arising from any of the following are reimbursed by insurance carried by Landlord, are covered by the waiver of subrogation in Paragraph 13 [Waiver of Subrogation] or are otherwise provided for in Paragraph 22 [Damage and Destruction]): (i) the installation, use or operation of any Alterations or other modification to the Premises made by Tenant; (ii) the installation, use or operation of Tenant's property or fixtures; (iii) the moving of Tenant's property or fixtures in or out of the Building or in and about the Project; or (iv) the acts, omissions or negligence of Tenant, or any of its servants, employees, contractors, agents or licensees, or the particular use or particular occupancy or manner of use or occupancy of the Premises or Project by Tenant or any such 17 person. In addition, if at any time during the Term Hazardous Substances are released, discharged, or disposed of on any portion of the Premises, or on any portion of the Project, by any of the Tenant Parties, in violation of Tenant's obligations hereunder, repairs of the plumbing to the point of entry into the Building shall be excluded from Landlord's obligations under Section 9(a). Tenant shall not cause or permit any disposal or release of Hazardous Substances into the plumbing systems at the Project. Any Alterations required for Tenant to comply with this Paragraph 9(c) shall be made in accordance with the provisions of Paragraph 8(d) [Requirements for Tenant Alterations]. (d) MAINTENANCE SERVICE CONTRACTS. In connection with Tenant's maintenance and repair obligations contained in this Paragraph 9, Tenant shall, at its own cost and expense, enter into regularly scheduled preventive maintenance service contracts with maintenance contractors approved by Landlord, in its reasonable discretion, for servicing all hot and cold water, heating, air conditioning and electrical systems, elevators and equipment within the Building, and shall provide copies of such contracts to Landlord. At Landlord's option at any time in which Tenant is in default hereunder, maintenance service contracts shall be prepaid on an annual basis. Tenant will use commercially reasonable efforts to ensure that each maintenance service contract shall specifically name Landlord as a third party beneficiary, with the right to receive copies of all notices delivered under such contract and the ability to exercise Tenant's rights thereunder upon Tenant's default under this Section 9 or upon Landlord's assumption of Tenant's maintenance obligations with respect to Building Systems pursuant to Paragraph 9(e) [Cure Rights], at Landlord's election. (e) CURE RIGHTS. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any failure to fulfill any of its obligations under this Paragraph 9; provided, however, that if such failure is curable but cannot be cured within such thirty (30) day period, Tenant shall have such additional time as may be reasonably required to cure (not to exceed sixty (60) additional days, subject to delay by casualty, natural disaster, acts of the Government, labor strikes, or other similar causes outside the reasonable control of Landlord or Tenant, as applicable ("Force Majeure Events")) so long as Tenant commences such cure within the initial thirty (30) day period and diligently prosecutes such cure to completion. If Tenant fails to cure such failure as provided above, or in the event of an emergency which materially adversely affects the Project, Landlord may, at Landlord's election, cure such failure, at Tenant's cost and expense, and the expenses thereof incurred by Landlord shall be reimbursed as Additional Charges within thirty (30) days after submission of a bill or statement therefor. In addition, Landlord may elect, by delivery of written notice to Tenant, to assume Tenant's maintenance obligations with respect to the Building Systems under Paragraph 9(b)(i) [Tenant's Obligations] if Tenant does not cure any breach of such obligations. If Landlord assumes such obligations, all costs incurred by Landlord in connection therewith shall be deemed Additional Charges payable by Tenant in accordance with Paragraph 4(c) [Additional Charges for Expenses and Taxes]. The remedies described in this paragraph are cumulative and in addition to any other remedies Landlord may have at law or under this Lease. 18 (f) NO LIABILITY OF LANDLORD. There shall be no abatement of Rent with respect to, and Landlord shall not be liable for any injury to or interference with Tenant's business arising from, any repairs, maintenance, alteration or improvement in or to any portion of the Project by any party, except as expressly and specifically provided in Paragraph 22; provided, however, that (i) Base Rent and Additional Charges may be abated during the period of any interference to Tenant's business which exceeds ninety (90) days, in proportion to the portion of the Premises Tenant is unable to use, only if such interruption results from an insured casualty such that proceeds are payable to Landlord under the rental interruption insurance carried by Landlord pursuant to Paragraph 12(e) [Landlord's Insurance Obligations] and only to the extent of such proceeds actually received by Landlord, and (ii) subject to the limitations on Tenant's recourse against Landlord contained in Paragraph 21(d) [Tenant's Remedies], Landlord shall be liable for any actual damage to Tenant to the extent caused by Landlord's gross negligence or willful misconduct in connection with any such repairs, maintenance, alteration or improvement. 10. LIENS. Tenant shall keep the Premises and Project free from any liens arising out of any work performed, material furnished or obligations incurred by Tenant. If Tenant does not, within thirty (30) days following the imposition of any such lien, cause it to be released of record by payment or posting of a proper bond (or such shorter period of time as may be required to avoid a default under any Mortgage), Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause it to be released by such means as Landlord deems proper, including payment of the claim giving rise to such lien. All sums paid and expenses incurred by Landlord in connection therewith shall be considered Additional Charges and shall be payable to Landlord by Tenant on demand, with interest at the Default Rate. Landlord shall have the right at all times to post and keep posted on the Premises and Project any notices permitted or required by law or by any Mortgagee, for the protection of Landlord, any Mortgagee, the Premises, the Building, the Land, the Project, and any other party having an interest therein, from mechanics' and materialmen's liens. Tenant shall give Landlord at least five (5) business days' prior notice of commencement of any construction on the Premises. This Paragraph 10 shall survive any termination of this Lease. 11. ASSIGNMENT AND SUBLETTING. (a) RESTRICTION ON ASSIGNMENT AND SUBLEASING. Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of the Premises or Tenant's leasehold estate hereunder (collectively, "Assignment"), or permit the Premises to be occupied by anyone other than Tenant or sublet the Premises or any portion thereof (collectively, "Sublease"), without Landlord's prior written consent in each instance, which consent shall not be unreasonably withheld or delayed by Landlord; provided, however, that Landlord may withhold its consent, in its sole discretion, to any assignment of less than the entire Lease, or any sublease which would result in more than two (2) occupants (including Tenant and any subtenants or other occupants) on any floor in the Building. Without otherwise limiting the criteria upon which Landlord may withhold its consent 19 to any proposed Sublease or Assignment, if Landlord withholds its consent where either (i) the creditworthiness of the proposed Sublessee or Assignee is not reasonably acceptable to Landlord or any Mortgagee, or (ii) the proposed Sublessee's or Assignee's use of the Premises is not in compliance with the allowed Tenant's Use of the Premises as described in the Basic Lease Information or, in Landlord's judgment, would require or result in presence of Hazardous Substances on the Premises and/or Project in excess of those described in Paragraph 40(d) [Hazardous Substance Liability; Tenant's Covenants], such withholding of consent shall be presumptively reasonable. If Landlord consents to the Sublease or Assignment, Tenant may thereafter enter into a valid Sublease or Assignment upon the terms and conditions set forth in this Paragraph 11. (b) REQUIRED NOTICE. If Tenant desires at any time to enter into an Assignment of this Lease or a Sublease of the Premises or any portion thereof, it shall first give written notice to Landlord containing (i) the name of the proposed assignee, subtenant or occupant; (ii) a description of the proposed assignee's, subtenant's, or occupant's business to be carried on in the Premises; (iii) the terms and provisions of the proposed Assignment or Sublease; and (iv) such financial information as Landlord may reasonably request concerning the proposed assignee, subtenant or occupant. (c) LANDLORD'S RESPONSE TO PROPOSED ASSIGNMENT. Within ten (10) business days after Landlord's receipt of the notice specified in Paragraph 11(b) [Required Notice] with respect to an Assignment of Tenant's interest under this Lease, Landlord may by written notice to Tenant elect to (i) terminate this Lease, (ii) consent to the Assignment, or (iii) disapprove the Assignment. Notwithstanding anything in this Paragraph 11(c) to the contrary, Landlord shall not have the right to terminate this Lease in connection with any "Permitted Transfer" (as defined below). (d) LANDLORD'S RESPONSE TO PROPOSED SUBLEASE. Within ten (10) business days after Landlord's receipt of the notice specified in Paragraph 11(b) [Required Notice] with respect to a Sublease, Landlord may by written notice to Tenant elect to (i) consent to the Sublease; or (ii) disapprove the Sublease. Notwithstanding anything in this Paragraph 11(d) to the contrary, Landlord shall not have the rights set forth in (i) and (ii) of this Paragraph 11(d) in connection with any Sublease to a "Strategic Partner" (as defined below) in compliance with Paragraph 11(h) [Strategic Partners]. (e) BONUS RENT. If Landlord consents to any Assignment or Sublease pursuant to Paragraph 11(c) [Landlord's Response To Proposed Assignment] or Paragraph 11(d) [Landlord's Response To Proposed Sublease], Tenant may within one hundred twenty (120) days after Landlord's consent, but not later than the expiration of said one hundred twenty (120) days, enter into such Assignment or Sublease of the Premises or portion thereof upon the terms and conditions set forth in the notice furnished by Tenant to Landlord pursuant to Paragraph 11(b) [Required Notice]. However, fifty percent (50%) of any rent or other consideration realized by Tenant under any such Assignment or Sublease in excess of the Base Rent and Additional 20 Charges payable hereunder (or the amount thereof proportionate to the portion of the Premises subject to such Sublease or Assignment) shall be paid to Landlord, after deducting therefrom the unamortized value of Alterations installed by Tenant which are located on the portion of the Premises subject to such Sublease or Assignment as of the effective date of such Assignment or Sublease which are attributable to and allocated in equal installments over the term of the Sublease or Assignment, determined by assuming a useful life equal to fifteen (15) years and amortization on a straight line basis (without interest), and after deducting therefrom any customary brokers' commissions that Tenant has incurred in connection with such Assignment or Sublease amortized on a straight line basis (without interest) over the term of the Sublease or Assignment. In such event, Tenant shall deliver evidence of the cost of the Alterations, which shall be acceptable to Landlord in its reasonable discretion, for Landlord's use as the basis for calculating the value of the Alterations for purposes of this Paragraph 11(e). Failure by Landlord to either consent or refuse such consent to a proposed Assignment or Sublease within the fifteen (15) day time period specified above shall be deemed to be Landlord's consent thereto. (f) EFFECT OF TRANSFER. Landlord's consent to any Assignment or Sublease shall not relieve Tenant of any obligation to be performed by Tenant under this Lease, whether arising before or after the Assignment or Sublease. Landlord's consent to any Assignment or Sublease shall not relieve Tenant from the obligation to obtain Landlord's express written consent to any other Assignment or Sublease. Any Assignment or Sublease that is not in compliance with this Paragraph 11 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of Base Rent or Additional Charges by Landlord from a proposed assignee or sublessee shall not constitute the consent to such Assignment or Sublease by Landlord. (g) PERMITTED TRANSFER. The following shall be deemed a voluntary Assignment of Tenant's interest in this Lease: (i) any dissolution, merger, consolidation, or other reorganization of Tenant; and (ii) if the capital stock of Tenant is not publicly traded, the sale or transfer of stock to one person or entity possessing more than fifty percent (50%) of the total combined voting power of all classes of Tenant's stock issued, outstanding and entitled to vote for the election of directors. Notwithstanding anything to the contrary contained in this Paragraph 11, Tenant may enter into any of the following transfers (a "Permitted Transfer") without Landlord's prior written consent: (1) Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization, so long as immediately following such transaction the surviving corporation has a net worth, and cash, cash equivalents or third party marketable securities with liquidity of 90 to 360 days (collectively, "Liquid Assets"), equal to or greater than the net worth and Liquid Assets of Tenant as of both the execution of this Lease and the Occupancy Date; (2) Tenant may assign this Lease to a corporation which purchases or otherwise acquires all or substantially all of the assets of Tenant, so long as immediately following such transaction such acquiring corporation has a net worth and Liquid Assets that are equal to or greater than the net worth and Liquid Assets of Tenant as of both the date of execution of this Lease and the Occupancy Date; and (3) Tenant may sublet a portion of the Premises to Vivus, Inc. 21 (h) STRATEGIC PARTNERS. Tenant may Sublease portions of the Premises to Tenant's Strategic Partners (as defined below) without Landlord's prior consent, subject to the following conditions: (1) after any such Sublease, Tenant shall continue to directly occupy at least eighty percent (80%) of the Rentable Area in the Premises; and (2) Tenant shall provide Landlord with written notice at least thirty (30) days' prior to any such Sublease including the name of the Strategic Partner, the location of the subleased space, the name and address of the Strategic Partner's agent for service of process and delivery of notices under this Lease, and a certification by an officer of Tenant that the subtenant is a "Strategic Partner" as defined in this Paragraph 11(h). Any Strategic Partner subleasing a portion of the Premises shall maintain an agent for service of process and notice, and notify Landlord of any changes in such agent, at all times during the term of such sublease. The term "Strategic Partner" shall refer to any entity (i) in which Tenant holds an ownership interest of at least ten percent (10%), (ii) that is engaged in a business which Tenant believes to be of strategic importance to its own business, and (iii) that Tenant determines, in its reasonable business judgment, would benefit Tenant's business by conducting its own business within Tenant's Premises. (i) ASSUMPTION BY TRANSFEREE. Each assignee, sublessee or other transferee, other than Landlord, shall assume all obligations of Tenant arising after the date of the transfer under this Lease, as provided in this Paragraph 11(i), and shall be and remain liable jointly and severally with Tenant for the payment of Base Rent and Additional Charges, and for the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term; provided, however, that the assignee, sublessee, mortgagee, pledgee or other transferee shall be liable to Landlord for rent only in the amount set forth in the Assignment or Sublease and shall only be required to perform those obligations under the Lease to the extent that they relate to the portion of the Premises subleased or interest in the Lease assigned. Any Sublease or Assignment shall expressly provide that if this Lease terminates, the subtenant or assignee will attorn to and become the tenant of the Landlord at the option of Landlord if Landlord elects to recognize such assignment or sublease upon such termination. No Assignment shall be binding on Landlord unless the assignee or Tenant delivers to Landlord a counterpart of the Assignment and an instrument that contains a covenant of assumption by the assignee satisfactory in substance and form to Landlord, consistent with the requirements of this Paragraph 11(i), but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability as set forth above. (j) EFFECT ON EXTENSION OPTION. Notwithstanding any other provision of this Lease, Tenant may not enter into any Sublease (including, without limitation, a Sublease to a Strategic Partner or an affiliate) with a term which exceeds the Expiration Date unless (i) the conditions to Tenant's right to extend the Term contained in Paragraph 43 [Option to Renew] have been met at the commencement of such Sublease, and (ii) Tenant delivers its Exercise Notice pursuant to Paragraph 43 [Option to Renew] at or prior to the commencement of the Sublease. 22 (k) ASSIGNMENT TO AFFILIATES. Tenant shall have the right, without Landlord's consent but with written notice to Landlord at least thirty (30) days prior thereto, to enter into an Assignment of Tenant's interest in the Lease or a Sublease of all or any portion of the Premises to an Affiliate (as defined below) of Tenant, and any such Assignment or Sublease shall be a "Permitted Transfer", provided that (i) the Affiliate delivers to the Landlord concurrent with such Assignment a written notice of the Assignment and an assumption agreement whereby the affiliate assumes and agrees to perform, observe and abide by the terms, conditions, obligations, and provisions of this Lease, (ii) the entity remains an Affiliate throughout the term of this Lease, and (iii) on the effective date of the Sublease or Assignment, such Affiliate has a net worth and Liquid Assets that are equal to or greater than the net worth and Liquid Assets of Tenant as of both the date of execution of this Lease and the Occupancy Date. No Sublease or Assignment by Tenant made pursuant to this Paragraph shall relieve Tenant of Tenant's obligations under this Lease. As used in this paragraph, the term "Affiliate" shall mean and collectively refer to a corporation or other entity which controls, is controlled by or is under common control with Tenant, by means of an ownership of either (aa) more than fifty percent (50%) of the outstanding voting shares of stock or (bb) stock or partnership interests which provide the right to control the operations, transactions and activities of the applicable entity. 12. INSURANCE AND INDEMNIFICATION. (a) RELEASE OF LANDLORD. Landlord shall not be liable to Tenant, and Tenant hereby waives all claims against Landlord Parties for any injury or damage to any person or property in or about the Premises or Project by or from any cause whatsoever (other than the gross negligence or willful misconduct of Landlord or its agents, servants, contractors or employees (collectively, including Landlord, "Landlord Parties")), and without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, or other portion of the Building, or caused by gas, fire, oil, electricity, or any cause whatsoever, in, on, or about the Project or any part thereof (other than that caused by the gross negligence or willful misconduct of Landlord Parties). Tenant acknowledges that any casualty insurance carried by Landlord will not cover, and Landlord shall not be responsible for, loss of income to Tenant or damage to the Alterations in the Premises installed by Tenant or Tenant's personal property located within the Premises. Tenant shall be required to maintain the insurance described in Paragraph 12(c) [Tenant's Insurance Requirements] below during the Term. In the event of a discrepancy between the terms of this paragraph and the terms of Paragraph 40 [Hazardous Substance Liability], the later shall control. Nothing in this Paragraph is intended to nor shall it be deemed to override the provisions of Paragraph 13 [Waiver of Subrogation]. (b) TENANT INDEMNITY. Except to the extent caused by the gross negligence or willful misconduct of the Landlord Parties, Tenant shall indemnify and hold the Landlord Parties harmless from and defend the Landlord Parties against any and all claims or liability for any injury or damage to any person or property whatsoever occurring in or on the Premises. Tenant further agrees to indemnify and hold the Landlord Parties harmless from, and defend the Landlord Parties against, any and all claims, losses, or liabilities (including damage to Landlord's 23 property) arising from (x) any breach of this Lease by Tenant and/or (y) the conduct of any work or business of Tenant, its agents, servants, employees, or invitees (collectively, including Tenant, "Tenant Parties"), in or about the Project. (c) TENANT'S INSURANCE REQUIREMENTS. Tenant shall procure at its cost and expense and keep in effect during the Term the following insurance: (i) A policy of Commercial General Liability insurance written on an occurrence form insuring Landlord, any Mortgagee and Tenant against any liability arising out of the ownership, use, occupancy, maintenance, repair or improvement of the Premises and as appurtenant thereto. Such insurance shall provide $3,000,000 combined single limit for bodily injury and property damage. The limits of said insurance shall not, however, limit the liability of the Tenant hereunder, and Tenant is responsible for ensuring that the amount of liability insurance carried by Tenant is sufficient for Tenant's purposes. Tenant may carry said insurance under a blanket policy so long as "per location" liability aggregate limit is maintained, satisfactory to Landlord. If Tenant shall fail to procure and maintain said insurance, Landlord may, but shall not be required to, procure and maintain same, but at the expense of Tenant. Tenant shall deliver to Landlord prior to occupancy of the Premises copies of policies of liability insurance required herein and certificates evidencing the existence and amounts of such insurance which name Landlord and any Mortgagee as additional insured with evidence satisfactory to Landlord of payment of premiums. No policy shall be cancelable or subject to reduction of coverage except after thirty (30) days' prior written notice to Landlord. Tenant acknowledges and agrees that insurance coverage carried by Landlord will not cover Tenant's property within the Premises and that Tenant shall be responsible, at Tenant's sole cost and expense, for providing insurance coverage for Tenant's movable equipment, furnishing, trade fixtures and other personal property in or upon the Premises and for any alterations, additions or improvements to or of the Premises or any part thereof made by Tenant, in the event of damage or loss thereto from any cause whatsoever. (ii) Business interruption and extra expense insurance, insuring Tenant against losses arising from the interruption of Tenant's business, and for lost profits, and charges and expenses which continue but would have been earned if the business had gone on without interruption, insuring against such perils, in such form as is reasonably satisfactory to Landlord, in an amount up to One Million Dollars ($1,000,000). Such insurance should be on an agreed amount basis with no coinsurance payable. (iii) Tenant shall maintain a policy or policies of fire and property damage insurance in "special" (also known as "all risk") form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and if applicable boiler and machinery, within the Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. 24 (iv) Tenant shall also maintain a policy or policies of workers' compensation insurance and any other employee benefit insurance sufficient to comply with all Laws. Insurance required under this Paragraph 12(c) shall be in companies rated "A" X or better in "Best's Insurance Guide." Tenant shall deliver policies of such insurance or certificates thereof to Landlord on or before the Occupancy Date, and thereafter at least thirty (30) days before the expiration dates of expiring policies; and, in the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at its option, procure same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Charges within fifteen (15) days after delivery to Tenant of bills therefor. (d) SURVIVAL. The provisions of this Paragraph 12 shall survive the expiration or termination of this Lease with respect to any claims or liability arising out of events occurring prior to such expiration or termination. (e) LANDLORD'S INSURANCE OBLIGATIONS. Landlord shall purchase and keep in force a policy or policies of liability, fire and property damage insurance including provision for the payment of deductibles and pre-payment for coverage, up to one year, covering loss or damage to the Premises and Project in the amount of the full replacement value thereof, insuring direct physical loss or damage included within the "special form" classification of coverage and flood and earthquake insurance, if available, plus a policy of rental income insurance in the amount of twelve (12) months Base Rent and Additional Charges (or such longer time as any Mortgagee may require). Tenant shall pay to Landlord the cost of such policy or policies of insurance pursuant to Paragraph 4(c) [Additional Charges for Expenses and Taxes]. If such insurance cost is increased due to Tenant's use of the Premises, Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Premises or the Project. Notwithstanding the foregoing obligations of Landlord to carry insurance, Landlord may modify the foregoing coverages if and to the extent it is commercially reasonable to do so; provided, however, that such coverages shall not be voluntarily reduced by Landlord without Tenant's prior consent. 13. WAIVER OF SUBROGATION. Notwithstanding anything to the contrary in this Lease, to the extent that this waiver does not invalidate or impair their respective insurance policies, the parties hereto release each other and their respective agents, employees, successors, contractors, subcontractors, assignees and subtenants from all liability for injury to any person or damage to any property that is caused by or results from a risk (i) which is actually insured against, to the extent of receipt of payment under such policy (unless the failure to receive payment under any such policy results from a failure of the insured party to comply with or observe the terms and conditions of the insurance policy covering such liability, in which event, such release shall not be so limited), (ii) which is required to be insured against under this Lease, or (iii) which would normally be covered by the standard ISO "special" form of casualty insurance, without regard to the negligence or willful misconduct of the entity so released. Landlord and Tenant shall each obtain, and shall cause their respective contractors and 25 subcontractors to obtain, from their respective insurers under all policies of fire, theft and other property insurance maintained by either of them at any time during the Term insuring or covering the Project or any portion thereof of its contents therein, a waiver of all rights of subrogation which the insurer of one party might otherwise, if at all, have against the other party, and Landlord and Tenant shall each indemnify the other against any loss or expense, including reasonable attorneys' fees, resulting from the failure to obtain such waiver. 14. SERVICES AND UTILITIES. (a) LANDLORD'S RESPONSIBILITY. Landlord shall provide the maintenance and repairs described in Paragraph 9(a) [Maintenance and Repairs; Landlord's Obligations], except for damage caused by the acts or omissions of the Tenant Parties, which damage shall be repaired by Landlord at Tenant's expense. (b) TENANT'S RESPONSIBILITY. Subject to the provisions elsewhere herein contained and to the Rules and Regulations, Tenant shall be responsible for arranging for, and direct payment of any and all cost of, garbage pickup, recycling, janitorial, security, landscape maintenance within the Premises, transportation management programs (including any commuter shuttle program required under the City of Mountain View Transit Zone), water, electricity, gas, telephone, cable and digital communications equipment, and any and all other utilities and services, and Tenant shall provide the maintenance, repair and replacement of Building Systems in connection with such utilities and services as described in Section 9(b) [Repair and Maintenance; Tenant's Obligations]. Landlord shall cooperate with Tenant's efforts to arrange all such services. If Landlord assumes Tenant's maintenance obligations with respect to the Building Systems pursuant to Paragraph 9(e) [Cure Rights], Tenant shall cooperate fully with Landlord and abide by all the reasonable regulations and requirements that Landlord may prescribe for the proper functioning and protection of the Building Systems. (c) NO EXCESSIVE LOAD. Tenant will not without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, use any apparatus or device in the Premises which, when used, puts an excessive load on any Building or its structure or systems. (d) NO LIABILITY OF LANDLORD. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall Rent be abated by reason of, (i) the installation, use or interruption of use of any equipment in connection with the foregoing utilities and services; (ii) failure to furnish or delay in furnishing any services to be provided by Landlord when such failure or delay is caused by Force Majeure Events, or by the making of repairs or improvements to the Project or any portion thereof which are the responsibility of Landlord under this Lease; or (iii) the limitation, curtailment, rationing or restriction on use of water or electricity, gas or any other form of energy or any other service or utility whatsoever serving the Project; provided, however, that (aa) Base Rent and Additional Charges may be abated during the period of any total interruption of utilities or services to the 26 Premises which exceeds thirty (30) days only if such interruption results from an insured casualty such that proceeds are payable to Landlord under the rental interruption insurance carried by Landlord pursuant to Paragraph 12(e) [Landlord's Insurance Obligations] and only to the extent of such proceeds actually received by Landlord, and (bb) subject to the limitations on Tenant's recourse against Landlord contained in Paragraph 21(d) [Tenant's Remedies], Landlord shall be liable for any actual damage to Tenant's property to the extent caused by Landlord's gross negligence or willful misconduct in connection with the failure to furnish or delay in furnishing any services to be provided by Landlord. Furthermore, Landlord shall be entitled to cooperate voluntarily in a reasonable manner with the efforts of national, state or local governmental agencies or utilities suppliers in reducing consumption of energy or other resources, so long as Tenant's use of the Premises is not unreasonably impaired thereby. 15. TENANT'S CERTIFICATES. Tenant, at any time and from time to time, within ten (10) days after written request from Landlord, will execute, acknowledge and deliver to Landlord and, at Landlord's request, to any prospective purchaser, ground or underlying lessor or Mortgagee of any part of the Project or any other party acquiring an interest in Landlord, a certificate of Tenant substantially in the form attached as Exhibit "C", or in such other commercially reasonable form as may be requested by any Mortgagee, prospective purchaser or lessor. The certificate may also contain any other information reasonably required by any such persons. It is intended that any certificate of Tenant delivered pursuant to this Paragraph 15 may be relied upon by Landlord and any prospective purchaser, ground or underlying lessor or Mortgagee of any part of the Project or such other party. If requested by Tenant, Landlord shall provide Tenant with a similar certificate. 16. HOLDING OVER. If Tenant (directly or through any successor-in-interest of Tenant) remains in possession of all or any portion of the Premises after the expiration or termination of this Lease without the consent of Landlord, Tenant's continued possession shall be on the basis of a tenancy at the sufferance of Landlord. In such event, Tenant shall continue to comply with or perform all the terms and obligations of Tenant under this Lease, except that the Monthly Base Rent during Tenant's holding over shall be the greater of the then-fair market rent for the Premises (as reasonably determined by Landlord) or one hundred twenty-five percent (125%) of the Monthly Base Rent payable in the last full month prior to the termination hereof (and shall be increased in accordance with Paragraph 4(b) [Adjustments in Base Rent]). In addition to Rent, Tenant shall pay Landlord for all damages proximately caused by reason of the Tenant's retention of possession. Landlord's acceptance of Rent after such termination shall not constitute a renewal of this Lease, and nothing contained in this provision shall be deemed to waive Landlord's right of re-entry or any other right hereunder or at law. Tenant acknowledges that, in Landlord's marketing and re-leasing efforts for the Premises, Landlord is relying on Tenant's vacation of the Premises on the Expiration Date. Accordingly, Tenant shall indemnify, defend and hold Landlord harmless from and against all claims, liabilities, losses, costs, expenses and damages arising or resulting directly or indirectly from Tenant's failure to timely surrender the Premises, including (i) any loss, cost or damages suffered by any prospective tenant of all or any part of the Premises, and (ii) Landlord's damages as a result of such prospective tenant 27 rescinding or refusing to enter into the prospective lease of all or any portion of the Premises by reason of such failure of Tenant to timely surrender the Premises. 17. SUBORDINATION. Without the necessity of any additional document, this Lease shall be subject and subordinate at all times to: (i) all ground leases or underlying leases that may now exist or hereafter be executed affecting any portion of the Premises or Project; and (ii) the lien of any mortgage or deed of trust that may now exist or hereafter be executed in any amount for which any portion of the Premises or Project or any ground leases or underlying leases, or Landlord's interest or estate in any of said items, is specified as security (any such lien being herein defined as a "Mortgage" and the holder of any Mortgage being a "Mortgagee"). Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any Mortgage to this Lease. If any ground lease or underlying lease terminates, or any Mortgage is foreclosed or a conveyance in lieu of foreclosure is made, for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord at the option of such successor in interest. Notwithstanding anything to the contrary contained herein, this Lease shall not be subject or subordinate to any ground or underlying lease or to any lien, Mortgage, or other security interest affecting the Premises, and Tenant shall not attorn to the ground lessor, Mortgagee or other holder of the interest to which this Lease would be subordinated unless such ground lessor, Mortgagee or holder executes a reasonable recognition and non-disturbance agreement which provides that Tenant shall be entitled to continue in possession of the Premises on the terms and conditions of this Lease if and for so long as Tenant fully performs all of its obligations hereunder. Tenant shall execute and deliver upon demand by Landlord, and in the form attached hereto as Exhibit "I", or in such other form as may be requested by Landlord or any Mortgagee and reasonably acceptable to Tenant, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such Mortgage. Tenant shall execute, deliver and authorize recordation of any such documents within twenty (20) days after Landlord's written request. 18. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease as Exhibit "D" and all reasonable nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord (the "Rules and Regulations"), provided such rules and regulations do not unreasonably interfere with Tenant's use of the Premises as contemplated by this Lease. In the event of an express and direct conflict between the terms, covenants, agreements and conditions of this Lease and those set forth in the rules and regulations, as modified and amended from time to time by Landlord, this Lease shall control. 19. RE-ENTRY BY LANDLORD. Landlord reserves and shall at all reasonable times have the right to re-enter the Premises upon reasonable prior notice (except in the case of an emergency), and subject to Tenant's reasonable security precautions and the right of Tenant to accompany Landlord at all times, to inspect the same; to supply any service to be provided by Landlord to Tenant hereunder (unless Tenant is supplying such service); to show the Premises to 28 prospective purchasers, Mortgagees or tenants (as to prospective tenants other than prospective tenants of any recaptured space, only during the last eighteen (18) months of the initial Term or the last twenty-four (24) months of any Extension Term); to post notices of nonresponsibility; to alter, improve or repair the Premises and any portion thereof as required or allowed by this Lease or by law (and Landlord may for that purpose erect, use, and maintain scaffolding, pipes, conduits, and other necessary structures in and through the Premises where reasonably required by the character of the work to be performed); and to take, or allow other parties to take, any actions contemplated by the CC&Rs. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord's or any third party's (including without limitation pursuant to the CC&Rs) entry and acts pursuant to this Paragraph 19 unless caused by Landlord's gross negligence or willful misconduct. Tenant shall not be entitled to an abatement or reduction of Base Rent or Additional Charges if Landlord exercises any rights reserved in this paragraph. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby, except to the extent caused by Landlord's gross negligence or willful misconduct. For each of the aforesaid purposes, Landlord shall have the right to use any and all means which Landlord reasonably determines are necessary or proper to open doors on the Premises in an emergency in order to obtain entry to any portion of the Premises. Any entry to the Premises, or portion thereof obtained by Landlord by any of said means, or otherwise, shall not under any emergency circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. Landlord shall use best efforts during re-entry to not unreasonably interfere with Tenant's use of the Premises or its business conducted therein. 20. INSOLVENCY OR BANKRUPTCY. The appointment of a receiver to take possession of all or substantially all of the assets of Tenant, or an assignment by Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency, bankruptcy, reorganization or other debtor relief proceedings (each of the foregoing, an "Insolvency Proceeding"), whether now existing or hereafter amended or enacted, shall, at Landlord's option, constitute a breach of this Lease by Tenant, unless a petition in bankruptcy, receiver attachment, or other remedy pursued by a third party is discharged within sixty (60) days. Upon the happening of any such event (including the expiration of such 60 day period, if applicable) or at any time thereafter, this Lease shall terminate five (5) days after written notice of termination from Landlord to Tenant. In no event shall this Lease be assigned or assignable by operation of law (except as provided in Paragraph 11 [Assignment and Subletting]) or by voluntary or involuntary bankruptcy proceedings or otherwise. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency, reorganization or other debtor relief proceedings. 21. DEFAULT. (a) TENANT'S DEFAULT. The failure to perform or honor any covenant, 29 condition or representation made under this Lease shall constitute a "default" hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of three (3) business days from the date of written notice from Landlord (which notice shall be in lieu of and not in addition to the notice required by Section 1161 of the California Code of Civil Procedure) within which to cure any default in the payment of Base Rent or Additional Charges; provided, however, that Landlord shall not be required to provide such notice more than twice during any four (4) year period during the Term with respect to non-payment of Base Rent or Additional Charges, the third such non-payment constituting default without requirement of notice. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord (which notice shall be in lieu of and not in addition to the notice required by Section 1161 of the California Code of Civil Procedure) within which to cure any other curable default under this Lease; provided, however, that with respect to any curable default other than the payment of Base Rent or Additional Charges that cannot reasonably be cured within thirty (30) days, the default shall not be deemed to be uncured if Tenant commences to cure within thirty (30) days from Landlord's notice and continues to prosecute diligently the curing thereof; provided that such cure period shall in no event extend beyond ninety (90) days (subject to delay by Force Majeure Events) after Landlord's notice. Notwithstanding the foregoing, if a shorter cure period is specified elsewhere in this Lease with respect to any specific obligation of Tenant, such shorter cure period shall apply with respect to a default of such obligation. (b) LANDLORD'S REMEDIES. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (1) The rights and remedies provided by California Civil Code, Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid Base Rent and Additional Charges for the balance of the Term after the time of award exceeds the amount of rental loss for the same period that the Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2; (2) The rights and remedies provided by California Civil Code, Section 1951.4, that allows Landlord to continue this Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover Base Rent and Additional Charges as they become due, for so long as Landlord does not terminate Tenant's right to possession. Acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's rights to possession; (3) The right to terminate this Lease by giving notice to Tenant in accordance with applicable law; (4) If Landlord elects to terminate this Lease, the right and power to 30 enter the Premises and remove therefrom all persons and property, and to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. (c) LANDLORD'S DEFAULT. Landlord shall have a period of thirty (30) days from the date of written notice from Tenant to cure any default by Landlord under this Lease; provided, however, that with respect to any default that cannot reasonably be cured within thirty (30) days, the default shall not be deemed to be uncured if Landlord commences to cure within thirty (30) days from Tenant's notice and continues to prosecute diligently the curing thereof. Tenant agrees to give any Mortgagee, by registered or certified mail, a copy of any Notice of Default served upon the Landlord, provided that prior to such notice Tenant has been notified in writing of the address of such Mortgagee. If Landlord fails to cure such default within the time provided for in this Lease, then the Mortgagee shall have an additional thirty (30) days (provided that Tenant notifies Mortgagee concurrently with Tenant's notice to Landlord at the beginning of Landlord's thirty (30) day period; otherwise Mortgagee shall have thirty (30) days from the later of the date on which it is noticed and the expiration of Landlord's cure period) within which to cure such default. If such default cannot be cured by Mortgagee within the cure period, Tenant may not exercise any of its remedies so long as Mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings, if necessary to effect such cure). (d) TENANT'S REMEDIES. Subject to Paragraph 3(f) [Exclusive Remedies], if any default hereunder by Landlord is not cured within the applicable cure period provided in Paragraph 21(c) [Landlord's Default], Tenant's exclusive remedies shall be an action for specific performance or action for actual damages. Tenant hereby waives the benefit of any laws granting it (A) the right to perform Landlord's obligation, or (B) the right to terminate this Lease or withhold Rent on account of any Landlord default. Tenant shall look solely to Landlord's interest in the Project for the recovery of any judgment from Landlord. Landlord, or if Landlord is a partnership, its partners whether general or limited, or if Landlord is a corporation, its directors, officers or shareholders, shall never be personally liable for any such judgment. Any lien obtained to enforce such judgment and any levy of execution thereon shall be subject and subordinate to any Mortgage (excluding any Mortgage which was created as part of an effort to defraud creditors, i.e. a fraudulent conveyance); provided, however that any such judgement and any such levy of execution thereon shall not be subject or subordinated to any Mortgage that is created or recorded in the Official Records of Santa Clara County after the date of the judgement giving rise to such lien. 22. DAMAGE AND DESTRUCTION (a) RESTORATION. Subject to the termination rights set forth in Paragraphs 22(c) [Casualty at End of Term] and Paragraph 22(d) [Mutual Termination Option], if the Premises or any portion thereof are damaged or destroyed by fire or other casualty, Tenant will promptly give written notice thereof to Landlord, and: 31 (1) Tenant, at Tenant's sole cost and expense, and pursuant to the provisions of Paragraph 8 [Alterations], as applicable, will promptly repair, restore and rebuild any Alterations as nearly as possible to the condition they were in immediately prior to such damage or destruction or with such changes or alterations as may be made pursuant to Paragraph 8 [Alterations]; and (2) to the extent that any such damage or destruction affects the Base Building, Landlord shall repair the same at Landlord's cost. (b) INSURANCE PROCEEDS. Subject to the provisions of Paragraphs 22(e) [Destruction Where No Proceeds Are Available] and 22(f) [Proceeds Upon Termination], all insurance proceeds recovered by the Landlord on account of such damage or destruction, less the cost, if any, to the Landlord of such recovery shall be applied by Landlord toward any repair to the Base Building as may be required hereunder. The amount of available insurance proceeds shall not limit Tenant's or Landlord's obligation to repair, restore and rebuild any Alterations and the Base Building, respectively, in accordance with this Paragraph 22. (c) CASUALTY AT END OF TERM. Notwithstanding anything to the contrary contained in this Lease, if, during the twelve (12) months prior to the expiration of the Term, the entire Building or a substantial portion thereof is damaged or destroyed by fire or other casualty, either Tenant or Landlord shall have the option to terminate this Lease as of the date of such damage or destruction by written notice to the other party given within thirty (30) days after such damage or destruction, in which event the Landlord shall make a proportionate refund to the Tenant of such Rent as may have been paid in advance. For the purposes of this paragraph, a "substantial portion" of the Building shall mean twenty percent (20%) or more of the Rentable Area thereof. If neither party elects to terminate this Lease, Landlord and/or Tenant shall repair, restore and rebuild the Premises in accordance with Paragraph 22(a) [Restoration]. (d) MUTUAL TERMINATION OPTION; INSURED CASUALTY. Notwithstanding anything to the contrary contained herein (but subject to Paragraph 22(e) below), if at any time during the Term the Base Building shall be damaged or destroyed to the extent that it cannot be reconstructed within twelve (12) months following the date such reconstruction is commenced, either Landlord or Tenant shall have the right to terminate this Lease as of the date of such damage or destruction by written notice to the other party. Within forty-five (45) days after any damage or destruction described in this Paragraph 22(d), Landlord shall notify Tenant whether or not in Landlord's reasonable opinion (supported by reasonable written confirmation from a third party architect or general contractor) such reconstruction can be made within twelve (12) months after the date of such damage, and if reconstruction cannot be made within twelve (12) months, whether or not Landlord elects to terminate the Lease. If Tenant is so notified, but Landlord does not elect to terminate, Tenant may terminate this Lease as of the date of such damage or destruction by written notice to Landlord given within forty-five (45) days after receipt of Landlord's notice. If Tenant disputes Landlord's determination that such reconstruction can be 32 completed within twelve (12) months, Tenant shall so notify Landlord within forty-five (45) days after receipt of Landlord's notice (supported by reasonable written confirmation from a third party architect or general contractor backing Tenant's assertions), and if the parties are unable to reach agreement within the ten (10) day period after Landlord's receipt of Tenant's notice, either party may submit such dispute to arbitration pursuant to Paragraph 41 [Arbitration of Disputes], provided that Landlord may, at its sole election (but shall not be obligated to), commence reconstruction of the Base Building while such arbitration proceedings are pending. If neither party elects to terminate this Lease, Landlord and/or Tenant shall repair, restore and rebuild the Premises in accordance with Paragraph 22(a) [Restoration]. (e) DESTRUCTION WHERE NO PROCEEDS ARE AVAILABLE. In the event of a total or partial destruction of the Building (i) by a casualty of a type not required to be insured against by Landlord under the terms of this Lease, or (ii) under circumstances where Landlord has been required by any Mortgagee to utilize substantially all of the insurance proceeds to pay down the Mortgage, which destruction exceeds five percent (5%) of the replacement cost of the Base Building, this Lease shall automatically terminate, unless (x) Landlord elects to reconstruct the Base Building, and (y) the damage can be reconstructed within twelve (12) months following commencement of reconstruction (determined as provided above). If Landlord elects to reconstruct, the cost incurred by Landlord for such reconstruction shall be amortized over the useful life of the Base Building and such amortization shall be reimbursed by Tenant to Landlord as an Additional Charge together with interest at the Interest Rate; provided, however, that Tenant shall not be obligated to pay for any portion of the useful life of the Base Building which extends beyond the Expiration Date. (f) PROCEEDS AND PAYMENTS UPON TERMINATION. If this Lease is terminated under Paragraph 22(c) [Casualty at End of Term] or Paragraph 22(d) [Mutual Termination Option; Insured Casualty], Landlord shall be entitled to retain any and all insurance proceeds arising out of the damage or destruction, except for proceeds of any policies carried by Tenant and specifically covering its Alterations, personal property, equipment and trade fixtures. Upon any termination, Tenant shall assign all of its rights to any insurance proceeds to which it is entitled (except any portion specifically compensating Tenant for the loss of its Alterations, personal property, equipment and trade fixtures) to Landlord and shall pay to Landlord the amount of any deductible under any insurance policy attributable to the casualty resulting in such termination. (g) RENT ABATEMENT. In the event of an insured casualty, the Base Rent and Additional Charges during the period from the date of the damage or destruction until completion of the restoration, repair, replacement or rebuilding shall be abated by an amount that is in the same ratio to the Base Rent and Additional Charges as the area of the Premises rendered unusable for the permitted use hereunder bears to the area of the Premises prior to the damage or destruction, but only to the extent of the amount of proceeds payable to Landlord (taking into account any applicable waiting period or deductibles) under the rental interruption insurance required to be carried by Landlord pursuant to Paragraph 12(e) [Landlord's Insurance 33 Obligations]. (h) WAIVER OF STATUTORY PROVISIONS. Tenant hereby waives the provisions of Section 1932.2, and Section 1933.4, of the Civil Code of California, or any similar laws now or hereafter in effect, that would relieve the Tenant from any obligation to pay Rent under this Lease due to any damage or destruction. 23. EMINENT DOMAIN. (a) ENTIRE BUILDING. If the entire Building is taken or appropriated under the power of eminent domain or conveyed in lieu thereof (any such event, a "Taking"), (i) this Lease and all right, title and interest of the Tenant hereunder shall cease and come to an end on the date of vesting of title pursuant to such Taking, and (ii) the Base Rent and Additional Charges payable shall be apportioned as of the date of such vesting. (b) PARTIAL BUILDING; TERMINATION. If there is a Taking of less than the entire Building, this Lease shall terminate as to the portion of the Building so taken upon vesting of title pursuant to such Taking, and if, but only if, such Taking is so extensive that it renders the remaining portion of the Building unsuitable for the use being made of the Building on the date immediately preceding such Taking, either the Tenant or the Landlord may terminate this Lease by written notice to the other party not later than thirty (30) days after the date of such vesting, specifying as the date for termination a date not later than thirty (30) days after such notice. On the date specified in such notice, (i) the term of this Lease and all right, title and interest of Tenant hereunder shall cease, and (ii) the Base Rent and Additional Charges shall be apportioned as of the date of such termination. (c) PARTIAL BUILDING; RESTORATION. If there is a Taking of less than the entire Building and this Lease is not terminated with respect to the Building as provided in (b) above, this Lease shall terminate as to the portion of the Building so taken upon vesting of title pursuant to such Taking. In any such case, Landlord shall restore the Base Building Improvements for the portion of the Building continuing under this Lease at Landlord's cost and expense; provided, however, that Landlord shall not be required to repair or restore any injury or damage to the property of Tenant or to make any repairs or restoration of any Alterations installed on the Premises by or at the expense of Tenant. Tenant shall, at Tenant's sole cost and expense, promptly and pursuant to the provisions of Paragraph 8 [Alterations], restore those portions of the Alterations not so taken. Thereafter, the Base Rent and Additional Charges to be paid under this Lease for the remainder of the Term shall be proportionately reduced, such that thereafter the amounts to be paid by Tenant shall be in the ratio that the portion of the Building not so taken bears to the total area of the Building prior to such Taking. (d) END OF TERM TAKING. If, during the twelve (12) months prior to the expiration of the Term, there is a Taking of a portion of the Building, both Landlord and Tenant shall have the option, exercisable by written notice to the other party given within thirty (30) days 34 after such vesting of title, of terminating this Lease as of the date of vesting of title pursuant to the Taking, in which event Landlord shall make a proportionate refund to Tenant of any Base Rent and Additional Rent that has been paid in advance. (e) TAKING OF PROJECT. If there is a Taking of any portion of the Project other than the Premises which causes the Premises to violate parking requirements, building setbacks or access requirements under any applicable Laws, Landlord shall cure such non-compliance by any reasonable means. If Landlord determines that such violation is not curable by reasonable means, or if Landlord fails to commence such cure within sixty (60) days after such Taking, both Landlord and Tenant shall have the option, exercisable by written notice to the other party, of terminating this Lease as of the date of vesting of title pursuant to the Taking, in which event Landlord shall make a proportionate refund to Tenant of any Base Rent and Additional Rent that has been paid in advance. (f) AWARD. Landlord shall receive (and Tenant shall assign to Landlord upon demand from Landlord) any income, rent, award or any interest therein which may be paid in connection with any Taking, whether partial or total, and whether or not either Landlord or Tenant exercises any right it may have to terminate this Lease. Tenant shall have no claim against Landlord for any part of such sum paid by virtue of the Taking, whether or not attributable to the value of the unexpired term of this Lease, except that Tenant shall be entitled to petition the condemning authority for the following: (i) the then unamortized cost of any Alterations paid for by Tenant which Tenant is required to remove upon termination of the Lease; (ii) the value of Tenant's trade fixtures; (iii) Tenant's relocation costs; and (iv) Tenant's goodwill, loss of business and business interruption. (g) TEMPORARY TAKING. Notwithstanding anything to the contrary contained in this Paragraph 23, if there is a Taking of the temporary use or occupancy of any part of the Premises during the Term, this Lease shall be and remain unaffected by such Taking and Tenant shall continue to pay in full all Base Rent and Additional Charges payable hereunder by Tenant during the Term. In such event, Tenant shall be entitled to receive that portion of any award which represents compensation for the use or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy of the Premises after the end of the Term. Notwithstanding the foregoing, if Landlord determines in its reasonable judgment that any Taking of the temporary use or occupancy of any part of the Premises will continue until the end of the Term, either party may elect to terminate this Lease by written notice to the other party at any time after Landlord has made such determination and delivered written notice thereof to Tenant, and Landlord shall be entitled to receive the entire award for the Taking, except for that portion which represents compensation for the use or occupancy of the Premises during the period of time prior to such termination. (h) WAIVER OF STATUTORY PROVISIONS. Landlord and Tenant understand and agree that the provisions of this Paragraph 23 are intended to govern fully the rights and 35 obligations of the parties in the event of a Taking of all or any portion of the Premises. Accordingly, the parties each hereby waives any right to terminate this Lease in whole or in part under Sections 1265.120 and 1265.130 of the California Code of Civil Procedure or under any similar Law now or hereafter in effect. 24. SALE BY LANDLORD. If Landlord sells or otherwise conveys its interest in all or any portion of the Premises, Landlord shall be relieved of its obligations under the Lease with respect to the conveyed portion from and after the date of sale or conveyance only when Landlord transfers the proportionate amount of any security deposit of Tenant to its successor and the successor assumes in writing the obligations to be performed by Landlord on and after the effective date of the transfer, whereupon Tenant shall attorn to such successor. 25. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Base Rent or Additional Charges. If Tenant defaults in the payment of any sum of money, other than Base Rent or Additional Charges, required to be paid by it hereunder or fails to perform any other act on its part to be performed hereunder, and such failure continues for ten (10) days after notice thereof by Landlord (or such longer period as noted in Paragraph 9(e)[Cure Rights] or Paragraph 21(a) [Tenant's Default], except in the event of emergency), Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant's part to be made or performed as provided in this Lease without waiving or releasing Tenant from any obligations of Tenant. All sums so paid by Landlord and all reasonable and necessary incidental costs incurred by Landlord in connection therewith, together with interest thereon at the Default Rate from the date of such payment by Landlord, shall be payable to Landlord on demand as Additional Charges. 26. OWNERSHIP OF IMPROVEMENTS; SURRENDER OF PREMISES. (a) OWNERSHIP OF ALTERATIONS. Any Alterations constructed on or affixed to the Premises by or on behalf of Tenant pursuant to the terms and conditions of this Lease, except for Tenant's movable furniture and equipment, trade fixtures and Alterations which can be removed without damage to the Premises, shall become Tenant's property upon their completion, shall remain Tenant's property throughout the Term of this Lease and shall become Landlord's property upon the expiration or earlier termination of this Lease to the extent they are not required or permitted to be removed by Tenant pursuant to the terms of this Lease. (b) DELIVERY AND RESTORATION OF PREMISES. At the end of the Term or any renewal thereof or other sooner termination of this Lease, Tenant will peaceably deliver to Landlord possession of the Premises, together with all improvements or additions thereon (including, without limitation, the Alterations which Landlord does not require Tenant to remove pursuant to Paragraph 8 [Alterations]), in the same condition as received or first installed subject to normal wear and tear but in the condition described on Exhibit "E" attached hereto, subject to the terms of Paragraph 23 [Eminent Domain] and the rights and obligations of Landlord and 36 Tenant concerning casualty damage pursuant to Paragraph 22 [Damage and Destruction]. Tenant may, upon the termination of this Lease, remove all movable furniture, trade fixtures and equipment belonging to Tenant which is not an integral part of any Building System, at Tenant's sole cost, provided that Tenant repairs any damage caused by such removal. Property not so removed shall be deemed abandoned by Tenant, and title to the same shall thereupon pass to Landlord. In addition, Tenant shall remove and/or reconfigure, at Tenant's sole cost and with all due diligence, any or all Alterations to the Premises installed by or at the expense of Tenant which Tenant is required to remove and/or reconfigure under Paragraph 8 [Alterations] of this Lease. (c) NO MERGER. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies. 27. WAIVER. If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein. Furthermore, the acceptance of Base Rent or Additional Charges by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Base Rent or Additional Charges. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or to decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord. 28. NOTICES. Except as otherwise expressly provided in this Lease, any bills, statements, notices, demands, requests or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by certified mail (return receipt requested), reputable overnight carrier, or delivered personally, (i) to Tenant at Tenant's address set forth in the Basic Lease Information; or (ii) to Landlord at Landlord's address set forth in the Basic Lease Information; or (iii) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Paragraph 28. Any bill, statement, notice, demand, request or other communication shall be deemed to have been rendered or given on the date the return receipt indicates delivery of or refusal of delivery if sent by certified mail, the day upon which recipient accepts and signs for delivery from a reputable overnight carrier or on the date a reputable overnight carrier indicates refusal of delivery, or upon the date personal delivery is made. 29. TAXES PAYABLE BY TENANT. Prior to delinquency Tenant shall pay all taxes levied or assessed upon Tenant's equipment, furniture, fixtures and other personal property 37 located in or about the Premises. If the assessed value of Landlord's property is increased by the inclusion therein of a value placed upon Tenant's equipment, furniture, fixtures or other personal property, Tenant shall pay to Landlord, upon written demand, the taxes so levied against Landlord, or the proportion thereof resulting from said increase in assessment. 30. ABANDONMENT. Tenant shall not abandon the Premises and cease performing its financial and maintenance obligations under this Lease at any time during the Term. If Tenant abandons and ceases performing its financial and maintenance obligations under this Lease, or surrenders the Premises or is dispossessed by process of law or otherwise, any personal property belonging to Tenant and left on the Premises shall, at the option of Landlord, be deemed to be abandoned and title thereto shall thereupon pass to Landlord. Notwithstanding anything to the contrary contained herein, Tenant may not vacate the Premises if such would result in a termination of Landlord's insurance. Upon Tenant's request, Landlord will ask its insurer if such vacation of the Premises would result in termination of its current insurance policy. Solely for purposes of this Paragraph 30, Tenant shall not be deemed to have abandoned the Premises solely because Tenant is not occupying the Premises. 31. SUCCESSORS AND ASSIGNS. Subject to the provisions of Paragraphs 11 [Assignment and Subletting] and 24 [Sale by Landlord], the terms, covenants and conditions contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective legal and personal representatives, successors and assigns. 32. ATTORNEY'S FEES. If Tenant or Landlord brings any action for any relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Landlord for the recovery of Base Rent or Additional Charges or possession of the Premises, the losing party shall pay to the prevailing party a reasonable sum for attorney's fees, which shall be deemed to have accrued on the commencement of such action and shall be paid whether or not the action is prosecuted to judgment. 33. LIGHT AND AIR. Tenant covenants and agrees that no diminution of light, air or view by any structure which may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of Rent under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenant's obligations hereunder. 34. SECURITY DEPOSIT. (a) LETTER OF CREDIT. Concurrently with Tenant's execution of this Lease, Tenant shall deliver to Landlord an unconditional, irrevocable, transferable letter of credit, in the amount of One Million Dollars ($1,000,000), issued by a financial institution acceptable to Landlord in the form attached hereto as Exhibit "F", with an original term of no less than one year and automatic extensions through the end of the Term of this Lease and sixty (60) days thereafter (the "Letter of Credit"). Tenant shall keep the Letter of Credit, at its expense, in full force and effect until the sixtieth (60th) day after the Expiration Date or other termination of this 38 Lease, to insure the faithful performance by Tenant of all of the covenants, terms and conditions of this Lease, including, without limitation, Tenant's obligations to repair, replace or maintain the Premises. The Letter of Credit shall provide thirty (30) days' prior written notice to Landlord of cancellation or material change thereof, and shall further provide that, in the event of any nonextension of the Letter of Credit at least thirty (30) days prior to its expiration, the entire face amount shall automatically be paid to Landlord, and Landlord shall hold the funds so obtained as the security deposit required under this Lease. If for any reason such automatic payment does not occur in the event of a nonextension at least thirty (30) days prior to expiration, Landlord shall be entitled to present its written demand for payment of the entire face amount of the Letter of Credit, and the funds so obtained shall be held as provided above. Any unused portion of the funds so obtained by Landlord shall be returned to Tenant upon replacement of the Letter of Credit or deposit of cash security in the full amount required hereunder. If Landlord uses any portion of the cash security deposit to cure any default by Tenant hereunder, Tenant shall replenish the security deposit to the original amount within ten (10) days of notice from Landlord. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall keep any cash security funds separate from its general funds, and shall invest such cash security at Tenant's reasonable direction, and any interest actually earned by Landlord on such cash security shall be paid to Tenant quarterly. If an event of default occurs under this Lease, or if Tenant is the subject of an Insolvency Proceeding, Landlord may present its written demand for payment of the entire face amount of the Letter of Credit and the funds so obtained shall become due and payable to Landlord. Landlord may retain such funds to the extent required to compensate Landlord for damages incurred, or to reimburse Landlord as provided herein, in connection with any such event of default, and any remaining funds shall be held as a cash security deposit. (b) ANNUAL REDUCTION OF LETTER OF CREDIT. The face amount of the Letter of Credit may be reduced on each of the third through eighth anniversaries of the Rent Commencement Date in the amount of One Hundred Forty-Three Thousand Dollars ($143,000), and on the ninth anniversary of the Rent Commencement Date in the amount of One Hundred Forty-Two Dollars ($142,000), so long as (i) Tenant is not in default (and no event has occurred which, with the passage of time or giving of notice or both, would constitute a default) under the Lease on such anniversary date, and (ii) Landlord has not delivered a notice of default to Tenant hereunder during the previous calendar year, regardless of whether such default was cured by Tenant within any applicable grace or cure period; provided, however, that any such notice of default relating to a non-monetary default which was disputed, in good faith, by Tenant and ultimately determined (by agreement of the parties, arbitration or judicial action) not to be a default shall not be considered for purposes of determining whether such condition has been met. (c) RETURN OF LETTER OF CREDIT. The Letter of Credit shall be returned to Tenant, and Tenant's obligation to provide a security deposit to Landlord under this Paragraph 34 shall terminate, at any time after the third (3rd) anniversary of the Rent Commencement Date when Tenant can establish to Landlord's reasonable satisfaction that as of the end of any fiscal 39 year of Tenant following the third anniversary of the Rent Commencement Date, Tenant has (i) annual net income in excess of Twenty-Five Million Dollars ($25,000,000) for the previous two consecutive years, (ii) shareholder equity in excess of One Hundred Fifty Million Dollars ($150,000,000), and (iii) cash and cash equivalents in excess of Fifty Million Dollars ($50,000,000), all as determined in accordance with GAAP and as reflected on certified, audited financial statements. (d) SUBSTITUTION OF CASH COLLATERAL. In lieu of, or in replacement of, the Letter of Credit, Tenant may deliver to Landlord at any time during the Term a cash deposit in the face amount required of the Letter of Credit, provided that Landlord shall have no additional liability or reduced benefits from that which Landlord would have if Tenant provided a Letter of Credit. All terms, conditions and requirements with respect to the Letter of Credit contained in this Paragraph 34, including, without limitation, application of proceeds, reduction of amount, return of deposit, and investment requirements for cash collateral, shall apply to any such cash collateral. (e) CONVERSION OF DEPOSIT TO LOAN. Landlord and Tenant acknowledge and agree that, if Tenant defaults under this Lease and fails to fully cure such default within the applicable cure period and Landlord elects to pursue its remedies under California Civil Code Section 1951.2 or under this Lease to terminate this Lease (any such event, a "Landlord Action"), (i) Landlord will incur certain damages, costs and expenses, including, without limitation, marketing costs, commissions, relocation costs, tenant improvement costs, and carrying costs in connection with releasing the Premises, in addition to the other damages, costs and expenses Landlord may incur as a result of such default and/or other defaults under this Lease (all of the foregoing collectively, "Default Damages"); (ii) Landlord has no assurance of a source of funds to cover such Default Damages other than the proceeds of the Letter of Credit (or cash collateral); and (iii) the proceeds of the Letter of Credit (or cash collateral) should be available to Landlord to apply to Default Damages, even if the amount thereof exceeds that amount to which Landlord is ultimately determined to be entitled under this Lease and pursuant to applicable law. Accordingly, at Landlord's sole election, Landlord shall be entitled to draw the full amount of the Letter of Credit (or the full amount of cash collateral shall be released to Landlord) which is then existing (after any previous application of funds by Landlord and/or replenishment by Tenant pursuant to Paragraph 34(a) above), simultaneously with commencement of a Landlord Action or at any time thereafter. All proceeds thereof in excess of amounts applied (pursuant to Paragraph 34(a)) to Default Damages incurred by Landlord prior to commencement of the Landlord Action shall be deemed a loan from Tenant to Landlord (the "Default Loan"). The Default Loan shall be unsecured and shall not bear interest, and repayment thereof shall be limited to the terms and conditions set forth in this paragraph. Any sums to which Landlord from time to time becomes entitled hereunder and pursuant to law as a result of Tenant's default and any previous defaults of the Lease, to which the Letter of Credit (or cash collateral) has not previously been applied pursuant to Paragraph 34(a), shall be offset against the principal balance of the Loan. The amount of the Default Loan remaining, if any, after such offset shall be referred to herein as the "Excess Amount". The Excess Amount shall be payable 40 by Landlord to Tenant from, and only from, first any proceeds from the Letter of Credit (or cash collateral) which have not been applied to Default Damages incurred by Landlord after the same are finally determined (the "Remaining Proceeds"), and then Excess Rent. The Remaining Proceeds shall be paid by Landlord to Tenant promptly upon final determination after the entire Premises are leased to a third party or parties. If Tenant disputes the amount of Remaining Proceeds paid by Landlord, Tenant may submit such dispute to arbitration in accordance with Paragraph 41 [Arbitration of Disputes] of this Lease. "Excess Rent" shall mean the amount by which (x) rent received by Landlord (from the tenant or tenants leasing all or any portion of the Premises after Tenant's default) in any month exceeds (y) the amount of rent that would have been payable under this Lease for such month if this Lease had not been terminated. Landlord shall pay Tenant one-half of the Excess Rent until the earlier of (A) the date the Excess Amount is fully repaid or (B) the date that would have been the Expiration Date (excluding any Renewal Term) of this Lease. Any remaining balance of the Default Loan on such date shall be deemed forgiven. If the Default Loan is insufficient to cover all Default Damages, Tenant shall pay Landlord any such shortfall immediately upon demand by Landlord, and Landlord shall have all rights and remedies available at law or elsewhere in the Lease with respect to such shortfall. 35. FINANCIAL INFORMATION. Tenant will furnish to the Landlord within one hundred twenty (120) days after the end of each calendar year, copies of audited, consolidated financial statements, which shall include, without limitation, balance sheets, statements of income and expenses and sources and uses of funds of the Tenant and its subsidiaries for such calendar year, all in reasonable detail and stating in comparative form the figures as of the end of and for the previous calendar year and including appropriate footnotes, prepared in accordance with generally accepted accounting principles, and certified and audited by independent public accountants of recognized standing reasonably satisfactory to the Landlord; provided, however, that so long as Tenant is a publicly traded corporation, in lieu of the foregoing Tenant shall provide Landlord with copies of Tenant's annual report and 10K Filing when such documents are released to the public. Tenant hereby covenants and warrants to Landlord that all financial information and other descriptive information regarding Tenant's business, which has been or shall be furnished to Landlord, is and shall be accurate and complete at the time of delivery to Landlord. 36. PARKING. Subject to the Rules and Regulations, Tenant shall have the exclusive right to use the parking situated on the Land; provided, however, that other than marking parking spaces situated on the Land as designated for Tenant's use (at Tenant's request), Landlord shall not be obligated to enforce such exclusive right. 37. MISCELLANEOUS. (a) DEFINED TERMS. The paragraph headings herein are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease. The term "Landlord" shall include Landlord and its successors and assigns. In any case where this Lease is signed by more than one person, the obligations 41 hereunder shall be joint and several. The term "Tenant" shall include Tenant and its successors and assigns. (b) OTHER TERMS. Time is of the essence of this Lease and all of its provisions. This Lease shall in all respects be governed by the laws of the State of California. This Lease, together with its exhibits, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument by the parties hereto. (c) QUIET ENJOYMENT. Upon Tenant paying the Base Rent and Additional Charges and performing all of Tenant's obligations under this Lease, Tenant may peacefully and quietly enjoy the Premises during the Term as against all persons or entities lawfully claiming by or through Landlord; subject, however, to the provisions of this Lease. (d) SURVIVAL OF INDEMNITIES; IMMEDIATE OBLIGATION TO DEFEND. All indemnities contained herein shall survive the expiration or earlier termination of this Lease. With respect to each of the indemnities contained in this Lease, the indemnitor has an immediate and independent obligation to defend the indemnitee from any claim which actually or potentially falls within the indemnity provision, which obligation arises at the time such claim is tendered to the indemnitor by the indemnitee and continues at all times thereafter. 38. REPRESENTATIONS AND WARRANTIES. (a) LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents and warrants to Tenant that, to Landlord's best knowledge, (i) the Premises are not now in violation of any applicable Laws other than Laws with respect to Hazardous Substances; and (ii) the zoning requirements currently applicable to the Premises permit the permitted use under this Lease. For purposes of this Section 38, the term "to Landlord's best knowledge" shall mean the current actual conscious knowledge of Steve Dostart after reasonably appropriate and diligent inquiry. Landlord hereby represents that Steve Dostart is the representative of Landlord with supervisory responsibilities concerning the Premises who would, in the ordinary course of his responsibilities, receive notice from persons or entities of any of the matters described in the representations and warranties in this Lease. (b) TENANT'S REPRESENTATIONS AND WARRANTIES. Tenant represents and warrants to Landlord that, to Tenant's best knowledge, Tenant's use of the Premises will not be in violation of any applicable Laws. For purposes of this Section 38, the term "to Tenant's best knowledge" shall mean the current actual conscious knowledge of Tenant's Vice President of Operations after reasonably appropriate and diligent inquiry. Tenant hereby represents that Tenant's Vice President of Operations is the representative of Tenant with supervisory responsibilities concerning the Premises and this Lease who would, in the ordinary course of his responsibilities, receive notice from persons or entities of any of the matters described in the 42 representations and warranties in this Lease. 39. REAL ESTATE BROKERS. (a) LANDLORD'S PAYMENT OBLIGATION. Landlord shall pay a brokerage fee, in the total amount of $4.50 per rentable square foot of the Premises to the party identified as "Tenant's Broker" in the Basic Lease Information, in accordance with the terms and conditions of separate agreement(s) with such parties. (b) NO OTHER BROKERS. Each party represents that it has not had dealings with any real estate broker, finder or other person with respect to this Lease in any manner, except for Tenant's Broker named in the Basic Lease Information, whose fees or commission, if earned, shall be paid as provided in Paragraph 39(a). Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any other broker, finder or other person with whom the other party has or purportedly has dealt, or for any amounts in excess of the amount for which Landlord is responsible under Paragraph 39(a) which are claimed by any broker, finder or other person with whom the other party has or purportedly has dealt. 40. HAZARDOUS SUBSTANCE LIABILITY. Tenant has received from Landlord a copy of the following reports: (the "Environmental Reports"): Phase I and Phase II Environmental Assessment, Former RMC Lonestar Facility, 605 Fairchild Drive, Mountain View, California, dated December 26, 1996 by McLaren Hart Environmental Engineering Corporation. (a) DEFINITION OF HAZARDOUS SUBSTANCES. For the purposes of this Lease, "Hazardous Substances" shall be defined, collectively, as oil, flammable explosives, asbestos, radioactive materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances which are "hazardous substances," "hazardous wastes," "hazardous materials" or "toxic substances" under applicable environmental laws, ordinances or regulations. (b) TENANT INDEMNITY. Tenant releases Landlord from any liability for, waives all claims against Landlord and shall indemnify, defend and hold harmless Landlord, its employees, partners, agents, subsidiaries and affiliate organizations against any and all claims, suits, loss, costs (including costs of investigation, clean up, monitoring, restoration and reasonably attorney fees), damage or liability, whether foreseeable or unforeseeable, by reason of property damage (including diminution in the value of the property of Landlord), personal injury or death directly arising from or related to Hazardous Substances released, manufactured, discharged, disposed, used or stored on, in, or under the Land or Premises during the initial Term and any extensions of this Lease by Tenant or its employees, agents or contractors. The provisions of this Tenant Indemnity regarding Hazardous Substances shall survive the termination of the Lease. 43 (c) LANDLORD INDEMNITY. Landlord releases Tenant from any liability for, waives all claims against Tenant and shall indemnify, defend and hold harmless Tenant, its officers, employees, and agents to the extent of Landlord's interest in the Project, against any and all actions by any governmental agency for clean up of Hazardous Substances on or under the Land (including, without limitation, any groundwater contamination) including costs of legal proceedings, investigation, clean up, monitoring, and restoration, including reasonable attorney fees, and Landlord also releases Tenant from any liability for, waives all claims against Tenant and shall indemnify, defend and hold harmless Tenant, its officers, employees and agents from and against any and all actions for damages to property instituted by any third parties, if, and to the extent, in either case, arising from the presence of Hazardous Substances on, in or under the Land or Premises, except to the extent caused by the release, disposal, use or storage of Hazardous Substances in, on or about the Premises by Tenant, its employees, agents, sublessees, assignees, or contractors. The provisions of this Landlord Indemnity regarding Hazardous Substances shall survive the termination of the Lease. (d) TENANT COVENANTS. Tenant has informed Landlord that, except for very immaterial amounts of toxic materials incidental to office use (e.g. copier toner, typical janitorial cleaning materials, petroleum products in cars) and those materials listed on Exhibit "G" in substantially the amounts indicated on such Exhibit, as such exhibit may be revised from time to time by Tenant as provided in this Paragraph 40(d) below, Tenant will not use or store any Hazardous Substances within the Premises without Landlord's prior written consent, and shall comply with any applicable Laws to the extent that it does use any Hazardous Substances. Without limiting the foregoing, with respect to the Hazardous Substances listed on Exhibit "G" or any other Hazardous Substances that may be used or stored on the Premises upon Landlord's consent, (i) Tenant shall provide to Landlord a copy of Tenant's Hazardous Materials Management Plan ("HMMP"), as approved by the local fire department and any other appropriate regulatory agencies, and any amendments thereto, (ii) Tenant shall provide Landlord with a revised Exhibit "G" upon any significant change in the types and/or quantities of Hazardous Substances used at the Premises, but in any event on each anniversary of the Rent Commencement Date, for Landlord's review and approval (not to be unreasonably withheld or delayed); and (iii) Landlord reserves the right at any time, and from time to time, to conduct site audits of the Premises to verify the information contained in Exhibit "G" and Tenant's HMMP. Tenant shall immediately notify Landlord if and when Tenant learns or has reason to believe there has been any release of Hazardous Substances in, on or about the Project during the Term. 41. ARBITRATION OF DISPUTES. ANY CONTROVERSY OR CLAIM ARISING OUT OF PARAGRAPHS 3(b) [OCCUPANCY DATE], 3(d) [EXCLUSIVE REMEDIES], 4(c)(2)(4) [AUDIT], 7 [COMPLIANCE WITH LAWS], 8 [ALTERATIONS], 9 [REPAIRS AND MAINTENANCE], 14 [SERVICES AND UTILITIES], 22(d) [MUTUAL TERMINATION RIGHT; INSURED CASUALTY] WITH RESPECT TO LENGTH OF TIME TO 44 RESTORE, 26 [DELIVERY AND RESTORATION OF PREMISES], AND 43(e) [CONVERSION OF DEPOSIT TO LOAN] WITH RESPECT TO THE AMOUNT OF REMAINING PROCEEDS, OF THIS LEASE, OR A BREACH OF SUCH PARAGRAPHS SOLELY BETWEEN LANDLORD AND TENANT, BUT NOT INCLUDING A DEFAULT WITH RESPECT TO THE TIMELY PAYMENT OF BASE RENT AND ADDITIONAL CHARGES, SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, AND JUDGMENT ON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE PREVAILING PARTY IN SUCH ARBITRATION SHALL BE ENTITLED TO ATTORNEYS' FEES AND COSTS. NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION. CONSENT TO NEUTRAL ARBITRATION BY: /s/ (LANDLORD): /s/ (TENANT): - --------------------------------- ---------------------------------------- 42. SIGNAGE. Subject to (a) compliance with all applicable governmental requirements and subject to (b) Landlord's approval of the exact size, location and materials thereof (which approval shall not be unreasonably withheld, conditioned or delayed, and with the understanding that Tenant's logo is approved), Tenant shall have the right to install exterior monument signage adjacent to entrances to the Building and the Project and on the exterior of the Building, but in not more than two (2) locations on the exterior of the Building. Tenant shall be responsible for the costs related to such signage. 43. OPTION TO RENEW. Tenant shall have the right to extend the Term for one (1) period of five (5) years ("Extension Term") following the initial Expiration Date, by giving written notice ("Exercise Notice") to Landlord at least eighteen (18) months prior to the 45 Expiration Date, subject to the following conditions: (i) no event of default is continuing under this Lease at the time of the Exercise Notice or at the commencement of the Extension Term; and (ii) Landlord has not delivered a notice of default to Tenant hereunder during the twenty-four (24) month period immediately preceding the Exercise Notice, regardless of whether any such default was cured by Tenant within any applicable grace or cure period; provided, however, that any such notice of default relating to a non-monetary default which was disputed, in good faith, by Tenant and ultimately determined (by agreement of the parties, arbitration or judicial action) not to be a default shall not be considered for purposes of determining whether such condition has been met. 44. RENT DURING EXTENSION TERM. The Monthly Base Rent during the seven-year Extension Term shall be the greater of the Base Rent paid during the last month of the immediately preceding Term or the Fair Market Rental Value for the Premises as of the commencement of the option term as determined below: (a) Within the later of thirty (30) days after receipt of Tenant's Exercise Notice or eleven (11) months prior to the Expiration Date, Landlord shall notify Tenant of Landlord's estimate of the Fair Market Rental Value for the Premises, as determined below, for determining Monthly Base Rent during the ensuing Extension Term. Within fifteen (15) days after receipt of such notice from Landlord, Tenant shall notify Landlord in writing that it (i) agrees with such Fair Market Rental Value or (ii) disagrees with such Fair Market Rental Value. No response shall constitute disagreement. If Tenant disagrees with Landlord's estimate of Fair Market Rental Value for the Premises, then the parties shall meet and endeavor to agree within fifteen (15) business days after Landlord receives Tenant's notice described in the immediately preceding sentence. If the parties cannot agree upon the Fair Market Rental Value within said fifteen (15) day period, Tenant may make written demand upon Landlord for arbitration in accordance with the following paragraph. The judgment or the award rendered in any such arbitration may be entered in any court having jurisdiction and shall be final and binding between the parties. The arbitration shall be conducted and determined in the City of Palo Alto in accordance with the then prevailing rules of the American Arbitration Association or its successor for arbitration or commercial disputes, except to the extent the procedures mandated by said rules shall be modified as follows: (i) Tenant shall, by the applicable date specified therefor in this Lease, make written demand upon Landlord pursuant to this Lease for arbitration, specifying therein the name and address of the person to act as the arbitrator on Tenant's behalf. The arbitrator shall be qualified as a real estate appraiser, with at least five (5) years experience in appraising major commercial property in Santa Clara County and a member of a recognized society of real estate appraisers, who would qualify as an expert witness over objection to give opinion testimony addressed to the issue in a court of competent jurisdiction. Failure on the part of Tenant to make a timely and proper demand for such arbitration (specifying the arbitrator to act on Tenant's behalf, as aforesaid) shall constitute a waiver of the right thereto. Within ten (10) business days after receipt of Tenant's demand for arbitration, Landlord shall give written notice to Tenant 46 pursuant to this Lease, specifying the name and address of the person designated by Landlord to act as arbitrator on its behalf who shall be similarly qualified. If Landlord fails to notify Tenant of the appointment of its arbitrator, within or by the time above specified, then the arbitrator appointed by Tenant shall be the arbitrator to determine the issue. Notwithstanding the foregoing, upon receipt of Tenant's demand for arbitration Landlord may, in its sole discretion, deliver a revised estimate of the Fair Market Value of the Premises, and within fifteen (15) days after receipt of such notice from Landlord, Tenant shall notify Landlord in writing that it (i) agrees with such revised Fair Market Rental Value, or (ii) disagrees with such revised Fair Market Rental Value, with no response constituting agreement. If Tenant disagrees with Landlord's Fair Market Value, then within ten (10) business days after receipt of Tenant's notice of such disagreement Landlord shall give Tenant written notice specifying Landlord's designated arbitrator as provided in this paragraph above. (ii) If two (2) arbitrators are chosen pursuant to paragraph (1) above, the arbitrators so chosen shall meet within ten (10) business days after Landlord notifies Tenant of the appointment of Landlord's arbitrator as aforesaid. If the two appraisers reach agreement on the Fair Market Rental Value, that value shall be binding and conclusive upon the parties. If within ten (10) business days after such first meeting the two arbitrators shall be unable to agree upon a determination of Fair Market Rental Value, they, themselves, shall appoint a third arbitrator, who shall be a competent and impartial person with qualifications similar to those required of the first two arbitrators pursuant to Paragraph (1). If the first two arbitrators are unable to agree upon such appointment within five (5) business days after expiration of said ten (10) days period, the third arbitrator shall be selected by Landlord and Tenant, if they can agree thereon, within a further period of ten (10) business days. If Landlord and Tenant do not so agree, then either party, on behalf of both, may request appointment of such a qualified person by the then Chief Judge of the United States District Court having jurisdiction over the City and county of San Francisco, and the other party shall not raise any question as to such Judge's full power and jurisdiction to entertain the application for and make the appointment. The three (3) arbitrators shall decide the dispute if it has not previously been resolved by following the procedure set forth in the following paragraph. (iii) If an issue cannot be resolved by agreement between the two arbitrators selected by Landlord and Tenant or settlement between Landlord and Tenant during the course of arbitration, the issue shall be resolved by the three arbitrators in accordance with the following procedures. Within ten (10) business days after appointment of the third arbitrator, each of the two arbitrators selected by Landlord and Tenant shall state in writing his determination of the Fair Market Rental Value supported by the reasons therefor with counterpart copies to each party. The arbitrators shall arrange for a simultaneous exchange of such proposed resolutions. The role of the third arbitrator shall be to select, within ten (10) business days after submission to the third arbitrator of the two proposed resolutions, which of the two proposed resolutions most closely approximates the third arbitrator's determination of Fair Market Rental Value. The third arbitrator shall have no right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution he chooses as most closely approximating 47 his determination shall constitute the decision of the arbitrators and be final and binding upon the parties. (iv) If any arbitrator fails, refuses or is unable to act, his successor shall be appointed by the party who originally appointed him, but in the case of the third arbitrator, his successor shall be appointed in the same manner as provided for appointment of the third arbitrator. Landlord and Tenant shall each pay the fees and expenses of its respective arbitrator, if any, and shall each pay half of the fees and expenses of the third arbitrator, if any. The attorneys' fees and expenses of counsel for the respective parties and of witnesses shall be paid by the respective party engaging such counsel or calling such witnesses. (v) The arbitrators shall have the right to consult experts and competent authorities with factual information or evidence pertaining to a determination of Fair Market Rental Value, but any such consultation shall be made in the presence of both Landlord and Tenant with full right on their part to cross-examine. The arbitrators shall render their decision and award in writing with counterpart copies to Landlord and Tenant. The arbitrators shall have no power to modify the provisions of this Lease. (b) Wherever used throughout this Paragraph 44 [Rent during Extension Term] the term "Fair Market Rental Value" shall mean the fair market rental value of the Premises, using as a guide the rate of monthly base rent which would be charged during the Extension Term (including periodic increases during the Extension Term, if any) in the South Bay Area for comparable commercial space in comparable condition, of comparable quality, as of the time that the Extension Term commences, with appropriate adjustments regarding taxes, insurance and operating expenses as necessary to insure comparability to this Lease, as the case may be, and also taking into consideration amount and type of parking, location, existing leasehold improvements (regardless of who paid for them and assuming they are useful to Tenant), proposed term of lease, amount of space leased, extent of service provided or to be provided, and any other relevant terms or conditions. (c) If binding arbitration has not been completed prior to the expiration of any preceding period for which Monthly Base Rent has been determined, Tenant shall pay Monthly Base Rent at the greater of the Base Rent paid during the last month of the immediately preceding Term or the Fair Market Rental Value estimated by Landlord, with an adjustment to be made once Fair Market Rental Value is ultimately determined by binding arbitration. Such adjustment shall not result in a decrease of the Monthly Base Rent for the Premises below the amount payable by Tenant as of the period immediately preceding the ensuing Extension Term. (d) From and after the commencement of the Extension Term, all of the other terms, covenants and conditions of the Lease shall also apply; provided, however, that Tenant shall have no further rights to extend the Term. 45. SATELLITE ANTENNAS. During the Term, Tenant shall have the right, 48 subject to relevant regulatory approvals and Landlord's consent, such consent not to be unreasonably withheld or delayed, to install one or more satellite antennas (each, an "Antenna") on the roof of the Building in a location satisfactory to both Landlord and Tenant. Without otherwise limiting the criteria upon which Landlord may withhold its consent to any proposed Antenna, if Landlord withholds its consent due to concerns regarding the appearance of the Antenna or the impact on structural aspects of the Building, such withholding of consent shall be presumptively reasonable. Tenant shall not be charged any rent for roof space. Prior to submitting any plans to the City of Mountain View or proceeding with any installation of an Antenna, Tenant shall submit to Landlord elevations and specifications for the Antenna. Tenant shall install any approved Antennas at its sole expense and shall be responsible for any damage caused by the installation of the Antennas or related to the Antennas. At the end of the Term, Tenant shall remove the Antennas from their locations and repair any damage caused by such removal. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written. LANDLORD: 605 EAST FAIRCHILD ASSOCIATES, L.P., a California limited partnership By: M-D Ventures, Inc., a California corporation, Its General Partner By: /s/ STEVE DOSTART ------------------------------------- Steve Dostart Its Vice President TENANT: CALIPER TECHNOLOGIES CORP., a Delaware corporation By: /s/ CALVIN CHOW ------------------------------------- Calvin Chow Its Chief Operating Officer 49 LIST OF EXHIBITS EXHIBIT "A" MAP OF PROJECT (INCLUDING THE BUILDING) EXHIBIT "A-1" DESCRIPTION OF LAND EXHIBIT "B" CERTIFICATE ESTABLISHING OCCUPANCY DATE AND RENT COMMENCEMENT DATE EXHIBIT "C" ESTOPPEL CERTIFICATE EXHIBIT "D" RULES & REGULATIONS EXHIBIT "E" REQUIRED CONDITION OF PREMISES UPON SURRENDER EXHIBIT "F" FORM OF LETTER OF CREDIT EXHIBIT "G" TENANT'S HAZARDOUS SUBSTANCES DISCLOSURES EXHIBIT "H" APPROVED ALTERATIONS AREA EXHIBIT "I" SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT 50 INDEX OF DEFINED TERMS
Defined Term Paragraph - ---------------------- Additional Charges.....................................................4(a)(ii) Affiliate.................................................................11(k) Alterations................................................................8(b) Approved Alterations.......................................................8(b) Assignment................................................................11(a) Antenna......................................................................45 Base Building..............................................................1(a) Base Rent...............................................................4(a)(i) Building.........................................Basic Lease Information & 1(a) Building Systems...........................................................9(b) Default Damages...........................................................34(e) Default Loan..............................................................34(e) Default Rate...............................................................4(d) Environmental Reports........................................................40 Excess Amount.............................................................34(e) Expenses.............................................................4(c)(1)(C) Expense Year.........................................................4(c)(1)(D)
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Defined Term Paragraph - ---------------------- Exercise Notice..............................................................43 Expiration Date............................................................3(a) Extension Term...............................................................43 Fair Market Rental Value..................................................44(b) Force Majeure Events.......................................................9(e) GAAP..............................................................3(c)(1)(C)(v) Hazardous Substances......................................................40(a) Insolvency Proceeding........................................................20 Interest Rate........................................................3(c)(1)(C) Land.............................................Basic Lease Information & 1(a) Landlord.......................................................Recitals & 37(a) Landlord Action...........................................................34(e) Landlord Parties..........................................................12(a) Landlord's Expense Statement............................................4(c)(3) Landlord's Tax Statement.............................................4(c)(2)(A) Laws.......................................................................7(a) Letter of Credit..........................................................34(a) Liquid Assets.............................................................11(g) Monthly Base Rent.......................................Basic Lease Information Mortgage.....................................................................17 Mortgagee....................................................................17
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Defined Term Paragraph - ---------------------- Occupancy Date.............................................................3(a) Permitted Alterations......................................................8(c) Permitted Transfer........................................................11(g) Premises...................................................................1(a) Project....................................................................1(a) Real Estate Taxes....................................................4(c)(1)(B) Rent...................................................................4(a)(ii) Rent Commencement Date.....................................................3(c) Rentable Area...........................................Basic Lease Information Rules & Regulations..........................................................18 Strategic Partner.........................................................11(h) Sublease..................................................................11(a) Taking....................................................................23(a) Tax Year.............................................................4(c)(1)(A) Tenant.........................................................Recitals & 37(a) Tenant Parties............................................................12(b) Tenant's Broker.........................................Basic Lease Information Term.......................................................................3(a)
EX-10.6 7 EMPLOYMENT AGREEMENT - DANIEL L. KISNER, M.D. 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT This Agreement, by and between DANIEL KISNER, M.D. ("Employee") and Caliper Technologies Corp. (the "Company"), is made as of January 18, 1999. In consideration of the mutual covenants contained in this Agreement, and in consideration of the employment of Employee by the Company, the parties agree as follows: 1. Duties and Scope of Employment (a) Position. The Company agrees to employ Employee under the terms of this Agreement in the position of President and Chief Executive Officer beginning on February 28, 1999 (the "Start Date"). As President and Chief Executive Officer, Employee shall be the principal executive officer of the Company, shall have full responsibility for managing the Company, and shall report directly to the Board of Directors of the Company. (b) Obligations. Employee shall devote his efforts full time to the Company, and shall not engage in any outside activities that interfere or conflict with Employee's responsibilities to the Company or are inconsistent with the Company's policies as established by the Board of Directors from time to time. Notwithstanding the foregoing, nothing shall preclude Employee from serving with prior notice to and approval of the Board, on the boards of directors of a reasonable number of other corporations. (c) Director. Upon joining the Company, Employee shall become a member of the Company's Board of Directors. As long as Employee serves as Chief Executive Officer, Employee shall be nominated to serve on the Board of Directors in connection with any meeting to elect the same. Employee agrees to submit immediately his resignation as a director if Employee ceases to be President and Chief Executive Officer. 2. Compensation (a) Base Salary. Beginning on the Start Date, Employee shall be paid a base salary of $350,000 per year, payable semi-monthly in accordance with the Company's payroll policies and subject to standard payroll deductions and withholdings. The Board of Directors shall review Employee's performance and the Company's financial and operating results on at least an annual basis, and may increase Employee's base salary as in its reasonable discretion deems appropriate based on such review. (b) Annual Bonuses. Within the first 60 days following the Start Date, the Board and Employee shall prepare and agree on a reasonable bonus plan setting forth reasonable performance goals in various areas, such as delivering research contracts, defining company strategy and goals, preparing annual budgets, 1. 2 developing strategic relationships and developing products, to be achieved in calendar year 1999. The intent of the bonus plan is that Employee's complete achievement of such goals shall result in a bonus equaling 50% of Employee's Base Salary. During the 1999 annual performance review (which shall occur on or before January 31, 2000), the Board shall determine the extent to which performance goals have been achieved and shall award Employee the appropriate bonus based on the bonus plan. If a bonus is awarded, the bonus shall be delivered to Employee within 60 days of the date that Employee is provided with his annual performance review. For each subsequent fiscal year the Company, Employee shall participate in any annual incentive plan or program of the Company at a level commensurate with his positions and responsibilities at the Company. Under such plans and programs, Employee shall have an on-plan target bonus opportunity each year of at least 50% of his then current annualized Base Salary, payable in that amount if the performance goals established for the relevant year are completely met. If such performance goals are not completely met, Employee shall receive a lesser amount (or nothing) as determined in accordance with applicable guidelines. Employee shall receive his annual bonus payment no later than other senior executives receive their annual bonus payments. 3. Equity and Housing Loan Forgiveness (a) Employee will be granted an incentive stock option which shall be incentive stock options to the maximum extent permitted by law to purchase 1,000,000 shares of Common Stock of the Company at the fair market value of such shares on the Start Date. The fair market value of common shares on December 15, 1998 was $0.62. The shares subject to the option will vest over a five-year period vesting at a rate of 1/60th of the shares per month of employment, except as otherwise provided in Sections 3 and 8. The option will be granted pursuant to the Company's 1996 Stock Incentive Plan and the Company's standard form of stock option agreement except as such standard form of agreement is modified by the terms of this agreement. Such shares will represent approximately 3.3% of the approximately 30 million shares of Common and Preferred Stock outstanding. (b) If any Adjustments Upon Changes in Stock are made under Section 13 of the Company's 1996 Stock Incentive Plan, such adjustments shall apply to Employee as they do to all other employees of the Company except that the eighteen (18) month accelerated vesting mentioned in subsection 13(b) shall be replaced for Employee by twenty-four (24) months if a Change of Control is to be completed for a transaction price that is greater than $200 million and by thirty (30) months if a Change of Control is completed for a transaction price that is greater than $300 million. Such adjustments shall apply to the Stock Award granted in subsection 3(a) of this Employment Agreement and to any other Stock Awards granted to Employee. If the Change of Control occurs within twenty-four (24) 2. 3 months of the Start Date and either 18 months or 24 months or 30 months accelerated vesting is granted, then either 18 or 24 or 30 months, respectively, of the Housing Loan described in Section 4(f) will be forgiven at the rate of 1/60th of the housing loan per month. Such forgiveness shall not be grossed up for tax purposes. 4. Employee Benefits- Closing Costs- Attorney Fees, Housing Loan (a) Employee shall be entitled to the full benefits for which Employee is eligible under the employee benefit plans and executive compensation programs maintained by the Company, including medical, dental, disability and life insurance benefits. (b) Employee shall be reimbursed for normal real estate commissions, closing costs and reasonable packing, shipping, storage, unpacking and insurance expenses in connection with selling his current residence and obtaining new permanent living quarters near the Company. Employee shall also be reimbursed for up to two points on a mortgage on the new permanent residence. (c) Employee shall be reimbursed for normal temporary housing costs incurred by the employee in connection with signing this Employment Agreement for up to six months. (d) Employee and his immediate family shall be reimbursed for normal travel and living expenses for two weekend trips to the Palo Alto area for the purpose of purchasing a new principal residence. (e) Employee shall be reimbursed for normal travel expenses for two weekend trips per month to the San Diego area from the Start Date to the earlier of August 31, 1999 or the moving of his family to the Palo Alto area. (f) Employee shall be entitled to a housing loan of up to $500,000 in connection with retaining living quarters near the Company. Such loan will be made to the Employee by the Company with a maximum term of six (6) years (with the due date for full repayment accelerated upon voluntary termination of employment to such date of termination) at an annual interest rate of 4.64%, compounded annually, (or such higher interest as shall be necessary to avoid imputed income to Employee under all applicable sections of the Code). Portions of such loan and interest due may be forgiven by the Board of Directors based upon annual Employee performance reviews each year. Any forgiveness granted will be grossed up for tax purposes by paying Employee an additional 75% of the amount of the debt forgiveness to assist with the payment of tax liability for such forgiveness. A minimum of 10% of the total loan will be forgiven each year if Employee is retained into the coming year. It is the intent, but not the obligation, of the Board to forgive this loan based upon good performance over five years. (g) Employee shall be entitled to a monthly mortgage assistance payment to support up to $500,000 of mortgage principal on a 30 year mortgage. Such payment shall 3. 4 be grossed up for tax purposes by paying Employee an additional 75% of the amount of the mortgage assistance payment to assist with the payment of tax liability for such mortgage assistance payment. Such grossed up payment shall start with the first month such payment is due and shall continue for twelve months at 100% of the payment, shall continue for the next twelve months at 80% of the payment, for the next twelve months at 60% of the payment, for the next twelve months at 40% of the payment and for the next twelve months at 20% of the payment, at which time such payments shall end. Such payments shall also end at the termination of Employee's employment at Caliper. 5. Proprietary Information Agreement Employee agrees to sign and comply with the Company's Proprietary Information and Inventions Agreement. 6. Employment at Will: Limitation of Remedies The Company and Employee acknowledge that Employee's employment is at will and can be terminated by either party at any time with or without cause. Except as provided in Section 9, if Employee's employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement. This at-will relationship supersedes any previous written or oral statements by the parties and cannot be changed except in writing signed by Employee and duty authorized officer of the Company. 7. Term of Employment (a) Voluntary Termination by Employee. Employee may terminate his employment voluntarily giving the Company 30 days' advance notice in writing. No compensation or payments will be paid or provided following the date when such a termination is effective. In lieu of continuing to employ Employee through the date when such a termination is effective, the Company shall have the option to terminate Employee's employment immediately upon receipt of such notice, provided that the Company shall be obligated to continue to pay Employee his base salary, benefits and vacation accruals through the date termination otherwise would have been effective had the Company not exercised such option. Termination by the Company pursuant to this Section 7(a) shall not be deemed to be termination without Cause. (b) Termination by the Company. The Company may terminate Employee's employment at any time, for any reason or for no reason. (i) Termination for Cause. If the Company terminates Employee's employment for Cause, no compensation or payments will be provided to Employee following the date when such a termination of employment is effective. Any remaining housing loan shall be converted to a five year note at prime plus 1.0%, compounded annually, and the first payment shall begin one year from the termination date. 4. 5 (ii) Termination Without Cause. If the Company terminates Employee's employment without Cause, the provisions of Section 8 and the Definitions of Section 9 shall apply. Any remaining housing loan shall be converted to a five year note at prime plus 1.0%, compounded annually, and the first payment shall begin one year from the termination date. 8. Payment Upon Termination Pursuant to Termination Without Cause and Constructive Termination (a) If Employee's employment is terminated without Cause, or voluntarily by Employee within three months following a Constructive Termination, Employee shall be entitled to receive the following: (i) Severance Payment. The Company shall continue to pay to Employee his then current salary for twelve months in monthly installments, and benefits, following the date when such a termination of employment is effective, provided that: (A) the Company's obligation to continue to pay such base salary shall cease as of the date Employee commences full-time employment with another business entity (and Employee agrees to provide notice of such employment within three business days of accepting such an offer); and (B) Employee executes a waiver and release of claims substantially in the form set forth in Exhibit A hereto. (ii) Acceleration of Stock Vesting. If such termination without Cause or voluntary termination following a Constructive Termination shall occur after the six month anniversary of the Start Date, all of the shares that would become vested within twelve months of such date of termination under the terms of the options described in Section 3 and any other options granted to Employee in the future will be deemed to have vested provided Employee executes a waiver and release of claims substantially in the form set forth in Exhibit A hereto. (b) If Employee's employment is terminated without Cause within thirteen months after a Change in Control, or is voluntarily terminated by Employee following a Constructive Termination within thirteen months after a Change of Control, Employee shall be entitled to receive the following: (i) Severance Payment. The Survivor shall continue to pay to Employee his then current salary for twelve months in monthly installments, and benefits, following the date when such a termination of employment is effective, provided that: (A) the Survivor's obligation to continue to pay such base salary shall cease as of the date Employee commences full-time employment with another business entity (and Employee agrees to provide notice of such employment within three business days of accepting such an offer); and (B) Employee executives a waiver and release of claims substantially in the form set forth in Exhibit A hereto. 5. 6 (ii) Acceleration of Stock Vesting and Housing Loan Forgiveness after a Change of Control if the Survivor assumes the Stock Awards or substitutes similar Stock Awards. If such termination without Cause or voluntary termination following a Constructive Termination shall occur, all of the shares that would become vested within twenty-four (24) months (thirty (30) months if a Change of Control is completed for a transaction price that is greater than $300 million) of the Termination Date under the terms of the options described in Section 3 and any other options granted to Employee in the future, will be deemed to have vested. If the Change of Control occurs within twenty-four (24) months of the Start Date and either 24 months or 30 months accelerated vesting is granted then either 24 or 30 months, respectively, of the Housing Loan described in Section 4(f) will be forgiven at the rate of 1/60th of the housing loan per month provided Employee executes a waiver and release of claims substantially in the form set forth in Exhibit A hereto. Such forgiveness shall not be grossed up for tax purposes. 9. Parachute Payment Anything in this Agreement to the contrary nonwithstanding, if the aggregate of the amounts due Employee under this Agreement and any other plan, program, or arrangement of the Company or its Affiliates constitutes a "Parachute Payment" as such term is defined in Section 280G of the Internal Revenue Code of 1986 (the "Code"), and the amount of the Parachute Payment, reduced by all Federal, state and local taxes applicable to such payments which are considered to be contingent on a Change in Control, including the excise tax imposed pursuant to Section 4999 of the Code, is less than the amount Employee would receive, after taxes, if he were paid only a dollar amount equal to three times his Base Amount as defined in Section 280G(b)(3) of the Code less $1.00, then the payments made to Employee under this Agreement which are contingent on a Change of Control shall be reduced to an amount which, when added to the aggregate of all other payments to Employee which are contingent on a Change of Control, will make the total fair market value of such payments equal to three times his Base Amount less $1.00, all as determined under Section 280G of the Code. 10. Definition As used in this Agreement, the following definitions shall apply (a) "Cause" shall mean the occurrence of any of the following: (i) Employee engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Agreement, resulting, in either case, in material economic harm to the company, unless Employee believed in good faith that such conduct was in, or not opposed to, the best interests of the Company; (ii) any unjustified refusal to follow reasonable directives duly adopted by the Board; or (iii) conviction of a felony crime involving moral turpitude. Written notice shall be provided and Employee shall have a 30-day period to correct. 6. 7 (b) "Change in Control" shall mean (i) any merger or consolidation of the Company with, or any sale of all or substantially all of the Company's assets to any other unaffiliated corporation or entity, unless as a result of such merger, consolidation or sale of assets the holders of the Company's voting securities prior thereto hold at least 50 percent of the total voting power in the surviving or successor corporation or entity, or (ii) the acquisition by any Person (other than any employee benefit plan, or related trust, sponsored or maintained by the Company or an affiliate of the Company) as Beneficial Owner (as such terms are defined in the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder), directly or indirectly, of securities of the Company representing 50 percent or more of the total voting power represented by the Company's then outstanding voting securities. For purposes of this section 10(b), the term "affiliate" shall mean any person which controls the Company, which is controlled by the Company, or which is under common control with the Company within the meaning of Rule 144(a)(1) promulgated under the Securities Act of 1933, as amended. Notwithstanding any provision in this agreement to the contrary, the term "affiliate" shall not include the Hewlett-Packard Company or Dow Corning Corporation or any subsidiary of either company. (c) "Constructive Termination" shall mean either (i) a substantial reduction in Employee's duties, responsibilities or position or (ii) any substantial downward change in Employee's compensation or benefits, except for compensation and benefit changes which are consistent with downward changes for all Company executives. 11. Other Agreements Employees represents and warrants the Employee's performance of his duties for the Company will not violate any agreements, obligations or understandings that he may have with any third party or prior employer. Employee agrees not to make any unauthorized disclosure or use, on behalf of the Company, of any confidential information belonging to any of Employee's former employers. Employee also represents that he is not in authorized possession of any materials containing a third party's confidential and proprietary information. During Employee's employment with the Company, Employee may make use of information general known and used by persons with training and experience comparable to Employee's own, and information which is common knowledge in the industry or is otherwise legally available in the public domain. 12. Governing Law This Agreement shall be governed by the laws of the State of California as applied to agreements and entered into by California residents and to be performed entirely within the State of California. 13. Expiration of Offer 7. 8 This offer of employment expires at midnight on January 31, 1999. 14. Entire Agreement This Agreement constitutes the complete, final exclusive embodiment of the entire agreement between Employee and the Company with respect to the terms and conditions of Employee's employment. Employee represents and warrants that he is entering into this Agreement voluntarily, and without reliance upon any promise, warranty or representation, written or oral, other than those expressly contained herein. This Agreement supersedes any other such promises, warranties, representations or agreements. This Agreement may not be amended or modified except by a written instrument signed by Employee and duly authorized officer of the Company. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. CALIPER TECHNOLOGIES CORP. /s/ DAVID MILLIGAN -------------------------------------- DAVID MILLIGAN CHAIRMAN /s/ DANIEL KISNER, M.D. - ---------------------------------- DANIEL KISNER, M.D. 8. 9 EMPLOYMENT AGREEMENT AND RELEASE Exhibit A Except as otherwise set forth in this Employee Agreement and Release (the "Agreement") and Section 9 of that certain Employment Agreement, dated as of January 1, 1999 between the undersigned and Caliper Technologies Corp. (the "Company"), I hereby release, acquit and forever discharge the company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date of this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions stock, stock options, or any other ownership interests in the company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, the federal civil rights Act of 1964, as amended; the federal Americans with Disabilities ("ADEA"); the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenants of good faith and fair dealing. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that; (a) my waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) I have been advised hereby that I have the right to consult with an attorney prior to executing this Agreement; (c) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period had expired, which shall be the eighth day after this Agreement is executed by me. In giving this release, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company. Date: January 18, 1999 By: /s/ DANIEL KISNER, M.D. ------------------------------- DAN KISNER, M.D. 9. EX-10.7 8 PROMISSORY NOTE BETWEEN CALIPER AND DANIEL KISNER 1 Exhibit 10.7 PROMISSORY NOTE $425,000.00 July 29, 1999 Mountain View, California FOR VALUE RECEIVED, DANIEL KISNER, M.D. ("Employee"), an employee of Caliper Technologies Corp. ("Company"), hereby unconditionally promises to pay to the order of Company, in lawful money of the United States of America and in immediately available funds, the principal sum of Four Hundred Twenty Five Thousand Dollars ($425,000) (the "Loan") due and payable on the date and in the manner set forth below. 1. Intent. It is the intent of the parties that the purpose of this Note is not for consumer, family or household purposes. 2. Principal Repayment. The outstanding principal amount of the Loan shall be due and payable on the earlier of the following (the "Maturity Date"): (a) July 29, 2005; or (b) the date on which Employee voluntarily terminates his employment relationship with Company. 3. Interest Rate. Employee further promises to pay interest on the outstanding principal amount hereof from the date hereof until payment in full, which interest shall be payable at the rate of 5.96% per annum or the maximum rate permissible by law (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less, compounded annually. Interest shall be due and payable on the Maturity Date and shall be calculated on the basis of a 360 day year for the actual number of days elapsed. 4. Place of Payment; Prepayment. All amounts payable hereunder shall be payable at the office of Company unless another place of payment shall be specified in writing by Company. Prepayment is permitted. 5. Application of Payments. Payment on this Note shall be applied first to accrued interest, if any, and thereafter to the outstanding principal balance hereof. 6. Default. Each of the following events shall be an "Event of Default" hereunder: (a) Employee fails to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note, if any, on the date the same becomes due and payable, or fails to perform any other obligations hereunder; (b) Employee files a petition or action for relief under any bankruptcy, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or 2 hereafter in effect, or makes any assignment for the benefit of creditors or takes any action in furtherance of any of the foregoing; (c) An involuntary petition is filed against Employee (unless such petition is dismissed or discharged within sixty (60) days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Employee; or (d) Employee's employment by or association with the Company is terminated for any reason or no reason, including, without limitation, death of Employee. Upon the occurrence of an Event of Default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder, if any, shall, at the option of Company, and, in the case of an Event of Default pursuant to (b) or (c) above, automatically, be immediately due, payable and collectible by Company pursuant to applicable law. Notwithstanding the foregoing, if an Event of Default has occurred under (d) above due to the Company's termination of Employee employment with the Company with or without cause, this Note shall be converted to a five (5) year note at an interest rate equal to the Prime Rate plus one percent (1%), compounded annually, and the principal shall be payable in five equal annual installments, together with interest thereon payable in arrears calculated on the basis of a 360 day year for the actual number of days elapsed, beginning one year from such date of termination of employment. The Prime Rate shall mean the variable rate of interest, per annum, most recently published in the Money Rate Section of the New York Edition of The Wall Street Journal, as the "prime rate". The Company shall have all rights and may exercise any remedies available to it under law, successively or concurrently. Employee expressly acknowledges and agrees that Company shall have the right to offset any obligations of Employee hereunder against salaries, bonuses or other amounts that may be payable to Employee by Company. 7. Waiver. Employee waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law. 8. Governing Law. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 2 3 9. Successors and Assigns. The provisions of this Note shall inure to the benefit of and be binding on any successor to Employee and shall extend to any holder hereof. Employee shall not, without the prior written consent of holder, assign any of its rights or obligations hereunder. Dated: July 29, 1999 /s/ DANIEL KISNER, M.D. ---------------------------------- Daniel Kisner, M.D. 3 EX-10.8 9 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT 1 EXHIBIT 10.8 CALIPER TECHNOLOGIES CORP. AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT MAY 7, 1998 2 TABLE OF CONTENTS
PAGE ---- 1. REGISTRATION RIGHTS......................................................................1 1.1 Definitions..................................................................1 1.2 Request for Registration.....................................................3 1.3 Company Registration.........................................................5 1.4 Obligations of the Company...................................................5 1.5 Expenses of Demand Registration..............................................6 1.6 Expenses of Company Registration.............................................7 1.7 Underwriting Requirements....................................................7 1.8 Delay of Registration........................................................8 1.9 Indemnification..............................................................8 1.10 Reports Under Securities Exchange Act of 1934...............................10 1.11 Form S-3 Registration.......................................................11 1.12 Assignment of Registration Rights...........................................12 1.13 Limitations on Subsequent Registration Rights...............................12 1.14 "Market Stand-Off" Agreement................................................12 1.15 Termination of Registration Rights..........................................13 2. COVENANTS OF THE COMPANY................................................................13 2.1 Financial Statements........................................................13 2.2 Inspection..................................................................14 2.3 Termination of Information and Inspection Covenants.........................14 2.4 Right of First Offer........................................................14 3. MISCELLANEOUS...........................................................................16 3.1 Successors and Assigns......................................................16 3.2 Governing Law...............................................................16 3.3 Counterparts................................................................16 3.4 Titles and Subtitles........................................................16 3.5 Notices.....................................................................16 3.6 Amendments and Waivers......................................................17 3.7 Severability................................................................17 3.8 Aggregation of Stock........................................................17 3.9 Entire Agreement............................................................17
i. 3 EXHIBIT 10.7 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is made as of the 7th of May, 1998, by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation (the "Company"), and the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock of the Company listed on Schedule A hereto (the "Stockholders"). RECITALS WHEREAS, the Company and certain of the Stockholders (the "Investors") have entered into that certain Series E Preferred Stock Purchase Agreement, dated as of even date herewith (the "Series E Agreement"), or will enter into the Series E Agreement pursuant to Section 1.3 thereof, pursuant to which such Investors shall purchase up to two million five hundred thousand (2,500,000) shares of Series E Preferred Stock; and WHEREAS, the Stockholders (other than the Investors who are not currently stockholders of the Company) possess certain registration rights, rights of first offer and other rights pursuant to that certain Amended and Restated Investors' Rights Agreement dated May 7, 1997 (the "Prior Agreement") among the Company and such Stockholders; WHEREAS, the Stockholders and the Company desire to amend and restate the Prior Agreement in its entirety and to accept the rights and obligations created pursuant to this Agreement in lieu of the rights and obligations granted to each of them under the Prior Agreement; and WHEREAS, in order to induce the Company and the Investors to consummate the transactions contemplated by the Series E Agreement, the Stockholders and the Company hereby agree that this Agreement shall govern the rights of the Stockholders to cause the Company to register shares of Common Stock issuable to the Investors and the Stockholders and certain other matters as set forth herein, and the Stockholders and the Company hereby agree that the Prior Agreement is hereby amended and restated in its entirety by this Agreement. NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. REGISTRATION RIGHTS. The Company covenants and agrees as follows: 1.1 DEFINITIONS. For purposes of this Section 1: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC 4 which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 hereof. (d) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (e) The term "Participating Holder" shall mean with respect to a public offering of securities of the Company, a Holder participating in such public offering. (f) The term "Preferred Stockholder" shall mean, collectively, the Series A Stockholders, Series B Stockholders, Series C Preferred Stock, Series D Stockholders and Series E Stockholders. (g) The term "Preferred BCDE Stockholder" shall mean, collectively, the Series B Stockholders, the Series C Stockholders, the Series D Stockholders and the Series E Stockholders, excluding in all cases, however, with respect to the right of first offer in Section 2.4 hereof, any Series B Stockholder, Series C Stockholder, Series D Stockholder or Series E Stockholder (other than the Investors who purchased Series E Stock subsequent to the date of this Agreement pursuant to Section 1.3 of the Series E Agreement) that acquired all of its shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock in a transaction or series of transactions in which the right of first offer was not assigned or transferred in accordance with Section 2.4(e) hereof. (h) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (i) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock of the Company, and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) above, excluding in all cases, however, any securities which were formerly Registrable Securities and which sold by a person in a transaction in which his rights under this Section 1 are not assigned. (j) The number of shares of "Registrable Securities then outstanding" shall mean the sum of the number of shares of Common Stock outstanding which are Registrable Securities and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are Registrable Securities. (k) The term "SEC" shall mean the Securities and Exchange Commission. 2. 5 (l) The term "Series A Stockholder" shall mean the holders of the Company's Series A Preferred Stock or Common Stock issued upon conversion of the Series A Preferred Stock. (m) The term "Series B Stockholder" shall mean the holders of the Company's Series B Preferred Stock or Common Stock issued upon conversion of the Series B Preferred Stock. (n) The term "Series C Stockholder" shall mean the holders of the Company's Series C Preferred Stock or Common Stock issued upon conversion of the Series C Preferred Stock. (o) The term "Series D Stockholder" shall mean the holders of the Company's Series D Preferred Stock or Common Stock issued upon conversion of the Series D Preferred Stock. (p) The term "Series E Stockholder" shall mean the holders of the Company's Series E Preferred Stock or Common Stock issued upon conversion of the Series E Preferred Stock. 1.2 REQUEST FOR REGISTRATION. (a) If the Company shall receive at any time after the earlier of (i) April 26, 1999 or (ii) three (3) months after the effective date of the first registration statement for a public offering of securities of the Company (other than registration statement on Form S-3 or a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a Rule 145 transaction), a written request from the holders of at least twenty-five percent (25%) of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of Registrable Securities where the anticipated aggregate offering price to the public, net of underwriting discounts and commissions, of which would be in excess of $10,000,000, then the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and (ii) file as soon as practicable, and in any event within sixty (60) days of the receipt of such request, a registration statement under the Act covering all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(b). (b) If the Holders initiating the registration requested hereunder ("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 subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the 3. 6 Initiating Holders. If the underwriter selected by the Company is not reasonably acceptable to a majority in interest of the Initiating Holders, the Company shall select a different underwriter, which shall be reasonably acceptable to a majority in interest of the Initiating Holders. If such underwriter is not reasonably acceptable to the majority in interest of the Initiating Holders, a majority in interest of the Initiating Holders shall select the underwriter. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that in no event shall any securities of the Company held by Series A Stockholders be included in such registration and underwriting to the extent other Holders desire to include Registrable Securities therein. (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than 120 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. (d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2: (i) After the Company has effected two registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective; (ii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.11 below. 4. 7 1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.7, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its 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 a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415 or any successor rule under the Act permits an offering on a continuous or delayed basis and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (I) includes any prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (I) and (II) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the registration statement. (b) Prepare and file with the SEC 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 Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such 5. 8 other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such state and other securities 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, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act. (e) 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. (f) 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 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. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (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 requesting registration of Registrable Securities 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, if any, and to the Holders requesting registration of Registrable Securities. 1.5 EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification 6. 9 fees, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all Participating 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 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 1.6 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.12) including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities. 1.7 UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' Registrable Securities in such underwriting unless the Participating Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. Notwithstanding any other provision of this Section 1.7, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company (other than Registrable Securities) held by the holders of Common Stock shall be excluded from such registration to the extent so required by such limitation; and if a limitation on the number of shares is still required, the Holders of Series A Preferred Stock shall be excluded from such registration to the extent so required by such limitation; and if a limitation on the number of shares is still required, the number of Registrable Securities that may be included in the registration and underwriting shall be allocated among all remaining Holders on a pro rata basis; provided, however, that if such registration is other than the first registered offering of the sale of the Company's securities to the public, the underwriter may limit the number of Registrable Securities to be included in the registration and underwriting to not less than thirty percent (30%) of the securities included therein (based on aggregate market values). The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated among all Participating Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities which they own at the time of filing the registration statement. If any Participating Holder of Registrable Securities disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the 7. 10 underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. For purposes of the foregoing, for any Holder which is a partnership or corporation, the partners, retired partners, stockholders and affiliates of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro-rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. 1.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.9 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the 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 (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.9 (a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each Participating Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Participating Holder and any controlling person of any such underwriter or other Participating Holder against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject under the 8. 11 Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Participating Holder expressly for use in connection with such registration; and each such Participating Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.9(b), in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Participating Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any Participating Holder's cumulative aggregate liability under this Section 1.9(b) or under Section 1.9(d), or under such sections together exceed the gross proceeds from the offering received by such Participating Holder. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel with the fees and expenses to be paid by the indemnifying party if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. (d) If the indemnification provided for in this Section 1.9 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 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; provided, however, that in no event shall any Participating Holders cumulative aggregate liability under Section 1.9(b) or this Section 1.9(d) or under such sections together exceed the gross proceeds from the offering received by such Holder. 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 9. 12 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act ("Rule 144") and any other rule or regulation of the SEC 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: (a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 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 the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) 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 Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 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 in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 10. 13 1.11 FORM S-3 REGISTRATION. In the event the Company shall receive a written request from the Holders of no less than twenty-five percent (25%) of the then outstanding Registrable Securities that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $500,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 60 days after receipt of the request of the Holders under this Section 1.11; provided, however, that the Company shall not utilize this right more than once in any twelve month period; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.11; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with the registrations requested pursuant to Section 1.11, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 1.11 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 11. 14 1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder (i) to an affiliate of such Holder or (ii) a transferee or assignee of such securities who, after such assignment or transfer, holds at least 500,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations), provided in each case that: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.13 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. 1.14 "MARKET STAND-OFF" AGREEMENT. Each Preferred Stockholder hereby agrees that, during the period of duration specified by the Company and an underwriter of common stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except common stock included in such registration; provided, however, that: 12. 15 (a) such agreement shall be applicable only to the first two such registration statements of the Company which covers common stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements; and (c) such market stand-off time period shall not exceed 180 days. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each holder of Registrable Securities (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, the obligations described in this Section 1.14 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Rule 145 transaction on Form S-14 or Form S-15 or similar forms which may be promulgated in the future. 1.15 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted hereunder shall terminate as to any Holder upon the earlier of (i) five (5) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, (ii) the closing of the first Company-initiated registered public offering of Common Stock of the Company if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any 90-day period, and (iii) on such date after the closing of the first Company-initiated registered public offering of Common Stock of the Company as all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any 90-day period. 2. COVENANTS OF THE COMPANY. 2.1 FINANCIAL STATEMENTS. (a) DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each Preferred BCDE Stockholder, as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) The Company shall deliver to each Preferred BCDE Stockholder for so long as such Preferred BCDE Stockholder (together with its respective affiliates) holds at least an aggregate of 250,000 shares of Registrable Securities (a "Major Investor"): 13. 16 (i) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, a schedule as to the sources and application of funds for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter and a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the number of common shares issuable upon conversion or exercise of any outstanding securities convertible or exercisable for common shares and the exchange ratio or exercise price applicable thereto, all in sufficient detail as to permit the Major Investor to calculate its percentage equity ownership in the Company; and (ii) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and (iii) with respect to the financial statements called for in subsections (b)(i) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment. 2.2 INSPECTION. The Company shall permit each Major Investor (other than Hewlett-Packard Company, which the Company may in its sole discretion permit), at such Major Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Preferred BCDE Stockholders and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur. 2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this paragraph 2.4, the Company hereby grants to each Preferred BCDE Stockholder a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). A Preferred BCDE Stockholder shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. 14. 17 Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Preferred BCDE Stockholder in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail ("Notice") to the Preferred BCDE Stockholders stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) Within 20 calendar days after receipt of the Notice, each Preferred BCDE Stockholder may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock then held, by such Preferred BCDE Stockholder bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock then held, by all Preferred BCDE Stockholders. The Company shall promptly, in writing, inform each Preferred BCDE Stockholder which purchases all the shares available to it ("Fully-Exercising Purchaser") of any other Preferred BCDE Stockholder's failure to do likewise. During the ten-day period commencing after receipt of such information, each Fully-Exercising Purchaser shall be entitled to obtain that portion of the Shares not subscribed for by the Preferred BCDE Stockholders which is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock then held, by such Fully-Exercising Purchaser bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock then held, by all Fully-Exercising Purchasers who wish to purchase some of the unsubscribed shares. (c) If all Shares referred to in the Notice are not elected to be obtained as provided in subsection 2.4(b) hereof, the Company may, during the 30-day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period or if such agreement is not consummated within 30 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Preferred BCDE Stockholders in accordance herewith. (d) The right of first offer in this paragraph 2.4 shall not be applicable to: (i) the issuance or sale of shares of Common Stock (or options therefor) to employees, officers, directors and consultants for the primary purpose of soliciting or retaining their services; (ii) a bona fide, firm commitment underwritten public offering of shares of Common Stock, registered under the Act pursuant to a registration statement on Form S-1; (iii) any issuance of securities following the consummation of an offering described in (ii) above; (iv) the issuance of 15. 18 securities pursuant to the conversion or exercise of convertible or exercisable securities; (v) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise; or (vi) the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships provided such issuances are for other than primarily equity financing purposes and provided that at the time of any such issuance, the aggregate of such issuance and similar issuances in the preceding twelve month period do not exceed one percent (1%) of the then outstanding Common Stock of the Company (assuming full conversion and exercise of all convertible and exercisable securities). Notwithstanding anything to the contrary set forth in this Section 2.4, with respect solely to Hoffmann-La Roche Inc. ("Roche"), The Dow Chemical Company and Hewlett-Packard Company, the right of first offer in this Paragraph 2.4 shall not be applicable to the issuance of Shares to any person or entity with which the Company has or is concurrently entering into a strategic relationship. (e) The right of first offer set forth in this Section 2.4 may not be assigned or transferred, except that: (i) such right is assignable by each Preferred BCDE Stockholder to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Act, controlling, controlled by or under common control with, any such Preferred BCDE Stockholder and (ii) such right is assignable between and among any of the Preferred BCDE Stockholders. 3. MISCELLANEOUS. 3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 3.2 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 3.3 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. 3.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 3.5 NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office by registered or certified mail, postage prepaid and addressed to the party to be notified at the 16. 19 address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 3.6 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding; provided, however, that without the consent of Roche, no term of this Agreement may be amended, nor may the observance of any term of this Agreement be waived, if such amendment or waiver shall materially and adversely affect the benefits intended to be conferred upon Roche under this Agreement; provided further, however, that amendments to this Agreement for the purpose of adding additional parties to this Agreement, whether pursuant to additional purchases of shares of an existing series of Preferred Stock or pursuant to issuances of one or more additional series of Preferred Stock, shall not be deemed to materially or adversely affect the benefits intended to be conferred upon Roche under this Agreement. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. It is the intent of the Stockholders that each Investor purchasing Series E Preferred in a subsequent closing pursuant to Section 1.3 of the Series E Agreement shall become a Stockholder by executing this Agreement, and that such execution shall not constitute an amendment to this Agreement requiring the consent of the other parties hereto. Should any such additional Investors execute this Agreement, the Company shall prepare and distribute to the Stockholders a revised Schedule A to this Agreement reflecting the addition of such Investor as a Stockholder. 3.7 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 3.8 AGGREGATION OF STOCK. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 3.9 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof. The Prior Agreement is hereby amended and restated in its entirety by this Agreement, and the Company and the Stockholders agree that this Agreement shall superseded and replace the rights and obligations of the Preferred Stockholders that the Company granted to them under the Prior Agreement, including the obligations of transferees of Preferred Stock as noted on Schedule A attached hereto. 17. 20 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CALIPER TECHNOLOGIES CORP. By: /s/ CALVIN Y.H. CHOW ------------------------------------- Calvin Y.H. Chow Chief Operating Officer 1275 California Avenue Palo Alto, CA 94304 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 21 SCHEDULE A PREFERRED STOCKHOLDERS
SERIES A SERIES B SERIES C SERIES D SERIES E --------- --------- --------- --------- --------- Venrock Associates II, L.P. -- 1,021,039 103,585 114,000 -- Venrock Associates -- 1,665,908 69,057 86,000 -- CW Ventures II, L.P. -- 2,207,136 141,814 -- -- CIP Capital L.P. 431,154 383,380 24,633 -- -- Falcon Technology Partners, L.P. -- 576,022 37,011 -- -- Aspen Venture Partners, L.P. 431,154 63,896 4,105 -- -- Arch Venture Fund II, L.P. -- 898,083 57,704 -- -- Lombard Odier & Cie -- 638,967 1,000,000 750,000 350,000 Michael R. Knapp -- 31,948 8,333 -- -- Hoffmann-La Roche Inc. -- -- 1,333,333 -- -- Comdisco, Inc. -- -- 33,333 62,500 -- QED Technologies L.P. -- 34,078 -- -- -- The Perkin-Elmer Corporation 431,154 -- -- -- -- Caduceus Capital, L.P. -- -- 108,335 -- -- Caduceus Capital, Ltd. -- -- -- 125,000 -- State Farm Mutual Automobile -- -- 333,333 250,000 -- GC&H Investments -- -- 16,666 12,500 -- Novartis Pharmaceuticals Corporation -- 161,391 27,172 -- -- The Dow Chemical Company -- -- -- 1,625,000 -- PHARM/wHEALTH -- -- -- 375,000 -- AEOW 96, LLC -- -- -- 100,000 5,500 The Regis P. & Dianne T. McKenna Trust -- -- -- 50,000 --
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 22
SERIES A SERIES B SERIES C SERIES D SERIES E --------- --------- --------- --------- --------- Lawrence Alan Bock & Diane Birnie Bock TTEES FBO -- -- -- 2,500 -- Bock 1996 Charitable Trust dated 12/16/96 John Stuelpnagel -- -- -- 5,000 -- Tredegar Investments, Inc. -- -- -- 250,000 -- John D. Gottwald -- -- -- 125,000 -- BB BioVentures, L.P. -- -- -- 1,250,000 -- Alan P. Marsden -- -- -- 12,500 12,500 Hewlett-Packard Company -- -- -- -- 833,334 Ray S. Abuzayyad -- -- -- -- 25,000 R. Randolph Scott -- -- -- -- 3,500 TOTAL 1,293,462 7,681,848 3,298,414 5,195,000 1,229,834
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 23 In May 1997, Avalon Medical Partners, L.P., a Preferred Stockholder and Common Stockholder, and Avalon BioVentures II, L.P., a Preferred Stockholder, both parties to the Amended and Restated Investors' Rights Agreement dated January 14, 1997 (the "Prior Agreement"), distributed Preferred Stock and Common Stock of the Company to certain transferees listed below (the "Transferees") thereby imposing obligations on the Transferees but not granting any rights under the Prior Agreement to the Transferees. The Transferees are not parties to this Agreement but remain obligated under this Agreement.
SERIES A SERIES B SERIES C SERIES D -------- -------- -------- -------- Institutional Venture Partners VI -- 315,350 -- -- Institutional Venture Management VI -- 6,436 -- -- Kevin J. Kinsella, as Trustee of the Kevin -- 76,502 4,303 -- Kinsella Trust, November 1994 John T. Hendrick -- 76,503 4,303 -- Marsha Bakko -- 15,784 886 -- Marianne Anderson -- 9,664 543 -- Lawrence A. Bock -- 299,891 16,866 -- Frances Ferreira -- 4,832 271 -- Novartis Pharmaceuticals Corporation -- 161,391 27,172 -- TOTAL -- 966,353 54,344 --
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 24 In October 1997, the Bock Family Partnership, a Preferred Stockholder, a party to the Amended and Restated Investors' Rights Agreement dated May 7, 1997 (the "Prior Agreement"), distributed Preferred Stock and Common Stock of the Company to certain transferees listed below (the "Transferees") thereby imposing obligations on the Transferees but not granting any rights under the Prior Agreement to the Transferees. The Transferees are not parties to this Agreement but remain obligated under this Agreement.
SERIES A SERIES B SERIES C SERIES D -------- -------- -------- -------- Lawrence A. Bock -- 10,213 4,079 -- John A. Stuelpnagel -- 1,283 2,334 -- William H. Birnie and Barbara P. Birnie, TTEES -- 1,283 1,334 -- FBO The Birnie Trust U/A dated 08/01/89 TOTAL -- 12,779 7,747 --
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT EX-10.9 10 FORM OF INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.9 INDEMNITY AGREEMENT THIS AGREEMENT is made and entered into this _____ day of ________________, 1999 by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation (the "Corporation"), and __________ ("Agent"). RECITALS WHEREAS, Agent performs a valuable service to the Corporation in his capacity as _______ of the Corporation; WHEREAS, the stockholders of the Corporation have adopted bylaws (the "Bylaws") providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations or enterprises, as authorized by the Delaware General Corporation Law, as amended (the "Code"); WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit contracts between the Corporation and its agents, officers, employees and other agents with respect to indemnification of such persons; and WHEREAS, in order to induce Agent to continue to serve as _________ of the Corporation, the Corporation has determined and agreed to enter into this Agreement with Agent; NOW, THEREFORE, in consideration of Agent's continued service as ________ after the date hereof, the parties hereto agree as follows: AGREEMENT 1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the Corporation or under separate contract, if any such contract exists, as __________ of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of his ability so long as he is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable charter documents of the Corporation or such affiliate; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual obligation that Agent may have assumed apart from this Agreement) and that the Corporation or any affiliate shall have no obligation under this Agreement to continue Agent in any such position. 2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provisions of the Bylaws and the Code, as the same may be amended from time to time (but, only to the extent that such 1. 2 amendment permits the Corporation to provide broader indemnification rights than the Bylaws or the Code permitted prior to adoption of such amendment). 3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 4 hereof, the Corporation hereby further agrees to hold harmless and indemnify Agent: (a) against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of the Corporation) to which Agent is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Agent is, was or at any time becomes a director, officer, employee or other agent of Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and (b) otherwise to the fullest extent as may be provided to Agent by the Corporation under the non-exclusivity provisions of the Code and the Bylaws. 4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section 3 hereof shall be paid by the Corporation: (a) on account of any claim against Agent solely for an accounting of profits made from the purchase or sale by Agent of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (b) on account of Agent's conduct that is established by a final judgment as knowingly fraudulent or deliberately dishonest or that constituted willful misconduct; (c) on account of Agent's conduct that is established by a final judgment as constituting a breach of Agent's duty of loyalty to the Corporation or resulting in any personal profit or advantage to which Agent was not legally entitled; (d) for which payment is actually made to Agent under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement; (e) if indemnification is not lawful (and, in this respect, both the Corporation and Agent have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or Exhibit 10.8 2. 3 (f) in connection with any proceeding (or part thereof) initiated by Agent, or any proceeding by Agent against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof. 5. CONTINUATION OF INDEMNITY. All agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Agent was serving in the capacity referred to herein. 6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 3 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled. 7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any action, suit or proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Agent otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof: (a) the Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any legal or other expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent unless (i) the employment of counsel by Agent has been authorized by the Corporation, (ii) Agent shall Exhibit 10.8 3. 4 have reasonably concluded, and so notified the Corporation, that there is an actual conflict of interest between the Corporation and Agent in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Agent's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and (c) the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Agent without Agent's written consent, which may be given or withheld in Agent's sole discretion. 8. EXPENSES. The Corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by Agent in connection with such proceeding upon receipt of an undertaking by or on behalf of Agent to repay said amounts if it shall be determined ultimately that Agent is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the Code or otherwise. 9. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf of Agent in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Agent, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under Section 3 hereof (other than an action brought to enforce a claim for expenses pursuant to Section 8 hereof, provided that the required undertaking has been tendered to the Corporation) that Agent is not entitled to indemnification because of the limitations set forth in Section 4 hereof. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Agent is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its stockholders) that such indemnification is improper shall be a defense to the action or create a presumption that Agent is not entitled to indemnification under this Agreement or otherwise. 10. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this Agreement shall not be exclusive of any other right which Agent may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation or Bylaws, agreement, vote of Exhibit 10.8 4. 5 stockholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. 12. SURVIVAL OF RIGHTS. (a) The rights conferred on Agent by this Agreement shall continue after Agent has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Agent's heirs, executors and administrators. (b) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. 13. SEPARABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Agent to the fullest extent provided by the Bylaws, the Code or any other applicable law. 14. GOVERNING LAW. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 15. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement. 17. HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 18. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid: (a) If to Agent, at the address indicated on the signature page hereof. Exhibit 10.8 5. 6 (b) If to the Corporation, to: CALIPER TECHNOLOGIES CORP. 605 Fairchild Drive Mountain View, CA 94043-2234 or to such other address as may have been furnished to Agent by the Corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. CALIPER TECHNOLOGIES CORP. By: ------------------------------------- Daniel L. Kisner, M.D. President and Chief Executive Officer AGENT By: ------------------------------------- Name: --------------------------------- Address: ------------------------------ ------------------------------ 6. EX-10.10 11 COLLABORATION AGREEMENT - HEWLETT-PACKARD COMPANY 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.10 COLLABORATION AGREEMENT THIS COLLABORATION AGREEMENT (the "Agreement") is entered into as of May 2, 1998 (the "Effective Date"), by and between CALIPER TECHNOLOGIES CORP., a corporation organized under the laws of the State of Delaware ("Caliper"), and HEWLETT-PACKARD Company, a corporation organized under the laws of the State of California, acting through its Chemical Analysis Group ("HP"). RECITALS A. Caliper is a company engaged in the development of new technology and products in microfluidics and related areas that can be used to improve the chemical and biochemical analysis activities of pharmaceutical and other types of companies. B. HP is a multinational company which through its Chemical Analysis Group is a leading worldwide developer and supplier of instrumentation, supplies and services to customers in pharmaceutical and other industries. C. HP and Caliper wish to form a collaboration to develop and commercialize products based on Caliper's microfluidics technology and HP's instrumentation technology for use in the field of chemical and biochemical research and analysis, and to provide a business infrastructure for the manufacture, sale, distribution and support of those products. THE PARTIES THEREFORE AGREE: 1. DEFINITIONS Each of the capitalized terms in this Agreement shall have the meaning as defined below. Terms defined in singular form shall include the plural form and vice versa. "AFFILIATES" shall mean any company or entity controlled by, controlling, or under common control with a party hereto and shall include without limitation any company more than fifty percent (50%) of whose voting stock or participating profit interest is owned or controlled, directly or indirectly, by a party, and any company which owns or controls, directly or indirectly, more than fifty percent (50%) of the voting stock of a party. "AFM" shall mean HP's Accounting and Finance Manual which is intended to provide financial policy guidelines and specific instructions concerning HP's accounting and reporting processes in effect as of the Effective Date and as updated from time to time provided Caliper has been furnished with such updates and afforded a reasonable opportunity to object to its use 2 with this Agreement. Where applicable and mutually agreed, the AFM will be extended to provide guidelines and specific instructions for the collaboration. "ALLOWABLE EXPENSE" shall mean those expenses incurred by a party consisting of [ * ], and any other amounts on which the parties agree from time to time to the extent such amounts are not included in Cost of Sales. "APPLICATION" means a particular task, experiment or biochemical or chemical manipulation, or series thereof, that a potential user of a Collaboration Product wishes or needs to perform. "APPLICATION KIT" shall mean a set of Components that are sold together as a package to System users for purposes of performing a specific Application, including without limitation, LabChips, Reagents and the Application-specific portion of System Software. "BUSINESS PLAN" shall mean the Collaboration business plan established by the parties pursuant to Article 3, in accordance with the HP Ten Step Planning Process. "CALIPER DEVELOPMENT EXPENSES" shall mean [ * ] activities under the Product Plan for Collaboration Products calculated as [ * ]. All these expenses shall be applicable to such activities, beginning from the time a Component is placed on the Development Plan. "CALIPER KNOW-HOW" shall mean all scientific, technical and engineering information which Caliper owns or controls or to which Caliper has a license including the right of sublicense as of the Effective Date or during the term of the Collaboration, which Caliper uses reasonable efforts to protect as a trade secret, and which is not publicly accessible in an issued patent or otherwise. "CALIPER OPERATING EXPENSES" shall mean all monies applied by Caliper and its Third Party collaborators to [ * ] relating to Lab-on-a-Chip Technology or systems utilizing Lab-on-a-Chip Technology, to the extent that such [ * ] are relevant to [ * ] as reasonably determined by Caliper, except to the extent that [ * ], and excluding any amounts provided to Caliper by HP under Section 7.2, consisting of but not limited to, [ * ]. "CALIPER PATENTS" shall mean (i) all patents, including, without limitation, any substitutions, extensions, reissues, renewals, supplementary protection certificates and inventors' certificates, which have not been held invalid or unenforceable by a non-appealable or non-appealed decision of a court of competent jurisdiction, and (ii) all patent applications filed in any jurisdiction, including, without limitation, any provisionals, divisionals, continuations, continuations-in-part, which in each case Caliper owns, controls or has a license to (with the right to sublicense) as of the Effective Date or during the term of the Collaboration. "CALIPER TECHNOLOGY" shall mean Caliper Patents and Caliper Know-How relating to Lab-on-a-Chip Technology. Rights to Caliper Technology under this Agreement shall be subject to any restrictions or obligations (including payment obligations) contained in agreements between Caliper and a Third Party. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 3 "CLASS A PRODUCTS" shall mean LabChips; Reagents [ * ]. "CLASS B PRODUCTS" shall mean Instruments [ * ]. "CLASS C PRODUCTS" shall mean general purpose products that are sold separately by HP or Third Parties for end use separate from LabChip-based Systems. This is in contrast to components or devices embedded in Instruments. Examples of Class C Products include [ * ]. "COLLABORATION" shall mean all activities relating to Collaboration Products conducted by the parties pursuant to this Agreement. "COLLABORATION MANAGERS" shall mean the persons assigned by each party to the management of the Collaboration as further described in Section 3.2(b) below. "COLLABORATION PRODUCTS" shall mean the Systems in the Field of Interest that the parties put on a Product Plan and all Components that make up such Systems. "Collaboration Products" shall include HP Collaboration Products (as defined below). For purposes of Article 10 only, "Collaboration Products" shall only include such [ * ] during the Collaboration. "COMPONENT" shall mean one of the elements of a complete System, including but not limited to, the LabChip, the Instrument, the System Software or a Reagent. "CONFIDENTIAL INFORMATION" shall mean any trade secret information disclosed by one party to the other in connection with activities under this Agreement, including but not limited to scientific, technical and engineering information, reports exchanged between the parties, marketing and other business plans, information relating to a party's products, sales, financial and corporate affairs, suppliers, customers, employees, or investors, and other comparable information; provided, that information will be "Confidential Information" only if it is marked as confidential at the time of disclosure or, if the material is not in written form (e.g. orally disclosed), it is treated as confidential at the time of disclosure and is designated as confidential in a written memorandum sent to the recipient within thirty days of disclosure, summarizing the confidential information sufficiently for identification. "COST OF SALES" shall mean [ * ]. Notwithstanding the AFM, as used in this Agreement the term Cost of Sales does not include [ * ]. "DATA ACQUISITION SOFTWARE" shall mean software that sends data measured by the Instrument to a file, database or memory. Such data set is used for generating the measurement information from an Application or for displaying status information of the Application in the user interface of the System Software or the Instrument. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 4 "DATA INTERPRETATION SOFTWARE" shall mean software that evaluates data measured by the Instrument according to algorithms with Distinct Functionality for a particular Application. Parameters for the Data Interpretation Software are defined in the Experimental Method and are entered through the user interface component of the Data Interpretation Software module of the System Software. For example, Data Interpretation Software could use a pattern recognition algorithm to interpret the data generated by an Application. "DEVELOPMENT PLAN" shall mean the component of the Product Plan that sets forth a detailed plan for the development of a particular Collaboration Product as described in Section 3.2(b) below. "DISTINCT FUNCTIONALITY" shall mean functionality of a Component or System that [ * ]. For example, a [ * ] would not have Distinct Functionality. "ENGINEERING RESPONSIBILITY" shall mean ultimate responsibility for deciding upon final specifications and for developing the manufacturing processes for meeting such specifications. "EXECUTIVE SPONSOR" shall mean the persons assigned by each party to the oversight of the Collaboration between the parties created by this Agreement, and responsible for dispute resolution as further described in Section 3.2(a) below. "EXPERIMENTAL METHOD" shall mean a set of data or instructions, not necessarily in the form of software, used to control the Components of a System, which Components may be common to multiple Applications, for performance of a particular Application. For a particular Application, for example, the Experimental Method performs control of Instruments (e.g., control chip voltages and detector setpoints) and defines the particular data interpretation algorithm, information presentation or information management routines in the System Software. "FIRMWARE" shall mean software that physically resides in the Instrument. Firmware controls the hardware functions of the Instrument, communicates with other functional modules in the System and executes the Instrument control part of the Experimental Method for a particular Application. "FDA" shall mean the United States Food and Drug Administration, and any successor thereto. "FIELD OF INTEREST" shall have the meaning provided in Section 2.2 below. "GROSS MARGIN" shall mean [ * ]. "GROSS REVENUES" shall mean [ * ]. Handling of bundling will be set forth in Article 7. "HP COLLABORATION PRODUCT" shall have the meaning set forth in Section 4.2(d). "HP KNOW-HOW" shall mean all scientific, technical and engineering information which HP owns or controls or to which HP has a license including the right of sublicense as of the [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4 5 Effective Date or during the term of the Collaboration, which HP uses reasonable efforts to protect as a trade secret, which HP elects to incorporate into or use in the design, development or manufacturing of Collaboration Products during the course of the Collaboration, and which is not publicly accessible in an issued patent or otherwise. "HP OPERATING EXPENSES" shall mean the expenses incurred by HP [ * ], consisting of but not limited to, [ * ]. "HP PATENTS" shall mean (i) all patents, including, without limitation, any substitutions, extensions, reissues, renewals, supplementary protection certificates and inventors' certificates, which have not been held invalid or unenforceable by a non-appealable or non-appealed decision of a court of competent jurisdiction, and (ii) all patent applications filed in any jurisdiction, including, without limitation, any provisionals, divisionals, continuations, continuations-in-part, which in each case HP owns, controls or has a license to (with the right to sublicense) as of the Effective Date or during the term of the Collaboration. "HP TECHNOLOGY" shall mean HP Patents and HP Know-How. Rights to HP Technology under this Agreement shall be subject to any restrictions or obligations (including payment obligations) contained in Third Party agreements. "INFORMATION MANAGEMENT SOFTWARE" shall mean software that manages data, including the Experimental Method-, measured- or results data for a particular Application. The functions of such software include, but are not limited to, archiving, retrieving, searching for or mailing information. Such tasks are initiated through a user interface component of this functional module of the System Software. "INFORMATION PRESENTATION SOFTWARE" shall mean software that visualizes or saves evaluated data through various media (e.g., display, disc, printer). Other software tools may also be used for reporting or accessing the results (e.g., standard office software packages like MS WinWord(TM), Browsers(TM)). Specific parameters for Information Presentation Software are defined in the Experimental Method and are entered through the user interface component of the Information Presentation Software functional module. "INSTRUMENT" shall mean all hardware in a System, excluding [ * ]. "INSTRUMENT CONTROL SOFTWARE" shall mean software that communicates data to and from the Instrument through the appropriate instrument driver and physical link driver, including but not limited to, Scripts. Such data is either entered through the user interface of the System or System Software or received and saved in the Experimental Method data file or database. Data received can also be shown by other means, e.g., a display on the Instrument. "LABCHIP" shall mean a chip, based on Caliper Technology, which is designed to perform an Application or portion thereof when used in a System. As of the Effective Date, such chips typically consist of [ * ]. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 5 6 "LAB-ON-A-CHIP TECHNOLOGY" shall mean microfluidic systems, methods, devices, and structures which have microfluidic processing elements that have [ * ] as further defined in Exhibit A to this Agreement. "MANUFACTURING PLAN" shall mean the component of the Product Plan that sets forth a detailed plan for the manufacturing of a Collaboration Product as set forth in Section 5.2(a) below. "MARKETING PLAN" shall mean the component of the Product Plan that sets forth a detailed plan for the marketing, distribution and support of a Collaboration Product. "NET REVENUES" shall mean [ * ]. "NEW PRODUCT" shall mean a Component or a System in the Field of Interest, having Distinct Functionality compared to a Collaboration Product, that is developed independently by either party after the termination or expiration of the Collaboration. "NON-COLLABORATION PRODUCT" shall mean any product that includes HP Technology or Caliper Technology and does not fall within the definition of a Collaboration Product. "OEM" stands for original equipment manufacturer. "PATENT COSTS" shall mean the fees and expenses paid to outside counsel and other Third Parties, direct costs of in-house counsel, and filing and maintenance fees and expenses, incurred in connection with the establishment and maintenance of rights under patents, including costs of patent interference, opposition, reissue, reexamination or other proceedings before the USPTO or other patent offices. In-house counsel costs shall be determined on the basis of time actually spent on patents applicable to Collaboration Products. "PMA" shall mean a Premarket Approval Application filed with the FDA, or foreign equivalent, as applicable. "PRODUCT PROGRAM MANAGER" shall mean the persons assigned by each party to the management of the development of a Collaboration Product as further described in Section 3.2(c). "PRODUCT PLAN" shall mean the plan established by the parties pursuant to Article 3 of this Agreement. The Product Plan shall include the following components for each Collaboration Product: the Development Plan, the Manufacturing Plan and the Marketing Plan, in accordance with CAG's Project Lifecycle. "REAGENT" shall mean a chemical or biochemical substance to be used with a LabChip for a particular Application. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6 7 "SCRIPT" shall mean a set of instructions (typically, a software file) that is sent to the Instrument to control the LabChip environment and fluidic manipulations inside the LabChip, including but not limited to [ * ]. Typically there will be a [ * ]. "STANDARD COST" shall mean [ * ]. Such costs include but are not limited to [ * ]. Overhead Expenses include [ * ]. All of these Overhead Expense items consist of, but are not limited to, [ * ]. These Standard Costs for a Collaboration Product are [ * ]. "SYSTEM" shall mean a complete set of chips, hardware, software and reagents that makes use of Caliper Technology to perform a single Application, excluding Class C Products. "SYSTEM SOFTWARE" shall mean all software used in a System. System Software defines and executes the Experimental Method for a particular Application and includes, but is not limited to, Instrument Control Software, Data Acquisition Software, Data Interpretation Software, Information Presentation Software, Information Management Software and Firmware. "THIRD PARTY" shall mean any individual or entity other than Caliper, HP or Affiliates of either. "TRANSFER PRICE" shall mean the price HP pays to Caliper for any Collaboration Products that are manufactured by Caliper and sold to HP. This price is equal to [ * ]. "U.S. GAAP" shall mean `Generally Accepted Accounting Principles' and refers to accounting policies and procedures that are widely used in the U.S. "VAR" stands for value added reseller. 2. LICENSES AND EXCLUSIVITY 2.1 LICENSES TO HP (a) COLLABORATION PRODUCTS. Subject to the terms and conditions of this Agreement, Caliper hereby grants to HP a worldwide license, co-exclusive with Caliper, under the Caliper Technology to develop, manufacture for Commercial Sale, market, distribute, sell and support Collaboration Products. Notwithstanding, HP, except as provided in Sections 4.2(d) and 5.1(c), is not granted a license to develop or manufacture LabChips. Caliper represents that it has not heretofore granted any licenses under the Caliper Technology that would grant the licensee the right to develop, manufacture for Commercial Sale, market, distribute, sell or support Collaboration Products, except as heretofore disclosed. (b) SUBLICENSING. HP may sublicense the manufacturing rights granted to it under subsection 2.1(a) under the procedures set forth in Section 5.1(b), and HP may sublicense the distribution rights as provided in Section 6.3 of this Agreement. No other license rights under subsection 2.1(a) may be sublicensed or transferred except by mutual written agreement. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7 8 (c) [ * ]. (d) RESTRICTIONS ON USE OF CALIPER KNOW-HOW. HP acknowledges that the use of Caliper Know-How under the licenses to HP set forth above in this Section 2.1 is limited to use of such Caliper Know-How solely in the Field of Interest. HP agrees to use reasonable business efforts to avoid use of the Caliper Know-How outside the Field of Interest by HP, its Affiliates or sublicensees, and to avoid disclosure of such Caliper Know-How by HP or its Affiliates and sublicensees to any party who does not have a need to know such Caliper Know-How for purposes of the Collaboration. HP agrees that if it discovers at any time that Caliper Know-How is being used by any such person outside the Field of Interest, it will promptly disclose such use to Caliper and the parties will confer in order to determine a reasonable and effective means of addressing such unauthorized use. (e) SOFTWARE. (i) Subject to the terms and conditions of this Agreement, Caliper hereby grants HP a non-exclusive, non-transferable license under Caliper Technology and any applicable copyright to reproduce, create derivative works, publicly distribute, publicly perform and publicly display System Software (both source and object code) for use in Collaboration Products; provided, that HP may not disclose any source code provided by Caliper to Third Parties except to contractors under duty of confidentiality to HP. Caliper will provide updates to source and object code and available documentation from time to time upon request of HP. Under this license HP may sublicense manufacturing and distribution rights to the same extent as HP may sublicense other Caliper Technology under section 2.1(b). (ii) Caliper hereby grants HP a royalty-free, non-exclusive license including the right of sublicense under Caliper Technology and any applicable copyright to reproduce, create derivative works, publicly distribute, publicly perform and publicly display any improvements to software originally created by HP (both source and object code) for use in all fields. Caliper will provide updates to any such improvements from time to time upon request of HP. (f) RETAINED RIGHTS. All rights in Caliper Technology not expressly granted to HP in this Agreement are retained exclusively by Caliper. 2.2 FIELD OF INTEREST. The term "Field of Interest" shall mean Commercial Sale of Limited Through-Put products for research, development, analytical or manufacturing Applications, including [ * ] but not other Diagnostic Products, and excluding [ * ], which products are designed (i) to introduce and prepare chemical, biochemical and biological samples, (ii) to perform assays, synthesis and other reactions, or (iii) to perform physical separations and detection. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 8 9 (a) THROUGH-PUT LIMITS. (i) "Limited Through-Put" as used herein shall mean sample throughput per System not exceeding the volume limits set forth below based on operation of the product for [ * ]:
Years [ * ] [ * ] Years [ * ] [ * ] Years [ * ] [ * ] Years [ * ] [ * ] Years [ * ] [ * ] [ * ].
(ii) The parties intend to develop Collaboration Products that will have a leading edge relative to the competition. The parties will strive to maintain a leading edge by proactively reviewing the state of competitors' development and commercial efforts, to the extent information is available. If at any time the through-put limits set forth above would prevent a Collaboration Product from having a leading edge with regard to a particular Application over competing products being actively developed or marketed for Commercial Sale by Third Parties, then the parties will review such limits and reasonably discuss potential changes in good faith with regard to the particular Application, subject to any existing Third Party commitments. (iii) The parties acknowledge that customers may purchase multiple Systems for certain Applications in order to increase their through-put capacity, and that it may be beneficial to the Collaboration for HP to assist such customers in these efforts. Accordingly, HP is authorized to [ * ] . Notwithstanding the foregoing, the parties agree that all Systems that are developed and commercialized under this Collaboration shall be [ * ]. (b) "COMMERCIAL SALE" as used herein shall mean sale of Collaboration Products in volumes of [ * ]. A proposed Collaboration Product will be considered to be for "Commercial Sale" provided there is a reasonable projection in the Product Plan that it will be sold in such quantity [ * ]. The parties recognize that sales volume projections are inexact. HP will retain rights to Instruments, System Software and related Systems that do not actually meet these sales projections, provided the volume estimates were reasonable throughout the development process for such Instruments, System Software and related Systems. "Commercial Sale" does not include the use of Caliper Technology to commercialize [ * ], but Collaboration Products offered for Commercial Sale may be used by customers for such purposes. "Commercial Sale" does not include the use of Caliper Technology to provide [ * ]. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9 10 (i) The parties acknowledge that HP may introduce Instruments to selected customers on a limited basis [ * ] prior to general commercial introduction, for the purpose of obtaining customer feedback prior to introduction, and that such beta testing shall not be considered general commercial introduction. (ii) Caliper may, acting independently or in collaboration with others, develop, make and distribute to Third Parties any System. However, Caliper may only do this if Caliper limits actual sales of Systems to [ * ]. Systems must have Distinct Functionality to be counted separately under this Subsection. Caliper may sell any number of LabChips, Reagents and other consumables for use on such Systems. Caliper will label such Instruments "not for resale," [ * ]. (c) "DIAGNOSTIC PRODUCTS" as used herein shall mean products that are subject to regulatory approval requirements under applicable law, regulations or policies of regulatory agencies (i.e., PMA or 510(k), or foreign equivalent) and are useful for chemical or biochemical analysis of human samples in a health care setting, such as a reference laboratory, hospital laboratory, hospital, clinic, doctor's office or at home, and veterinary products utilizing similar technology to the above products. HP will not be prohibited from selling Collaboration Products designed for research, development, analytical or manufacturing use to such customers, provided all products are labeled in accordance with Section 6.4. Caliper will not be prohibited from introducing products designed for diagnostic use by such customers while Caliper is in the course of pursuing FDA approval on such a product, or from transferring such rights to any Third Party. 2.3 EXCLUSIVITY (a) During the Collaboration, the relationship will be mutually exclusive with respect to the application of Lab-on-a-Chip Technology to the Field of Interest, meaning that [*]. (b) Caliper acknowledges that HP has been and will continue to be engaged in [ * ], and that this Section does not prohibit HP from (i) pursuing its internally developed [ * ], outside the Field of Interest, such as diagnostics; or (ii) working with any Third Party [ * ]. To the extent that these activities constitute application of Lab-on-a-Chip Technology to the Field of Interest, they will be subject to the provisions of Section 2.3(a). Caliper will not be free to use HP [ * ] disclosed under confidentiality for any purpose outside the Collaboration (except as otherwise expressly licensed under this Agreement), and HP will not be free to use Caliper [ * ] disclosed under confidentiality for any purpose outside the Collaboration (except as otherwise expressly licensed under this Agreement). HP and Caliper will use all reasonable business efforts to manage their collaborative and independent activities so as to foster an environment of open communication for collaborative purposes while protecting the integrity of independent activities. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 10 11 2.4 LICENSES TO CALIPER (a) HP Know-How License. Subject to the terms and conditions of this Agreement, HP hereby grants to Caliper a worldwide, fully-paid, non-exclusive, license, with the right to grant sub-licenses, to develop, make, use, import and sell all Non-Collaboration Products that make use of Caliper Technology for use in all fields during and after the term of the Agreement, using all HP Know-How, excluding any HP Confidential Information directed to HP's [ * ]. Upon request from Caliper, HP will use reasonable business efforts to provide such HP Know-How or to allow Caliper access to such HP Know-How in a reasonable format. (b) HP Patent License. HP will notify Caliper in writing at the time HP proposes to incorporate subject matter claimed in an HP Patent that was first applied for prior to or during the Collaboration into a Collaboration Product, or to practice such an HP Patent in the development or manufacture of a Collaboration Product, or at the time HP learns that such an HP Patent covers a Collaboration Product. HP hereby grants Caliper a [ * ] license to any such HP Patent (except to the extent such HP Patent covers HP's [ * ]) subject to agreement of the parties on [ * ]. Such license includes: (i) a license under such HP Patent to develop Non-Collaboration Products that include Caliper Technology for use in all fields during and after the term of the Agreement; and (ii) a license under such HP Patent including the right of sublicense to make, have made, use, sell, offer for sale and import Non-Collaboration Products that include Caliper Technology for use in all fields during and after the term of the Agreement. (c) HP SOFTWARE LICENSE. HP hereby grants Caliper a license under HP Technology and any applicable copyright to any System Software (both source and object code) subject to agreement of the parties on [ * ]; provided, that Caliper may not disclose the source code to Third Parties except to contractors under duty of confidentiality to Caliper. HP will provide updates to source and object code and available documentation from time to time upon request of Caliper. Such license includes: (i) a non-exclusive, worldwide license under such System Software to create derivative works for use in Non-Collaboration Products that make use of Caliper Technology for use in all fields during and after the term of the Agreement; and (ii) a non-exclusive, worldwide license including the right of sublicense under such System Software to reproduce, publicly distribute, publicly perform and publicly display Non-Collaboration Products that make use of Caliper Technology for use in all fields during and after the term of the Agreement. (d) SOFTWARE IMPROVEMENTS. HP hereby grants Caliper a royalty-free, non-exclusive license including the right of sublicense under HP Technology and any applicable copyright to reproduce, create derivative works, publicly distribute, publicly perform and publicly display any improvements to software originally created by Caliper (both source and [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11 12 object code) for use in all fields. HP will provide updates to any such improvements from time to time upon request of Caliper. (e) PURCHASE OF PARTS. Caliper shall have the right to purchase from HP for use in any Non-Collaboration Product any part manufactured or supplied by HP that is incorporated into a Collaboration Product in development or on the market, if Caliper cannot or elects not to manufacture such part or have it manufactured. HP will identify such parts in HP's product design documentation. Upon notification by HP, Caliper may elect to purchase such parts from HP at any time during and after the term of this Agreement so long as such parts are not obsolete. If Caliper elects to purchase such HP parts, promptly after Caliper notifies HP of such election the parties shall agree on [ * ]. The sale by HP of such parts shall be subject to HP's standard terms and conditions of sale and service. (f) LIMITED LICENSE FOR COLLABORATION PRODUCTS. Subject to the terms and conditions of this Agreement, HP hereby grants to Caliper a worldwide, fully-paid, non-exclusive, license, to develop, make, use, import and sell Collaboration Products in accordance with Section 2.2(b)(ii), under HP Technology, excluding any HP Confidential Information directed to HP's [ * ]. (g) ROYALTY CAP. The compensation due from Caliper to HP in consideration for all HP intellectual property licensed to Caliper under Sections 2.4(b) and 2.4(c) above shall not exceed royalties of [ * ]. The rates set forth in this Section 2.4 are subject to adjustment as provided in Section 10.4(f). Payments due under this Section 2.4 shall be subject to the same terms and conditions applicable to Gross Margin share payments on Collaboration Products under Sections 7.6, 7.7 and 7.9. If any such product does not clearly fall into one of the above classifications, the parties shall mutually agree on an appropriate classification for such product prior to commercial introduction. (h) RETAINED RIGHTS. All rights in HP Technology not expressly granted to Caliper in this Agreement are retained exclusively by HP. 2.5 THIRD PARTY LICENSES (a) EXISTING THIRD PARTY LICENSES. [ * ]. Each party acknowledges that it is subject to the terms and conditions of any existing third party licenses of the other party that it practices under this Agreement, so long as such other party has provided a copy of the license agreement. (b) FUTURE THIRD PARTY LICENSES. After the Effective Date, if either HP or Caliper believes that additional intellectual property or technology controlled by a Third Party ("Third Party Technology") is required or desirable in order to proceed with the development or commercialization of one or more Collaboration Products for use in the Field of Interest, then the parties will discuss the situation in good faith [ * ]. 2.6 MAJOR TRANSACTIONS. During the Collaboration, neither party may enter into any agreement or arrangement respecting Collaboration Products [ * ] for distribution or for the [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12 13 purpose of [ * ], unless the other party gives written consent, which consent will not be unreasonably withheld. 3. COLLABORATION MANAGEMENT 3.1 COLLABORATION PLANNING. The process of business planning will be based upon Hewlett-Packard's Ten-Step Business Planning and Review Process. This process is documented in various HP publications which have been made available to Caliper at the Effective Date (Ref.: Booklet "Ten-Step Business Planning Fundamentals" Hewlett-Packard Corporate Education Oct. 1997). The Business Plan will include an assessment of customer needs and the competitive situation in the markets addressed, a detailed 15-months Product Development Roadmap including a 5-Year Product Development Vision, Marketing/Distribution and Support, and Manufacturing Plans covering these periods and other elements as deemed necessary by the parties. The parties will use reasonable business efforts to complete the initial Business Plan at the end of the third month following the Effective Date. The Business Plan will be at least reviewed on an annual basis, revisions of the Business Plan being due at [ * ] of each year during the term of the Collaboration. The process will be managed by the Collaboration Managers of both parties, who designate Business Planning Teams representing the functional areas of Marketing/Sales/Support, Research and Development, Manufacturing and Finance. 3.2 COLLABORATION MANAGEMENT. The purpose of the Collaboration management structure set forth below is to coordinate and expedite development and commercialization of Collaboration Products. The activities of the parties under this Agreement shall be managed in this structure only to the extent set forth herein. Each party shall assign individuals from within their respective organizations to each of the following positions. Each party may, in its sole discretion, may replace the assigned individuals at any time as necessary. (a) EXECUTIVE SPONSORS. (i) APPOINTMENT; MEETINGS. Within thirty (30) days of the Effective Date, each party shall appoint one (1) individual to be its Executive Sponsor for the Collaboration. Each party's Executive Sponsor shall be a senior executive of such party with the authority to make decisions on behalf of such party. (ii) RESPONSIBILITIES. The Executive Sponsors shall have the following specific responsibilities: (1) approving the Business Plan, (2) settling disputes or disagreements that are unresolved by the Collaboration Managers; and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 13 14 (3) performing such other functions as appropriate to further the purposes of this Agreement as determined by the parties. (iii) DECISION-MAKING. The Executive Sponsors shall make decisions by unanimous vote. Whenever the Executive Sponsors are unable to reach a consensus on a particular issue, such issue shall be discussed [ * ]. (b) COLLABORATION MANAGERS. (i) APPOINTMENT; MEETINGS. Within thirty (30) days of the Effective Date, each party shall appoint one (1) individual to be its Collaboration Manager. The Collaboration Managers shall meet monthly during the term of the Agreement, unless otherwise mutually agreed by the parties. Meetings of the Collaboration Managers will be held alternately at the facilities of the parties in Palo Alto or Waldbronn or by teleconference. Each party shall promptly report to the Collaboration Managers on all material issues relating to the development or commercialization of the Collaboration Products. Minutes of the meetings of the Collaboration Managers shall be prepared alternately by the parties and such minutes shall be provided to the Executive Sponsors for review. (ii) RESPONSIBILITIES. In addition to having the general responsibility of conducting the business planning and review process of the Collaboration in order to achieve the goal of the parties to develop and market Collaboration Products, the Collaboration Managers shall have the following specific responsibilities: (1) directing the process of preparing the Business Plan and the Product Plans. The first complete Business Plan will be prepared by the Collaboration Managers within ninety (90) days of the Effective Date; (2) updating and revising the Business Plan annually or as mutually agreed; (3) monitoring and reviewing the progress of research, development, manufacturing, marketing, distribution and finance activities in order to ensure that satisfactory progress is being made with respect to the Business Plan and the Product Plans; (4) discussing and agreeing upon remedial measures if the Collaboration Managers determine that the progress for a particular project covered by a Product Plan is unsatisfactory; (5) settling disputes or disagreements that are unresolved by the Product Program Managers; (6) performing such other functions as appropriate to further the purposes of this Agreement as determined by the parties. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 14 15 (iii) DECISION-MAKING. Decisions of the Collaboration Managers shall be made by unanimous vote. If the Collaboration Managers become deadlocked on an issue, the issue shall be presented to the Executive Sponsors for resolution. (c) PRODUCT PROGRAM MANAGERS. Each party shall appoint one of its employees as a Product Program Manager for each System included in the Product Plan. Such Product Program Manager will be responsible for overseeing the day-to-day operations of such party with respect to such System and for facilitating the achievement of agreed development milestones. A Product Program Manager may be responsible for more than one such System. (d) PROJECT TEAMS. Wherever practical, the Collaboration Managers will consider teaming employees from one party to assist the other in areas where those employees have relevant experience, provided that any disagreements regarding staffing that cannot be resolved between the Collaboration Managers will be resolved by [ * ]. 4. DEVELOPMENT COLLABORATION 4.1 SCOPE. HP and Caliper will jointly develop Collaboration Products in the Field of Interest during the term of the Collaboration. The activities under the Collaboration will be governed by the Business Plan established jointly by the parties. The parties agree to use the CAG Project Lifecycle (Revision of October 1997 and future revisions) as the management tool for establishing detailed Product Plans, Development Plans, Marketing/Sales/Support Plans and Manufacturing Plans and for managing the execution and review of these plans in a consistent and logical process framework. A copy of the CAG Project Lifecycle will be provided to Caliper as reference material. 4.2 ALLOCATION OF DEVELOPMENT RESPONSIBILITIES. (a) CALIPER RESPONSIBILITIES. Caliper will have Engineering Responsibility for development of LabChips, [ * ]. With respect to LabChips, this includes responsibility for development of processes for the manufacture of LabChips. (b) HP RESPONSIBILITIES. HP will have Engineering Responsibility for Instruments. HP will have Engineering Responsibility for [ * ], subject to Caliper's Engineering Responsibility as described in Section 4.2(a). The parties expect that work on software will be particularly collaborative, with Caliper generally focusing on the [ * ] portion of System Software and HP generally focusing on [ * ]. HP will have responsibility for the overall system integration of Collaboration Products, meaning that HP will make recommendations to the party with Engineering Responsibility for each element regarding the performance characteristics of such element that are necessary to ensure that all elements function as a complete System when assembled. (c) ALLOCATION OF FURTHER RESPONSIBILITIES IN THE DEVELOPMENT PLANS. If Engineering Responsibility for an element of a Collaboration Product is not specified by Sections 4.2(a) and 4.2(b) above, such responsibility will be specified in the Development Plan. The [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 15 16 Collaboration Managers may mutually agree to assign Engineering Responsibility differently than provided in Sections 4.2(a) and 4.2(b) above on a case-by-case basis. (d) POTENTIAL DEVELOPMENT BY HP. If HP proposes to develop a System within the Field of Interest and if after joint discussion, Caliper declines to develop the LabChip, [ * ] for such System, HP will have the right to develop such LabChip, [ * ]; provided, however, HP's right to perform such development is subject to HP's compliance with the provision under Section 7.2. If HP develops such Collaboration Products, they shall be "HP Collaboration Products" for purposes of this Agreement. In the event that HP elects to develop an HP Collaboration Product, Caliper will provide [ * ]. 4.3 EXCHANGE OF INFORMATION. Each party will share with the other party relevant information in its possession that is necessary or useful for the development of Collaboration Products. The parties will foster a spirit of uninhibited exchange of information with the goal of creating an attitude of joint project ownership in the parties' employees engaged in the development of Collaboration Products. 4.4 DUE DILIGENCE. Each party shall use [ * ] efforts to carry out development of each Collaboration Product in accordance with the mutually agreed Product Plans, including applying the level of resources specified in such plans; provided that Caliper's efforts are subject to HP providing funding under Section 7.2. Any verification of such efforts will be performed by independent auditors applying U.S. GAAP. 5. MANUFACTURING 5.1 MANUFACTURING RESPONSIBILITIES (a) MANUFACTURE BY CALIPER. Except as set forth in Section 5.1(c) below, Caliper shall be responsible for manufacturing and supplying all LabChips [ * ] included in the Collaboration Products. Caliper may engage Third Parties to manufacture and supply LabChips [ * ], provided that Caliper retains ultimate responsibility for the final LabChips [ * ], and subject to Section 5.1(c). (b) MANUFACTURE BY HP. HP shall be responsible for manufacturing and supplying all Instruments, [ * ] included in the Collaboration Products. HP may engage Third Parties to manufacture and supply Components, provided that HP retains ultimate responsibility for the final Instruments, [ * ]. If HP supplies Caliper with Instruments for use outside the Field of Interest or post-Collaboration, the applicable supply document will provide that HP will not make engineering changes after the manufacturing release of a product without notification of Caliper. (c) CONTINGENT MANUFACTURING RIGHT OF HP FOR LABCHIPS. (i) If Caliper elects not to manufacture LabChips for a System included on the Product Plan, or if Caliper fails to meet minimum supply commitments to be [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 16 17 agreed upon in future supply agreements under Section 5.2(b), HP shall have the option to manufacture the LabChips not being supplied by Caliper. (ii) If HP exercises its contingent manufacturing right for LabChips as set forth under Section 5.1(c)(i), Caliper will provide HP [ * ]. If HP develops new manufacturing processes and technology in the course of manufacturing such LabChips, HP will provide Caliper [ * ]. (III) [ * ]. 5.2 PRODUCTION PLANNING (a) ESTABLISHMENT OF MANUFACTURING CAPACITY. The Collaboration Managers shall develop a manufacturing plan (the "Manufacturing Plan") as part of the Product Plan for each Collaboration Product, which shall be designed to ensure sufficient supply of all Collaboration Products to satisfy market demand. (b) LABCHIP SUPPLY AGREEMENTS. The sale of LabChips by Caliper to HP will be governed by the terms and conditions of the OEM Purchase Agreement, as outlined in Exhibit B hereto. In addition to the terms set forth in Exhibit B, the following key terms are agreed to herein by the parties: (a) transfer pricing will be as determined by and set forth in this Agreement, including [ * ]; and (b) HP shall be obligated to buy, and Caliper shall be obligated to sell, all of HP's requirements for such LabChips during the term of the Collaboration. HP may revise any forecasts as set forth in the OEM Purchase Agreement. 5.3 DUE DILIGENCE. Each party will use [ * ] business efforts in manufacturing the Collaboration Products for which such party has manufacturing responsibility. 6. MARKETING OF COLLABORATION PRODUCTS 6.1 SCOPE. HP will have the exclusive right to, and responsibility for, marketing, selling, distributing and supporting Collaboration Products at HP's expense in accordance with the terms of this Agreement and the Product Plans jointly developed and agreed to by the parties as provided in Article 3, except as otherwise specifically provided in this Agreement. 6.2 BRANDING. (a) Caliper will mark LabChips supplied by Caliper with appropriate "Caliper" and "LabChip" trademarks. Subject to HP's internal trademark clearance procedures and Corporate Identity standards, Caliper will also mark LabChips, or permit HP to mark LabChips, with the HP company and product trademarks as a prominent sub-brand. (b) Subject to HP's internal trademark clearance procedures and Corporate Identity standards relating to co-branding, HP will mark, or allow Caliper to mark, all System [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 17 18 Components including Instruments, Reagents and Software with appropriate "Caliper" and "LabChip" trademarks as a prominent sub-brand. 6.3 DISTRIBUTORS. [ * ] 6.4 PACKAGING AND LABELING. The Collaboration Products for commercial sale under this Agreement shall be packaged and labeled consistent with the requirements of the applicable laws of the countries where a Collaboration Product is sold. (a) The parties agree to discuss patent marking on a case-by-case basis prior to product introduction in accordance with HP internal guidelines on patent marking to preserve patent rights or protect the product from infringement. If applicable, such patent marking shall identify HP and Caliper as the manufacturers of such Collaboration Product. (b) The parties agree to label Collaboration Products in a way that makes it clear that no license is granted for diagnostic use but that does not hurt marketing efforts. 6.5 ADVERTISING, PROMOTIONAL AND EDUCATIONAL MATERIALS. The parties shall mutually establish guidelines for the use of HP's and Caliper's corporate names, logos and trademarks in written sales, promotional, educational and advertising materials relating to Collaboration Products. All such written and visual materials and all documentary information and promotional materials will portray HP, Caliper and their respective corporate names, logos and trademarks in a manner consistent with their respective roles under this Agreement. 6.6 CUSTOMER SUPPORT. HP shall manage the customer interface and shall provide a first level of service and support to end-user customers for all Collaboration Products. Caliper will use reasonable business efforts to provide backup technical support to HP. The Collaboration Managers will agree on a mechanism by which Caliper will provide such backup technical support and obtain direct end-user customer feedback regarding Collaboration Products. [ * ]. 6.7 DUE DILIGENCE. HP will [ * ]. HP shall use [ * ] efforts in marketing, promoting, selling and supporting the Collaboration Products. 7. FINANCIAL AND COMMERCIAL TERMS 7.1 EQUITY INVESTMENT. Within three days after the Effective Date, the parties shall enter into a Preferred Stock Purchase Agreement, pursuant to which HP shall pay to Caliper a total amount of [ * ]. 7.2 DEVELOPMENT FUNDING. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 18 19 (a) MINIMA. HP will provide projects for development of Collaboration Products by Caliper sufficient to meet the funding minima set forth in this section. HP will pay Caliper Development Expenses for such projects in the minimum amount of [ * ] dollars during [ * ], provided Caliper actually incurs that amount of Caliper Development Expenses. HP will pay Caliper Development Expenses for such projects in the minimum amount of [ * ] dollars in the aggregate during years [ * ], provided Caliper actually incurs that amount of Caliper Development Expenses. HP will pay Caliper Development Expenses for such projects in the minimum amount of [ * ] dollars per year during years [ * ], provided Caliper actually incurs that amount of Caliper Development Expenses. (b) CHANGES IN FUNDING LEVEL. Subject to the requirements of subparagraph 7.2(a) above, at the start of year [ * ] HP may reduce or increase the amount of Caliper Development Expenses that HP will pay for during year [ * ] as compared with the actual funding in year [ * ] by any amount up to [ * ], or a larger amount with Caliper's advance consent. Similarly, at the start of year [ * ] HP may reduce or increase the amount of Caliper Development Expenses that HP will pay for during year [ * ] as compared with the actual funding in year [ * ] by any amount up to [ * ], or a larger amount with Caliper's advance written consent. At the start of any subsequent year HP may increase the amount of Caliper Development Expenses that HP will pay for during such year as compared with the actual funding in the previous year by [ * ] percent [ * ], or a larger amount with Caliper's advance written consent. (c) HP will advance funds to Caliper on a monthly basis sufficient to pay for the Caliper Development Expenses estimated and agreed to for work to be conducted during each year under the Product Plan. Such payments will be independent of any goals or milestones set forth in the Product Plan. (d) Caliper will report actual incurred Caliper Development Expenses by project to HP quarterly, not later than thirty days after the end of each quarter. The report will include the information specified in the definition of "Caliper Development Expenses". (e) Deviations between amounts advanced by HP and actual incurred Caliper Development Expenses at the end of each quarter will be carried over to the next quarter and will reduce or increase the estimated funding payments for the following month. Deviations at the end of any year will be carried over to the following year. (f) [ * ] used in calculating Caliper Development Expenses will be reviewed annually and [ * ] will be adjusted by mutual agreement. The [ * ] includes but is not necessarily limited to [ * ]. 7.3 HP OPERATING EXPENSES (a) YEARS [ * ]. HP shall expend not less than [ * ] in HP Operating Expenses during the first [ * ] of the Agreement, including at least [ * ] in Caliper Development Expenses funded by HP pursuant to Section 7.2. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 19 20 (b) YEARS [ * ]. If HP desires to continue the Collaboration after the [ * ] anniversary of the Effective Date, HP shall expend at least [ * ] dollars [ * ] in HP Operating Expenses in the [ * ] year of the Agreement and at least [ * ] dollars [ * ] in HP Operating Expenses in the [ * ] year of the Agreement, again including Caliper Development Expenses funded by HP. HP shall notify Caliper in writing at least one hundred and thirty five (135) days prior to the [ * ] of the Effective Date, respectively, whether it will or will not meet its spending requirements for Caliper Development Expenses and HP Operating Expenses for the following year. In the event HP does not make such spending commitments for [ * ] either party may terminate the Collaboration, pursuant to Section 10.5. (c) YEARS [ * ]. At the beginning of year [ * ] of the Collaboration, the parties shall initiate discussions regarding the appropriate level of HP Operating Expenses or alternative performance criteria which HP must meet in each of the [ * ] years of the Collaboration. (d) CREDIT FOR EXCESS SPENDING. If HP expends HP Operating Expenses in excess of the amounts required in a particular year of the Collaboration, such excess amounts shall be carried forward and applied against the HP Operating Expense requirement in any subsequent year up to the end of year [ * ]. In no event, however, may funding for Caliper Development Expenses be reduced below the minima provided in Section 7.2. (e) CERTIFICATION BY HP. Within forty five (45) days after the last day of each year of the Collaboration, HP shall provide to Caliper (i) written certification by an appropriate HP financial officer that HP has expended the minimum amounts for HP Operating Expenses to date and (ii) a report of the cumulative HP Operating Expenses as of the last day of the applicable year. 7.4 CALIPER OPERATING EXPENSES (a) YEARS [ * ]. Caliper together with its Third Party collaborators shall expend not less than [ * ] dollars [ * ] in Caliper Operating Expenses during the first [ * ] years of the Agreement. (b) YEARS [ * ]. The parties intend that the Caliper Operating Expenses will be at least [ * ] dollars [ * ] in the [ * ] year of the Agreement and at least [ * ] dollars [ * ] in the [ * ] year of the Agreement. However, Caliper's expenditure of such amounts is at Caliper's sole discretion. Caliper will notify HP in writing at least [ * ] days prior to the anniversary of the Effective Date in years [ * ] whether it will or will not meet its spending requirements for Caliper Operating Expenses for such years. If Caliper notifies HP that it will not meet such spending requirements for either year [ * ], then HP shall not be required to meet the HP Operating Expense requirements of Section 7.3 for such year. HP's obligations under Section 7.2 shall not be affected however. All other terms of this Agreement shall continue in such event, and neither party shall have the right to terminate this Agreement pursuant to Article 10. (c) YEARS [ * ]. At the beginning of the [ * ] year of the Collaboration, the parties shall initiate discussions regarding the appropriate level of Caliper Operating Expenses or [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 20 21 alternative performance criteria which Caliper must meet in each of the [ * ] years of the Collaboration. Such obligations shall be determined in view of the [ * ], and other reasonable criteria which either party may wish to discuss in good faith. (d) CREDIT FOR EXCESS SPENDING. If Caliper expends Caliper Operating Expenses in excess of the amounts required in a particular year of the Collaboration, such excess amounts shall be carried forward and applied against the Caliper Operating Expense requirement in any subsequent year up to the end of year [ * ]. (e) CERTIFICATION BY CALIPER. Within forty five (45) days after the last day of each year of the Collaboration, Caliper shall provide to HP (i) written certification by an appropriate Caliper financial officer that Caliper has expended the appropriate amounts for Caliper Operating Expenses to date and (ii) a report of the cumulative Caliper Operating Expenses as of the last day of the applicable year. (f) [ * ], such Caliper Operating Expenses will be recognized in full only when such [ * ] is no longer [ * ] and provided such [ * ] is relevant to the Field of Interest as reasonably determined by Caliper. 7.5 GROSS MARGIN SHARING (a) COLLABORATION PRODUCTS. During the term of the Collaboration, HP and Caliper will share the Gross Margin on all Collaboration Products as follows, on a product-by-product basis: Class A Products [ * ] [ * ] Class B Products [ * ] [ * ] Class C Products [ * ]. If any product does not clearly fall into one of the above classifications, or there is disagreement between the parties as to which category a particular product falls into, the parties shall mutually agree on an appropriate Gross Margin sharing rate for such product in connection with Product Plan discussions, before commercial manufacture begins. That portion of the Gross Margin generated by System Software which will be considered to be attributable to a Class A Product will be calculated by [ * ]. That portion of the Gross Margin generated by System Software which will be considered to be attributable to a Class B Product will be calculated by [ * ]. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 21 22 (b) HP COLLABORATION PRODUCTS. If Caliper elects not to develop a LabChip and HP performs the development of such LabChip as set forth in Section 4.2(d), then HP and Caliper will share Gross Margin on the System in which the LabChip is used as follows: (i) if Caliper elects to manufacture the LabChip: Class A Products [ * ] [ * ] Class B Products [ * ] [ * ] Class C Products [ * ]. (ii) if Caliper elects not to manufacture the LabChip: Class A Products [ * ] [ * ] Class B Products [ * ] [ * ] Class C Products [ * ]. (c) ADJUSTMENTS. The parties acknowledge that the Gross Margin share percentages set forth above have been negotiated based in part upon the assumption that the average discount (as per the AFM) for Collaboration Products, treated as a class, will be similar to the average discount for HP Chemical Analysis Group's non-Collaboration Products. Accordingly, the parties will review the average discount for all Collaboration Products on the [ * ] anniversary of the Effective Date, and [ * ] thereafter, in each case reviewing the previous [ * ] period. If the average discount for Collaboration Products in any such [ * ] period is more than [ * ] percent [ * ] above or below the average discount for non-Collaboration Products in such period, then the parties shall meet and reasonably discuss in good faith corresponding changes to the Gross Margin share percentages and HP Operating Expense commitments. (d) TRANSFER OF PRODUCTS: All Collaboration Products supplied by Caliper and shipped to HP will be invoiced to HP at Caliper's Transfer Price and HP will pay against such invoice. This price will be part of HP's Cost of Sales and therefore part of the Gross Margin calculation. (e) INTEGRATED [ * ] PRODUCTS. Where HP's [ * ] technology is integrated into a Collaboration Product, the parties will mutually agree, prior to entry into the laboratory prototype phase, on a Gross Margin sharing rate that reflects the proportional value of HP's [ * ] technology to the value of the Caliper Technology. The Gross Margin share rate applicable to the value of HP's [ * ]. Where the [ * ] qualifies as a Class C Product, [ * ]. 7.6 BUNDLING AND PRICING. HP will establish prices for Components that reflect in good faith the [ * ]. Furthermore, the parties understand that certain Collaboration Products may be sold together as a kit or separately, as customers may require from time to time. The Gross Margin of Collaboration Products sold together in a kit shall be shared pursuant to the Gross [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 22 23 Margin share rules set forth in Section 7.5 based on [ * ]. If [ * ], the parties shall mutually agree on an appropriate Gross Margin sharing rate for such Collaboration Product in connection with Product Plan discussions, before [ * ]. HP will individually price such bundled Collaboration Products in accordance with [ * ] calculated as set forth in this Section 7.6. After the initial sale of bundles consisting of [ * ], the [ * ] will be sold at prices that are [ * ]. [ * ]. 7.7 CASH FLOW (a) Payment for Caliper Development Expenses will be made monthly in advance on the first workday of the month. (b) Caliper's Gross Margin share will be paid not later than the last workday of the month following the shipment month of the Collaboration Product. (c) Royalty payments for New Products will be paid quarterly (based on HP's fiscal year quarter) not later than the last workday of the month following the shipment quarter. (d) Payment for all products supplied by Caliper and shipped to HP will be made in accordance with the applicable OEM contract. 7.8 COST OF SALES (a) REVISION OF TRANSFER PRICE. The Transfer Price will reflect [ * ]. The Transfer Price will be revised at least twice a year [ * ]. If the [ * ], the Transfer Price must also be revised prospectively (per interim revision rules of the AFM). (b) EXCESS CAPACITY COSTS. Excess capacity costs (machinery and personnel) will [ * ]. In the event that manufacturing capacity extensions result in excess capacity, then [ * ]. The maximum capacity achievable through said capacity extension and its related impact on [ * ] will be mutually agreed to in advance. (c) EXCESS AND OBSOLETE INVENTORY. Excess and obsolete inventory will [ * ]. 7.9 ACCOUNTING AND AUDIT (a) HP will follow HP's standard financial practices, processes and procedures as listed in the AFM. Caliper will follow the U.S.GAAP and will make reasonable efforts to follow HP's standard financial practices, processes and procedures as listed in the AFM. HP will disclose the AFM and any other appropriate information to Caliper as necessary to enable Caliper to do this. (b) All Gross Margin share and royalty payments made pursuant to this Agreement will be accompanied by a report detailing the calculation of such payments. Each party will keep adequate records regarding the basis for such calculations in accordance with its standard practices but in no event for less than three years. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 23 24 (c) Each party may audit the financial records of the other party for the limited purpose of ensuring compliance with the financial obligations of that other party under this Agreement. Such an audit may be conducted not more often than annually, during regular business hours, and on reasonable advance notice. Such audit will be conducted by an independent auditor which will be obligated to keep strictly confidential the audited party's financial records and other information. The auditor will disclose such information to the auditing party only to the extent necessary to establish compliance or non-compliance with the audited party's financial obligations and, if the latter, the magnitude of any discrepancy. The auditing party will pay the costs of such audit unless the audit shows that the audited party is more than [ * ] percent [ * ] delinquent in its obligations for the period of the audit as of the end of such period, in which case the audited party will pay the costs of the audit. 8. INTELLECTUAL PROPERTY MATTERS 8.1 REPRESENTATIONS AND WARRANTIES. Each party warrants that it has the right to grant the licenses set forth in Section 2 of this Agreement. Neither party: (a) makes any other representations or warranties, express or implied, (b) assumes any liability with respect to any infringement of patents or other rights of third parties due to the other party's operation under the licenses granted herein, (c) assumes any responsibility for enforcement of its Licensed Patents against third parties; or (d) assumes any responsibility for continued maintenance of any Licensed Patent. 8.2 OWNERSHIP OF TECHNOLOGY (a) Caliper shall retain all right, title and interest in and to the Caliper Technology, and to any and all software, inventions, discoveries and information made or developed solely by Caliper in the course of the Collaboration, subject only to the licenses expressly granted to HP hereunder. (b) HP shall retain all right, title and interest in and to the HP Technology, and to any and all software, inventions, discoveries and information made or developed solely by HP in the course of the Collaboration, subject only to the licenses expressly granted to Caliper hereunder. (c) The parties will jointly own all Joint Inventions (the term "Joint Inventions" is defined in Section 8.3(b)). The parties shall each have full rights of joint ownership of such Joint Inventions without restriction to the Field of Interest. Each party may exploit patents on any Joint Inventions [ * ]. In particular, each party may use a Joint Invention or a patent thereon [ * ]. 8.3 PATENT PROSECUTION AND MAINTENANCE (a) SOLE INVENTIONS. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 24 25 (i) A "Sole Invention" is an invention or improvement conceived entirely by one or more employees of Caliper or by one or more employees of HP in the course of the Collaboration. (ii) Each party shall have the right, but not the obligation, at its expense and using patent counsel of its choice, to file, prosecute and maintain patent applications claiming its Sole Inventions. (iii) [ * ]. (b) JOINT INVENTIONS. (i) A "Joint Invention" is an invention or improvement conceived jointly by one or more employees of Caliper and one or more employees of HP in the course of the Collaboration. The determination of whether an invention or improvement is conceived "jointly" will be made under United States law by assuming all the inventors were United States citizens and were located within the territorial limits of the United States at the time of conception, regardless of the actual nationality of the inventors or the actual location where the invention was conceived. (ii) The parties shall confer to determine how to allocate responsibility and expenses for filing, prosecuting and maintaining patent applications claiming any Joint Inventions. Unless the parties mutually agree otherwise, Caliper shall have the right to file, prosecute and maintain patent applications claiming Joint Inventions relating primarily to Lab-on-a-Chip Technology and HP shall have the right to file, prosecute and maintain patent applications claiming Joint Inventions relating primarily to Instruments. If the party determined to be responsible elects not to file and prosecute applicable patent applications on such Joint Inventions, the other party may undertake such prosecution at its own expense in both parties' names. Each party is responsible for compliance with any inventor law provisions and for any legally required inventor compensation of its employees (c) MUTUAL DISCLOSURE OF PATENT APPLICATIONS. If either party files a patent application covering a Sole or Joint Invention, the filing party will promptly disclose such patent application to the other party. The filing party will keep the other party reasonably informed of the course of patent prosecution or other proceedings with regard to such patent applications and will provide reasonable advance notice to the other party of all filings and correspondence with patent authorities regarding such patent applications, including without limitation office actions, responses to office action, amendments, restrictions, elections, requests for terminal disclaimer, and requests for reissue or reexamination of any patent issuing from such application, and any election to discontinue prosecution or maintenance thereof. The other party will have an opportunity to review and comment on such filings and correspondence prior to any applicable filing deadline. (d) LICENSED PATENTS. Each party will promptly inform the other if it elects to discontinue prosecution or maintenance of any patent or patent application licensed hereunder. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 25 26 8.4 THIRD PARTY PATENTS (a) PATENT REVIEW. [ * ]. The parties agree to proactively review relevant Third Party patents on a periodic basis and discuss any such Third Party patents that represent a material risk of such infringement. Either party may elect at any time to cease developing, manufacturing or distributing any Collaboration Product that it reasonably determines on the advice of counsel poses a substantial risk of infringing a third party patent. (b) NOTICE OF CLAIMS. If the use, manufacture or sale of Collaboration Products within the Field of Interest results in a claim, suit or action, or an overt threat of same, (collectively, "Claims") against either or both parties for patent infringement or for inducing or contributing to patent infringement, the party first having notice of such Claim shall promptly notify the other. The notice shall set forth the facts of such Claim in reasonable detail. (c) DEFENSE OF CLAIMS. Upon notice of a Claim, the parties shall jointly confer regarding [ * ]. (d) NO ESCROW. No payments under this Agreement shall be subject to escrow or otherwise delayed or waived by reason of any patent litigation. 8.5 INFRINGEMENT CLAIMS AGAINST THIRD PARTIES (a) NOTIFICATION. If a Third Party infringes or misappropriates any Caliper Technology or HP Technology by commercializing products in the Field of Interest, the party to this Agreement first having knowledge of such infringement or misappropriation shall promptly notify the other in writing. The notice shall set forth the available facts of such infringement or misappropriation in reasonable detail. The parties shall discuss the matter [ * ]. (b) PROSECUTION OF INFRINGEMENT ACTIONS. The owner of the patent or trade secret that is the subject of infringement or misappropriation shall have the primary right, but not the obligation, to institute, prosecute and control any action or proceeding with respect to infringement or misappropriation of such patent or technology by counsel of its own choice. If an infringement action infringes on both Caliper Technology and HP Technology, the parties shall coordinate their prosecution with respect to such infringement. The parties shall confer to determine which party shall have the primary responsibility to institute, prosecute and control any action or proceeding with respect to misappropriation of trade secrets or infringement of patents claiming Joint Inventions. (c) DECISION NOT TO PROSECUTE. [ * ]. (d) EXPENSES AND RECOVERY. If the parties mutually agree to prosecute an enforcement action, then they will also agree [ * ]. 9. CONFIDENTIALITY [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 26 27 9.1 CONFIDENTIALITY. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the party who originally disclosed such Confidential Information (the "Disclosing Party"), the party to whom such Confidential Information was disclosed (the "Recipient") agrees to keep the Disclosing Party's Confidential Information strictly confidential, as if it were its own, for five years from the date of disclosure. Furthermore, neither party shall use Confidential Information for any purpose other than for performing its obligations or exercising its rights under this Agreement, except that general business information may be used (but not disclosed) in the ordinary course of business. 9.2 EXCEPTIONS. The above obligations of non-disclosure and non-use shall not apply to information of which the recipient can document that: (a) it was in the public domain at the time it was communicated to the recipient by the disclosing party; (b) it entered the public domain subsequent to the time it was communicated to the recipient by the disclosing party through no fault of the recipient; (c) it was in the recipient's possession free of any obligation of confidence at the time it was communicated to the recipient by the disclosing party; (d) it was rightfully communicated to the recipient free of any obligation of confidence subsequent to the time it was communicated to the recipient by the disclosing party; (e) it was independently developed by employees or agents of the recipient who had no knowledge of any Confidential Information communicated to the recipient by the disclosing party; (f) the communication was in response to a valid order by a court or other governmental body, was otherwise required by law, or was necessary to establish the rights of either party under this Agreement. 9.3 AUTHORIZED DISCLOSURES (a) Notwithstanding Sections 9.1 and 9.2 above, the parties hereby acknowledge each other's right to disclose Confidential Information to Third Parties with whom they have entered into agreements for the purpose of developing and commercializing Collaboration Products. If either party desires to disclose any of the other's Confidential Information for the purposes set forth in the preceding sentence, the parties shall meet to review such planned disclosure and shall mutually agree on the Confidential Information, if any, to be so disclosed prior to any such disclosure by either party. (b) Notwithstanding Sections 9.1 and 9.2 above, each party may disclose Confidential Information belonging to the other party to Affiliates and sublicensees who agree to be bound by terms of confidentiality at least as stringent as those in this Article 9. In addition, each party may disclose Confidential Information of the other party to the extent such disclosure [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 27 28 is reasonably necessary to: (i) comply with applicable securities laws and regulations and other applicable governmental regulations, (ii) file or prosecute patents relating to Sole Inventions or Joint Inventions, and (iii) prosecute or defend litigation relating to Collaboration Products. Notwithstanding the foregoing, in the event a party is required to make a disclosure of Confidential Information as provided in this Section 9.3, it will, except where impracticable, give reasonable advance notice to the other party of such disclosure and use reasonable business efforts to maintain the information as confidential or to secure confidential treatment of such information. In any event, the parties agree to take all reasonable action to avoid disclosure of Confidential Information hereunder. 9.4 COMMUNICATION AND PUBLICITY (a) Promptly after the Effective Date, the parties may announce the establishment of the Collaboration under this Agreement and its key terms in a mutually agreed press release issued simultaneously by both parties. Subject to the further provisions of this Section, no party shall originate any subsequent written publicity, news release, or other announcement relating to this Agreement or to performance hereunder or the existence of an arrangement between the parties (collectively, "Written Disclosure"), without the prior prompt review and written approval of the other. Once specific information has been approved for disclosure, that information may be reiterated in any subsequent Written Disclosure without further approval. (b) Notwithstanding the foregoing provisions of this Article 9, any party may make any public Written Disclosure it believes in good faith based upon the advice of counsel is required by applicable law or any listing or trading agreement concerning its publicly traded securities, provided that prior to making such Written Disclosure, the disclosing party shall provide the other party with a copy of the materials proposed to be disclosed and provide such party with an opportunity to review and comment on the proposed Written Disclosure. (c) The terms of this Agreement may be disclosed to Third Parties so long as such disclosure is made under a binder of confidentiality and so long as material financial terms are not disclosed. 10. TERM AND TERMINATION 10.1 TERM. (a) The term of the Collaboration will commence on the Effective Date and will expire on the eighth (8th) anniversary of the Effective Date (the "Expiration Date") unless earlier terminated pursuant to this Article 10. (b) This Agreement will become effective upon the Effective Date and continue until the last to expire payment obligation of either party, unless terminated earlier pursuant to this Article 10. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 28 29 10.2 TERMINATION FOR BREACH. (a) Either party may terminate this Agreement for material breach of the Agreement by the other party on [ * ] written notice. The notice will describe the breach in detail, and the allegedly breaching party will have [ * ] in which to cure such breach. (b) If during the Collaboration Caliper fails to cure a material breach within such [ * ] period, HP at its option may terminate this Agreement or may continue the Agreement in force. If HP elects to continue this Agreement in force, HP may [ * ] for the remaining term of the Agreement. (c) If during the Collaboration HP fails to cure a material breach within such [ * ] period, Caliper at its option may terminate this Agreement or may continue the Agreement in force. If Caliper elects to continue this Agreement in force, Caliper may [ * ] for the remaining term of the Agreement. (d) If HP terminates the Agreement due to a Clear and Serious Breach by Caliper (as described below), which breach remains uncured after the [ * ] day cure period, then upon termination the rights and obligations set forth below in Section 10.4 for early termination after year five and beyond will apply. For purposes of this Section, a "Clear and Serious Breach" shall mean that Caliper materially breaches the Agreement by either (i) failing to apply at least [ * ] percent [ * ] of the Caliper resources set forth in applicable Product Plans in any year or (ii) willfully selling products that are clearly within HP's exclusive rights in the Field of Interest as set forth in Article 2 above, either directly or through Third Parties, [ * ]. The rights and obligations set forth in Section 10.4 shall not apply if the alleged breach is the subject of a dispute resolution proceeding under Section 12.2 or if the failure to perform results from Force Majeure as set forth in Section 13.2. (e) The remedies set forth in subsections (b), (c) and (d) above are in addition to any other remedies to which the parties may be entitled. 10.3 TERMINATION FOR CONVENIENCE. Either party may terminate the Collaboration for any reason or no reason with at [ * ] prior written notice, such termination to be effective at any time after the fifth anniversary of the Effective Date. The date on which the termination takes effect is referred to herein as the "Termination Date". 10.4 EFFECT OF EXPIRATION OR TERMINATION. If the Collaboration expires at the end of its eight-year term, or if the Collaboration is terminated for breach under Section 10.2(d) or for convenience under Section 10.3, then: (a) PAYMENTS. Any outstanding payment obligations must be satisfied as of the Termination or Expiration Date. Any overpayment must be returned forthwith. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 29 30 (b) RESEARCH AND DEVELOPMENT. All joint research and development under the Collaboration and HP funding of such research and development will end on the Termination or Expiration Date. (c) SUPPLY OF PRODUCTS BY CALIPER. For [ * ] years following the Termination or Expiration Date, HP will have the option to have Caliper continue to supply HP with all Collaboration Products being supplied by Caliper as of the Termination or Expiration Date. Whether or not HP elects to have Caliper supply such Collaboration Products, the financial terms will be as set forth in Section 10.4(h) below, subject to Section 10.4(f). (d) SUPPLY OF PRODUCTS BY HP. For [ * ] years following the Termination or Expiration Date, HP will supply all of Caliper's requirements for Collaboration Products being supplied by HP as of the Termination or Expiration Date. Pricing and other terms shall be [ * ]. (e) TRAINING. During the [ * ] after any notice of termination is given pursuant to this Article 10, or during the first [ * ] after the fifth anniversary of the Effective Date if such notice is given before the fifth anniversary of the Effective Date, the party manufacturing and supplying a Component will [ * ] to instruct and train personnel of the other party so that the other party will [ * ] manufacture and supply such Components in a similar manner. Additional instruction and training will be provided upon reasonable request during the ensuing [ * ] period, provided the requesting party reimburses the other party's [ * ]. If the Collaboration is terminated for Clear and Serious Breach, such training will be given during the [ * ] period after such termination becomes effective, and not during the pendency of any dispute resolution proceeding respecting such termination. (f) [ * ]. (g) RIGHTS TO COMMERCIALIZE COLLABORATION PRODUCTS. After the Termination or Expiration Date, HP shall have a worldwide, non-exclusive, non-transferable license under Caliper Technology and software to market, sell and support Collaboration Products in the Field of Interest. Caliper shall also have the right to market, sell and support Collaboration Products, independently or with Third Parties; provided, however, that if the Termination Date occurs within a period of time that begins [ * ] years after the Effective Date and ends [ * ] years and [ * ] months after the Effective Date, Caliper may not market, sell or support Collaboration Products in the Field of Interest during such period. Notwithstanding the foregoing, neither party may enter into an agreement [ * ] for the sale of the Collaboration Products during the [ * ] months following the Expiration or Termination Date. After such [ * ] month period, either party may enter into any agreement with any Third Party (h) PAYMENTS ON COLLABORATION PRODUCTS AFTER TERMINATION. After the Termination or Expiration Date, HP shall pay Caliper the percentage of the Gross Margin from sales of all Class A and Class B Collaboration Products during the respective time periods as follows and shall [ * ] for Collaboration Products supplied by Caliper. The rates set forth below [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 30 31 are subject to the adjustment as provided in Section 10.4(f). These payments will be made on the same schedule and terms as during the Collaboration under Article 7 and will continue [ * ].
PRODUCT [ * ] MONTHS [ * ] MONTHS FOLLOWING MORE THAN [ * ] MONTHS FOLLOWING TERMINATION FOLLOWING TERMINATION FOLLOWING TERMINATION CLASS A PRODUCTS Collaboration Products [ * ] [ * ] [ * ] other than HP Collaboration Products HP Collaboration Products; [ * ] [ * ] [ * ] LabChip manufactured by Caliper* HP Collaboration Products; [ * ] [ * ] [ * ] LabChip manufactured by HP* CLASS B PRODUCTS [ * ] [ * ] [ * ]
- ----------------- *These Gross Margin rates only apply if Caliper elects not to develop a LabChip and HP performs the development of such LabChip as set forth in Section 4.2(d). That portion of the Gross Margin generated by System Software which will be considered to be attributable to a Class A Product will be calculated by [ * ]. That portion of the Gross Margin generated by System Software which will be considered to be attributable to a Class B Product will be calculated by [ * ]. (i) COMMERCIALIZATION OF NEW PRODUCTS. (i) HP RIGHTS. In the event of expiration or termination of the Collaboration pursuant to Section 10.4, Caliper agrees to grant to HP a non-transferable (except to a successor in interest to the HP Chemical Analysis Group), royalty-bearing, worldwide, non-exclusive license under certain of the Caliper Technology specified in this Section to develop, manufacture, market, sell and support products in the Field of Interest. The products developed pursuant to this license and covered by Caliper Patents will be "New Products," as defined in Article 1. Such license will be subject to the following potential adjustments over time. (1) The through-put limits applicable to this license will continue to be subject to adjustment to ensure a leading edge relative to the competition pursuant to Section 2.2(a)(ii) as applied to Collaboration Products, and New Products which HP may [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 31 32 develop, after the Collaboration ends. In addition, the through-put limits applicable to this license will be proactively adjusted as follows to maintain parity with programs established by Caliper or its other licensees to develop products utilizing Caliper Technology with higher through-put for sale on the market in the Field of Interest. If Caliper [ * ], or if Caliper grants any Third Party the right [ * ], then in either of such events Caliper shall promptly notify HP in writing of such fact and the nature of the Application(s) [ * ], and the through-put limits applicable to HP's license will automatically be adjusted to [ * ] with respect to such Application(s). (2) On the [ * ] anniversary of the Termination or Expiration Date, HP will deliver to Caliper a written notice that lists the patents and patent applications within the Caliper Technology that HP intends to use in New Products for which [ * ]. Any patents or patent applications within the Caliper Technology not listed in the notice will then be removed from the non-exclusive license granted to HP under this Section 10.4(i)(i). (3) On the [ * ] anniversary of the Termination or Expiration Date, HP will deliver to Caliper a written notice that lists the patents and patent applications within the Caliper Technology from the list provided under clause (i) above that HP still intends to use in New Products for which [ * ]. Any patents or patent applications within the Caliper Technology not listed in the notice will then be removed from the non-exclusive license granted to HP under this Section 10.2(i)(i). (4) Upon the [ * ] anniversary of the Termination or Expiration Date, the patents and patent applications within the Caliper Technology subject to the non-exclusive license granted under this Section 10.4(i)(i) shall be limited to the patents and patent applications listed as aforesaid and actually utilized [ * ] prior to that date. (ii) CALIPER RIGHTS. In the event of expiration or termination of the Collaboration pursuant to Section 10.4, Caliper will retain exclusive rights (except for the non-exclusive license granted to HP under Section 10.4(i)(i) above) under Caliper Technology to make, use and sell products for all uses in the Field of Interest. Caliper will retain all licenses to HP Technology granted under the Collaboration and will continue to have access to HP Patents, System Software and parts as provided in Section 2.4. Caliper will be free to develop and market new systems that are compatible with all Collaboration Products. (iii) ROYALTIES ON NEW PRODUCTS. HP shall pay royalties to Caliper on all Net Revenues from the sale of New Products in Class A and Class B as set forth below, provided that and for so long as the manufacture, use or sale of at least one Component in the applicable class (Class A or Class B) is claimed in a Caliper Patent in the country of manufacture, use or sale, respectively. The royalty rates [ * ]. All of the rates set forth in this Section 10.4(i)(iii) are subject to adjustment as provided in Section 10.4(f). ROYALTY RATE [ * ] CLASS A PRODUCTS [ * ] CLASS B PRODUCTS (PERCENT OF NET REVENUES) [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 32 33
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Class C Products [ * ]. That portion of the royalty arising from System Software which will be considered to be attributable to a Class A Product will be calculated by [ * ]. That portion of the royalty arising from System Software which will be considered to be attributable to a Class B Product will be calculated by [ * ]. If any New Product does not clearly fall into one of the above classifications, the parties shall mutually agree on an appropriate royalty rate for such New Product prior to commercial introduction. [ * ]. By way of example, [ * ]. Payments due under this Section 10.4(i)(iii) shall be subject to the same terms and conditions applicable to Gross Margin share payments on Collaboration Products under Sections 7.6, 7.7 and 7.9. Where HP's [ * ] technology is integrated into a New Product, the parties will mutually agree, prior to commercial launch, on a royalty rate that reflects the proportional value of HP's [ * ] technology to the value of the Caliper Technology. The royalty rate applicable to the value of HP's [ * ] will be [ * ] percent and the rate applicable to the value of the Caliper Technology will be the [ * ] under this Agreement. Where the [ * ] qualifies as a Class C Product, [ * ]. (iv) ACCESS TO DISTRIBUTION CHANNELS. After any notice of termination is given by either party, each party will review all its relationships with Third Parties who had sales of Collaboration Products in the previous year consisting of more than [ * ]. If there are any agreements or arrangements with such Third Parties that would make it commercially impractical for Caliper to sell Collaboration Products or New Products through such Third Parties after the Collaboration ends, then the parties will agree in good faith on practical means to ensure Caliper such ability. 10.5 TERMINATION OF COLLABORATION PRIOR TO THE FIFTH YEAR. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 33 34 (a) Either party may terminate the Collaboration, with at least [ * ] written notice, at any time if HP does not commit in writing to Caliper to meet the HP Operating Expense commitments as provided in Section 7.3 or actually fails to meet any such commitment. If Caliper delivers such termination notice to HP, HP may cure by meeting the required HP Operating Expense commitment within [ * ] of such notice. (b) If the Collaboration is terminated pursuant to Section 10.5(a), all of the terms under Section 10.4 will apply, except that: (i) HP shall not have a license under Caliper Technology to develop, manufacture or sell New Products; and (ii) With regard to Collaboration Products, (1) Caliper shall have the right to contract with any company, including [ * ], at any time; (2) Caliper may cease taking supply from HP for some or all of Caliper's Instrument requirements before the end of the [ * ] year period described in Section 10.4(c); (3) Caliper may elect to continue to supply HP's requirements for LabChips [ * ] for longer than the [ * ] year period described in Section 10.4(c). Caliper will not be required to train HP in LabChip manufacture as provided in Section 10.4(e), and HP will not have rights to manufacture LabChips, unless and until Caliper notifies HP that it intends to cease supplying HP's requirements for LabChips. Any such notice must be delivered at least [ * ] months in advance of ceasing supply; and (4) HP shall continue to make Gross Margin share payments to Caliper on all Collaboration Products at the rates applicable during the Collaboration [ * ]. These payments will be made on the same schedule and terms as during the Collaboration under Article 7. 11. INDEMNIFICATION AND LIMITATION OF LIABILITY 11.1 INDEMNIFICATION BY CALIPER. Caliper shall indemnify HP, its Affiliates, and all their officers, directors, employees and agents, for any reasonable out-of-pocket costs and expenses (including court and arbitration costs and reasonable attorneys' fees), non-appealed or non-appealable judicial or arbitration damage awards, and settlement payments, payable or owed by HP in connection with any demands, law suits and other legal actions by Third Parties ("Third Party Claim") against HP arising from any negligent actions or willful misconduct by Caliper, its Affiliates, agents or sublicensees. 11.2 INDEMNIFICATION UNDERTAKING BY HP. HP shall indemnify Caliper, its Affiliates and sublicensees, and all their officers, directors, employees and agents, for any reasonable out-of-pocket costs and expenses (including court and arbitration costs and reasonable attorneys' [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 34 35 fees), non-appealed or non-appealable judicial or arbitration damage awards, and settlement payments agreed with the Third Party claimants payable or owed by Caliper in connection with any Third Party Claim against Caliper arising from any negligent actions or willful misconduct by HP, its Affiliates, or agents. 11.3 CONDITIONS AND LIMITATIONS OF INDEMNIFICATION OBLIGATION. (a) In order to maintain the right to be indemnified by the other party ("Indemnitor"), the party claiming indemnification ("Indemnitee") must: (i) notify the Indemnitor promptly after learning of a Third Party Claim; (ii) allow the Indemnitor to manage and control (by way of intervention or otherwise) the defense and settlement of any such Third Party Claim against the Indemnitee; (iii) cooperate with the Indemnitor in the defense or the settlement negotiations of Third Party Claims as reasonable required by the Indemnitor; and (iv) abstain from making any statements or taking any actions which damage the defense against a Third Party Claim (including, without limitation, any statements against the interest of the Indemnitee or admissions of causation or guilt). (b) The Indemnitor shall not agree to any settlement that adversely affects the Indemnitee's rights or interest without the Indemnitee's prior written approval (which approval shall not be unreasonably withheld). (c) The Indemnitor shall have no obligation to indemnify the Indemnitee to the extent that a Third Party Claim results from the negligence or willful misconduct of the Indemnitee. 11.4 LIMITATION OF LIABILITY. Subject to the indemnification obligation set forth above and unless otherwise expressly stated in this Agreement, neither party will be liable to the other for any indirect, consequential, special, or punitive damages regardless of whether such damages are based on tort, warranty, contract or any other legal theory, even if advised of the possibility of such damages. 12. GOVERNING LAW; DISPUTE RESOLUTION 12.1 GOVERNING LAW. This Agreement shall be governed by California law, excluding its choice of law rules. 12.2 DISPUTE RESOLUTION [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 35 36 (a) RISK OF FAILURE. The parties recognize that risk is inherent in development efforts such as those being undertaken in this collaboration. Both parties voluntarily assume this risk. Accordingly, a failure of any HP Technology, Caliper Technology or Collaboration Product developed under this Agreement to perform as desired despite the reasonable efforts of the responsible party or parties will not be deemed to be a breach of this Agreement. (b) NOTICE OF DISPUTE. (i) If a purported breach has not been cured to the satisfaction of both parties within the cure period, either party may give notice to the other that there is a Dispute between them specifying the matter in dispute. The Dispute will be resolved according to the Dispute Resolution Procedure set forth in this Section 12. (ii) The parties recognize that disagreements may occur between them in the absence of any breach. If such a disagreement occurs respecting the parties' rights and obligations under this Agreement, the parties will meet and confer at the working level in a reasonable attempt to resolve the disagreement. If the parties are unable to resolve the disagreement at the working level, either may give notice to the other that there is a Dispute between them specifying the matter in dispute. The Dispute will be resolved according to the Dispute Resolution Procedure set forth in this Section 12. (c) DISPUTE RESOLUTION PROCEDURE. (i) Within thirty days after receipt of a notice of Dispute, the Executive Sponsors will meet and confer using reasonable efforts to resolve the Dispute. If they are unable to resolve the Dispute within thirty days, either party may give notice of escalation to the other that the Dispute is being escalated to the Senior Executive level. (ii) Within thirty days after delivery of the notice of escalation, each party will designate a Senior Executive having the rank of Vice President or higher. The Senior Executives of the parties will meet and engage in good faith efforts to resolve the Dispute. (iii) If the Senior Executives are unable to resolve the Dispute within thirty days, either party may by notice to the other request a conference to determine a procedure for resolving the Dispute. Within thirty days after delivery of the notice, the parties will meet and confer using reasonable efforts to determine a mutually agreeable procedure for resolving the Dispute, taking into consideration the relative advantages, disadvantages and costs of such procedures as mediation, arbitration, mini-trials, or other alternative dispute resolution mechanisms. The parties will have thirty days to agree on a procedure for resolving the Dispute. (iv) No other remedy may be sought by either party until all the steps of this Dispute Resolution Procedure have first been used. Neither party may bring an action in a court of law against the other respecting any issue arising under this Agreement unless the issue has been the subject of a Dispute and the parties have been unable to resolve such Dispute even after following all the steps of the Dispute Resolution Procedure set forth above. Neither party may refuse to perform its obligations under this Agreement because of any breach purportedly [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 36 37 committed by the other unless the purported breach has been the subject of a Dispute and parties have been unable to resolve such dispute even after following all the steps of the Dispute Resolution Procedure. (v) Any applicable statute of limitations will be tolled during the Dispute Resolution Procedure. 13. MISCELLANEOUS 13.1 EFFECTS OF BANKRUPTCY. The parties understand and agree that the rights and licenses granted under or pursuant to this Agreement by one party to the other are, for all purposes of Section 365(n) of Title 11 of the United States Code, licenses of rights to "intellectual property" as defined in Title 11, and that each party, as licensee of such rights under this Agreement shall retain and may fully exercise all of its rights and elections under Title 11. 13.2 FORCE MAJEURE. Neither party shall lose any rights hereunder or be liable to the other party for damages or losses on account of failure of performance by the defaulting party if the failure is occasioned by government action, war, fire, earthquake, explosion, flood, strike, lockout, embargo, act of God, or any other similar or dissimilar cause beyond the control of the defaulting party, provided that the party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure. 13.3 NO RECRUITING. Neither party shall solicit or seek to employ any person who is an employee of the other party during the term of this Agreement and for one (1) year thereafter. However, this clause does not prevent either party from engaging in recruiting activities directed to the community at large and not targeted specifically at employees of the other, even if such activities result in recruiting an employee of the other. This shall not preclude either party from receiving and accepting unsolicited applications from such employees. 13.4 ASSIGNMENT. (a) Except as expressly permitted by this Agreement, neither party may assign any of its rights or obligations under this Agreement to a Third Party except in connection with a merger, acquisition or similar reorganization or the sale of all or substantially all of its assets, or otherwise with the prior written consent of the other party. This Agreement shall survive any such merger, acquisition or reorganization of either party with or into, or such sale of assets to, another party and no consent for such merger, acquisition, reorganization or sale shall be required hereunder; provided, that in the event of such merger, acquisition, reorganization or sale, no intellectual property rights of the acquiring corporation shall be included in the technology licensed hereunder. With regard to HP, this Section shall refer to HP's Chemical Analysis Group and not the mother ship. (b) This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties. Any assignment not in accordance with this Agreement shall be void. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 37 38 13.5 SEVERABILITY. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted rather than voided, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent. 13.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which shall constitute together the same document. 13.7 ENTIRE AGREEMENT; AMENDMENTS IN WRITING. This Agreement and the Stock Purchase Agreement described in Section 7.1 together comprise the entire understanding between the parties with respect to their subject matter and supersede any previous communications, representations, or agreements, whether oral or written, including without limitation the Draft Outline of Principal Terms dated March 5, 1998. All information heretofore exchanged between the parties pursuant to the Confidentiality Agreement heretofore entered into between the parties will henceforth be subject to the applicable provisions of this Agreement. For purposes of construction, this Agreement will be deemed to have been drafted by both parties. No modification of this Agreement will be binding on either party unless in writing and signed by an authorized representative of each party. 13.8 NOTICE. Any notice or other communication required or permitted to be given to either party hereto shall be in writing and shall be deemed to have been properly given and to be effective on the date of delivery if delivered in person, by facsimile or by nationally recognized express courier, or effective fourteen (14) days after mailing by U.S. Postal Service, postage prepaid, as Registered or Express Mail, postage paid, to the other party at the following address:
Caliper: Caliper Technologies Corp. with copy to: 1275 California Avenue Cooley Godward LLP Palo Alto CA 94304 Five Palo Alto Square Attention: Chief Executive Officer 3000 El Camino Real Palo Alto, CA 94306 Fax: (650) 857-0663 Attn: Brian C. Cunningham HP: Hewlett-Packard GmbH with copy to: Waldbronn Analytical Division Hewlett-Packard Company Hewlett-Packard Strasse 8 Office of General Counsel 76337 Waldbronn 3000 Hanover Street Germany Palo Alto CA 94304 Attention: General Manager
Either party may change its address for communications by a notice to the other party in accordance with this section. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 38 39 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. CALIPER TECHNOLOGIES CORP. HEWLETT PACKARD COMPANY By: /s/ Calvin Chow By: /s/ Mark J. Hawkins ----------------------------------- ---------------------------- Calvin Chow, Chief Operating Officer Mark Hawkins, Controller Chemical Analysis Group By: /s/ K. Bruderle ---------------------------- Karlheinz Bruderle, General Manager Waldbronn Analytical Division [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 39 40 EXHIBIT A LAB ON A CHIP TECHNOLOGY General Description: see "Definitions" section of Agreement The following are examples of what's included in the above-referenced definition: [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] The following are examples of what's not included in the above-referenced definition: [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 40 41 EXHIBIT B Outline of selected terms of OEM Agreement The parties agree to use reasonable business efforts to execute a formal OEM agreement [ * ] including the following terms: 1. A [ * ] rolling forecast using reasonable forecasting processes. 2. Orders will become firm [ * ] prior to scheduled delivery. 3. A [ * ] target supply response time (SRT). 4. Caliper will use reasonable business efforts to maintain stable target SRT and if greater than [ * ] then the parties agree to meet and agree on a correction plan. If the SRT is greater than [ * ], then Caliper agrees to enable HP to manufacture chips. However, this clause will not become effective until after the [ * ]. 5. The parties will mutually agree to the [ * ] and will use reasonable business efforts to accelerate such date. 6. Caliper will not make engineering changes after the manufacturing release of a product without notification of HP. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 41 EX-10.11 12 TERMINATION, TRANSITION & TECHNOLOGY ACCESS AGMT. 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.11 TERMINATION, TRANSITION AND TECHNOLOGY ACCESS PROGRAM AGREEMENT THIS TERMINATION, TRANSITION, AND TECHNOLOGY ACCESS PROGRAM AGREEMENT ("Agreement") dated as of November 24, 1998 (the "Effective Date") is entered into by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation ("Caliper"), having a place of business located at 1275 California Avenue, Palo Alto, California 94304 and HOFFMANN-LA ROCHE INC., a New Jersey corporation ("Roche"), having a place of business located at 340 Kingsland Street, Nutley, New Jersey 07110-1199. RECITALS: WHEREAS, Caliper and Roche entered into a Collaborative Development Agreement dated October 11, 1996 (the "Collaborative Development Agreement") wherein Roche provided substantial development funding to Caliper to develop an ultra high through-put screening system and as a result of such funding Roche was granted exclusive rights to such ultra high through-put screening system; and WHEREAS, the parties wish to terminate the Collaborative Development Agreement as provided for hereinbelow under Article 2; and WHEREAS, the parties wish to enter into a Technology Access Program (as defined hereinbelow) which involves reduced funding by Roche and non-exclusive rights to a broader range of high throughput screening technologies under terms provided for in this Agreement; and WHEREAS, the parties wish to provide for a transition period between termination of the Collaborative Development Agreement and Roche's entry into the Technology Access Program as provided for hereinbelow under Article 2; 2 NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained in this Agreement, the parties agree as follows: 1. DEFINITIONS The following terms shall have the following meanings in this Agreement: 1.1 "AFFILIATES" shall mean any company or entity controlled by, controlling, or under common control with a party hereto, and shall include without limitation, any company fifty percent (50%) or more of whose voting stock, participating profit, or other interest is owned or controlled, directly or indirectly, by a party, and any company which owns or controls, directly or indirectly, fifty percent (50%) or more of the voting stock or otherwise of a party. For the purposes of this Agreement, Genentech, Inc. ("Genentech"), a Delaware corporation, shall not be considered an Affiliate of Roche, unless Roche, in its sole discretion, notifies Caliper that Genentech shall be so considered an Affiliate, and Genentech agrees to be bound by the terms and obligations of this Agreement. 1.2 "DATA HANDLING SOFTWARE" means software supplied by Caliper which permits the retrieval of raw data collected by the Hardware Unit Software for differential analysis such that results for the potential pharmaceutical agents can be determined and presented, including at a minimum the ability to correlate results to a particular well on any multi-well plate. 1.3 "HARDWARE UNIT SOFTWARE" means software supplied by Caliper which controls the Hardware Unit such that the Hardware Unit can perform at least the following tasks: process a multi-well plate containing potential pharmaceutical agents through the dilutor; align the multi-well plate to the LabChip support/manipulator; activate the LabChip to start evaluation of the compounds from the multi-well plate; detect reaction of the compounds on the LabChip through the detection system; and collect and store raw data from the detector system for further analysis. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2. 3 1.4 "HARDWARE UNIT" shall mean a unit supplied by Caliper which comprises at least a compound plate handling system capable of manipulating a test plate both prior to and after evaluation of potential pharmaceutical agents from the plates, a dilutor capable of diluting wells on a multi-well plate, a LabChip support/manipulator which physically positions the LabChip to accept potential pharmaceutical agents from the plate, a system to detect reactions on a LabChip, and electronic means for controlling the movement and operation of each of the foregoing steps, said means being under the control of Hardware Unit Software. 1.5 "HIGH THROUGHPUT SCREENING" or "HTS" shall mean screening potential pharmaceutical agents against a pharmaceutically-relevant target (e.g., an enzyme, receptor or cell type) to determine each agent's potential utility as a human pharmaceutical at a minimum of [ * ] assays per machine day and the results of each assay are determined and reported as discreet data points. As used herein, a machine day shall be from [ * ] hours ("Machine Day"). 1.6 "INSTRUMENT" shall mean a combination of a Hardware Unit, Hardware Unit Software, and Data Handling Software offered by Caliper to TAP participants to perform High Throughput Screening or Ultra High Through-put Screening using LabChips. 1.7 "LABCHIP" shall mean a chip which is sold or supplied by Caliper to Roche, other TAP participants, or otherwise made commercially available by Caliper for use on an Instrument. A LabChip typically consists of a glass or polymer base with microchannels, bonded to a cover with reservoirs, together with an attached pipettor capillary, but may include other components. 1.8 "LABCHIP HTS ASSAY" or "LABCHIP UHTS ASSAY" shall mean a particular combination of a LabChip, a set of reagents and Hardware Unit Software, all designed for assessing the interaction of a potential pharmaceutical agent against a pharmaceutically relevant target on one or more types of Instruments for a particular pharmaceutically-relevant target. 1.9 "LABCHIP IMPROVEMENT INVENTIONS" shall mean [ * ] improvements to the Screening Technology or to LabChip-based microfluidic systems, [ * ]. LabChip Improvement [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3. 4 Inventions shall not include screening data, potential pharmaceutical compounds identified through the use of the Screening Technology, [ * ]. 1.10 "SCREENING TECHNOLOGY" shall mean Instruments, Hardware Units, Hardware Unit Software, Data Handling Software, LabChip HTS Assays, LabChip UHTS Assays, and LabChips for HTS or UHTS that Caliper offers for commercial sale to TAP participants. 1.11 "TECHNOLOGY ACCESS PROGRAM" or "TAP" shall mean Caliper's program for developing HTS Instruments, UHTS Instruments, LabChip HTS Assays, and LabChip UHTS Assays and providing these systems to customers who are engaged in the screening of potential pharmaceutical agents against a pharmaceutically relevant target to determine each agent's potential utility as a human pharmaceutical. 1.12 "UHTS" or "ULTRA HIGH THROUGH-PUT SCREENING" shall mean the process of screening potential pharmaceutical agents against a pharmaceutically-relevant target (e.g., an enzyme, receptor or cell type) to determine each agent's potential utility as a human pharmaceutical, at a minimum of [ * ] assays per Machine Day, on an Instrument. The results of each assay shall be determined and reported as discreet data points. 2. TERMINATION OF COLLABORATIVE DEVELOPMENT AGREEMENT; TRANSITION AGREEMENT 2.1 TERMINATION OF COLLABORATIVE DEVELOPMENT AGREEMENT. Caliper and Roche hereby agree to terminate the Collaborative Development Agreement as of the Effective Date of this Agreement. Notwithstanding the foregoing, the parties agree that Roche's obligation to fund development work under Section 4.1 of the Collaborative Development Agreement shall be deemed terminated effective as of July 1, 1998. 2.2 PURPOSE OF TRANSITION AGREEMENT. Because of the relationship which existed between the parties pursuant to the Collaborative Development Agreement, the parties agree to a transition period between the termination of the Collaborative Development Agreement and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4. 5 Roche's entry into the TAP. The parties agree that during this transition period, Caliper will deliver an Instrument to Roche, and Roche will make certain payments, including the purchase price for said Instrument. 2.3 TERM OF TRANSITION PERIOD. The transition period will begin as of the Effective Date as first written above and end on the date that Roche pays the second transition payment as provided in Section 2.5 or the invoice for the Instrument as provided for in Section 2.3, whichever is later. 2.4 TRANSITION PAYMENTS. Roche shall make a first transition payment to Caliper in the amount of [ * ] within thirty (30) days after the Effective Date and receipt of an invoice for that amount. Roche shall make a second transition payment to Caliper in the amount of [ * ] within thirty (30) days after delivery of the Instrument specified in Art. 2.5 below and receipt of an invoice for that amount. 2.5 DELIVERY OF AN INSTRUMENT; PURCHASE PRICE. Caliper will deliver to Roche's Nutley, New Jersey facility an Instrument that is based on the instrument and software developed under the Collaborative Development Agreement. The purchase price for this first Instrument shall be [ * ]; subsequent Instruments may be priced differently. Caliper will invoice Roche for this amount upon delivery of the Instrument to Roche; payment will be due within thirty (30) days of delivery of the Instrument. Upon payment of the invoice, Roche shall take ownership of the Instrument. Caliper will provide reasonable technical support for the Instrument, Hardware Unit Software, and Data Handling Software pursuant to Section 3.2. Such technical support will include, but not be limited to, [ * ]. 3. TECHNOLOGY ACCESS PROGRAM AGREEMENT 3.1 SUBSCRIPTION. Roche shall become a TAP participant under the terms and conditions as found in Articles 1, 3, 4, 5, 6, and 7. As part of Roche becoming a TAP participant, [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 5. 6 Caliper hereby grants to Roche the non-exclusive right to purchase all Screening Technology that Caliper offers for commercial sale to other TAP participants as part of the TAP during the term set forth in Art. 3.4(a) below. Caliper will notify Roche when Caliper is prepared to offer each Instrument or LabChip HTS Assay or LabChip UHTS Assay to TAP participants, together with commercial terms. 3.2 ASSAY DEVELOPMENT AND SYSTEM CUSTOMIZATION. Roche may call upon Caliper to develop customized versions of the Screening Technology for its operations, or to develop LabChip HTS Assays or LabChip UHTS Assays for pharmaceutical targets nominated by Roche, or to provide training, service or support for Screening Technology, subject in each case to Caliper's reasonable approval regarding technical feasibility. For LabChip HTS Assay or LabChip UHTS Assay development, Caliper will develop the LabChip and software to carry out the assay, and the parties will collaborate on appropriate reagents. Roche shall reimburse Caliper for its participation in such custom development activities or LabChip HTS Assay or LabChip UHTS Assay development activities at [ * ]. From time to time, Caliper and Roche may mutually establish development plans and budgets to coordinate such activities. Caliper will not be required to provide more than [ * ] full-time equivalents at any time for Roche development activities under this Agreement, unless the parties mutually agree otherwise. Should Caliper develop for Roche customized versions of Screening Technology or develop LabChip HTS Assays or LabChip UHTS Assays for pharmaceutical compounds selected by Roche, any screening data generated, or potential pharmaceutical compounds identified, as a result of a program under this Article shall be owned by Roche and shall not fall within the definition of LabChip Improvement Inventions or within Article 4.2. 3.3 RESTRICTIONS ON USE OF SCREENING TECHNOLOGY. Roche agrees that it will use all Screening Technology only for the purpose of screening in its and its Affiliate's in-house drug discovery programs. Specifically, Roche shall not (i) transfer any Screening Technology to any third party except that Roche can transfer the Screening Technology to any of its Affiliates, (ii) provide screening services on behalf of any third party using any Screening Technology except that Roche can provide screening services for its Affiliates or where such screening services are part of a collaboration between Roche and/or its Affiliates and a third party to develop products [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6. 7 for sale by Roche and/or its Affiliates, or (iii) allow a third party to use any Screening Technology except that Roche can allow its Affiliates to use the Screening Technology. 3.4 TERM AND TERMINATION OF THE TECHNOLOGY ACCESS PROGRAM. (a) The term of the TAP shall commence upon the expiration of the transition period as provided for in Art. 2.3 hereinabove and, unless terminated earlier pursuant to this Article 3, shall expire one (1) year from date that the Instrument is delivered to Roche as provided for under Article 2.5. The term may be renewed by mutual agreement of the parties. Should the term of the TAP be extended, Roche shall pay no initiation or subscription fees or payments for access to Screening Technology offered under the TAP prior to the expiration or termination of this Agreement. (b) Either party may terminate this Agreement upon any material breach of this Agreement by the other party if the other party has not cured such breach within thirty (30) days after written notice thereof by the non-breaching party. All other rights and obligations under this Agreement shall terminate except as otherwise provided herein. (c) Roche shall have the right to terminate its participation in the TAP, after the transition period has expired pursuant to Art. 2.3, upon [ * ] written notice to Caliper for any reason. (d) Caliper shall notify Roche in writing of its intention to file a voluntary petition in bankruptcy or of another's intention, of which Caliper is aware, to file an involuntary petition in bankruptcy, said written notice to be received by Roche at least thirty (30) days prior to filing such petition. Upon such notice, Roche can terminate this Agreement within thirty (30) days. Any filing without conforming to this requirement shall be deemed a material, pre-petition incurable breach and shall have the effect of automatically terminating this Agreement prior to the filing of such petition without the need for written notice. This Agreement shall terminate automatically (a) in the event that Caliper attempts to or enters into any scheme with its creditors or makes an unauthorized assignment for the [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7. 8 benefit of its creditors; (b) in the event that the assets of Caliper are seized or attached in conjunction with any action against it by any third party; or (c) in the event that Caliper is dissolved other than in connection with a change in control permitted under Art. 7.4. (e) No expiration or termination of this Agreement shall relieve either party of any obligation accruing prior to such expiration or termination. The provisions of Sections 2.1, 3.3, 3.4 and 3.5, and Articles 4, 5, 6, and 7 shall survive the expiration or termination of this Agreement. 3.5 POST-TERMINATION ACCESS. Following expiration of this Agreement, Roche may continue to purchase Instruments and LabChip HTS Assays and LabChip UHTS Assays that it purchased prior to the expiration of its TAP subscription for so long as Caliper continues to offer such items for commercial sale to TAP participants. Otherwise, rights to purchase Caliper Screening Technology shall expire with the expiration of this Agreement. 3.6 TAP PARTICIPANT MEETINGS. Caliper agrees to conduct [ * ] meetings for all TAP participants for the purpose of informing the TAP participants of new Screening Technology developments. Each TAP participant will receive an invitation to each [ * ] meeting as long as that TAP participant has not breached its TAP agreement. Participation in such [ * ] meetings will be strictly voluntary on the part of the TAP participants. At each meeting, each of the TAP participants may elect, but will be under no obligation, to discuss their experiences and findings using the Screening Technology. 3.7 MOST FAVORED LICENSEE. If Caliper enters into a future TAP agreement with a third party and such third party TAP agreement contains terms or conditions which in the aggregate are more favorable to the third party than the terms and conditions of this Agreement are to Roche excluding consideration of Art. 2, Caliper agrees to notify Roche of such terms and conditions. Roche and Caliper agree to [ * ]. Should Roche extend its participation in the TAP pursuant to Art. 3.4(a), the parties agree that this Art. 3.7 will be subject to review at the time the TAP is extended. 4. PROPERTY RIGHTS. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 8. 9 4.1 PATENTS. Except as provided in Section 4.2, below, each party shall own inventions conceived or reduced to practice solely by its employees and/or consultants during the course of the Technology Access Program. Caliper and Roche shall jointly own inventions conceived or reduced to practice jointly by employees and/or consultants of both parties during the course of the Technology Access Program. Each party shall execute all documents and take all actions reasonably necessary to perfect such ownership rights in the other and to file patent applications under the Paris Convention. Inventorship shall be determined under U.S. patent laws. 4.2 LABCHIP IMPROVEMENT INVENTIONS. [ * ] Notwithstanding the foregoing, [ * ]. 5. CONFIDENTIALITY 5.1 CONFIDENTIAL INFORMATION. During the term of this Agreement, and for a period of five (5) years following the expiration or termination of this Agreement, each party shall maintain in confidence any and all information disclosed to it by the other party (the "Confidential Information"). Each party further agrees that it shall not use for any purpose not authorized under this Agreement or disclose the Confidential Information to any third party, except that either party may disclose Confidential Information under a similar obligation of confidentiality and non-use and on a need-to-know basis to its directors, officers, employees, consultants, agents or Affiliates, or as required by law, order or regulation of a governmental agency. The disclosing [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9. 10 party shall provide written notice to the other party of any such disclosure required by law, order or regulation of a governmental agency. 5.2 RELIEF. Each party shall be relieved of any and all obligations under Section 5.1 regarding Confidential Information which: (a) was already known to the receiving party or its Affiliates, other than under an obligation of confidentiality, at the time of disclosure by the other party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; (c) became generally available to the public or otherwise part of the public domain after its disclosure through no fault attributable to the receiving party; (d) was disclosed to the receiving party or its Affiliates, other than under an obligation of confidentiality to a third party, by a third party who had no obligation to the disclosing party not to disclose such information to others; or (e) was independently discovered or developed by the receiving party or its Affiliates without the use of Confidential Information belong to the disclosing party. 5.3 PRESS RELEASE/NON-USE. Neither party shall (a) issue a press release or make any other public statement that references this Agreement or the contents thereof, or (b) use the other party's or its Affiliates' name or trademarks for publicity or advertising purposes, except with prior written consent of the other party or as required by law, order or regulation of a governmental agency. 6. WARRANTIES AND INDEMNIFICATION. 6.1 DISCLAIMER CONCERNING TECHNOLOGY. CALIPER MAKES NO REPRESENTATION AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE INTELLECTUAL [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 10. 11 PROPERTY RIGHTS OF THIRD PARTIES, WITH RESPECT TO ANY CALIPER TECHNOLOGY, SCREENING TECHNOLOGY OR OTHER PRODUCTS DEVELOPED OR PROVIDED PURSUANT TO THIS AGREEMENT. 6.2 DISCLAIMER CONCERNING ROCHE COMPOUNDS AND ASSAYS. Caliper understands that Roche will be supplying compounds and assays (including their reagents) to Caliper as part of the Technology Access Program. Caliper accepts these compounds and assays (including their reagents) with the knowledge that they are experimental biological materials and agrees to comply with all laws and regulations for the handling and use thereof. BECAUSE THESE COMPOUNDS AND ASSAYS (INCLUDING THEIR REAGENTS) ARE EXPERIMENTAL IN NATURE, AND ARE FURNISHED WITHOUT CHARGE, THEY ARE BEING SUPPLIED TO CALIPER WITH NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY OF NONINFRINGEMENT. 6.3 INDEMNIFICATION. Caliper shall indemnify, defend and hold Roche and its Affiliates (and their respective directors, officers, employees, and agents) harmless against any and all liabilities, loss, cost or damage, together with all reasonable costs and expenses related thereto (including legal and accounting fees and expenses), arising from, relating to, or connected with [ * ]. 7. MISCELLANEOUS 7.1 NOTICES. Any consent, notice or report required or permitted to be given or made under the Agreement by one party to the other party shall be in writing, delivered personally or by facsimile, first class mail postage prepaid, courier nationally-recognized delivery service, and addressed to the other party at is address indicated below, or to such other address as the addressee shall have last furnished in writing to the addresser. Except as otherwise provided in the Agreement, such consent, notice or report shall be effective upon receipt by the addressee. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11. 12 If to Caliper: Caliper Technologies Corp. 1275 California Avenue Palo Alto, California 94304 Attention: Chief Operating Officer Facsimile: (650) 842-1970 If to Roche: Hoffmann-La Roche Inc. 340 Kingsland Street Nutley, New Jersey 07110-1199 Attention: Corporate Secretary Facsimile: (973) 235-3500 7.2 GOVERNING LAW. The Agreement shall be governed by and construed in accordance with the laws of [ * ], without regard to the conflicts of law principles thereof. 7.3 EXTENSION OF BENEFITS AND OBLIGATIONS. Roche shall have the right to extend the benefits and obligations of this Agreement with respect to countries outside the United States, to its Affiliate, F. Hoffmann-La Roche Ltd, a Swiss corporation. 7.4 ASSIGNMENT. This Agreement is personal in its character, and neither party shall assign its rights or obligations under this Agreement, in whole or in part, without the prior written consent of the other party; provided, however, that either party may assign this Agreement to any of its Affiliates or to any successor by merger or sale of substantially all of the business assets of the party. This Agreement shall be binding on and inure to the benefit of the successors or permitted assigns of the parties hereto, and all entities controlled by them. 7.5 WAIVERS AND AMENDMENTS. No change, modification, extension or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the parties hereto. 7.6 ENTIRE AGREEMENT. This Agreement, together with Exhibit A and Exhibit B, embodies the entire understanding between the parties and supersedes any prior understanding [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12. 13 and agreements between and among Caliper and Roche with respect to the subject matter hereof, including without limitation the Collaborative Development Agreement. All payments made hereunder shall be non-refundable and non-creditable against any future payments. 7.7 SEVERABILITY. If a court of competent jurisdiction declares any provision of this Agreement invalid or unenforceable, or if any government or other agency having jurisdiction over either party deems any provision to be contrary to any laws, then that provision shall be severed and the remainder of the Agreement shall continue in full force and effect. To the extent possible, the parties shall revise such invalidated provision in a manner that will render such provision valid without impairing the parties' original intent. 7.8 NO WAIVER. The failure of a party in any one or more instances to insist upon strict performance of any of the terms and conditions of this Agreement shall not constitute a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or conditions on any future occasion. 7.9 DISCLAIMER OF AGENCY. The relationship between Caliper and Roche is that of independent contractors. Roche and Caliper are not joint venturers, partners, principal and agent, master and servant, employer or employee, and have no other relationship other than independent contracting parties. Neither party shall have the right or authority to assume, create, or incur any third party liability or obligation of any kind, express or implied, against or in the name of or on behalf of another except as expressly set forth in this Agreement. 7.10 COUNTERPARTS. The 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. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. CALIPER TECHNOLOGIES CORP. HOFFMANN-LA ROCHE INC. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 13. 14 By: /s/ Calvin Chow By: /s/ Lee E. Babiss ------------------------------- ------------------------------- Name: Calvin Y. H. Chow Name: Lee E. Babiss --------------------------- ---------------------------- Title: Chief Operating Officer Title: Vice President, Preclinical R&D ------------------------------- ------------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 14. EX-10.12 13 TECHNOLOGY ACCESS AGREEMENT - AMGEN, INC. 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. EXHIBIT 10.12 TECHNOLOGY ACCESS AGREEMENT THIS TECHNOLOGY ACCESS AGREEMENT ("Agreement") dated as of December 21, 1998 (the "Effective Date") is entered into by and between AMGEN INC. having an address at One Amgen Center Drive, Thousand Oaks, California 91320-1799 ("Amgen") and CALIPER TECHNOLOGIES CORP. ("Caliper") having offices at 1275 California Avenue, Palo Alto, California 94304. RECITALS: WHEREAS, Caliper has developed proprietary microfluidics and miniaturization technology applicable to high throughput screening; WHEREAS, Caliper and Amgen desire to establish a technology access program to implement high throughput screening capabilities utilizing Caliper technology at Amgen's facilities; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained in this Agreement, the parties agree as follows: 1. DEFINITIONS 1.1 "AFFILIATE" shall mean (i) any corporation or other entity which directly or indirectly owns or controls at least fifty percent (50%) of the outstanding voting securities of a party (a "Parent"), (ii) any corporation or other entity in which a party directly or indirectly owns or controls at least fifty percent (50%) of the outstanding voting securities, and (iii) any corporation or other entity in which a Parent of a party owns or controls at least fifty percent (50%) of the outstanding voting securities. 1.1 "AMGEN COLLABORATOR" shall mean any third party with which Amgen or its Affiliates is collaborating to develop a pharmaceutical product as part of Amgen's in-house drug discovery programs. 1.2 "AMGEN TECHNOLOGY" shall mean any and all (i) [ * ] provided by Amgen to Caliper pursuant to this Agreement (together with [ * ] provided by Amgen to Caliper (except to the extent such 2 information is not confidential under Section 5.2) [ * ], and (iii) any and all [ * ] developed solely by either party or jointly by the parties with respect to any and all of the foregoing in connection with the TAP and any and all other activities contemplated by this Agreement. 1.4 "CALIPER KNOW-HOW" shall mean all discoveries, materials, techniques, procedures, data, trade secrets and other technical information which Caliper owns, controls or has any interest capable of being licensed (with rights to license to Amgen hereunder) and treats as confidential or proprietary as of the Effective Date or during the Term. Caliper Know-How does not include Caliper Patents. 1.5 "CALIPER PATENTS" shall mean any and all Patents which Caliper owns, controls or has any interest capable of being licensed (with rights to license to Amgen hereunder) as of the Effective Date or during the Term. 1.6 "CALIPER TECHNOLOGY" shall mean, collectively, the Caliper Patents and the Caliper Know-How. 1.7 "CONFIDENTIAL INFORMATION" shall mean this Agreement and the contents hereof and any and all information owned and provided by one party to the other party pursuant to this Agreement, including, without limitation, Materials (as defined in Section 4.3), data, knowledge, practices, processes, ideas, Amgen know-how, Caliper Know-How, research plans, engineering designs and drawings, research data, manufacturing processes and techniques, scientific, manufacturing, marketing, and business plans, financial or personnel matters relating to the party, its present or future products, sales, suppliers, customers, employees, investors or business. 1.8 "FTE" or full-time equivalent, shall mean one or more Caliper person(s), whether employees, contractors or consultants, working on activities under this Agreement for the equivalent of one full-time employee's time (assuming a 40 hour work week) over the course of one year. 1.9 "INSTRUMENT" shall mean the hardware component(s) of a system offered for sale by Caliper to develop or use LabChips, including but not limited to [ * ]. 1.10 "LABCHIP" shall mean a chip offered for sale by Caliper to perform microfluidic or miniaturization experimentation. 1.11 "LABCHIP ASSAY" shall mean a Screening assay for [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 2 3 designed to run on a Caliper Screening Product system, consisting of [ * ]. 1.12 "LABCHIP IMPROVEMENTS" shall mean [ * ] developed solely by either party or jointly by the parties with respect to (i) any and all Screening Products and [ * ] provided by Caliper to Amgen pursuant to this Agreement, and (ii) [ * ] provided by Caliper to Amgen with respect to the foregoing (except to the extent such information is not confidential under Section 5.2) in connection with the TAP and any and all other activities contemplated by this Agreement. By way of example, such technologies include but are not limited to [ * ]. 1.13 "PATENTS" shall mean any and all patents and patent applications and any substitutions, extensions, reissues, and renewals thereof, any supplementary protection certificates relating thereto, and any inventors' certificates, which have not been held invalid or unenforceable by a non-appealable or non-appealed decision of a court of competent jurisdiction, issuing from patent applications or patents filed in any jurisdiction and any provisionals, divisionals, continuations, and continuations-in-part of such applications or patents. 1.14 "SCREENING" shall mean the process of screening potential pharmaceutical agents or compounds against a pharmaceutically-relevant target (e.g., an [ * ]. For purposes of this Agreement, Screening shall include, but not be limited to, primary, [ * ]. 1.15 "SCREENING PRODUCTS" shall mean all Instruments, LabChips and other hardware, software or reagents that Caliper offers during the Term for general commercial sale to third parties or for sale to TAP members for use in Screening. 1.16 "TARGETS" shall mean the pharmaceutically relevant molecules, complexes or cell lines (such as [ * ]) nominated by Amgen for LabChip Assay development in accordance with Section 2.3. 1.17 "TECHNOLOGY ACCESS PROGRAM" OR "TAP" shall mean [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 3 4 the program described in this Agreement for developing Screening Products and implementing them at Amgen. 1.18 "TERM" shall mean the period of three (3) years commencing on the Effective Date, unless earlier terminated pursuant to Section 8 or modified by mutual written agreement of the parties. 2. TECHNOLOGY ACCESS PROGRAM. 2.1 LICENSE GRANT. (a) Caliper hereby grants to Amgen and its Affiliates a non-exclusive, non-transferable (except as provided in Section 9.3), royalty-free license, with no right to sublicense, under Caliper Technology to use Screening Products provided by Caliper to Amgen pursuant to this Agreement for any purpose in [ * ] (the "product license"). (Throughout this Agreement, references to Amgen's [ * ]). With respect to each of the Screening Products described on Exhibit A, the product license shall immediately become fully-paid, irrevocable and perpetual upon Caliper's receipt of the [ * ]. With respect to Screening Products offered in 2000 and beyond, the product license shall immediately become fully-paid, irrevocable and perpetual upon Caliper's receipt of the [ * ]. (b) Caliper also hereby grants to Amgen a non-exclusive, non-transferable (except as provided in Section 9.3), royalty-free, irrevocable, perpetual license, with no right to sublicense, to use Caliper Know-How provided pursuant to this Agreement [ * ] (the "know-how license"). (c) Caliper specifically permits Amgen under the licenses granted above to [ * ]. Caliper agrees to supply chips [ * ]. If Caliper and its licensee are not ready, willing and able to supply to Amgen, then Caliper will promptly so notify Amgen and [ * ]. In such event, [ * ] such products shall be covered by the licenses under Caliper Technology granted above. Otherwise, the licenses granted hereunder shall not include rights to [ * ], if the [ * ] would infringe any Caliper Patent. Should Caliper develop products [ * ] and offer such products through other technology access programs or other commercial arrangements, Amgen shall not be deemed to have rights to such products solely by reason of this section. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 4 5 (d) Each of these licenses is subject to the terms and conditions set forth in this Agreement and other reasonable terms and conditions, if any, mutually agreed upon at the time each Screening Product is sold to Amgen. Following expiration or termination of this Agreement, such licenses shall continue as further provided in Section 8.5. 2.2 PROGRAM LEADERS AND PLAN. Caliper and Amgen shall each designate a program leader. The program leaders shall jointly coordinate the activities carried out under this Agreement and monitor the progress of such activities on a periodic BASIS. From time to time, the program leaders shall mutually prepare and update a program plan describing (i) goals in terms of milestones and deliverables, (ii) the tasks and budget for Amgen support to be provided by Caliper personnel under Section 2.3, and (iii) such other matters as the program leaders may agree upon. The plan for 1999 is attached as Exhibit A (which shall be amended or modified only by mutual agreement of the parties). Plans for each subsequent year shall be mutually agreed by the parties not later than thirty (30) days prior to each such year (and thereafter shall be amended or modified only by mutual agreement of the parties). The dates set forth on the program plan for completion of tasks shall be good faith projections provided by Caliper and agreed to by Amgen. Caliper shall apply commercially reasonable efforts to achieve such objectives by such date and at all times thereafter until the objectives are achieved. [ * ] days prior to the end of each quarter, Caliper shall notify Amgen of its ability or inability to achieve that quarter's objectives within [ * ] days of the end of the quarter. If Caliper notifies Amgen that it is unable to satisfy that quarter's objectives within [ * ] days after the end of the quarter, or Caliper otherwise fails to satisfy such objectives within [ * ] days after the end of the quarter, then [ * ]. If Caliper fails to deliver within [ * ] days after the end of the [ * ] quarter of [ * ] the Multi Sipper Instrument scheduled to be delivered that quarter, then, in addition to the foregoing, Amgen's subscription under the TAP for 1999 shall automatically extend until [ * ] days following Amgen's purchase and receipt of the same or its written notice to Caliper of its election not to purchase the same (which purchase or notice shall occur not later than [ * ] days after Caliper notifies Amgen that such Multi Sipper Instrument is available for purchase). If Amgen elects to renew its subscription for 2000 (which election must be made prior to the expiration of the extended term of the 1999 subscription described in the foregoing sentence), then it must pay to Caliper the full year 2000 subscription fee of [ * ] prior to the expiration of the extended term of the 1999 subscription. 2.3 AMGEN SUPPORT. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 5 6 (a) GENERAL. In addition to describing milestones and deliverables, the program plan prepared by the program leaders shall also plan and budget for activities of Caliper personnel specifically directed to [ * ]. Such activities may include (i) [ * ]. Funding for such Caliper personnel shall be provided pursuant to Section 3.2 below. Amgen's program leader shall propose priorities and tasks for Caliper to support Amgen. Caliper's program leader will determine the necessary personnel resources, provide estimates of the projected time needed to perform relevant tasks and provide estimates of the technical feasibility of various tasks. Based on this information, the project leaders will mutually agree on an appropriate plan and budget for Amgen support activities utilizing up to the number of FTEs of Caliper time agreed upon at the beginning of the year as provided in Section 3.2 [ * ]. Requests for more than [ * ] FTEs of support at any time shall be subject to mutual agreement. (b) ASSAY DEVELOPMENT. LabChip Assays for Amgen's Targets will be developed collaboratively by the parties or by Amgen independently, as determined by Amgen. In general, Amgen will [ * ]. Initially, Caliper will be primarily responsible for adapting the assay to the LabChip format. Over time, the parties expect that Amgen will [ * ]. (c) TRAINING AND SUPPORT. At Amgen's request, some of the Caliper FTEs shall provide training and support for Amgen employees in [ * ]. This training will be in addition to customary introductory set-up and training provided [ * ]. Amgen personnel will have access to information concerning all Caliper Technology relevant to Screening throughout the Term and may regularly or periodically communicate (by telephone, e mail, fax, etc.) or visit Caliper's facilities for such purposes at mutually arranged times. (d) CORE SCREENING PRODUCT OFFERINGS; CUSTOM DEVELOPMENT. Caliper intends to consult all of its TAP participants as it decides on core Screening Product offerings, and Caliper will include Amgen in such discussions. From time to time, Caliper will notify Amgen of the particular Screening Products that Caliper has decided to develop for general commercial sale. Such products will be based upon the technical suggestions and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 6 7 contributions and the funding anticipated to be provided by all TAP participants. Upon Amgen's request (but in no event more frequently than [ * ]), Caliper will provide Amgen with written reports summarizing the progress of the TAP and the development of the Screening Products. If Amgen is interested in having Caliper develop additional products, or accessories to core products, then Amgen may elect to apply a portion of the Amgen support FTEs to such custom development efforts. If such projects would cause the aggregate Amgen support to exceed [ * ] FTEs at any time, then Caliper's agreement to the project will be required. 2.4 NON-EXCLUSIVE PROGRAM. The TAP is a mutually non-exclusive collaboration anticipated to involve Caliper and multiple pharmaceutical companies. Amgen and Caliper are each free to work with any other company in any area. Amgen acknowledges that other customers, independently or together with Caliper, may develop LabChip Assays [ * ]; subject in all cases to Sections 5.1 and 5.2 and the other terms of this Agreement. Similarly, Caliper acknowledges that Amgen will [ * ]; subject in all cases to Sections 5.1 and 5.2 and the other terms of this Agreement. 2.5 RESTRICTIONS ON USE OF SCREENING PRODUCTS. Amgen agrees that it will use all Screening Products only in its and its Affiliate's [ * ]. Specifically, Amgen shall not (i) transfer for valuable consideration or resell any Screening Products or screening data generated therefrom to any third party other than Affiliates or Amgen Collaborators, (ii) use any Screening Products to provide services on behalf of any third party, except that Amgen can provide services for its Affiliates or an Amgen Collaborator, or (iii) allow a third party other than an Affiliate or an Amgen Collaborator to use any Screening Products. Caliper agrees to supply Instruments and replacement parts for use with LabChips purchased by Amgen, and LabChips for use with Instruments and replacement parts purchased by Amgen, [ * ]. If Caliper and its licensees are not ready, willing and able to supply Amgen with such products, then Caliper will promptly so notify Amgen [ * ]. In such event, [ * ] such products shall be covered by the licenses under Caliper Technology granted in Section 2. Otherwise, the licenses granted hereunder shall not include rights to [ * ], if the [ * ] would infringe any Caliper Patent. 2.6 COMMERCIALIZATION OF SCREENING PRODUCTS. Caliper acknowledges that a portion of the value of this Agreement to Amgen comes from [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 7 8 Caliper represents to Amgen that as of the Effective Date [ * ]. If Caliper should [ * ], then the parties shall mutually agree in good faith on [ * ]. 2.7 NO CALIPER RIGHTS. Caliper, its employees, agents and/or consultants shall have no rights, claims or interests whatsoever (including but not limited to any intellectual property rights) with respect to any [ * ] developed in connection with, relating to, or resulting from the Screening Products provided to Amgen hereunder or otherwise in connection with the technology access provided to Amgen by this Agreement. 3. FINANCIAL TERMS. 3.1 TECHNOLOGY ACCESS FEES. (a) UP-FRONT LICENSE FEE. Amgen shall pay to Caliper a non-refundable up-front license fee of [ * ]. (b) ANNUAL SUBSCRIPTION FEES. Amgen shall pay to Caliper a non-refundable annual subscription fee of [ * ] for each year of the TAP, as follows: (i) The subscription fee for the year 1999 shall be paid as follows. Amgen shall pay Caliper [ * ]. The balance of [ * ] shall be paid in installments based upon [ * ], without regard to [ * ]. Each installment payment shall be invoiced by Caliper to Amgen and due within thirty (30) days of the receipt of invoice. (ii) Unless Amgen terminates this Agreement early under Section 8.2, or except as otherwise provided in Section 2.2, Amgen shall pay Caliper the annual subscription fee for 2000 and 2001 on or before [ * ]. 3.2 AMGEN SUPPORT FUNDING. (a) Amgen shall provide funding for Amgen support activities provided by Caliper under Section 2.3 at the rate of [ * ] per FTE per year. For 1999, Caliper agrees to provide, and Amgen agrees to fund, [ * ] FTEs for Amgen support activities. Prior to the beginning of each subsequent year, the parties shall mutually agree on a schedule for Amgen support personnel to be provided by Caliper and funded by Amgen; provided, however that this shall be [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 8 9 determined quarterly for the period of time, if any, that the Multi Sipper Instrument scheduled to be delivered in the [ * ] quarter of [ * ] has not yet been delivered. [ * ] of FTEs shall apply after 1999 unless the parties mutually agree otherwise, and Caliper shall not be obliged to provide more than [ * ] FTEs in any such year unless the parties mutually agree otherwise. (b) Amgen support funding shall be paid [ * ]. The funding for each quarter shall be based on the number of Amgen support FTEs scheduled in the program plan for such quarter. Caliper shall deliver quarterly reports to Amgen describing the actual time applied to Amgen support tasks. The project leaders may adjust the Amgen support FTEs scheduled for subsequent quarters based on such reports. In any event, the parties will reconcile any discrepancy between funding and actual FTE time provided once per year, after the last quarter's report has been delivered to Amgen. If actual FTE time is less than the funding provided, Caliper shall refund the difference or credit it towards the next year's funding, [ * ]. If actual FTE time exceeds the funding provided, [ * ]. 3.3 SCREENING PRODUCTS. (a) Caliper will notify Amgen when Caliper is prepared to offer each Screening Product for sale to Amgen, together with standard commercial terms to be established by Caliper including price, warranty, set-up and training, et cetera. The parties agree, however, that the purchase price (excluding tax and shipping) for the following initial deliverables set forth in the program plan shall be as set forth below: [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] (b) Amgen hereby agrees to take delivery of and to pay for the Instruments listed under [ * ] on Exhibit A. The purchase price of [ * ] for the [ * ] and [ * ] shall be paid on or before [ * ]; provided that [ * ]. Orders for the Screening Products for 1999 described in Exhibit A shall be considered firm unless and until otherwise provided in Section 2.2. Amgen shall pay the purchase price for the other deliverables within thirty (30) days of receipt by Amgen of the invoice for the deliverable, which will be sent at the time the product is shipped. Amgen shall pay standard sales taxes applicable to each [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 9 10 sale of Screening Products. (c) [ * ]. 4. INTELLECTUAL PROPERTY. 4.1 AMGEN TECHNOLOGY. Amgen shall have all right, title and interest in and to the Amgen Technology. Caliper hereby assigns to Amgen all of its right, title and interest, if any, in and to all Amgen Technology discovered, invented (inventions conceived or reduced to practice) or developed in connection with the TAP and any and all other activities contemplated by this Agreement. Caliper agrees to cooperate with Amgen to execute any documents or take any other actions necessary or desirable to effect such assignment and perfect such ownership rights in Amgen, at Amgen's expense. Caliper shall use reasonable efforts to notify Amgen of any new Amgen Technology (Amgen Technology not specifically provided by Amgen to Caliper under this Agreement). Any such new Amgen Technology for which no patent application is filed shall be treated as Amgen's Confidential Information. The intent of this Section 4.1 is to vest in Amgen all intellectual property rights, if any, resulting from or in connection with the working relationship created by this Agreement which relate to its business - research, development and commercialization of pharmaceutical products and in the event of question or issue regarding intellectual property rights this principle shall be followed. 4.2 CALIPER TECHNOLOGY. Caliper shall have all right, title and interest in and to the Caliper Technology and LabChip Improvements. Amgen hereby assigns to Caliper all of its right, title and interest (except the licenses granted to Amgen under this Agreement), if any, in and to all Caliper Technology and LabChip Improvement discovered, invented (inventions conceived or reduced to practice) or developed in connection with the TAP and any and all other activities contemplated by this Agreement; provided, however, that Amgen shall have a non-exclusive, royalty-free, irrevocable and perpetual license to such Caliper Technology and LabChip Improvements for the use by it, its Affiliates and Amgen Collaborators for any purpose in Amgen's [ * ]. Amgen agrees to cooperate with Caliper to execute any documents or take any other actions necessary or desirable to effect such assignment and perfect such ownership rights in Caliper, at Caliper's expense. Amgen shall use reasonable efforts to notify Caliper of any new Caliper Technology or LabChip Improvements (Caliper Technology or LabChip Improvements not specifically provided by Caliper to Amgen under this Agreement). Any such new Caliper Technology or LabChip Improvements for which no patent application is filed shall be treated as Caliper's Confidential Information. The intent of this Section 4.2 is to vest in Caliper all intellectual property rights, if any, resulting from or in [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 10 11 connection with the working relationship created by this Agreement which relate to its business - research, development, manufacture and commercialization of chip-based microfluidic systems, and in the event of question or issue regarding intellectual property rights this principle shall be followed. 4.3 AMGEN MATERIALS. Amgen may provide to Caliper pursuant to this Agreement certain [ * ] and other materials (collectively, the "Materials"), which are and shall be the sole property of Amgen. The provision of Materials to Caliper under this Agreement does not grant Caliper any license or other right to Amgen Technology, except the limited right to use the Materials for the sole purpose of satisfying its obligations to Amgen under this Agreement and for no other purpose, including without limitation other research purposes. Caliper understands that some Materials may have unpredictable or unknown biological and/or chemical properties and that they should be used with caution. Upon termination of this Agreement, Caliper shall promptly return the Materials to Amgen. 5. CONFIDENTIALITY; PUBLICITY; USE OF NAME. 5.1 CONFIDENTIAL INFORMATION. During the term of this Agreement, and for a period of five (5) years following the expiration or termination of this Agreement, each party shall maintain in confidence any and all Confidential Information. Each party further agrees that it shall not use for any purpose not authorized under this Agreement or disclose the Confidential Information to any third party, except that either party may disclose Confidential Information under a similar obligation of confidentiality and non-use on a need-to-know basis to its directors, officers, employees, consultants, agents and Affiliates. Notwithstanding the foregoing, this Agreement and the contents hereof may be disclosed under a similar obligation of confidentiality and non-use on a need-to-know basis to investors and their representatives in a private financing transaction, potential acquirers or targets and their representatives in an acquisition transaction, or as required by law (including but not limited to as an exhibit to a registration statement filed with the Securities and Exchange Commission), order or regulation of a governmental agency. The disclosing party shall provide written notice to the other party of any such disclosure required by law, order or regulation of a governmental agency, reasonably in advance if practical. If Caliper intends to file this Agreement with the Securities and Exchange Commission, Caliper agrees to provide Amgen with a copy of the proposed filing for review and comment reasonably in advance of the filing date. Upon termination of this Agreement, each party shall return to the other party Confidential Information received from the other in tangible form. 5.2 RELIEF. Each party shall be relieved of any and all obligations [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 11 12 under Section 5 regarding Confidential Information which: (a) was already known to the receiving party or its Affiliates, other than under an obligation of confidentiality, at the time of disclosure by the other party; (b) was generally available or known to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; (c) became generally available or known to the public or otherwise part of the public domain after its disclosure through no fault attributable to the receiving party; (d) was disclosed to the receiving party or its Affiliates, other than under an obligation of confidentiality to a third party, by a third party who had no obligation to the disclosing party not to disclose such information to others; or (e) was independently discovered or developed by the receiving party or its Affiliates without the use of Confidential Information belonging to the disclosing party. 5.3 PUBLICITY. Neither party shall originate any news release or other public announcement relating to this Agreement or the contents hereof without the prior written approval of the other party, which approval shall not be unreasonably withheld or delayed for longer than five (5) working days. 5.4 USE OF NAME. Except as otherwise provided in Section 5.1, neither party shall use the name or logo of the other party without the prior written consent of such other party. 6. REPRESENTATIONS AND WARRANTIES AND COVENANTS. 6.1 CORPORATE POWER. Each party represents and warrants to the other that as of the Effective Date it is duly organized and validly existing under the laws of its state of incorporation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. 6.2 DUE AUTHORIZATION. Each party represents and warrants to the other that as of the Effective Date it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 12 13 6.3 BINDING AGREEMENT. This Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not breach any agreement to which it is a party, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it, in each case in any material respect. The parties agree that this covenant shall be applicable on the Effective Date and throughout the Term. 7. INDEMNIFICATION; DISCLAIMER; LIMITATION OF LIABILITY. 7.1 INDEMNIFICATION BY CALIPER. Amgen shall be entitled to the quiet enjoyment of the Screening Products and therefore, subject to Section 7.4 below, Caliper shall defend, indemnify and hold harmless Amgen and its Affiliates and all their officers, directors, employees and agents from and against any and all damages, awards, costs and expenses (including court and arbitration costs, witness fees and reasonable attorneys' fees) incurred by Amgen or any such person or entity arising from or in connection with [ * ]. 7.2 INDEMNIFICATION BY AMGEN. Amgen shall defend, indemnify and hold harmless Caliper, its Affiliates and sublicensees, and all their officers, directors, employees and agents from any damages, awards, costs and expenses (including court and arbitration costs, witness fees and reasonable attorneys' fees) incurred by Caliper and/or any such person or entity arising from or in connection with [ * ]. 7.3 INDEMNIFICATION PROCEDURE. The party seeking indemnification under this Article 7 (the "Indemnified Party") shall (i) give the other party (the "Indemnifying Party") notice of the relevant claim and the related facts with reasonable promptness after becoming aware of same, (ii) reasonably cooperate with the Indemnifying Party, at the Indemnifying Party's expense, in the defense of such claim, and (iii) give the Indemnifying Party the ability to control the defense and settlement of any such claim, except that the Indemnifying Party shall not enter into any settlement that materially adversely affects the Indemnified Party without the Indemnified Party's prior written approval. The Indemnified Party shall have no authority to settle any claim on behalf of the Indemnifying Party. 7.4 INTELLECTUAL PROPERTY. Caliper' obligation to indemnify Amgen for claims under Section 7.1 above shall be subject to the following conditions. Caliper shall determine which Screening Products to offer and when [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 13 14 they will be offered. Caliper may impose reasonable restrictions upon the use of any Screening Product for intellectual property reasons, provided it notifies Amgen of such restriction at the time of sale. Following sale of any product, if Caliper determines that third party intellectual property concerns warrant, Caliper may, in its sole discretion, [ * ]. In the event of (iii), Amgen may elect to have [ * ]. Caliper shall not be obligated to indemnify Amgen for claims arising out of [ * ] resulting from Amgen's combination of such Screening Product with technology other than the Caliper Technology, Amgen's use of such Screening Product in a manner not authorized by Caliper at the time of sale, Amgen's misuse or mishandling of such Screening Product, Amgen's unauthorized modification of such Screening Product or Amgen's continued use of such Screening Product notwithstanding termination of Amgen's right to use such Screening Product pursuant to this Section 7.4. 7.5 CALIPER DISCLAIMER. Caliper makes no representation and extends no warranties of any kind, either express or implied, including warranties of merchantability or fitness for a particular purpose, with respect to any caliper technology, screening product or other products developed or provided pursuant to this agreement. Amgen acknowledges that the Screening Products to be provided to Amgen pursuant to this Agreement are prototype units, and as such are neither equipped with standard safety features nor completely tested for defects. Amgen acknowledges that such products require a greater degree of caution than other standard laboratory equipment. Caliper shall not be liable to Amgen for any personal injury or property damage resulting from use of such equipment in a manner other than that recommended by Caliper at the time of sale. 7.6 AMGEN DISCLAIMER. AMGEN MAKES NO REPRESENTATION AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY AMGEN TARGETS OR OTHER MATERIALS OR TECHNOLOGY DEVELOPED OR PROVIDED PURSUANT TO THIS AGREEMENT. 7.7 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION, LOST PROFITS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. Each party acknowledges that the foregoing limitations are an essential element of the Agreement between the parties and that in the absence of such limitations the pricing and other terms set forth in this Agreement would be substantially different. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 14 15 8. TERM AND TERMINATION. 8.1 TERM. The term of this Agreement shall commence on the Effective Date and, unless terminated earlier pursuant to this Section 8, shall expire December 31, 2001. The Agreement may be extended by mutual written agreement of the parties hereto. 8.2 TERMINATION BY AMGEN. Amgen may terminate this Agreement, with or without cause, effective on January 1 of any year after January 1, 1999, with at least [ * ] days prior written notice; provided, however, that Amgen may also terminate this Agreement if Caliper has not delivered within [ * ] days of the end of the [ * ] quarter of [ * ] the Multi Sipper Instrument scheduled to be delivered that quarter by providing Caliper with written notice at any time prior to the expiration of the extended term of the 1999 subscription described in Section 2.2. All rights and obligations applicable under this Agreement through the effective date of termination shall continue to apply until such date irrespective of any delivery of notice of termination, including but not limited to [ * ]. 8.3 TERMINATION FOR MATERIAL BREACH. Either party may terminate this Agreement upon any material breach of this Agreement by the other party if the other party has not cured such breach within sixty (60) days after written notice thereof by the non-breaching party. 8.4 SURVIVING OBLIGATIONS. No expiration or termination of this Agreement shall relieve either party of any obligation accruing prior to such expiration or termination. The provisions of Sections 2.1(a) (third and fourth sentences), 2.1(b), 2.1(c), 2.1(d), 2.4, 2.5, 2.7, 3.1(b)(i), 3.3(c ), 4, 5, 7, 8.4, 8.5 and 9 shall survive the expiration or termination of this Agreement. 8.5 POST-TERM LICENSE. Following expiration or termination of this Agreement, the product license granted to Amgen under Section 2.1 shall continue to be fully-paid, irrevocable and perpetual and, in addition, Amgen shall be entitled to continue to purchase such Instruments, LabChips and other Screening Products for so long as Caliper continues to offer such items for sale to third parties. Caliper will notify Amgen before ceasing production of any Screening Product which Amgen has purchased in the [ * ] period before production is due to cease. The know-how license granted under Section 2.1 shall continue to be fully-paid, irrevocable and perpetual with respect to Caliper Know-How provided to Amgen during the Term. The non-exclusive license granted to Amgen under Section 4.2 shall continue to be royalty-free, irrevocable and perpetual with respect to Caliper Technology and LabChip Improvements covered thereby. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 15 16 9. MISCELLANEOUS 9.1 NOTICES. Any consent, notice or report required or permitted to be given or made under the Agreement by one party to the other party shall be in writing, delivered personally or by confirmed facsimile, first class mail postage prepaid, courier, or nationally-recognized delivery service, and addressed to the other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addresser. Such consent, notice or report shall be effective upon delivery to the addressee. If to Caliper: Caliper Technologies Corp. 605 Fairchild Drive Mountain View, California 94043 ATTENTION: CHIEF OPERATING OFFICER If to Amgen: Amgen Inc. One Amgen Center Drive Thousand Oaks, California 91320-1799 Attention: Senior Vice President, General Counsel and Secretary Copy to: Senior Vice President, Research Facsimile: (805) 499-8011 9.2 GOVERNING LAW. The Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law principles thereof. With respect to any dispute under this Agreement, the parties submit to the exclusive jurisdiction of the courts of the State of California (both state and federal). 9.3 ASSIGNMENT. This Agreement is personal in its character, and neither party shall assign its rights or obligations under this Agreement, in whole or in part, without the prior written consent of the other party; provided, however, that either party may assign this Agreement (i) to any successor by merger or sale of substantially all of the business assets of the party or (ii) to any Affiliate so long as such Affiliate expressly agrees to be bound by the terms of this Agreement. This Agreement shall be binding on and inure to the benefit of the successors or permitted assigns of the parties hereto, and all entities controlled by them. 9.4 WAIVERS AND AMENDMENTS. No change, modification, extension or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 16 17 the parties hereto. 9.5 ENTIRE AGREEMENT. This Agreement embodies the entire understanding between the parties and supersedes any prior understanding and agreements between and among Caliper and Amgen with respect to the subject matter of this Agreement. 9.6 SEVERABILITY. If a court of competent jurisdiction declares any provision of this Agreement invalid or unenforceable, or if any government or other agency having jurisdiction over either party deems any provision to be contrary to any laws, then that provision shall be severed and the remainder of the Agreement shall continue in full force and effect. To the extent possible, the parties shall revise such invalidated provision in a manner that will render such provision valid without impairing the parties' original intent. 9.7 NO WAIVER. The failure of a party in any one or more instances to insist upon strict performance of any of the terms and conditions of this Agreement shall not constitute a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or conditions on any future occasion. 9.8 DISCLAIMER OF AGENCY. The relationship between Caliper and Amgen is that of independent contractors. Caliper and Amgen are not joint venturers, partners, principal and agent, master and servant, employer or employee, and have no other relationship other than independent contracting parties. Neither party shall have the right or authority to assume, create, or incur any third party liability or obligation of any kind, express or implied, against or in the name of or on behalf of another except as expressly set forth in this Agreement. 9.9 COUNTERPARTS. The 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. 9.10 USE OF TERMS. As used in Sections 1.3, 1.12, 2.7 and 4, the terms "Amgen", "Caliper", "party" or "parties" shall also include it and their employees, consultants, agents and Affiliates. 9.11 MISCELLANEOUS. In order for each party to fulfill its obligations hereunder with respect to intellectual property and Confidential Information, each party has or will have each of its relevant employees, consultants, agents or Affiliates to execute agreements providing for the assignment of intellectual property rights and for the protection of Confidential Information. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 17 18 IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first set forth above. CALIPER TECHNOLOGIES CORP. AMGEN INC. By: /s/ Calvin Chow By: /s/ Gordon M. Binder -------------------------- --------------------------------------- Title: Chief Operating Officer Title: Chairman and Chief Executive Officer ----------------------- ------------------------------------ [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 18 19 EXHIBIT A 1999 PROGRAM PLAN The following program plan describes the experimental systems scheduled for delivery and the technology developments scheduled to be demonstrated during 1999. [ * ]. [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 133, AS AMENDED. 19 EX-10.13 14 TECHNOLOGY ACCESS AGREEMENT - ELI LILLY 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.13 TECHNOLOGY ACCESS AGREEMENT THIS TECHNOLOGY ACCESS AGREEMENT ("Agreement"), dated as of August 12, 1999 (the "Effective Date"), is entered into by and between ELI LILLY AND COMPANY, having offices at Lilly Corporate Center, Indianapolis, Indiana 46285 ("Lilly") and CALIPER TECHNOLOGIES CORP. ("Caliper"), having offices at 605 Fairchild Drive, Mountain View, California 94043-2234. RECITALS WHEREAS, Lilly is in the business of discovering, developing, manufacturing and marketing actual or potential pharmaceutical, therapeutic, animal health and agricultural agents, compounds and products (collectively, "Lilly Products"); and WHEREAS, Lilly uses Screening techniques in its business activities; and WHEREAS, Caliper has developed proprietary microfluidics and miniaturization technology applicable to Screening techniques; and WHEREAS, Caliper and Lilly desire to establish a technology access program to implement Screening capabilities utilizing Caliper Technology at Lilly's facilities; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained in this Agreement, the parties agree as follows: 1. DEFINITIONS 1.1 "AFFILIATE" shall mean, with respect to any Person, any other Person controlling, controlled by or under common control with, such Person. For purposes of this definition, the term "control" means the possession, directly or indirectly, of the power to direct the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 1.2 "ANNUAL SUBSCRIPTION FEE" shall have the meaning specified in Section 3.1.2. 1.3 "CALIPER KNOW-HOW" shall mean [ * ], 2 and (b) Caliper treats as confidential or proprietary. Caliper Know-How does not include Caliper Patents. 1.4 "CALIPER PATENTS" shall mean any and all Patents that either as of the Effective Date or during the Term Caliper owns or controls, or in which Caliper has an interest that it is not legally or contractually prohibited from licensing or sublicensing to Lilly. 1.5 "CALIPER SCREENING SYSTEM" shall mean a system for performing Screening that consists of [ * ]. 1.6 "CALIPER TECHNOLOGY" shall mean, collectively, the Caliper Patents and the Caliper Know-How. 1.7 "CONFIDENTIAL INFORMATION" of a party shall mean all information provided by such party to the other party either in connection with the discussions and negotiations pertaining to this Agreement or in the course of performing this Agreement, which information is considered to be proprietary and confidential by the disclosing party, including without limitation, data; knowledge; practices; processes; ideas; research plans; chemical compounds; engineering designs and drawings; research data; manufacturing processes and techniques; scientific, manufacturing, marketing and business plans; and financial and personnel matters relating to the disclosing party or to its present or future products, sales, suppliers, customers, employees, investors or business. Notwithstanding the foregoing, information shall not be deemed Confidential Information for purposes of this Agreement if such information: (a) was already known to the receiving party or its Affiliates, other than under an obligation of confidentiality, at the time of disclosure by the disclosing party; (b) was generally available or known to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; (c) became generally available or known to the public or otherwise part of the public domain after its disclosure to the receiving party through no fault of the receiving party; [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 3 (d) was disclosed to the receiving party or its Affiliates, other than under an obligation of confidentiality to a third party, by a third party who had no obligation to the disclosing party not to disclose such information to others; or (e) was independently discovered or developed by the receiving party or its Affiliates without the use of Confidential Information belonging to the disclosing party. [ * ]. 1.8 "CONTRACT YEAR" shall mean a period of one year commencing on the Effective Date or on any anniversary of the Effective Date. 1.9 "EFFECTIVE DATE" shall have the meaning stated in the introductory paragraph of this Agreement. 1.10 "FTE" shall mean one or more Caliper full-time equivalent person(s), whether employees, contractors or consultants, engaged in activities on Lilly's behalf under this Agreement for the equivalent of one full-time employee's time (assuming a 40-hour workweek). 1.11 "INSTRUMENT" shall mean any hardware component of a system offered for sale by Caliper to develop LabChip Assays or perform Screening. 1.12 "LABCHIP" shall mean a chip offered for sale by Caliper [ * ]. LabChip(tm) is a Caliper trademark but is printed without the trademark designation (tm) in this Agreement for convenience. 1.13 "LABCHIP ASSAY" shall mean a Screening assay for a particular Target designed to be performed on a Caliper Screening System. 1.14 "LABCHIP IMPROVEMENTS" [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 4 1.15 "LICENSE" shall mean the license granted to Lilly and its Affiliates by Caliper in Section 2.1 of this Agreement. 1.16 "LICENSE FEE" shall have the meaning specified in Section 3.1.1. 1.17 "LILLY PRODUCTS" shall have the meaning specified in the Recitals. 1.18 "LILLY PROGRAM" [ * ]. 1.19 "MATERIALS" shall have the meaning specified in Section 4.3. 1.20 "PARTICIPANT" shall mean a Person participating in the Technology Access Program under the terms and conditions of an agreement such as this Agreement. 1.21 "PATENTS" shall mean any and all patents, together with any substitutions, reissues, renewals, divisions, continuations, continuations-in-part, reexaminations, patent term restorations, patents of additions and extensions thereof, any supplementary protection certificates relating thereto, and any inventors' certificates, which have not been held invalid or unenforceable by a non-appealable or non-appealed decision of a court of competent jurisdiction, issuing from patent applications filed in any jurisdiction and any provisionals, divisionals, continuations, and continuations-in-part of such applications. 1.22 "PERSON" shall mean an individual, partnership, firm, corporation, limited liability company, joint venture, association, trust or other entity, or any governmental agency or political subdivision thereof. 1.23 "PROGRAM COLLABORATOR" shall mean a third party participant in a Lilly Program. 1.24 "PROGRAM LEADER" shall have the meaning specified in Section 2.2. 1.25 "PROGRAM PLAN" shall have the meaning specified in Section 2.2. 1.26 "REINSTATEMENT ELECTION" shall have the meaning specified in Section 7.6.4. 1.27 "REINSTATEMENT PAYMENT" shall have the meaning specified in Section 7.6.4. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4 5 1.28 "SCREENING" shall mean the process of [ * ]. For purposes of this Agreement, Screening shall include, but not be limited to, [ * ]. 1.29 "SCREENING DATA" shall have the meaning specified in Section 4.4. 1.30 "SCREENING PRODUCTS" shall mean all Instruments, LabChips and other hardware, software or reagents that Caliper offers in writing during the Term for sale to Participants for use in Screening. 1.31 "SUSPENSION" shall have the meaning specified in Section 7.6. 1.32 "SUSPENSION PERIOD" shall have the meaning specified in Section 7.6. 1.33 "SUSPENSION YEAR" shall have the meaning specified in Section 7.6. 1.34 "TARGETS" shall mean [ * ] for LabChip Assay development in accordance with Section 2.3. 1.35 "TECHNOLOGY ACCESS PROGRAM" or "TAP" shall mean Caliper's program for providing access to its evolving line of Screening Products in the context of an ongoing, renewable business relationship. In addition to sales of finished products, this relationship involves customer input into development, early access to prototypes and substantial training and support. 1.36 "TERM" shall mean the period commencing on the Effective Date and ending on the third anniversary of the Effective Date, unless extended or earlier terminated pursuant to Section 7 or modified by mutual written agreement of the parties pursuant to Section 9.4. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 5 6 2. TECHNOLOGY ACCESS PROGRAM 2.1 LICENSE GRANT. Caliper hereby grants to Lilly and its Affiliates a worldwide, nonexclusive, nontransferable (except as provided in Section 9.3) license, with no right to sublicense, under Caliper Technology: (a) to use Screening Products to develop LabChip Assays and to perform Screening, for itself or for Program Collaborators, in Lilly Programs; and (b) to carry out any and all activities contemplated from time to time pursuant to this Agreement or the Program Plan. With respect to each of the Screening Products offered for sale by Caliper in the first Contract Year, this license shall become [ * ] upon Caliper's receipt of [ * ]. With respect to Screening Products offered in each subsequent Contract Year, this license shall become [ * ]. For the avoidance of doubt, the parties intend that Lilly shall have a [ * ] with respect to [ * ]. Accordingly, as provided in Section 7.5, [ * ], this license, [ * ], shall survive in perpetuity despite the expiration or termination of this Agreement. 2.2 PROGRAM LEADERS AND PLAN. Caliper and Lilly shall each designate a TAP leader (each, a "Program Leader") who shall jointly coordinate the activities carried out under this Agreement and monitor the progress of such activities on a periodic basis. The initial Program Leader of Lilly shall be [ * ], and the initial Program Leader of Caliper shall be Steven A. Sundberg, Ph.D. From time to time, the Program Leaders shall jointly prepare and update a program plan (the "Program Plan") describing Lilly's goals as a Participant, the tasks for Lilly support to be provided by Caliper personnel under Section 2.3, and such other matters as the Program Leaders determine to be appropriate. The initial Program Plan is attached hereto as Exhibit A. Either party, in its sole discretion, may change its Program Leader by delivering written notice of the name and qualifications of the proposed successor Program Leader to the other party. If the other party questions the qualifications of the proposed successor, then the parties shall consult with one another in good faith for the purpose of resolving any issues. In the event of a change in Program Leader, a reasonable transition period shall be [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6 7 allowed for, if possible, in order to maximize continuity of Lilly's participation in the TAP. 2.3 LILLY SUPPORT. 2.3.1. GENERAL. [ * ] Caliper shall provide to Lilly, up to the limits set forth below, assistance and support in implementing the Program Plan and otherwise carrying out the activities contemplated by this Agreement. Such activities may include, without limitation, (i) assay development for Lilly Targets, (ii) training and support for Lilly personnel developing LabChip Assays or using Screening Products, and (iii) custom development projects requested by Lilly (each discussed further below). The Program Leaders will jointly propose priorities and tasks to be accomplished by the FTEs assigned by Caliper to provide such assistance and support to Lilly. Caliper's Program Leader will determine the necessary personnel resources, and provide estimates (in writing, if requested) of the projected time needed to perform relevant tasks and the technical feasibility of various tasks. Based on this information, the Program Leaders will update the Program Plan to include the applicable tasks for Lilly support activities. Absent Caliper's agreement to the contrary, the amount of assistance and support shall not exceed [ * ] FTEs in any calendar quarter. Administrative activities of the Caliper Program Leader shall not be counted toward this limit. The Program Leaders shall attempt to schedule the activities of the FTEs in order to avoid significant fluctuations in the number of Caliper personnel devoted to Lilly support over the course of the Contract Year. [ * ]. The parties expect that the skills, experience, training and qualifications required of such FTEs will vary from time to time during the Term. Caliper will use its best efforts at all times to assign FTEs with the proper skills, experience, training and qualifications, and will not assign FTEs to whom Lilly reasonably objects on the grounds of improper skills, experience, training and qualifications. In addition, Caliper agrees [ * ]. Caliper shall deliver quarterly reports to Lilly describing the actual time applied by its FTEs to Lilly support tasks. The Program Leaders may adjust the Lilly support FTEs scheduled for subsequent quarters based on such reports. 2.3.2. LABCHIP ASSAY DEVELOPMENT. LabChip Assays for Lilly's Targets will be developed collaboratively by the parties or solely by Lilly, as determined by Lilly. In general, Lilly will [ * ]. Initially, Caliper will be primarily responsible for [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7 8 Over time, the parties expect that Lilly will [ * ]. 2.3.3. TRAINING AND SUPPORT. At Lilly's request, [ * ] or more of the Caliper FTEs shall provide training and support for Lilly employees in development of LabChip Assays and use of Screening Products, with the intended result of making Lilly independent in its use of Caliper Technology. The parties will schedule such training and support at mutually convenient times and locations, including a reasonable number of visits to Lilly's facilities in Indiana, North Carolina or elsewhere. 2.3.4. CORE SCREENING PRODUCT OFFERINGS; CUSTOM DEVELOPMENT. Caliper will consult with Lilly with respect to the Screening Products it offers during each Contract Year. From time to time, Caliper will notify Lilly of the particular Screening Products that Caliper has decided to develop and offer to Participants. If Lilly is interested in having Caliper develop additional products, or accessories to core products, then Lilly may elect to apply a portion of the Lilly support FTEs to such custom development efforts. 2.4 NON-EXCLUSIVITY. The TAP is a mutually non-exclusive collaboration. Lilly and Caliper are each free to work with any third party in any area. Screening Products developed by Caliper, independently or jointly with Lilly, will be sold on a non-exclusive basis (subject to Section 5.1). Lilly acknowledges that other customers, independently or together with Caliper, may develop LabChip Assays for the same or similar targets as those pursued by Lilly or pursue development of drugs that may compete with drugs Lilly is developing or commercializing, subject in all cases to Section 5.1 and the other terms of this Agreement. Similarly, Caliper acknowledges that Lilly may continue to perform Screening on non-Caliper systems and may collaborate with third parties on [ * ]; subject in all cases to Section 5.1 and the other terms of this Agreement. 2.5 SPECIAL PROJECTS. Lilly may propose to Caliper special product development projects that combine Lilly proprietary technology and Caliper Technology and that could involve a period of [ * ]. In such case, the parties shall discuss in good faith alternative business arrangements, including a period of [ * ], which would accomplish the objectives of such special projects. In the first Contract Year, however, the parties intend to focus on core technology implementation and do not expect to initiate special projects. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 8 9 2.6 USE AND TRANSFER OF SCREENING PRODUCTS. Caliper authorizes Lilly and its Affiliates to use Screening Products to pursue all activities within the scope of the License. Caliper authorizes Lilly and its Affiliates to transfer or resell Screening Products among themselves. Subject to the foregoing, Lilly shall not transfer or resell Screening Products to others, use Screening Products to provide services to others (except in the context of a Lilly Program), or authorize others to use Screening Products. Lilly's use of information and data derived from its use of Screening Products is governed by Section 4.4 of this Agreement and not by this Section. 2.7 COMMERCIALIZATION OF SCREENING PRODUCTS. Caliper represents and warrants to Lilly that, as of the Effective Date, [ * ]; however, Caliper reserves the right to do so should Caliper determine that technical or business reasons warrant such a change in plans. However, with respect to [ * ], then (a) the parties shall mutually agree in good faith on [ * ], and (b) the parties shall mutually agree on a [ * ], from which Lilly may thereafter [ * ]. 2.8 OTHER PRODUCTS. During the course of this Agreement, [ * ]. Terms related to such transactions will be agreed upon separately or established for all customers by Caliper and Hewlett-Packard and are not intended to be included under the scope of this Agreement. 3. FINANCIAL TERMS 3.1 TECHNOLOGY ACCESS FEES. 3.1.1. LICENSE FEE. Lilly shall pay to Caliper a non-refundable (except as provided in Section 2.7) license fee of [ * ] Dollars [ * ] within [ * ] (the "License Fee"). 3.1.2. ANNUAL SUBSCRIPTION FEES. Lilly shall pay to Caliper a non-refundable (except as provided in Section 2.7) annual subscription fee of [ * ] Dollars [ * ] for each Contract Year of the TAP (each, an "Annual Subscription Fee"). Each Annual Subscription Fee shall be due within [ * ] of the commencement of the applicable Contract Year, except that, with respect to the Annual Subscription Fee payable with respect to the first Contract Year, [ * [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9 10 ] Dollars [ * ] of such Annual Subscription Fee shall be payable within thirty (30) days of the commencement of the first Contract Year, [ * ] Dollars [ * ] of such Annual Subscription Fee shall be payable [ * ] pursuant to this Agreement. For purposes of clarity, [ * ] shall not be deemed to constitute [ * ]. 3.2 SCREENING PRODUCTS AVAILABLE FOR PURCHASE. Exhibit B-1 sets forth the complete list of Screening Products available for purchase by Lilly as of the Effective Date. Exhibit B-2 sets forth a list of additional Screening Products that Caliper expects to make available for purchase by Lilly during the first Contract Year. 3.3 LABCHIP PRICING. Caliper estimates that when commercially available, LabChips will be priced at between [ * ] per data point measured. Both parties recognize that this cost is an estimate based only on preliminary information. This estimate applies to LabChips for the LabChip Assays described on Exhibit B-1 when run on Instruments with the functionality described on Exhibit B-1. 3.4 PRODUCT SALES. Caliper will notify Lilly in writing when Caliper is prepared to offer each Screening Product for sale to Lilly, together with standard commercial terms and conditions to be established by Caliper, such as price, warranty, service arrangements and the like. Throughout the Term, Lilly shall have the right to purchase [ * ]. Notwithstanding the foregoing, during the first Contract Year, [ * ]. Caliper agrees [ * ]. 3.5 MINIMUM WARRANTY AND SERVICE. The specific warranty terms and service arrangements relating to Screening Products will be stated in a supply agreement or other documents governing the purchase and sale thereof. However, the parties expect that, at a minimum, Caliper will warrant to Lilly, in connection with each sale of a LabChip to Lilly, that the LabChip will [ * ]. Each Instrument purchased by Lilly under the TAP (other than Instruments designated by Caliper in writing as development stage Instruments) will carry a [ * ] warranty that will be passed through to Lilly. Caliper will cause reasonable service arrangements to be made available to Lilly for all Screening Products sold by Caliper hereunder. 3.6 PRODUCT DELIVERY AND ALLOCATION. At the time Caliper offers any Screening Product for sale to Lilly, unless Caliper has advised Lilly in writing that such Screening Product is in the development stage, Caliper shall [ * ]. If Caliper is unable to satisfy the demand for a Screening Product within a [ * ] time frame [ * ], then Lilly's orders for such Screening Product will be [ * ]. Notwithstanding the foregoing, during the first Contract Year, [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 10 11 4. INTELLECTUAL PROPERTY 4.1 OWNERSHIP OF INVENTIONS. Except as provided in Section 4.2, below, each party shall own all inventions, whether patentable or not, conceived or reduced to practice solely by its employees and/or consultants during the course of the Technology Access Program. Caliper and Lilly shall jointly own inventions conceived or reduced to practice jointly by employees and/or consultants of both parties during the course of the Technology Access Program. Each party shall execute all documents and take all actions reasonably necessary to perfect such ownership rights of the other party and to enable the filing of patent applications. Inventorship shall be determined under U.S. patent laws. 4.2 LABCHIP IMPROVEMENTS. To the extent Lilly owns a LabChip Improvement: 4.2.1. [ * ]. 4.2.2. [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11 12 4.3 LILLY MATERIALS. Lilly and/or its Affiliates may provide to Caliper pursuant to this Agreement certain [ * ] (collectively, the "Materials"), which are and shall remain the sole property of Lilly. Any information provided in connection with the Materials shall be treated as Confidential Information. The provision of Materials to Caliper under this Agreement does not grant Caliper any license or other right to such Materials, except the limited right to use the Materials for the sole purpose of satisfying its obligations to Lilly under this Agreement and for no other purpose. [ * ] Upon request by Lilly, Caliper shall promptly return to Lilly or destroy any remaining Materials. 4.4 SCREENING DATA. Subject to Sections 4.1 and 4.2, Lilly shall own all information and data resulting from or arising out of its Screening activities (collectively, "Screening Data") and all discoveries and Lilly Products based on or resulting from such Screening Data. [ * ]. 5. CONFIDENTIALITY; PUBLICITY 5.1 CONFIDENTIAL INFORMATION. During the Term, and for a period of [ * ] years following the expiration or termination of this Agreement, each party shall maintain in confidence any and all Confidential Information received from the other party. Each party further agrees that it shall not use for any purpose not authorized under this Agreement or disclose to any third party the Confidential Information of the other party, except that either party may disclose Confidential Information of the other party on a need-to-know basis to its directors, officers, employees, consultants, agents, Affiliates and third-party collaborators if it shall have first required such recipients to undertake an obligation of confidentiality and non-use similar to this Section 5.1. Upon request from the disclosing party, the receiving party shall return to the disclosing party any Confidential Information of the disclosing party received from it in tangible form. 5.2 PUBLICITY. Neither party shall originate any news release or other public announcement relating to the contents of this Agreement without the prior written approval of the other party, which approval shall not be unreasonably withheld or delayed for longer than [ * ]. Notwithstanding the foregoing, [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12 13 either party may disclose the existence and/or the provisions of this Agreement, under standard obligations of confidentiality and non-use on a need-to-know basis, to investors and their representatives in a private or public financing transaction, to potential acquirers or targets and their representatives in a corporate change of control transaction, or as required by law (including but not limited to the filing of this Agreement as an exhibit to a document filed with the Securities and Exchange Commission), order or regulation of a governmental agency; provided, however, that no such disclosure shall be permitted to the extent it would constitute a violation of Section 5.1. The disclosing party shall provide written notice to the other party of any such disclosure required by law, order or regulation of a governmental agency, reasonably in advance if practical. If Caliper intends to file this Agreement with the Securities and Exchange Commission, Caliper agrees to provide Lilly with a copy of the proposed filing for review and comment at least ten days in advance of the filing date. Caliper shall not unreasonably withhold its acceptance of any comments made by Lilly. 5.3 PUBLICATIONS. Subject to their obligations under Section 5.1, Caliper and Lilly shall have the right to publish data they acquire in the course of the TAP, provided that the publishing party will provide the other party with [ * ] to review and approve any publication disclosing subject matter involving the other party. Approval of such publications shall not be unreasonably withheld. For the avoidance of doubt, the use and disclosure of any Confidential Information shall remain subject to Section 5.1. In addition, if the reviewing party determines that a patent application should be filed in advance of publication, the reviewing party shall have an additional [ * ] days in order to file an application. 6. INDEMNIFICATION; DISCLAIMERS; LIMITATION OF LIABILITY 6.1 INDEMNIFICATION BY CALIPER. Caliper shall defend, indemnify and hold harmless Lilly and its Affiliates and all of their officers, directors, employees and agents (collectively, the "Lilly Indemnitees") from and against any and all damages, awards, costs and expenses (including court and arbitration costs, witness fees and reasonable attorneys' fees) incurred by any Lilly Indemnitee in connection with any claim, demand, lawsuit or other legal action by any third party against such Lilly Indemnitee: (a) [ * ] (b) [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 13 14 (c) [ * ]; provided, however, that no such indemnification shall apply with respect to any such damages, awards, costs or expenses arising primarily as a result of (i) Lilly's use of Screening Products in violation of this Agreement or in violation of any reasonable restrictions on use imposed by Caliper in accordance with Section 6.4 below, (ii) Lilly's combination of Screening Products with technology other than Caliper Technology, (iii) Lilly's unauthorized modification of Screening Products, or (iv) Lilly's continued use of Screening Products notwithstanding termination of Lilly's right to use such Screening Products pursuant to Section 6.4 below. 6.2 INDEMNIFICATION BY LILLY. Lilly shall defend, indemnify and hold harmless Caliper and its Affiliates and all of their officers, directors, employees and agents (collectively, the "Caliper Indemnitees") from any damages, awards, costs and expenses (including court and arbitration costs, witness fees and reasonable attorneys' fees) incurred by any Caliper Indemnitee in connection with any claim, demand, lawsuit or other legal action by any third party against such Caliper Indemnitee arising out of: (a) [ * ]; or (b) [ * ]; or (c) [ * ]. 6.3 INDEMNIFICATION PROCEDURE. Promptly after receipt by a Lilly Indemnitee or Caliper Indemnitee (in either case, the "Indemnified Party") of notice of any pending or threatened third-party claim against it (a "Third-Party Claim") with respect to which it asserts a claim for indemnification under this Article 6, such Indemnified Party shall give written notice to the Person against whom it asserts its claim for indemnification (the "Indemnifying Party") of the existence and nature of the Third-Party Claim; provided, however, that [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 14 15 Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, within [ * ] after the Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third-Party Claim. The Indemnifying Party will be entitled to participate in the defense of such Third-Party Claim and, if it chooses, to assume the defense thereof with counsel selected by the Indemnifying Party. Should the Indemnifying Party so elect to assume the defense of a Third-Party Claim, the Indemnifying Party will not be liable to the Indemnified Party for [ * ]. If the Indemnifying Party assumes such defense, the Indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party shall control such defense. The Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnified Party for any period during which the Indemnifying Party has not assumed the defense thereof (other than any period during which the Indemnified Party shall have failed to give notice of the Third-Party Claim). Notwithstanding an Indemnifying Party's election to assume the defense of any such Third-Party Claim, the Indemnified Party shall have the right to employ separate counsel and to participate in the defense of such Third-Party Claim, and the Indemnifying Party shall bear the reasonable fees, costs and expenses of such separate counsel if: [ * ]. If the Indemnifying Party chooses to defend or prosecute a Third-Party Claim, all the parties thereto shall cooperate in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the Indemnifying Party's request) the provision to the Indemnifying Party of records and information that are reasonably relevant to such Third-Party Claim, and making employees available on a mutually convenient basis to provide additional [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 15 16 information and explanation of any material provided hereunder. If the Indemnifying Party chooses to defend or prosecute any Third-Party Claim, the Indemnified Party will consent to [ * ]. If the Indemnifying Party shall have assumed the defense of a Third-Party Claim, the Indemnified Party shall not [ * ] without the Indemnifying Party's prior written consent, which consent shall not be unreasonably withheld or delayed. If the Indemnifying Party does not assume the defense of the Third-Party Claim, then the Indemnified Party may investigate and defend such Third-Party Claim without the assistance of the Indemnifying Party; provided that the Indemnifying Party shall have no liability for indemnification under this Article 6 with respect to [ * ]. 6.4 INTELLECTUAL PROPERTY. Caliper shall determine which Screening Products to offer and when they will be offered. Caliper may impose, in writing, reasonable restrictions upon the use of any Screening Product for intellectual property reasons, provided it notifies Lilly of such restriction at the time of sale. Following sale of any product, if Caliper determines that third party intellectual property concerns warrant, Caliper may, in its sole discretion, [ * ]. However, if in spite of such efforts, Caliper determines to [ * ]. 6.5 CALIPER DISCLAIMER. EXCEPT AS SET FORTH IN ARTICLE 8, THE PROVISIONS OF THIS AGREEMENT SHALL NOT BE CONSTRUED AS A PRODUCT WARRANTY BY CALIPER OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY CALIPER TECHNOLOGY, SCREENING PRODUCT OR OTHER PRODUCTS DEVELOPED OR PROVIDED PURSUANT TO THIS AGREEMENT. Lilly acknowledges that some of the Screening Products to be provided to Lilly pursuant to this Agreement are prototype units, and as such are neither equipped with standard safety features nor completely tested for defects. Lilly acknowledges that such products require a greater degree of caution than other standard laboratory equipment. Caliper shall not be liable to Lilly for any personal injury or property damage resulting from use of such equipment in a manner other than that recommended by Caliper, except in the case of negligence by Caliper. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 16 17 6.6 LILLY DISCLAIMER. EXCEPT AS SET FORTH IN ARTICLE 8, THE PROVISIONS OF THIS AGREEMENT SHALL NOT BE CONSTRUED AS A WARRANTY BY LILLY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY LILLY TARGETS OR OTHER MATERIALS OR TECHNOLOGY DEVELOPED OR PROVIDED PURSUANT TO THIS AGREEMENT. Caliper acknowledges that some of the Targets and/or Materials to be provided to Caliper pursuant to this Agreement are for research purposes. Caliper acknowledges that such Targets and/or Materials can carry risks and must be handled appropriately. Lilly shall not be liable to Caliper for any personal injury or property damage resulting from the improper handling of such Targets and/or Materials, except in the case of negligence by Lilly. 6.7 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION, LOST PROFITS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. Each party acknowledges that the foregoing limitations are an essential element of the Agreement between the parties and that in the absence of such limitations the pricing and other terms set forth in this Agreement would be substantially different. 7. TERM AND TERMINATION; SUSPENSION 7.1 TERM. The Term of this Agreement shall commence on the Effective Date and, unless extended or terminated earlier pursuant to this Section 7, shall expire on the third anniversary of the Effective Date. The Term also may be modified by mutual written agreement of the parties pursuant to Section 9.4. 7.2 TERMINATION BY LILLY. Lilly may terminate this Agreement, with or without cause, effective on any anniversary of the Effective Date, with at least [ * ] prior written notice to Caliper. All rights and obligations applicable under this Agreement through the date of termination shall continue to apply until such date irrespective of any delivery of notice of termination. 7.3 TERMINATION BY EITHER PARTY. Either party may terminate this Agreement prior to the expiration of the Term in accordance with one of the following paragraphs: [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 17 18 (a) Either party may terminate this Agreement upon written notice to the other party in the event of a material breach of this Agreement by such other party; provided, however, that prior to any such termination the terminating party shall have provided the breaching party with written notice of the circumstances constituting such breach and the breaching party shall have failed to cure such breach within a period [ * ] days thereafter. (b) Either party may terminate this Agreement immediately upon written notice to the other party if the other party: (1) is dissolved; (2) fails or is unable to pay its debts generally as they become due; (3) commences a voluntary case in bankruptcy or any other action or proceeding for any other relief under any law affecting creditors' rights that is similar to a bankruptcy law (collectively, a "Bankruptcy Proceeding") or makes an assignment for the benefit of creditors; (4) consents by answer or otherwise to the commencement against it of any involuntary Bankruptcy Proceeding; or (5) a court having jurisdiction in the premises enters an order for relief or a decree in respect of such party in any involuntary Bankruptcy Proceeding, or a receiver, trustee or similar official is appointed in respect of such party or any of its property, and that order or decree is not dismissed or stayed, or that appointment is not terminated, on or before the sixtieth (60th) day after the entry of the order or decree or after the appointment (as the case may be), or any such dismissal or stay ceases to remain in effect. 7.4 SURVIVING OBLIGATIONS. No expiration or termination of this Agreement shall relieve either party of any obligation accruing prior to such expiration or termination. The provisions of Sections 2.4, 2.6, 7.4, 7.5, 9.3 and Articles 4, 5, 6 and 8, together with any provisions required for their interpretation or enforcement, shall survive the expiration or termination of this Agreement. 7.5 POST-TERM LICENSE. Following expiration or termination of this Agreement, the License shall continue with respect to the Screening Products for which the License has been fully-paid pursuant to Section 3.1. Lilly shall be entitled to [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 18 19 continue to purchase such Instruments, LabChips and other Screening Products for so long as Caliper continues to offer such items for sale to third parties. Caliper will notify Lilly in writing at least [ * ] before ceasing production of any Screening Product which Lilly has purchased in the [ * ] period before production is due to cease. 7.6 OPTION TO SUSPEND PARTICIPATION. Notwithstanding any other provision of this Agreement, Lilly shall be entitled, in its sole discretion, to suspend its participation in the TAP during the [ * ] Contract Year of the Term (a "Suspension") by giving written notice to Caliper of its election to do so no later than [ * ] to which the suspension applies (the "Suspension Year"). A Suspension shall not constitute a termination of this Agreement or an interruption of the Term, and, except as expressly provided in this Section 7.6, all of the terms and provisions of this Agreement shall continue to apply during the period from the first day of the Suspension Year until Lilly exercises its Reinstatement Election or such Suspension Year ends, whichever comes first (the "Suspension Period"). Lilly shall be permitted a maximum of [ * ] Suspension. 7.6.1. ANNUAL SUBSCRIPTION FEE. Lilly shall not be required to pay an Annual Subscription Fee for the Suspension Year unless and until Lilly exercises its Reinstatement Election. 7.6.2. STATUS OF LICENSE DURING SUSPENSION PERIOD. During the Suspension Period, the License shall continue in effect as to all Screening Products offered for sale by Caliper in prior Contract Years but shall not extend to Screening Products first offered for sale by Caliper during the Suspension Year unless and until Lilly exercises its Reinstatement Election. Caliper shall disclose to Lilly during the Suspension Year all new Screening Products offered by Caliper during such year. Such disclosure shall be made to Lilly at the same time it is made to other Participants and shall include the same information provided to the other Participants with respect to such Screening Products. 7.6.3. STATUS OF LILLY SUPPORT DURING SUSPENSION PERIOD. During the Suspension Period, Caliper shall not be obligated to provide to Lilly assistance and support as contemplated by Section 2.3. 7.6.4. REINSTATEMENT ELECTION. If Lilly shall have initiated a Suspension, it shall be entitled, in its sole discretion, to elect to reinstate its participation in the TAP by giving written notice to Caliper of such election (a "Reinstatement Election") no later than [ * ]. If Lilly exercises the Reinstatement Election: [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 19 20 (a) Lilly shall pay to Caliper, concurrent with delivery of the Reinstatement Election, [ * ] (the "Reinstatement Payment"). (b) Upon payment of the Reinstatement Payment, the License shall become fully-paid, irrevocable and perpetual with respect to all Screening Products offered for sale by Caliper in the Suspension Year. (c) If Lilly exercises the Reinstatement Election during the [ * ] Contract Year, the Term automatically shall be extended by [ * ] on the same terms applicable to the [ * ] Contract Years, subject to earlier termination as provided for in this Section 7. (d) If Lilly exercises the Reinstatement Election, Caliper shall resume providing to Lilly assistance and support as contemplated by Section 2.3 effective as of the date of the Reinstatement Election; provided, however, that Lilly recognizes that Caliper may require a reasonable period of time, not to exceed [ * ] days, to reassign FTEs to work on Lilly assistance and support activities pursuant to this Agreement. Caliper agrees to use commercially reasonable efforts to minimize this period of time. If Lilly does not exercise the Reinstatement Election, then the Term shall expire as of the last day of the Suspension Year. 8. REPRESENTATIONS AND WARRANTIES 8.1 MUTUAL REPRESENTATIONS. Each of the parties represents and warrants to the other as follows: 8.1.1. DUE ORGANIZATION, GOOD STANDING AND POWER. It is a corporation duly organized, validly existing and, if relevant in its jurisdiction of incorporation, in good standing under the laws of its jurisdiction of incorporation, and has the power and authority to own, lease and operate its assets and to conduct the business now being conducted by it. It has all requisite power and authority to enter into this Agreement and to perform its obligations hereunder. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 20 21 8.1.2. AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery and performance by it of this Agreement, and the consummation by it of the transactions contemplated hereby, have been duly authorized and approved by all necessary corporate action on its part. This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights generally and by general equity principles. 8.1.3. ABSENCE OF CONFLICTS. The execution, delivery and performance by it of this Agreement and the consummation by it of the transactions contemplated hereby do not and will not (i) violate any federal, state or local laws, ordinances, rules, regulations or requirements or any judgments, orders, writs, rulings, decrees, awards or similar directives of any arbitrator or any governmental or regulatory agency or authority, (ii) conflict with, or result in the breach of any provision of, its charter or bylaws or (iii) violate, conflict with or result in the breach or termination of, or otherwise give any third party the right to terminate, or constitute a default under the terms of, any license, permit, contract or agreement to which it is party or by which its properties or businesses are bound. 8.1.4. NO MISSTATEMENTS OR OMISSIONS. No representation or warranty by it set forth herein contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements or facts contained therein not misleading. 8.1.5. CONSENTS. No authorization, consent or approval of, or notice to or filing by it with, any governmental authority is required for the execution, delivery and performance by it of this Agreement. 8.2 CALIPER REPRESENTATIONS. Caliper hereby represents and warrants to Lilly that, as of the Effective Date: 8.2.1. NO PROCEEDINGS. [ * ] or (b) [ * ]. This representation and warranty includes, without limitation, [ * ]. 8.2.2. OWNERSHIP OF CALIPER TECHNOLOGY. Caliper owns all of the Caliper Technology, free and clear of all liens or encumbrances, subject to existing license grants. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of Caliper's rights [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 21 22 to own or use any of the Caliper Technology, nor will it require the consent of any third party in respect of any Caliper Technology. 8.2.3. NO CLAIM OF INFRINGEMENT. Except in connection with the [ * ], neither Caliper nor any of its Affiliates has received written notice from any third party regarding any actual or potential infringement by Caliper or any of its Affiliates of any intellectual property of such third party. 8.2.4. NO CHALLENGE TO VALIDITY OF CALIPER TECHNOLOGY. Neither Caliper nor any of its Affiliates has received written notice from any third party regarding any assertion or claim challenging the validity of any issued Caliper Patent, except for an opposition to [ * ]. The opposition was denied and is currently on appeal. 8.2.5. RIGHT TO GRANT LICENSES. Caliper has all requisite right and authority to grant to Lilly the License. 9. MISCELLANEOUS 9.1 NOTICES. Any consent, notice or report required or permitted to be given or made under this Agreement by one party to the other party shall be in writing, delivered personally or by confirmed facsimile, first class mail postage prepaid, courier, or nationally-recognized delivery service, and addressed to the other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addresser. Such consent, notice or report shall be effective upon delivery to the addressee. If to Caliper: Caliper Technologies Corp. 605 Fairchild Drive Mountain View, California 94043-2234 Attention: Chief Executive Officer If to Lilly: Eli Lilly and Company Lilly Corporate Center Indianapolis, Indiana 46285 Attention: General Counsel 9.2 GOVERNING LAW. The Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without regard to the conflicts of law principles thereof. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 22 23 9.3 ASSIGNMENT. This Agreement is personal in its character, and neither party shall assign its rights or obligations under this Agreement, in whole or in part, without the prior written consent of the other party; provided, however, that either party, without the consent of the other, may assign this Agreement to any Affiliate of such party so long as such Affiliate expressly agrees to be bound by the terms of this Agreement and the assigning party continues to be obligated to perform all of its duties and obligations hereunder. If either party merges into another Person or sells to another Person all or substantially all of its assets comprising the line of business to which this Agreement relates, then such party shall seek the consent of the other party to the assignment of this Agreement to the successor Person. The party whose consent was requested shall not unreasonably withhold or delay such consent but shall be permitted to deny such consent if it concludes, in the exercise of its reasonable business judgment, that the proposed successor Person is not an appropriate technology collaborator for such party for purposes of this Agreement. This Agreement shall be binding on and inure to the benefit of the successors or permitted assigns of the parties hereto, and all entities controlled by them. 9.4 WAIVERS AND AMENDMENTS. No waiver shall be deemed to have been made by any party hereto of any of its rights under this Agreement unless such waiver is in writing and is signed on behalf of such party by its duly authorized officer. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the waiving party in any other respect or at any other time. No change or modification of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the parties hereto. 9.5 ENTIRE AGREEMENT. This Agreement embodies the entire understanding between the parties, and supersedes any prior understanding or agreement between them, with respect to the subject matter of this Agreement. 9.6 SEVERABILITY. If a court of competent jurisdiction declares any provision of this Agreement invalid or unenforceable, or if any government or other agency having jurisdiction over either party deems any provision to be contrary to any laws, then that provision shall be severed and the remainder of this Agreement shall continue in full force and effect. To the extent possible, the parties shall revise such invalidated provision in a manner that will render such provision valid without impairing the parties' original intent. 9.7 NO WAIVER. The failure of a party in any one or more instances to insist upon strict performance of any of the terms or conditions of this Agreement shall not [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 23 24 constitute a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or conditions on any future occasion. 9.8 DISCLAIMER OF AGENCY. The relationship between Caliper and Lilly is that of independent contractors. Caliper and Lilly are not joint venturers, partners, principal and agent, master and servant, or employer and employee, and have no relationship other than independent contracting parties. Neither party shall have the right or authority to assume, create, or incur any third party liability or obligation of any kind, express or implied, against or in the name of or on behalf of the other party except as expressly set forth in this Agreement. 9.9 NON-SOLICITATION. Neither party may actively solicit or induce any employee of the other party to leave the employ of that party during the Term. If either party receives an unsolicited employment inquiry from an employee of the other party, it shall not make any written offer of employment to such individual without notifying the other party in writing at least five (5) days before making such an offer. 9.10 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. 9.11 LABELS AND HEADINGS. The labels and headings contained in this Agreement are for the convenience of the parties only and shall in no way affect the meaning or interpretation of this Agreement. 9.12 THIRD-PARTY RIGHTS. This Agreement is not intended to confer any benefit upon, or create any right in favor of, any Person other than the parties hereto and, where expressly provided, their Affiliates and the respective Indemnified Parties. 9.13 CONSTRUCTION OF AGREEMENT. This Agreement was prepared as a result of negotiation and mutual agreement between the parties. Accordingly, no provision of this Agreement shall be construed against any party on the basis that such party drafted this Agreement or such provision. 9.14 FURTHER ASSURANCES. The parties covenant and agree that, subsequent to the execution and delivery of this Agreement, and without any additional consideration therefor, each party shall execute and deliver any further legal instruments and perform any further acts that are or may become necessary to effectuate the purposes of this Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 24 25 IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first set forth above. CALIPER TECHNOLOGIES CORP. ELI LILLY AND COMPANY By: /s/ Calvin Chow By: /s/ August Watanabe ----------------------------- ------------------------------ Name: Calvin Chow Name: August M. Watanabe M.D. --------------------------- ---------------------------- Title: Chief Operating Officer Title: Executive Vice President -------------------------- --------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 25 26 EXHIBIT A WORK PLAN FOR YEAR ONE [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 26 27 EXHIBIT B-1 SCREENING PRODUCTS OFFERED AS OF THE EFFECTIVE DATE [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 27 28 EXHIBIT B-2 SCREENING PRODUCTS IN DEVELOPMENT FOR CONTRACT YEAR ONE [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 28 EX-10.14 15 SCREENING COLLABORATION AGREEMENT 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.14 SCREENING COLLABORATION AGREEMENT THIS AGREEMENT ("AGREEMENT") is entered into as of the 16th day of December, 1998 ("EFFECTIVE DATE") by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation ("CALIPER"), and NEUROCRINE BIOSCIENCES, INC. ("NEUROCRINE"), a Delaware corporation. RECITALS WHEREAS, Caliper has developed proprietary microfluidics technology which has application in high throughput screening activities; and WHEREAS, Neurocrine has and will continue to identify targets against which it plans to screen chemical compounds, which screening activities would benefit from Caliper's high throughput screening systems; and WHEREAS, Neurocrine and Caliper possess and/or will acquire libraries of compounds which may have potential therapeutic pharmaceutical utility for such targets; and WHEREAS, Caliper and Neurocrine desire to establish a relationship whereby Caliper and Neurocrine will develop assays for such targets in Caliper's LabChip format, and Caliper will screen compound libraries in such assays; and WHEREAS, Neurocrine intends to develop and commercialize compounds directed against targets screened in this program, [ * ]; NOW, THEREFORE, in consideration of the foregoing and the covenants and promises contained herein, the parties agree as follows: ARTICLE 1 DEFINITIONS As used herein, the following terms shall have the following meanings: 1.1 "AFFILIATE" shall mean (i) any corporation or other entity which directly or indirectly owns or controls at least fifty percent (50%) of the outstanding voting securities of a party (a "Parent"), (ii) any corporation or other entity in which a party owns or controls at least fifty percent (50%) equity interest, and (iii) any corporation or other entity in which a Parent of a party owns or controls at least fifty percent (50%) equity interest. 2 1.2 "CALIPER COMPOUNDS" shall mean those compounds which Caliper owns or possesses and has the right to make available to Neurocrine for screening as of the Effective Date or during the Screening Term. For purposes of this Agreement, Caliper Compounds shall not include the Neurocrine Compounds transferred to Caliper pursuant to Sections 2.5(a) and 3.4. 1.3 "CALIPER KNOW-HOW" shall mean all discoveries, materials, techniques, procedures, data and other technical information which Caliper possesses and treats as confidential as of the Effective Date or during the Screening Term, excluding Screening Data. Caliper Know-How does not include Caliper Patents. 1.4 "CALIPER PATENTS" shall mean any and all patents, including, without limitation, any substitutions, extensions, reissues, renewals, supplementary protection certificates and inventors' certificates, which have not been held invalid or unenforceable by a non-appealable or non-appealed decision of a court of competent jurisdiction, issuing from patent applications filed in any jurisdiction, including, without limitation, any provisionals, divisionals, continuations, and continuations-in-part, which Caliper owns or has a license to (with the right to sublicense to Neurocrine) as of the Effective Data or during the Screening Program. 1.5 "CALIPER ROYALTY COMPOUND" shall mean a Royalty Compound which is derived from, a Caliper Compound screened under this Agreement. 1.6 "CALIPER TECHNOLOGY" shall mean, collectively, the Caliper Patents, the Caliper Know-How, and the Caliper Compounds. 1.7 "CONFIDENTIAL INFORMATION" shall mean all information provided by one party to the other during the Screening Term, including, without limitation, Neurocrine Know-How, Caliper Know-How, Screening Data, research plans, engineering designs and drawings, research data, manufacturing processes and techniques, scientific, manufacturing, marketing, and business plans, financial or personnel matters relating to the party, its present or future products, sales, suppliers, customers, employees, investors or business. 1.8 "DATA POINT" shall mean the experimental measurement reported to Neurocrine from a high throughput LabChip Assay of a single discrete volume of liquid (e.g., from a single well on a microtiter plate) containing a single Neurocrine Compound, Neurocrine Limited Compound or Caliper Compound or a "pool" of such compounds. 1.9 "FDA" shall mean the United States Food and Drug Administration. 1.10 "GLP TOXICOLOGY STUDIES" shall mean preclinical toxicology studies carried out in accordance with Good Laboratory Practices described in the U.S. Federal Register dated December 22, 1988, as amended, which are intended to enable the filing of an IND. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 3 1.11 "IND" stands for "Investigational New Drug Application" and shall mean an application for permission from the FDA, or comparable non-U.S. regulatory authorities, to commence human clinical testing of a new drug. 1.12 "INSTRUMENT" shall mean an instrument designed to actuate fluid manipulations on LabChips and to detect the results of such manipulations. An Instrument may also perform other functions, such as introducing samples into LabChips. 1.13 "LABCHIP" shall mean a Caliper chip, which typically consists of a glass or polymer base with microchannels, bonded to a cover with reservoirs, and which may have an attached pipettor capillary. 1.14 "LABCHIP ASSAY" shall mean a particular combination of a LabChip, a set of reagents and software, all designed for use on one or more types of Instruments to perform a high throughput screening assay for a particular Target. 1.15 "LABCHIP IMPROVEMENT INVENTIONS" shall mean [ * ] by an employee or contractor of Neurocrine, solely or jointly with others, in the course of the Screening Program during the term of this Agreement and that specifically relate to improvements to the Screening Technology or to chip-based microfluidic systems, [ * ]. LabChip Improvement Inventions specifically shall not include Screening Data or potential pharmaceutical compounds identified as hits in the Screening Program. 1.16 "NET SALES" shall mean, with respect to a Product, and on a country-by-country basis, the gross invoice price of all Products sold by Neurocrine, its Affiliates, and sublicensees to independent third party customers after deducting, if not already deducted in the amount invoiced (a) trade, quantity and cash discounts actually taken, (b) returns and rebates, (c) duties, sales and excise taxes and (d) transportation and insurance costs charged to the customer. Product transfers among Neurocrine and its Affiliates or sublicensees shall not be deemed sales; the sale shall be deemed to take place upon transfer to a bona fide customer. Products shall be considered sold when invoiced. 1.17 "NEUROCRINE COMPOUNDS" shall mean those compounds which Neurocrine owns or possesses and has the right to use in the Screening Program as of the Effective Date. 1.18 "NEUROCRINE KNOW-HOW" shall mean all discoveries, materials, techniques, procedures, data and other technical information which Neurocrine possesses and treats as confidential as of the Effective Date or during the Screening Term, excluding Screening Data. Neurocrine Know-How does not include Neurocrine Patents. 1.19 "NEUROCRINE LIMITED COMPOUND" shall mean any compound which Neurocrine acquires after the Effective Date and which Neurocrine elects to provide to Caliper to enter into the Screening Program. 1.20 "NEUROCRINE PATENTS" shall mean any and all patents, including, without limitation, any substitutions, extensions, reissues, renewals, supplementary protection certificates [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 4 and inventors' certificates, which have not been held invalid or unenforceable by a non-appealable or non-appealed decision of a court of competent jurisdiction, issuing from patent applications filed in any jurisdiction, including, without limitation, any provisionals, divisionals, continuations, and continuations-in-part, which Neurocrine owns or has a license to (with the right to sublicense to Caliper) as of the Effective Date or during the Screening Term. 1.21 "NEUROCRINE ROYALTY COMPOUND" shall mean a Royalty Compound which is, or is derived from, a Neurocrine Compound or Neurocrine Limited Compound screened under this Agreement. 1.22 "NEUROCRINE TECHNOLOGY" shall mean, collectively, the Neurocrine Patents, the Neurocrine Know-How, the Neurocrine Compounds and the Neurocrine Limited Compounds. 1.23 "PRODUCT" shall mean any product, including all formulations, line extensions or modes of administration thereof, which contains a Royalty Compound as an active ingredient. 1.24 "ROYALTY COMPOUND" shall mean a compound that is selected for [ * ], which compound either is, or is derived from, a Caliper Compound, Neurocrine Compound or Neurocrine Limited Compound for which Screening Data was provided and [ * ]. For purposes of this definition, "derivatives" of a Caliper Compound, Neurocrine Compound or Neurocrine Limited Compound will include direct derivatives and all subsequent derivatives of derivatives. 1.25 "SCREENING COMMITTEE" shall mean that committee formed pursuant to Section 2.2 hereof. 1.26 "SCREENING DATA" shall mean all Data Points delivered to Neurocrine pursuant to instructions from the Screening Committee, as described in Section 2.6(b). 1.27 "SCREENING PROGRAM" shall mean the collaborative LabChip Assay development and high throughput screening program described in Article 2. 1.28 "SCREENING TECHNOLOGY" shall mean the Instruments, LabChips, reagents and software, and associated Caliper Patents and Caliper Know-how, utilized by Caliper for high throughput screening activities under this Agreement, excluding Caliper Compounds. 1.29 "SCREENING TERM" shall mean the period of three (3) years commencing on the Effective Date, unless modified by mutual agreement of the parties. 1.30 "TARGETS" shall mean the pharmaceutically relevant molecules, complexes or cell lines nominated by Neurocrine for LabChip Assay development and screening in accordance with Section 2.3, such as enzymes, binding proteins, receptors, transporters, or ion channels. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4 5 ARTICLE 2 SCREENING PROGRAM 2.1 CONDUCT OF THE SCREENING PROGRAM. Caliper and Neurocrine will conduct the Screening Program under the direction of the Screening Committee. 2.2 SCREENING COMMITTEE. (a) The Screening Committee shall consist of an equal number of not less than two members from each of Neurocrine and Caliper, appointed and substituted by each party as necessary from time to time. All decisions of the Screening Committee shall be unanimous. (b) The Screening Committee shall meet at such times as shall be mutually agreed upon by the parties and at a site alternating between Caliper's and Neurocrine's place of business, or as otherwise mutually agreed. Neurocrine and Caliper shall each bear the travelling expenses and accommodation charges of its own members attending meetings of the Screening Committee. (c) The Screening Committee shall coordinate the activities carried out under the Screening Program and monitor the progress of the Screening Program. The Screening Committee shall conduct the Screening Program as necessary to achieve the overall goals of developing LabChip Assays for the Targets, screening the LabChip Assays, and discovering Royalty Compounds. 2.3 NOMINATION OF TARGETS. (a) Neurocrine shall nominate Targets for LabChip Assay development. The Screening Committee will determine whether the Target and proposed assay conditions are appropriate for LabChip Assay development. The Screening Committee will also prioritize Targets for LabChip Assay development and screening. In the event that development work upon any molecule, complex, or cell line nominated as a Target pursuant to this Section 2.3(a) is abandoned by Neurocrine, or LabChip development or screening efforts are discontinued by the Screening Committee, such molecule, complex, or cell line shall no longer constitute a Target. (b) Neurocrine agrees to provide [ * ] Targets for screening under this Agreement during the Screening Term; provided that [ * ] for LabChip Assay development and screening. (c) Caliper shall not be responsible for conducting due diligence regarding third party intellectual property rights applicable to the Targets. [ * ]. If Neurocrine is aware of any published or issued third party patent which it believes applies to [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 5 6 such Target, it shall notify Caliper in writing referencing such patent(s) before LabChip Assay development commences for such Target. 2.4 ASSAY DEVELOPMENT. (a) The Screening Committee will allocate responsibilities between the parties for specific assay development tasks. In general, Neurocrine will develop the appropriate biochemical and/or cellular reagents for the assay and provide necessary quantities to Caliper for LabChip Assay development and screening. Initially, Caliper will direct work to adapt the assay into the LabChip format. Over time, the parties expect that Neurocrine will assume an increasing role in LabChip Assay development. The parties will arrange for Neurocrine scientists to train in LabChip Assay development at Caliper and/or for certain LabChip Assay development tools to be provided to Neurocrine. The Screening Committee will determine, or establish criteria for others to determine, when a LabChip Assay is ready for screening on Caliper's high throughput system. (b) Caliper and Neurocrine shall each use commercially reasonable efforts to collaboratively develop LabChip Assays for the Targets selected by the Screening Committee. The parties intend to [ * ]. Therefore, the parties have [ * ]. The parties may mutually agree to pursue such research for certain Targets, but Caliper shall not be required under this Agreement to [ * ]. 2.5 COMPOUND LIBRARIES. (a) Neurocrine shall provide its chemical library of Neurocrine Compounds to Caliper promptly following the Effective Date. The timing and details will be mutually agreed, but the library will consist of approximately [ * ] discrete compounds plated in 96 well master plates of [ * ]. Each plate will contain [ * ] of compound at a concentration of [ * ] in 100% DMSO. SDF files will be provided containing structural information and plate mapping. Neurocrine agrees to provide to Caliper all data in Neurocrine's possession concerning the library of Neurocrine Compounds including (a) the criteria utilized by Neurocrine in selecting compounds, (b) commercial or academic sources of compounds, and (c) chemical structures of all compounds (and records of tests performed to determine the chemical structures). Caliper will have rights to use the library of Neurocrine Compounds as further provided in Section 3.4. If Neurocrine modifies its library after this initial transfer, it may elect at its sole option to update the collection held at Caliper for use in screening Neurocrine's Targets pursuant to Section 2.5(b). (b) Neurocrine may at any time during the Screening Term in its sole discretion elect to provide Neurocrine Limited Compounds to Caliper for use in the Screening Program, in reasonable quantities and format to be mutually agreed. Neurocrine Limited Compounds shall only be used by Caliper within the Screening Program hereunder unless agreed in writing in advance by the parties. (c) Neurocrine will determine which compounds it elects to have screened in each LabChip Assay. However, if Caliper has previously screened certain Caliper Compounds [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6 7 against the Target of such LabChip Assay on behalf of a third party, then Caliper may [ * ], provided that Caliper shall not [ * ]. Otherwise, Caliper will provide available information concerning the structures represented in the Caliper Compound library to facilitate Neurocrine's determination of whether or not to screen Caliper Compounds. If Caliper elects to screen Caliper Compounds, the parties may mutually agree on terms on which such data may be provided to Neurocrine, provided that if either Neurocrine of Caliper elects to have Caliper Compounds screened against a Target, then Neurocrine shall have the right of first refusal to purchase such Screening Data. If Neurocrine declines to purchase such Screening Data, Caliper shall not thereafter [ * ] unless Caliper provides Neurocrine with [ * ] days written notice of such intent [ * ]. Caliper shall not utilize any Neurocrine Know-How or data that is subject to non-use obligations under Section 6.2 or data developed in the Screening Program that is specific to such Target in [ * ] on behalf of a third party [ * ]. Caliper shall not disclose any data generated for Neurocrine Targets against Caliper Compounds to any third party except as may be permitted under Section 3.3. Neurocrine acknowledges that [ * ]. (d) During the term of this Agreement, the parties may agree to acquire new libraries of compounds to screen hereunder and to split the compound supplies and share the cost of acquiring such compounds. Such compounds acquired by both parties would be deemed to be Neurocrine Compounds for purposes of the payment provisions of this Agreement. 2.6 SCREENING. (a) Caliper shall use commercially reasonable efforts to establish internal screening operations using its Screening Technology as soon as practicable. As of the Effective Date, [ * ]. (b) All screening will be conducted at Caliper's facility, unless the parties mutually agree otherwise as discussed in subparagraph (d) below. Neurocrine will provide the necessary reagents, and Caliper will run the high throughput screens, according to protocols established by the Screening Committee. The Screening Committee will determine how the Screening Data will be processed and presented, along with relevant reaction parameters such as temperature, currents, concentrations and data for reference or control compounds. The Screening Committee will also establish any procedures necessary to validate the Screening Data prior to commencement of actual screening. Screening Data will be conveyed to Neurocrine and also retained by Caliper, all in accordance with the rights described in Article 3 below and the payment provisions of Article 4. Caliper will provide all available information concerning hit compounds, such as [ * ]. Caliper will not be required to provide [ * ]. (c) The parties may mutually agree to perform other experiments in addition to high throughput primary screening, such as [ * ]. Financial and other business terms for such activities will be negotiated in good faith in writing in advance and are not included in this Agreement. (d) Caliper acknowledges that Neurocrine has expressed an interest in having Caliper transfer screening Instruments to Neurocrine. [ * ]. Caliper will use commercially reasonable efforts to [ * ]. The parties will confer from time to time regarding the [ * ]. [ * ], [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7 8 Caliper agrees to [ * ]. In any event, Caliper will retain the exclusive right to supply LabChips for use on all screening systems that practice Caliper Technology. 2.7 NON-EXCLUSIVE COLLABORATION. The Screening Program is a mutually non-exclusive collaboration. Neurocrine and Caliper are each free to work with any other company in any area, provided that the Screening Data is used by each company in accordance with Article 3 below and each party complies with the other terms of this Agreement, including but not limited to Section 2.5(c). Neurocrine acknowledges that Caliper may use, or allow third parties to use, the Screening Technology and Caliper Compounds, to (i) pursue development of drugs that may compete with drugs Neurocrine is developing, or (ii) develop assays and screen the same and similar targets as those pursued by Neurocrine, in each case subject to Section 2.5(c) (Compound Libraries), Article 6 (Confidentiality) and the other terms of this Agreement. Caliper acknowledges that Neurocrine may elect to screen certain targets in its own facility rather than in the Screening Program, and that Neurocrine may collaborate with third parties for screening, again subject to Article 6 (Confidentiality) and the other terms of this Agreement. ARTICLE 3 INTELLECTUAL PROPERTY; SCREENING DATA 3.1 INTELLECTUAL PROPERTY. (a) Except as expressly provided elsewhere in this Agreement, all patent applications and issued patents claiming inventions made in the course of the Screening Program shall be owned by the inventing party, or jointly if invented jointly. Inventorship shall be determined under U.S patent laws. (b) Except as expressly provided elsewhere in this Agreement, all non-patented know-how, including but not limited to discoveries, materials, techniques, procedures, data and other technical information, that is created in the course of the Screening Program shall be owned by (for physical materials) or deemed Confidential Information of (for information) the party that generated such know-how. (c) Neurocrine shall retain all of its rights in Neurocrine Technology and Caliper shall have no rights in any Neurocrine Technology except the rights expressly granted in this Agreement. Caliper shall retain all of its rights in Caliper Technology and Neurocrine shall have no rights in any Caliper Technology except the rights expressly granted in this Agreement. 3.2 NEUROCRINE DRUG DISCOVERY RIGHTS. (a) Neurocrine shall have the exclusive (even as to Caliper), worldwide right to use the Screening Data delivered to Neurocrine for each LabChip Assay to discover, develop and commercialize Products directed against the Target of such LabChip Assay, subject to the terms of this Agreement. Neurocrine may assign or sublicense any or all such rights to third parties, provided all assignees and sublicensees agree in writing to be bound by the terms of this Agreement as they apply to the transferred rights. Neurocrine will notify Caliper of any transaction involving such rights within thirty (30) days of such transaction. If the use of [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 8 9 Screening Data to discover, develop or commercialize a Product would require the practice of a Caliper Patent claiming the Target or compounds screened, Caliper agrees to grant to Neurocrine a [ * ] license under such Caliper Patent for such use, [ * ]. If Neurocrine wishes to receive [ * ] to any Caliper Patent, or to have Caliper [ * ], then such matters shall be the subject of good faith negotiations regarding a separate agreement. (b) In addition to the exclusive rights described above, Neurocrine shall also have the non-exclusive, worldwide right to use the Screening Data in drug discovery efforts directed against all Targets and pharmaceutical targets other than the Targets screened in the Screening Program. Neurocrine may sublicense such rights along with other rights to Neurocrine Technology in connection with agreements to develop or commercialize Neurocrine's drug products, but may not otherwise assign, sublicense or transfer such rights. 3.3 CALIPER USE OF SCREENING DATA. Neurocrine grants to Caliper the exclusive (but for Neurocrine, per Section 3.2) worldwide right to use the data generated for each LabChip Assay pursuant to this Agreement in drug discovery efforts directed against pharmaceutical targets other than the Target of such LabChip Assay, including [ * ], provided that such grant shall not be effective unless and until [ * ] of this Agreement. The parties recognize that Caliper's use or disclosure of the Screening Data could [ * ], and Caliper acknowledges that Neurocrine may [ * ], and in no event shall Neurocrine be required to [ * ]. Accordingly, the parties shall negotiate in good faith in an effort to [ * ]. If the parties cannot agree on [ * ], (i) Caliper may elect to [ * ], or (ii) either party may elect to terminate this Agreement under Section 7.4. 3.4 NEUROCRINE COMPOUNDS. Caliper shall be free to use the Neurocrine Compounds to be shipped to Caliper pursuant to Section 2.5(a) [ * ]; provided, however, that the restrictions set forth in Section 2.5(c) with respect to screening Caliper Compounds against third party targets shall also apply to the Neurocrine Compounds. In no event may Neurocrine Compounds [ * ] as defined in Section 2.5(c). Neurocrine represents and warrants to Caliper as of the Effective Date that (i) it is the sole owner of all of the Neurocrine Compounds samples provided to Caliper, (ii) Neurocrine has not entered into any agreement in which a third party retains rights or any economic interest pertaining to any such compounds, and (iii) there are no Neurocrine Patents or, to Neurocrine's knowledge without having conducted any investigations, any third party intellectual property rights, that would be infringed by Caliper's use of the compounds as described above. No interest in any Neurocrine Patent Rights is conveyed to Caliper under this Section 3.4. 3.5 LABCHIP IMPROVEMENT INVENTIONS. Neurocrine hereby assigns to Caliper all right, title and interest in all LabChip Improvement Inventions. If requested by Caliper, Neurocrine agrees to cooperate in patenting activities for LabChip Improvement Inventions and to execute any documents necessary to effect such assignment, at Caliper's expense. Neurocrine also agrees to notify Caliper of any significant non-patentable improvements Neurocrine may make to the Screening Technology or to chip-based microfluidic systems during the term of this [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9 10 Agreement, and agrees that Caliper may use such developments in its business without restriction and transfer or sublicense such knowledge in connection with the development or commercialization of Caliper's technologies and products. Caliper hereby grants to Neurocrine a royalty-free, non-exclusive, license to use LabChip Improvement Inventions for Neurocrine's drug discovery and development programs, including the right to sublicense such rights in connection with such programs. This license shall not be construed as conferring on Neurocrine any license to any other Caliper Patents or Screening Technology. ARTICLE 4 FINANCIAL TERMS 4.1 SCREENING FEES. Neurocrine shall pay to Caliper the following amounts within thirty (30) days of receiving an invoice from Caliper, which will be delivered concurrent with delivery of the Screening Data: [ * ]/Data Point for the [ * ] LabChip Assays or [ * ], whichever comes first. [ * ]/Data Point for each LabChip Assay or Data Point thereafter up to a total of [ * ] LabChip Assays (including the [ * ] LabChip Assays). If the parties agree to develop and screen more than [ * ] LabChip Assays, they will mutually agree on screening fees, milestones, royalties and/or other financial terms for such work. 4.2 DEVELOPMENT MILESTONES. (a) Neurocrine shall pay to Caliper the following amounts for each Royalty Compound within thirty (30) days of the achievement of the following milestone events by Neurocrine, its Affiliate, sublicensee or other transferee of rights to a Royalty Compound:
Milestone Event Amount --------------- ------ Neurocrine Caliper Royalty Compound Royalty Compound ---------------- ---------------- [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
(b) If Neurocrine develops a Neurocrine Royalty Compound that acts on a Target [ * ] for such Neurocrine Royalty Compound. (c) Neurocrine shall keep Caliper informed regarding the status of development efforts directed at each Target screened in a LabChip Assay by means of semi- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 10 11 annual written reports due January 30 and July 30 each year. Such reports will continue so long as compounds against any such Targets are being developed. 4.3 ROYALTIES. Neurocrine shall pay to Caliper a royalty on all Net Sales of Products by Neurocrine, its Affiliates, sublicensees, or other transferees of rights to a Product as follows, [ * ]:
PRODUCT ROYALTY RATE Products containing a Caliper Royalty Compound [ * ] Products containing a Neurocrine Royalty Compound (and no Caliper Royalty Compound) [ * ]
4.4 ROYALTY PAYMENTS. (a) Neurocrine will notify Caliper in writing when regulatory filings are made and when approvals are received to market a Product in each country, in addition to the semi-annual reports described in Section 4.2(b). Each payment of royalties shall be accompanied by a statement detailing the calculation of the amount of royalties due in such period. (b) Royalty payments and reports for the sale of Products shall be made for each three month period ending on the last day of March, June, September and December and shall be due within forty-five (45) days of the end of each such month. For the purpose of calculating royalties on Net Sales generated in currencies other than U.S. dollars, such Net Sales shall be converted into U.S. dollars at the rate of exchange on the last business day of the relevant royalty period, established by the Wall Street Journal. All royalty payments owed under this Agreement shall be made by means of wire transfer to Caliper's account in a bank in the United States to be designated by Caliper. (c) If Caliper does not receive payment of any sum on the date it is due, simple interest shall thereafter accrue on the sum due to Caliper until the date of payment at the per annum rate of three percent (3%) over the then current prime rate of Citibank in New York City, which rate shall vary concurrently with any change in the prime rate. (d) Any withholding tax levied at source relating to the royalties payable to Caliper under Section 4.3 shall be borne by Caliper. Neurocrine shall reasonably assist Caliper in obtaining a tax credit under the applicable taxation treaties and laws, including by providing appropriate evidence of Caliper's payment of the withholding tax. 4.5 RECORDS AND AUDIT. (a) During the term of this Agreement and for a period of three (3) years thereafter, Neurocrine shall keep complete and accurate records pertaining to the achievement of milestones and the sale or other disposition of the Products commercialized by it, in sufficient [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11 12 detail to permit Caliper to confirm the accuracy of all payments due hereunder. In the event Neurocrine grants sublicenses to others to use or sell Products, Neurocrine shall require the sublicensee and any subsequent sublicensees to retain records and account for and report achievement of milestones and Net Sales of Products on the same basis as if such sales were Net Sales of Products by Neurocrine, and Neurocrine shall pay royalties to Caliper as if such sales were Net Sales of Products by Neurocrine (b) Caliper shall have the right to cause an independent, certified public accountant to audit all records reasonably necessary to confirm Neurocrine's Net Sales and royalty payments; provided, however, that such auditor shall not disclose Neurocrine's confidential information to Caliper, except to the extent such disclosure is necessary to verify the amount of royalties due under this Agreement. (c) Such audits may be exercised once a year, within three (3) years after the royalty period to which such records relate, upon notice to Neurocrine and during normal business hours. (d) Caliper shall bear the full cost of such audit unless such audit discloses an understatement of more than five percent (5%) from the amount of the Net Sales or royalties previously paid during any payment period. In such case, Neurocrine shall bear the full cost of such audit and pay the difference with interest as provided in Section 4.4(c). If such audit discloses an overpayment of royalties by Neurocrine, such overpayment shall be refunded to Neurocrine. ARTICLE 5 DISCLAIMERS; INDEMNIFICATION 5.1 CALIPER DISCLAIMER. THE CALIPER TECHNOLOGY, INCLUDING THE CALIPER COMPOUNDS, PROVIDED HEREUNDER, IS PROVIDED "AS IS" AND CALIPER EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without limiting the generality of the foregoing, Caliper expressly does not warrant (i) the success of any study or test commenced pursuant to the Screening Program, or (ii) the safety or usefulness for any purpose of Caliper Technology. 5.2 NEUROCRINE DISCLAIMER. THE NEUROCRINE TECHNOLOGY, INCLUDING THE NEUROCRINE COMPOUNDS AND TARGETS, PROVIDED HEREUNDER ARE PROVIDED "AS IS" AND NEUROCRINE EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12 13 TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO, EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS 2.3(c) OR 3.4. Without limiting the generality of the foregoing, Neurocrine expressly does not warrant the safety or usefulness for any purpose of the Neurocrine Technology or any Target or any compound developed as a result of the Screening Program. 5.3 INDEMNIFICATION. (a) INDEMNIFICATION BY NEUROCRINE. (i) Neurocrine shall defend, indemnify and hold harmless Caliper, its Affiliates and sublicensees, and all their officers, directors, employees and agents from any costs and expenses (including court and arbitration costs, witness fees and reasonable attorneys' fees), non-appealed or non-appealable judicial or arbitration damage awards, and settlement payments agreed with third party claimants payable or owed by Caliper in connection with any demand, law suits or other legal actions by third parties arising from the possession, development, manufacture, use, sale or administration of Targets, compounds, Royalty Compounds or Products by Neurocrine or Neurocrine's Affiliates or sublicensees. (ii) In order to maintain the right to be defended, indemnified and held harmless by Neurocrine, Caliper will: (iii) notify Neurocrine promptly after learning of a third party claim; (iv) allow Neurocrine to manage and control (by way of intervention or otherwise) the defense and settlement of any such third party claim against the Caliper, with input from Caliper; and (v) cooperate with Neurocrine in the defense or the settlement negotiations of third party claims as reasonable required by Neurocrine. (vi) Neurocrine shall not take any position in the dispute, or agree to any settlement, that adversely affects Caliper's rights or interest without Caliper's prior written approval (which approval shall not be unreasonably withheld). (vii) Neurocrine shall have no obligation to indemnify Caliper to the extent that a third party claim results from the negligence or willful misconduct of Caliper. (b) INDEMNIFICATION BY CALIPER. (i) Caliper shall defend, indemnify and hold harmless Neurocrine, its Affiliates and sublicensees, and all their officers, directors, employees and agents from any costs and expenses (including court and arbitration costs, witness fees and reasonable attorneys' fees), non-appealed or non-appealable judicial or arbitration damage awards, and settlement payments agreed with third party claimants payable or owed by Neurocrine in connection with any demand, law suits or other legal actions by third parties arising from Caliper's [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 13 14 (ii) In order to maintain the right to be defended, indemnified and held harmless by Caliper, Neurocrine will: (iii) notify Caliper promptly after learning of a third party claim; (iv) allow Caliper to manage and control (by way of intervention or otherwise) the defense and settlement of any such third party claim against the Neurocrine, with input from Neurocrine; and (v) cooperate with Caliper in the defense or the settlement negotiations of third party claims as reasonable required by Caliper. (vi) Caliper shall not take any position in the dispute, or agree to any settlement, that adversely affects Neurocrine's rights or interest without Neurocrine's prior written approval (which approval shall not be unreasonably withheld). (vii) Caliper shall have no obligation to indemnify Neurocrine to the extent that a third party claim results from the negligence or willful misconduct of Neurocrine. ARTICLE 6 CONFIDENTIALITY 6.1 DISCLOSURE OF CONFIDENTIAL INFORMATION. Confidential Information disclosed by one party to the other pursuant to and during the term of this Agreement shall be subject to the confidentiality obligations set forth below: (a) if disclosed in writing and marked "confidential" or "proprietary" by the disclosing party prior to or at the time of the disclosure thereof; or (b) if within 30 days after disclosure of Confidential Information, the disclosing party informs the receiving party in writing of the confidential nature of the disclosed information, describing such information and referencing the place and date of the oral, visual or written disclosure and the names of the employees or officers of the receiving party to whom such disclosure was made. 6.2 CONFIDENTIALITY AND NON-USE. Except to the extent expressly authorized by this Agreement or unless otherwise agreed in writing by the parties, each party agrees that, during the Screening Term and for five (5) years thereafter, it shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement any Confidential Information received from the other party, unless the receiving party can demonstrate by competent proof that such Confidential Information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure by the other party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 14 15 (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving party in breach of such Agreements; (d) is obtained by the receiving party from a third party who is lawfully in possession of such Confidential Information and is not subject to an obligation of confidentiality or non-use owed to the disclosing party; or (e) was independently discovered or developed by the receiving party without the use of Confidential Information belonging to the disclosing party. 6.3 AUTHORIZED DISCLOSURE. (a) Each party may disclose Confidential Information received from the other party to Affiliates, sublicensees and other commercial partners for the purpose of exercising rights provided under this Agreement, provided such recipients agree to be bound by similar terms of confidentiality. In addition, each party may disclose Confidential Information of the other party to the extent such disclosure is reasonably necessary to (i) comply with applicable securities laws and regulations and other applicable governmental regulations, (ii) file or prosecute patents, or (iii) prosecute or defend litigation. Notwithstanding the foregoing, Caliper shall have no right to disclose Confidential Information that could [ * ], and Neurocrine shall have no right to disclose Confidential Information specific to [ * ]. (b) Notwithstanding the foregoing, in the event a party is required to make a disclosure of the other party's Confidential Information pursuant to subparagraph (a) above, it will, except where impracticable, give reasonable advance notice to the other party of such disclosure and use best efforts to secure confidential treatment of such information. In any event, the parties agree to take all reasonable action to avoid disclosure of Confidential Information hereunder. 6.4 PUBLICITY. Except as otherwise provided herein or required by law, no party shall originate any publication, news release or other public announcement, written or oral, whether in the public press, or stockholders' reports, or otherwise, relating to the material terms of or the performance under this Agreement, without the prior written approval of the other party, which approval shall not be unreasonably withheld, but in no case shall be withheld for longer than fifteen (15) days; provided, however, that each party may disclose the existence of and the general nature of this Agreement. ARTICLE 7 TERM; TERMINATION 7.1 TERM. This Agreement shall commence upon the Effective Date and expire upon the completion of the Screening Term. This Agreement may not be terminated unilaterally by either party except pursuant to Sections 7.2 and 7.3 below. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 15 16 7.2 TERMINATION FOR MATERIAL BREACH. If either party materially breaches this Agreement, and the breaching party has not within sixty (60) days of notice of breach from the non-breaching party (i) cured the breach or (ii) initiated good faith efforts to cure such breach to the reasonable satisfaction of the non-breaching party, the non-breaching party may terminate this Agreement upon expiration of such sixty (60)-day period. 7.3 TERMINATION FOR TECHNICAL REASONS. Either party may terminate this Agreement upon [ * ] written notice to the other party at any time after the first anniversary of this Agreement if it becomes reasonably apparent that technical constraints of LabChip Assay development and Caliper's screening capacity will make it commercially impractical or impossible to perform LabChip Assay development and screening [ * ] Targets in accordance with the terms of this Agreement. 7.4 TERMINATION UNDER SECTION 3.3. Either party may terminate this Agreement upon sixty (60) days written notice to the other party if the parties are unable to reach agreement under Section 3.3. 7.5 EFFECT OF TERMINATION. In the event this Agreement is terminated by either party before Screening Data is delivered for the [ * ] LabChip Assay, the parties shall negotiate in good faith the terms and conditions under which Caliper may retain a portion of the Neurocrine Compounds. In the event the parties are unable to reach an agreement after sixty (60) days from the date of termination, [ * ]. 7.6 SURVIVING RIGHTS. The obligations and rights of the parties under Article 3 and Sections 4.2 through 4.5, 5.3, 6.2, 6.3, 7.4, 7.5, 8.3 and 8.5 shall survive expiration or termination of this Agreement. ARTICLE 8 MISCELLANEOUS 8.1 WAIVER. No waiver by either party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent or similar breach or default. 8.2 ASSIGNMENT. Neither party shall assign any of its rights and obligations hereunder except (i) as incident to the merger, consolidation, reorganization or acquisition of stock affecting actual voting control or of substantially all of the assets of the assigning party or the line of business to which this Agreement relates, or (ii) to an Affiliate; or (iii) after termination or expiration of the Screening Term, Caliper may assign its rights to receive milestone and royalty payments to any third party who is not a competitor of Neurocrine; provided, however, that in no event shall either party's rights and obligations hereunder be assigned without prior written notice to the other party. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 16 17 8.3 NOTICES. Any notice or other communication required or permitted to be given to either party hereto shall be in writing and shall be deemed to have been properly given and to be effective on the date of delivery if delivered in person or by facsimile or fourteen (14) days after mailing by registered or certified airmail, postage paid, to the other party at the following address: In the case of Caliper: Caliper Technologies Corp. 1275 California Avenue Palo Alto, CA 94304 Fax: (650) 842-1970 Attention: Chief Operating Officer In the case of Neurocrine: Neurocrine Biosciences, Inc. 10555 Science Center Drive San Diego, CA 92121 Fax: (619) 658-7605 Attention: Chief Executive Officer 8.4 AMENDMENT. No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed by authorized representatives of both parties. 8.5 CHOICE OF LAW; RESOLUTION OF DISPUTES. (a) This Agreement shall be governed exclusively by and construed according to the laws of California, U.S.A., excluding its choice of law provisions. (b) All disputes which may arise between the parties hereto in relation to the interpretation or administration of this Agreement shall be first referred to the Screening Committee for resolution. Any disputes which the Screening Committee is unable to resolve within a reasonable period of time shall be referred to the Chief Executive Officers or the Presidents of the respective parties, whether before or after termination or expiration of this Agreement. If such officers are unable to resolve the matter, either party may elect to pursue any available dispute resolution forum. 8.6 FORCE MAJEURE. Any delays in performance by any 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, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, earthquake, flood, or explosion. The party suffering such occurrence shall immediately notify the other party as soon as practicable and any time for performance hereunder shall be extended by the actual time of delay caused by the occurrence. 8.7 INDEPENDENT CONTRACTORS. In making and performing this Agreement, Neurocrine and Caliper are, and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Caliper and Neurocrine. At no time shall one party make commitments or incur any charges or expenses for or in the name of the other party. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 17 18 8.8 SEVERABILITY. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted rather than voided, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent. 8.9 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder shall be in addition to, and not in limitation of, all rights, powers and remedies provided at law or in equity, or under any other agreement between the parties. All of such rights, powers and remedies shall be cumulative, and may be exercised successively or cumulatively. 8.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which shall constitute together the same document. 8.11 ENTIRE AGREEMENT. This Agreement embodies the final and complete understanding of the parties with respect to the subject matter hereof and shall supersede all previous communications, representations or understandings, either oral or written, between the parties relating to the subject matter hereof. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 18 19 IN WITNESS WHEREOF, both parties have executed this Agreement, in duplicate originals, by their respective officers hereunto duly authorized, as of the day and year set forth in the introductory paragraph of this Agreement. CALIPER TECHNOLOGIES CORP. NEUROCRINE BIOSCIENCES, INC. By: /s/ Calvin Chow By: /s/ Gary Lyons --------------------------- ---------------------------- Name: Calvin Chow Name: Gary Lyons Title: Chief Operating Officer Title: CEO [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 19 EX-10.15 16 SOLE COMMERCIAL PATENT LICENSE AGREEMENT-DOMESTIC 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.15 AMENDMENT B TO PATENT LICENSE AGREEMENT (U.S.) THIS AMENDMENT B TO PATENT LICENSE AGREEMENT (U.S.) ("Amendment B") is made and entered into effective as of June 16, 1997 (the "Amendment B Date"), by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation having its principal place of business at 1275 California Avenue, Palo Alto, California 94304 ("Licensee"), and LOCKHEED MARTIN ENERGY RESEARCH CORPORATION ("LMER"), a Delaware corporation whose address for notices is Post Office Box 2009, Oak Ridge, Tennessee 37831-8242. Capitalized terms used in this Amendment B that are not otherwise defined herein shall have the same meanings as such terms are defined in the Prior Agreement (as defined below). RECITALS A. Licensee and LOCKHEED MARTIN ENERGY SYSTEMS, INC. ("Energy Systems") entered into a Patent License Agreement dated September 1, 1995 and Amendment A to Patent License Agreement (U.S.) dated May 1, 1996 (collectively, the "Prior Agreement"), under which Energy Systems granted to Licensee a sole commercial license in the United States to manufacture, use, sell, or offer for sale Products. B. Energy Systems, by virtue of an assignment dated February 14, 1997, did assign its undivided right, title, and interest in the Proprietary Rights to LMER. C. The parties desire to amend the terms of the Prior Agreement to replace Energy Systems with LMER as licensor, to establish royalty rates on Products as contemplated in Exhibit B1 of the Prior Agreement; to alter the terms of Sublicense Royalties under Exhibit B2 of the Prior Agreement; to revise Section 6 pertaining to patent prosecution and reimbursement of patent costs; and to make one correction. The Prior Agreement, as amended by this Amendment B, shall constitute the "Agreement." NOW, THEREFORE, the parties agree as follows: 1. AMENDMENT OF THE PRIOR AGREEMENT The parties hereby agree to amend the terms of the Prior Agreement as of the Amendment B Date as provided below. 1.1 ROYALTIES. The second paragraph of Exhibit B1 of the Prior Agreement is hereby deleted and shall be replaced by the following provisions: 2 "Licensee shall pay to LMER earned royalties on Net Sales of Products in the following amounts: (a) Licensee shall pay to LMER a [ * ] royalty on Net Sales of Chips; provided, however that if Licensee must pay royalties to one or more third parties on sales of Chips ("Third Party Payments"), then the royalty to LMER on Chips shall be reduced by [ * ] of the Third Party Payments, but not lower than a minimum of [ * ] of Net Sales of Chips in any quarter. "Chips" shall mean chips consisting of a glass or polymer base with reservoirs, microchannels or similar features and a glass or polymer cover, which chips are covered by one or more Claims of the Proprietary Rights licensed hereunder. (b) Licensee shall pay to LMER a [ * ] royalty on Net Sales of Products other than Chips. 1.2 SUBLICENSE ROYALTIES. Exhibit B2 of the Prior Agreement is hereby amended to delete the last sentence of the first paragraph, so such paragraph will read in its entirety as follows: "In order to maximize the commercialization of the "Products" and LMER's overall income from this Agreement, Licensee may grant sublicenses to third parties under which Licensee agrees to pay LMER a "Sublicensee Royalty" of [ * ] percent [ * ] of the total "Sublicensing Revenue" owed Licensee under said sublicenses." 1.3 PATENT PROSECUTION AND COSTS. Article 6 of the Prior Agreement is hereby amended to read in its entirety as follows: "6. PATENT PROSECUTION. 6.1 LMER shall, during the term of this Agreement, seek patent protection for the Proprietary Rights listed in Exhibit A. The securing of patent protection for all Proprietary Rights shall be the sole responsibility and at the sole discretion of LMER; provided, however that (i) Licensee shall have a reasonable opportunity to review and comment on patent filings in advance and to consult and cooperate with LMER in securing patent protection, and (ii) LMER will timely keep Licensee advised of the status of such prosecution and maintenance by providing Licensee with copies of all official communications, amendments and responses with respect to the patent applications and patents contained in the Proprietary Rights. Licensee may request and LMER, at its sole discretion, may seek patent extension for patents licensed under the Proprietary Rights listed in Exhibit A, under such applicable laws and regulations where such patent extension rights are available currently or are available in the future. In the event that LMER elects to abandon a patent application included in the Proprietary Rights or elects not to seek an extension of a patent included in the Proprietary Rights, it will so notify Licensee at least ninety (90) days prior to any [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 applicable deadline. Upon receipt of such notice, and to the extent allowed by the LMER Prime Contract with DOE, Licensee may, following written notice to LMER, seek, at its own expense, a waiver from DOE to continue the prosecution of such application or extend such application at Licensee's expense. 6.2 [ * ], relating to the securing of patent protection for the Proprietary Rights after the Amendment B Date ("Patent Costs") shall be the responsibility of Licensee. LMER shall bill Licensee for [ * ], and Licensee shall [ * ] LMER within thirty (30) days of receipt of the invoice." 1.4 CORRECTIONS. In the Prior Agreement, replace every occurrence of the term "Lockheed Martin Energy Systems, Inc." with the term "Lockheed Martin Energy Research Corporation". In the Prior Agreement, replace every occurrence of the term "Energy Systems, Inc." with the term "LMER". In the Prior Agreement, replace every occurrence of the term with the term "DE-AC05-84OR21400" with the term "DE-AC05-96OR22464." In the first line of Section 7.3 of the Prior Agreement, the cross reference to Section 6.2 is hereby amended to refer to Section 7.2 instead. 2. MISCELLANEOUS 2.1 NO OTHER CHANGES. Except as expressly provided in this Amendment B, all terms of the Prior Agreement shall remain in full force and effect. 2.2 COUNTERPARTS. This Amendment B may be executed in two or more counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment B in duplicate originals by their authorized officers as of the date and year first above written. LOCKHEED MARTIN ENERGY RESEARCH CORPORATION By: /s/ William R. Martin ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Date: 6/16/97 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 4 CALIPER TECHNOLOGIES CORPORATION By: /s/ Michael R. Knapp ----------------------------------------- Name: Michael R. Knapp Title: VP Science & Technology Date: 6-23-97 LOCKHEED MARTIN ENERGY SYSTEMS, INC. By: /s/ William R. Martin ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Date: 6/16/97 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 5 AMENDMENT A TO PATENT LICENSE AGREEMENT (U.S.) This Amendment A, made effective on this first day of May 1996, by and between LOCKHEED MARTIN ENERGY SYSTEMS, INC. (formerly Martin Marietta Energy Systems), and CALIPER TECHNOLOGIES, CORP., with both hereinafter referred to as the "Parties." WITNESSETH: WHEREAS, the Parties have entered into a Patent License Agreement having an effective date of September 1, 1995. WHEREAS, the parties hereby desire to amend said Agreement. NOW THEREFORE, the Parties agree to this Amendment A as follows: Exhibit A, add the following paragraph: [ * ] IN WITNESS WHEREOF, the Parties hereto have caused this Amendment A to be duly executed in their respective names by their duly authorized representatives. LOCKHEED MARTIN ENERGY SYSTEMS, INC. By: /s/ William R. Martin -------------------------------- Name: (Typed) William R. Martin Title: Vice President, Technology Transfer Date: 4/17/91 CALIPER TECHNOLOGIES, CORP. By: /s/ Lawrence A. Bock Name: (Typed) Lawrence A. Bock Title: Chief Executive Officer Date: 4/17/96 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 6 SOLE COMMERCIAL PATENT LICENSE AGREEMENT THIS AGREEMENT, made effective on the 1st day of September, 1995, by and between LOCKHEED MARTIN ENERGY SYSTEMS, INC., (hereinafter "Energy Systems"), a corporation organized and existing under the laws of the State of Delaware and whose address for notices is Post Office Box 2009, Oak Ridge, Tennessee 37831-8242, and CALIPER TECHNOLOGIES, CORP. (hereinafter "Licensee"), a corporation organized and existing under the laws of the State of Delaware and whose address for notices is 1020 Prospect Street, Suite 405, La Jolla, California 92037. Energy Systems and Licensee are herein after referred to as the "Party" or "Parties." W I T N E S S E T H: A. Energy Systems, pursuant to Contract No. DE-AC05-84OR21400 (hereinafter "Prime Contract") with the United States Government as represented by the Department of Energy (hereinafter "DOE") has developed and/or obtained rights to Proprietary Rights relating to Products, as defined below, subject to the DOE non-exclusive, nontransferable, irrevocable, paid-up license for the United States Government and certain march-in rights and any other conditions of waivers granted by the DOE; and B. Licensee desires to obtain rights, in the United States, under Energy Systems' Proprietary Rights. C. This Agreement supersedes the patent license agreement between Energy Systems and Caliper Microanalytic Systems, Inc., effective February 14, 1995, and any obligations contained in said agreement. THEREFORE, in consideration of the foregoing premises, covenants and agreements contained herein, the Parties hereto agree to be bound as follows: 1. DEFINITIONS [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 1 7 1.1 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with Licensee, where "control" means beneficial ownership of more than fifty percent (50%) of the outstanding shares or securities. 1.2 "Proprietary Rights" shall mean all inventions or discoveries covered by the claims and specifications in the Energy Systems U.S. patent application listed in Exhibit A attached hereto and hereby incorporated into this Agreement by reference and any and all patents issuing on any such patent application, including, without limitation, all continuations, continuations-in-part, divisions, reissues, reexaminations and temporal extensions of any of the foregoing. 1.3 "Products" shall mean any and all products manufactured, used, sold or transferred by Licensee, or manufactured, used or sold by Licensee's Affiliates or "Sublicensee(s)," covered by one or more Claims, including Dominant Claims as defined below, of the Proprietary Rights licensed hereunder. 1.4 "Dominant Claims" shall mean claims [ * ] of the patent application set forth in Exhibit A and included in the Proprietary Rights, pending on the date of execution of this Agreement. 1.5 "Other Field" shall mean the field of "Analysis of Nucleic Acids for Diagnostic Applications and Non-Electrophoretic Means of Gene Discovery." 1.6 "Net Sales" shall mean the total amounts received by Licensee and its Affiliates for the commercial sale of Products by Licensee or its Affiliates, less allowances for returns of Products, discounts, commissions, allowances actually granted (including any allowances for bad debt), transportation and delivery charges, including insurance premiums, and excise or other taxes on Products. Net Sales in the case of Products used or transferred by Licensee shall mean the fair market value of Products as if they were sold to an unrelated third party in similar quantities. It is the Parties' intention that "Net Sales" will not include any transfer of Products to any Affiliate, unless the Affiliate is the end user of such Products. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 8 With respect to any product that is developed and sold by Licensee or its Affiliates and is comprised in part of one or more Products and of one or more other products or parts which could be sold separately (a "Combination Product"), Net Sales shall be determined by multiplying the amounts received by Licensee or its Affiliates attributable to Combination Products by a fraction, the numerator of which is the fair market value of the Product included in the Combination Product, and the denominator of which is the sum of the fair market value of such Product and the fair market value of the products or parts which are not Products. Whenever possible, the fair market value of the Product included in the Combination Product will be the market price at which such Product is sold on a stand-alone basis; provided that fair market value shall be determined reasonably and in good faith by Licensee in the event that no market price is available. 1.7 "New Developments" shall mean any improvements based on the Proprietary Rights, and any inventions or discoveries in the field of miniaturization of instrumentation for analysis and synthesis by the inventor of the Proprietary Rights, which are designed to be used in combination with Products based on the Proprietary Rights herein. These do not include improvements, inventions or discoveries for which the title to same may be elected by another company under existing Energy Systems policies, unless such rights revert to Energy Systems and are applicable to the definition of "New Developments" as defined in this paragraph. 1.8 "Sublicensee" shall mean third parties (other than Affiliates) to whom Licensee has granted a sublicense. 1.9 "Sublicensing Revenue" shall mean the amount actually paid to Licensee by a Sublicensee, in consideration for the sublicense, including any license fees, royalties and milestone payments. Sublicensing Revenue shall not mean research and development support payments (other than in consideration for the Proprietary Rights) and any payments [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 9 to Licensee by a Sublicensee to compensate Licensee for the grant of rights to any other intellectual property of Licensee. 1.10 "Claim" shall mean a pending claim of the patent application within the Proprietary Rights or a claim of an issued and unexpired patent within the Proprietary Rights that has not been held unenforceable, unpatentable, or invalid by a decision of a court of competent jurisdiction, and that has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 2. GRANTS 2.1 Subject to the terms and conditions of this Agreement, Energy Systems hereby grants to Licensee and its Affiliates, in the United States, the exclusive (non-governmental) commercial right and license to manufacture, use, sell or offer for sale Products, with the right to grant sublicenses in all fields, excluding the "Other Field" as defined herein under the same non-financial terms and conditions as this license for a Sublicense Royalty as provided in Exhibit B2 hereof. Licensee agrees to provide Energy Systems a copy of each sublicense granted prior to the effective date thereof. 2.2 For a period of [ * ] from the time Energy Systems notifies Licensee, in writing, of any New Development (as limited by the definition in 1.7 above), Licensee shall have the right of first refusal to negotiate in good faith, with Energy Systems, the same right and license for any New Development. During this period, the Parties will exclusively negotiate with each other. If the Parties are unable to reach agreement during this period, Energy Systems will have the right, during an additional [ * ] period, to execute a license with a third party or parties, on terms which are no more favorable than those last offered to Licensee by Energy Systems during the initial period. If a license agreement is not reached with a third party or parties by Energy Systems for any New Development, Energy Systems agrees to offer Licensee more favorable terms than those initially offered. 2.3 In the event that [ * ], Energy Systems shall so notify Licensee, and Licensee shall have the right to [ * ], upon payment to Energy Systems of an amount equal to [ * ], and, by [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4 10 amendment of Exhibit B, the [ * ] agreed to in this Agreement by Licensee. Such [ * ] shall occur to the extent that the [ * ]. 2.4 Energy Systems hereby agrees not to grant to any other party right and license to Proprietary Rights in accordance with the three above paragraphs, as long as Licensee abides by the terms and conditions of this Agreement, unless required to so grant such right and license in accordance with Federal Statutory or Regulatory enactments conditioning the waiver of rights to Energy Systems by the DOE, particularly as set forth in 41 CFR 9-9.109-(6)i; 10 CFR Part 781; or 37 CFR Part 404. 2.5 Licensee agrees that any Products for use or sale in the United States shall be manufactured substantially in the United States. 2.6 Licensee agrees to affix appropriate markings of the applicable Energy Systems Proprietary Rights (and the fact that Energy Systems was the source of these rights) upon or in association with Licensee's Products and Licensee agrees to use its best efforts to follow any guidance from Energy Systems concerning such markings. 2.7 Should Licensee fail to meet the developmental commitments described in Exhibit C, Energy Systems shall have the option, to be exercised on [ * ] written notice to Licensee at any time during the [ * ] period following the date that such developmental commitment was to be achieved, to convert this license grant to a non-exclusive license. Energy Systems agrees to negotiate with Licensee, in good faith, a lower royalty rate for such non-exclusive license, than the rate contained in Exhibit B. Furthermore, such royalty rate shall [ * ]. 3. ROYALTIES AND COMMERCIALIZATION PLAN 3.1 In consideration of the right and license granted herein, Licensee agrees to the provisions of Exhibit B and Exhibit C attached hereto and hereby incorporated herein by reference. 3.2 No royalties shall be owing on any Products produced for or under any Federal governmental agency contract pursuant to the DOE non-exclusive license for Federal governmental purposes but only to the extent that Licensee can show that the Federal [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 5 11 government received a discount on Product sales which discount is equivalent to or greater than the amount of any such royalty that would otherwise be due. Any sales for Federal governmental purposes shall be reported under the Records and Reports Section herein below by providing: (a) a Federal government contract number; (b) identification of the Federal government agency; and (c) a description as to how the benefit of the royalty-free sale was passed onto the Federal government. 3.3 The royalty provisions of Exhibit B shall be [ * ]. 3.4 Upon termination of this Agreement for any reason whatsoever, any royalties that remain unpaid, and any pro-rata portion that is due Energy Systems per Article 10.6, shall be properly reported and paid to Energy Systems within thirty (30) days of any such termination. 4. RECORDS AND REPORTS 4.1 Licensee agrees to keep adequate records of Licensee, its Affiliates and Sublicensees in sufficient detail to enable royalties and Sublicensing Revenue payable hereunder to be determined and to provide such records for inspection by authorized representatives of Energy Systems, with reasonable notice, at any time during regular business hours of Licensee up to a maximum of two times per calendar year. Licensee agrees that any additional records of Licensee, its Affiliates and Sublicensees as Energy Systems may reasonably determine are necessary to verify the above records, shall also be provided to Energy Systems for inspection. If the audit discloses that Energy Systems was underpaid royalties by at least five percent (5.0%) for any calendar half-year, then Licensee shall reimburse Energy Systems for any documented and reasonable Energy Systems costs associated with the audit, together with an amount equal to the additional royalties to which Energy Systems is entitled as disclosed by the audit. 4.2 Beginning in calendar year 1997, and within thirty (30) calendar days after the close of each calendar half-year during the term of this Agreement (i.e., January 31 and July 31), Licensee will furnish Energy Systems a written report providing: (a) all United States Net [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6 12 Sales in U.S. Dollars during the preceding calendar half-year period, including any Federal governmental agency under section 3.2 herein above, if none so indicate; (b) amount of royalties due in U.S. Dollars for the preceding calendar half-year period pursuant to the provisions hereof; and (c) payment of the royalties due in U.S. Dollars payable to the order of Lockheed Martin Energy Systems, Inc., pursuant to the report to be transmitted in accordance with the "Notices" section of this Agreement herein below. 4.3 Should Licensee fail to make any payment to Energy Systems within the time period prescribed for such payment, then the unpaid amount shall bear interest at the rate of one and one half percent (1.5%) per month from the date when payment was due until payment in full, with interest, is made. 5. TECHNICAL ASSISTANCE 5.1 Energy Systems agrees, upon the written request of Licensee, to assist Licensee in obtaining necessary DOE approvals for technical assistance at Energy Systems' facilities under appropriate agreements. The cost of such technical assistance shall be paid for by the Licensee. 5.2 Energy Systems agrees to permit its employees, within Energy Systems' corporate policy guidelines then in effect and subject to DOE requirements then in effect, to provide consulting services to Licensee with reference to Licensee's use and commercial exploitation of the Proprietary Rights as contemplated herein. Licensee shall make payment directly to the individual consultant(s) for all such services. 6. PATENT PROSECUTION 6.1 Energy Systems shall have full control over prosecution and maintenance of the patent applications and patents contained in the Proprietary Rights. Energy Systems will use, at its sole discretion, reasonable efforts to establish patent protection for the information, inventions and discoveries included in the Proprietary Rights and will timely keep Licensee advised of the status of such prosecution and maintenance by providing Licensee with copies of all official communications, amendments and responses with respect to the patent [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7 13 applications and patents contained in the Proprietary Rights. In addition, with respect to New Developments which are licensed by Energy Systems to Licensee, Licensee may offer, at its own expense, assistance to Energy Systems in the drafting of claims and specifications. In the event that Energy Systems elects to abandon a patent application included in the Proprietary Rights, it will so notify Licensee within ninety (90) days of its proposed abandonment. Upon receipt of such notice, and to the extent allowed by the Energy Systems Prime Contract with DOE, Licensee may, following written notice to Energy Systems, seek, at its own expense, a waiver from DOE to continue the prosecution of such application at Licensee's expense. 7. INFRINGEMENT BY THIRD PARTIES 7.1 Licensee shall give notice of any discovered or threatened third-party infringement of Proprietary Rights to Energy Systems. In the event that Energy Systems does not take appropriate action to stop or prevent such infringement [ * ] after receiving such notice and diligently pursue such action, Licensee has the right to take appropriate action to stop and prevent the infringement, including the right to file suit. 7.2 Except for any liability resulting from any negligent acts or omissions of Energy Systems, in the event that Licensee files suit to stop infringement or defends any action against the validity of the patent, [ * ]. 7.3 Licensee may, however, [ * ] under the terms of this Agreement at such time as [ * ] are reported to Energy Systems in accordance with the Records and Reports Section herein above. 7.4 All recoveries, damages and awards, [ * ]. To the extent Licensee's recoveries, damages and awards [ * ]. In such event, Licensee will provide [ * ]. 7.5 The Parties hereby agree to cooperate with each other in the prosecution of any such legal actions or settlement actions undertaken under this section and each will provide to the other all pertinent data in its possession which may be helpful in the prosecution of such [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 8 14 actions; provided, however, that [ * ] in providing data and other information necessary to the conduct of the action. 7.6 The Party having filed such action [ * ], except that any settlement which affects or admits issues of patent validity shall require the advance written approval of Energy Systems. 7.7 In the event any Product becomes the subject of a claim for patent or other proprietary-right infringement anywhere in the world by virtue of the incorporation of the Proprietary Rights herein, the Parties shall promptly give notice to the other and meet to consider the claim and the appropriate course of action. Licensee shall have the right to conduct the defense of any such suit brought against Licensee and shall have the sole right and authority to settle any such suit, [ * ]. Energy Systems shall cooperate with Licensee, as reasonably requested by Licensee, in connection with defense of such claim, at Licensee's expense. 8. REPRESENTATIONS AND WARRANTIES 8.1 Energy Systems represents and warrants that Exhibit A contains a complete and accurate listing of all the Proprietary Rights licensed and that Energy Systems has the right to grant the rights, licenses, and privileges granted herein. 8.2 Energy Systems represents and warrants that there are no claims of infringement filed against Energy Systems for practicing the Exhibit A Proprietary Rights anywhere in the world. 8.3 Except as set forth herein above, Energy Systems makes NO REPRESENTATIONS OR WARRANTIES, express or implied, with regard to the infringement of proprietary rights of any third party. 8.4 Licensee acknowledges that the export of any of the Proprietary Rights from the United States or the disclosure of any of the Proprietary Rights to a foreign national may require some form of license from the U.S. Government. Failure to obtain any required [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9 15 export licenses by Licensee may result in Licensee subjecting itself to criminal liability under U.S. laws. 9. DISCLAIMERS 9.1 Neither Energy Systems, the DOE, nor persons acting on their behalf will be responsible for any injury to or death of persons or other living things or damage to or destruction of property or for any other loss, damage, or injury of any kind whatsoever resulting from Licensee's manufacture, use, or sale of materials, information, or Proprietary Rights hereunder. In no event will Energy Systems, the DOE, or any person acting on behalf of any of them be liable for any incidental, special or consequential damages resulting from the license granted pursuant to this Agreement or the use or commercial development of the Proprietary Rights. 9.2 EXCEPT AS SET FORTH HEREINABOVE, NEITHER ENERGY SYSTEMS, THE DOE, NOR PERSONS ACTING ON THEIR BEHALF MAKE ANY WARRANTY, EXPRESS OR IMPLIED: (1) WITH RESPECT TO THE MERCHANTABILITY, ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY SERVICES, MATERIALS, OR INFORMATION FURNISHED HEREUNDER; (2) THAT THE USE OF ANY SUCH SERVICES, MATERIALS, OR INFORMATION WILL NOT INFRINGE PRIVATELY OWNED RIGHTS; (3) THAT THE SERVICES, MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL NOT RESULT IN INJURY OR DAMAGE WHEN USED FOR ANY PURPOSE; OR (4) THAT THE SERVICES, MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL ACCOMPLISH THE INTENDED RESULTS OR ARE SAFE FOR ANY PURPOSE, INCLUDING THE INTENDED OR PARTICULAR PURPOSE. FURTHERMORE, ENERGY SYSTEMS AND THE DOE HEREBY SPECIFICALLY DISCLAIM ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, FOR ANY PRODUCTS MANUFACTURED, USED, OR SOLD BY LICENSEE. NEITHER ENERGY SYSTEMS NOR THE DOE SHALL BE LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES IN ANY EVENT. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 10 16 9.3 Licensee agrees to indemnify Energy Systems, the DOE, and persons acting on their behalf for all damages, costs, and expenses, including attorneys' fees, arising from, but not limited to [ * ]. 10. TERM OF AGREEMENT AND EARLY TERMINATION 10.1 This Agreement shall extend from the effective date of this Agreement to the date of expiration of the last-to-expire of the United States patents which arise from the Proprietary Rights of Exhibit A. This Agreement is subject to early termination as set forth herein below and the terms and conditions set forth in Exhibit B and Exhibit C attached hereto and hereby incorporated into this Agreement by reference thereto. 10.2 Either Party shall have the right to terminate this Agreement without judicial resolution upon written notice to the other after a breach of any provision by the other Party has gone uncorrected for sixty (60) days after the other Party has been notified in writing of such breach. Practice of the licensed Proprietary Rights outside the scope of the grant by Licensee, its Affiliates, and Sublicensees shall be an uncorrectable breach of this Agreement and this Agreement may be terminated upon written notice thereof by Energy Systems. 10.3 This Agreement shall terminate automatically upon the extinguishment of all of the Exhibit A Proprietary Rights, for any reason, but only after the time for appealing said extinguishment has expired. 10.4 Licensee shall provide notice to Energy Systems of its intention to file a voluntary petition in bankruptcy or of another party's intention to file an involuntary petition in bankruptcy for Licensee, said notice to be received by Energy Systems at least thirty (30) days prior to filing such a petition. Licensee's failure to provide such notice to Energy Systems of such intentions shall be deemed a material, pre-petition, incurable breach of this Agreement. 10.5 Licensee agrees that this Agreement shall automatically terminate upon any attempt by Licensee to offer Licensee's rights under this Agreement as collateral to a third party. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11 17 10.6 Licensee may terminate this Agreement without further payment upon written notice to Energy Systems, if such notice is received by Energy Systems on or before December 31, 1995. On any decision to terminate, made after December 31, 1995, Licensee agrees to pay Energy Systems the pro rata portion of the next payment obligation that is due. Such portion of the next payment obligation due shall be based on a period which ends sixty days after Licensee submits, to Energy Systems, a written notice of termination. 10.7 Termination under any of the provisions of this Article of the license granted to Licensee in this Agreement shall terminate all sublicenses which may have been granted by Licensee, provided that any Sublicensee may elect to continue its sublicense by advising Energy Systems in writing, within sixty (60) days of the Sublicensee's receipt of written notice of such termination, of its election, and of its agreement to assume, in respect to Energy Systems, all the obligations (including obligations for payment) contained in its sublicensing agreement with Licensee. Any sublicense granted by Licensee shall contain provisions corresponding to those of this paragraph respecting termination and the conditions of continuance of sublicenses. 11. RIGHTS OF PARTIES AFTER TERMINATION 11.1 Neither Party shall be relieved of any obligation or liability under this Agreement arising from any act or omission committed prior to the effective date of such termination. In the event of expiration of this Agreement or termination of this Agreement for any reason whatsoever, the rights and obligations of the Parties under Sections 8.1, 8.2, 10 and 12 shall survive any expiration or termination of this Agreement. 11.2 From and after any termination of this Agreement, Licensee shall have the right to sell any Products that Licensee had already manufactured prior to termination, provided that all royalties and reports required herein above shall be timely submitted to Energy Systems. 11.3 From and after any termination of this Agreement, Licensee shall not manufacture, nor have manufactured any Products pursuant to this Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12 18 11.4 The rights and remedies granted herein, and any other rights or remedies which the Parties may have, either at law or in equity, are cumulative and not exclusive of others. On any termination, Licensee shall duly account to Energy Systems and transfer to it all rights to which Energy Systems may be entitled under this Agreement. 12. CONFIDENTIALITY 12.1 The Parties agree that during the term of this Agreement and for a period of three (3) years after it terminates, a Party receiving information of the other Party, which is marked "confidential," will not use or intentionally disclose such confidential information to any third party without prior written consent of the disclosing Party, except to those necessary to enable the Parties to perform under this Agreement or as may be required by the Energy Systems Prime Contract with the DOE under the same restrictions as set forth herein. 12.2 A Party shall have no obligations with respect to any portion of such confidential information of the other Party which: a) is publicly disclosed through no fault of any Party hereto, either before or after it becomes known to the receiving Party; or b) was known to the receiving Party prior to the date of this Agreement which knowledge was acquired independently and not from the other Party; or c) is subsequently disclosed to the receiving Party in good faith by a third party which has a right to make such a disclosure; or d) has been published by a third party as a matter of right; or e) is subsequently independently invented or discovered by the receiving Party without reference to the other Party's confidential information. 13. FORCE MAJEURE 13.1 No failure or omission by Energy Systems or by Licensee in the performance of any obligation under this Agreement shall be deemed a breach of this Agreement or create any liability if the same shall arise from acts of God, acts or omissions of any government or agency thereof, compliance with requests, recommendations, rules, regulations, or orders of [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 13 19 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. 14. NOTICES 14.1 All notices and reports shall be addressed to the Parties hereto as follows: If to Energy Systems: Business Manager, Technology Transfer Facsimile No.: Lockheed Martin Energy Systems, Inc. (615) 576-9465 701 Scarboro Road Verify No.: Oak Ridge, Tennessee 37831-8242 (615) 574-4193 If to Licensee: President Facsimile No. Caliper Technologies Corp. (619) 454-5329 1020 Prospect Street, Suite 405 Verify No.: La Jolla, California 92037 (619) 454-3803 14.2 All minimum and royalty payments due Energy Systems shall be sent to: Lockheed Martin Energy Systems, Inc. Department 888058 Knoxville, Tennessee 37995-8058 14.3 Any notice, report or any other communication required or permitted to be given by one Party to the other Party by this Agreement shall be in writing and either (a) served personally on the other Party, (b) sent by express, registered or certified first-class mail, postage prepaid, addressed to the other Party at its address as indicated above, or to such other address as the addressee shall have previously furnished to the other Party by proper [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 14 20 notice, (c) delivered by commercial courier to the other Party, or (d) sent by facsimile to the other Party at its facsimile number indicated above or to such other facsimile number as the Party shall have previously furnished to the other Party by proper notice, with machine confirmation of transmission. 15. NON-ABATEMENT OF ROYALTIES 15.1 Energy Systems and Licensee acknowledge that certain of the Proprietary Rights may expire prior to the conclusion of the term of this Agreement; however, Energy Systems and Licensee agree that the royalty rates provided for herein above shall be uniform and undiminished except pursuant to this Agreement. 16. WAIVERS 16.1 The failure of either Party at any time to enforce any provisions of this Agreement or to exercise any right or remedy shall not be construed to be a waiver of such provisions or of such rights or remedy or the right of either Party thereafter to enforce each and every provision, right or remedy. 17. MODIFICATIONS 17.1 It is expressly understood and agreed by the Parties hereto that this instrument contains the entire agreement between the Parties with respect to the subject matter hereof and that all prior representations, warranties, or agreements relating hereto have been merged into this document and are thus superseded in totality by this Agreement. This Agreement may be amended or modified only by a written instrument signed by the duly authorized representatives of both of the Parties. 18. HEADINGS 18.1 The headings for the sections set forth in this Agreement are strictly for the convenience of the parties hereto and shall not be used in any way to restrict the meaning or interpretation of the substantive language of this Agreement. 19. LAW [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 15 21 19.1 This Agreement shall be construed according to the laws of the State of Tennessee and the United States of America. 20. ASSIGNMENT 20.1 Upon timely written approval by Energy Systems, not to be unreasonably withheld, Licensee may assign this Agreement and the rights of Licensee thereunder to any of its Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation, including a successor corporation resulting from any merger or consolidation of Licensee with or into such corporation. Any assignee of Licensee must abide by the terms and conditions of this Agreement, in conformance with all Energy Systems obligations to DOE under the Prime Contract. Upon written notice to Licensee, Energy Systems may transfer its Administration of this Agreement to DOE or its designee, and Energy Systems shall have no further responsibilities except for the confidentiality and/or non-disclosure obligations of this Agreement. 21. SEVERABILITY 21.1 If any term, condition or provision of this Agreement is held to be unenforceable other than as provided in Article 13, all other terms, conditions, and provisions of this Agreement shall be deemed valid and enforceable to the extent possible. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 16 22 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed in their respective names by their duly authorized representatives. "ENERGY SYSTEMS" LOCKHEED MARTIN ENERGY SYSTEMS, INC. By: /s/ William R. Martin ---------------------------------------- Name (typed): Mr. William R. Martin Title: Vice President, Technology Transfer Date: 1 Sept 95 "LICENSEE" CALIPER TECHNOLOGIES, CORP. By: /s/ Lawrence A. Bock ---------------------------------------- Name (typed): Lawrence A. Bock Title: President Date: September 1, 1995 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 17 23 EXHIBIT A, PROPRIETARY RIGHTS [ * ] Initials: Energy Systems: /s/ WRM --------- Date: 1 Sept 95 Licensee: /s/ LAB Date: September 1, 1995 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 18 24 EXHIBIT B 1, EXECUTION FEE, ROYALTIES AND MINIMUM ANNUAL ROYALTIES AMOUNTS In consideration of the rights and licenses granted herein, Licensee agrees to pay Energy Systems an up-front fee of [ * ], with a payment of [ * ] on execution of the Agreement, and [ * ] on the six-month anniversary date of execution. The royalty rate shall not exceed [ * ] Percent [ * ] of Net Sales of Products. Energy Systems agrees to negotiate with Licensee in good faith, a lower royalty rate, provided adequate and documented justification for a lower royalty rate is supplied to Energy Systems by Licensee. Such royalty rate shall not be less than [ * ] Percent [ * ] of Net Sales of Products. The minimum annual royalties shall be calculated as follows: If, by the third anniversary date of execution, the royalties on Net Sales of Products shall not equal the minimum annual royalty amount of [ * ] U.S. Dollars [ * ], then Licensee shall pay the difference between the amount of actual royalties paid and the minimum annual royalty within thirty (30) days of said anniversary date. If, by the [ * ] anniversary date of execution, and each anniversary date thereafter, a U.S. Patent with Dominant Claims [ * ], based on the Proprietary Rights of Exhibit A, has issued, Licensee shall pay Energy Systems the minimum annual royalty amount of [ * ] or royalties on actual Net Sales of Products, whichever amount is greater. If such U.S. patent issuance does not occur by the [ * ] anniversary date of execution, the minimum annual royalty amount will remain at [ * ]. Such a payment requirement will automatically increase to a [ * ] annual minimum royalty amount, due on yearly anniversary dates, beginning with [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 19 25 the execution anniversary date of the year in which such patent issuance, with the issuance of Dominant claims [ * ], occurs. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 20 26 EXHIBIT B2, SUBLICENSE ROYALTIES In order to maximize the commercialization of the "Products" and Energy Systems' overall income from this Agreement, Licensee may grant sublicenses to third parties under which Licensee agrees to pay Energy Systems a "Sublicense Royalty" of [ * ] percent [ * ] of the total "Sublicensing Revenue" owed Licensee under said sublicenses. In no event shall the sum of "Sublicensing Royalty" and royalty on Licensee's Net Sales paid to Energy Systems by Licensee be less than the royalty Energy Systems would have received from Licensee's Net Sale of Products. N O T I C E THIS EXHIBIT CONTAINS FINANCIAL AND COMMERCIAL INFORMATION THAT IS BUSINESS CONFIDENTIAL AND THE PARTIES HEREBY AGREE NOT TO USE OR DISCLOSE THIS EXHIBIT TO ANY THIRD PARTY WITHOUT THE ADVANCE WRITTEN APPROVAL OF THE OTHER PARTY HERETO, EXCEPT TO THOSE NECESSARY TO ENABLE THE PARTIES TO PERFORM UNDER THIS AGREEMENT OR AS MAY BE REQUIRED BY THE ENERGY SYSTEMS CONTRACT WITH THE DOE THE SAME RESTRICTIONS AS SET FORTH HEREIN. Initials: Energy Systems: /s/ WRM --------- Date: 1 Sept 95 Licensee: /s/ LAB Date: September 1, 1995 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 21 27 EXHIBIT C, DEVELOPMENT AND COMMERCIALIZATION PLAN Licensee agrees to invest in the development of technology and markets for Products by committing Licensee's resources in accordance with the following: For expenditures associated with [ * ] For expenditures associated with [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 22 28 EXHIBIT C., CONTINUED Progress and substantiation of Licensee meeting these requirements shall be provided to Energy Systems in the form of an annual written report submitted to Energy Systems by Licensee or at a meeting between the Parties to be held at the mutual convenience of said Parties, but no later than December 31, 1996 and each anniversary thereafter. N O T I C E THIS EXHIBIT CONTAINS FINANCIAL AND COMMERCIAL INFORMATION THAT IS BUSINESS CONFIDENTIAL AND THE PARTIES HEREBY AGREE NOT TO USE OR DISCLOSE THIS EXHIBIT TO ANY THIRD PARTY WITHOUT THE ADVANCE WRITTEN APPROVAL OF THE OTHER PARTY HERETO, EXCEPT TO THOSE NECESSARY TO ENABLE THE PARTIES TO PERFORM UNDER THIS AGREEMENT OR AS MAY BE REQUIRED BY THE ENERGY SYSTEMS CONTRACT WITH THE DOE UNDER THE SAME RESTRICTIONS AS SET FORTH HEREIN. Initials: Energy Systems: /s/ WRM --------- Date: 1 Sept 95 Licensee: /s/ LAB Date: September 1, 1995 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 23 EX-10.16 17 SOLE COMMERCIAL PATENT LICENSE AGREEMENT - INT'L. 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.16 AMENDMENT A TO PATENT LICENSE AGREEMENT (INTERNATIONAL) THIS AMENDMENT A TO PATENT LICENSE AGREEMENT (INTERNATIONAL) ("AMENDMENT A") is made and entered into effective as of June 16, 1997 (the "Amendment A Date"), by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation having its principal place of business at 1275 California Avenue, Palo Alto, California 94304 ("Licensee"), and LOCKHEED MARTIN ENERGY RESEARCH CORPORATION ("LMER"), a Delaware corporation whose address for notices is Post Office Box 2009, Oak Ridge, Tennessee 37831-8242. Capitalized terms used in this Amendment A that are not otherwise defined herein shall have the same meanings as such terms arc defined in the Prior Agreement (as defined below). RECITALS A. Licensee and LOCKHEED MARTIN ENERGY SYSTEMS, INC. ("Energy Systems") entered into a Patent License Agreement dated September 1, 1995 (the "Prior Agreement"), under which Energy Systems granted to Licensee a sole commercial license outside the United States to manufacture, use, sell, or offer for sale Products. B. Energy Systems, by virtue of an assignment dated February 14, 1997, did assign its undivided right, title, and interest in the Proprietary Rights to LMER. C. The parties desire to amend the terms of the Prior Agreement to replace Energy Systems with LMER as licensor, to establish royalty rates on Products as contemplated in Exhibit B1 of the Prior Agreement; to alter the terms of Sublicense Royalties under Exhibit B2 of the Prior Agreement; to revise Section 6 pertaining to patent prosecution and reimbursement of patent costs; and to make one correction. The Prior Agreement, as amended by this Amendment A, shall constitute the "Agreement." NOW, THEREFORE, the parties agree as follows: I. AMENDMENT OF THE PRIOR AGREEMENT. The parties hereby agree to amend the terms of the Prior Agreement as of the Amendment A Date as provided below. 1.1 ROYALTIES. The second paragraph of Exhibit B 1 of the Prior Agreement is hereby deleted and shall be replaced by the following provisions: "Licensee shall pay to LMER earned royalties on Net Sales of Products in the following amounts: (a) Licensee shall pay to LMER a [*] royalty on Net Sales of Chips; provided, however that if Licensee must pay royalties to one or more third parties on sales of 2 Chips ("Third Party Payments"), then the royalty to LMER on Chips shall be reduced by [*] of the Third Party Payments, but not lower than a minimum of [*] of Net Sales of Chips in any quarter. "Chips" shall mean chips consisting of a glass or polymer base with reservoirs, microchannels or similar features and a glass or polymer cover, which chips are covered by one or more Claims of the Proprietary Rights licensed hereunder. (b) Licensee shall pay to LMER a [*] royalty on Net Sales of Products other than Chips. 1.2 SUBLICENSE ROYALTIES. Exhibit B2 of the Prior Agreement is hereby amended to delete the last sentence of the first paragraph, so such paragraph will read in its entirety as follows: "In order to maximize the commercialization of the "Products" and LMER's overall income from this Agreement, Licensee may grant sublicenses to third parties under which Licensee agrees to pay LMER a "Sublicense Royalty" of [*] percent [*] of the total "Sublicensing Revenue" owed Licensee under said sublicenses." 1.3 PATENT PROSECUTION AND COSTS. Article 6 of the Prior Agreement is hereby amended to read in its entirety as follows: "6. PATENT PROSECUTION. 6.1 LMER shall, during the term of this Agreement, seek patent protection for the Proprietary Rights listed in Exhibit A. The securing of patent protection for all Proprietary Rights shall be the sole responsibility and at the sole discretion of LMER; provided, however that (i) Licensee shall have a reasonable opportunity to review and comment on patent filings in advance and to consult and cooperate with LMER in securing patent protection, and (ii) LMER will timely keep Licensee advised of the status of such prosecution and maintenance by providing Licensee with copies of all official communications, amendments and responses with respect to the patent applications and patents contained in the Proprietary Rights. Licensee may request and LMER, at its sole discretion, may seek patent extension for patents licensed under the Proprietary Rights listed in Exhibit A, under such applicable laws and regulations where such patent extension rights are available currently or are available in the future. In the event that LMER elects to abandon a patent application included in the Proprietary Rights or elects not to seek an extension of a patent included in the Proprietary Rights, it will so notify Licensee at least ninety (90) days prior to any applicable deadline. Upon receipt of such notice, and to the extent allowed by the LMER Prime Contract with DOE, Licensee may, following written notice to LMER, seek, at its own expense, a waiver from DOE to continue the prosecution of such application or extend such application at Licensee's expense. 6.2 [*], relating to the securing of patent protection for the Proprietary Rights after the Amendment A Date ("Patent Costs") shall be the responsibility of Licensee. LMER shall bill Licensee for [*], and Licensee shall [*] LMER within thirty (30) days of receipt of the invoice." 1.4 CORRECTIONS. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 3 In the Prior Agreement, replace every occurrence of the term "Lockheed Martin Energy Systems, Inc." with the term "Lockheed Martin Energy Research Corporation". In the Prior Agreement, replace every occurrence of the term "Energy Systems, Inc." with the term "LMER". In the Prior Agreement, replace every occurrence of the term "DE-AC05-84OR21400" with the term "DE-AC05-96OR22464." In the first line of Section 7.3 of the Prior Agreement, the cross reference to Section 6.2 is hereby amended to refer to Section 7.2 instead. II. MISCELLANEOUS. 2.1 NO OTHER CHANGES. Except as expressly provided in this Amendment A, all terms of the Prior Agreement shall remain in full force and effect. 2.2 COUNTERPARTS. This Amendment A may be executed in two or more counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment A in duplicate originals by their authorized officers as of the date and year first above written. LOCKHEED MARTIN ENERGY RESEARCH CORPORATION By: /s/ William R. Martin ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- Date: 6/16/97 ------------------------------------- CALIPER TECHNOLOGIES CORPORATION By: /s/ Michael R. Knapp ------------------------------------- Name: Michael R. Knapp ------------------------------------- Title: VP Science & Technology ------------------------------------- Date: 6-23-97 ------------------------------------- LOCKHEED MARTIN ENERGY SYSTEMS, INCORPORATION [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 4 By: /s/ William R. Martin ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- Date: 6/16/97 ------------------------------------- [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4 5 SOLE COMMERCIAL PATENT LICENSE AGREEMENT THIS AGREEMENT, made effective on the 1st day of September, 1995, by and between LOCKHEED MARTIN ENERGY SYSTEMS, INC., (hereinafter "Energy Systems"), a corporation organized and existing under the laws of the State of Delaware and whose address for notices is Post Office Box 2009, Oak Ridge, Tennessee 37831-8242, and CALIPER TECHNOLOGIES, CORP. (hereinafter "Licensee"), a corporation organized and existing under the laws of the State of Delaware and whose address for notices is 1020 Prospect Street, Suite 405, La Jolla, California 92037. Energy Systems and Licensee are herein after referred to as the "Party" or "Parties." WITNESS: A. Energy Systems, pursuant to Contract No. DE-AC05-84OR21400 (hereinafter "Prime Contract") with the United States Government as represented by the Department of Energy (hereinafter "DOE") has developed and/or obtained rights to Proprietary Rights relating to Products, as defined below, subject to the DOE non-exclusive, nontransferable, irrevocable, paid-up license for the United States Government and certain march-in rights and any other conditions of waivers granted by the DOE; and B. Licensee desires to obtain rights, outside the United States, under Energy Systems' Proprietary Rights. C. This Agreement supersedes the patent license agreement between Energy Systems and Caliper Microanalytic Systems, Inc., effective February 14, 1995, and any obligations contained in said agreement. THEREFORE, in consideration of the foregoing premises, covenants and agreements contained herein, the Parties hereto agree to be bound as follows: 1. DEFINITIONS [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 1 6 1.1 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with Licensee, where "control" means beneficial ownership of more than fifty percent (50%) of the outstanding shares or securities. 1.2 "Proprietary Rights" shall mean all inventions or discoveries covered by the claims and specifications in the Energy Systems PCT filing listed in Exhibit A attached hereto and hereby incorporated into this Agreement by reference and any and all patents issuing on any such patent application, including, without limitation, all continuations, continuations-in-part, divisions, reissues, reexaminations and temporal extensions of any of the foregoing. 1.3 "Products" shall mean any and all products manufactured, used, sold or transferred by Licensee, or manufactured, used or sold by Licensee's Affiliates or "Sublicensee(s)," covered by one or more Claims, including Dominant Claims as defined below, of the Proprietary Rights licensed hereunder. 1.4 "Dominant Claims" shall mean claims [*] of the PCT filing set forth in Exhibit A and included in the Proprietary Rights, pending on the date of execution of this Agreement. 1.5 "Other Field" shall mean the field of "Analysis of Nucleic Acids for Diagnostic Applications and Non-Electrophoretic Means of Gene Discovery." 1.6 "Net Sales" shall mean the total amounts received by Licensee and its Affiliates for the commercial sale of Products by Licensee or its Affiliates, less allowances for returns of Products, discounts, commissions, allowances actually granted (including any allowances for bad debt), transportation and delivery charges, including insurance premiums, and excise or other taxes on Products. Net Sales in the case of Products used or transferred by Licensee shall mean the fair market value of Products as if they were sold to an unrelated third party in similar quantities. It is the Parties' intention that "Net Sales" will not include any transfer of Products to any Affiliate, unless the Affiliate is the end user of such Products. With respect to any product that is developed and sold by Licensee or its Affiliates and is comprised in part of one or more Products and of one or more other products or parts which could be sold separately (a "Combination Product"), Net Sales shall be determined by [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 7 multiplying the amounts received by Licensee or its Affiliates attributable to Combination Products by a fraction, the numerator of which is the fair market value of the Product included in the Combination Product, and the denominator of which is the sum of the fair market value of such Product and the fair market value of the products or parts which are not Products. Whenever possible, the fair market value of the Product included in the Combination Product will be the market price at which such Product is sold on a stand-alone basis; provided that fair market value shall be determined reasonably and in good faith by Licensee in the event that no market price is available. 1.7 "New Developments" shall mean any improvements based on the Proprietary Rights, and any inventions or discoveries in the field of miniaturization of instrumentation for analysis and synthesis by the inventor of the Proprietary Rights, which are designed to be used in combination with Products based on the Proprietary Rights herein. These do not include improvements, inventions or discoveries for which the title to same may be elected by another company under existing Energy Systems policies, unless such rights revert to Energy Systems and are applicable to the definition of "New Developments" as defined in this paragraph. 1.8 "Sublicensee" shall mean third parties (other than Affiliates) to whom Licensee has granted a sublicense. 1.9 "Sublicensing Revenue" shall mean the amount actually paid to Licensee by a Sublicensee, in consideration for the sublicense, including any license fees, royalties and milestone payments. Sublicensing Revenue shall not mean research and development support payments (other than in consideration for the Proprietary Rights) and any payments to Licensee by a Sublicensee to compensate Licensee for the grant of rights to any other intellectual property of Licensee. 1.10 "Claim" shall mean a pending claim of the patent application within the Proprietary Rights or a claim of an issued and unexpired patent within the Proprietary Rights that has not [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 8 been held unenforceable, unpatentable, or invalid by a decision of a court of competent jurisdiction, and that has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 2. GRANTS 2.1 Subject to the terms and conditions of this Agreement, Energy Systems hereby grants to Licensee and its Affiliates, outside the United States, the exclusive (non-governmental) commercial right and license to manufacture, use, sell or offer for sale Products, with the right to grant sublicenses in all fields, excluding the "Other Field" as defined herein under the same non-financial terms and conditions as this license for a Sublicense Royalty as provided in Exhibit B2 hereof. Licensee agrees to provide Energy Systems a copy of each sublicense granted prior to the effective date thereof. 2.2 For a period of [*] from the time Energy Systems notifies Licensee, in writing, of any New Development (as limited by the definition in 1.7 above), Licensee shall have the right of first refusal to negotiate in good faith, with Energy Systems, the same right and license for any New Development. During this period, the Parties will exclusively negotiate with each other. If the Parties are unable to reach agreement during this period, Energy Systems will have the right, during an additional [*] period, to execute a license with a third party or parties, on terms which are no more favorable than those last offered to Licensee by Energy Systems during the initial period. If a license agreement is not reached with a third party or parties by Energy Systems for any New Development, Energy Systems agrees to offer Licensee more favorable terms than those initially offered. 2.3 In the event that [*]. Energy Systems shall so notify Licensee, and Licensee shall have the right to [*], upon payment to Energy Systems of an amount equal to [*], and, by amendment of Exhibit B, the [*] agreed to in this Agreement by Licensee. Such [*] shall occur to the extent that the [*]. 2.4 Energy Systems hereby agrees not to grant to any other party right and license to Proprietary Rights in accordance with the three above paragraphs, as long as Licensee abides [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4 9 by the terms and conditions of this Agreement, unless required to so grant such right and license in accordance with Federal Statutory or Regulatory enactments conditioning the waiver of rights to Energy Systems by the DOE, particularly as set forth in 41 CFR 9-9.109-(6)i; 10 CFR Part 781; or 37 CFR Part 404. 2.5 Licensee agrees that any Products for use or sale in the United States shall be manufactured substantially in the United States. 2.6 Licensee agrees to affix appropriate markings of the applicable Energy Systems Proprietary Rights (and the fact that Energy Systems was the source of these rights) upon or in association with Licensee's Products and Licensee agrees to use its best efforts to follow any guidance from Energy Systems concerning such markings. 2.7 Should Licensee fail to meet the developmental commitments described in Exhibit C, Energy Systems shall have the option, to be exercised on [*] written notice to Licensee at any time during the [*] period following the date that such developmental commitment was to be achieved, to convert this license grant to a non-exclusive license. Energy Systems agrees to negotiate with Licensee, in good faith, a lower royalty rate for such non-exclusive license, than the rate contained in Exhibit B. Furthermore, such royalty rate shall [*]. 3. ROYALTIES AND COMMERCIALIZATION PLAN 3.1 In consideration of the right and license granted herein, Licensee agrees to the provisions of Exhibit B and Exhibit C attached hereto and hereby incorporated herein by reference. 3.2 No royalties shall be owing on any Products produced for or under any Federal governmental agency contract pursuant to the DOE non-exclusive license for Federal governmental purposes but only to the extent that Licensee can show that the Federal government received a discount on Product sales which discount is equivalent to or greater than the amount of any such royalty that would otherwise be due. Any sales for Federal governmental purposes shall be reported under the Records and Reports Section herein below by providing: (a) a Federal government contract number; (b) identification of the [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 5 10 Federal government agency; and (c) a description as to how the benefit of the royalty-free sale was passed onto the Federal government. 3.3 The royalty provisions of Exhibit B shall be [*]. 3.4 Upon termination of this Agreement for any reason whatsoever, any royalties that remain unpaid, and any pro-rata portion that is due Energy Systems per Article 10.6, shall be properly reported and paid to Energy Systems within thirty (30) days of any such termination. 3.5 In the event Licensee is required to withhold taxes under the laws of any foreign country for the account of Energy Systems, then such payments will be made by Licensee on behalf of Energy Systems to the appropriate governmental authority, and Licensee shall furnish proof of payment of such tax together with official or other appropriate evidence issued by the appropriate government authority. Any such tax actually paid on Energy Systems' behalf shall be deducted from royalty payments then due and owing Energy Systems. 4. RECORDS AND REPORTS 4.1 Licensee agrees to keep adequate records of Licensee, its Affiliates and Sublicensees in sufficient detail to enable royalties and Sublicensing Revenue payable hereunder to be determined and to provide such records for inspection by authorized representatives of Energy Systems, with reasonable notice, at any time during regular business hours of Licensee up to a maximum of two times per calendar year. Licensee agrees that any additional records of Licensee, its Affiliates and Sublicensees as Energy Systems may reasonably determine are necessary to verify the above records, shall also be provided to Energy Systems for inspection. If the audit discloses that Energy Systems was underpaid royalties by at least five percent (5.0%) for any calendar half-year, then Licensee shall reimburse Energy Systems for any documented and reasonable Energy Systems costs associated with the audit, together with an amount equal to the additional royalties to which Energy Systems is entitled as disclosed by the audit. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6 11 4.2 Beginning in calendar year 1997, and within thirty (30) calendar days after the close of each calendar half-year during the term of this Agreement (i.e., January 31 and July 31), Licensee will furnish Energy Systems a written report providing: (a) all Net Sales outside of the United States in U.S. Dollars during the preceding calendar half-year period, including any Federal governmental agency under section 3.2 herein above, if none so indicate; (b) amount of royalties due in U.S. Dollars for the preceding calendar half-year period pursuant to the provisions hereof; and (c) payment of the royalties due in U.S. Dollars payable to the order of Lockheed Martin Energy Systems, Inc., pursuant to the report to be transmitted in accordance with the "Notices" section of this Agreement herein below. 4.3 Should Licensee fail to make any payment to Energy Systems within the time period prescribed for such payment, then the unpaid amount shall bear interest at the rate of one and one half percent (1.5%) per month from the date when payment was due until payment in full, with interest, is made. 5. TECHNICAL ASSISTANCE 5.1 Energy Systems agrees, upon the written request of Licensee, to assist Licensee in obtaining necessary DOE approvals for technical assistance at Energy Systems' facilities under appropriate agreements. The cost of such technical assistance shall be paid for by the Licensee. 5.2 Energy Systems agrees to permit its employees, within Energy Systems' corporate policy guidelines then in effect and subject to DOE requirements then in effect, to provide consulting services to Licensee with reference to Licensee's use and commercial exploitation of the Proprietary Rights as contemplated herein. Licensee shall make payment directly to the individual consultant(s) for all such services. 6. PATENT PROSECUTION 6.1 Energy Systems shall have full control over prosecution and maintenance of the patent applications and patents contained in the Proprietary Rights. Energy Systems will use, at its sole discretion, reasonable efforts to establish patent protection for the information, [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7 12 inventions and discoveries included in the Proprietary Rights and will timely keep Licensee advised of the status of such prosecution and maintenance by providing Licensee with copies of all official communications, amendments and responses with respect to the patent applications and patents contained in the Proprietary Rights. In addition, with respect to New Developments which are licensed by Energy Systems to Licensee, Licensee may offer, at its own expense, assistance to Energy Systems in the drafting of claims and specifications. In the event that Energy Systems elects to abandon a patent application included in the Proprietary Rights, it will so notify Licensee within ninety (90) days of its proposed abandonment. Upon receipt of such notice, and to the extent allowed by the Energy Systems Prime Contract with DOE, Licensee may, following written notice to Energy Systems, seek, at its own expense, a waiver from DOE to continue the prosecution of such application at Licensee's expense. 6.2 Energy Systems agrees to expend up to [*] U.S. Dollars [*] for foreign patenting expenses associated with the Proprietary Rights of Exhibit A. Additional expenditures associated with such expenses will be incurred by Licensee by reimbursement to Energy Systems within 30 days of Licensee's receipt of such documented and previously agreed upon foreign patenting expenses by Energy Systems. 7. INFRINGEMENT BY THIRD PARTIES 7.1 Licensee shall give notice of any discovered or threatened third-party infringement of Proprietary Rights to Energy Systems. In the event that Energy Systems does not take appropriate action to stop or prevent such infringement [ * ] after receiving such notice and diligently pursue such action, Licensee has the right to take appropriate action to stop and prevent the infringement, including the right to file suit. 7.2 Except for any liability resulting from any negligent acts or omissions of Energy Systems, in the event that Licensee files suit to stop infringement or defends any action against the validity of the patent, [*]. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 8 13 7.3 Licensee may, however, [*] under the terms of this Agreement at such time as [*] are reported to Energy Systems in accordance with the Records and Reports Section herein above. 7.4 All recoveries, damages and awards, [*]. To the extent Licensee's recoveries, damages and awards [*]. In such event, Licensee will provide [*]. 7.5 The Parties hereby agree to cooperate with each other in the prosecution of any such legal actions or settlement actions undertaken under this section and each will provide to the other all pertinent data in its possession which may be helpful in the prosecution of such actions; provided, however, that [*] in providing data and other information necessary to the conduct of the action. 7.6 The Party having filed such action [*], except that any settlement which affects or admits issues of patent validity shall require the advance written approval of Energy Systems. 7.7 In the event any Product becomes the subject of a claim for patent or other proprietary-right infringement anywhere in the world by virtue of the incorporation of the Proprietary Rights herein, the Parties shall promptly give notice to the other and meet to consider the claim and the appropriate course of action. Licensee shall have the right to conduct the defense of any such suit brought against Licensee and shall have the sole right and authority to settle any such suit, [ * ]. Energy Systems shall cooperate with Licensee, as reasonably requested by Licensee, in connection with defense of such claim, at Licensee's expense. 8. REPRESENTATIONS AND WARRANTIES 8.1 Energy Systems represents and warrants that Exhibit A contains a complete and accurate listing of all the Proprietary Rights licensed and that Energy Systems has the right to grant the rights, licenses, and privileges granted herein. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9 14 8.2 Energy Systems represents and warrants that there are no claims of infringement filed against Energy Systems for practicing the Exhibit A Proprietary Rights anywhere in the world. 8.3 Except as set forth herein above, Energy Systems makes NO REPRESENTATIONS OR WARRANTIES, express or implied, with regard to the infringement of proprietary rights of any third party. 8.4 Licensee acknowledges that the export of any of the Proprietary Rights from the United States or the disclosure of any of the Proprietary Rights to a foreign national may require some form of license from the U.S. Government. Failure to obtain any required export licenses by Licensee may result in Licensee subjecting itself to criminal liability under U.S. laws. 9. DISCLAIMERS 9.1 Neither Energy Systems, the DOE, nor persons acting on their behalf will be responsible for any injury to or death of persons or other living things or damage to or destruction of property or for any other loss, damage, or injury of any kind whatsoever resulting from Licensee's manufacture, use, or sale of materials, information, or Proprietary Rights hereunder. In no event will Energy Systems, the DOE, or any person acting on behalf of any of them be liable for any incidental, special or consequential damages resulting from the license granted pursuant to this Agreement or the use or commercial development of the Proprietary Rights. 9.2 EXCEPT AS SET FORTH HEREINABOVE, NEITHER ENERGY SYSTEMS, THE DOE, NOR PERSONS ACTING ON THEIR BEHALF MAKE ANY WARRANTY, EXPRESS OR IMPLIED: (1) WITH RESPECT TO THE MERCHANTABILITY, ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY SERVICES, MATERIALS, OR [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 10 15 INFORMATION FURNISHED HEREUNDER; (2) THAT THE USE OF ANY SUCH SERVICES, MATERIALS, OR INFORMATION WILL NOT INFRINGE PRIVATELY OWNED RIGHTS; (3) THAT THE SERVICES, MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL NOT RESULT IN INJURY OR DAMAGE WHEN USED FOR ANY PURPOSE: OR (4) THAT THE SERVICES, MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL ACCOMPLISH THE INTENDED RESULTS OR ARE SAFE FOR ANY PURPOSE, INCLUDING THE INTENDED OR PARTICULAR PURPOSE. FURTHERMORE, ENERGY SYSTEMS AND THE DOE HEREBY SPECIFICALLY DISCLAIM ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, FOR ANY PRODUCTS MANUFACTURED, USED, OR SOLD BY LICENSEE. NEITHER ENERGY SYSTEMS NOR THE DOE SHALL BE LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES IN ANY EVENT. 9.3 Licensee agrees to indemnify Energy Systems, the DOE, and persons acting on their behalf for all damages, costs, and expenses, including attorneys' fees, arising from, but not limited to, [*]. 10. TERM OF AGREEMENT AND EARLY TERMINATION 10.1 This Agreement shall extend from the effective date of this Agreement to the date of expiration of the last-to-expire of the patents which arise from the Proprietary Rights of Exhibit A, on a country-by-country basis. This Agreement is subject to early termination as set forth herein below and the terms and conditions set forth in Exhibit B and Exhibit C attached hereto and hereby incorporated into this Agreement by reference thereto. 10.2 Either Party shall have the right to terminate this Agreement without judicial resolution upon written notice to the other after a breach of any provision by the other Party has gone uncorrected for sixty (60) days after the other Party has been notified in writing of such breach. Practice of the licensed Proprietary Rights outside the scope of the grant by Licensee, its Affiliates, and Sublicensees shall be an uncorrectable breach of this Agreement and this Agreement may be terminated upon written notice thereof by Energy Systems. 10.3 This Agreement shall terminate automatically upon the extinguishment of all of the Exhibit A Proprietary Rights, for any reason, but only after the time for appealing said extinguishment has expired. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11 16 10.4 Licensee shall provide notice to Energy Systems of its intention to file a voluntary petition in bankruptcy or of another party's intention to file an involuntary petition in bankruptcy for Licensee, said notice to be received by Energy Systems at least thirty (30) days prior to filing such a petition. Licensee's failure to provide such notice to Energy Systems of such intentions shall be deemed a material, pre-petition, incurable breach of this Agreement. 10.5 Licensee agrees that this Agreement shall automatically terminate upon any attempt by Licensee to offer Licensee's rights under this Agreement as collateral to a third party. 10.6 Licensee may terminate this Agreement without further payment upon written notice to Energy Systems, if such notice is received by Energy Systems on or before December 31, 1995. On any decision to terminate, made after December 31, 1995, Licensee agrees to pay Energy Systems the pro rata portion of the next payment obligation that is due. Such portion of the next payment obligation due shall be based on a period which ends sixty days after Licensee submits, to Energy Systems, a written notice of termination. 10.7 Termination under any of the provisions of this Article of the license granted to Licensee in this Agreement shall terminate all sublicenses which may have been granted by Licensee, provided that any Sublicensee may elect to continue its sublicense by advising Energy Systems in writing, within sixty (60) days of the Sublicensee's receipt of written notice of such termination, of its election, and of its agreement to assume, in respect to Energy Systems, all the obligations (including obligations for payment) contained in its sublicensing agreement with Licensee. Any sublicense granted by Licensee shall contain provisions corresponding to those of this paragraph respecting termination and the conditions of continuance of sublicenses. 11. RIGHTS OF PARTIES AFTER TERMINATION 11.1 Neither Party shall be relieved of any obligation or liability under this Agreement arising from any act or omission committed prior to the effective date of such termination. In the event of expiration of this Agreement or termination of this Agreement for any reason [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12 17 whatsoever, the rights and obligations of the Parties under Sections 8.1, 8.2, 10 and 12 shall survive any expiration or termination of this Agreement. 11.2 From and after any termination of this Agreement, Licensee shall have the right to sell any Products that Licensee had already manufactured prior to termination, provided that all royalties and reports required herein above shall be timely submitted to Energy Systems. 11.3 From and after any termination of this Agreement, Licensee shall not manufacture, nor have manufactured any Products pursuant to this Agreement. 11.4 The rights and remedies granted herein, and any other rights or remedies which the Parties may have, either at law or in equity, are cumulative and not exclusive of others. On any termination, Licensee shall duly account to Energy Systems and transfer to it all rights to which Energy Systems may be entitled under this Agreement. 12. CONFIDENTIALITY 12.1 The Parties agree that during the term of this Agreement and for a period of three (3) years after it terminates, a Party receiving information of the other Party, which is marked "confidential," will not use or intentionally disclose such confidential information to any third party without prior written consent of the disclosing Party, except to those necessary to enable the Parties to perform under this Agreement or as may be required by the Energy Systems Prime Contract with the DOE under the same restrictions as set forth herein. 12.2 A Party shall have no obligations with respect to any portion of such confidential information of the other Party which: a) is publicly disclosed through no fault of any Party hereto, either before or after it becomes known to the receiving Party; or b) was known to the receiving Party prior to the date of this Agreement which knowledge was acquired independently and not from the other Party; or c) is subsequently disclosed to the receiving Party in good faith by a third party which has a right to make such a disclosure; or d) has been published by a third party as a matter of right; or [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 13 18 e) is subsequently independently invented or discovered by the receiving Party without reference to the other Party's confidential information. 13. FORCE MAJEURE 13.1 No failure or omission by Energy Systems or by Licensee in the performance of any obligation under this Agreement shall be deemed a breach of this Agreement or create any liability if the same shall arise from acts of God, acts or omissions of any government or agency thereof, compliance with requests, recommendations, rules, regulations, or orders 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. 14. NOTICES 14.1 All notices and reports shall be addressed to the Parties hereto as follows: If to Energy Systems: Business Manager, Technology Transfer Facsimile No.: Lockheed Martin Energy Systems, Inc. (615) 576-9465 701 Scarboro Road Verify No.: Oak Ridge, Tennessee 37831-8242 (615) 574-4193 If to Licensee: President Facsimile No. Caliper Technologies Corp. (619) 454-5329 1020 Prospect Street, Suite 405 Verify No.: La Jolla, California 92037 (619) 454-3803 14.2 All minimum and royalty payments due Energy Systems shall be sent to: Lockheed Martin Energy Systems, Inc. Department 888058 Knoxville, Tennessee 37995-8058 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 14 19 14.3 Any notice, report or any other communication required or permitted to be given by one Party to the other Party by this Agreement shall be in writing and either (a) served personally on the other Party, (b) sent by express, registered or certified first-class mail, postage prepaid, addressed to the other Party at its address as indicated above, or to such other address as the addressee shall have previously furnished to the other Party by proper notice, (c) delivered by commercial courier to the other Party, or (d) sent by facsimile to the other Party at its facsimile number indicated above or to such other facsimile number as the Party shall have previously furnished to the other Party by proper notice, with machine confirmation of transmission. 15. NON-ABATEMENT OF ROYALTIES 15.1 Energy Systems and Licensee acknowledge that certain of the Proprietary Rights may expire prior to the conclusion of the term of this Agreement; however, Energy Systems and Licensee agree that the royalty rates provided for herein above shall be uniform and undiminished except pursuant to this Agreement. 16. WAIVERS 16.1 The failure of either Party at any time to enforce any provisions of this Agreement or to exercise any right or remedy shall not be construed to be a waiver of such provisions or of such rights or remedy or the right of either Party thereafter to enforce each and every provision, right or remedy. 17. MODIFICATIONS 17.1 It is expressly understood and agreed by the Parties hereto that this instrument contains the entire agreement between the Parties with respect to the subject matter hereof and that all prior representations, warranties, or agreements relating hereto have been merged into this document and are thus superseded in totality by this Agreement. This Agreement may be amended or modified only by a written instrument signed by the duly authorized representatives of both of the Parties. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 15 20 18. HEADINGS 18.1 The headings for the sections set forth in this Agreement are strictly for the convenience of the parties hereto and shall not be used in any way to restrict the meaning or interpretation of the substantive language of this Agreement. 19. LAW 19.1 This Agreement shall be construed according to the laws of the State of Tennessee and the United States of America. 20. ASSIGNMENT 20.1 Upon timely written approval by Energy Systems, not to be unreasonably withheld, Licensee may assign this Agreement and the rights of Licensee thereunder to any of its Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation, including a successor corporation resulting from any merger or consolidation of Licensee with or into such corporation. Any assignee of Licensee must abide by the terms and conditions of this Agreement, in conformance with all Energy Systems obligations to DOE under the Prime Contract. Upon written notice to Licensee, Energy Systems may transfer its Administration of this Agreement to DOE or its designee, and Energy Systems shall have no further responsibilities except for the confidentiality and/or non-disclosure obligations of this Agreement. 21. SEVERABILITY 21.1 If any term, condition or provision of this Agreement is held to be unenforceable other than as provided in Article 13, all other terms, conditions, and provisions of this Agreement shall be deemed valid and enforceable to the extent possible. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 16 21 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed in their respective names by their duly authorized representatives. "ENERGY SYSTEMS" LOCKHEED MARTIN ENERGY SYSTEMS, INC. By: /s/ William R. Martin ------------------------------------ Name (typed): Mr. William R. Martin ----------------------------- Title: Vice President, Technology Transfer ------------------------------------ Date: 1 Sept 95 ------------------------------------ "LICENSEE" CALIPER TECHNOLOGIES, CORP. By: /s/ Lawrence A. Bock ------------------------------------ Name (typed): Lawrence A. Bock ----------------------------- Title: President ------------------------------------ Date: September 1, 1995 ------------------------------------ [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 17 22 EXHIBIT A, PROPRIETARY RIGHTS [*]. Initials: Energy Systems: /s/ WRM --------------------------- Date: 1 Sept 95 --------------------------- Licensee: /s/ LAB --------------------------- Date: September 1, 1995 --------------------------- [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 18 23 EXHIBIT B1, EXECUTION FEE, ROYALTIES AND MINIMUM ANNUAL ROYALTIES AMOUNTS In consideration of the rights and licenses granted herein, Licensee agrees to pay Energy Systems an up-front fee of [*] U.S. Dollars [*], with a payment of [*] on execution of the Agreement, and [*] on the six-month anniversary date of execution. The royalty rate shall not exceed [*] Percent [*] of Net Sales of Products. Energy Systems agrees to negotiate with Licensee in good faith, a lower royalty rate, provided adequate and documented justification for a lower royalty rate is supplied to Energy Systems by Licensee. Such royalty rate shall not be less than [*] Percent [*] of Net Sales of Products. Licensee shall be entitled to credit [*] percent [*] of any royalty paid to a non-Affiliate third party by Licensee in order for Licensee to be able to make, use, and sell Products against the royalty payable in this Exhibit B herein above; provided that in no event will the royalty payable in this Exhibit B herein above be reduced by more than [*] percent [*] in any quarter as a result of the credit available to Licensee under this paragraph. The minimum annual royalties shall be calculated as follows: If, by the third anniversary date of execution, the royalties on Net Sales of Products shall not equal the minimum annual royalty amount of [*] U.S. Dollars [*], then Licensee shall pay the difference between the amount of actual royalties paid and the minimum annual royalty within thirty (30) days of said anniversary date. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 19 24 If, by the [*] anniversary date of execution, and each anniversary date thereafter, a U.S. Patent with Dominant Claims [*], based on the Proprietary Rights of Exhibit A, has issued, Licensee shall pay Energy Systems the minimum annual royalty amount of [*] or royalties on actual Net Sales of Products, whichever amount is greater. If such U.S. patent issuance does not occur by the [*] anniversary date of execution, the minimum annual royalty amount will remain at [*]. Such a payment requirement will automatically increase to a [ * ] annual minimum royalty amount, due on yearly anniversary dates, beginning with the execution anniversary date of the year in which such patent issuance, with the issuance of Dominant claims [*], occurs. [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 20 25 EXHIBIT B2, SUBLICENSE ROYALTIES In order to maximize the commercialization of the "Products" and Energy Systems' overall income from this Agreement, Licensee may grant sublicenses to third parties under which Licensee agrees to pay Energy Systems a "Sublicense Royalty" of [*] percent [*] of the total "Sublicensing Revenue" owed Licensee under said sublicenses. In no event shall the sum of "Sublicensing Royalty" and royalty on Licensee's Net Sales paid to Energy Systems by Licensee be less than the royalty Energy Systems would have received from Licensee's Net Sale of Products. NOTICE THIS EXHIBIT CONTAINS FINANCIAL AND COMMERCIAL INFORMATION THAT IS BUSINESS CONFIDENTIAL AND THE PARTIES HEREBY AGREE NOT TO USE OR DISCLOSE THIS EXHIBIT TO ANY THIRD PARTY WITHOUT THE ADVANCE WRITTEN APPROVAL OF THE OTHER PARTY HERETO, EXCEPT TO THOSE NECESSARY TO ENABLE THE PARTIES TO PERFORM UNDER THIS AGREEMENT OR AS MAY BE REQUIRED BY THE ENERGY SYSTEMS CONTRACT WITH THE DOE THE SAME RESTRICTIONS AS SET FORTH HEREIN. Initials: Energy Systems: /s/ WRM --------------------------- Date: 1 Sept 95 --------------------------- Licensee: /s/ LAB --------------------------- Date: September 1, 1995 --------------------------- [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 21 26 EXHIBIT C, DEVELOPMENT AND COMMERCIALIZATION PLAN Licensee agrees to invest in the development of technology and markets for Products by committing Licensee's resources in accordance with the following: For expenditures associated with [*] [*] [*] [*] [*] [*] For expenditures associated with [*] [*] [*] [*] [*] [*] [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 22 27 EXHIBIT C., CONTINUED Progress and substantiation of Licensee meeting these requirements shall be provided to Energy Systems in the form of an annual written report submitted to Energy Systems by Licensee or at a meeting between the Parties to be held at the mutual convenience of said Parties, but no later than December 31, 1996 and each anniversary thereafter. NOTICE THIS EXHIBIT CONTAINS FINANCIAL AND COMMERCIAL INFORMATION THAT IS BUSINESS CONFIDENTIAL AND THE PARTIES HEREBY AGREE NOT TO USE OR DISCLOSE THIS EXHIBIT TO ANY THIRD PARTY WITHOUT THE ADVANCE WRITTEN APPROVAL OF THE OTHER PARTY HERETO, EXCEPT TO THOSE NECESSARY TO ENABLE THE PARTIES TO PERFORM UNDER THIS AGREEMENT OR AS MAY BE REQUIRED BY THE ENERGY SYSTEMS CONTRACT WITH THE DOE UNDER THE SAME RESTRICTIONS AS SET FORTH HEREIN. Initials: Energy Systems: /s/ WRM --------------------------- Date: 1 Sept 95 --------------------------- Licensee: /s/ LAB --------------------------- Date: September 1, 1995 --------------------------- 23 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EX-10.17 18 CONSULTING AGREEMENT - DR. DAVID MILLIGAN 1 Exhibit 10.17 CALIPER TECHNOLOGIES CORP. CONSULTING AGREEMENT THIS AGREEMENT is made and entered into as of the 30th day of April, 1997 (the "Effective Date") by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation (the "Company"), and DR. DAVID MILLIGAN ("Contractor"). RECITAL As part of its ongoing program of research and development, the Company desires to engage individuals with business and scientific expertise to assist the Company from time to time in projects involving business strategy and the research and development of the Company's proposed products. Contractor is qualified and willing to provide such services. Therefore, the Company and Contractor desire to enter into this Agreement. AGREEMENT In consideration of the mutual covenants set forth below, the parties hereby agree as follows: 1. ENGAGEMENT OF SERVICES. Contractor, pursuant to the provisions of this Agreement, is hereby engaged by the Company to provide services to the Company as described on Exhibit A attached hereto (the "Services"). The Services will be provided relating to the field described in Exhibit B hereto (the "Field"). Contractor shall perform Services as requested by the Company from time to time to the best of his ability, such Services to be performed at such place or places and at such times as mutually agreed upon by the Company and Contractor. Contractor shall provide up to four (4) days per month in person or by telephone (in addition to six days per year for Board meetings provided in Contractor's capacity of Chairman of the Board of the Company) for twelve (12) months from the date of this Agreement. The Company recognizes that Contractor may be unavailable to perform Services for certain limited amounts of time due to other commitments. Contractor shall notify the Company in advance of any such expected periods of unavailability in person or by telephone, which shall not be considered a breach of this Agreement unless the duration of any such period of unavailability extends for more than thirty (30) consecutive days. 2. COMPENSATION. 2.1 As consideration for Contractor's Services and for the discharge of all Contractor's obligations hereunder, the Company shall (i) pay Contractor $80,000, such amount to be paid by the Company monthly in twelve equal installments beginning on the last business day of May 1997, and (ii) grant Contractor a non-qualified stock option to purchase 100,000 shares (the "Shares") of the Company's Common Stock at the current fair market value of $.30 per share under the Company's 1996 Stock Incentive Plan (the "Plan"), which Shares shall vest over a five year period at a rate of 1,667 shares per month at the end of each month, beginning 2 with the month of May 1997, whether or not the Company requests Services. If Contractor shall cease to be a director, officer, employee or consultant to the Company prior to the vesting of all of the Shares, for any reason, the vesting of the Shares shall immediately cease and any Shares which are unvested on the date the Agreement is terminated shall remain unvested shares. 2.2 In addition to such compensation, the Company will reimburse Contractor for travel and other out-of-pocket costs reasonably incurred by him in the course of performing Services under this Agreement; provided however, that the Company shall not be obligated hereunder unless (a) the Company has agreed in advance to reimburse such costs, and (b) Contractor provides the Company with appropriate receipts or other relevant documentation for all such costs as part of any submission by Contractor for reimbursement. 3. INDEPENDENT CONTRACTOR. It is understood and agreed that Contractor is an independent contractor and not an agent or employee of the Company. Contractor has no authority to act on behalf of the Company pursuant to this Agreement, or to obligate the Company by contract or otherwise. Contractor will not be eligible for any employee benefits, nor will the Company make deductions from Contractor's fees for taxes. The payment of any taxes related to Contractor's provision of Services under this Agreement shall be the sole responsibility of Contractor. 4. ADDITIONAL ACTIVITIES. 4.1 During the period in which Contractor provides Services to the Company under this Agreement (the "Contracting Period"), Contractor will not directly or indirectly (whether for compensation or without compensation), provide services relating to the Field to any corporation or other entity which is engaged in research in the Field, other than to those corporations or other entities to which Contractor provides services on the date of this Agreement; provided, however, that the foregoing shall not prevent Contractor from engaging in any academic research, teaching or related activity in the Field. 4.2 During the Contracting Period, and for an amount of time thereafter equal in length to the lesser of (a) two years or (b) the length of the Contracting Period, Contractor will not, directly or indirectly (whether for compensation or without compensation): (i) recruit, solicit or induce, or attempt to induce, any employee or employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company; or (ii) induce any other contractor, or the employee of any other contractor to terminate its or its contractual relationship with the Company; or (iii) solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, if any, of the Company that were contacted, solicited or served by Contractor during the Contracting Period. 2 3 4.3 The restrictions set forth in paragraphs 4.1 and 4.2 are considered by the parties to be reasonable for the purposes of protecting the business of the Company. However, if any such restriction is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 5. ESTABLISHMENT OF CONFIDENTIAL RELATIONSHIP. Contractor recognizes that the Company is engaged in a continuous program of research and development respecting its present and future business activities. Contractor understands that: 5.1 As part of Contractor's Services performed for the Company, Contractor will be involved in discussions that relate to the Company's technology and business strategy, and, in the course of providing Services to the Company, may develop new ideas or inventions or make other contributions of value to the Company. 5.2 This Agreement creates a relationship of trust and confidence between Contractor and the Company with respect to any information which is: (i) applicable to the business of the Company or any client or customer of the Company; and (ii) is made known to Contractor by the Company or by any client or customer of the Company, or is learned by Contractor while performing Services for the Company. 5.3 The Company possesses and will continue to possess information: (i) that has been created, discovered, developed, or otherwise become known to the Company; or (ii) in which property rights have been assigned or otherwise conveyed to the Company by another entity, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential. All such information is hereinafter referred to as "Proprietary Information." By way of illustration, but not limitation, Proprietary Information includes: (a) inventions, developments, designs, applications, improvements, trade secrets, formulae, ideas, know-how, methods or processes, discoveries, techniques and data (hereinafter collectively referred to as "Inventions"); and (b) plans for research, development, new products, marketing and selling, information regarding business plans, budgets and unpublished financial statements, licenses, prices and costs, information concerning suppliers and customers and information regarding the skills and compensation of employees of the Company. Notwithstanding the above, nothing received by Contractor will be considered to be Proprietary Information if: (a) it has been published or is otherwise readily available to the public other than by a breach of this Agreement; (b) it has been rightfully received by Contractor from a third party without confidential limitations; (c) it has been independently developed for Contractor by personnel or agents having no access to the Proprietary Information; or (d) it was known to Contractor prior to its first receipt from the Company. 3 4 Certain specific obligations of Contractor arising out of Contractor's confidential relationship with the Company are set forth in Sections 6 and 7 of this Agreement. 6. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. 6.1 All Proprietary Information shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents, copyrights and other rights in connection with such Proprietary Information. 6.2 Contractor agrees to abide by the Company's document control procedure established by the Company to ensure accurate maintenance and controls in accessibility of all documents and information relating to the Company's business. The Company will provide a copy of such policies to Contractor. 6.3 At all times, both during the term of this Agreement and after its termination, Contractor will keep in confidence and trust all Proprietary Information and shall not use or disclose to any third party any Proprietary Information or anything related to such information without the written consent of the Company, except as may be required in the ordinary course of performing Services for the Company pursuant to this Agreement. 7. NONDISCLOSURE OF THIRD-PARTY INFORMATION. Contractor understands that the Company has received and in the future will receive from third parties information that is confidential or proprietary ("Third-Party Information") subject to a duty on the part of the Company to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of this Agreement and thereafter, Contractor will hold Third-Party Information in the strictest confidence and will not disclose or use Third-Party Information except as permitted by the agreement between the Company and such third party, unless expressly authorized to act otherwise by an officer of the Company in writing. 8. NO CONFLICTING OBLIGATION. 8.1 Contractor represents that his performance of all of the terms of this Agreement and provision of Services as a contractor to the Company do not and will not breach any agreement to keep in confidence any proprietary information of another entity acquired by Contractor in confidence or in trust prior to the date of this Agreement. 8.2 Contractor has not entered into, and hereby agrees not to enter into, any agreement either written or oral in conflict with this Agreement, provided that, absent a conflict of interest, Contractor is free to provide services to any other entity during the performance of this Agreement. 9. NO IMPROPER USE OF MATERIALS. Contractor agrees not to bring to the Company or to use in the performance of Services any materials or documents of a present or former employer of Contractor or of Contractor's 4 5 employee, or any materials or documents obtained by Contractor under a binder of confidentiality imposed by reason of another of Contractor's contracting relationships, unless such materials or documents are generally available to the public or Contractor has authorization from such present or former employer or client for the possession and unrestricted use of such materials. Contractor understands that Contractor is not to breach any obligation of confidentiality that Contractor has to present or former employers or clients, and agrees to fulfill all such obligations during the term of this Agreement. 10. TERM AND TERMINATION. 10.1 Unless previously terminated as set forth in Sections 10.2 or 10.3 below, the term of this Agreement shall commence on the Effective Date and shall terminate twelve (12) months thereafter (the "Initial Term") unless extended by mutual agreement of both parties hereto, which extension or extensions, if made, shall be for an additional twelve months and which in the aggregate may extend the term of this Agreement to up to five years from the Effective Date. 10.2 Either party may terminate this Agreement in the event of a material breach by the other party of this Agreement, if such breach continues uncured for a period of thirty (30) days after written notice of such breach by the nonbreaching party. 10.3 The Company may terminate this Agreement if at any time Contractor shall cease to be a director of the Company. 11. EFFECT OF TERMINATION. 11.1 Upon the expiration or termination of this Agreement, each party shall be released from all obligations and liabilities to the other occurring or arising after the date of such termination, except that any termination of this Agreement shall not relieve Contractor of Contractor's obligations under Sections 4, 5, 6 and 7 hereof, nor shall any such termination relieve Contractor or the Company from any liability arising from any breach of this Agreement. 11.2 Upon termination of this Agreement for any reason whatsoever, Contractor shall promptly surrender and deliver to the Company all documents, notes and other materials of any nature pertaining to Contractor's work with the Company, and any documents or data of any description (or any reproduction of any documents or data) containing or pertaining to any Proprietary Information. 12. ASSIGNMENT. The rights and liabilities of the parties hereto shall bind and inure to the benefit of their respective successors, assigns, heirs, executors and administrators, as the case may be; provided that Contractor may not assign or delegate Contractor's obligations under this Agreement either in whole or in part without the prior written consent of the Company. 13. LEGAL AND EQUITABLE REMEDIES. 5 6 Because Contractor's services are personal and unique and because Contractor may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. 14. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by California residents. If one or more of the provisions in this Agreement are deemed unenforceable by law, then such provision will be deemed stricken from this Agreement and the remaining provisions will continue in full force and effect. 15. COMPLETE UNDERSTANDING; MODIFICATION. This Agreement and all other documents mentioned herein, with the exception of that certain Consulting Agreement dated as of September 11, 1996 between the Company and Contractor and all stock option agreements between the Company and Contractor, constitute the final, exclusive and complete understanding and agreement of the parties hereto and supersedes all prior understandings and agreements, and is entered into without reliance upon any representation, whether oral or written, not stated herein. Any waiver, modification or amendment of any provision of this Agreement shall be effective only if in writing and signed by a Company officer. 16. NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or sent by certified or registered mail, three days after the date of mailing. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. CALIPER TECHNOLOGIES CORP. CONTRACTOR By: DAVID K. LAM By: DAVID MILLIGAN ----------------------------- ------------------------------ Dr. David Milligan Title: PRESIDENT AND CEO Address: --------------------------- ------------------------- ------------------------- ------------------------- 6 7 EXHIBIT A SERVICES Consultation and advice concerning: 1. the on-going review of Caliper's core competitive strengths; 2. the review and development of optimal growth strategies, in particular partnering relationships; and 3. the identification and development of product and partnership strategies, particularly in pharmaceuticals and diagnostics. 8 EXHIBIT B THE FIELD The following fields, excluding the development of miniature chemical or biochemical systems for the analysis of DNA or RNA: a. microfabrication and micromachining as these disciplines apply to the development of miniature chemical or biochemical systems for analysis or synthesis; b. analytical chemistry or biochemistry as these disciplines apply to the development of miniature chemical or biochemical systems for analysis or synthesis; c. chemical or biochemical detection methods as they apply to the use of these technologies in the development of miniature chemical or biochemical systems for analysis or synthesis. d. molecular separations sciences as it applies to the development of miniature chemical or biochemical systems for analysis; and e. biological, biochemical or chemical assays as they apply to the development of miniature chemical or biochemical systems for analysis or synthesis. EX-10.18 19 EMPLOYMENT AGREEMENT - JAMES L. KNIGHTON 1 EXHIBIT 10.18 September 23, 1999 Mr. James Knighton 153 Terrace Drive San Francisco, CA 94127 Re: Caliper Technologies Corp. Dear Jim: The purpose of this letter is to set forth the terms of your employment with Caliper Technologies Corp. (the "Company"). Position: Chief Financial Officer Reporting: Daniel L. Kisner, M.D. Duties: Supervision of Finance, Investor Relations and Public Relations Compensation: Your compensation package would include the following: Base Salary: $20,417 per month (equivalent to $245,004 per annum), subject to standard payroll deductions and withholdings. Sign-on Bonus: $50,000 payable with the first paycheck following your date of hire. Performance Bonus: Based on performance goals to be determined, with a minimum of 30% of base salary guaranteed during the first 12 months of employment payable annually. Stock Grant: At such time as the closing price for Caliper Technologies Corp. trades at or above 125% of the initial public offering price for six consecutive months you will be granted shares of the company equal in value to $100,000 based on the IPO closing price. Equity: Subject to the Board of Directors' approval, you will be granted an option to purchase 420,000 shares of Common Stock of the Company at the fair market value as established by the Board of Directors. The shares subject to the option will vest over a five-year period with 20% of the shares vesting one (1) year from your start date, and thereafter the shares shall vest at a rate of 1/60th of the shares per month at the end of each of the remaining 48 months. The options will be granted pursuant to the Company's 1996 Stock Option Plan. In addition to the forward vesting provisions stated in the Company's 1996 Stock Option Plan you would also be eligible for forward vesting of 12 months if your employment was involuntarily terminated or 24 months if following a change of control the plan forward vesting qualification event were to occur and your employment was involuntarily or constructively terminated. Stock Option Related Cash Bonus: You will receive a cash bonus payable at exercise of your options equal to the difference between the exercise price and $1.00 per share. The resulting income to you from the award of this grant will be grossed up to cover your taxes. 2 James Knighton Terms of Employment September 23, 1999 Benefits:You will receive all the employment benefits available to full time, regular exempt employees of Caliper Technologies Corp. Currently, given your base salary, the life insurance coverage provided is limited to a guaranteed limit of $235,000 with a maximum coverage limit of $300,000 based on proof of insurability. Our AD&D coverage is limited to $300,000. The current Long Term Disability plan provides for 66.7% of your monthly base salary to a limit of $10,000 per month. We are currently in the process of soliciting quotes to change these three benefits. We will be raising our life insurance and AD&D maximum benefits levels to $500,000. We will be changing both the maximum limit on our LTD to a more acceptable monthly maximum as well as changing the premium funding arrangement for more positive taxation of any disability benefit. Relocation: See attached Caliper Technologies Corp. Relocation Coverage. Your relocation must occur within four years of date of employment. Loan: You shall be eligible for a housing loan of up to $500,000 in connection with the purchase of a primary residence near the Company. This loan will be made to you by the Company with a maximum term of five years (with the due date for full repayment accelerated upon voluntary termination of employment to such date of termination) at such interest rate as shall be necessary to avoid imputed income to you under all applicable sections of the IRS Code. Interest on this loan will be paid on a monthly basis through automatic payroll deduction. The repayment of the principle will be due in full five years from the date of the loan. Severance Pay: If your employment with Caliper Technologies Corp. is terminated involuntarily severance payments are agreed as follows: Termination for Cause, No severance; Constructive discharge or involuntary termination, base salary for 12 months or until you are employed by another company as a regular employee or full-time consultant, whichever is less; or change of control followed by involuntary termination, Base salary for 12 months or until you are employed by another company as a regular employee or full-time consultant, whichever is less. Employment at Will: Your employment will be at will, which means it may be terminated at any time by you or the Company. Start Date: September 30, 1999 Definitions: "Cause" shall mean the occurrence of any of the following: (i) Employee engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties, resulting, in either case, in material economic harm to the company, unless Employee believed in good faith that such conduct was in, or not opposed to, the best interest of the Company; (ii) any unjustified refusal to follow reasonable directives by the CEO or duly adopted by the Board; or (iii) conviction of a felony crime involving moral turpitude. Written notice shall be provided and the Employee shall have a 30-day period to correct. "Change of control" shall mean (i) any merger or consolidation of the Company with, or any sale of all or substantially all of the Company's assets to any other unaffiliated corporation or entity, unless as a result of such merger, consolidation or sale of assets the holders of the Company's voting securities prior thereto hold at least 50 percent of the total voting power in the surviving or successor corporation or entity, or (ii) the acquisition by any Person (other than any employee benefit plan, or related trust, sponsored or maintained by the Company or any affiliate of the Company) as Beneficial Owner (as such terms are defined in the Securities Exchange Act of 1934, as amended, or the rules and regulations there under), directly or indirectly, of securities of the Company representing 50 percent or more of the total voting power represented by the company's then outstanding voting securities. For purposes of this definition, the term "affiliate" shall mean any person which controls the Company, which is controlled by the Company, or which is under common control with the Company within the meaning of Rule 144(a)(1) promulgated under the Securities Act of 1933, as amended. Notwithstanding any Page 2 of 4 3 James Knighton Terms of Employment September 23, 1999 provision in this agreement to the contrary, the term "affiliate" shall not include the Hewlett-Packard Company or Dow Corning Corporation or any subsidiary of either company. "Constructive Termination" shall mean either (i) a substantial reduction in Employee's duties, responsibilities or position or (ii) any substantial downward change in Employee's compensation or benefits, except for compensation and benefits changes which are consistent with downward changes for all Company executives. As a condition of employment, you also agree to sign and comply with the Company's Proprietary Information and Inventions Agreement. In compliance with federal immigration law, you will be required to provide documentary evidence of your identity and eligibility of employment in the United States. This letter contains the complete, final and exclusive embodiment of the terms of your employment with the Company. This letter shall be governed by California law without regard to conflict of laws principles. We believe we are far along in the process of assembling a world class team and a broad and deep technology portfolio. We hope that you will join us in building a preeminent company. If the foregoing accurately reflects our agreement, please so indicate by signing where indicated below and returning the enclosed duplicate copy of this letter to me. This offer will remain open until September 24, 1999. Sincerely, /s/ DANIEL L. KISNER ---------------------------- Daniel L. Kisner, M.D. Chief Executive Officer & President Caliper Technologies Corp. The foregoing is agreed and accepted. /s/ JAMES KNIGHTON 9/24/1999 - ----------------------------- -------------------- Mr. James Knighton Date Page 3 of 4 4 September 24, 1999 Mr. James Knighton 153 Terrace Drive San Francisco, CA 94127 Re: Addendum to offer of employment from Caliper Technologies Corp. Dear Jim: In addition to the terms and conditions stated in our offer of employment dated September 23, 1999, we add the following. Reporting: Your reporting relationship is further defined as: the position of Chief Financial Officer reports to the President and Chief Executive Officer. Resolution of Disputes: Any dispute, controversy or claim arising out of or related to your employment with Caliper Technologies Corp. or any termination of such employment shall be resolved by binding confidential arbitration, to be held in Santa Clara County, California, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Each party will be responsible for their own costs and expenses, including attorney's fees, incurred in resolving any such claim. Please be aware that this offer continues to be valid until 5 PM today, September 24, 1999. If you need to contact me this weekend you can reach me at my home number 650-508-8516. Regards, /s/ RICHARD C. BUTTS ---------------------------- Richard C. Butts Senior Director, Human Resources Caliper Technologies Corp. ACCEPTED: /s/ JAMES L. KNIGHTON 9/24/99 ---------------------- ------- James L. Knighton Date EX-10.19 20 CONSULTING AGREEMENT - REGIS MCKENNA 1 Exhibit 10.19 CALIPER TECHNOLOGIES CORP. CONSULTING AGREEMENT THIS AGREEMENT is made and entered into as of the 1st day of May, 1997 (the "Effective Date") by and between CALIPER TECHNOLOGIES CORP., a Delaware corporation (the "Company"), and REGIS MCKENNA ("Contractor"). RECITAL As part of its ongoing program of research and development, the Company desires to engage individuals with business and marketing expertise to assist the Company in various matters from time to time. Contractor is qualified and willing to provide such services. Therefore, the Company and Contractor desire to enter into this Agreement. AGREEMENT In consideration of the mutual covenants set forth below, the parties hereby agree as follows: 1. ENGAGEMENT OF SERVICES. Contractor, pursuant to the provisions of this Agreement, is hereby engaged by the Company to provide advice in marketing strategies and other matters to the Company as set forth in Exhibit A hereto (the "Services"). Contractor shall perform Services as requested by the Company from time to time to the best of his ability, such Services to be performed at such place or places and at such times as mutually agreed upon by the Company and Contractor. Contractor shall provide an average of two (2) days per month for twelve (12) months from the date of this Agreement. The Company recognizes that Contractor may be unavailable to perform Services for certain limited amounts of time due to other commitments. Contractor shall notify the Company in advance of any such expected periods of unavailability, which shall not be considered a breach of this Agreement unless the duration of any such period of unavailability extends for more than twenty (20) consecutive days. 2. COMPENSATION. 2.1 As consideration for Contractor's Services and for the discharge of all Contractor's obligations hereunder, the Company shall grant Contractor a right to purchase 30,000 shares of the Company's Common Stock at the current fair market value of $.40 per share, which shares shall be subject to a right of repurchase by the Company which shall lapse over a twelve month period at a rate of 2,500 shares per month at the end of each month, beginning with the month of May 1997, whether or not the Company requests Services. If Contractor shall cease to be a director, officer, employee or consultant to the Company prior to the lapse of the repurchase right of the Company with respect to all of the shares under the aforementioned grant, for any reason, the lapse of the repurchase right of the Company shall 1 2 immediately cease and any shares which remain subject to the repurchase right of the Company on the date the Agreement is terminated shall remain subject to the repurchase right of the Company. 2.2 In addition to such compensation, the Company will reimburse Contractor for travel and other out-of-pocket costs reasonably incurred by him in the course of performing Services under this Agreement; provided however, that the Company shall not be obligated hereunder unless (a) the Company has agreed in advance to reimburse such costs, and (b) Contractor provides the Company with appropriate receipts or other relevant documentation for all such costs as part of any submission by Contractor for reimbursement. 3. INDEPENDENT CONTRACTOR. It is understood and agreed that Contractor is an independent contractor and not an agent or employee of the Company. Contractor has no authority to act on behalf of the Company, or to obligate the Company by contract or otherwise. Contractor will not be eligible for any employee benefits, nor will the Company make deductions from Contractor's fees for taxes. The payment of any taxes related to Contractor's provision of Services under this Agreement shall be the sole responsibility of Contractor. 4. ADDITIONAL ACTIVITIES. 4.1 During the period in which Contractor provides Services to the Company under this Agreement (the "Contracting Period"), Contractor will not directly or indirectly (whether for compensation or without compensation), provide services relating to the Field (as described in Exhibit B hereto) to any corporation or other entity which is engaged in research in the Field, other than to those corporations or other entities to which Contractor provides services on the date of this Agreement; provided, however, that the foregoing shall not prevent Contractor from engaging in any academic research, teaching or related activity in the Field. 4.2 During the Contracting Period, and for an amount of time thereafter equal in length to the lesser of (a) two years or (b) the length of the Contracting Period, Contractor will not, directly or indirectly (whether for compensation or without compensation): (i) recruit, solicit or induce, or attempt to induce, any employee or employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company; or (ii) induce any other contractor, or the employee of any other contractor to terminate its or its contractual relationship with the Company; or (iii) solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, if any, of the Company that were contacted, solicited or served by Contractor during the Contracting Period. 4.3 The restrictions set forth in paragraphs 4.1 and 4.2 are considered by the parties to be reasonable for the purposes of protecting the business of the Company. However, if any such 2 3 restriction is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 5. ESTABLISHMENT OF CONFIDENTIAL RELATIONSHIP. Contractor recognizes that the Company is engaged in a continuous program of research and development respecting its present and future business activities. Contractor understands that: 5.1 As part of Contractor's Services performed for the Company, Contractor will be involved in discussions that relate to the Company's technology and business strategy, and, in the course of providing Services to the Company, may develop new ideas or inventions or make other contributions of value to the Company. 5.2 This Agreement creates a relationship of trust and confidence between Contractor and the Company with respect to any information which is: (i) applicable to the business of the Company or any client or customer of the Company; and (ii) is made known to Contractor by the Company or by any client or customer of the Company, or is learned by Contractor while performing Services for the Company. 5.3 The Company possesses and will continue to possess information: (i) that has been created, discovered, developed, or otherwise become known to the Company; or (ii) in which property rights have been assigned or otherwise conveyed to the Company by another entity, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential. All such information is hereinafter referred to as "Proprietary Information." By way of illustration, but not limitation, Proprietary Information includes: (a) inventions, developments, designs, applications, improvements, trade secrets, formulae, ideas, know-how, methods or processes, discoveries, techniques and data (hereinafter collectively referred to as "Inventions"); and (b) plans for research, development, new products, marketing and selling, information regarding business plans, budgets and unpublished financial statements, licenses, prices and costs, information concerning suppliers and customers and information regarding the skills and compensation of employees of the Company. Notwithstanding the above, nothing received by Contractor will be considered to be Proprietary Information if: (a) it has been published or is otherwise readily available to the public other than by a breach of this Agreement; (b) it has been rightfully received by Contractor from a third party without confidential limitations; (c) it has been independently developed for Contractor by personnel or agents having no access to the Proprietary Information; or (d) it was known to Contractor prior to its first receipt from the Company. Certain specific obligations of Contractor arising out of Contractor's confidential relationship with the Company are set forth in Sections 6 and 7 of this Agreement. 6. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. 3 4 6.1 All Proprietary Information shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents, copyrights and other rights in connection with such Proprietary Information. 6.2 Contractor agrees to abide by the Company's document control procedure established by the Company to ensure accurate maintenance and controls in accessibility of all documents and information relating to the Company's business. The Company will provide a copy of such policies to Contractor. 6.3 At all times, both during the term of this Agreement and after its termination, Contractor will keep in confidence and trust all Proprietary Information and shall not use or disclose to any third party any Proprietary Information or anything related to such information without the written consent of the Company, except as may be required in the ordinary course of performing Services for the Company pursuant to this Agreement. 7. NONDISCLOSURE OF THIRD-PARTY INFORMATION. Contractor understands that the Company has received and in the future will receive from third parties information that is confidential or proprietary ("Third-Party Information") subject to a duty on the part of the Company to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of this Agreement and thereafter, Contractor will hold Third-Party Information in the strictest confidence and will not disclose or use Third-Party Information except as permitted by the agreement between the Company and such third party, unless expressly authorized to act otherwise by an officer of the Company in writing. 8. NO CONFLICTING OBLIGATION. 8.1 Contractor represents that his performance of all of the terms of this Agreement and provision of Services as a contractor to the Company do not and will not breach any agreement to keep in confidence any proprietary information of another entity acquired by Contractor in confidence or in trust prior to the date of this Agreement. 8.2 Contractor has not entered into, and hereby agrees not to enter into, any agreement either written or oral in conflict with this Agreement, provided that, absent a conflict of interest, Contractor is free to provide services to any other entity during the performance of this Agreement. 9. NO IMPROPER USE OF MATERIALS. Contractor agrees not to bring to the Company or to use in the performance of Services any materials or documents of a present or former employer of Contractor or of Contractor's employee, or any materials or documents obtained by Contractor under a binder of confidentiality imposed by reason of another of Contractor's contracting relationships, unless such materials or documents are generally available to the public or Contractor has authorization from such present or former employer or client for the possession and unrestricted use of such materials. Contractor understands that Contractor is not to breach any obligation of 4 5 confidentiality that Contractor has to present or former employers or clients, and agrees to fulfill all such obligations during the term of this Agreement. 10. TERM AND TERMINATION. 10.1 Unless previously terminated as set forth in Section 10.2 below, the term of this Agreement shall commence on the Effective Date and shall terminate twelve (12) months thereafter (the "Initial Term"). 10.2 Either party may terminate this Agreement upon thirty (30) days prior written notice to the other party. 11. EFFECT OF TERMINATION. 11.1 Upon the termination of this Agreement, each party shall be released from all obligations and liabilities to the other occurring or arising after the date of such termination, except that any termination of this Agreement shall not relieve Contractor of Contractor's obligations under Sections 4, 5, 6 and 7 hereof, nor shall any such termination relieve Contractor or the Company from any liability arising from any breach of this Agreement. 11.2 Upon termination of this Agreement for any reason whatsoever, Contractor shall promptly surrender and deliver to the Company all documents, notes and other materials of any nature pertaining to Contractor's work with the Company, and any documents or data of any description (or any reproduction of any documents or data) containing or pertaining to any Proprietary Information. 12. ASSIGNMENT. The rights and liabilities of the parties hereto shall bind and inure to the benefit of their respective successors, assigns, heirs, executors and administrators, as the case may be; provided that Contractor may not assign or delegate Contractor's obligations under this Agreement either in whole or in part without the prior written consent of the Company. 13. LEGAL AND EQUITABLE REMEDIES. Because Contractor's services are personal and unique and because Contractor may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. 14. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by California residents. If one or more of the provisions in this Agreement are deemed unenforceable by law, then such provision will be deemed stricken from this Agreement and the remaining provisions will continue in full force and effect. 5 6 15. COMPLETE UNDERSTANDING; MODIFICATION. This Agreement, and all other documents mentioned herein, constitute the final, exclusive and complete understanding and agreement of the parties hereto and supersedes all prior understandings and agreements, and is entered into without reliance upon any representation, whether oral or written, not stated herein. Any waiver, modification or amendment of any provision of this Agreement shall be effective only if in writing and signed by a Company officer. 15. NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or sent by certified or registered mail, three days after the date of mailing. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. CALIPER TECHNOLOGIES CORP. CONTRACTOR By: /s/ DAVID LAM By: /s/ REGIS MCKENNA ------------------------------ ------------------------------ Title: President and Regis McKenna Chief Executive Officer --------------------------- 6 7 EXHIBIT A THE SERVICES 1. Assist in Caliper's position strategy; 2. Strategy review on market model; 3. Partnering and alliances; 4. Preparing the company for initial public offering of its common stock; and 5. Assist in the product launches process. 8 EXHIBIT B THE FIELD The following fields: a. microfabrication and micromachining as these disciplines apply to the development of miniature chemical or biochemical systems for analysis or synthesis; b. analytical chemistry or biochemistry as these disciplines apply to the development of miniature chemical or biochemical systems for analysis or synthesis; c. chemical or biochemical detection methods as they apply to the use of these technologies in the development of miniature chemical or biochemical systems for analysis or synthesis. d. molecular separations sciences as it applies to the development of miniature chemical or biochemical systems for analysis; and e. biological, biochemical or chemical assays as they apply to the development of miniature chemical or biochemical systems for analysis or synthesis. EX-23.1 21 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated March 5, 1999, in the Registration Statement (Form S-1) and related Prospectus of Caliper Technologies Corp. for the registration of shares of its common stock. /s/ ERNST & YOUNG LLP Palo Alto, California October 11, 1999 EX-27.1 22 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS YEAR 9-MOS YEAR YEAR DEC-31-1999 DEC-31-1998 DEC-31-1998 DEC-31-1997 DEC-31-1996 JAN-01-1999 JAN-01-1998 JAN-01-1998 JAN-01-1997 JAN-01-1996 SEP-30-1999 DEC-31-1998 SEP-30-1998 DEC-31-1997 DEC-31-1996 3,628 5,158 0 312 0 24,192 25,894 0 26,237 0 390 1,082 0 0 0 0 0 0 0 0 206 0 0 0 0 29,177 32,734 0 26,738 0 6,756 4,160 0 2,493 0 1,900 1,364 0 443 0 34,658 35,730 0 29,107 0 5,899 2,660 0 2,059 0 0 0 0 0 0 50,538 48,716 0 38,283 0 1 1 0 1 0 5 4 0 4 0 8,872 1,249 0 589 0 34,658 35,730 0 29,107 0 0 0 0 0 0 8,859 8,155 4,425 2,266 132 0 0 0 0 0 0 0 0 0 0 17,712 12,516 9,228 9,678 4,952 0 0 0 0 0 275 195 125 60 69 (8,052) (2,975) (3,745) (6,281) (4,710) 0 0 0 0 0 (8,052) (2,975) (3,745) (6,281) (4,710) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (8,052) (2,975) (3,745) (6,281) (4,710) (2.36) (1.53) (1.63) (2.81) (2.50) (2.36) (1.53) (1.63) (2.81) (2.50)
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