-----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, Hra20gawpKi5azsrLbm9JMs2WFO1GHlOG5pmUlJqgIJyQGlV7kwuk8sSaOdx8Kaz dIOQpDd7RjM3HHSwpvHTOg== 0001021408-02-014124.txt : 20021114 0001021408-02-014124.hdr.sgml : 20021114 20021114131252 ACCESSION NUMBER: 0001021408-02-014124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACLARA BIOSCIENCES INC CENTRAL INDEX KEY: 0001067588 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 943222727 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29975 FILM NUMBER: 02823584 BUSINESS ADDRESS: STREET 1: 1288 PEAR AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6502101200 MAIL ADDRESS: STREET 1: 1288 PEAR AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 d10q.htm FORM 10-Q PERIOD DATE 09/30/2002 Form 10-Q period date 09/30/2002
Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
 
 
FORM 10-Q
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2002
 
OR
 
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from__________ to __________.
 
Commission file number: 0-29975
 
 
ACLARA BioSciences, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
     
94-3222727
(State of incorporation)
     
(IRS Employer Identification Number)
 
1288 Pear Avenue
Mountain View, California 94043
(Address of principal executive offices and zip code)
 
650-210-1200
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES x   NO ¨.
 
The number of shares outstanding of the registrant’s common stock as of October 31, 2002 was 36,193,512.
 

Table of Contents
 
ACLARA BIOSCIENCES, INC.
 
TABLE OF CONTENTS
 
         
PAGE
Part I:
   
Financial Information
     
Item 1.
   
Financial Statements (Unaudited)
     
       
3
       
4
       
5
       
6
Item 2.
      
9
Item 3.
      
16
Item 4.
      
17
Part II:
   
Other Information
     
Item 1.
      
17
Item 2.
      
17
Item 3.
      
17
Item 4.
      
17
Item 5.
      
17
Item 6.
      
17
       
21
       
21

2

Table of Contents
 
PART I — FINANCIAL INFORMATION
 
ITEM 1.    Financial Statements
 
ACLARA BIOSCIENCES, INC.
(A Company in the Development Stage)
 
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 
    
September 30,
2002
     
December 31,
2001
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
69,561
 
   
$
30,970
 
Restricted cash
   
 
34,125
 
   
 
34,125
 
Short-term marketable investments
   
 
15,626
 
   
 
45,883
 
Accounts receivable
   
 
173
 
   
 
1,540
 
Prepaid expenses and other current assets
   
 
608
 
   
 
546
 
Inventories
   
 
10
 
   
 
14
 
    
  
Total current assets
   
 
120,103
 
   
 
113,078
 
Long-term marketable investments
   
 
32,954
 
   
 
60,598
 
Restricted cash
   
 
—  
 
   
 
500
 
Property and equipment, net
   
 
7,094
 
   
 
8,887
 
Other assets, net
   
 
100
 
   
 
119
 
    
  
Total assets
   
$
160,251
 
   
$
183,182
 
LIABILITIES & STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
722
 
   
$
974
 
Accrued payroll and related expenses
   
 
1,233
 
   
 
1,077
 
Accrued expenses and other current liabilities
   
 
3,294
 
   
 
1,987
 
Deferred revenue
   
 
331
 
   
 
596
 
Litigation settlements accrual
   
 
30,937
 
   
 
27,197
 
Accrued restructuring charges
   
 
839
 
   
 
—  
 
Current portion of loans payable
   
 
198
 
   
 
55
 
    
  
Total current liabilities
   
 
37,554
 
   
 
31,886
 
Loans payable, net of current portion
   
 
594
 
   
 
507
 
Deferred rent
   
 
396
 
   
 
322
 
    
  
Total liabilities
   
 
38,544
 
   
 
32,715
 
Contingencies (Note 3)
                  
Stockholders’ equity:
                  
Common stock, $0.001 par value:
                  
Authorized 150,000,000 shares; Issued and outstanding: 36,193,512 shares at September 30, 2002 and 35,871,066 shares at December 31, 2001
   
 
36
 
   
 
36
 
Additional paid-in capital
   
 
259,147
 
   
 
259,327
 
Deferred stock-based compensation
   
 
(1,344
)
   
 
(2,785
)
Stockholder notes receivable for common stock
   
 
(587
)
   
 
(571
)
Accumulated other comprehensive income
   
 
414
 
   
 
281
 
Deficit accumulated during development stage
   
 
(135,959
)
   
 
(105,821
)
    
  
Total stockholders’ equity
   
 
121,707
 
   
 
150,467
 
    
  
Total liabilities and stockholders’ equity
   
$
160,251
 
   
$
183,182
 
 
The accompanying notes are an integral part of these condensed financial statements.

3

Table of Contents
 
ACLARA BIOSCIENCES, INC.
(A Company in the Development Stage)
 
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except per Share Data)
(Unaudited)
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
     
Cumulative
Period from
May 5, 1995
(Inception) to
September 30,
  
    
2002
     
2001
     
2002
     
2001
     
2002
  
Revenues
   
$
505
 
   
$
507
 
   
$
1,768
 
   
$
2,290
 
   
$
17,136
 
    
  
  
  
  
Costs and operating expenses:
                                             
Research and development
   
 
5,516
 
   
 
6,126
 
   
 
18,576
 
   
 
17,802
 
   
 
81,821
 
Selling, general and administrative
   
 
3,318
 
   
 
2,365
 
   
 
9,229
 
   
 
7,781
 
   
 
43,439
 
Litigation settlement
   
 
396
 
   
 
2,839
 
   
 
3,740
 
   
 
5,227
 
   
 
43,787
 
Restructuring
   
 
3,327
 
   
 
—  
 
   
 
3,327
 
   
 
—  
 
   
 
3,327
 
    
  
  
  
  
Total costs and operating expenses
   
 
12,557
 
   
 
11,330
 
   
 
34,872
 
   
 
30,810
 
   
 
172,374
 
    
  
  
  
  
Loss from operations
   
 
(12,052
)
   
 
(10,823
)
   
 
(33,104
)
   
 
(28,520
)
   
 
(155,238
)
Interest income
   
 
873
 
   
 
1,749
 
   
 
3,004
 
   
 
6,438
 
   
 
22,103
 
Interest expense
   
 
(13
)
   
 
(12
)
   
 
(38
)
   
 
(38
)
   
 
(1,238
)
    
  
  
  
  
Net loss before extraordinary loss
   
 
(11,192
)
   
 
(9,086
)
   
 
(30,138
)
   
 
(22,120
)
   
 
(134,373
)
Extraordinary loss on early retirement of debt
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(1,103
)
    
  
  
  
  
Net loss
   
$
(11,192
)
   
$
(9,086
)
   
$
(30,138
)
   
$
(22,120
)
   
$
(135,476
)
    
  
  
  
  
Dividends related to beneficial conversion feature of preferred stock
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(5,000
)
Accretion to redemption value and accrued dividends on mandatory redeemable convertible preferred stock
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(6,292
)
    
  
  
  
  
Net loss attributable to common stockholders
   
$
(11,192
)
   
$
(9,086
)
   
$
(30,138
)
   
$
(22,120
)
   
$
(146,768
)
    
  
  
  
  
Net loss per common share, basic and diluted
   
$
(0.31
)
   
$
(0.26
)
   
$
(0.84
)
   
$
(0.63
)
         
Shares used in net loss per common share calculation, basic and diluted
   
 
36,148
 
   
 
35,525
 
   
 
36,020
 
   
 
35,111
 
         
 
The accompanying notes are an integral part of these condensed financial statements.

4

Table of Contents
 
ACLARA BIOSCIENCES, INC.
(A Company in the Development Stage)
 
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
    
Nine Months Ended September 30,
     
Cumulative Period from May 5, 1995 (Inception) to September 30,
  
    
2002
     
2001
     
2002
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                           
Net loss
   
$
(30,138
)
   
$
(22,120
)
   
$
(135,476
)
Adjustments to reconcile net loss to net cash used in operating activities:
                           
Depreciation and amortization
   
 
1,413
 
   
 
1,154
 
   
 
5,294
 
Amortization of discount on marketable investments
   
 
(309
)
   
 
(488
)
   
 
(3,146
)
Amortization of note and long-term debt discount
   
 
—  
 
   
 
—  
 
   
 
597
 
Amortization of deferred stock based compensation
   
 
959
 
   
 
1,866
 
   
 
12,180
 
Write down of fixed assets
   
 
2,488
 
   
 
—  
 
   
 
2,488
 
Loss on sale of fixed assets
   
 
24
 
   
 
—  
 
   
 
24
 
Amortization of other assets
   
 
—  
 
   
 
38
 
   
 
81
 
Preferred stock issued for interest expense
   
 
—  
 
   
 
—  
 
   
 
128
 
Interest income from notes receivable from stockholders
   
 
(25
)
   
 
(24
)
   
 
(86
)
Revaluation of litigation settlement
   
 
3,740
 
   
 
5,827
 
   
 
10,137
 
Changes in assets and liabilities:
                           
Accounts receivable
   
 
1,367
 
   
 
(767
)
   
 
(173
)
Prepaid expenses and other assets
   
 
(39
)
   
 
84
 
   
 
(573
)
Accounts payable
   
 
(252
)
   
 
78
 
   
 
723
 
Accrued payroll and related expenses
   
 
156
 
   
 
422
 
   
 
1,233
 
Accrued expenses and other liabilities
   
 
1,307
 
   
 
(713
)
   
 
3,293
 
Restructuring
   
 
839
 
   
 
—  
 
   
 
839
 
Litigation settlement accrual
   
 
—  
 
   
 
(1,250
)
   
 
32,500
 
Deferred revenue
   
 
(265
)
   
 
—  
 
   
 
331
 
Deferred rent
   
 
74
 
   
 
102
 
   
 
395
 
    
  
  
Net cash used in operating activities
   
 
(18,661
)
   
 
(15,791
)
   
 
(69,211
)
    
  
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                           
Acquisition of property and equipment
   
 
(1,874
)
   
 
(2,673
)
   
 
(13,047
)
Sale of property and equipment
   
 
38
 
   
 
11
 
   
 
54
 
Change in restricted cash
   
 
500
 
   
 
(32,875
)
   
 
(34,250
)
Purchase and maturities of investments, net
   
 
58,344
 
   
 
(32,502
)
   
 
(45,019
)
Change in other assets
   
 
—  
 
   
 
—  
 
   
 
(97
)
    
  
  
Net cash provided by (used in) investing activities
   
 
57,008
 
   
 
(68,039
)
   
 
(92,359
)
    
  
  
CASH FLOWS FROM FINANCING ACTIVITIES:
                           
Principal payments under capital lease obligations
   
 
(24
)
   
 
(38
)
   
 
(1,527
)
Proceeds from issuance of notes payable to related parties
   
 
—  
 
   
 
—  
 
   
 
2,487
 
Proceeds from issuance of loans payable
   
 
—  
 
   
 
—  
 
   
 
4,365
 
Repayments of loans payable
   
 
(41
)
   
 
—  
 
   
 
(3,984
)
Proceeds from issuance of preferred stock, net of issuance costs
   
 
—  
 
   
 
—  
 
   
 
29,889
 
Principal payments for notes payable to related parties
   
 
—  
 
   
 
—  
 
   
 
(119
)
Repurchase of Series A preferred stock and one share of common stock
   
 
—  
 
   
 
—  
 
   
 
(2,713
)
Proceeds from initial public offering, net of issuance costs
   
 
—  
 
   
 
—  
 
   
 
201,003
 
Proceeds from notes receivable from stockholders
   
 
7
 
   
 
4
 
   
 
120
 
Proceeds from issuance of common stock
   
 
302
 
   
 
401
 
   
 
1,610
 
    
  
  
Net cash provided by financing activities
   
 
244
 
   
 
367
 
   
 
231,131
 
    
  
  
Net increase in cash and cash equivalents
   
 
38,591
 
   
 
(83,463
)
   
 
69,561
 
Cash and cash equivalents, beginning of period
   
 
30,970
 
   
 
108,886
 
   
 
—  
 
    
  
  
Cash and cash equivalents, end of period
   
$
69,561
 
   
$
25,423
 
   
$
69,561
 
    
  
  
 
The accompanying notes are an integral part of these condensed financial statements.

5

Table of Contents
 
ACLARA BIOSCIENCES, INC.
(A Company in the Development Stage)
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments consisting of normal, recurring adjustments necessary for a fair presentation of the interim financial information for ACLARA BioSciences, Inc. (“ACLARA”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for the presentation of complete financial statements. The preparation of interim financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from these estimates.
 
This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in ACLARA’s Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission. Furthermore, interim results of operations are not necessarily indicative of the results that may be expected for the entire year or for other interim periods.
 
Comprehensive Income
 
Comprehensive income generally represents all changes in stockholders’ equity (deficit) except those resulting from investments or contributions by stockholders. ACLARA’s unrealized gains on available-for-sale securities represent the only component of comprehensive income that is excluded from ACLARA’s net loss for three and nine months ended September 30, 2001 and 2002 and for the cumulative period from May 5, 1995 (date of inception) to September 30, 2002. As this component of comprehensive income is not significant, individually or in the aggregate, no separate statements of comprehensive income have been presented.
 
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) and common stock subject to repurchase. Potentially dilutive securities have been excluded from the diluted earnings per share computations as they have an antidilutive effect due to ACLARA’s net loss.
 
A reconciliation of shares used in the calculations is as follows (in thousands, except per share data):
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Basic and diluted:
                                    
Net loss
   
$
(11,192
)
   
$
(9,086
)
   
$
(30,138
)
   
$
(22,120
)
    
  
  
  
Weighted average shares of common stock outstanding
   
 
36,170
 
   
 
35,738
 
   
 
36,064
 
   
 
35,396
 
Less: weighted average shares subject to repurchase
   
 
(22
)
   
 
(213
)
   
 
(44
)
   
 
(285
)
    
  
  
  
Weighted-average shares of common stock used in basic and diluted net loss per share calculations
   
 
36,148
 
   
 
35,525
 
   
 
36,020
 
   
 
35,111
 
    
  
  
  
Net loss per common share—basic and diluted
   
$
(0.31
)
   
$
(0.26
)
   
$
(0.84
)
   
$
(0.63
)
    
  
  
  

6

Table of Contents
 
The following outstanding options, warrants and common stock subject to repurchase (prior to the application of the treasury stock method), were excluded from the computation of diluted net loss per share as they had an anti-dilutive effect (in thousands):
 
    
Three Months
Ended
September 30,
   
Nine Months
Ended
September 30,
    
2002
   
2001
   
2002
   
2001
Options and Warrants
   
3,407
   
3,737
   
3,407
   
3,109
Common stock subject to repurchase
   
17
   
178
   
17
   
178
 
Recent Accounting Developments
 
In April of 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 145 (“SFAS 145”), “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which is effective for fiscal years beginning after May 15, 2002. Under SFAS 145, gains and losses from the extinguishment of debt should be classified as extraordinary items only if they meet the criteria of Accounting Principles Board Opinion No. 30. SFAS 145 also addresses financial accounting and reporting for capital leases that are modified in such a way as to give rise to a new agreement classified as an operating lease. The Company believes that the adoption of SFAS 145 will not have a material impact on the financial position or results of operations of the Company.
 
In June of 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” which is effective for exit or disposal activities initiated after December 31, 2002. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Under SFAS 146, a liability is required to be recognized for a cost associated with an exit or disposal activity when the liability is incurred. SFAS 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a retirement or disposal activity covered by FASB Statements No. 143 and 144. The Company believes that the adoption of SFAS 146 will not have a material impact on the financial position or results of the operations of Company.
 
2.    RESTRICTED CASH
 
Current restricted cash at September 30, 2002 and December 31, 2001 comprised $34.1 million held in escrow as part of our settlement of litigation with Caliper Technologies Corporation (“Caliper”). Pursuant to the Caliper settlement agreement, ACLARA has provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of ACLARA’s performance. The banking institution, which had issued the letter of credit, required ACLARA to maintain a balance of 105% of the letter of credit amount in a segregated account. This amount of $34.1 million is invested in short-term US government agency debt and money market funds.
 
3.    LITIGATION SETTLEMENT AND CONTINGENCIES
 
As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sells the shares after August 21, 2002 but before February 21, 2003. ACLARA initially valued the put obligation associated with these shares at $20.8 million. The put obligation is classified as a liability as ACLARA had posted collateral in the form of a letter of credit to Caliper in the amount of $32.5 million, as a guarantee of ACLARA’s performance under the terms of the litigation settlement.
 
Based on the change in ACLARA’s stock price and in accordance with EITF No. 96-13 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 96-13”) and its related interpretations, and Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives Instruments and Hedging Activities” (“SFAS 133”), the put obligation was subsequently revalued on a quarterly basis and at December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, the put obligation had a value of $27.2 million, $28.7 million, $30.5 million, and $30.9 respectively. As a result of these revaluations, revaluation expenses of $0.4 million and $2.8 million were recorded in the accompanying Statements of Operations for the three months ended September 30, 2002 and 2001, respectively, and revaluation expenses of $3.7 million and $5.2 million were recorded in the accompanying Statements of Operations for the nine months ended September 30, 2002 and 2001, respectively. The revaluation of the put obligation uses a Black-Scholes pricing model with changes in valuation being recorded in the Statements of Operations. (See note 5.)

7

Table of Contents
 
In August 2000, ACLARA entered into a settlement and release with Rodenstock N.A. (“Rodenstock”) of alleged claims arising out of ACLARA’s repurchase of its Series A Preferred Stock from Rodenstock in 1999. The settlement agreement was approved by the board of directors of Rodenstock and a majority of Rodenstock’s outstanding shares entitled to vote on the matter. On April 27, 2001, S&A Biotech Investments, LLC (“S&A”), a stockholder of Rodenstock, filed a shareholder derivative suit in the Superior Court of California for the County of Santa Clara, naming the directors of Rodenstock as individual defendants, Rodenstock as a nominal defendant, and ACLARA as a defendant. The purported claims by S&A are (1) breach of fiduciary duties and corporate waste by Rodenstock Instruments Corporation and the individual defendants, including Thomas Baruch, who was the chairman of the boards of ACLARA and Rodenstock, in connection with the August 2000 settlement, and (2) aiding and abetting the breach of fiduciary duties by ACLARA. Among other remedies, S&A seeks rescission of the settlement agreement and repurchase of the Series A Preferred Stock and injunctive relief. ACLARA filed its demurrer, and Rodenstock and Mr. Baruch filed their demurrers and motions for summary judgment, which were heard in April 2002. The Court denied all demurrers, but granted Rodenstock and Mr. Baruch’s motion for summary judgment. Plaintiff has dismissed without prejudice its claims against ACLARA while it considers appealing the judgment for the other defendants.
 
On June 15, 2001, ACLARA filed suit against its former General Counsel, Bertram Rowland (“Rowland”), in the Superior Court of California, San Mateo County. ACLARA’s action, which arises from Rowland’s alleged dual representation of ACLARA and Caliper Technologies Corp., asserts various causes of action, including breach of fiduciary duty, professional malpractice, and concealment, and seeks damages, as well as rescission of Rowland’s employment agreement, stock option agreement and indemnity agreement. These agreements relate to Rowland’s now terminated status as General Counsel of ACLARA. Rowland has answered the Complaint, denied all claims and asserted various affirmative defenses. On or about October 2, 2001, Rowland filed a Cross-Complaint against ACLARA and Joseph Limber, the Company’s President and Chief Executive Officer. Rowland alleged a variety of claims, including fraud, negligent misrepresentation, breach of contract regarding the above-noted agreements, and securities fraud under California state law, and he seeks damages. The Company and Mr. Limber have answered the Cross-Complaint, denied all claims and asserted affirmative defenses. In June 2002, Rowland dismissed his causes of action relating to alleged fraud or misrepresentation with respect to securities and alleged breach of contract with respect to his employment agreement or stock option agreement. ACLARA believes that it has meritorious defenses and intends to defend itself vigorously against the remaining causes of action asserted by Rowland. As a result of this belief, no liability for this suit has been recorded in the accompanying financial statements. The case is set for trial beginning January 27, 2003.
 
ACLARA and certain of its current or former officers and directors (the “ACLARA defendants”) are named as defendants in a securities class action lawsuit filed in the United States District Court for the Southern District of New York. This action, which was filed on November 13, 2001 and is now captioned ACLARA Biosciences, Inc. Initial Public Offering Securities Litigation, also names several of the underwriters involved in ACLARA’s initial public offering (“IPO”) as defendants. This class action is brought on behalf of a purported class of purchasers of ACLARA common stock from the time of ACLARA’s IPO (March 20, 2000) through December 6, 2000. The central allegation in this action is that the underwriters in the ACLARA IPO solicited and received undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased ACLARA stock in the IPO and the after-market. The complaint also alleges that the ACLARA defendants violated the federal securities laws by failing to disclose in the IPO prospectus that the underwriters had engaged in these allegedly undisclosed arrangements. (More than 300 issuers have been named in similar lawsuits.) In July 2002, an omnibus motion to dismiss all complaints against issuers and individual defendants affiliated with issuers (including ACLARA defendants) was filed by the entire group of issuer defendants in these similar actions. Plaintiffs opposed that motion, which is now fully submitted and is pending before the court. ACLARA believes it has meritorious defenses and intends to vigorously defend itself against this suit. As a result of this belief, no liability for this suit has been recorded in the accompanying financial statements. However, we could be forced to incur significant expenses in the litigation, and in the event there is an adverse outcome, our business could be harmed.
 
4.    RESTRUCTURING
 
During the third quarter of 2002 ACLARA approved and initiated a restructuring plan that reduced costs associated with the microfluidics aspect of our business so we could increase our focus on our eTag assay chemistry. Accordingly, we recognized a restructuring charge of $3.3 million during the third quarter. The reduction included $0.8 million of severance and benefits related to the involuntary termination of approximately 50 employees. The terminated employees were primarily in research and development associated with microfluidics. We also wrote off approximately $2.5 million of fixed assets that are not expected to be used prospectively.
 
The following table sets forth an analysis of the components of the third quarter restructuring charges (in thousands):
 
      
Severance and Benefits
     
Fixed Assets
     
Other Charges
     
Total
  
Restructuring provision:
                                      
Severance and benefits
     
$
753
 
   
$
—
 
   
$
—
 
   
$
753
 
Property and equipment write off
     
 
—
 
   
 
2,469
 
   
 
—
 
   
 
2,469
 
Other charges
     
 
—
 
   
 
—
 
   
 
114
 
   
 
114
 
      
  
  
  
Total
     
$
753
 
   
$
2,469
 
   
$
114
 
   
$
3,336
 
      
  
  
  
Non-cash charges
     
 
—
 
   
 
(2,469
)
   
 
—
 
   
 
(2,469
)
Cash paid
     
 
(11
)
   
 
—
 
   
 
(17
)
   
 
(28
)
      
  
  
  
Reserve balance at September 30, 2002
     
$
742
 
   
$
—
 
   
$
97
 
   
$
839
 
      
  
  
  
 
ACLARA anticipates the remaining reserve balance of $0.8 million will be substantially paid out by the first quarter of 2003.
 
5.    SUBSEQUENT EVENTS
 
On October 15, 2002, ACLARA entered into License and Supply Agreements with Third Wave Technologies, Inc. (“Third Wave”) and terminated the previous Development and Commercialization Agreement between the parties. The License Agreement allows ACLARA to incorporate certain of Third Wave’s technology into products for certain applications in the gene expression field. ACLARA paid an upfront license fee of $1.5 million and will pay fixed royalties in 2003 through 2005 and royalties on applicable revenues on an escalating scale in years after 2005. Under the Supply Agreement, Third Wave will supply enzyme to ACLARA for use in accordance with this agreement. ACLARA has committed to purchase a certain amount of enzyme prior to December 31, 2002 and has paid a deposit with regard to this commitment.

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On October 15, 2002, ACLARA made a payment of $32.5 million to Caliper related to a previous settlement of litigation. Of this amount, $1.3 million represents the repurchase at the then-current market price of 900,000 shares of the company’s common stock that had been issued to Caliper upon execution of the settlement agreement. These 900,000 shares will be accounted for as treasury stock. Restricted cash totaling $34.1 million will be released upon cancellation of the letter of credit in early 2003. (See Notes 2 and 3 above for additional information.)
 
On October 10, 2002, ACLARA and Roche Diagnostics Corporation (“Roche”) terminated a Supply and Distributorship agreement under which Roche had been granted distribution rights for the Arteas Microfluidic Device.
 
On October 23, 2002 promissory notes from an officer and director totaling $567,616 in the aggregate and including accrued interest of $82,465 were repaid in full. On November 11, 2002, a promissory note from an officer and director totaling $69,293 in the aggregate and including accrued interest of $10,543 was repaid in full. As of November 14, 2002, ACLARA has no promissory notes outstanding from its officers or directors.
 
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of the Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes to those and the Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002, statements included elsewhere in this Form 10-Q, and in conjunction with the Form 10-K for the year ended December 31, 2001. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations that express that ACLARA “believes”, “anticipates”, “expects” or “plans to” as well as other statements that are not historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Actual events or results may differ materially as a result of the risks and uncertainties described herein and elsewhere, including, but not limited to, those factors discussed in “Factors Affecting Operating Results” set forth below.
 
OVERVIEW
 
ACLARA is a leading developer of assay chemistry and microfluidic products for life science research. Since our inception we have engaged primarily in research and development activities related to the application of our proprietary microfluidics and assay chemistry technologies for applications in the field of drug discovery. Prospectively, our focus is expected to be primarily on our assay chemistry technologies since we believe that these present the most significant opportunity. Our business strategy is to commercialize our eTag assay chemistries to pharmaceutical and biotechnology customers for applications in gene expression, protein expression and protein function analysis. The eTag Expert Assay Program has been introduced in October 2002 to facilitate commercialization of the eTag Assay System.
 
We have invested substantial amounts in establishing our assay chemistries and microfluidic devices for life science research. From our inception to September 30, 2002, we have incurred over $81.8 million in research and development expenses. Over 80% of our 137 employees at October 31, 2002 were engaged in research and development activities.
 
We have incurred significant losses since our inception. As of September 30, 2002, our accumulated deficit was $136.0 million and total stockholders’ equity was $121.7 million. Total costs and operating expenses were $12.6 million (includes a $0.4 million charge related to a litigation settlement and a $3.3 million charge related to restructuring) and $11.3 million (includes a $2.8 million revaluation credit related to a litigation settlement) for the quarters ended September 30, 2002 and 2001, respectively. We expect to incur additional operating losses over at least the next two years as we continue to invest significant resources in research and development activities, build our sales and marketing organizations and commercialize our initial products.
 
Our sources of potential revenue for the next several years are likely to be from product revenue derived from our proprietary eTag assay chemistries, receipts under possible future collaborative arrangements, and government research grants.
 
In July 2002, we took steps to increase our focus on our eTag assay chemistry opportunities and to reduce costs, particularly those costs associated with the microfluidics aspect of our business. While we are reducing the resources allocated to microfluidic activities, we expect that microfluidic technologies will continue to play a role in our operations prospectively but primarily in ways that enhance the market for our eTag assay chemistries. Related to these actions, we have taken a charge in the third quarter of 2002 of $3.3 million. Our eTag Assay System was introduced commercially in October 2002 and we expect this to be the primary source of our revenues in 2003 and beyond.

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RESULTS OF OPERATIONS
 
PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
 
Revenues.    Revenues for the three months ended September 30, 2002 and 2001 were $505,000 and $507,000, respectively. Revenues for the nine months ended September 30, 2002 and 2001 were $1.8 million and $2.3 million, respectively. Our revenues to date have been derived primarily from commercial collaboration agreements, government grants and, in the second and third quarters of 2002, from initial sales of Arteas Microfluidic Devices under an agreement that has subsequently been terminated in October 2002. We do not expect revenue from this agreement or from the Arteas product after the fourth quarter of 2002. In addition as a result of the refocusing of resources on our eTag Assay System we do not anticipate future revenue from our Plurex product. The timing and amount of government grant awards and completion of milestones under these grants and in our commercial collaborations have caused variations in these revenues. While revenue from all of these sources have been significant in the past, they are not expected to be significant in 2003 when the primary source of revenue is expected to be the eTag Assay System. Revenue related to the eTag Assay System has been a minor component of revenue to date but is expected to increase as additional evaluations are conducted by customers and as customers are enrolled in our recently introduced access programs.
 
Research and Development.    Research and development expenses for the three months ended September 30, 2002 and 2001 were $5.5 million and $6.1 million, respectively. Research and development expenses for the nine months ended September 30, 2002 and 2001 were $18.6 million and $17.8 million, respectively. The increase in spending from 2001 to 2002 for the nine months ending September 30 was primarily due to increased license fees and increased personnel-related expenses as a result of an increased level of staffing related to our proprietary eTag assay chemistries. These increases were partially offset by a reduction of $260,000 and $908,000 in stock-based compensation expense for the three and nine month periods, respectively. The decrease in spending from 2001 to 2002 for the three-month periods ended September 30 was primarily due to decreased personnel-related expenses offset by increased license fees. The headcount reduction described earlier is expected to reduce research and development expenditures, particularly on microfluidic products. However, because the reduction in headcount is occurring over the third and fourth quarters of 2002, the full impact of the cost reduction will not be felt earlier than the first quarter of 2003, and may be partially offset by increased spending in our eTag assay chemistry activities. Notwithstanding these cost reductions, we expect to continue to devote substantial resources to research and development.
 
Selling, General and Administrative.    Selling, general and administrative expenses for the three months ended September 30, 2002 and 2001 were $3.3 million and $2.4 million, respectively. Selling, general and administrative expenses for the nine months ended September 30, 2002 and 2001 were $9.2 million and $7.8 million, respectively. The increase from 2001 to 2002 was primarily due to an increase in compensation related expense and an increase in sales and marketing expense related to the initiation of commercialization activities for our proprietary eTag assay chemistries. We expect that our selling, general and administrative expenses will increase in absolute dollar amounts as we increase our sales and marketing activities related to the commercialization of our products and as we increase the administrative and support infrastructure required to support our customers.
 
Litigation Settlements.    As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sells the shares after August 21, 2002 but before February 21, 2003. ACLARA initially valued the put obligation associated with these shares at $20.8 million. Based on the change in ACLARA’s stock price, the put obligation was subsequently revalued on a quarterly basis and at December 31, 2001, March 31, 2002, June 30, 2002, and September 30, 2002 the put obligation had a value of $27.2 million, $28.7 million, $30.5 million and $30.9 million, respectively. As a result of these revaluations, revaluation expenses of $0.4 million and a revaluation credit of $2.8 million were recorded in the accompanying Statements of Operations for the three months ended September 30, 2002 and 2001, respectively. For the nine months ended September 30, 2002 and 2001, revaluation expenses of $3.7 million and $5.2 million were recorded in the accompanying Statements of Operations, respectively. The put obligation has been classified as a current liability at September 30, 2002. The put obligation will continue to be revalued on a quarterly basis until settlement using a Black-Scholes pricing model with changes in valuation being recorded in the Statements of Operations. Final settlement of this obligation occurred in October 2002.
 
Restructuring.    In July 2002, we took steps to increase our focus on our eTag assay chemistry opportunities and to reduce costs, particularly those costs associated with the microfluidics aspect of our business. As part of this refocusing of our operations, we have initiated a reduction in our headcount by approximately 50. This reduction will be implemented over the third and fourth quarters of 2002 and we expect to end 2002 with less than 120 employees. While we are reducing the resources allocated to microfluidic activities, we expect that microfluidic technologies will continue to play a role in our operations prospectively but primarily in ways that enhance the market for our eTag assay chemistries. Related to these actions, we have taken a charge in the third quarter of 2002 of $3.3 million. Of this charge, approximately $800,000 is related to anticipated severance and other associated costs and approximately $2.5 million is related to the write-down of certain fixed assets that are not expected to be used prospectively.

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Net Interest Income (Expense).    Net interest income (expense) represents income earned on our cash and cash equivalents, short-term investments, long-term investments and restricted cash, and interest paid on equipment loans. Net interest income was $0.9 million and $1.7 million for the three months ended September 30, 2002 and 2001, respectively, and $3.0 million and $6.4 million for the nine months ended September 30, 2002 and 2001, respectively. The decrease in net interest income from 2001 to 2002 was primarily due to lower average balances of cash and cash equivalents, short-term and long-term investments and lower market interest rates. Interest income will be reduced commencing in the fourth quarter of 2002 as a result of the reduction in cash investments due to the payment in October 2002 of $32.5 million related to a litigation settlement.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Since inception, we have financed our operations primarily through our initial public offering in March 2000 that raised net proceeds of $201.0 million, private placements of preferred stock totaling $32.3 million, loans from the landlord of our Mountain View facility and equipment financing lines of credit totaling $4.4 million, capital leases totaling $1.8 million, and research and development funding from collaborators and government grants. As of September 30, 2002, we had total unrestricted cash resources of $118.1 million, comprising $69.6 million in cash and cash equivalents, $15.6 million in short-term marketable investments and $33.0 million in long-term marketable investments. In addition, we had $34.1 million in restricted cash.
 
A loan agreement with the landlord of the Mountain View facility allowed us to borrow $663,000 for leasehold improvements at an annual interest rate of 8.5%. The principal balance of this loan at September 30, 2002 was $521,000. The note matures on July 1, 2009.
 
Operating activities used cash of $18.7 million and $15.8 million for the nine months ended September 30, 2002 and 2001, respectively. Uses of cash in operating activities primarily resulted from operating losses adjusted for non-cash expenses and changes in working capital and other liabilities.
 
Cash provided by investing activities was $57.0 million for the nine months ended September 30, 2002, including net maturities of investments of $58.3 million compared to cash used in investing activities of $68.0 million for the nine months ended September 30, 2001 that included a $32.9 million transfer to restricted cash relating to a litigation settlement and the net purchases of investments of $32.5 million. Cash provided by financing activities remained essentially flat for the nine months ended September 30, 2002 and 2001. Financing activity primarily reflects cash proceeds received through the employee exercise of stock options and employee participation in the employee stock purchase program
 
We believe that our current cash and cash equivalents, short-term and long-term marketable investment balances and funding received from collaborators and government grants will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 24 months. After that time, we cannot be certain that additional funding, if required, will be available on acceptable terms, or at all. Despite our expectations, we may need to raise additional capital before the end of the next 24 months. We may raise additional funds through public or private financing, collaborative relationships or other arrangements. Further, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed may harm our business and operating results.
 
As part of our litigation settlement with Caliper, we have provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of our performance under the settlement agreement. The banking institution that issued the letter of credit required us to maintain a balance of 105% of the letter of credit amount in a segregated account. This amount of $34.1 million is recorded as restricted cash in our financial statements at September 30, 2002. In October 2002, we paid Caliper $32.5 million related to this settlement. Of this amount approximately $1.3 million was for the repurchase at the then-current market price of the 900,000 shares previously issued to Caliper in the original settlement agreement. The restricted cash will be released to us in early 2003 upon cancellation of the letter of credit issued to Caliper at the time of the original settlement.
 
RECENT ACCOUNTING DEVELOPMENTS
 
In April of 2002, the FASB issued Statement of Financial Accounting Standards No. 145 (“SFAS 145”), “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which is effective for fiscal years beginning after May 15, 2002. Under SFAS 145, gains and losses from the extinguishment of debt should be classified as extraordinary items only if they meet the criteria of Accounting Principles Board Opinion No. 30. SFAS 145 also addresses financial accounting and reporting for capital leases that are modified in such a way as to give rise to a new agreement classified as an operating lease. The Company believes that the adoption of SFAS 145 will not have a material impact on the financial position or results of operations of the Company.

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In June of 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” which is effective for exit or disposal activities initiated after December 31, 2002. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Under SFAS 146, a liability is required to be recognized for a cost associated with an exit or disposal activity when the liability is incurred. SFAS 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a retirement or disposal activity covered by FASB Statements No. 143 and 144. The Company believes that the adoption of SFAS 146 will not have a material impact on the financial position or results of the operations of Company.
 
FACTORS AFFECTING OPERATING RESULTS
 
The following risk factors outline certain risks and uncertainties concerning future results and should be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2001 and Quarterly Report on Form 10-Q for the periods ended March 31, 2002 and June 30, 2002. Any of these risk factors could materially and adversely affect our business, results of operations, financial condition and future growth prospects. Additional risks and uncertainties that we do not currently know about or that we currently deem immaterial may also impair our business, financial condition, results of operations and future growth prospects.
 
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.
 
Since we were founded in May 1995, we have engaged primarily in research and development efforts. We have incurred operating losses every year, and we may never achieve profitability. Net losses for the nine months ended September 30, 2002 and the years ended December 31, 2001, 2000, and 1999 were $30.1 million, $29.0 million, $59.2 million and $8.2 million, respectively. As of September 30, 2002, we had an accumulated deficit of $136.0 million. Our losses have resulted principally from costs incurred in connection with our research and development activities, from litigation settlement charges and from selling, general and administration costs associated with our operations.
 
To date, we have not generated any significant revenue from the sale of products. Our ability to generate revenues from product sales or to achieve profitability is dependent on our ability, alone or with collaborative partners, to successfully design, develop, manufacture and commercialize our proprietary assay chemistry systems in a timely manner. Our revenue to date has been generated principally from collaborative research and development agreements, government grants and initial sales of Arteas Microfluidic Devices to Roche. None of these revenue sources are expected to be significant in 2003, when our eTag Assay System is anticipated to be the primary source of revenue. We expect that our costs will continue to exceed our revenues on an annual basis for at least the next two years. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
 
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
 
Our operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to decline. Some of the factors that could cause our operating results to fluctuate include:
 
 
•
 
the willingness of our customers to enter into our access programs and the adoption of our technologies by customers;
 
 
•
 
the timing of the release, and the competitiveness of our products;
 
 
•
 
expiration or termination of contracts with collaborators or government research grants, which may not be renewed or replaced;
 
 
•
 
final outcome of litigation to which we are currently a party or threatened claims against us;
 
 
•
 
general and industry-specific economic conditions, which may affect our customers’ research and development expenditures and use of our products; and
 
 
•
 
a quarterly revaluation of a put obligation that is dependent, among other things, on the volatility and level of ACLARA’s stock price.
 
If revenue declines in a quarter, whether due to a delay in recognizing expected revenue or otherwise, our earnings will decline because many of our expenses are relatively fixed in the short-term. In particular, research and development and selling, general and administrative expenses are not affected directly by variations in revenue.
 
Due to fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons to results of historical operations are not a good indication of our future performance. It is possible that in some future quarter or quarters, our operating results will be below the expectations of securities analysts or investors, or will be below the level of prior periods. In these cases, our stock price could fluctuate significantly or decline.

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NONE OF OUR PRODUCTS HAS YET BEEN SUCCESSFULLY COMMERCIALIZED.
 
We are in the process of commercially launching our eTag assay chemistries, through technology access programs. However, we have limited experience with developing, manufacturing, distributing or selling commercial products. We may not be able to perfect the design of our products due to the complexity of the technologies on which they are based and/or the demands of the scientific processes that they address. Additionally we may not be able to adequately provide the desired level of services required under our access programs. For instance, we have limited experience establishing the high degrees of accuracy, reliability and ease of use required for commercial introduction of our products and services. Even though we have designed products that function in a prototype system or on a limited volume basis, we cannot assure you that we will be able to adapt the design or develop our organization to allow for large-scale manufacturing. Although we have projected launch periods for certain of our products, we cannot assure you that we will complete development of the systems by those launch dates, or at all. If we are unable to design commercially viable assay chemistry products, or other products or systems, either independently or with our collaborative partners, we may be unable to remain in business.
 
COMMERCIALIZATION OF OUR PRODUCTS DEPENDS ON MARKET ACCEPTANCE OF OUR ASSAY CHEMISTRY TECHNOLOGY. IF THIS DOES NOT ACHIEVE ACCEPTANCE, OUR ABILITY TO GENERATE SALES WOULD BE LIMITED AND OUR LOSSES WOULD INCREASE.
 
Demand for our products is substantially dependent upon widespread market acceptance of our assay chemistry products for applications in drug discovery and for applications in genomics, proteomics and pharmaceutical drug screening. Our assay chemistry products represent a new technological approach, and our ability to sell assay chemistry products will depend on the willingness of customers to adopt such new technological approaches. We cannot assure you that our assay chemistry products will achieve substantial acceptance in our target markets. Market acceptance will depend on many factors, including:
 
 
•
 
our ability and the ability of our collaborative partners to demonstrate to potential customers the benefits and cost effectiveness of our assay chemistry products, relative to competing technologies and products; and
 
 
•
 
the extent and success of our efforts and our partners’ efforts to market, sell and distribute the assay chemistry products.
 
Further, failure of our initial assay chemistry products to be favorably received by the market could undermine our ability to successfully introduce subsequent assay chemistry products. If our assay chemistry products do not gain market acceptance, our losses would increase and we may be unable to remain in business.
 
OUR DIRECT AND THIRD PARTY SALES AND MARKETING CHANNELS NEED TO BE DEVELOPED. IF WE ARE UNABLE TO DO SO SUCCESSFULLY, WE MAY BE UNABLE TO GENERATE SIGNIFICANT REVENUES.
 
We have not fully developed sales and distribution channels for our products. We have recently restructured our relationship with Third Wave and have assumed direct responsibility for the commercialization of eTag assay chemistry products for the gene expression market that incorporate Third Wave’s technology. In addition, for applications in proteomics, we will continue to be dependent on our own sales and marketing organization, which has yet to be fully developed. We may not be able to successfully recruit executive management and sales and marketing personnel to market and sell our products.
 
Our ability to generate revenues will be dependent on the development of the appropriate partnerships, on the resources devoted by our partners to commercialization activities and on the success of those activities. Our ability to generate revenue will also be dependent on our success in recruiting management and sales personnel and in building a sales and marketing organization. We cannot assure you that we will be able to successfully build and manage effective sales and distribution channels, or that our partners will devote sufficient resources to our commercialization efforts to be effective.
 
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE WOULD BE UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY, WHICH COULD IMPAIR OUR ABILITY TO COMPETE IN THE MARKET. THE COST OF ENFORCING OUR PROPRIETARY RIGHTS MAY BE EXPENSIVE AND RESULT IN INCREASED LOSSES.
 
Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our products, both in the United States and in other countries, and our inability to do so could harm our competitive position. We rely on our portfolio of over 270 issued and pending patent applications in the United States and in other countries to protect a large part of our intellectual property and our competitive position. We cannot assure you that any of the currently pending or future patent applications will be issued as patents, or that any patents issued to us will not be challenged, invalidated, held unenforceable or circumvented. Further, we cannot assure you that our intellectual property rights will be sufficiently broad to prevent third parties from producing competing products similar in design to our products.

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In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us. However, we cannot assure you that these agreements will provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information or that adequate remedies would exist if unauthorized use or disclosure were to occur. The exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. Further, we cannot assure you that others have not or will not independently develop substantially equivalent know-how and technology.
 
Our commercial success also depends in part on avoiding the infringement of other parties’ patents or proprietary rights and the breach of any licenses that may relate to our technologies and products. We are aware of various third-party patents that may relate to our technology. We believe that we do not infringe these patents but cannot assure you that we will not be found in the future to infringe these or other patents or proprietary rights of third parties, either with products we are currently developing or with new products that we may seek to develop in the future. If third parties assert infringement claims against us, we may be forced to enter into license arrangements with them. We cannot assure you that we could enter into the required licenses on commercially reasonably terms, if at all. The failure to obtain necessary licenses or to implement alternative approaches may prevent us from commercializing products under development and would impair our ability to be commercially competitive. We may also become subject to interference proceedings conducted in the U.S. Patent and Trademark Office to determine the priority of inventions.
 
The defense and prosecution, if necessary, of intellectual property suits, U.S. Patent and Trademark Office interference proceedings and related legal and administrative proceedings will result in substantial expense to us, and significant diversion of effort by our technical and management personnel. An adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities to third parties, could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
 
Further, there is a risk that some of our confidential information could be compromised during the discovery process of any litigation. During the course of any lawsuit, 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 negative, it could have a substantial negative effect on the trading price of our stock.
 
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND WILL BE SUBJECT TO THE RISK OF FINALIZING CONTRACTUAL ARRANGEMENTS, TRANSFERRING TECHNOLOGY.
 
We have no experience manufacturing our products in the high volumes that will be necessary for us to achieve significant commercial sales. To date, we have limited our manufacturing activities to low volume manufacturing of eTag assay chemistry products for testing purposes and for validation use by our collaborative partners and potential customers. The nature of our assay chemistries necessitates access to specialized chemicals, reagents and raw materials, such as antibodies used in conjunction with our eTag components. There are only a limited number of vendors who supply these materials and for some of these materials the suppliers are the sole source of supply. We cannot be certain that these vendors will continue to supply these materials consistently or in the quantities necessary for high volume production. We will need to enter into contractual relationships with these or other manufacturers to facilitate commercial scale production of eTag assay chemistry products, and we cannot assure you that we will be able to do so on a timely basis, for sufficient quantities of products or on commercially reasonable terms. We will be dependent on Third Wave, for supply of Cleavase enzyme that is a critical component of products that we will commercialize for gene expression applications and this enzyme is proprietary to Third Wave. Failure of Third Wave to supply enzyme could seriously impair our business. Accordingly, we cannot assure you that we can establish or maintain reliable, high-volume manufacturing at commercially reasonable costs. In addition, the loss of any of these suppliers may result in a delay or interruption of our supply of assay chemistries. Any significant delay or interruption would have a material adverse effect on our ability to supply adequate quantities of our products and would result in lost revenues.
 
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO COMPETE.
 
Our performance is substantially dependent on the performance of our senior management and key scientific and technical personnel. The loss of the services of any member of our senior management, scientific or technical staff may significantly delay or prevent the achievement of product development and other business objectives and could have a material adverse effect on our business, operating results and financial condition. Our future success will also depend on our ability to identify, recruit and retain additional qualified scientific, technical and managerial personnel. There is currently a shortage of skilled executives and intense competition for such personnel in the areas of our activities, and we cannot assure you that we will be able to continue to attract and retain personnel with the advanced qualifications necessary for the development of our business. The inability to attract and retain the necessary scientific, technical and managerial personnel could have a material adverse effect on our research and development activities, sales revenue, operating costs and future growth prospects.

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Our CEO, Joseph M. Limber has resigned as President and Chief Executive Officer effective December 1, 2002 and we have initiated a search for a new chief executive officer. We cannot assure you that we will be able to recruit an individual with the appropriate level of experience and skill to adequately perform the function of chief executive officer. If we are unable to do so, our ability to build our business and commercialize our products will be impaired.
 
WE EXPECT INTENSE COMPETITION IN OUR TARGET MARKETS.
 
We compete with companies that design, manufacture and market analytical instruments and reagents for genomics, proteomics and pharmaceutical drug screening using alternate technologies for applications such as gene expression analysis and protein function analysis and other products and systems. In addition, a number of companies are developing new technologies for miniaturizing various laboratory procedures for genomics, proteomics and drug screening markets targeted by us, using such methods as beads, hybridization chips and high-density microwell plates.
 
We anticipate that we will face increased competition in the future as companies enter the market with new technologies. Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and new product introduction, characterize the markets for our products. One or more of our competitors may render our technology obsolete or uneconomical by advances in existing technological approaches or the development of different approaches. Many of these competitors have greater financial and personnel resources and more experience in research and development than we have. Furthermore, we cannot assure you that the pharmaceutical and biotechnology companies which are our potential customers or our strategic partners will not develop competing products.
 
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE, WHICH WOULD INCREASE OUR LOSSES IF SUCH CLAIMS OCCURRED.
 
As we begin commercialization of our products, we will face exposure to product liability claims. Any product liability claims arising in the future, regardless of their merit or eventual outcome, could increase our losses. We cannot assure you that we will continue to be able to maintain our current coverage or obtain new insurance on acceptable terms with adequate coverage, or at reasonable costs. In addition, potential product liability claims may exceed the amount of our insurance or may be excluded from coverage under the terms of the policy.
 
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL WHEN NEEDED OR GENERATE THE CAPITAL NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS, WHICH COULD HURT OUR ABILITY TO COMPETE OR ACHIEVE PROFITABILITY.
 
It might be necessary for us to raise additional capital over the next few years to continue our research and development efforts and to commercialize our products. We believe that the proceeds from our initial public offering and projected revenue from collaborations should be sufficient to fund our anticipated levels of operations through at least the next 24 months. However, we cannot assure you that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. We also cannot assure you that we will continue to receive funding under existing collaborative arrangements or that existing or potential future collaborations or sales revenue will be adequate to fund our operations. We may need additional funds sooner than planned to meet operational needs, capital requirements for product development and commercialization and payment of monetary damages in any on-going or future litigation. We cannot assure you that additional funds will be available when needed, or on terms acceptable to us, or that sufficient revenue will be generated from sales. If adequate funds are not available, we may have to reduce substantially or eliminate expenditures for the development and production of certain of our proposed products or obtain funds through arrangements with collaboration partners that require us to relinquish rights to certain of our technologies or products. Either of these alternatives could have a material adverse effect on our business, operating results, financial condition and future growth prospects.
 
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
 
Our executive officers, directors and their affiliates presently beneficially own or control a significant percentage of the outstanding shares of common stock. Accordingly, our current executive officers, directors and their affiliates, if acting together, would have the ability to influence the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets and any other significant corporate transactions. The concentration of ownership could also delay or prevent a change of control of our company at a premium price if these stockholders oppose it.

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THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE.
 
There has only been a public market for our common stock since March 21, 2000, and since then our common stock has traded in a range between $1.40 and $60.00 per share.
 
The trading price of our common stock may continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: quarterly fluctuations in results of operations; our ability to successfully commercialize our products; technological innovations or new commercial products by us or our competitors; developments concerning government regulations or proprietary rights which could affect the potential growth of our customers; the execution of new collaborative agreements and material changes in the relationships with business partners; market reaction to trends in revenues and expenses, especially research and development; changes in earnings estimates by analysts; sales of common stock by existing stockholders; and economic and political conditions.
 
The market price for our common stock may also be affected by our ability to meet analysts’ expectations. Any failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock. In addition, the stock market, and the NASDAQ National Market and the market for technology companies in particular, is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, companies that have experienced volatility in the market price of their securities have been the subjects of securities class action litigation, and as noted in our Form 10-K for the year ended December 31, 2001, we have recently been sued in a securities class action lawsuit. Although we believe that the class action lawsuit and the other lawsuits described in our Form 10-K for the year ended December 31, 2001 are without merit, an adverse determination in any of the lawsuits could have a very significant effect on our business and results of operations, and could materially affect the price of our stock. Moreover, regardless of the ultimate result, it is likely that the lawsuits will divert management’s attention and resources from other matters, which could also adversely affect our business and the price of our stock.
 
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW LIMIT THE ABILITY OF ANOTHER PARTY TO ACQUIRE US, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
 
Certain provisions of our certificate of incorporation and our bylaws could delay or prevent a third party from acquiring us, even if doing so might be beneficial to our stockholders. For example, we have a classified board of directors whose members serve staggered three-year terms and are removable only for cause. In addition, on March 16, 2001, ACLARA adopted a stockholder rights plan (the “Rights Plan”). Pursuant to the Rights Plan, ACLARA’s Board of Directors declared a dividend distribution of one Preferred Share Purchase Right (a “Right”) on each outstanding share of ACLARA’s common stock. Each Right will entitle stockholders to buy one-one hundredth of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $40.50 in the event that the Rights become exercisable. Subject to limited exceptions, the Rights will be exercisable if a person or group acquires 15% or more of the Company’s common stock or announces a tender offer for 15% or more of the common stock. If ACLARA is acquired in a merger or other business combination transaction which has not been approved by the Board of Directors, each Right will entitle its holder to purchase, at the Right’s then-current exercise price, a number of the acquiring company’s common shares having a market value at the time of twice the Right’s exercise price. These provisions may have the effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of ACLARA. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders from consummating a merger or combination with us. These factors could also limit the price that investors might be willing to pay for our common stock in the future.
 
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principle if forced to sell securities that have declined in market value due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than three years. Assuming a hypothetical increase in interest rates of one percentage point, the fair value of our total investments as of September 30, 2002 would have potentially declined by approximately $750,000.

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With the exception of the put obligation associated with the settlement of litigation, we do not utilize derivative financial instruments, derivative commodity instruments or other market-risk sensitive instruments, positions or transactions in any material fashion.
 
ITEM 4.     CONTROLS AND PROCEDURES
 
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
 
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.
 
PART II — OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS
 
Information with respect to this item is incorporated into the Part II, Item 1 by reference to Note 3, “Litigation Settlement and Contingencies” contained in Part 1 above found elsewhere in this Form 10-Q.
 
ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS
 
Not applicable.
 
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
Not applicable.
 
ITEM 5.     OTHER INFORMATION
 
None.
 
ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K
 
(a)  Exhibits.    The exhibits listed below are incorporated by reference as part of this report:
 
Exhibit Number
   
Description
3.1
   
Amended and Restated Certificate of Incorporation of ACLARA BioSciences, Inc. (Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 filed with the Securities and Exchange Commission, File No. 222-95107 (our “Form S-1”).)
3.2
   
Certificate of Amendment to Amended and Restated Certificate of Incorporation of ACLARA BioSciences, Inc. (Incorporated by reference to Exhibit 3.6 to our Form S-1.)
3.3
   
Amended and Restated Bylaws of ACLARA BioSciences, Inc. (Incorporated by reference to Exhibit 3.4 to our Form S-1.)

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10.1
 
   
Form of Indemnification Agreement between ACLARA and each of our directors and officers (Incorporated by reference to Exhibit 10.1 to our Form S-1.)
10.2
 
   
1995 Stock Option Plan (Incorporated by reference to Exhibit 10.2 to our Form S-1.)
10.3
 
   
Amended and Restated ACLARA BioSciences, Inc. 1997 Stock Plan (Incorporated by reference to Exhibit 10.3 to our Form S-1.)
10.4
 
   
Amended and Restated Investors’ Rights Agreement, dated as of December 30, 1999 (Incorporated by reference to Exhibit 10.4 to our Form S-1.)
10.5
 
   
Change of Control Agreement by and between Joseph M. Limber and ACLARA BioSciences, Inc., effective as of January 19, 2000 (Incorporated by reference to Exhibit 10.5 to our Form S-1.)
10.8
 
   
Lease Agreement between ACLARA BioSciences, Inc. and The Pear Avenue Group, dated March 1, 1999 (Incorporated by reference to Exhibit 10.8 to our Form S-1.)
10.9
 
   
Master Equipment Lease between Phoenix Leasing and Soane BioSciences, Inc., dated as of November 15, 1995 (Incorporated by reference to Exhibit 10.9 to our Form S-1.)
10.10
†
   
Agreement for an Exclusive Alliance to Develop, Manufacture and Market a Chip-Based Screening System for Cell Analysis between Cellomics, Inc. and ACLARA BioSciences, Inc, dated as of October 26, 1999 (Incorporated by reference to Exhibit 10.10 to our Form S-1.)
10.11
†
   
Collaboration Agreement between ACLARA BioSciences, Inc. and The Perkin-Elmer Corporation, dated as of March 19, 1999 (Incorporated by reference to Exhibit 10.11 to our Form S-1.)
10.12
†
   
Side Agreement between ACLARA BioSciences, Inc. and The Perkin-Elmer Corporation, dated as of March 19, 1999 (Incorporated by reference to Exhibit 10.12 to our Form S-1.)
10.13
†
   
Custom Instrument Development and Commercialization Agreement between The R.W. Johnson Pharmaceutical Research Initiative, The Perkin-Elmer Corporation and ACLARA BioSciences, Inc., signed in March 1999 (Incorporated by reference to Exhibit 10.13 to our Form S-1.)
10.14
†
   
Collaboration Agreement between Soane BioSciences, Inc. and The Perkin-Elmer Corporation, dated as of April 25, 1998 (Incorporated by reference to Exhibit 10.14 to our Form S-1.)
10.15
 
   
Master Loan and Security Agreement by and between ACLARA BioSciences, Inc. and Transamerica Business Credit Corporation, dated as of May 27, 1999 (Incorporated by reference to Exhibit 10.15 to our Form S-1.)
10.16
 
   
ACLARA BioSciences, Inc. Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.16 to our Form S-1.)
10.17
 
   
Agreement between Packard BioScience Company and ACLARA BioSciences, dated as of February 21, 2000 (Incorporated by reference to Exhibit 10.17 to our Form S-1.)
10.18
 
   
Consulting Agreement with Dr. Eric Lander dated as of January 15, 2000 (Incorporated by reference to Exhibit 10.18 to our Form S-1.)
10.19
 
   
Consulting Agreement with Mr. Andre Marion dated as of January 19, 2000 (Incorporated by reference to Exhibit 10.19 to our Form S-1.)
10.20
†
   
Settlement Agreement and Mutual General Release between Caliper Technologies Corp. and ACLARA BioSciences, Inc., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 15, 2001.)

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10.21
†
   
Cross-License Agreement between Caliper Technologies Corp. and ACLARA BioSciences, Inc., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on November 14, 2001.)
10.22
 
   
Common Stock Issuance Agreement between ACLARA BioSciences, Inc. and Caliper Technologies Corp., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on May 15, 2001.)
10.23
 
   
Form of Change of Control Agreement between ACLARA BioSciences, Inc. and each of our executive officers. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on November 14, 2001.)
10.24
†
   
Amended and Partially Restated Collaboration Agreement between ACLARA BioSciences, Inc. and PE Corporation (NY), executed as of March 22, 2002. (Incorporated by reference to Exhibit 10.24 to our Annual Report on Form 10-K filed on April 1, 2002.)
10.25
 
   
Second Side Agreement Between ACLARA BioSciences, Inc. and PE Corporation (NY), effective as of September 30, 2000. (Incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K filed on April 1, 2002.)
10.26
†
   
Supply and Distributorship Agreement between ACLARA BioSciences, Inc. and Roche Diagnostics Corporation, dated as of October 26, 2001. (Incorporated by reference to Exhibit 10.26 to our Annual Report on Form 10-K filed on April 1, 2002.)
10.27
 
   
First Amendment to the Custom Instrument Development and Commercialization Agreement between The R.W. Johnson Pharmaceutical Research Institute and ACLARA BioSciences, Inc., executed as of October 1, 2001. (Incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K filed on April 1, 2002.)
10.28
†
   
Second Amendment to the Custom Instrument Development and Commercialization Agreement between The R.W. Johnson Pharmaceutical Research Institute and ACLARA BioSciences, Inc., dated as of October 26, 2001. (Incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K filed on April 1, 2002.)
10.29
†
   
Development and Commercialization Agreement between Third Wave Technologies, Inc. and ACLARA BioSciences, Inc., dated as of October 24, 2001. (Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K filed on April 1, 2002.)
10.30
†
   
Agreement between Third Wave Technologies, Inc. and ACLARA BioSciences, Inc. dated as of October 24, 2001. (Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K filed on April 1, 2002.)
10.31
 
   
Amendment to the ACLARA BioSciences, Inc. Employee Stock Purchase Plan, effective April 23, 2002
10.32
*
   
License Agreement between Third Wave Technologies, Inc. and ACLARA Biosciences, Inc. dated October 15, 2002
10.33
*
   
Supply Agreement between Third Wave Technologies, Inc and ACLARA Biosciences, Inc. dated October 15, 2002
10.34
*
   
InvaderCreator Access Agreement between Third Wave Technologies, Inc and ACLARA Biosciences, Inc. dated October 15, 2002
10.35
*
   
Transition Manufacturing Plan Letter Agreement between Third Wave Technologies, Inc and ACLARA Biosciences, Inc. dated October 15, 2002
10.36
 
   
InvaderCreator Access Letter Agreement between Third Wave Technologies, Inc and ACLARA Biosciences, Inc. dated October 15, 2002

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10.37
   
Termination Agreement between Roche Diagnostics Corporation and ACLARA Biosciences, Inc. dated October 10, 2002
10.38
   
General Release and Separation Agreement between Joseph M. Limber and ACLARA Biosciences, Inc. dated October 10, 2002
10.39
   
Change in Control Agreement between Joseph M. Limber and ACLARA Biosciences, Inc. dated October 10, 2002
†
 
Confidential treatment has been granted as to portions of this exhibit.
*
 
Confidential treatment has been requested as to portions of this exhibit.
 
(b)   Current Reports on Form 8-K.    ACLARA did not file any reports on Form 8-K during the quarter ended September 30, 2002.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
/s/    ALFRED G. MERRIWEATHER
Alfred G. Merriweather
   
Vice President, Finance and Chief Financial Officer (duly authorized officer and principal financial officer)
  
November 14, 2002
 
CERTIFICATIONS
 
I, Joseph M. Limber, certify that:
 
1.    I have reviewed this quarterly report on Form 10-Q of ACLARA BioSciences, Inc:
 
2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
(a)    Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the periods in which this quarterly report is being prepared;
 
(b)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
(c)    Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
(a)    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
6.    The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date: November 14, 2002
 
By:
  
/s/    JOSEPH M. LIMBER
   
Joseph M. Limber
   
Chief Executive Officer

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I, Alfred G. Merriweather, certify that:
 
1.    I have reviewed this quarterly report on Form 10-Q of ACLARA BioSciences, Inc;
 
2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
(a)    Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the periods in which this quarterly report is being prepared;
 
(b)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
(c)    Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
(a)    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls: and
 
6.    The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date: November 14, 2002
 
By:
  
/s/    ALFRED G. MERRIWEATHER
   
Alfred G. Merriweather
   
Chief Financial Officer

22
EX-10.32 3 dex1032.txt LICENSE AGREEMENT THIRD WAVE DTD 10/15/02 Exhibit 10.32 LICENSE AGREEMENT This License Agreement, together with exhibits attached hereto ("Agreement"), effective as of October 15, 2002 (the "Effective Date"), is entered into by and between THIRD WAVE TECHNOLOGIES, INC., organized under the laws of Delaware and having its principal place of business at 502 S. Rosa Road, Madison, Wisconsin 53719 ("TWTI"), and ACLARA BIOSCIENCES, INC., organized under the laws of Delaware and having its principal place of business at 1288 Pear Avenue, Mountain View, California 94043 ("ACLA"). TWTI and ACLA may each be referred to herein individually as a "Party" or, collectively, as "Parties." Recitals Whereas, TWTI and ACLA entered into a Development and Commercialization Agreement, dated October 24, 2001, which the Parties wish to terminate and supersede, in its entirety (except as otherwise set forth below), by this Agreement; and Whereas, TWTI has technology and intellectual property for, among other things, genetic analysis and life science research and testing, including test kits, components, and other products and services based upon its proprietary Invader(R) platform and/or Cleavase(R) enzymes; and Whereas, ACLA has technology and intellectual property for, among other things, genetic analysis and life science research and testing, including products, services, and components based upon ACLA's eTag(TM) technology; and Whereas, TWTI wishes to license to ACLA, and ACLA wishes to obtain from TWTI, certain rights under TWTI intellectual property related to the Invader(R) platform, InvaderCreator(TM) software and/or Cleavase(R) enzymes, to commercialize certain assay products that perform multiplexed gene expression using ACLA's eTag(TM) technology; and Whereas, TWTI and ACLA are entering into a Supply Agreement of even date herewith for the supply by TWTI to ACLA of Cleavase Enzyme (as defined below) on the terms and conditions set forth therein and are entering into an InvaderCreator(TM) Access Agreement of even date herewith for purposes of providing ACLA with access to TWTI's InvaderCreator(TM) Software (as defined below). Now, Therefore, in consideration of the promises and undertakings set forth herein, the Parties agree as follows: Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as * * *. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. 1 ARTICE 1 Definitions Capitalized terms not otherwise defined herein will have the meaning set forth below: 1.1 "Aclara Component" means an Aclara Precursor from a library that, when the Aclara Precursor is incorporated into a*** which has been*** an***, allows the*** to be separated by*** from other*** that each incorporate an Aclara Precursor from the library. As used herein, "Aclara Precursors" shall mean*** specifically designed and suitable for use to construct a library of such*** by*** where each member of the library can be differentiated from the other members by its***. 1.2 "ACLA Entities" means ACLA, its Resellers, Value Added Distributors, Manufacturing Distributors, and Affiliates of ACLA or any such party. 1.3 "Affiliate" with respect to a party, means any business entity controlling, controlled by, or under common control with such party, but only so long as such control exists. For the purposes of this Section 1.3 and Sections 1.46 and 4.2(b) only, "control" means the possession, directly or indirectly, of the power to direct the management or policies of an entity through ownership of fifty percent (50%) or more of the voting securities of such entity (or, in the case of an entity that is not a corporation, ownership of fifty percent (50%) or more of the corresponding interest for the election of the entity's managing authority); provided that, if local law in a country outside the United States requires a minimum percentage of local ownership such that the maximum percentage that may be owned by foreign interests is less than fifty percent (50%), control will be established by direct or indirect beneficial ownership of one hundred percent (100%) of the maximum ownership percentage that may, under such local law, be owned by foreign interests. 1.4 "Bridging Oligonucleotide" shall have the meaning assigned in Section 1.25 below. 1.5 "Bundled" shall mean that the specified items are not distributed separately, but are promoted, priced, and distributed collectively as a Licensed Product. 1.6 "Cleavage Enzyme" means any enzyme that (A) recognizes the structure formed by the hybridization of an Invader Probe and a Primary Probe to their cognate Target sequence such that the Invader Probe overlaps, at its 3' terminus by at least one nucleotide, the duplex formed by the hybridization of the Primary Probe to the complementary region of the Target; (B) cleaves the Non-Hybridizing Region from the Primary Probe when such structure exists; and (C) has limited or no nucleic acid synthesis ability. It is acknowledged and agreed that Cleavage Enzymes shall include enzymes having the three properties described in (A), (B), and (C) of this Section 1.6 above, regardless of whether or not the enzyme has other properties or uses, ____________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 2 including causing cleavage under different circumstances, or cleaves additional nucleic acid bases along with the Non-Hybridizing Region. Cleavage Enzyme shall include those enzymes identified on Exhibit 2.2 in the Supply Agreement. 1.7 "Cleavase Enzyme" shall mean any Cleavage Enzyme to the extent actually (i) supplied by TWTI or its designee to ACLA under the Supply Agreement; or (ii) manufactured by ACLA in accordance with Section 2.10 of the Supply Agreement. 1.8 "Confidential Information" means any and all information, including without limitation Technology, that is disclosed by either Party to the other in written or other similar form, by inspection of tangible objects, orally, or otherwise in connection with this Agreement that if disclosed in tangible form is marked "Confidential" or with other similar designation to indicate its confidential or proprietary nature and that, if orally disclosed, is indicated orally by the disclosing party at the time of such disclosure to be confidential or proprietary and is confirmed as being confidential or proprietary by the disclosing Party in a writing, designated as "Confidential" or with similar designation, and delivered to the receiving Party within thirty (30) days of such oral disclosure. 1.9 "Control" means, with respect to an item of Technology or an Intellectual Property Right, possession by the Party granting the applicable license of the power and authority, whether arising by ownership, license, or other authorization, to disclose and deliver the particular Technology or Intellectual Property Right to the other Party, and to grant and authorize the licenses, and sublicenses, as applicable, of the scope granted to such other Party in this Agreement without giving rise to any of the following: (i) a violation of the terms of any written agreement with any Third Party; (ii) a violation or infringement of any Patent, copyright, trade secret, or other Intellectual Property Right of any Third Party; (iii) the granting Party being required to pay any royalty or other consideration to any Third Party that would not have been required had a license not been provided under this Agreement; (iv) a violation of any law, regulation, rule, code, order or other requirement of any federal, state, foreign, local, or other government body or the need for any additional permits, payments, authorizations, or approvals under any such law, regulation, rule, code, order or requirement. Notwithstanding, the provisions of clause (iii) of this Section 1.9, an item of Technology or an Intellectual Property Right shall be deemed to be Controlled by a Party (for purposes of this Section 1.9, the "Granting Party") for purposes of clause (iii) above, if the other Party hereto (for purposes of this Section 1.9, the "Licensed Party") agrees in writing to (A) to reimburse the Granting Party for all amounts payable to a Third Party that would not have been required had a license not been provided under this Agreement or pay such amounts directly to such Third Party, at the election of the Granting Party, and (B) to reimburse the Granting Party for fifty percent (50%) of any upfront, licensing, milestone, milestone or other consideration payable to such Third Party, (but not including (1) consideration payable as a result solely of the exercise of rights under such item of Technology or Intellectual Property Rights by other than entities acting by or under authority of the Licensed Party (i.e. running royalties) or (2) amounts included in clause (A) above). 1.10 "Development and Commercialization Agreement" means the certain Development and Commercialization Agreement by and between TWTI and ACLA, effective as of October 24, 2001 together with the separate letter agreement related thereto between TWTI and ACLA, effective as of October 24, 2001. 3 1.11 "Diagnostic Procedure" means a use for which a purpose is to*** regarding an individual or a sample from an individual for:***. For the sake of clarity, Diagnostic Procedures exclude*** 1.12 "Enabled Customer Agreement" means a written agreement between ACLA and a Third Party (i) in which ACLA grants to such Third Party a sublicense under Section 3.1(a) below to design and manufacture Probe Sets; (ii) in which ACLA grants to such Third Party a sublicense under Section 3.1(b) below, but which sublicense is limited to*** in which*** were*** under the sublicense described in sub-paragraph (i) of this Section 1.12 above, or*** by such Third Party from a*** and in which*** is*** by such Third Party directly from***; (iii) which prohibits such Third Party from*** under the sublicense described in sub-paragraph (i) of this Section 1.12 above, or*** other than use by or on behalf of such Third Party,*** under the sublicense described in sub-paragraph (ii) of this Section 1.12 above, to perform*** in the Gene Expression Field; (iv) which prohibits such Third Party from*** in any manner*** obtained from*** other than use by or on behalf of such Third Party,***, to perform***; and (v) which otherwise contains terms and conditions at least as protective of TWTI and the TWTI IP, and at least as restrictive of the Probe Sets, Cleavase Enzyme, and Licensed Products, as the terms and conditions of Articles and Sections 3.1, 3.2, 3.3, 3.12, 6.3, 7, 8.3, 10, and 11.10. 1.13 "Enabled Customer" means a Third Party that (i) has entered into an Enabled Customer Agreement with ACLA, (ii) ACLA has identified to TWTI in writing as being an "Enabled Customer;" and (iii) has been appointed as such by ACLA in accordance with this Agreement, in each case with respect to***. 1.14 "End User" shall mean any entity, including Technology Access Partners and Affiliates, that purchases a Licensed Product, a Probe Set, or Cleavase Enzyme in accordance with this Agreement for such entity's own use in performing a Multiplexed Invader Application in the Gene Expression Field and not for further distribution. An Enabled Customer shall be deemed to be an End User except with respect to the design, manufacture and use of any Probe Set or Cleavase Enzyme described in clauses (A) and (B) of Section 1.13 above. 1.15 "eTag Probe" means a *** in which the *** incorporates *** in lieu of or attached to the one or more *** that may be included in the ***. 1.16 "Flap" shall have the meaning assigned in Section 1.25 below. 1.17 "GAAP" means the then-current applicable Generally Accepted Accounting Principles in the United States consistently applied as recognized or accepted by the United States Securities and Exchange Commission and the Financial Accounting Standards Board. As used herein, "GAAP" shall also include cost accounting principles and procedures that are generally accepted in the United States. 1.18 "Gene Expression Field" means***. For clarity, "Gene Expression Field" excludes***. For the sake of clarity, Gene Expression Field includes***. _______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 4 1.19 "Genotyping Field" means***. For clarity, "Genotyping Field" excludes***. 1.20 "Improvement Patent Claims" means any and all issued claims in patents within Patents ("Issued Claims") to inventions made during the Term claiming an invention which is an improvement, modification, enhancement, adaptation, or new use, of any Cleavage Enzyme (covered by Issued Claims owned or controlled by TWTI) or Invader Assay and is owned or Controlled by ACLA or its affiliates during the Term, including without limitation Issued Claims to inventions that are enhancements, adaptations, derivatives, and other modifications of any Cleavase Enzyme or any Invader Reaction. Notwithstanding the foregoing, Improvement Patent Claims shall exclude Issued Claims (a) that claim a specific nucleotide sequence/1/ or the use of a specific nucleotide sequence, such as a particular Target or oligonucleotide probe, or the use of a particular Target or an oligonucleotide probe; (b) in or to any specific nucleotide sequences, whether a Target, oligonucleotide probe, or otherwise; or (c) in or to the composition of matter or method of manufacture of any Aclara Component or eTag Probe, or that requires the use of an Aclara Component, eTag Probe, or such composition or method of manufacture; or (d) that claim any method of use that does not describe (or depend from a claim that describes) a Cleavage Enzyme (covered by Issued Claims owned or controlled by TWTI), Invader Assay or use of a Cleavage Enzyme (covered by Issued Claims owned or controlled by TWTI) or Invader Assay. For purposes of this definition, "Invader Assay" means a biochemical test comprising *** of a *** that is *** that ***. 1.21 "Intellectual Property Rights" means any and all rights in, to, or arising out of any (i) Patents; (ii) trade secrets or know how; (iii) copyrights, copyright registrations, or any application therefor, in the U.S. or any foreign country, or any other right corresponding thereto throughout the world, including moral rights; or (iv) any other intellectual property or proprietary right anywhere in the world. 1.22 "InvaderCreator Access Agreement" means that certain written agreement titled "InvaderCreator Access Agreement" entered into between ACLA and TWTI having an effective date of even date herewith. 1.23 "InvaderCreator Software" shall have the meaning set forth in the InvaderCreator Access Agreement. _____________________ /1/ As used in this Agreement, "nucleotide sequence" shall refer to a sequence (of any length) of nucleotides in a nucleic acid whether synthesized or naturally occurring, including nucleotide probes. *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 5 1.24 "Invader Probe" means an oligonucleotide probe/1/ comprising (A) a region complementary to, and designed to hybridize to, the 3' portion of the Target; and (B) an additional region (the "Overlap Region") located on the 3' end of such oligonucleotide probe, which Overlap Region adjoins the foregoing complementary region and comprises one or more nucleotides or other structural moieties that overlaps the duplex formed by the hybridization of the Primary Probe and its cognate Target by at least a single nucleotide base at the boundary between the Non-Hybridizing Region and such duplex. The Overlap Region may be complementary or non-complementary to the Target. 1.25 "Invader Reaction" means the following reaction: (i) ***; (ii) the ***; and (iii) ***. Notwithstanding anything to the contrary, Invader Reaction shall exclude any and all uses or applications in which the Flap or other cleaved nucleic acid sequence is used as a Target, Primary Probe, Invader Probe or otherwise in a cleavage reaction or the Flap is further amplified or used to amplify any specific nucleotide sequence. Except with respect to any Primary Probe as described in Section 1.35 below, Invader Reaction shall exclude any reaction which (i) is based upon or uses the *** or (ii) employs any ***. For purposes of this Section 1.25, "SST Technology" shall mean any and all *** together with any and all subject matter claimed in Patents based on such patents or subject matter; and "Bridging Oligonucleotide" shall mean an ***. 1.26 "Licensed Product" means a product to the extent designed and used to perform a Multiplexed Invader Application, which product consists only of the following: (A) eTag Probes and Invader Probes which are suitable for use with each other for performing each Invader Reaction in such Multiplexed Invader Application; (B) that quantity of Cleavase Enzyme _____________ /1/ As used in this Agreement, "oligonucleotide probe" shall refer to any synthesized or otherwise manufactured sequence (of any length) of nucleotides in a nucleic acid, including DNA, RNA, PNA, modified or synthesized nucleotides, universal bases, adducts, or the like, or combinations thereof. *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 6 as is reasonably necessary to use the particular quantity of eTag Probes and Invader Probes used in the product to perform such Multiplexed Invader Application; and (C) buffers, salts, or other reagents (e.g. cofactors and controls, but excluding Cleavage Enzymes not obtained pursuant to the Supply Agreement) reasonably necessary or useful to perform the Multiplexed Invader Application. For clarity, Licensed Product shall exclude components and sub-configurations of the product described in this Section 1.26, and none of the foregoing components shall be considered to be a component of a Licensed Product if used other than in the Invader Reactions that occur during the performance of the Multiplexed Invader Application by a Licensed Product. Also for clarity, Licensed Product shall exclude all uses and applications in which any Target is detected or quantified other than by a Multiplex Invader Application. No product that uses or incorporates any component other than as described above, such as Cleavage Enzyme that is not Cleavase Enzyme, shall be considered a Licensed Product. 1.27 "Manufacturing Distributor" means a Third Party that has entered into a Manufacturing Distributor Agreement with Aclara, with respect to Probe Sets manufactured by such Third Party and sold to a Technology Access Partner. 1.28 "Manufacturing Distributor Agreement" means a written agreement between ACLA and a Third Party (i) in which ACLA grants to such Third Party a sublicense under Section 3.1(a) below to manufacture*** by such Third Party; (ii) in which ACLA grants to such Third Party a sublicense under Section 3.1(e) below to***; (iii) which prohibits such Third Party from*** other than to ***; and (iv) which otherwise contains terms and conditions at least as protective of TWTI and the TWTI IP, and at least as restrictive of the Probe Sets, as the terms and conditions of Articles and Sections 3.1, 3.2, 3.3, 3.6, 3.7, 3.12, 4.2(b), 4.2(c), 4.2(d), 4.2(e), 4.3, 5, 6.3, 7, 8.3, 10, and 11.10. 1.29 "Multiplexed Invader Application" means combining only*** and*** in a*** that contains a*** all as necessary to perform in such*** on*** in such***, wherein*** are generated only by (i)*** with respect to a*** from the*** as a result of the*** with respect to other*** and then (ii)*** the Aclara Components incorporated in such*** to determine the*** of*** with***. Notwithstanding anything to the contrary, Multiplex Invader Application shall***. Except with respect to***, Multiplexed Invader Application shall***. 1.30 "Net Sales" means the total amount invoiced on the distribution of Licensed Products, Probe Sets, and Cleavase Enzyme by ACLA, a Reseller, or a Manufacturing Distributor, as the case may be in accordance with this Agreement, (each, a "Seller") directly to the applicable End User less the following all as calculated in accordance with GAAP: (i) all trade, cash and quantity credits, discounts, refunds or rebates; (ii) amounts for claims, allowances or credits for returns; charge backs; and (iii) packaging, handling fees and prepaid freight, sales taxes, duties and other governmental charges (including value added tax), but excluding what is __________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 7 commonly known as income taxes; provided that in the case of (i) and (ii), such amounts are allowed by the Seller to, and actually taken by, such End User, and in the case of (iii), such amounts are charged separately on the invoice and paid by such End User. For purposes of sales through Resellers, End User under this Section 1.30 shall be deemed to mean ***. Net Sales shall be deemed to accrue in the calendar year in which the later of invoice or shipment to the End User occurs. Net Sales shall also include (A) the fair market value of Licensed Products, Probe Sets and Cleavase Enzymes used by ACLA or its Affiliates in generating data on behalf of a Third Party, where the data provided to such Third Party describes the results of a Multiplex Invader Application, and (B) amounts invoiced to a Third Party on the sale or other transfer of data generated from use of a Licensed Product, Probe Set or Cleavase Enzyme, where such data is intended or actually sold or transferred to multiple Third Parties. For clarity and subject to Section 4.2(c) below, Net Sales shall exclude reasonable amounts invoiced to an End User for the design of Probe Sets for use by such End User as part of a Licensed Product, but shall include amounts invoiced on the distribution of such Probe Sets. 1.31 "Non-Hybridizing Region" shall have the meaning assigned in Section 1.35 below. 1.32 "Other Consideration" means upfront access or license fees, milestone payments, royalty payments, and any other consideration, as applicable, received by ACLA, its Affiliate, or Reseller, from a Technology Access Partner, a Value Added Distributor, a Manufacturing Distributor, or an Enabled Customer, in connection with the grant to or exercise by such parties of sublicensed rights under Section 3.2 of this Agreement, as applicable ("Granted Rights"); excluding only Net Sales. Other Consideration shall be deemed to accrue when first received by ACLA, its Affiliate or Reseller, as applicable. 1.33 "Overlap Region" shall have the meaning assigned in Section 1.24 above. 1.34 "Patent" means any and all rights under any of the following, whether existing now or in the future: (i) a United States, international or foreign patent, utility model, design registration, certificate of invention, patent of addition or substitution, or other governmental grant for the protection of inventions or industrial designs anywhere in the world, including any reissue, renewal, re-examination or extension thereof; and (ii) any application for any of the foregoing, including any international, provisional, divisional, continuation, continuation-in-part, or continued prosecution application. 1.35 "Primary Probe" means *** probe comprising (A) ***; and (B) ***, and may incorporate other *** including an Aclara Component. For purposes of this Section 1.35, "complementary" requires that the region of the *** be fully complementary to the ***, however such *** may be non-complementary to one or more other nucleotide ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 8 sequences that are highly homologous to the Primary Target (such other nucleotide sequences, "Other Targets") also present in a sample such that the *** may be used to detect and or quantify both *** and the *** in the sample by means of an Invader Reaction. For the sake of clarity, it is understood that the Primary Target for which a particular Primary Probe is designed, may or may not be present in a particular sample. 1.36 "Probe Set" means a ***, which pair consists only of an eTag Probe and an Invader Probe necessary for the Invader Reaction to detect or quantify a particular Target in the Gene Expression Field and the Genotyping Field. 1.37 "Reseller" means a Third Party that has entered into a Reseller Agreement with ACLA with respect to (i) Probe Sets obtained directly from ACLA or a Manufacturing Distributor and sold to a Technology Access Partner (ii) or Cleavase Enzyme obtained directly from ACLA and sold to a Technology Access Partner or (iii) Licensed Products obtained directly from ACLA and sold to End Users. 1.38 "Reseller Agreement" means a written agreement between ACLA and a Third Party (i) in which ACLA (A) appoints such Third Party as an authorized reseller*** to*** obtained***, (B) grants to such Third Party a*** to*** obtained***, and/or (C) grants to such Third Party a*** to *** obtained***; (ii) which prohibits such Third Party from*** other than to*** solely for*** where applicable; and (iii) which otherwise contains terms and conditions at least as protective of TWTI and the TWTI IP, and at least as restrictive of the Licensed Products, Probe Sets and Cleavase Enzyme, as the terms and conditions of Articles and Sections 3.1, 3.2, 3.3, 3.6, 3.7, 3.12, 4.2(b), 4.2(c), 4.2(d), 4.2(e), 4.3, 5, 6.3, 7, 8.3, 10, and 11.10. Notwithstanding anything to the contrary, for purposes of sales through Resellers, End User under this Section 1.38 shall be deemed to mean the first Third Party not Affiliated with ACLA or the Reseller that purchases the Licensed Product, Probe Set, or Cleavase Enzyme from the Reseller in a fully arms length transaction. 1.39 "SST Technology" shall have the meaning assigned in Section 1.25 above. 1.40 "Supply Agreement" means that certain written " Supply Agreement" entered into by and between ACLA and TWTI, effective on even date herewith. 1.41 "TAP Agreement" means a written agreement between ACLA and a Third Party (i) in which ACLA grants to such Third Party a*** and***; (ii) which prohibits such Third Party from*** other than*** to perform a***; and (iii) which otherwise contains terms and conditions at least as protective of TWTI and the TWTI IP, and at least as restrictive of the Probe Sets, Cleavase Enzyme, and Licensed Products, as the terms and conditions of Sections 3.1, 3.2, 3.3, 3.12, 6.3, 7, 8.3, 10, and 11.10. ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 9 1.42 "Target" means (i) when used for purposes of or in connection with the licenses under Section 3.1, any *** that is in the Gene Expression Field and is of *** in a Multiplex Invader Application; and (ii) when used for purposes of or in connection with the license under Section 3.5 only, any *** that is in the Genotyping Field and is *** in a Multiplex Invader Application. 1.43 "Technology" means any and all technology and technical information, including without limitation data, results, samples, inventions (whether or not patented or patentable), knowledge, ideas, developments, prototypes, invention disclosures, designs, processes, sequences, methods, techniques, materials, instructions, recipes, formulas, compositions of matter, chemistries, algorithms, trade secrets, know-how, research, modifications, software, formulas, drawings, equipment, machines, protocols, configuration and process information, specifications, models, works of authorship, improvements, and any other technical subject matter. 1.44 "Technology Access Partner" means a Third Party that has entered into a TAP Agreement with ACLA. 1.45 "Term" shall have the meaning assigned to it in Section 10.1 below. 1.46 "Third Party" means any party other than TWTI and ACLA. For clarity, Third Party shall include Affiliates of each Party, unless the Affiliate is 100% controlled (as defined in Section 1.3) by the applicable Party. 1.47 "Transfer Price" shall have the meaning, with respect to Cleavase Enzyme, as set forth in the Supply Agreement. 1.48 "TWTI IP" means any and all Patent claims to the extent Controlled by TWTI during the Term and claiming any composition, method, product, or improvement thereof that is or are necessary to practice, or primarily directed at practicing, the Multiplex Invader Application. A list of such Patents Controlled by TWTI as of the Effective Date is attached hereto as Exhibit 1.48; it being understood that the list is not intended to be exhaustive of all such Patents Controlled by TWTI or licensed hereunder. For clarity, TWTI IP excludes***. For the sake of clarity, nothing in this Section 1.48 shall***. For purposes of this Section 1.48, "primarily directed at practicing" means any and all***. 1.49 "TWTI Marks" means the trademarks, trade names and logos of TWTI to be set forth in Exhibit 1.49 referencing this Section 1.49 and provided to ACLA within ten (10) days of the Effective Date, as amended from time to time in accordance with this Agreement. Invader(R) and Cleavase(R) are registered trademarks of TWTI, but are printed in this Agreement without the registration mark for convenience. Similarly, InvaderCreator is a trademark of TWTI, but is printed in this Agreement without the TM mark for convenience. 1.50 "Valid Claim" means (a) a claim of an issued and unexpired Patent, which claim has not lapsed or been abandoned, has not been canceled or declared invalid or unenforceable by an unreversed and unappealable decision or judgment of a court or other appropriate body of ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 10 competent jurisdiction, and has not been admitted to be invalid or unenforceable through reissue or disclaimer; or (b) a claim of a pending patent application, provided that such application has been pending for a period not to exceed ten (10) years from the earliest date such application takes priority. 1.51 "Value Added Distributor" means a Third Party that has entered into a Value Added Distributor Agreement with ACLA, with respect to Probe Sets manufactured by such Third Party and sold to a Enabled Customer. 1.52 "Value Added Distributor Agreement" means a written agreement between ACLA and a Third Party (i) in which ACLA grants to such Third Party a sublicense under Section 3.1(a) below to ***; (ii) in which ACLA grants to such Third Party a***; (iii) which prohibits such Third Party from*** other than to***; and (iv) which otherwise contains terms and conditions at least as protective of TWTI and the TWTI IP, and at least as restrictive of the Probe Sets, as the terms and conditions of Articles and Sections 3.1, 3.2, 3.3, 3.6, 3.7, 3.12, 4.2(b), 4.2(c), 4.2(d), 4.2(e), 4.3, 5, 6.3, 7, 8.3, 10, and 11.10. ARTICLE 2 TERMINATION OF DEVELOPMENT AND COMMERCIALIZATION AGREEMENT 2.1 Termination. TWTI and ACLA hereby agree to terminate the Development and Commercialization Agreement in its entirety, including, without limitation, Section 19.5 thereof. Such termination shall be effective as of the Effective Date of this Agreement; provided, however, that notwithstanding the foregoing and anything to the contrary in this Section 2.1, the following provisions of the Development and Commercialization Agreement shall remain in effect: Articles 14, 15, and 17 and Sections 4.12 and 16.4.3. All other terms and conditions of the Development and Commercialization Agreement are hereby terminated and shall have no further force or effect. Such termination of the Development and Commercialization Agreement shall be deemed to be termination mutually agreed upon by and between TWTI and ACLA, and neither Party shall have any responsibility or liability as a result of such termination. The Parties hereby waive all rights to notice of termination as may be otherwise provided under the Development and Commercialization Agreement or applicable laws. As of the Effective Date of this Agreement, and except as otherwise expressly surviving pursuant to this Section 2.1, all rights and licenses granted by TWTI to ACLA under the Development and Commercialization Agreement shall terminate and revert to TWTI, and all rights and licenses granted by ACLA to TWTI under the Development and Commercialization Agreement shall terminate and revert to ACLA. _____________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 11 ARTICLE 3 GRANTS OF RIGHTS 3.1 License Grants to ACLA within the Gene Expression Field. (a) Manufacture of Probes. Subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a worldwide, non-exclusive, royalty bearing license under the TWTI IP to manufacture, and have manufactured, *** in the Gene Expression Field that are included in a *** as set forth in Section 3.1(b) and used solely as part of a *** in the Gene Expression Field for Multiplex Invader Applications in accordance with this Agreement. (i) Sublicenses. ACLA shall have no right to grant or authorize sublicenses under this Section 3.1(a), except to the extent expressly set forth in Sections 3.2(b), 3.2(c) and 3.2(d) below. (ii) Have Made Rights. ACLA shall have the right to use contract manufacturers to manufacture *** under this Section 3.1(a), provided that the contract manufacturer is subject to a written agreement with ACLA that is at least as protective of TWTI and the TWTI IP, and at least as restrictive of the Probe Sets, as the terms and conditions of Articles and Sections 3.1, 3.6, 3.7, 3.12, 5.3, 5.4, 6.3, 7, 8.3, 10, and 11.10. All *** and *** manufactured under the have made rights under this Section 3.1(a) shall be provided only to ACLA for disposition and use in accordance with this Agreement. No rights for contract manufacturers to use *** are granted or implied. (iii) Other Restrictions. All sublicenses under this Section 3.1 shall be only under that TWTI IP that is necessary to manufacture, and have manufactured, the particular *** that the applicable sublicensee manufactures. For clarity, Confidential Information of TWTI shall be disclosed to sublicensees and contract manufacturers under this Section 3.1 only as necessary to enable the sublicensee or contract manufacture, as applicable, to manufacture the applicable Probe Sets. Any failure of a contract manufacturer or sublicensee to comply with terms or conditions required by this Agreement shall be deemed to be a breach of this Agreement by ACLA; provided that TWTI agrees that it will not terminate this Agreement for such a breach if ACLA (i) within *** days of becoming aware of such breach uses commercially reasonable efforts to cure such breach within such period and (ii) if such breach has not been cured within such ***-day period immediately terminates all rights of the contract manufacturer or sublicensee, as applicable, pursuant to this Agreement including requiring the sublicensee or contract manufacturer to return to ACLA at that time, and discontinue all further use of, the TWTI Confidential Information. (b) Making Licensed Product. Subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a worldwide, non-exclusive, royalty bearing license under the TWTI IP to make Licensed Products in the Gene Expression Field solely by bundling together to form the Licensed Product (i) Probe Sets manufactured by ACLA, or its contract manufacturer, under Section 3.1(a); (ii) Cleavase Enzyme obtained or manufactured by ACLA pursuant to the Supply Agreement; and (iii) buffers, salts or other reagents (e.g. cofactors and controls, but excluding Cleavage Enzymes not obtained pursuant to the Supply Agreement) ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 12 reasonably necessary or useful to perform the applicable Multiplexed Invader Application for which the Licensed Product is designed. ACLA shall have no right to grant or authorize sublicenses under this Section 3.1(b) except to the extent expressly set forth in Sections 3.2(d) and 3.2(e) below. For clarity, no have made rights are granted under this Section 3.1(b). (c) Use of Licensed Product, Probe Sets, and Cleavase Enzyme. Each Licensed Product under this Section 3.1 is and shall be licensed for use, whether created or used by ACLA or otherwise, solely to perform the Multiplexed Invader Application in the Gene Expression Field for which such Licensed Product is designed. Similarly, each eTag Probe and Invader Probe under this Section 3.1, and all Cleavase Enzyme, is and shall be licensed for use, whether used by ACLA or otherwise, solely as part of a Licensed Product to perform the Multiplexed Invader Application in the Gene Expression Field for which the Licensed Product is designed. All other uses are and shall be expressly prohibited. ACLA shall have no right to grant or authorize sublicenses under this Section 3.1(c) except to the extent expressly set forth in Sections 3.2(d) and 3.2(e) below. (d) Distribution of Licensed Product. Subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a worldwide, non-exclusive, royalty bearing license under the TWTI IP, without the right to grant or authorize sublicenses except as expressly set forth in Section 3.2(a) below, to sell, and offer to sell, (directly or through a Reseller) to End Users Licensed Product that are created by ACLA solely in accordance with Sections 3.1(a) and 3.1(b) and used by the End User solely in accordance with Section 3.1(c); provided that only complete Licensed Products, each Bundled with all of its components at the time of purchase from ACLA, shall be distributed under this Section 3.1(d). Without limiting the foregoing, each Licensed Product distributed under this Section 3.1(d) shall conspicuously display a label indicating that it is "FOR RESEARCH USE ONLY; NOT FOR USE IN DIAGNOSTIC PROCEDURES. NOT FOR RESALE." (e) Distribution of Probe Sets. Notwithstanding Section 3.1(d) and subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a worldwide, non-exclusive, royalty bearing license under the TWTI IP to (i) sell, and offer to sell, Probe Sets (directly or through a Reseller) to Technology Access Partners; (ii) to sublicense Manufacturing Distributors to sell, and offer to sell, Probe Sets directly to Technology Access Partners; and (iii) to authorize Value Added Distributors to sell, and offer to sell, Probe Sets directly to Enabled Customers. Without limiting the other terms of this Agreement, all Probe Sets distributed pursuant to (A) Section 3.1(e)(i), (ii) and (iii) shall conspicuously display a label indicating that it is "FOR RESEARCH USE ONLY; NOT FOR USE IN DIAGNOSTIC PROCEDURES. NOT FOR RESALE."; (B) Section 3.1(e)(i) and (ii) shall conspicuously display the additional label indicating that it is "LICENSED FOR USE SOLELY IN ACCORDANCE WITH THE TERMS OF A TAP AGREEMENT BETWEEN THE USER AND ACLARA BIOSCIENCES, INC.;" and (C) Section 3.1(e)(iii) shall conspicuously display the additional label indicating that it is "LICENSED FOR USE SOLELY IN ACCORDANCE WITH THE TERMS OF AN ENABLED CUSTOMER AGREEMENT BETWEEN THE USER AND ACLARA BIOSCIENCES, INC." ACLA shall have no right to grant or authorize sublicenses under this Section 3.1(e) except as expressly set forth in this Section 3.1(e) above. 13 (f) Distribution of Cleavase Enzyme. Notwithstanding Section 3.1(d) and subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a worldwide, non-exclusive, royalty bearing license under the TWTI IP to sell, and offer to sell, Cleavase Enzyme solely (i) to Technology Access Partners directly or through Resellers; and (ii) directly to those Enabled Customers authorized in accordance with Section 3.2(d) below. Without limiting the other terms of this Agreement, all Cleavase Enzyme distributed pursuant to (A) Section 3.1(f)(i) and (ii) shall conspicuously display a label indicating that it is "FOR RESEARCH USE ONLY; NOT FOR USE IN DIAGNOSTIC PROCEDURES.", (B) Section 3.1(f)(i) shall conspicuously display the additional label indicating that it is "LICENSED FOR USE SOLELY IN ACCORDANCE WITH THE TERMS OF A TAP AGREEMENT BETWEEN THE USER AND ACLARA BIOSCIENCES, INC.;" and (C) Section 3.1(f)(ii) shall conspicuously display the additional label indicating that it is "LICENSED FOR USE SOLELY IN ACCORDANCE WITH THE TERMS OF AN ENABLED CUSTOMER AGREEMENT BETWEEN THE USER AND ACLARA BIOSCIENCES, INC." This Section 3.1(f) shall not be construed to grant or imply any rights with respect to Cleavase Enzyme other than the right to distribute expressly set forth in this Section 3.1(f) above. ACLA shall have no right to grant or authorize sublicenses under this Section 3.1(f) except as expressly set forth in this Section 3.1(f) above. 3.2 Limited Sublicense and Authorization Rights of ACLA in the Gene Expression Field. (a) Resellers. Subject to the terms and conditions of this Agreement, ACLA may authorize Resellers to (i)*** and (ii) *** provided that in each case the Reseller has entered into a Reseller Agreement with ACLA. ACLA shall disclose Confidential Information of TWTI to Resellers only as necessary to enable the Reseller to perform its rights under 3.2(a)(i) and (ii) above, and Resellers shall not further disclose such Confidential Information. Distribution by Resellers shall be solely in accordance with the restrictions on distribution set forth in Sections 3.1(d), (e) and (f). Any failure of a Reseller to comply with terms or conditions required by this Agreement shall be deemed to be a breach of this Agreement by ACLA; provided that TWTI agrees that it will not terminate this Agreement for such a breach if ACLA (A) within sixty (60) days of becoming aware of such breach uses commercially reasonable efforts to cure such breach within such period and (B) if such breach has not been cured within such sixty (60)-day period immediately terminates all rights of the Reseller including requiring the Reseller to return to ACLA at that time, and discontinue all further use of, the TWTI Confidential Information, Licensed Products, Probe Sets, and Cleavase Enzyme. For clarity, ACLA shall not make any sales of Licensed Product, Probe Sets, or Cleavase Enzyme to or through the Reseller who is in breach of the terms of this Agreement. (b) Value Added Distributors. Subject to the terms and conditions of this Agreement, ACLA shall have the right to grant limited sublicense to Value Added Distributors to: (i)*** and (ii)*** as part of Licensed Product created by the Enabled Customer all in accordance with this Agreement, provided that in each case the Value Added Distributor has _____________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 14 entered into a Value Added Distributor Agreement with ACLA. Any failure of a Value Added Distributor to comply with terms or conditions required by this Agreement shall be deemed to be a breach of this Agreement by ACLA; provided that TWTI agrees that it will not terminate this Agreement for such a breach if ACLA (A) within sixty (60) days of becoming aware of such breach uses commercially reasonable efforts to cure such breach within such period and (B) if such breach has not been cured within such sixty (60)-day period immediately terminates all rights of the Value Added Distributor including requiring the Value Added Distributor to return to ACLA at that time, and discontinue all further use of, the TWTI Confidential Information. No Value Added Distributor shall sell Probe Sets through any other party. (c) Manufacturing Distributors. Subject to the terms and conditions of this Agreement, ACLA shall have the right to grant limited sublicenses to Manufacturing Distributors each to: (i)*** and (ii)*** for use by*** all in accordance with this Agreement, provided that in each case the Manufacturing Distributor has entered into a Manufacturing Distributor Agreement with ACLA. Any failure of a Manufacturing Distributor to comply with terms or conditions required by this Agreement shall be deemed to be a breach of this Agreement by ACLA; provided that TWTI agrees that it will not terminate this Agreement for such a breach if ACLA (A) within *** days of becoming aware of such breach uses commercially reasonable efforts to cure such breach within such period and (B) if such breach has not been cured within such ***-day period immediately terminates all rights of the Manufacturing Distributor including requiring the Manufacturing Distributor to return to ACLA at that time, and discontinue all further use of, the TWTI Confidential Information. No Manufacturing Distributor shall sell Probe Sets through any other party other than ACLA or Resellers. (d) Enabled Customers. Subject to the terms and conditions of this Agreement, ACLA shall have the right to grant limited sublicenses to Enabled Customers each to: (i)*** and (ii) to***. All*** by an Enabled Customer, and all***, shall be used solely by that Enabled Customer in ***, provided that in each case the Enabled Customer has entered into a Enabled Customer Agreement with ACLA. For purposes of clarity, no rights with respect to any Cleavase Enzyme or Probe Sets, or the use thereof, shall be deemed granted or implied as a result of this Section 3.2(d) or the sale of Cleavase Enzyme or Probe Sets to the Enabled Customer, except for the rights expressly set forth in this Section 3.2(d) above. No party other than the Enabled Customer itself shall exercise the Enabled Customer's rights. Any failure of a Enabled Customer to comply with terms or conditions required by this Agreement shall be deemed to be a breach of this Agreement by ACLA; provided that TWTI agrees that it will not terminate this Agreement for such a breach if ACLA (A) within *** days of becoming aware of such breach uses commercially reasonable efforts to cure such breach within such period and (B) if such breach has not been cured within such ***-day period immediately terminates all rights of the Enabled Customer including requiring the Enabled Customer to return to ACLA at that time, and discontinue all further use of, the TWTI Confidential Information. Notwithstanding anything to the contrary, the total number of Enabled Customers to which such sublicenses may be granted under this Section 3.2(d) shall not exceed*** Enabled Customers; and commencing on***, if ACLA has appointed less than*** Enabled Customers as of such _____________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 15 time, ACLA shall have the right to grant additional sublicenses under this Section 3.2(d) to Enabled Customers only after obtaining the written permission of TWTI with respect to the particular Enabled Customer, which permission shall not be unreasonably withheld if the total number of Enabled Customers that ACLA has appointed at any time is less than***. TWTI shall inform ACLA in writing whether or not it will grant such permission (the "Permission Notice") no later than twenty (20) days after TWTI receives written notice from ACLA requesting such permission. Upon ACLA's request, TWTI shall provide a reasonable explanation of a reason for withholding its consent. For the purposes of determining the reasonableness of withholding such permission if ACLA has appointed less than a total of*** Enabled Customers under this Section 3.2(d) only, TWTI shall consider the following factors: (i) if the number of Enabled Customers is more than*** of the total number of Third Party, non-Affiliate, users of Licensed Products in the Gene Expression Field and (ii) if Other Consideration from Enabled Customers and Value Added Distributors is more than*** of ACLA's Net Sales from sales of Licensed Product, Probe Sets, and Cleavase Enzyme hereunder. For clarity and without limitation, TWTI shall have the right to withhold consent if the number of Enabled Customers, or Other Consideration, exceed the foregoing limits. If TWTI withholds its consent with respect to an Enabled Customer when the total number of Enabled Customers is less than*** the Parties shall discuss in good faith for a period not to exceed forty-five (45) days after ACLA receives the Permission Notice TWTI's reasons for withholding consent to the extent necessary to assess whether or not there may be mutually acceptable terms and conditions under which ACLA may make such sales to the particular Enabled Customer. (e) Technology Access Partners. Subject to the terms and conditions of this Agreement, ACLA shall have the right to grant limited sublicenses to Technology Access Partners under Section 3.1(b) to***, provided that in each case the Technology Access Partner has entered into a TAP Agreement with ACLA. All *** by a Technology Access Partner, and all*** by a Technology Access Partner, shall be used solely by that Technology Access Partner in***. For purposes of clarity, no rights with respect to any Cleavase Enzyme or Probe Sets, or the use thereof, shall be deemed granted or implied as a result of this Section 3.2(e), or the sale of Cleavase Enzyme or Probe Sets to the Technology Access Partner, except for the rights expressly set forth in this Section 3.2(e) above. No party other than the Technology Access Partner itself shall exercise the Technology Access Partner's rights. 3.3 Unauthorized Sales. ACLA, Manufacturing Distributors, Value Added Distributors, and Resellers shall not, directly or indirectly, market, sell or distribute Licensed Product, eTag Probes, Invader Probes, or Cleavase Enzyme anywhere in the world except in accordance with this Agreement and the same shall be used only as a Licensed Product to perform the Multiplexed Invader Application in the Gene Expression Field. No Licensed Product, Cleavase Enzyme, eTag Probe, or Invader Probe shall be provided to any Third Party, whether by ACLA, a Value Added Distributor, a Manufacturing Distributor, a Reseller, or otherwise, if ACLA knows, or has reason to know, that a Licensed Product, Cleavase Enzyme, eTag Probe, or Invader Probe provided to such Third Party has been promoted or sold for use, or ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 16 used, other than to perform a Multiplex Invader Application in the Gene Expression Field as set forth in this Article 3. 3.4 InvaderCreator Software. Access to the InvaderCreator Software by ACLA will be subject to, and in accordance with, the terms and conditions of the InvaderCreator Access Agreement between TWTI and ACLA of even date herewith. Access to the InvaderCreator Software by ACLA's contract manufacturers, Manufacturing Distributors, Value Added Distributors and Enabled Customers will be subject to, and in accordance with, the terms and conditions of the InvaderCreator Access Agreement. 3.5 Genotyping Research Rights. (a) Manufacture of Probes. Subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a worldwide, non-exclusive, license, with no right to grant or authorize sublicenses, under the TWTI IP to manufacture Probe Sets in the Genotyping Field that are included in a Licensed Product as set forth in Section 3.5(b) and used solely under Section 3.5(c) as part of a Licensed Product in the Genotyping Field to perform Multiplex Invader Applications in accordance with this Agreement. For clarity, no have made rights are granted under this Section 3.5(a). (b) Making Licensed Product. Subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a worldwide, non-exclusive, license, with no right to grant or authorize sublicenses, under the TWTI IP to create Licensed Products in the Genotyping Field ("Genotyping Products") solely by bundling together to form the Genotyping Products (i) Probe Sets manufactured by ACLA under Section 3.5(a); (ii) Cleavase Enzyme obtained or manufactured by ACLA pursuant to the Supply Agreement; and (iii) buffers, salts, or other reagents (e.g. cofactors and controls, but excluding Cleavage Enzymes not obtained under the Supply Agreement) reasonably necessary or useful to perform the applicable Multiplexed Invader Application for which the Genotyping Product is designed. For clarity, no have made rights are granted under this Section 3.5(b). (c) Use of Genotyping Product, Probe Sets, and Cleavase Enzyme. Each Genotyping Product under this Section 3.5 is and shall be licensed for use solely by ACLA to perform the Multiplexed Invader Application in the Genotyping Field for ACLA's own internal research and development purposes, but not for any Diagnostic Procedure or any commercial purposes (including, for example, to provide services on behalf of any Third Party). Similarly, each eTag Probe and Invader Probe under this Section 3.5, and all Cleavase Enzyme in the Genotyping Field, is and shall be licensed for use solely by ACLA as part of a Genotyping Product to perform the Multiplexed Invader Application in the Genotyping Field for ACLA's own internal research and development purposes, but not for any Diagnostic Procedure or any commercial purposes (including, for example, to provide services on behalf of any Third Party). All other uses are and shall be expressly prohibited. 3.6 Use of TWTI Marks. (a) Trademark License. TWTI hereby grants to ACLA a non-exclusive, non-transferable, royalty free license to use the TWTI Marks during the Term in connection with the 17 marketing, promotion, and sale of Licensed Products, Cleavase Enzyme, and Probe Sets that are distributed and used solely in accordance with Sections 3.1 and 3.2 above. Additionally, ACLA will have the right to sublicense Resellers, Manufacturing Distributors and Value Added Distributors (each an "Authorized User") to use the TWTI Marks during the Term in connection with their marketing, promotion, and sale of Licensed Products, Cleavase Enzyme, and Probe Sets (as applicable) that are distributed and used solely in accordance with Sections 3.1 and 3.2 above. All ownership and goodwill arising out of the use of the TWTI Marks shall vest in and inure solely to the benefit of TWTI. TWTI reserves all rights regarding its trademarks, trade names, and logos not expressly granted to ACLA. ACLA agrees to, and cause the Authorized Users to, conduct business related to the Licensed Products, Cleavase Enzyme, and Probe Sets in a manner that reflects favorably at all times on the products, goodwill, and reputation of TWTI. (b) Guidelines for use of Marks. All representations of TWTI Marks that ACLA or an Authorized User intends to use shall first be submitted to TWTI for approval (which shall not be unreasonably withheld) of design, color, and other details or shall be exact copies of those used by TWTI and shall in any event comply with usage guidelines as established by TWTI from time to time. Within thirty (30) days of the Effective Date, TWTI will deliver to ACLA the initial version of such guidelines. ACLA and each Authorized User shall submit representative promotional materials, packaging and product using any TWTI Mark to TWTI for TWTI's review and comment prior to their first use and prior to any subsequent change or addition to such promotional, packaging and product materials. Notwithstanding the foregoing, until TWTI delivers the initial guidelines to ACLA as required above, TWTI will cooperate with ACLA to expedite the review of any materials provided pursuant to this Section 3.6(b) and provide comment within five (5) days of receipt thereof. TWTI may change its trademarks, trade names, and logos, and usage guidelines, to be used hereunder only upon ninety (90) days prior written notice to ACLA, setting forth in such notice the changes. Changes shall be limited to changes that are generally applicable to other uses of the trademarks, trade names, and logos by TWTI and its licensees thereof. From and after the end of such ninety (90) day period, as so designated in the notice, any trademarks, trade names, and logos that are to be deleted shall cease to be a TWTI Mark, any trademarks, trade names, and logos that are to be added shall thereafter be deemed to be a TWTI Mark and changes to the usage guidelines shall take effect. ACLA shall solely bear all costs and expenses that result from a change requested by TWTI. (c) Quality Control and Other Restrictions. To enable TWTI to monitor the quality of the Licensed Products and Probe Sets in connection with which its trademarks, trade names, and logos are used, ACLA shall, and cause each Authorized User to, provide to TWTI, as reasonably requested by TWTI from time to time, reasonable quantities of the applicable Licensed Products and Probes Sets, without charge, for such purposes. Without limiting the foregoing, all Licensed Products, Probe Sets, and Cleavase Enzyme manufactured by or on behalf of ACLA under this Agreement or under the Supply Agreement shall be of at least the quality of products that TWTI sells under the TWTI Marks. In addition, ACLA shall maintain, and cause the Authorized Users to, require and monitor, reasonable quality control procedures consistent with industry standards for all such Licensed Products, Cleavase Enzyme and Probe Sets. (d) Recordation. In those countries where a license to use trademarks, trade names, or logos must be recorded, TWTI shall have the right to provide and record a separate 18 license for such licenses to ACLA hereunder. ACLA shall cooperate in the preparation and execution of such documents. Upon termination of a license, ACLA shall cooperate in the cancellation of any such licenses recorded or entered into in applicable countries. (e) Mark Infringement. ACLA shall, and cause the Authorized Users to, notify TWTI promptly upon learning of any actual, alleged, or threatened infringement of, or of any unfair trade practices, trade dress imitation, passing off of counterfeit goods, or similar offenses relating to, the trademarks, trade names, or logos of TWTI. 3.7 Co-Branding. All Licensed Product, Probe Sets, and Cleavase Enzyme distributed under this Agreement, whether by ACLA or otherwise, and all packaging materials, labels and promotional materials used in connection therewith, shall display the TWTI Marks as more fully described in this Article 3. The TWTI Marks shall be applied to such Licensed Product, Probe Sets, and Cleavase Enzyme in addition to any of ACLA's own trademarks, trade names, and logos that it applies. The trademarks, trade names, and logos of both Parties shall be displayed equally legibly and equally prominently on all Licensed Products, Probe Sets, and Cleavase Enzyme but nevertheless separated from the other so that each appears to be a mark in its own right, distinct from the other mark. Unless otherwise agreed, no Licensed Product, Probe Set, Cleavase Enzyme, or such materials or labels, shall display the trademarks, trade names, or logos of any other party. 3.8 Update Discussions. The Parties agree to hold bi-annual meetings (in person, by phone or by video conference) of mutually agreed personnel for the purpose of discussing opportunities of mutual interest. 3.9 Grant Back to TWTI. Subject to the terms and conditions of this Agreement, ACLA hereby grants to TWTI: (a) ACLA IP. a*** under the ACLA IP***, to*** any and all*** for***. As used herein, "ACLA IP" shall mean i)***; and (ii)***; and (b) Necessary Claims. a*** under*** for*** as necessary to exercise the license in Section 3.9(a). The foregoing license includes ***. Pursuant to this Section 3.9(b) and subject to the provisions of this Section 3.9, TWTI shall pay to ACLA a royalty of*** on TWTI Net Sales. (c) Definitions. For purposes of Section 3.9(b) the following terms shall have the definitions set forth elow: (i) "TWTI Products" shall mean products, components, and services, the making, using, selling, distributing, or importing, of which, absent the license granted by ACLA to TWTI under Section 3.9(b) that would infringe but for the license granted by ACLA under the patent claims under Section 3.9(b). _______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 19 (ii) "TWTI Net Sales" shall mean the total amount invoiced on the distribution of TWTI Products to the applicable end user less the following all as calculated in accordance with GAAP: (i) all trade, cash and quantity credits, discounts, refunds or rebates; (ii) amounts for claims, allowances or credits for returns; charge backs; and (iii) packaging, handling fees and prepaid freight, sales taxes, duties and other governmental charges (including value added tax), but excluding what is commonly known as income taxes; provided that in the case of (i) and (ii), such amounts are allowed and actually taken and in the case of (iii), such amounts are charged separately on the invoice and paid. For purposes of sales of TWTI Products through resellers, end user shall be deemed to mean the first Third Party not Affiliated with TWTI or the reseller that purchases the TWTI Products from the reseller in a fully arms length transaction. TWTI Net Sales shall be deemed to accrue in the calendar year in which the later of invoice or shipment to the end user occurs. (iii) "Multiplex Applications Field" shall mean***. (d) Stacking. The royalty rate set forth in Section 3.9(b) shall be reduced for particular units of TWTI Product by an amount equal to*** of any amount of royalties and other payments required to be paid by TWTI to Non-Affiliate Third Parties for a license under the Patents of the Third Party to make, have made, use, sell, have sold or import such units of TWTI Products; provided, however, that any reduction in the royalty rates set forth in Section 3.9(b) pursuant to this Section 3.9(d) shall be limited to*** (i.e., the royalty payable to ACLA on TWTI Net Sales shall not be less than***. As used in this Section 3.9(d), royalties and other payments shall not include cost sharing or reimbursement, service or consulting fees, payments for purchases, non-cash consideration, amounts paid for equity or securities, dividends, profit distributions, amounts paid for facilities or equipment, or any other payment or consideration which is not expressly identified in the written agreement between TWTI and the applicable Third Party as a payment for a license under the Third Party's Patents to make, have made, use, sell, offer to sell, or import the applicable TWTI Product. (e) Favorable Terms. If, during the period when TWTI is obligated to pay royalties to ACLA under Section 3.9(b) with respect to TWTI Net Sales (the "TWTI Royalty Period"), ACLA enters into a written agreement with any Third Party, other than an Affiliate of ACLA, in which ACLA grants a license to such Third Party, under those patent claims under which ACLA granted to TWTI a license under Section 3.9(b), to make, use, and sell products, components or services under financial terms, considered as a whole and taking into account the non-cash consideration received by ACLA, that are substantially more favorable than those provided to TWTI in Section 3.9(b) and provided that the rights granted by ACLA are materially the same as set forth in Section 3.9(b), then TWTI shall have the right to obtain such more favorable financial terms and conditions under Section 3.9(b) during the TWTI Royalty Period to the extent and for so long as those more favorable terms and conditions are made available to such Third Party. Notwithstanding the foregoing, this Section 3.9(e) shall not apply in connection with any litigation settlement, transfer or sale of all or substantially all of ACLA's business or assets related to this Agreement, whether by way of merger, acquisition of stock or _________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 20 assets, operation of the law, or otherwise and shall not apply in connection with any agreement in which ACLA grants exclusivity. No rebates, credits, or refunds shall be payable or provided by ACLA as a result of this Section 3.9(e). (f) No Disclosure Requirement. It is acknowledged and agreed that nothing in this Agreement is intended to require either Party to disclose Technology that is Confidential Information to the other Party, provided that if such Technology is disclosed it will be included in the scope of the applicable license as expressly set forth herein. (g) Termination. During the TWTI Royalty Period, ACLA shall have the right to terminate the licenses granted to TWTI in this Section 3.9 upon final determination, in accordance with Section 11.8(c) below, of a material breach by TWTI of a material term of such license. It is understood that upon expiration of the TWTI Royalty Period, the licenses granted in this Section 3.9 shall become irrevocable. 3.10 Changes in TWTI IP. The Parties acknowledge that certain rights in the TWTI IP may be***. TWTI covenants that it shall***. 3.11 Additional Discussions. From time to time ACLA and TWTI agree to discuss the possibility of cooperating with each other with respect to the combination of ACLA's proprietary eTag technology and TWTI's proprietary Invader technology for certain commercial applications including for applications in the Genotyping Field and for Diagnostic Procedures. Notwithstanding the foregoing, neither Party shall have any liability arising out of or with respect to this Section 3.11. 3.12 No Other Rights. Except for the rights expressly granted under this Agreement, no right, title, or interest of any nature whatsoever is granted whether by implication, estoppel, reliance, or otherwise, by any Party to any other Party or any Affiliate of either. For clarity, nothing herein shall be construed as TWTI granting, or TWTI authorizing the grant of, a right to use Licensed Product, Cleavase Enzyme, or Probe Sets, beyond the rights to use set forth in Sections 3.1(c) and 3.5(c). All rights and licenses granted to ACLA in Sections 3.1 and 3.2 are non-transferable, except in accordance with Section 11.2. All sublicenses pursuant to Section 3.1 and 3.2 shall be non-transferable, without the right to grant or authorize sublicenses; provided that ACLA may authorize a sublicensee to transfer in its entirety a sublicense authorized by this Agreement to an entity that during the Term becomes a successor in interest to the sublicensee by way of merger, consolidation or other business reorganization, the sale of stock, or the transfer of all or substantially all of the business and assets of such sublicensee. ACLA agrees that it will not exercise the rights granted under this Article 3, or engage in or authorize any activities, to effectively grant sublicenses beyond those expressly authorized in Section 3.2. Additionally, any sale or other distribution of Cleavase Enzyme, Probe Set, or other component that is used to provide or perform any assay or use that is subject to TWTI's Intellectual Property Rights, and any such use of Cleavase Enzyme, Probe Set, or component, under the licenses granted to ACLA, other than in accordance with this Article 3, shall be _____________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 21 deemed to be unlicensed and is prohibited by this Section 3.12. ALL RIGHTS WITH RESPECT TO TECHNOLOGY OR INTELLECTUAL PROPERTY RIGHTS THAT ARE NOT SPECIFICALLY GRANTED HEREIN ARE RESERVED TO THE OWNER OF SUCH TECHNOLOGY OR INTELLECTUAL PROPERTY RIGHTS. ARTICLE 4 CONSIDERATION 4.1 Initial Consideration. (a) Upfront Fee. ACLA shall pay to TWTI*** within five (5) business days after the Effective Date. Payment of such amount shall be non-refundable and non-creditable. (b) Aclara Release. ACLA, for itself and for its successors, assigns, subsidiaries, parents, and other Affiliates hereby unconditionally, absolutely and completely releases TWTI, including TWTI's parents, subsidiaries and other Affiliates, and the respective officers, directors, agents, and employees of each, (each a "TWTI Released Party") from and against any and all liability, damages, claims, actions, demands, responsibility, and causes of actions (for purposes of this Section 4.1(b), "Claims") with respect to or arising out of the Development and Commercialization Agreement or the Parties' relationship with each other thereunder, which ACLA ever had or may now have against TWTI. ACLA waives any and all such Claims and its rights under California Civil Code Section 1542 with respect to any such Claims, known or unknown. Notwithstanding the foregoing, ACLA does not release or waive any Claims that ACLA ever had, may now have, or which arise in the future under any surviving Section of the Development and Commercialization Agreement as set forth in Article 2 above. For clarity, however, no breach of this Agreement by TWTI shall give rise to Claims determined based upon the Development and Commercialization Agreement. (c) TWTI Release. TWTI, for itself and for its successors, assigns, subsidiaries, parents, and other Affiliates hereby unconditionally, absolutely and completely releases ACLA, including ACLA's parents, subsidiaries and other Affiliates, and the respective officers, directors, agents, and employees of each, (each an "ACLA Released Party") from and against any and all liability, damages, claims, actions, demands, responsibility, and causes of actions (for purposes of this Section 4.1(c) "Claims") with respect to or arising out of the Development and Commercialization Agreement or the Parties' relationship with each other thereunder, which TWTI ever had or may now have against TWTI. TWTI waives any and all such Claims and its rights under California Civil Code Section 1542 with respect to any such Claims, known or unknown. Notwithstanding the foregoing, TWTI does not release or waive any Claims that TWTI ever had, may now have, or which arise in the future under any surviving Section of the Development and Commercialization Agreement as set forth in Article 2 above. For clarity, however, no breach of this Agreement by ACLA shall give rise to Claims determined based upon the Development and Commercialization Agreement. _______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 22 4.2 Royalties. (a) Annual Fixed Royalties. ACLA shall pay to TWTI an annual fixed royalty in each calendar year of the three (3) calendar years beginning in calendar year 2003 and continuing through calendar year 2005, as set forth in this Section 4.2(a) below. ACLA shall make each payment to TWTI no later than by January 15 of the applicable calendar year. ------------------------------------------------------------------- Calendar Year Annual Fixed Royalty ------------- -------------------- ------------------------------------------------------------------- 2002 No Royalty Due ------------------------------------------------------------------- 2003 *** fixed royalty ------------------------------------------------------------------- 2004 *** fixed royalty ------------------------------------------------------------------- 2005 *** fixed royalty ------------------------------------------------------------------- (b) Royalties on Net Sales to End Users. Subject to Sections 4.4 and 6.4 below, ACLA shall pay to TWTI as royalties the following percentages of Net Sales during the applicable calendar year beginning with calendar year 2006 and continuing during the remainder of the Term, as set forth in this Section 4.2(b) below: ------------------------------------------------------------------- Calendar Year Royalty Rate ------------- ------------ ------------------------------------------------------------------- 2006 and 2007 *** ------------------------------------------------------------------- 2008 and 2009 *** ------------------------------------------------------------------- 2010 and thereafter *** ------------------------------------------------------------------- For clarity, the Parties acknowledge that the royalties in this Agreement have been established for the convenience of the Parties based upon the assumption that the identified royalties will be paid on Licensed Product sold in all countries of the world, whether or not a license under the TWTI IP is required in the particular country in which the Licensed Product is manufactured, sold, or otherwise commercialized. Accordingly, a royalty shall be paid by ACLA on all Licensed Products in all countries whether or not a license is required in the particular country. Notwithstanding anything to the contrary, in the event that ACLA undergoes a change of control in any calendar year prior to January, 1 2010, the royalty rate on Net Sales under this Section 4.2(b) will be adjusted to be*** effective as of the date of such change of control, and will remain*** during the remainder of the Term; provided, however, that the effective date of the royalty rate adjustment shall not be earlier than January 1, 2006. For purposes of _________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 23 illustration,***. For purposes of this Section 4.2(b), the term "change of control" means any transaction or series of related transactions that would occasion: (i) any share exchange, re-capitalization, business combination, consolidation, merger or other transaction or series of transactions resulting in the exchange of the outstanding shares of ACLA unless the stockholders of ACLA that exist immediately prior to the closing date of such transaction (or series of related transactions) hold, after the closing date, more than fifty percent (50%) of the voting equity of the surviving entity in such transaction computed on a fully diluted basis, (ii) a sale, lease, or other transfer of all or substantially all of the assets or stock of ACLA; (iii) any tender offer or exchange offer for fifty percent (50%) or more of the outstanding voting securities of ACLA or the filing of a registration statement under the United States Securities Act of 1933 in connection therewith; or (iv) any person or group acting in concert to control ACLA (as control is defined in Section 1.3 of this Agreement) having acquired beneficial ownership or the right to acquire beneficial ownership of fifty percent (50%) or more of the outstanding voting securities of ACLA. As used in this Section 4.2(b), "person" and "group" shall have the meanings given to such terms when used in Sections 13(d) and 14(d) of the United States Securities Exchange Act of 1934. (c) Bundling. No Licensed Product shall be bundled and priced with any other product, component or service; likewise, no Probe Set or Cleavase Enzyme shall be bundled and priced with any other product, component or service other than as part of a Licensed Product, except in both situations, Probe Sets, Cleavase Enzyme or Licensed Products may be bundled (but not priced) with other products, components and/or services, provided that such Probe Sets, Cleavase Enzyme and Licensed Products are priced separately in accordance with the principles set forth in Section 4.2(e) below. (d) Royalty on all Components. For avoidance of doubt, Net Sales shall include the Net Sales from the distribution of all items distributed as part of a Licensed Product or Probe Set, including Cleavase Enzyme. ACLA acknowledges and agrees that TWTI's compensation for such Cleavase Enzyme under the Supply Agreement shall include both the Transfer Price for Cleavase Enzyme under the Supply Agreement and a royalty under Section 4.2 on Net Sales from the sale of Cleavase Enzyme, whether alone or as part of a Licensed Product. It is agreed that the Transfer Price alone, whether set now or in the future, shall not be considered complete compensation to TWTI for Cleavase Enzyme. (e) Conflicts of Interest. In a transaction, or series of separate transactions, involving the provision of License Products, Cleavase Enzyme, Probes Sets, or data describing the results of a Multiplexed Invader Application, and any other products, services, or non-cash consideration, to an entity (or affiliated entities) by any combination of ACLA Entities, payments received by any of the ACLA Entities as a result of such transaction(s) shall not be shifted, allocated, or weighted among such products (including License Products, Probe Sets, and Cleavase Enzyme), data, services, and non-cash consideration in any manner so as to reduce or disadvantage the Net Sales from the sale of License Products, Cleavase Enzymes, Probe Sets, Multiplexed Invader Application data. In the event of any failure to comply with this __________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 24 Section 4.2(e), or in the event that the Net Sales from the sale of a particular License Product, Cleavase Enzyme, Probe Set, or data is below the fair market value for such License Product, Cleavase Enzyme, Probe Set, or data, as applicable, then the Net Sales in the suspect transactions shall be deemed to be such fair market value for purposes of calculating payments owed to TWTI. 4.3 Share of Other Consideration. Subject to Section 6.4 ACLA shall pay TWTI*** of any and all Other Consideration received during each such calendar year of the Term; provided, however, that with respect to Other Consideration received prior to January 1, 2006, ACLA shall pay to TWTI*** of such Other Consideration allocated to the period after January 1, 2006 as set forth in this Section 4.3. In the event that the Other Consideration is not in the form of U.S. dollars, ACLA shall pay the fair market value of the Other Consideration to TWTI. With respect to Other Consideration received prior to January 1, 2006, the amount of such Other Consideration that shall be allocated to the period after January 1, 2006 shall be equal to: the total amount of Other Consideration received prior to January 1, 2006 multiplied by (1-X/Y), where (i) X is equal to the duration of time for which the applicable Manufacturing Distributor, Value Added Distributor, Enabled Customer, or Technology Access Partner is authorized to exercise rights pursuant to this Agreement prior to January 1, 2006 in connection with such Other Consideration; and (ii) Y is equal to the total duration of time for which such party is authorized to exercise rights pursuant to this Agreement. For purposes of the foregoing, Other Consideration received in any transaction or a series of transactions with the same Third Party shall be aggregated and allocated in accordance with the foregoing, notwithstanding any contrary allocation in agreements between ACLA and the applicable party. 4.4 Royalty Stacking. The royalty rates set forth in Section 4.2(b) shall be reduced for particular units of Licensed Product by an amount equal to*** of any amount of royalties and other payments required to be paid by ACLA to Non-Affiliate Third Parties for a license under the Patents of the Third Party to make, have made, use, sell, have sold or import such units of Licensed Products in the Gene Expression Field; provided, however, that any reduction in the royalty rates set forth in Section 4.2(b) pursuant to this Section 4.4 shall be limited such that (i) the royalty rate in calendar year 2006 and/or calendar year 2007 will not be reduced by more than*** (i.e., the royalty payable to TWTI on Net Sales shall not be less than*** (ii) the royalty rate in calendar year 2008 and/or calendar year 2009 will not be reduced by more than*** (i.e., the royalty payable to TWTI on Net Sales shall not be less than*** and (iii) the royalty rate in calendar year 2010 and any calendar year thereafter will not be reduced by more than*** (i.e., the royalty payable to TWTI on Net Sales shall not be less than***. As used in this Section 4.4, royalties and other payments shall not include cost sharing or reimbursement, service or consulting fees, payments for purchases, non-cash consideration, amounts paid for equity or securities, dividends, profit distributions, amounts paid for facilities or equipment, or any other payment or consideration which is not expressly identified in the written agreement between ____________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 25 ACLA and the applicable Third Party as a payment for a license under the Third Party's Patents to make, have made, use, sell, offer to sell, or import the applicable Licensed Product. 4.5 Most-Favored Fee Terms. If, during the Term, TWTI enters into a written agreement with any Third Party, other than an Affiliate of TWTI, in which TWTI grants a license to such Third Party, under the TWTI IP, to make, use, and sell products in the Gene Expression Field for*** under financial terms, considered as a whole and taking into account the non-cash consideration received by TWTI, that are substantially more favorable than those provided to ACLA in this Agreement and provided that the rights granted by TWTI are materially the same as set forth in this Agreement, then ACLA shall have the right to obtain such more favorable financial terms and conditions under this Agreement during the Term to the extent and for so long as those more favorable terms and conditions are made available to such Third Party. Notwithstanding the foregoing, this Section 4.5 shall not apply in connection with any litigation settlement, transfer or sale of all or substantially all of TWTI's business or assets related to this Agreement, whether by way of merger, acquisition of stock or assets, operation of the law, or otherwise and shall not apply in connection with any agreement in which TWTI grants exclusivity. No rebates, credits, or refunds shall be payable or provided by TWTI as a result of this Section 4.5. 4.6 Transfer Price Reconciliation. ACLA shall pay to TWTI a Reconciliation Amount with respect to quantities of Cleavase Enzyme (i) provided to Enabled Customers and (ii) used by ACLA, except for quantities of Cleavase Enzyme used by ACLA for activities described in Section 1.30 clause (A) and any activities for the development of Licensed Products, Probe Sets or Cleavase Enzymes hereunder. For purposes of this Section 4.6, "Reconciliation Amount" shall be equal to*** the Transfer Price for such Cleavase Enzyme. ACLA shall not distribute Cleavase Enzyme to an Enabled Customer, or use Cleavase Enzyme for the activities described in clause (ii) above except to the extent that ACLA pays the Reconciliation Amount to TWTI in accordance with this Agreement. The Reconciliation Amount payable under this Section 4.6 shall be deemed to accrue in the calendar quarter in which the Cleavase Enzyme is distributed to the Enabled Customer or so used by ACLA, as applicable. Notwithstanding the foregoing, no Reconciliation Amount shall be due with respect to quantities of Cleavase Enzyme manufactured by or under authority of ACLA pursuant to Section 2.10 of the Supply Agreement. ARTICLE 5 Payment Provisions 5.1 Reports and Payments. ACLA shall make written reports and payments to TWTI within sixty (60) days after the close of each calendar quarter. Such reports shall show for such calendar quarter, as applicable and broken down on a region by region (i.e., United States, Europe, Asia, and Rest of the World) basis: (i) Net Sales and Other Consideration; (ii) royalties due on such Net Sales; (iii) fee sharing of Other Consideration as required pursuant to Article 4; (iv) the quantities and type of Cleavase Enzyme provided to Enabled Customers; (v) the ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 26 quantities and type of Cleavase Enzyme used by ACLA for the activities for which the Reconciliation Amount is due under Section 4.6(ii) above; and (vi) the amounts that have been excluded from Net Sales as result of Section 6.4. With respect to Enabled Customers that are also End Users, ACLA shall provide documentation demonstrating to TWTI amounts to be included in Net Sales, otherwise amounts received from Enabled Customers shall be deemed Other Consideration. Concurrently with providing each such report, ACLA shall pay TWTI all amounts accruing during the period covered by such report. The Parties hereby acknowledge and agree that all reports, and all information in such reports, provided by ACLA pursuant to this Section 5.1 are Confidential Information of ACLA. 5.2 Mode of Payment. All payments made pursuant to this Agreement shall be made by check or direct wire transfer of United States Dollars in immediately available funds in the requisite amount to such bank account as TWTI may from time to time designate by written notice to ACLA; provided that all payments above One Million United States Dollars (U.S. $1,000,000) shall be made by direct wire transfer. Payments will be without reduction for any taxes (such as, without limitation, any withholding and other taxes imposed on the payee), fees or charges, to the extent applicable. In the event that sales are made or fees received in currency other than United States Dollars, payments by ACLA shall be calculated based on currency exchange rates for the last calendar quarter for which remittance is made. For each calendar quarter, such exchange rate will equal the arithmetic average of the daily exchange rates (obtained as described below) during the calendar quarter for purchase of United States Dollars by sale of such non-United States Dollar currency; each daily exchange rate will be obtained from the Reuters Daily Rate Report or The Wall Street Journal, Eastern U.S. Edition, or, if not so available, as otherwise agreed by the Parties. 5.3 Records. ACLA shall keep, and shall cause its Resellers, Value Added Distributors, and Manufacturing Distributors to keep, complete, true and accurate books of account and records sufficient to determine and establish the amounts payable under this Agreement, including without limitation to determine and establish the quantities and types of Cleavase Enzyme distributed to Enabled Customers or used by ACLA, and compliance with the other terms and conditions of this Agreement, including Sections 4.2 and 4.3 above. Such books and records shall be kept reasonably accessible for three (3) years following the end of the calendar quarter to which they pertain and shall be made available for inspection throughout such three (3) year period by an independent third party auditor selected by TWTI for such purposes in accordance with Section 5.4 below. 5.4 Audits. (a) Audit Rights; Procedure. Upon the written request of either Party (for purposes of this Section 5.4, the "Requesting Party"), and not more than once in each calendar year, the other Party (or in the case of ACLA, each of the ACLA Entities) (for purposes of this Section 5.4, the "Other Party") shall permit an independent certified public accounting firm (or other auditor in the case of audits for compliance with license restrictions) of an internationally recognized standing selected by the Requesting Party, and reasonably acceptable to the Other Party, at the Requesting Party's expense, to have access during normal business hours, and upon reasonable prior written notice, only to such of the records of the Other Party as may be reasonably necessary to, as applicable, verify the accuracy of any financial reports to the 27 Requesting Party with respect to the preceding three (3) years, to confirm compliance with license restrictions, or verify that the Requesting Party is receiving the most favorable terms as provided under Section 3.9(e) or 4.5 above, as applicable. For clarity, the auditor appointed by TWTI shall have the right to inspect Enabled Customer Agreements, Technology Access Partner Agreements, Reseller Agreements, Manufacturing Distributor Agreements, and Value Added Distributor Agreements to confirm compliance with license restrictions and to evaluate Other Consideration. Additionally, for clarity, the auditor appointed by either Requesting Party shall have the right to inspect all agreements relevant to confirm compliance with Section 3.9(e) or 4.5, as applicable, between the Other Party and non-Affiliate Third Parties. The accounting firm or other auditor, as applicable, will disclose to the Requesting Party whether the reports are correct or incorrect and, if incorrect, the amount by which the reports reveal any underpayment to the Requesting Party and the reason for such underpayment or whether the license restrictions have been complied with and, if the auditor believes there may be a non-compliance, all information relevant to the non-compliance. If the accounting firm or other auditor, believes the Other Party is has not complied with Section 3.9(e) or 4.5, as applicable, the auditor will so notify the Other Party in writing and the auditor will discuss the matter with the Other Party in good faith for sixty (60) days after receipt of such notice. If the auditor remains convinced that the Other Party has not complied with Section 3.9(e) or 4.5, as applicable, after such discussion, and the Other Party has not agreed to take action which the auditor agrees would remedy such noncompliance, then the auditor shall disclose to the Requesting Party the financial terms of the agreements between the Other Party and the non-Affiliate Third Parties which are material to such noncompliance. The Parties shall resolve any dispute in accordance with Section 5.4(d) below. Any and all information disclosed to the Requesting Party under this Section 5.4(a) shall be deemed Confidential Information of the Party that was being audited and no other information will be disclosed to the Requesting Party. (b) Additional Payments; Cost Reimbursement. If such accounting firm concludes that additional payments were owed to the Requesting Party by the Other Party during such period, then the Other Party shall pay the additional payments, with interest from the date originally due at an amount equal to the lesser of the prime rate plus two percent (2%), as published in The Wall Street Journal, Eastern U.S. Edition, on the last business day preceding such date, or the maximum amount permitted by applicable law, within thirty (30) days after the date the Requesting Party delivers to the Other Party such accounting firm's written report unless the additional payment is disputed by the Other Party pursuant to Section 5.4(d) below. If the amount of the underpayment for such period of at least one (1) year is greater than ten percent (10%) of the total amount owed for that year and greater than Ten Thousand United States Dollars ($10,000), then the Other Party shall, in addition, reimburse the Requesting Party for its reasonable costs related to such audit. (c) Confidentiality. The Requesting Party shall treat all information subject to review under this Section 5.4 as Confidential Information of the Other Party and in accordance with the confidentiality provisions of Article 7, and will cause its accounting firm to enter into a confidentiality agreement consistent with Article 7, obligating such firm to retain all such financial information in confidence pursuant to such confidentiality agreement. (d) Audit Disputes. If the Other Party in good faith disputes the conclusion of the accounting firm under Section 5.4(a) above that the Other Party owes additional royalties 28 or other payments, or any specific aspect of the conclusion, then the Other Party will inform the Requesting Party by written notice within thirty (30) days of receiving a copy of the audit containing such conclusion, specifying in detail the reasons for disputing such conclusion. Likewise, if the Other Party in good faith disputes the conclusion under Section 5.4(a) above that any particular agreement provides a non-Affiliate Third Party more favorable financial terms, or any specific aspect of the conclusion, then the Other Party will inform the Requesting Party by written notice within thirty (30) days of receiving a copy, from the Requesting Party, of the audit containing such conclusion, specifying in detail the reasons for disputing such conclusion. In either such case, the Parties shall promptly thereafter meet and negotiate in good faith a resolution to such dispute. In the event that such Parties are unable to resolve such dispute within sixty (60) days after such notice, the matter will be resolved in accordance with Section 11.8 regarding dispute resolution. 5.5 Late Payment. Any payments or portions thereof due hereunder which are not paid when due shall bear interest equal to the lesser of the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional two percent (2%), or the maximum rate permitted by law, calculated on the number of days such payment is delinquent. This Section 5.5 shall in no way limit any other remedies available to either Party. ARTICLE 6 Intellectual Property 6.1 Ownership of TWTI IP and TWTI Marks. Subject to the rights granted to ACLA in this Agreement, TWTI shall own the TWTI IP and the TWTI Marks. 6.2 Patent Prosecution. (a) First Right To Prosecute. Subject to Section 6.2(b), TWTI (itself or through a designee) shall have the sole right to control the filing, prosecution and maintenance of Patents within the TWTI IP, and shall bear all costs associated therewith. TWTI shall consider comments from ACLA regarding steps that might be taken to strengthen patent protection with respect to any Patent within such TWTI IP or to expand protection in a mutually desired manner. Nothing herein shall imply or create any obligation for TWTI to file, prosecute, obtain or maintain any Patents or to follow ACLA's recommendations or comments. (b) Election Not to Prosecute or Maintain. Without limiting Section 6.2(a) above, TWTI may elect, on a country-by-country basis, not to continue to prosecute and thereby abandon an application for a Patent within the TWTI IP, or not to maintain and thereby abandon such a Patent. With respect to issued Patents only, TWTI shall notify ACLA of such election and discuss with ACLA the possibility of allowing ACLA the right to maintain, in such country or jurisdiction, such issued Patent. Nothing herein shall imply or create any obligation for TWTI to file, prosecute, obtain or maintain any Patents nor grant to ACLA any right to do so. 6.3 Patent Marking. ACLA shall mark, and cause the ACLA Entities and Technology Access Partners and Enabled Customers to mark, Licensed Products, Probe Sets and Cleavase Enzyme with the numbers of the Patents covering the same as may be necessary or 29 appropriate to preserve TWTI's rights under applicable law and regulations in applicable countries. In this regard, ACLA will consult with TWTI from time to time regarding such markings. 6.4 Enforcement of Intellectual Property. (a) Notice. If ACLA believes in good faith that a Third Party that is a significant competitor is engaged in sales or uses of a Competing Product (as defined below) in a given country, and that Competing Product infringes the TWTI IP in such country, then ACLA shall promptly notify TWTI in writing of such infringement, describing in such notice in reasonable detail ACLA's Corresponding Licensed Product (as defined below), the Competing Product and the Enforceable Patents (as defined below) included in the TWTI IP that ACLA believes are infringed. For purpose of this Section 6.4, (i) "Competing Product" means a product that *** (the "Corresponding Licensed Product"); (ii) "Enforceable Patent" means a Patent in such country which is included in the TWTI IP and which TWTI has the power and authority to enforce as contemplated in this Section 6.4; and (iii) the term "significant competitor" means a Third Party who *** and whose total revenues from its sales of such Competing Product in a given country that are used in such country are greater than or equal to *** of the total aggregate amount of the ACLA Entities' Net Sales and Other Consideration from sales of the Corresponding Licensed Product in such country in the most recent twelve (12) consecutive calendar month period, provided that the ACLA Entities' Net Sales and Other Consideration from the sales of the Corresponding Licensed Product that are used in such country exceeds*** during such period. (b) Right to Enforce TWTI IP. TWTI (itself or through a designee) shall have the sole right, but not the obligation, to enforce and control the enforcement of the TWTI IP. With respect to enforcement by TWTI of an Enforceable Patent in the TWTI IP against a significant competitor with respect to a Competing Product for which TWTI has received notice from ACLA in accordance with Section 6.4(a), TWTI shall keep ACLA reasonably informed on a reasonably timely basis, and reasonably consult with ACLA and consider in good faith the reasonable comments of ACLA, regarding such enforcement, both prior to and during any such enforcement. ACLA shall assist TWTI and provide information, upon request, and to the extent commercially reasonable for ACLA, in taking any action to enforce the TWTI IP. Amounts invoiced by ACLA on sales, after the occurrence of a Toll Event (as defined below), of Corresponding Licensed Product shall be excluded from Net Sales for units used in the country in which the Toll Event occurred, but only until such time as the Toll Event has been remedied in the applicable country and TWTI has so notified ACLA thereof in writing. Notwithstanding anything to the contrary, no amounts shall be excluded from Net Sales, and no Toll Event shall be considered to have occurred, if ACLA has failed to provide information or assistance reasonably requested by TWTI or if there is a difference between the Corresponding Licensed _____________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 30 Product and the Competing Product that provides a reasonable basis for concluding that the Competing Product does not infringe the Enforceable Patent even if the Corresponding Licensed Product does infringe. ACLA shall provide TWTI with technical details concerning the Competing Product and Corresponding Licensed Product sufficient to enable TWTI to understand fully the two products, and their functionality and composition, and to establish infringement by the Competing Product. As used herein, a "Toll Event" shall be deemed to have occurred if ACLA has provided TWTI with notice of a Competing Product and infringement in accordance with Section 6.4(a), Competing Product used in the country identified in ACLA's notice continues to be sold by an entity that is a significant competitor in such country with respect to such Competing Product, and either of the following is true: (X) TWTI (itself or through a designee) has not, within *** days after receiving such notice from ACLA under Section 6.4(a), initiated actions to commence one of a lawsuit against, negotiations for a license with, or other reasonable enforcement of an Enforceable Patent against such entity with respect to the applicable Competing Product in the applicable country or (Y) TWTI (itself or through a designee) has not, within *** after such notice, executed with such significant competitor a license or other authorization under the infringed Enforceable Patent, and has not within such period commenced a lawsuit against such significant competitor, each with respect to the Competing Product in the applicable country. A Toll Event shall be considered remedied if any of the following occurs: TWTI has executed a license or other authorization for the Competing Product in the applicable country; TWTI has commenced a lawsuit; the entity that was a significant competitor is no longer a significant competitor in the applicable country with respect to the applicable Competing Product; TWTI no longer has the power or authority to enforce the Enforceable Patent in the applicable country against the significant competitor with respect to the Competing Product through no action of TWTI (such as without limitation as a result of expiration of the Enforceable Patent, expiration of TWTI's exclusive in-license, or otherwise); a reasonable non-infringement and/or invalidity opinion has been provided by TWTI; or ACLA has failed to provide information or assistance reasonably requested by TWTI. Nothing shall be construed to require TWTI to bring an action based upon all of the Enforceable Patents that may be infringed. (c) Defense of TWTI IP. TWTI (itself or through a designee) shall have the sole right, but not the obligation, to defend and control the defense of the TWTI IP; provided, however, that if ACLA is a party to any such action or proceeding regarding TWTI IP, ACLA shall have the right to conduct and control its defense of itself and its Licensed Products at ACLA's cost and expense, subject to Article 9. For clarity, the foregoing shall not be construed to provide ACLA with any rights to enforce or defend any TWTI IP in any manner. In such case where ACLA is a party, each Party shall keep the other informed on a reasonably timely basis, and reasonably consult with the other and consider in good faith the reasonable comments of the other, regarding such defense both prior to and during any such defense. ACLA shall assist TWTI and provide information, upon request, and to the extent commercially reasonable for ACLA, in taking any action to defend the TWTI IP. ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 31 ARTICLE 7 Confidentiality 7.1 Confidential Information. (a) Confidentiality Obligations. Each Party agrees that, for the Term and thereafter for a period of five (5) years, such Party will keep, and will ensure that its officers, directors, employees and agents keep, completely confidential and will not publish or otherwise disclose and will not use for any purpose except as permitted hereunder any Confidential Information of the other Party. The foregoing obligations will not apply to any information to the extent that it can be established by such receiving Party that such information: (i) was already known to the receiving Party as evidenced by its written records, other than under an obligation of confidentiality, at the time of disclosure; (ii) was generally available to the public or was otherwise part of the public domain at the time of its disclosure to the receiving Party; (iii) became generally available to the public or otherwise becomes part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; (iv) was subsequently lawfully disclosed to the receiving Party by a Third Party other than under an obligation of confidentiality and other than in contravention of a confidentiality obligation of such Third Party; or (v) was developed or discovered by employees of the receiving Party or its Affiliates who had no access to the Confidential Information of the disclosing Party as evidenced by the written records of the receiving Party. Each Party shall obtain written agreements from each of its employees, consultants having access to the other Party's Confidential Information in accordance with this Section 7.1. (b) Permitted Use and Disclosures. Notwithstanding the provisions of Section 7.1(a), each Party may disclose the other Party's Confidential Information to the extent such disclosure is reasonably necessary to comply with applicable governmental laws, regulations, or orders; provided that if a Party is required to make any such disclosure of the other Party's Confidential Information, it will, to the extent it may legally do so, give reasonable advance notice to the latter Party of such disclosure and will use its reasonable efforts to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). Each Party shall also have the right to use the Confidential Information of the other Party in accordance with licenses granted in this Agreement. Each Party shall disclose the Confidential Information of the other Party only to its employees, subcontractors, and sublicensees as reasonably necessary for such Party to exercise its rights. 7.2 Terms of Agreement; Press Release. Except to the extent required by applicable law or as otherwise permitted in accordance with this Section 7.2, neither Party shall 32 make any public announcements concerning this Agreement or the terms hereof, including, without limitation, the existence and terms of the rights grant under Sections 3.1, 3.2 and 3.5 above, without the prior written consent of the other Party. Notwithstanding the foregoing, each Party shall have the right to issue a press release in the form attached as Exhibit 7.2 and to disclose this Agreement or the terms hereof (i) to advisors and investors on a need-to-know basis under conditions which reasonably ensure the confidentiality thereof; (ii) as required by any court or other governmental body; (iii) as otherwise required by law; (iv) in confidence to legal counsel of such parties; (v) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement; (vi) in confidence, in connection with a merger, acquisition of stock or assets, proposed merger or acquisition, or the like; or (vii) as required in connection with any government or regulatory filings, including without limitation filings with the SEC, provided that such disclosing Party shall: (A) give reasonable advance written notice to the non-disclosing Party of the proposed disclosure and the reason for such disclosure; (B) consider in good faith comments and requests of the non-disclosing Party regarding such proposed disclosure that are received by the disclosing Party within two (2) business days after the non-disclosing Party's receipt of the proposed disclosure; and (C) use reasonable efforts to secure confidential treatment of such disclosed information. 7.3 Publication. ACLA shall have the right to publish and present information related to work performed pursuant to the rights granted ACLA under Sections 3.1 and 3.5 above, provided that such information does not contain or disclose Confidential Information of TWTI and provided further that, if such information arises from activities pursuant to Section 3.5, TWTI approves such publication or presentation, such permission not to be unreasonably withheld. 7.4 Proprietary Markings. Neither Party shall remove or obscure any trademark, trade name, copyright notice, patent marking or other proprietary notice from any materials provided to it by the other Party in connection with this Agreement. ARTICLE 8 Representations and Warranties 8.1 Representations by TWTI. TWTI represents and warrants that it has not previously granted and will not grant any rights in conflict with the rights and licenses granted herein, and as of the Effective Date that: (i) it is duly organized and validly existing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to enter into this Agreement; (ii) it is in good standing with all relevant governmental authorities; (iii) it has taken all corporate actions necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement; (iv) it has the rights to grant the rights and licenses under Article 3; (v) it has no knowledge that the Invader Reaction in and of itself infringes the Intellectual Property Rights of any Third Party; (vi) it Controls no Intellectual Property Rights, other than the TWTI IP, that are necessary to perform the Multiplexed Invader Application; (vii) no Intellectual Property Rights have been in-licensed by TWTI that are necessary to perform the Invader Reaction which are not Controlled by TWTI; and (viii) the performance of its obligations under this Agreement do not conflict with, or constitute a default under its charter documents, any contractual obligation of TWTI or any court order. 33 8.2 Representations by ACLA. ACLA represents and warrants that, as of the Effective Date: (i) it is duly organized and validly existing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to enter into this Agreement; (ii) it is in good standing with all relevant governmental authorities; (iii) it has taken all corporate actions necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement; and (iv) the performance of its obligations under this Agreement do not conflict with, or constitute a default under its charter documents, any contractual obligation of ACLA or any court order. 8.3 Disclaimer of Warranties. EXCEPT AS SPECIFICALLY SET FORTH IN THIS ARTICLE 8, NO PARTY MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, NON-INFRINGEMENT, AND ANY OTHER STATUTORY WARRANTY. ARTICLE 9 Indemnification 9.1 Indemnification by TWTI. TWTI shall indemnify, defend and hold ACLA and its Affiliates, agents, employees, officers and directors (the "ACLA Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or suits to the extent resulting from: (i) TWTI's performance of, or failure to perform, its obligations under this Agreement; and (ii) breach by TWTI of any of its representations and warranties under Section 8.1 above, provided, however, that TWTI's obligations pursuant to this Section 9.1 will not apply to the extent such claims or suits result from the negligence or willful misconduct of any of the ACLA Indemnitees. 9.2 Indemnification by ACLA. Except for liability for which TWTI is required to indemnify ACLA under Section 9.1 above, ACLA shall indemnify, defend and hold TWTI and its Affiliates, agents, employees, officers and directors (the "TWTI Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or suits to the extent resulting from: (i) ACLA's performance of, or failure to perform, its obligations under this Agreement; (ii) breach by ACLA of any of its representations and warranties under Section 8.2 above; or (iii) product liability or other claims arising from or in connection with the exercise or practice by any of the ACLA Entities, any End User, Technology Access Partner, Enabled Customer, or otherwise, of the rights and licenses granted by TWTI under this Agreement; provided, however, that ACLA's obligations pursuant to this Section 9.2 will not apply to the extent such claims or suits result from the negligence or willful misconduct of any of the TWTI Indemnitees. 9.3 Notification of Claim; Conditions to Indemnification Obligations. As a condition to a Party's right to receive indemnification under this Article 9, it shall: (i) promptly notify ("Claim Notice") the other Party as soon as it becomes aware of a claim or suit for which indemnification may be sought pursuant hereto (provided that the failure to give a Claim Notice promptly shall not prejudice the rights of an indemnified Party except to the extent that the failure to give such prompt notice materially prejudices the indemnifying Party); (ii) cooperate with the indemnifying Party in the defense of such claim or suit, at the expense of the 34 indemnifying Party, including providing reasonable information; and (iii) if the indemnifying Party confirms in writing to the indemnified Party its intention to defend such claim or suit within ten (10) days of receipt of the Claim Notice, permit the indemnifying Party to control the defense of such claim or suit, including without limitation the right to select defense counsel; provided that if the indemnifying Party fails to (x) provide such confirmation in writing within the ten (10) day period or (y) diligently and reasonably defend such suit or claim at any time, its right to defend the claim or suit shall terminate immediately in the case of (x) and otherwise upon twenty (20) days' written notice to the indemnifying Party without cure and the indemnified Party may assume the defense of such claim or suit at the sole expense of the indemnifying Party and may settle or compromise such claim or suit without the consent of the indemnifying Party. In no event, however, may the indemnifying Party compromise or settle any claim or suit in a manner which admits fault or negligence on the part of any indemnified Party or that otherwise materially affects such indemnified Party's rights or requires any payment by an indemnified Party without the prior written consent of such indemnified Party. Subject as expressly provided above, the indemnifying Party will have no liability under this Article 9 with respect to claims or suits settled or compromised (including by admission) without its prior written consent. ARTICLE 10 Term and Termination 10.1 Term. This Agreement will commence upon the Effective Date and shall continue in effect until the last-to-expire of any Valid Claim within the TWTI IP unless earlier terminated as provided herein (the "Term"). 10.2 Termination for Convenience by ACLA. ACLA shall have the right to terminate this Agreement with immediate effect, unless otherwise expressly specified hereunder, at any time with ninety (90) days prior written notice. 10.3 Termination for Cause by TWTI. TWTI shall have the right to terminate this Agreement upon final determination, in accordance with Section 11.8(c) below, of material failure to comply with any material term of this Agreement by ACLA. 10.4 Consequences of Termination or Expiration. (a) Return of Materials. Upon termination or expiration of this Agreement each Party will promptly return all records and materials in its possession or control containing or comprising the other Party's know-how or other Confidential Information to which the former Party does not expressly retain rights hereunder. (b) Accrued Liability. Termination or expiration of this Agreement for any reason shall not release either Party hereto from any liability which at the time of such termination or expiration has already accrued to the other Party prior to such time. Such termination or expiration will not relieve a Party from accrued payment obligations or from obligations which are expressly indicated in this Agreement to survive termination or expiration of this Agreement. 35 (c) Survival. The following Articles and Sections of this Agreement shall survive its termination or expiration: Articles 1, 5 (for a period of three (3) years after termination or expiration), 7, 9 and 11 and Sections 3.6(a) (third sentence), 3.6(d) (last sentence), 3.9, 4.1(b), 4.1(c), 8.3, and 10.4. Except as otherwise expressly indicated in this Agreement, all rights and licenses shall terminate upon any expiration or termination of this Agreement. For clarity, all rights of ACLA under Articles 3 and 7, all rights of Resellers, Value Added Distributors, Manufacturing Distributors, Technology Access Partners, and Enabled Customers, shall terminate upon any termination or expiration of this Agreement. No ACLA Entity shall distribute Licensed Product, Cleavase Enzyme, or Probe Set, as applicable, after any termination or expiration of this Agreement. ARTICLE 11 General Provisions 11.1 Relationship of the Parties. The Parties are independent contractors. Nothing in this Agreement is intended or will be deemed to constitute a partnership, agency or employer-employee relationship between the Parties. Neither Party will incur any debts or make any commitments for the other Party. 11.2 Assignments. Except as expressly provided herein, neither this Agreement nor any interest hereunder will be assignable, nor any other obligation delegable, by a Party without the prior written consent of the other Party; provided, however, that a Party shall have the right to assign and otherwise transfer this Agreement as a whole without consent to any successor that acquires all or substantially all of the business or assets of such Party by way of merger, consolidation, other business reorganization, or the sale of stock or assets, provided that the assigning Party notifies the other Party in writing of such assignment, both the Supply Agreement and InvaderCreator Access Agreement are concurrently transferred in their entirety to such successor in accordance with their terms, and such successor agrees in writing to be bound by the terms and conditions of this Agreement, the Supply Agreement and the InvaderCreator Access Agreement. This Agreement shall be binding upon successors and permitted assigns of the Parties. Any assignment not in accordance with this Section 11.2 will be null and void. 11.3 Intentionally Omitted. 11.4 Force Majeure. Except with respect to payment of money, no Party shall be liable to the other for failure or delay in the performance of any of its obligations under this Agreement for the time and to the extent such failure or delay is caused by earthquake, riot, civil commotion, war, terrorist acts, strike, flood, or governmental acts or restriction, or other cause that is beyond the reasonable control of the respective Party. The Party affected by such force majeure will provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and will use commercially reasonable efforts to overcome the difficulties created thereby and to resume performance of its obligations as soon as practicable. If the performance of any such obligation under this Agreement is delayed owing to such a force majeure for any continuous period of more than one hundred eighty (180) days, the Parties hereto will consult 36 with respect to an equitable solution, including the possibility of the mutual termination of this Agreement. 11.5 Entire Agreement of the Parties; Amendments. This Agreement, the Supply Agreement, the InvaderCreator Access Agreement, the Letter related to the Transition Manufacturing Plan and the Letter related to InvaderCreator Access Prior to Implementation of Updates, all entered into concurrently, constitute and contain the entire understanding and agreement of the Parties respecting the subject matter hereof and except as expressly provided in Section 2.1 of this Agreement cancels and supersedes any and all prior and contemporaneous negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter, including, without limitation, the Development and Commercialization Agreement. No waiver, modification or amendment of any provision of this Agreement will be valid or effective unless made in writing and signed by the Parties. 11.6 Captions. The captions to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement. 11.7 Governing Law. This Agreement will be governed by and interpreted in accordance with the laws of the State of California, applicable to contracts entered into and to be performed wholly within the State of California, excluding conflict of laws principles. 11.8 Dispute Resolution. (a) General. Except as otherwise provided in this Section 11.8 below, in the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement or the rights or obligations of the Parties hereunder, either Party shall have the right to initiate dispute resolution by sending written notice of the dispute, and an intent to arbitrate such dispute, to the other Party; provided, however, that any dispute concerning the scope, construction, validity, enforceability or infringement of any Patent within the TWTI IP shall be heard and decided in a court of competent jurisdiction under the local patent laws of the jurisdictions having issued the Patent or Patents in question. Within twenty (20) days after such notice (either, a "Dispute Notice"), each Party shall cause its Chief Executive Officer or the Chief Executive Officer's high-level executive (at the senior vice president level or higher) to meet in person to negotiate in good faith a resolution to the dispute within twenty (20) days of the first such meeting. If the dispute is unresolved during such period, then any Party may initiate arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA") then in force. The Parties shall use their commercially reasonable efforts to conclude the arbitration within six (6) months after the arbitrator has been appointed. The venue of such arbitration shall be in Madison, Wisconsin for disputes brought by ACLA and Santa Clara County, California for disputes brought by TWTI. (b) Fast Track. In the event of any dispute related to ACLA's rights to suspend payments under Section 6.4(b), then either Party shall have the right to issue a Dispute Notice as provided under Section 11.8(a) above identifying the nature of such dispute and that such Party believes in good faith that such dispute should be decided pursuant to this Section 11.8(b); provided, however, that any dispute related to the infringement, validity or claim construction of any Patents shall be heard by a court of competent jurisdiction in the country 37 where such right exists. The Parties shall agree upon and appoint one (1) arbitrator within twenty (20) days after the notice of arbitration is received by all Parties and, failing such agreement, any Party may apply under the applicable rules of the AAA for the appointment of an arbitrator and the selection of an arbitrator under such rules of the AAA shall be final and binding on the Parties. Such arbitrator shall have appropriate experience in the biopharmaceutical industry and be independent of all the Parties. Within thirty (30) days after such arbitrator is identified and retained in writing, each Party shall submit to such arbitrator and the other Party a written proposal for resolving such dispute. The arbitrator shall select the proposal of one Party without alteration or modification, which proposal shall be deemed the judgment and award with respect to such dispute. The arbitrator shall limit discovery as reasonably practicable to complete the arbitration as soon as practicable. (c) Judgments. An award rendered pursuant to this Section 11.8 shall be final and binding upon all parties participating in such arbitration. The arbitrator may, upon competent proof, grant any remedy or relief that the arbitrator deems just and equitable under the terms and conditions of this Agreement. Nothing in this Agreement shall be deemed as preventing any Party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of the dispute. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and/or an order of enforcement as the case may be and shall be deemed to be a final determination. (d) Preliminary Injunctions. Notwithstanding anything to the contrary in this Section 11.8, a Party shall have the right to seek a temporary restraining order or preliminary injunction from any court of competent jurisdiction in order to prevent immediate and irreparable injury, loss or damage on a provisional basis, pending the decision of the arbitrator(s) on the merits under this Section 11.8. 11.9 Notices and Deliveries. Any notice, request, delivery, approval or consent required or permitted to be given under this Agreement will be in writing and will be deemed to have been sufficiently given if delivered in person, transmitted by telecopier (receipt verified) or by express courier service (signature required) or five (5) days after it was sent by registered letter, return receipt requested (or its equivalent), provided that no postal strike or other disruption is then in effect or comes into effect within two (2) days after such mailing, to the Party to which it is directed at its address or facsimile number shown below or such other address or facsimile number as such Party will have last given by notice to the other Party. If to TWTI, addressed to: Third Wave Technologies, Inc. 502 South Rosa Road Madison, Wisconsin 53719 Attn.: President Fax: 608-273-8618 38 With a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Attn.: Ian B. Edvalson, Esq. Fax: 650-493-6811 If to ACLA, addressed to: ACLARA BioSciences, Inc. 1288 Pear Avenue Mountain View, California 94043 Attn.: President and CEO Fax: 650-210-9271 With a copy to: Latham & Watkins 135 Commonwealth Drive Menlo Park, California 94025 Attn.: Michael W. Hall, Esq. Fax: 650-463-2600 11.10 No Consequential Damages. EXCEPT WITH RESPECT TO UNAUTHORIZED EXPLOITATION OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS, BREACH OF ARTICLE 7, BUT INCLUDING UNDER ARTICLE 9, IN NO EVENT WILL ANY PARTY OR ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE ANY OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY, OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE OR CLAIMS OF CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH DAMAGES. 11.11 Waiver. A waiver by any Party of any of the terms and conditions of this Agreement in any instance will not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement will be cumulative and none of them will be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party. 11.12 Severability. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. The Parties will make a good faith effort to replace the invalid or 39 unenforceable provision with a valid one which in its economic effect is most consistent with the invalid or unenforceable provision. In the event a Party seeks to avoid a provision of this Agreement by asserting that such provision is invalid, illegal or otherwise unenforceable, the other Party shall have the right to terminate this Agreement upon sixty (60) days' prior written notice to the asserting Party, unless such assertion is eliminated and cured within such sixty (60)-day period, such termination shall be deemed to be a termination pursuant to Section 10.2 if by ACLA or if by TWTI pursuant to Section 10.3. 11.13 Compliance with Laws. Notwithstanding anything to the contrary contained herein, all rights and obligations of ACLA and TWTI are subject to prior compliance with, and each Party shall comply with, all United States and foreign export and import laws, regulations, and orders, and such other United States and foreign laws, regulations, and orders as may be applicable, including obtaining all necessary approvals required by the applicable agencies of the governments of the United States and foreign jurisdictions. 11.14 Counterparts. This Agreement may be executed simultaneously in any number of counterparts, any one of which need not contain the signature of more than one Party but all such counterparts taken together will constitute one and the same agreement. In Witness Whereof, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the Effective Date, each copy of which will for all purposes be deemed to be an original. Third Wave Technologies, Inc. ACLARA BioSciences, Inc. By:_______________________________ By:__________________________________ Name: ___________________________ Name: ______________________________ Title: ___________________________ Title: ______________________________ Date: ___________________________ Date: ______________________________ 40 Exhibit 1.48 TWTI Patents U.S. Patent Nos. *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** __________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit 1.49 TWTI Marks [To be attached] Exhibit 7.2 Press Release For Immediate Release ACLARA Contact: Alfred Merriweather VP, Finance and CFO 650.210.1200 amerriweather@aclara.com Third Wave Contact:: Rod Hise Manager, Corporate Communications 608.663.4010 rhise@twt.com ACLARA AND THIRD WAVE SIGN NEW LICENSE, SUPPLY AGREEMENTS ACLARA licenses Third Wave's Invader(TM) technology to independently develop and commercialize multiplexed gene expression research applications MOUNTAIN VIEW, Calif. and MADISON, Wis.--October 16, 2002--ACLARA BioSciences Inc. (Nasdaq: ACLA) and Third Wave Technologies Inc. (Nasdaq: TWTI) today announced that they have entered into license and supply agreements under which ACLARA will have rights to incorporate Third Wave's Invader(TM)technology and Cleavase(R)enzyme with ACLARA's eTag(TM)technology to offer the eTag Assay System for multiplexed gene expression applications for the research market. The new business relationship allows ACLARA to directly develop and commercialize its multiplexed eTag-Invader(TM) gene expression assays, greatly streamlining the operational structure of the previous collaboration and permitting ACLARA to fully exploit a large market with an unmet need. ACLARA's products enable pharmaceutical and biotechnology companies to more efficiently identify important drug targets and new medicines, and to characterize disease status and treatment. In addition to licensing the Invader technology platform to ACLARA for gene expression applications for research use, Third Wave will supply Cleavase enzyme to ACLARA for incorporation into eTag-Invader gene expression assays. "This new commercial relationship provides ACLARA with an enhanced ability to address the sizable gene expression research market," said Joseph M. Limber, ACLARA's president and chief executive officer. "We plan to aggressively develop this significant market opportunity. Researchers want an accurate, efficient alternative for analyzing tens to hundreds of genes and eTag-Invader gene expression assays are ideally suited for these types of experiments. With our new agreement with Third Wave, ACLARA has greater flexibility to efficiently commercialize these applications." "We believe ACLARA's eTag chemistry with our Invader(R) assay is a breakthrough detection technology for highly-multiplexed gene expression analysis," said Lance Fors, Ph.D., Third Wave chairman and chief executive officer. "The Invader(TM) platform is increasingly becoming the platform of choice and this license is one example of merging two great technologies to offer a uniquely-differentiated, value-added product." The powerful combination of eTag reporter molecules and the proven Invader technology provides superior performance for profiling the expression of many genes compared to other DNA and RNA detection methods. eTag-Invader multiplexed, quantitative gene expression analyses are highly precise, accurate and efficient, enabling researchers to obtain decision-critical results more quickly and have greater success at detecting targets and drug response. Researchers can easily perform these analyses at high throughput using far less bio-sample and can compare results across different samples, experiments and labs. They can profile many genes simultaneously in a single reaction directly from crude cell lysates, without the need for sample preparation or polymerase chain reaction (PCR) and with built-in internal controls. The agreement provides ACLARA with a license for Third Wave's Invader technology platform for multiplexed gene expression analysis in the research market. In exchange, ACLARA will make undisclosed upfront payments and will make royalty payments to Third Wave on sales of eTag-Invader gene expression assays. The agreements supercede the previously announced collaboration agreement between the two companies. About ACLARA ACLARA BioSciences, Inc. is developing advanced tools for drug discovery, genomics and proteomics using its proprietary eTag(TM) assay chemistries and microfluidics expertise. The Company's products allow researchers to have decision-critical information for drug development, which previously was difficult or impossible to obtain. The solution-phase eTag Assay System is cost-effective, easy-to-use and flexible, and enables highly accurate and precise analysis of genes and/or proteins from limited biological samples. Importantly, researchers can use their existing instrument platforms to perform eTag analyses. More information on ACLARA can be obtained on the Company's web site at www.aclara.com. About Third Wave Technologies Third Wave Technologies develops, manufactures and markets genetic analysis products that are accelerating the delivery of personalized medicine. Our patented Invader product platform offers unmatched accuracy, sensitivity, ease of use and cost-effectiveness, making it the ideal solution for genetic analysis across the health care continuum. For more information about Third Wave and its products, please visit the company's website at http://www.twt.com. Forward-Looking Statements ALL STATEMENTS IN THIS NEWS RELEASE THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO FACTORS THAT COULD CAUSE ACTUAL RESULTS FOR ACLARA AND/OR THIRD WAVE TO DIFFER MATERIALLY FROM THOSE PROJECTED. THOSE FACTORS INCLUDE RISKS AND UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES OF ACLARA AND THIRD WAVE, RESPECTIVELY, AND THEIR RESPECTIVE COMPETITORS, PRODUCT DEVELOPMENT PLANS AND EFFORTS, MANUFACTURING CAPABILITIES, MARKET ACCEPTANCE OF THEIR RESPECTIVE PRODUCTS, SUCCESSFUL ESTABLISHMENT OF AND PERFORMANCE UNDER COLLABORATIVE AND COMMERCIAL AGREEMENTS, ADOPTION OF THEIR RESPECTIVE TECHNOLOGIES BY PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES, ACLARA'S ABILITY TO SUCCESSFULLY BUILD A DIRECT SALES AND MARKETING ORGANIZATION, AND OTHER RISK FACTORS IDENTIFIED IN THE FORMS 10-K FOR THE YEAR ENDED DECEMBER 31, 2001, AND FORMS 10-Q FOR THE QUARTER ENDED JUNE 30, 2002, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY ACLARA AND THIRD WAVE, RESPECTIVELY. Trademarks ACLARA BioSciences, eTag, and the ACLARA logo are trademarks of ACLARA BioSciences, Inc. Invader and Cleavase are registered trademarks of Third Wave Technologies Inc. ### EX-10.33 4 dex1033.txt SUPPLY AGREEMENT THIRD WAVE DTD 10/15/02 Exhibit 10.33 SUPPLY AGREEMENT This Supply Agreement, together with exhibits attached hereto ("Agreement"), effective as of October 15, 2002 (the "Effective Date"), is entered into by and between Third Wave Technologies, Inc., organized under the laws of Delaware and having its principal place of business at 502 S. Rosa Road, Madison, Wisconsin 53719 ("TWTI"), and ACLARA BioSciences, Inc., organized under the laws of Delaware and having its principal place of business at 1288 Pear Avenue, Mountain View, California 94043 ("ACLA"). TWTI and ACLA may each be referred to herein individually as a "Party" or, collectively, as "Parties." Recitals Whereas, TWTI has technology and intellectual property for, among other things, genetic analysis and life science research and testing, including test kits, components, and other products and services based upon its Invader(R) platform and/or Cleavase(R) enzymes; and Whereas, ACLA has technology and intellectual property for, among other things, genetic analysis and life science research and testing, including products, services, and components based upon ACLA's eTag(TM) technology; and Whereas, TWTI and ACLA entered into a Development and Commercialization Agreement, dated October 24, 2001, which the Parties wish to terminate and supersede in its entirety (except as set forth in the License Agreement); and Whereas, TWTI and ACLA are entering into the License Agreement (as defined below) which terminates the Development and Commercialization Agreement and provides ACLA with certain rights including without limitation, the right to commercialize certain assay products that perform multiplexed gene expression using ALCA's eTag technology and TWTI's Invader(R) technology and Cleavase(R) enzymes; and Whereas, TWTI and ACLA are entering into this Agreement in order to set forth the terms and conditions for supply of Cleavase(R) enzymes to be used in Licensed Product under the License Agreement. Now, Therefore, in consideration of the promises and undertakings set forth herein, the Parties agree as follows: ARTICLE 1 Definitions Capitalized terms not otherwise defined herein will have the meaning set forth below: Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as * * *. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. 1.1 Terms from the License Agreement. Each of the terms "Cleavage Enzyme," "Cleavase Enzyme," "Confidential Information," "Development and Commercialization Agreement," "Diagnostic Procedures," "Enabled Customer," "End User," "GAAP," "Gene Expression Field," "Genotyping Field," "Intellectual Property Rights," "InvaderCreator Access Agreement," "Invader Reaction," "Licensed Product," "Multiplexed Invader Application," "Patents," "Probe Set," and "Target," shall have the meaning given to the particular term in the License Agreement. 1.2 "Acceptance Certificate" shall mean a certificate of analysis signed and dated by an ACLA employee qualified and duly authorized to certify that the results of assays conducted on an indicated shipment of Cleavage Enzyme hereunder conforms to the Specifications therefor and indicating acceptance of such shipment. The Acceptance Certificate shall include without limitation a description of the pertinent assay(s) conducted, the date on which it was (they were) conducted, and the results of the assay(s). 1.3 "Certificate of Nonconformance" shall mean a certificate of analysis signed and dated by an ACLA employee qualified and duly authorized to certify that the results of assays conducted on an indicated shipment of Cleavage Enzyme hereunder do not conform to the Specifications therefor and indicating the reason(s) for non-conformance. The Certificate of Nonconformance shall include without limitation a description of the pertinent assay(s) conducted, the date on which it was (they were) conducted, and the results of the assay(s). 1.3 "Control" means, (A) with respect to an item of Technology or an Intellectual Property Right, possession by TWTI of the power and authority, whether arising by ownership, license, or other authorization, to disclose and deliver the particular Technology to ACLA, and to grant and authorize the licenses, and sublicenses, as applicable, of or within the scope granted to ACLA in Section 2.10 of this Agreement and in the License Agreement without giving rise to any of the following: (i) a violation of the terms of any written agreement with any Third Party; (ii) a violation or infringement of any Patent, copyright, trade secret, or other Intellectual Property Right of any Third Party; (iii) TWTI being required to pay any royalty or other consideration to any Third Party that would not have been required had a license not been provided under this Agreement; (iv) a violation of any law, regulation, rule, code, order or other requirement of any federal, state, foreign, local, or other government body or the need for any additional permits, payments, authorizations, or approvals under any such law, regulation, rule, code, order or requirement. Notwithstanding, the provisions of clause (iii) of this Section 1.3, an item of Technology or an Intellectual Property Right shall be deemed to be Controlled by TWTI for purposes of clause (iii) above, if ACLA agrees in writing to (A) reimburse TWTI for all amounts payable to a Third Party that would not have been required had a license not been provided under this Agreement or pay such amounts directly to such Third Party, at the election of TWTI, and (B) reimburse TWTI for fifty percent (50%) of any upfront, licensing, milestone or other consideration payable to such Third Party, (but excluding from this clause (B): (1) consideration payable as a result solely of the exercise of rights under such item of Technology or Intellectual Property Rights by other than entities acting by or under authority of the ACLA (i.e. running royalties) and (2) amounts included in clause (A) above). 1.4 "Deposit Materials" means, with respect to each particular Cleavage Enzyme that is identified in Exhibit 2.2, as amended from time to time in accordance with this 2 Agreement, instructions, specifications, Standard Operating Procedure and other descriptions of the composition and manufacturing process, quality control and assurance, fill and finish, and storage procedures and production lot records of such Cleavage Enzyme, including a description of the suppliers, raw materials, processes, equipment, and instruments used for the manufacture, quality control and assurance, fill and finish, and storage procedures of such Cleavage Enzyme. Deposit Materials shall include working cell stock and plasmids derived from TWTI's master cell line for each such particular Cleavage Enzyme and one milligram (1 mg) of unexpired Cleavage Enzyme (not necessarily manufactured from the working cell stock). Each item within the Deposit Materials shall be provided in sufficient detail and quantity as reasonably necessary to enable ACLA or its contract manufacturer to manufacture such Cleavage Enzyme in the same manner as such manufacture is performed by TWTI; provided that Deposit Materials shall not be required to include any Technology that is not Controlled by TWTI. 1.5 "Failure to Supply," "Failed to Supply," and the like, means, with respect to each Cleavage Enzyme identified in Exhibit 2.2, as amended from time to time in accordance with this Agreement, that TWTI did not supply in the particular calendar month at least *** of the total quantity of such Cleavage Enzyme that TWTI was obligated to supply in such calendar month under this Agreement for any reason. 1.6 "License Agreement" means that certain written agreement by and between ACLA and TWTI titled "License Agreement" entered into and effective on even date herewith. 1.7 "Lot" shall mean, with respect to a particular Cleavage Enzyme, (i) the quantity of enzyme purified from a single fermentation culture or (ii) enzyme purified from multiple fermentation cultures and pooled. 1.8 "Manufacturing Entity" shall have the meaning as set forth in Exhibit 2.11 hereto. 1.9 "Pre-Shipment Sample" shall mean a sample of a Lot delivered to ACLA pursuant to Section 2.8(g) for the purpose of determining whether said Lot conforms to the Specifications. 1.10 "Quality Assurance Certificate" shall mean a certificate of analysis signed and dated by a TWTI employee qualified and duly authorized to certify that the results of assays conducted on a particular Lot of Cleavage Enzyme conforms to the Specification, for such Cleavage Enzyme, as amended from time to time. The Quality Assurance Certificate shall include a description of the pertinent assay(s) conducted, the date on which it was (they were) conducted, and the results of the assay(s). 1.11 "Release Condition" means, with respect to each Cleavage Enzyme identified in Exhibit 2.2, as amended from time to time in accordance with this Agreement, that: (i) TWTI has Failed to Supply the quantities of such Cleavage Enzyme that TWTI was obligated to supply under this Agreement in any *** consecutive calendar months or any *** consecutive calendar months, and (ii) such failures have caused ACLA to be unable to meet its supply obligations to _____________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 3 Non-Affiliate Third Parties or to meet its and/or its Affiliates own internal use needs, all in accordance with ACLA's rights in the License Agreement, as reasonably demonstrated by ACLA. 1.12 "Specification" means: (a) with respect to each Cleavage Enzyme set forth in Exhibit 2.2 as of the Effective Date, the written specifications for such Cleavage Enzyme set forth in Exhibit 2.2 as of the Effective Date, as such specifications are modified solely by mutual written agreement of the Parties in accordance with this Agreement; and (b) with respect to a Cleavage Enzyme not set forth in Exhibit 2.2 as of the Effective Date, but added to Exhibit 2.2 from time to time in accordance with Section 2.4(d), the written specifications for the Cleavage Enzyme as initially mutually agreed upon by both Parties in writing for purposes of supply under this Agreement, as such specifications are subsequently modified solely by mutual written agreement of the Parties in accordance with this Agreement; and (c) with respect to functional and quality control tests for analyzing a particular Cleavage Enzyme for conformance with its Specifications, the written specifications for such functional or quality control test as set forth in Exhibit 2.2 as such specifications are subsequently modified solely by mutual written agreement of the Parties and mutually agreed in writing from time to time in accordance with this Agreement. 1.13 "Standard Operating Procedures" shall mean TWTI's written protocol for performing quality control assays under this Agreement relating to the analysis of a particular quantity of Cleavage Enzyme to determine whether such quantity conforms to the applicable Specifications prior to release of such quantity of Cleavage Enzyme identified on Exhibit 2.2, as amended from time to time in accordance with this Agreement, including, without limitation, the applicable quantitative measurement of the activity and level of contaminants of such quantity of Cleavage Enzyme. Standard Operating Procedures shall be written in a style and shall include a level of detail sufficient for a qualified microbiologist to understand and implement the protocol. 1.14 "Statement of Non-Compliance" shall mean a certificate of analysis signed and dated by an ACLA employee qualified and duly authorized to certify that the results of assays conducted on an indicated shipment of Cleavage Enzyme hereunder does not conform to the Specifications therefor. The Statement of Non-Compliance shall include a description of the pertinent assay(s) conducted, the date on which it was (they were) conducted, and the results of the assay(s). 1.15 "Term" shall have the meaning set forth in Section 7.1. 1.16 "Transfer Price" shall mean: (i) with respect to each Cleavage Enzyme identified in Exhibit 2.2 as of the Effective Date, the price set forth in Exhibit 1.16 as of the Effective Date, as subsequently modified solely in accordance with this Agreement; and (ii) with respect to each Cleavage Enzyme not identified in Exhibit 2.2 as of the Effective Date, the price to which the Parties mutually agree in writing, subject to Section 2.4(d) of this Agreement, as subsequently modified solely in accordance with this Agreement. 4 1.17 "TWTI Technology" means (i) any and all Patent claims to the extent Controlled by TWTI during the Term and claiming any composition, method, product, or improvement, modification, enhancement, or adaptation thereof that is or are necessary or useful to manufacture each particular Cleavage Enzyme identified in Exhibit 2.2, as amended from time to time in accordance with this Agreement; (ii) any and all trade secrets and know how to the extent both Controlled by TWTI during the Term and necessary or useful for the manufacture of each particular Cleavage Enzyme identified in Exhibit 2.2, including without limitation those embodied in the Deposit Materials for the particular Cleavage Enzyme. For clarity, nothing herein shall require TWTI to disclose prior to a Release Condition, any trade secrets except those embodied in the Deposit Materials. ARTICLE 2 SUPPLY 2.1 Terms and Conditions. All supply of each Cleavage Enzyme by TWTI to ACLA shall be subject to the terms and conditions of this Agreement. ANY TERMS OR CONDITIONS OF ANY PURCHASE ORDER OR ACKNOWLEDGMENT GIVEN OR RECEIVED WHICH ARE ADDITIONAL TO OR INCONSISTENT WITH THIS AGREEMENT SHALL HAVE NO EFFECT AND SUCH TERMS AND CONDITIONS ARE HEREBY EXCLUDED AND REJECTED. 2.2 Supply; Restricted Rights. (a) General. Subject to the terms and conditions of this Agreement and the License Agreement, TWTI shall supply each Cleavage Enzyme identified in Exhibit 2.2, as amended from time to time in accordance with this Agreement, to ACLA, and ACLA shall purchase from TWTI all of its requirements for Cleavage Enzyme used as part of a Licensed Product, except to the extent that ACLA or a Third Party appointed by ACLA manufactures Cleavage Enzyme in accordance with Section 2.10. (b) Limited Use. It is acknowledged and agreed that all Cleavage Enzyme transferred to, or manufactured by or for, ACLA under this Agreement is and shall be only for distribution and use under and in accordance with the License Agreement as part of Licensed Products to perform Multiplexed Invader Applications. Except for the rights expressly granted under the License Agreement, no right, title, or interest of any nature whatsoever is or shall be granted whether as a result of sale or transfer, by implication, estoppel, reliance, or otherwise, with respect to any Cleavage Enzyme. Any distribution, use, or other exploitation of Cleavage Enzyme not in accordance with this Agreement or the License Agreement shall be considered to be unlicensed and is hereby prohibited. ALL RIGHTS WITH RESPECT TO CLEAVAGE ENZYME THAT ARE NOT SPECIFICALLY GRANTED IN THE LICENSE AGREEMENT ARE RESERVED TO TWTI. ACLA shall use reasonable commercial efforts (i) to limit the use and other exploitation of the Cleavage Enzyme supplied by TWTI, or manufactured by ACLA, under this Agreement to use in accordance with the License Agreement, (ii) if it comes to ACLA's attention, to terminate and cure promptly the unauthorized use and other exploitation of Cleavage Enzyme supplied by TWTI, or manufactured by ACLA, under this Agreement, which shall include without limitation providing prompt notice of termination, and (iii) to obtain terms in its agreements with others pursuant to this Agreement, which shall include without limitation 5 the power to terminate all of the applicable party's rights with respect to, and obtain the return of, all Cleavage Enzyme and TWTI Confidential Information within thirty (30) days after notice of breach and failure to cure. 2.3 Forecasts. ACLA will provide forecasts as set forth in this Section 2.3 of the quantities of each Cleavage Enzyme in Exhibit 2.2 which are estimated to be required by ACLA for distribution and use as part of Licensed Product in accordance with the License Agreement and this Agreement. At least three (3) calendar months prior to the start of each calendar quarter during the Term, ACLA shall provide TWTI with a rolling written forecast ("Forecast") of the quantities of each Cleavage Enzyme (identified by name and part number) estimated by ACLA to be required for distribution and use in accordance with the License Agreement, on a calendar month by calendar month basis, during such calendar quarter. ACLA shall purchase, and TWTI shall supply, the quantities of such Cleavage Enzyme set forth in each Forecast to the extent set forth in Section 2.4. 2.4 Orders. (a) Orders. Prior to the start of each calendar quarter during the Term, ACLA shall place its firm order with TWTI, setting forth trade units, delivery dates and shipping instructions with respect to each shipment, for delivery in each calendar month of such calendar quarter, of that quantity of each Cleavage Enzyme supplied by or on behalf of TWTI equal to or greater *** of the quantity of such Cleavage Enzyme forecast for such month in the Forecast provided for such calendar quarter in accordance with Section 2.3. TWTI shall accept such orders from ACLA for each Cleavage Enzyme identified in Exhibit 2.2, subject to the remaining terms and conditions of this Agreement, provided that TWTI shall not be obligated to accept orders for any particular Cleavage Enzyme for any particular calendar month to the extent that the quantity of the particular Cleavage Enzyme ordered for delivery in such month exceeds *** of the quantity of such Cleavage Enzyme forecast for such month in accordance with Section 2.3; but TWTI shall use reasonable commercial efforts to fill orders for such excess quantities from available supplies, taking into account TWTI's own use, distribution and other obligations. ACLA shall not order any Cleavage Enzyme that is intended to be distributed, used, or otherwise exploited other than in accordance with the License Agreement. (b) Minimum Order Quantities. ACLA shall order each Cleavage Enzyme in the minimum order quantities provided for on Exhibit 2.2, as amended from time to time in accordance with this Agreement. (c) Form of Order. Within thirty (30) days of the Effective Date, the parties shall mutually approve in writing a standard form of purchase order for use by ACLA in ordering Cleavage Enzymes hereunder, such approval to not be unreasonably withheld. For clarity, TWTI shall have the right to withhold its approval of any form of purchase order that attempts to materially amend or supplement the terms or conditions of this Agreement. All of ACLA's orders for Cleavage Enzyme shall be made pursuant to such written purchase order form and shall provide for shipment in compliance with Section 2.6. TWTI shall use reasonable _______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 6 commercial efforts to notify ACLA within ten (10) days from receipt of a purchase order of its ability or inability to fill any amount(s) and delivery date(s) of such order, provided that such notice will not waive any of the supply obligations of TWTI hereunder. (d) Enzyme Improvements; Changes. It is acknowledged that TWTI may from time to time during the Term make additions, modifications or improvements to Cleavage Enzyme identified in Exhibit 2.2 as well as to other Cleavage Enzymes. If TWTI makes such an addition, modification or improvement, and reasonably believes such new, modified or improved Cleavage Enzyme would be useful generally as a component of Licensed Products under the License Agreement then TWTI will promptly notify ACLA of such new, modified, or improved Cleavage Enzyme, provided TWTI Controls such Cleavage Enzyme. TWTI shall provide ACLA with a reasonable sample quantity provided that such Cleavage Enzyme is available for production in commercial quantities, and has been supplied to a minimum of three Third Parties. If requested by ACLA based upon its testing of such samples, the Parties will amend Exhibit 2.2 to include such new, modified, or improved Cleavage Enzyme for purchase under this Agreement; provided that the Parties have agreed in writing to the Specifications for the new, modified, or improved Cleavage Enzyme and the Parties have agreed in writing, subject to Section 2.5(c), upon a Transfer Price for the Cleavage Enzyme. Subject to the foregoing, Exhibit 2.2 may be amended only by mutual written agreement of TWTI and ACLA. (e) Specifications. The Parties may amend the Specifications for any particular Cleavage Enzyme hereunder from time to time by mutual written agreement. Without limiting the foregoing, it is understood that the Specifications that exist as of the Effective Date are inadequate for full testing of functional requirements for use of Cleavage Enzymes in Multiplexed Invader Applications. Accordingly, the Parties hereby agree that promptly after the Effective Date the Parties shall cooperate to specify and implement a mutually agreeable functional assay that incorporates one or more Aclara Components (each such assay, an "eTag Functional Assay"). The Parties shall use commercially reasonable efforts to complete such development within sixty (60) days of the Effective Date, and to incorporate such eTag Functional Assay into the Specifications for the applicable Cleavage Enzyme and Standard Operating Procedures therefor promptly thereafter. 2.5 Transfer Prices. (a) Pricing. ACLA shall pay to TWTI in accordance with this Agreement the Transfer Price for each Cleavage Enzyme supplied by TWTI under this Agreement (b) Escalation. Subject to Section 2.5(c) below, TWTI shall have the right to increase the Transfer Price for each Cleavage Enzyme under this Agreement in each calendar year by an amount that does not exceed the total aggregate percentage increase in the CPI Index for the preceding calendar year. As used herein, the "CPI Index" shall mean the US Bureau of Labor Statistic's Consumer Price Index - All Urban Customers (CPI-U), US City Average, all items, 1982-84=100, not seasonally adjusted. (c) Most Favored Pricing. If, during the Term, with respect to quantities of a particular Cleavage Enzyme transferred to ACLA hereunder, the Transfer Price hereunder and, if applicable, additional amounts payable to TWTI in accordance with Section 4.6 of the License 7 Agreement for such Cleavage Enzyme (such additional amounts, the "Transfer Price Reconciliation") is greater than the Equivalent Enzyme Price for similar quantities of Equivalent Enzyme charged to a Third Party in connection with an arrangement on substantially similar terms, then the Transfer Price (together with the Transfer Price Reconciliation, if applicable) for such Cleavage Enzyme shall be reduced so that the Transfer Price (together with the Transfer Price Reconciliation, if applicable) for such Cleavage Enzyme to be equal to the Equivalent Enzyme Price, but only to the extent and for so long as such more favorable Equivalent Enzyme Price is available to such Third Party. For purpose of this Section 2.5(c) the following terms shall have the meanings set forth below: (i) "Equivalent Enzyme" means, with respect to a particular Cleavage Enzyme, the same Cleavage Enzyme or any other functionally equivalent nuclease enzyme supplied by TWTI to a Third Party. (ii) "Equivalent Enzyme Price" means the fair market value of all consideration (including all non-cash consideration) paid or payable to TWTI by a Third Party with respect to the transfer of a particular Equivalent Enzyme. (d) No Exhaustion. Notwithstanding any payment by ACLA to TWTI of a Transfer Price for Cleavage Enzyme under this Agreement, ACLA acknowledges and agrees that all amounts set forth as being payable pursuant to the License Agreement from the sale of the Licensed Products shall be payable to TWTI. In particular, no transfer of Cleavage Enzyme to ACLA shall be considered to exhaust TWTI's right to receive payments under the License Agreement, it being acknowledged that the Transfer Prices for Cleavage Enzyme have not been established in a manner intended to fully compensate TWTI for the Cleavage Enzyme or licenses under the License Agreement. 2.6 Delivery. All Cleavage Enzyme delivered to ACLA pursuant to the terms of this Agreement shall be suitably packed for shipment in accordance with the applicable Specifications, marked for shipment to the destination point indicated in ACLA's purchase order, and shipped FOB (as defined under the Uniform Commercial Code) point of shipment. Such packing, and the manner of shipment, shall be sufficient to prevent damage, contamination, or degradation during shipment and during unpacking at the destination. All freight, insurance and other shipping expenses from the point of shipment shall be borne by ACLA. The carrier shall be selected by ACLA and TWTI, provided that in the event no agreement is reached, ACLA shall select the carrier. With respect to exact delivery dates, TWTI shall use all reasonable commercial efforts to ship quantities of Cleavage Enzyme for delivery on the dates specified in ACLA's purchase orders submitted in accordance with this Agreement to the extent such dates are consistent with the forecasted quantities TWTI is obligated to supply hereunder. For clarity, it is understood and agreed that title to all Cleavage Enzyme supplied by or on behalf of TWTI hereunder shall transfer to ACLA upon acceptance thereof by ACLA in accordance with Section 2.8(a) below, however risk of loss of Cleavage Enzyme shall transfer to ACLA at the time of delivery to the carrier for transport to ACLA's designated point of delivery. 8 2.7 Invoicing. TWTI shall submit invoices to ACLA no earlier than shipment by TWTI. All invoices shall be sent to ACLA's address for notices hereunder or such other address as designated by ACLA in writing, and each such invoice shall state ACLA's aggregate and unit prices for the Cleavage Enzyme, and shall separately itemize any insurance, taxes or other costs incident to the transfer or shipment initially paid by TWTI but to be borne by ACLA hereunder. In the event of any discrepancy, ACLA shall inform TWTI in writing within thirty (30) days of receipt of a particular shipment, specifying the shipment, the purchase order number, and the exact nature of the discrepancy between the order and the shipment, or the exact nature of the discrepancy in the shipping or other charges, as applicable, otherwise such shipment and applicable charges shall be deemed correct. 2.8 Product Inspection. (a) Specifications. TWTI shall, prior to shipment, analyze each Lot from which Cleavage Enzymes will be shipped to ACLA hereunder for conformity to the Specifications therefor. If the results of such analysis indicate that such Lot of Cleavage Enzyme conforms to such Specifications therefor, TWTI may ship Cleavage Enzyme from such Lot to ACLA, together with a Quality Assurance Certificate. Within thirty (30) days of receiving a shipment of Cleavage Enzyme and accompanying Quality Assurance Certificate, ACLA shall inform TWTI, pursuant to Section 2.9, that said shipment either conforms to Specifications by delivering to TWTI an Acceptance Certificate or does not conform to such Specifications by delivering to TWTI a Statement of Non-Compliance. If ACLA does not deliver an Acceptance Certificate, and does not deliver a Statement of Non-Compliance, to TWTI within such thirty (30) day time period, the shipment shall be deemed to be conforming and accepted by ACLA. (b) Specifications Testing. In the event that the Specifications include a functional requirement requiring in accordance with Standard Operating Procedures an assay utilizing any reagent that is generally commercially available from TWTI or otherwise not available from any Third Party, then TWTI shall provide, at no charge to ACLA, reasonable quantities of such reagents to perform such assay reasonably sufficient for ACLA to analyze shipments of Cleavage Enzyme to ACLA for conformance with Specifications hereunder. If TWTI does not provide such reagents for any particular shipment of Cleavage Enzymes hereunder, then such shipment shall be deemed to fail such functional requirement. Likewise, if the Specifications include a functional requirement requiring in accordance with Standard Operating Procedures an eTag Functional Assay (as defined in Section 2.4(e) above), then ACLA shall provide, at no charge to TWTI, such software and reasonable quantities of such reagents reasonably sufficient for TWTI to perform such eTag Assay to analyze Cleavage Enzyme for shipment to ACLA for conformance with Specifications hereunder. If ACLA does not provide such software or reagents for quantities of Cleavage Enzyme to be supplied hereunder, then such functional requirement shall be deemed to be excluded from the Specification for such quantities. Reagents and software provided by one Party to the other Party pursuant to this Section 2.8(b) shall be used solely by the receiving Party for purposes of analyzing Cleavage Enzyme to be supplied or supplied hereunder, as applicable, for conformance with the applicable Specifications and for no other purpose. (c) Replacement Shipments. Subject to the terms and conditions of this Agreement, including Section 2.9 below, as soon as commercially practicable but no later than 9 sixty (60) days of receiving a Statement of Non-Compliance in accordance with the foregoing, whether or not TWTI accepts ACLA's basis for rejection, TWTI shall provide replacements for the shipment of Cleavage Enzyme subject to such Statement of Non-Compliance and deliver, at TWTI's expense, to ACLA a replacement shipment with an accompanying Quality Assurance Certificate for each of such replacement shipment of Cleavage Enzyme. Within thirty (30) days of receiving a shipment of Cleavage Enzyme and accompanying Quality Assurance Certificate, ACLA shall inform TWTI pursuant to Section 2.9, that said shipment either conforms to Specifications by delivering to TWTI an Acceptance Certificate or does not conform to such Specifications by delivering to TWTI a Statement of Non-Compliance. If ACLA does not deliver an Acceptance Certificate, and does not deliver a Statement of Non-Compliance, to TWTI within such thirty (30) day time period, the shipment shall be deemed to be conforming and accepted by ACLA. Additionally, ACLA shall cooperate with TWTI in determining whether issuance of a Statement of Non-Compliance was necessary or justified, and any dispute with respect thereto shall be resolved in accordance with Section 2.9. (d) Labeling. TWTI shall clearly label, in accordance with the Specifications in Exhibit 2.2, each container containing Cleavage Enzyme for supply hereunder with a unique Lot number, part number, description of contents and other identifying information, as applicable. (e) Good Manufacturing Practices. TWTI shall manufacture Cleavage Enzymes for supply hereunder in accordance with applicable current Good Manufacturing Practices (as defined by the U.S. Food and Drug Administration). (f) Standard Operating Procedures. TWTI and ACLA shall analyze Cleavage Enzymes using the applicable Standard Operating Procedures and shall not deviate from the Standard Operating Procedures without the prior written approval of the other Party, such approval not to be unreasonably withheld. Within thirty (30) days of the Effective Date, TWTI shall provide ACLA with copies of all Standard Operating Procedures used to test the Cleavage Enzymes identified in Exhibit 2.2 for compliance with the Specification therefor, and ACLA shall comply with such Standard Operating Procedures when analyzing Cleavage Enzymes for compliance with the applicable Specifications. Within thirty (30) days of any amendment to Exhibit 2.2 to include additional Cleavage Enzymes, TWTI shall provide ACLA with the Standard Operating Procedures with respect to such additional Cleavage Enzyme and the Parties will utilize such Standard Operating Procedures with respect to testing such Cleavage Enzyme, and neither Party shall deviate from such Standard Operating Procedures without the prior written approval of the other Party, such approval not to be unreasonably withheld. (g) Pre-Shipment Samples. The Parties may agree in writing from time to time that in order to facilitate the orderly shipment and acceptance of large orders that TWTI will provide ACLA with a Pre-Shipment Sample for a particular Lot that would be tested by ACLA to determine if such Lot conforms with Specifications, and ACLA shall issue either a Certificate of Acceptance or a Certificate of Nonconformance based upon such testing as appropriate and otherwise in accordance with Section 2.9, and in accordance with Standard Operating Procedures, prior to shipment of the order. 10 (h) Inspection of TWTI Facilities. ACLA may, at reasonable times during normal business hours and upon request made upon reasonable prior notice to TWTI, not less than thirty (30) days or more than three (3) times per calendar year, inspect TWTI's specific facilities used for manufacturing the Cleavage Enzymes for ACLA, TWTI's manufacturing procedures for compliance with Standard Operating Procedures, TWTI's inventory of Cleavage Enzymes required under Section 2.13, and TWTI's batch records, work-in-progress, raw materials, and production records for the Cleavage Enzymes supplied to ACLA under this Agreement. All information observed by ACLA during the course of such inspection shall be deemed to be the Confidential Information of TWTI under this Agreement without requirement that it be marked or confirmed as such in writing. (i) Technical Contacts. Within thirty (30) days of the Effective Date, each Party shall notify the other Party in writing of the names, telephone number, fax numbers, and e-mail addresses of at least one person to serve as the Party's technical contact under this Agreement and at least one person to serve as the Party's business contact under this Agreement. A Party may change its business or technical contacts at any time with written notice to the other Party. 2.9 Inspection and Rejection. (a) Warranties. Subject to the terms and conditions of this Agreement, TWTI warrants that the Cleavage Enzymes supplied by TWTI hereunder will meet the Specifications for the applicable Cleavage Enzyme, in Exhibit 2.2, at the time of delivery of the Cleavage Enzyme by TWTI to the carrier. Subject to the terms and conditions of this Agreement, TWTI further represents and warrants that title to all Cleavage Enzyme supplied by TWTI hereunder shall pass to ACLA free and clear of all security interests, liens and other encumbrances pursuant to Section 2.6. Notwithstanding anything to the contrary, ACLA's sole and exclusive remedy, and TWTI's sole and exclusive liability, for a breach of a warranty under this Section 2.9 and for any non-conforming Cleavage Enzyme under Section 2.8 shall be to return the non-conforming Cleavage Enzymes to TWTI at TWTI's expense for replacement or credit, at ACLA's option. Cleavage Enzymes shall be considered non-conforming only if they fail to conform to the Specifications. Notwithstanding the foregoing, nothing in this Section 2.9 shall waive any rights ACLA may have with respect to backup manufacturing rights provided for in Section 2.10(c) and/or under Release Conditions as defined in Section 1.11. (b) Non-Conforming Shipments. If within thirty (30) days from receipt of a shipment of Cleavage Enzyme ACLA finds by analysis in accordance with the Standard Operating Procedures for the applicable Cleavage Enzyme that the Cleavage Enzyme does not comply with the applicable Specifications, ACLA shall provide TWTI with a Certificate of Nonconformance for said shipment, such Certificate of Nonconformance to include a written statement specifying the nature and basis for the claim and a Statement of Non-Compliance for the shipment. ACLA shall also return such non-conforming Cleavage Enzyme in accordance with TWTI's reasonable instructions, at TWTI's expense; provided that ACLA may retain a reasonable sample thereof solely for further testing, including for example, testing pursuant to Section 2.9(d). ACLA and TWTI shall cooperate to solve such a claim in good faith as quickly as possible. If ACLA does not deliver an Acceptance Certificate, and does not deliver a 11 Certificate of Nonconformance, to TWTI within such thirty (30) day time period, after receipt of shipment, the shipment shall be deemed to be conforming and accepted by ACLA. (c) Third Party Verification. If, within a period of thirty (30) days after TWTI's receipt from ACLA of a Statement of Non-Compliance, TWTI is unable to verify that the applicable Cleavage Enzyme failed to conform to the Specifications at the time of original delivery by TWTI to the carrier, then the matter shall be submitted to and be finally decided by a nationally recognized independent testing laboratory if requested by either Party. This laboratory shall be selected by TWTI and approved in writing by ACLA, such approval not to be unreasonably withheld and not to be delayed more than ten (10) days, if not otherwise agreed in writing by both parties within five (5) days of either Party's request. (d) Third Party Testing. ACLA shall send a sample of the non conforming shipment and a copy of the Certificate of Nonconformance to said testing laboratory within ten (10) days of either Parties written request. Said testing laboratory shall be requested by the Parties to complete its testing and to render its written decision, supported by its description of procedures and basis for its findings within thirty (30) days after being engaged to perform said testing. The laboratory shall use the assays set forth in the Specifications and Standard Operating Procedures for the applicable Cleavage Enzyme. Each Party, at its own expense, shall reasonably assist and cooperate with such laboratory in performing such testing by making available such documentation (including Standard Operating Procedures), facilities, reagents and other materials as the laboratory may request of the Party. The Parties agree that the written decision of said testing laboratory shall be accepted as final and binding. In case the laboratory test proves that the relevant Cleavage Enzymes did not comply with the Specifications at the time of delivery by TWTI to the carrier, then all cost and expense of transportation, shipping, insurance, and the like related to the testing shall be paid by TWTI, otherwise, TWTI shall transfer such Cleavage Enzyme back to ACLA and such cost and expense shall be paid by ACLA together with the Transfer Price for the rejected Cleavage Enzyme and any replacement Cleavage Enzyme. (e) Credit or Refund. In the event that Cleavage Enzyme supplied by or on behalf of TWTI under the terms of this Agreement is determined to be non-conforming Cleavage Enzyme, TWTI shall credit ACLA for the full purchase paid to TWTI, if any, for such non-conforming Cleavage Enzyme. (f) Recalls. In the event that TWTI initiates a recall of a Lot, or Lots, of Cleavage Enzyme supplied to ACLA hereunder ("Affected Lots") based on, or arising out of, defects in materials or workmanship, improper manufacture of such Cleavage Enzyme, contamination, or failure of the Cleavage Enzyme to meet the Specifications, and if ACLA has accepted any Cleavage Enzyme from such Affected Lots prior to the recall, then TWTI shall promptly, but in any case within five (5) business days, notify ALCA in writing that TWTI has initiated a recall of Cleavage Enzyme from Affected Lots. Such written notice shall identify the Affected Lots to ACLA and shall contain a description of the defects giving rise to the recall. TWTI shall bear any out-of-pocket costs and expenses incurred by ACLA as required to implement the recall, or replacement, of any Cleavage Enzyme from Affected Lots. 2.10 Shortage of Supply. 12 (a) Escrow. Unless otherwise mutually agreed by the parties, within thirty (30) days of the Effective Date TWTI shall enter into an escrow agreement for the benefit of ACLA hereunder for the Deposit Materials with a mutually agreed escrow agent on the terms and conditions presented by the escrow agent in its standard escrow agreement, subject to the terms and conditions set forth in this Section 2.10. Within fifteen (15) days after entering into such escrow agreement, TWTI shall place in escrow with the escrow agent the Deposit Materials for each Cleavage Enzyme that TWTI is obligated to supply under this Agreement. (i) Updates. TWTI shall update the Deposit Materials for each Cleavage Enzyme in escrow at least each time the Specification for the Cleavage Enzyme is modified in accordance with this Agreement, and otherwise as necessary to maintain all Deposit Materials current, but no less often than once per calendar year. Such updates shall include updates to the working stock and plasmids as necessary to maintain un-expired working stock of Cleavage Enzyme that performs to the then current agreed Specification, based upon the expiration dates determined by TWTI. (ii) Cleavage Enzyme Samples. Concurrent with TWTI's deposit in escrow of the Deposit Materials for a Cleavage Enzyme under this Section 2.10(a), TWTI shall provide to ACLA a sample of Cleavage Enzyme manufactured from the working cell stock derived from the master cell line for the Cleavage Enzyme. ACLA shall analyze this sample using the applicable Standard Operating Procedures and shall not deviate from the Standard Operating Procedures without the prior written approval of TWTI, such approval not to be unreasonably withheld, and shall, within thirty (30) days of receipt thereof, provide TWTI with a Certificate of Acceptance or a Certificate of Nonconformance. In the event of non-conformance, the procedures in Section 2.9 shall apply. (iii) Release. The Deposit Materials for a Cleavage Enzyme will be released to ACLA only upon the occurrence of a Release Condition for that Cleavage Enzyme. It is acknowledged and agreed that TWTI may segregate the Deposit Materials under separate escrow agreements for each Cleavage Enzyme so that only those Deposit Materials pertaining to the manufacture of the particular Cleavage Enzyme for which a Release Condition has occurred will be released to ACLA. All Deposit Materials released to ACLA shall be treated as the Confidential Information of TWTI, and shall be used only by ACLA, and its contract manufacturer authorized in accordance with this Section 2.10, to manufacture Cleavage Enzyme in accordance with this Section 2.10. (iv) Audits. ACLA shall have the right to have an independent technical auditor that is approved by TWTI, which approval will not be unreasonably withheld, inspect and test the Deposit Materials from time to time, but no more than once per year, to evaluate the sufficiency thereof for purposes of ACLA's exercise of its rights under this Section 2.10; provided that the auditor shall be required to enter into a reasonable confidentiality agreement with TWTI. For the sake of clarity, such inspection and testing may include, at the auditor's discretion, test production of Cleavage Enzyme from the working stock/plasmids in the Deposit Materials. 13 (v) Fees. ACLA shall be solely responsible for, and will indemnify TWTI from and against, the fees payable to the escrow agent(s) in connection with this Agreement or any escrow agreement entered into pursuant to this Section 2.10(a). (b) Backup Manufacturing License. Subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA, and ACLA hereby accepts, a non-exclusive, non-transferable (except as set forth in Section 8.2 and 2.10(b)(i)) license under the TWTI Technology, without right to grant or authorize sublicenses, as necessary to make, and have made, solely to the extent set forth in this Section 2.10 Cleavage Enzyme that complies with the Specification of a Cleavage Enzyme for which a Release Condition has occurred, and if such Release Condition occurred as a result of an event of the type described in Section 8.3, has not been cured pursuant to Section 2.10(d), provided that all Cleavage Enzyme manufactured under this Section 2.10 shall be distributed and used solely as part of Licensed Product to perform Multiplex Invader Applications under and in accordance with the License Agreement. (i) Have Made Rights. ACLA may exercise its right to have Cleavage Enzyme manufactured under this Section 2.10(b) solely through third party contract manufacturers reasonably necessary to meet ACLA's requirements for Cleavage Enzyme for distribution and use in accordance with the License Agreement and subject to TWTI's approval, not to be withheld except with respect to entities which make or sell products that TWTI reasonably considers to be competitive with TWTI's products or TWTI Technology or are located in countries outside the United States if TWTI has reasonable concerns with the protection afforded to Intellectual Property Rights in the applicable country; and provided that such third party manufacturer (A) enters into a reasonable confidentiality agreement with ACLA (a copy of which is provided to TWTI in advance of manufacture) that is at least as protective against the unauthorized use and disclosure of Confidential Information of TWTI as the terms and conditions of this Agreement and (B) agrees to supply and otherwise transfer the manufactured Cleavage Enzyme only to ACLA and not to any other party. (ii) Other Restrictions. Notwithstanding anything to the contrary, ACLA shall not exercise any of its rights under this Section 2.10(b) except to the extent expressly permitted in Section 2.10(c) and 2.10(d) below. All Cleavage Enzyme obtained pursuant to this Section 2.10 is and shall be subject to restriction as set forth in Section 2.2 above and the License Agreement. No Deposit Material that is released to ACLA shall be used or otherwise exploited except as necessary for ACLA to exercise its rights to manufacture the applicable Cleavage Enzyme in accordance with this Section 2.10. (c) Right to Manufacture. ACLA agrees that it will not exercise its rights to manufacture, and have manufactured, a Cleavage Enzyme under the license granted in Section 2.10(b) (the "Backup Manufacturing License") unless a Release Condition has occurred with respect to the Cleavage Enzyme. ACLA shall not manufacture or have manufactured any Cleavage Enzyme that is distributed, used, or otherwise exploited other than in accordance with the License Agreement. (d) Cure by TWTI. In the event that a Release Condition arises out of or results from an event of the type described in Section 8.3, ACLA's right to exercise the Backup Manufacturing License with respect to a particular Cleavage Enzyme shall continue in effect 14 only until such time as TWTI (i) has supplied at ACLA's request, up to all quantities of any Cleavage Enzyme that were the subject of a Failure to Supply and (ii) demonstrated for three (3) consecutive months that it is able to supply ACLA's requirements of that Cleavage Enzyme necessary for distribution and use in accordance with the License Agreement. It is understood that at such time as the provisions of (i) and (ii) above have been met, TWTI will have the right to resume supply of Cleavage Enzyme with such resumption to be made over the course of a phase in period in which supply by TWTI of the Cleavage Enzyme is ramped up concurrent with a wind down by ACLA in the manufacture of the Cleavage Enzyme, each as reasonably established to avoid disruptions in distribution and use of Cleavage Enzyme in accordance with the License Agreement, and to minimize the financial impact on ACLA. At the end of such phase-in period, which shall include at least two (2) consecutive calendar months of supply by TWTI of ACLA's full requirements of the Cleavage Enzyme necessary for distribution and use in accordance with the License Agreement, ACLA shall discontinue all exercise of the Backup Manufacturing License with respect to the applicable Cleavage Enzyme; provided that the Backup Manufacturing License shall remain in effect during the Term of this Agreement and may be further exercised by ACLA in accordance with this Section 2.10 in the event that an additional Release Condition occurs with respect to a Cleavage Enzyme. TWTI shall, prior to ACLA's discontinuation of the Backup Manufacturing Rights, reimburse ACLA for ACLA's actual out of pocket costs incurred to setup and validate manufacturing, to purchase or lease equipment and to terminate and wind down such manufacturing capability, including any purchase of unused inventory of raw materials, in each case calculated in accordance with GAAP and reasonably necessary for ACLA to exercise its rights in accordance with this Section 2.10 and manufacture ACLA's reasonable requirement for quantities of Cleavage Enzyme for distribution and use under the License Agreement. In such event, ACLA will assign and transfer to TWTI all right, title, and interest in and to such equipment and raw materials, not subject to any liens or encumbrances. Notwithstanding the foregoing, TWTI shall have no obligation to purchase any equipment or raw materials that have been damaged, or have otherwise been subject to misuse, abuse, neglect, or other improper handling, maintenance, or conditions, all as reasonably determined. (e) Assistance. In the event that a Release Condition occurs, TWTI will use all reasonable commercial efforts to assist ACLA in securing supply terms for raw materials that are similar to the terms in TWTI's agreements with its suppliers of raw materials, and TWTI shall otherwise diligently cooperate with ACLA without charge as necessary to enable ACLA to exercise its rights under this Section 2.10 in accordance with this Agreement, including to identify a third party contract manufacturer acceptable to both Parties. (f) Sole Remedy. THIS SECTION 2.10 SHALL BE ACLA'S SOLE AND EXCLUSIVE REMEDY, AND TWTI'S SOLE AND EXCLUSIVE LIABILITY, FOR A FAILURE TO SUPPLY BY TWTI. For clarity, ACLA shall, with the exception of any reconciliation payments, remain obligated to pay to TWTI in full all amounts in accordance with the License Agreement notwithstanding any Failure to Supply or breach by TWTI under this Agreement. ALL RIGHTS NOT EXPRESSLY GRANTED BY TWTI IN THIS SECTION 2.10 ARE RESERVED TO TWTI. 2.11 Manufacturing Entity. The Parties shall take such actions to form and operate the Manufacturing Entity all as set forth in and in accordance with Exhibit 2.11. For clarity, it is 15 understood that ACLA shall have the right to exercise its rights under Section 2.10 through the Manufacturing Entity. 2.12 Third Party Contractors. TWTI shall have the right at any time to satisfy its supply obligations to ACLA under this Agreement either in whole or in part through arrangements with third parties engaged to perform services or supply facilities or goods in connection with the manufacture, testing, and/or packaging of Cleavage Enzyme, provided that TWTI shall remain responsible for compliance with its obligations under this Agreement. Prior to having Cleavage Enzyme manufactured by a Third Party, TWTI shall obtain ACLA's prior written consent to the particular Third Party unless it is an Affiliate of TWTI or is not listed in Exhibit 2.12, which consent shall not be unreasonably withheld or delayed by ACLA. 2.13 Inventory. Beginning January 1, 2003, TWTI agrees that during the following three (3) calendar quarters of the Term, it will maintain an inventory of Cleavage Enzyme that is no less than one hundred fifty milligrams (150 mg) of each Cleavage Enzyme that it is obligated to supply under this Agreement. Thereafter, TWTI will maintain an inventory of no less than ten percent (10%) of the average of the total quantity of Cleavage Enzyme ordered by ACLA, and which TWTI was obligated to supply, in accordance with this Article 2 for delivery in each of the three (3) calendar quarters immediately preceding the then current calendar quarter. ARTICLE 3 Payment Provisions 3.1 Payment. ACLA shall make full payment to TWTI for all Cleavage Enzyme shipped hereunder no later than forty-five (45) days from the date of TWTI's invoice; except that the balance of the Transfer Price for Cleavage Enzyme provided to Enabled Customers, or used by ACLA, shall be paid to TWTI in accordance with the License Agreement. 3.2 Mode of Payment. All payments shall be made by check or direct wire transfer of United States Dollars in immediately available funds in the requisite amount to such bank account as TWTI may from time to time designate by written notice to ACLA; provided that all payments above One Million United States Dollars (U.S. $1,000,000) shall be made by direct wire transfer. 3.3 Taxes. Transfer Prices do not include, and payments will be made without reduction for, taxes (such as, without limitation, sales and withholding taxes), fees or charges imposed by government authorities. If TWTI has the legal obligation to collect and/or pay any such sales, use, excise, value added, or similar taxes in connection with the transfer of Cleavage Enzyme hereunder, then the appropriate amount shall be invoiced to and paid by ACLA, unless ACLA provides TWTI with a valid tax exemption certificate authorized by the appropriate taxing authority. Any such taxes, duties, fees, and charges shall otherwise be the sole responsibility of, and shall be paid by, ACLA, and ACLA shall indemnify TWTI from and against all such amounts. ACLA shall provide TWTI with official receipts issued by the appropriate taxing authority, or such other evidence, each as is reasonably requested by TWTI to establish that such amounts have been properly paid. Notwithstanding the foregoing, TWTI shall be solely responsible for its own income taxes. Subject to the foregoing, TWTI agrees to 16 cooperate reasonably with ACLA regarding the formalities of shipment, customs clearance, and the like, for shipments of Cleavage Enzyme outside the United States if reasonably possible to reduce ACLA's taxes, without additional cost or expense to TWTI, through the manner in which such formalities are handled and whether they are handled by TWTI or ACLA. 3.4 Late Payment. Any payments or portions thereof due hereunder which are not paid when due shall bear interest equal to the lesser of the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional two percent (2%), or the maximum rate permitted by law, calculated on the number of days after TWTI provides ACLA with written notice that the payment is past due. This Section 3.4 shall in no way limit any other remedies available to either Party. ARTICLE 4 Labeling All Cleavage Enzyme obtained by ACLA under this Agreement shall be labeled, prior to distribution by ACLA to any other party, with the TWTI Marks in accordance with Section 3.7 of the License Agreement and with the field of use restrictions applicable in accordance with this Agreement and the License Agreement. ARTICLE 5 Confidentiality 5.1 Confidential Information. All Confidential Information provided by a Party in connection with this Agreement will be treated as Confidential Information provided by such Party under the License Agreement and will be subject to the terms of the License Agreement. TWTI shall have the right to use Confidential Information provided by ACLA to perform its obligations under this Agreement. A breach of Article 7 of the License Agreement by a Party, however, shall be treated as a breach of both this Agreement and the License Agreement. 5.2 Terms of Agreement; Press Release. Except to the extent required by applicable law or as otherwise permitted in accordance with this Section 5.2, neither Party shall disclose or make any public announcements concerning this Agreement or the terms hereof without the prior written consent of the other Party. Notwithstanding the foregoing, each Party shall have the right to issue a press release in accordance with the License Agreement and to disclose this Agreement, and its terms (i) to advisors and investors on a need-to-know basis under conditions which reasonably ensure the confidentiality thereof; (ii) as required by any court or other governmental body; (iii) as otherwise required by law; (iv) in confidence to legal counsel of such parties; (v) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement; (vi) in confidence, in connection with a merger, acquisition of stock or assets, proposed merger or acquisition, or the like; or (vii) as required in connection with any government or regulatory filings, including without limitation filings with the SEC; provided that such disclosing Party shall: (a) give reasonable advance written notice to the non-disclosing Party of the proposed disclosure and the reason for such disclosure; (b) consider in good faith comments and requests of the non-disclosing Party regarding such proposed disclosure that are received by the disclosing Party within two (2) business days after the non-disclosing Party's 17 receipt of the proposed disclosure; and (c) use reasonable efforts to secure confidential treatment of such disclosed information. 5.3 Proprietary Markings. Neither Party shall remove or obscure any trademark, trade name, copyright notice, patent marking or other proprietary notice from any Cleavage Enzyme or materials provided to it by the other Party in connection with this Agreement. ARTICLE 6 Representations and Warranties 6.1 Representations by TWTI. TWTI represents and warrants that as of the Effective Date that: (i) it is duly organized and validly existing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to enter into this Agreement; (ii) it has taken all corporate actions necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement; (iii) it has the rights to grant the rights and licenses under Section 2.10; (iv) to TWTI's knowledge as of the Effective Date, the making, using, and selling of Cleavage Enzyme identified in Exhibit 2.2 does not require the infringement of the Intellectual Property Rights of any Third Party; (v) the performance of its obligations under this Agreement do not conflict with, or constitute a default under its charter documents, any contractual obligation of TWTI or any court order; and (vi) that all materials deposited in Escrow under Section 2.10(a) as of the Effective Date are under TWTI Control. 6.2 Representations by ACLA. ACLA represents and warrants that, as of the Effective Date: (i) it is duly organized and validly existing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to enter into this Agreement; (ii) it has taken all corporate actions necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement; and (iii) the performance of its obligations under this Agreement do not conflict with, or constitute a default under its charter documents, any contractual obligation of ACLA or any court order. 6.3 Disclaimer of Warranties. EXCEPT AS SPECIFICALLY SET FORTH IN THIS ARTICLE 6 OR SECTION 2.9(a), NO PARTY MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, NON-INFRINGEMENT, AND ANY OTHER STATUTORY WARRANTY. ARTICLE 7 Term and Termination 7.1 Term. This Agreement will commence upon the Effective Date and, unless earlier terminated, shall continue in effect until expiration or termination of the License Agreement for any reason (the "Term"). 7.2 Termination for Cause. Either Party shall have the right to terminate this Agreement upon final determination, in accordance with Section 8.7 below, of material failure by the other Party to comply with any term of this Agreement. Subject to the foregoing, a failure 18 of ACLA to make payment shall be considered such a material failure unless cured within fifteen (15) days of receipt of written notice of such non-payment. 7.3 Cross Termination with License Agreement. This Agreement shall terminate immediately without requiring any action by either Party upon any termination or expiration of the License Agreement. Notwithstanding the foregoing, in the event that the License Agreement expires in accordance with Section 10.1 of the License Agreement, then TWTI will agree to extend the Term of this Agreement until the later of ten (10) years after the Effective Date or eight (8) calendar months after such expiration of the License Agreement, provided that, in consideration of such agreement by TWTI, ACLA enters into a written agreement with TWTI (the "Extension Agreement") that (i) prevents such Cleavage Enzyme, and any Probe Sets and Licensed Products, from being used, distributed, or otherwise exploited in any manner other than in the same manner as was permitted by the License Agreement prior to its expiration, (ii) obligates ACLA to make payments to TWTI in the same manner as was required under the License Agreement prior to such expiration, and (iii) otherwise includes the same terms and conditions as the License Agreement, excluding Section 6.4 and provided that the period of confidentiality in Section 7.1 shall be extended by a mutually agreed amount and ACLA's indemnity to TWTI in Section 9.2 shall be modified to indemnify TWTI in an equivalent manner, but to reflect the fact that ACLA may not be exercising licenses under TWTI's Intellectual Property Rights. It is acknowledged and agreed that TWTI's agreement to extend the Term of this Agreement would be provided in consideration for such agreement by ACLA, including to pay the same amounts as set forth in the License Agreement after expiration of Patents in the TWTI IP. Notwithstanding the foregoing, TWTI shall no obligation to grant any additional rights or licenses to ACLA under TWTI's Intellectual Property Rights in connection with such agreement between the Parties, whether through implied licenses or exhaustion associated with the sale of Cleavage Enzyme, or otherwise, and ACLA shall receive no rights or licenses beyond those granted in the License Agreement. Notwithstanding the above, except pursuant to the Extension Agreement, ACLA shall be under no obligation to purchase Cleavage Enzyme from TWTI and TWTI shall be under no obligation to supply Cleavage Enzyme to ACLA after the expiry of the License Agreement. 7.4 Consequences of Termination or Expiration. (a) Return of Materials. Upon termination or expiration of this Agreement each Party will promptly return all records and materials in its possession or control containing or comprising the other Party's know-how or other Confidential Information to which the former Party does not expressly retain rights hereunder or under the License Agreement. (b) Accrued Liability. Termination or expiration of this Agreement for any reason shall not release either Party hereto from any liability which at the time of such termination or expiration has already accrued to the other Party prior to such time. Such termination or expiration will not relieve a Party from accrued payment obligations or from obligations which are expressly indicated in this Agreement to survive termination or expiration of this Agreement. (c) Survival. The following Articles and Sections of this Agreement shall survive its termination or expiration: Articles 1, 3, 5, 6, and 8 and Sections 2.2(b), 2.5(d), 2.8(a) 19 (last sentence), 2.8(b) (last sentence), 2.9(a), 2.9(b) (last sentence), 2.9(c), 2.9(d), 6.3, 7.3 and 7.4. All obligations to make payments to TWTI shall survive any expiration or termination of this Agreement. In addition, upon expiration, but not earlier termination, ALCA's rights under Section 2.10(b) in the trade secrets within the TWTI Technology shall survive; otherwise all rights and licenses granted to ACLA under Section 2.10 shall terminate. To the extent requested by TWTI in the event of any termination or expiration of this Agreement, ACLA shall be obligated to purchase for delivery no later than thirty (30) days thereafter, and in accordance with the terms and conditions of this Agreement, including pricing, in effect prior to such termination or expiration, the inventory of Cleavage Enzyme that TWTI was required to maintain under Section 2.13. ARTICLE 8 General Provisions 8.1 Relationship of the Parties. The Parties are independent contractors. Nothing in this Agreement is intended or will be deemed to constitute a partnership, agency or employer-employee relationship between the Parties. Neither Party will incur any debts or make any commitments for the other Party. 8.2 Assignments. Except as expressly provided herein, neither this Agreement nor any interest hereunder will be assignable, nor any other obligation delegable, by a Party without the prior written consent of the other Party; provided, however, that a Party shall have the right to assign and otherwise transfer this Agreement as a whole without consent to any successor that acquires all or substantially all of the business or assets of such Party by way of merger, consolidation, other business reorganization, or the sale of stock or assets, provided that the assigning Party notifies the other Party in writing of such assignment, both the License Agreement and the InvaderCreator Access Agreement are concurrently transferred in their entirety to such successor in accordance with their terms, and such successor agrees in writing to be bound by the terms and conditions of this Agreement, the License Agreement, and the InvaderCreator Access Agreement. This Agreement shall be binding upon successors and permitted assigns of the Parties. Any assignment not in accordance with this Section 8.2 will be null and void. 8.3 Force Majeure. Except with respect to payment of money, no Party shall be liable to the other for failure or delay in the performance of any of its obligations under this Agreement for the time and to the extent such failure or delay is caused by earthquake, riot, civil commotion, war, terrorist acts, strike, flood, or governmental acts or restriction, or other cause that is beyond the reasonable control of the respective Party. The excused Party shall be excused for a time period reasonably sufficient to remedy the effects of such an event. The Party affected by such force majeure will provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and will use commercially reasonable efforts to overcome the difficulties created thereby and to resume performance of its obligations as soon as practicable. If the performance of any such obligation other than supply of Cleavase Enzyme under this Agreement is delayed owing to such a force majeure for any continuous period of more than one hundred eighty (180) days, the Parties hereto will consult with respect to an equitable solution, including the possibility of the mutual termination of this Agreement. 20 8.4 Entire Agreement of the Parties; Amendments. This Agreement, the License Agreement, the InvaderCreator Access Agreement, the Letter related to the Transition Manufacturing Plan and the Letter related to InvaderCreator Access Prior to Implementation of Updates, all entered into concurrently, constitute and contain the entire understanding and agreement of the Parties respecting the subject matter hereof and except as expressly provided in Section 2.1 of the License Agreement cancels and supersedes any and all prior and contemporaneous negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter, including, without limitation, the Development and Commercialization Agreement. No waiver, modification or amendment of any provision of this Agreement will be valid or effective unless made in writing and signed by the Parties. 8.5 Captions. The captions to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement. 8.6 Governing Law. This Agreement will be governed by and interpreted in accordance with the laws of the State of California, applicable to contracts entered into and to be performed wholly within the State of California, excluding conflict of laws principles. 8.7 Dispute Resolution. (a) General. Except as otherwise provided in this Section 8.7 below, in the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement or the rights or obligations of the Parties hereunder, either Party shall have the right to initiate dispute resolution by sending written notice of the dispute, and an intent to arbitrate such dispute, to the other Party; provided, however, that any dispute concerning the scope, construction, validity, enforceability or infringement of any Patent within the TWTI Technology shall be heard and decided in a court of competent jurisdiction under the local patent laws of the jurisdictions having issued the Patent or Patents in question. Within twenty (20) days after such notice (either, a "Dispute Notice"), each Party shall cause its Chief Executive Officer or the Chief Executive Officer's high-level executive (at the vice president level or higher) to meet in person to negotiate in good faith a resolution to the dispute within twenty (20) days of the first such meeting. If the dispute is unresolved during such period, then any Party may initiate arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA") then in force. The Parties shall use their commercially reasonable efforts to conclude the arbitration within six (6) months after the arbitrator has been appointed. The venue of such arbitration shall be in Madison, Wisconsin for disputes brought by ACLA and Santa Clara County, California for disputes brought by TWTI. (b) Judgments. An award rendered pursuant to this Section 8.7 shall be final and binding upon all parties participating in such arbitration. The arbitrator may, upon competent proof, grant any remedy or relief that the arbitrator deems just and equitable under the terms and conditions of this Agreement. Nothing in this Agreement shall be deemed as preventing any Party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of the dispute. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and/or an order of enforcement as the case may be. 21 (c) Preliminary Injunctions. Notwithstanding anything to the contrary in this Section 8.7, a Party shall have the right to seek a temporary restraining order or preliminary injunction from any court of competent jurisdiction in order to prevent immediate and irreparable injury, loss or damage on a provisional basis, pending the decision of the arbitrator(s) on the merits under this Section 8.7. 8.8 Notices and Deliveries. Any notice, request, delivery, approval or consent required or permitted to be given under this Agreement will be in writing and will be deemed to have been sufficiently given if delivered in person, transmitted by telecopier (receipt verified) or by express courier service (signature required) or five (5) days after it was sent by registered letter, return receipt requested (or its equivalent), provided that no postal strike or other disruption is then in effect or comes into effect within two (2) days after such mailing, to the Party to which it is directed at its address or facsimile number shown below or such other address or facsimile number as such Party will have last given by notice to the other Party. If to TWTI, addressed to: Third Wave Technologies, Inc. 502 South Rosa Road Madison, Wisconsin 53719 Attn.: President Fax: 608-273-8618 With a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Attn.: Ian B. Edvalson, Esq. Fax: 650-493-6811 If to ACLA, addressed to: ACLA BioSciences, Inc. 1288 Pear Avenue Mountain View, California 94043 Attn.: President and CEO Fax: 650-210-9271 With a copy to: Latham & Watkins 135 Commonwealth Drive Menlo Park, California 94025 Attn.: Michael W. Hall, Esq. Fax: 650-463-2600 22 8.9 No Consequential Damages. EXCEPT WITH RESPECT TO UNAUTHORIZED EXPLOITATION OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS OR BREACH OF CONFIDENTIALITY, IN NO EVENT WILL ANY PARTY OR ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE ANY OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY, OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE OR CLAIMS OF CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH DAMAGES. 8.10 Waiver. A waiver by any Party of any of the terms and conditions of this Agreement in any instance will not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement will be cumulative and none of them will be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party. 8.11 Severability. When possible, each provision of this Agreement will be interpreted in such manner as to be effective, valid, and enforceable under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid, or unenforceable under applicable law, or causes an Intellectual Property Right of either Party to be unenforceable, such provision will be ineffective only to the extent of such prohibition, unenforceability, or invalidity, without invalidating the remainder of this Agreement. The Parties will make a good faith effort to replace the applicable provision with a valid one, or one that remedies the unenforceability of the Intellectual Property Rights, as applicable, which the Parties agree has effect that is consistent with the original provision. In the event the Parties do not agree upon such a substitute provision, either Party shall have the right to terminate this Agreement by providing sixty (60) days written notice of termination to the other. 8.12 Compliance with Laws. Notwithstanding anything to the contrary contained herein, all rights and obligations of ACLA and TWTI are subject to prior compliance with, and each Party shall comply with, all United States and foreign export and import laws, regulations, and orders, and such other United States and foreign laws, regulations, and orders as may be applicable, including obtaining all necessary approvals required by the applicable agencies of the governments of the United States and foreign jurisdictions. 23 8.13 Counterparts. This Agreement may be executed simultaneously in any number of counterparts, any one of which need not contain the signature of more than one Party but all such counterparts taken together will constitute one and the same agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the Effective Date, each copy of which will for all purposes be deemed to be an original. Third Wave Technologies, Inc. ACLARA BioSciences, Inc. By: ____________________________________ By:_________________________________ Name: __________________________________ Name: ______________________________ Title: _________________________________ Title: _____________________________ Date: __________________________________ Date: ______________________________ 24 EXHIBIT 1.16 Transfer Price CLEAVASE *** AND CLEAVASE ***: - -------------------------------------------------------------------------------- Volume Price per microgram Total Invoice Price - -------------------------------------------------------------------------------- *** *** *** - -------------------------------------------------------------------------------- *** *** *** - -------------------------------------------------------------------------------- *** *** *** - -------------------------------------------------------------------------------- CLEAVASE X AND CLEAVASE XI: - -------------------------------------------------------------------------------- Transfer Price *** - -------------------------------------------------------------------------------- __________________ ***Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit 2.2 Cleavage Enzyme(s) *** *** *** *** _______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit 2.11 Manufacturing Entity A. Formation of Manufacturing Entity. Subject to the terms and conditions of this Agreement, this Exhibit 2.11 and such other terms and conditions as would be required to allow ACLA to exercise its Back Up Manufacturing rights *** TWTI and ACLA shall organize and establish upon the occurrence of a Trigger Event (as defined in Paragraph A.5 of this Exhibit 2.11 below) the entity, as described in this Exhibit 2.11 (the "Manufacturing Entity"), ***. 1. Form. Unless otherwise agreed in writing by the Parties, the Manufacturing Entity shall ***. 2. Control. Subject to the terms and conditions of this Agreement and this Exhibit 2.11, TWTI and ACLA agree that ***. Accordingly, *** in accordance with this Agreement and the License Agreement. Without limiting the foregoing, the Manufacturing Entity shall ***. 2. Formation and Governance Documents and Agreements. Except to the extent that terms are expressly required by this Agreement, all terms regarding formation, governance, and operation of the Manufacturing Entity shall be determined ***. 3. Capitalization. TWTI and ACLA will be ***. Manufacturing Entity shall have ***. Without limiting the foregoing, the Manufacturing Entity shall ***. Notwithstanding anything to the contrary, TWTI ***. 4. Trigger Events. For purposes of this Exhibit 2.11, "Trigger Event" means the occurrence of any of the following: (i) Failure to Supply. a Failure to Supply has occurred; (ii) Filing of a Petition in Bankruptcy. the filing by TWTI, in any court or agency pursuant to any statute or regulation of the United States or of any individual state or foreign country, of a petition in bankruptcy or for the appointment of a receiver or trustee for TWTI or all or substantially all of its assets, or of a petition for any other equivalent proceedings in any such court or agency; (iii) Involuntary Bankruptcy. if TWTI is served with an involuntary petition against it in bankruptcy, or a petition for the appointment of a receiver or trustee for TWTI, or all or substantially all of TWTI's assets, or for any other equivalent proceedings, under any such __________________ ***Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. statute or regulation and in any such court or agency, and such petition is not dismissed with sixty (60) days after the filing thereof; or (iv) Dissolution for Benefit of Creditors. if TWTI shall propose or be a party to any dissolution or liquidation of TWTI, or if TWTI shall make an assignment of all or substantially all of its assets for the benefit of creditors. B. Backup Manufacturing Agreement. Except for the agreement described in this Paragraph B of this Exhibit 2.11 and the rights and licenses therein, ***. Promptly after formation of the Manufacturing Entity and upon written request by ACLA, TWTI and Manufacturing Entity shall enter into a written agreement (the "Backup Manufacturing Agreement") pursuant to which (i) TWTI shall grant to the Manufacturing Entity a non-exclusive, non-transferable license under the TWTI Technology, without right to grant or authorize sublicenses, as necessary to make, and have made Cleavage Enzyme that complies with the Specification of any Cleavage Enzyme for which a Release Condition has occurred, and if such Release Condition occurred as a result of an event of the type described in Section 8.3 of the Agreement, has not been cured pursuant to Section 2.10(d) of the Agreement, solely for purposes of supply to ACLA (and no other party) of its requirements of such Cleavage Enzyme for purposes of ACLA exercising its rights and licenses under the License Agreement and (ii) Manufacturing Entity shall covenant not exercise its rights to manufacture, and have manufactured, a Cleavage Enzyme unless a Release Condition has occurred with respect to the Cleavage Enzyme and the Deposit Materials for the particular Cleavage Enzyme have been released to ACLA. The Backup Manufacturing Agreement shall include reasonable and customary terms and conditions for a license under these conditions and the applicable terms and conditions from this Agreement including Sections 2.10(b) through (f) with the Manufacturing Entity being substituted for ACLA thereunder mutatis mutandis. Additionally, the Backup Manufacturing Agreement shall include other terms and conditions reasonable and customary in such a license under the circumstances, including a covenant that Manufacturing Entity engage in only those activities that are reasonably necessary to manufacture Cleavage Enzyme for supply to ACLA for distribution and use solely in accordance with this Agreement and the License Agreement. C. Tax Matters. The Parties shall mutually designate the "tax matters partner" of the Manufacturing Entity within the meaning of Section 6231(a)(7) of the United States Internal Revenue Code of 1986, as amended (the "Code"), so as to minimize the tax implications of the Manufacturing Entity to the Parties. Except to the extent specifically provided in the Code or the any regulation issued by the United States Treasury Department relating to the Code (or the laws of relevant non-Federal taxing jurisdictions), the tax matters partner shall cooperate with the other Party with regard to tax matters, including the authority to make (or decline to make) any available tax elections so as to minimize the tax implications of the Manufacturing Entity to the Parties. ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. D. No publicity. Without the prior written approval *** shall not issue, nor authorize or cause any other party to do so on its behalf, any public announcement or other public statement. E. Information Rights. *** agrees promptly to provide *** with such information as it may reasonably request related to the operation of the Manufacturing Entity. Without limiting the foregoing, *** shall cause the Manufacturing Entity to maintain complete and accurate books and records regarding all finances and operations of the Manufacturing Entity in a manner reasonably determined by ***, and *** shall have full access to and audit rights of such books and records at all times upon request. F. Indemnification. *** shall indemnify, defend and hold *** and its Affiliates, agents, employees, officers and directors *** harmless from and against the entirety of any and all Third Party actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses (collectively, "Claims"), that *** may suffer resulting from, or arising out of, or relating to the ***; ***. H. Term/Wind up of the Manufacturing Entity. The term of the Manufacturing Entity shall continue until expiration or termination of this Agreement. Any time after termination of the Backup Manufacturing Agreement for any reason or expiration of the Manufacturing Entity's term, TWTI shall ***. J. Compliance with Laws. Notwithstanding anything to the contrary and with the exception of those activities within the control of ***, and the Manufacturing Entity shall be obligated in the Backup Manufacturing Agreement to comply with, any and all laws, rules, regulations, codes, orders, ordinances, and other requirements (including common law) ("Laws") of any international, national, federal, state, foreign, provincial, municipal, local, or other governmental body, including without limitation obtaining all necessary approvals and licenses and complying with all export, import, and tax Laws. With the exception of activities within the control of *** in accordance with applicable Law all amounts that may be necessary or prudent for the Manufacturing Entity to pay under applicable Law. K. Further Assurances. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as it agrees are reasonable or necessary to carry out the purposes of this Exhibit 2.11 including without limitation, as may be necessary to perfect and give notice to Third Parties of ACLA's rights hereunder. Additionally, *** hereby covenants to operate Manufacturing Entity solely in accordance with this Exhibit 2.11 and solely for the purposes of supply to ACLA of Cleavage Enzymes in accordance with Section 2.10 of the Agreement reasonably required for its exercise of its rights under the License Agreement and for no other purpose. ________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit 2.12 Restricted Entities (The Restricted Entities listed below are intended to include both the parent entities and their respective Affiliates) *** *** *** *** _______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. EX-10.34 5 dex1034.txt INVADERCREATOR AGREEMENT THIRD WAVE DTD 10/15/02 Exhibit 10.34 INVADERCREATOR ACCESS AGREEMENT This InvaderCreator Access Agreement ("Agreement"), effective as of October 15, 2002 (the "Effective Date"), is entered into by and between Third Wave Technologies, Inc., organized under the laws of Delaware and having its principal place of business at 502 S. Rosa Road, Madison, Wisconsin 53719 ("TWTI"), and Aclara Biosciences, Inc., organized under the laws of Delaware and having its principal place of business at 1288 Pear Avenue, Mountain View, California 94043 ("ACLA"). BACKGROUND A. TWTI and ACLA have entered into that certain License Agreement of even date herewith (the "License Agreement") and Supply Agreement of even date herewith (the "Supply Agreement"). B. As contemplated in and in connection with the License Agreement, TWTI will provide access to the InvaderCreator Software (as defined below) in order to enable the exercise of rights with respect to Licensed Products in accordance with the License Agreement, all as set forth in more detail below. NOW, THEREFORE, for and in consideration of the covenants, conditions and undertakings hereinafter set forth, TWTI and ACLA each agree as follows: ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms shall have the meanings indicated: 1.1. Terms from the License Agreement. Each of the terms "Cleavage Enzyme," "Development and Commercialization Agreement," "Enabled Customer," "Gene Expression Field," "Genotyping Field," "Intellectual Property Rights," "Invader Probe," "Licensed Product," "Manufacturing Distributor," "Party," "Parties," "Patent," "Primary Probe," "Target," "Technology," "Technology Access Partner," "Third Party" and "Value Added Distributor" shall have the meaning given to the particular term in the License Agreement. Invader(R) and Cleavase(R) are registered trademarks of TWTI, but are printed in this Agreement without the registration mark for convenience. Similarly, InvaderCreator is a trademark of TWTI, but is printed in this Agreement without the TM mark for convenience. Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as * * *. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. 1.2. "Applet" shall mean a Java application that runs Invader Probe and Primary Probe selection and design algorithms in the context of an applet viewer, such as a web browser, and has been downloaded by the Host Software to a user's local computer when the user accesses the Host Software over a network, including any updates, improvements, enhancements, and modifications that are downloaded (whether made by TWTI or made by ACLA in accordance with Section 4.3). Except to the extent otherwise expressly stated in this Agreement, Applet shall mean software only in machine readable format. 1.3. "Authorized Designee" shall mean a Manufacturing Distributor, Value Added Distributor, Technology Access Partner, or Enabled Customer under the License Agreement, appointed by ACLA and authorized in accordance with the License Agreement. 1.4. "Authorized User" shall mean an employee of ACLA or an Authorized Designee under whose name a Username and Password have been issued by TWTI or ACLA in accordance with this Agreement. 1.5. "Control" means, (A) with respect to an item of Technology or an Intellectual Property Right, possession by TWTI of the power and authority, whether arising by ownership, license, or other authorization, to disclose and deliver the particular Technology to ACLA, and to grant and authorize the licenses, and sublicenses, as applicable, of or within the scope granted to ACLA in Article 4 of this Agreement without giving rise to any of the following: (i) a violation of the terms of any written agreement with any Third Party; (ii) a violation or infringement of any Patent, copyright, trade secret, or other Intellectual Property Right of any Third Party; (iii) TWTI being required to pay any royalty or other consideration to any Third Party that would not have been required had a license not been provided under this Agreement; (iv) a violation of any law, regulation, rule, code, order or other requirement of any federal, state, foreign, local, or other government body or the need for any additional permits, payments, authorizations, or approvals under any such law, regulation, rule, code, order or requirement. Notwithstanding, the provisions of clause (iii) of this Section 1.5, an item of Technology or an Intellectual Property Right shall be deemed to be Controlled by TWTI for purposes of clause (iii) above, if ACLA agrees in writing to (A) reimburse TWTI for all amounts payable to a Third Party that would not have been required had a license not been provided under this Agreement or pay such amounts directly to such Third Party, at the election of TWTI, and (B) reimburse TWTI for fifty percent (50%) of any upfront, licensing, milestone or other consideration payable to such Third Party, (but excluding from this clause (B): (1) consideration payable as a result solely of the exercise of rights under such item of Technology or Intellectual Property Rights by other than entities acting by or under authority of the ACLA (i.e. running royalties) and (2) amounts included in clause (A) above). 1.6. "Hosting Environment" shall mean the servers, and associated hardware, operated by TWTI or its hosting contractor at the facilities of TWTI or such contractor to host the Host Software. For clarity, the Hosting Environment shall be limited to the local area network of TWTI or its contractor at such facilities used to make the Host Software available, extending -2- only to the routers of TWTI or its contractor used to host the Host Software, and excluding services performed by any party other than TWTI or its hosting contractor. 1.7. "Host Software" shall mean the software, including any updates, improvements, enhancements, and modifications to such software, (i) made available by TWTI hereunder during the Term at the web address specified by TWT for "Host Software" or (ii) made by ACLA in accordance with Section 4.3; all of the foregoing to the extent all of the following is true: (A) it is directed at designing Invader Probes and Primary Probes for use in an Invader Reaction to detect and/or quantify deoxyribonucleic acid or ribonucleic acid; (B) it is designed to be hosted on servers for access over the Internet in the manner contemplated in this Agreement; and (C) it is reasonably necessary in order for ACLA to exercise its licenses in accordance with the License Agreement. For clarity, the Host Software shall not include any functionality or features to the extent not reasonably necessary for ACLA to exercise its rights under the License Agreement. 1.8. "InvaderCreator Seat" shall mean a single Username, and associated Password, for access to or use of the InvaderCreator Software. 1.9. "InvaderCreator Software" shall mean the Host Software, the Servlet and the Applet. Except to the extent otherwise expressly stated in this Agreement, InvaderCreator Software shall mean software only in machine readable format. 1.10. "Password" shall mean a password issued by TWTI or ACLA in accordance with this Agreement for access to and use of the Host Software and Applet solely under the Username, and by the particular user, for which the password is issued. 1.11. "Servlet" shall mean a Java class provided by TWTI that runs on a server in a Java Virtual Machine, that receives the design output sequences from the Applet, and which may be programmed to store such output on the server or at a storage location accessible to the server, including any updates, improvements, enhancements, and modifications that are provided by TWTI for purposes of providing such functionality or that are made by ACLA in accordance with this Agreement. Except to the extent otherwise expressly stated in this Agreement, Servlet shall mean software only in machine readable format. 1.12. "TWTI Marks" shall mean the trademarks, trade names, and logos that are displayed by the InvaderCreator Software prior to release of the Source Code under Article 4, as updated by TWTI in accordance with this Agreement. 1.13. "Release Condition" shall mean the occurrence of any of the following: 1.13.1 the Host Software and/or Applet have been continuously unavailable under this Agreement at the web address specified by TWTI for a period of one (1) week due to the fault of TWTI and not due to an event of the type described in Section 9.3; or -3- 1.13.2 the Host Software and/or Applet have been continuously unavailable under this Agreement at the web address specified by TWTI for a period of one (1) week due to an event of the type described in Section 9.3, and TWTI has failed to resume availability within thirty (30) days after receiving written notice from ACLA after the occurrence of such unavailability; or 1.13.3 TWTI has materially breached its representation and warranty set forth in Section 7.1.1 and has failed to cure the breach within ninety (90) days after receiving written notice thereof from ACLA; or 1.13.4 TWTI has provided written notice to ACLA in which TWTI indicates that it plans discontinue its efforts to make the InvaderCreator Software available in accordance with this Agreement and that ACLA is free to exercise its rights in accordance with Article 4; or 1.13.5 (i) TWTI has made a change to the InvaderCreator Software that it makes available under this Agreement which ACLA reasonably believes materially adversely affects the performance or compatibility of the Invader Probe or Primary Probe designs generated by the InvaderCreator Software for use in Licensed Products, or has made a material change to its requirements for the computers or software needed to access the InvaderCreator Software over the Internet that would require ACLA and Authorized Designees to incur substantial additional cost, (ii) ACLA has notified TWTI of such belief and its desire to have TWTI continue to make the prior version of the InvaderCreator Software available under this Agreement, and (iii) TWTI has failed to notify ACLA in writing within one (1) week after TWTI's receipt of such notice from ACLA that TWTI agrees to make the prior version so available or has failed to continue to make such prior version so available within one (1) week after TWTI's receipt of such notice from ACLA. Notwithstanding anything to the contrary, unavailability arising out of or related to any hardware, software, facilities, or Technology other than the Host Environment and the InvaderCreator Software made available by TWTI shall not be considered to be unavailability within the meaning of this Section 1.11. 1.14. "Source Code" means (i) any human perceivable form of the Invader Creator Software made available by TWTI under this Agreement, or the associated databases, and programmers' comments, technical specifications, flowcharts, written bug reports, and logic diagrams concerning such human perceivable code, each to the extent existing at TWT at the time of deposit; (ii) any human perceivable code or documentation made by ACLA based upon or derived from the foregoing Technology of TWTI, including without limitation all derivative works; and (iii) any portion or human perceivable derivatives or copies of any of the foregoing. 1.15. "Term" shall mean the term of this Agreement as set forth in Section 8.1 below. -4- 1.16. "Username" shall mean a username issued by TWTI or ACLA in accordance with this Agreement for access to and use of the InvaderCreator Software solely by the particular user of ACLA, or the Authorized Designee, for which the username is issued. ARTICLE 2 Network and Software 2.1. Environment and Software. The Host Software operates on servers located at the facilities of TWTI or its contractor (except to the extent set forth in Article 4), the Applet operates on the Authorized User's local computer, and the Servlet operates on a server located at the facility of ACLA, its hosting contractor, an Enabled Customer, or a Manufacturing Distributor, provided that no more than a total aggregate amount of twenty five (25) Servlets will be installed on servers of Enabled Customers and Manufacturing Distributors. Access to and use of the Host Software, Applet and Servlet is limited to access and use in accordance with Articles 2 and 3 of this Agreement, except for backup rights of ACLA to the extent expressly set forth in Article 4 of this Agreement. The Applet may be accessed only at the web address specified by TWTI using a valid Username and Password; it being acknowledged and agreed that ACLA may include a link to such web address on ACLA's web site. TWTI may change the web addresses from time to time by providing ten (10) days advance written notice of the change to ACLA. Although the Applet can be operated only within such web site, it presents the web site to the Authorized User and processes the designs for Invader Probes and Primary Probes on the Authorized User's local computer. In order to create probe designs, the Authorized User will log in on such web site using the Username and Password and, after the Host Software downloads the Applet to the Authorized User's local computer, the Authorized User will enter input sequence information for generating the designs. The Applet creates the designs using such information and sends the designs to the Host Software or the Servlet as described in this Section 2.1 below. The sequence information entered by the Authorized User will not be sent to the Host Software, but the designs generated by the Applet will be sent to the Host Software unless the Applet is configured to send the output to a Servlet rather than the Host Software. Subject to the terms and conditions of this Agreement, ACLA and its Enabled Customers and Manufacturing Distributors may program the Servlet to store the designs on the server on which the Servlet is installed or at a location that ACLA or the applicable Authorized Designee makes accessible to the server and Servlet all as more fully described in Section 2.4.2 below. ACLA shall provide to TWTI in advance the compatible network address of the server on which the Servlet will be installed so that the Applet may be configured to send its output to the Servlet consistent with TWTI's then current lead time. Nothing shall prevent TWTI from displaying its trademarks, trade names and logos on and through the InvaderCreator Software. 2.2. Other Equipment and Software. Other than the Hosting Environment, the InvaderCreator Software, and the support described in Section 2.4, ACLA and its Authorized Designees shall be solely responsible for obtaining, configuring, maintaining, and operating at their sole cost and expense, all hardware, software, services, and other Technology that may be -5- necessary or desirable for accessing or using the InvaderCreator Software in accordance with TWTI's technical specifications as updated by TWT from time to time in its sole discretion, including computers, servers, web browsing software, Internet connections and accounts, and the like, or necessary to comply with ACLA's security obligations under this Agreement. For clarity, other than the support described in Section 2.4, ACLA shall be solely responsible for installing, configuring, programming, modifying, maintaining, and operating at its facilities, and the facilities of its Enabled Customers and Manufacturing Distributors described in Section 2.1, the Servlet provided by TWTI, including without limitation to program the Servlet to store output at desired storage locations and assisting and training its Manufacturing Distributors and Enabled Customers to install, configure, modify, program, maintain and operate the Servlet in accordance with the terms and conditions of this Agreement. ACLA may modify the Servlet, provided that no modifications to the Servlet shall be made that affect compatibility, interoperability, or operation with the Applet or Host Software, and TWT shall have no responsibility or obligation with respect to any Servlet that has been modified by ACLA. 2.3. Availability. 2.3.1 Notwithstanding anything to the contrary, but subject to ACLA's rights in accordance with this Agreement under Article 4, TWTI shall have the right to make the InvaderCreator Software unavailable at any time for maintenance, updates, upgrades, or performance or other similar concerns. TWTI will attempt in good faith to provide ACLA with notice of such scheduled unavailability. ACLA acknowledges and agrees, however, that the InvaderCreator Software may also become unavailable from time to time as a result of events or factors that are beyond TWTI's reasonable control, including problems with hardware, networks, or software at the facilities of, and/or operated by, TWTI or its contractor; and force majeure events of the type contemplated in Section 9.3. 2.3.2 NO INTERRUPTION, DISRUPTION, OR UNAVAILABILITY OF THE INVADERCREATOR SOFTWARE SHALL BE CONSIDERED TO BE A BREACH BY TWTI, AND TWTI SHALL HAVE NO LIABILITY OR RESPONSIBILITY ARISING OUT OF OR RELATING TO ANY SUCH EVENT, IT BEING ACKNOWLEDGED AND AGREED THAT ACLA'S BACKUP RIGHTS IN ARTICLE 4 BELOW SHALL BE ACLA'S SOLE REMEDY, AND TWTI'S SOLE AND EXCLUSIVE LIABILITY, ARISING OUT OF ANY INTERRUPTION, DISRUPTION, OR UNAVAILABILITY AND FOR ANY BREACH OF THIS AGREEMENT BY TWTI. 2.3.3 The Host Software and Applet shall be deemed to be available, except during each period of time commencing with TWTI's receipt of written notice from ACLA that the Host Software and Applet is unavailable at the web address specified by TWTI under Section 2.1 and ending at such time as the Host Software and Applet are again available. -6- 2.4. Support. 2.4.1 General. Other than providing to ACLA in accordance with TWTI's standard practices from time to time a copy of any end user documentation for the InvaderCreator Software that TWTI may provide under this Agreement and providing the assistance described in Section 2.4.2 in connection with an initial Servlet, TWTI shall have no obligation or responsibility for providing any assistance, support or documentation, whether to ACLA or otherwise, in connection with this Agreement or any InvaderCreator Software. ACLA shall ensure that all Authorized Users and Authorized Designees contact ACLA, and not TWTI, with questions or concerns regarding access to or use of the InvaderCreator Software, including the Servlet. 2.4.2 Servlet. The Servlet will be a Java class that ACLA may program to store probe designs output by the Applet on the server on which the Servlet is installed or at other compatible network addresses that ACLA or its Enabled Customer or Manufacturing Distributor, as applicable, make available to such server and Servlet. TWTI will provide the Servlet to ACLA and will provide assistance and information that is reasonably necessary to enable a software engineer employed by ACLA to install and operate one initial Servlet on a server on a local area network at ACLA's facilities to receive output from Applets used on computers also on such local area network. Such engineer shall be of ordinary skill in programming Java and other applicable software. 2.5. InvaderCreator Updates and Upgrades. Subject to the terms and conditions in this Agreement, including this Section 2.5 below and Section 1.13, it is acknowledged and agreed that TWTI may update, upgrade, and otherwise modify the InvaderCreator Software at any time in its sole discretion, and that such modifications may result in materially different functionality, features, performance, or compatibility. Subject to the terms and conditions of this Agreement, TWTI agrees that it will include in the InvaderCreator Software updates, upgrades and other modifications created by or on behalf of TWTI to the InvaderCreator Software previously available hereunder, provided that the updates, upgrades, and modifications have been made generally commercially available by TWTI to its customers in the manner described in this Agreement, are Controlled by TWTI, and are primarily directed at designing Primary Probes and Invader Probes for Invader Reactions that detect and/or quantify deoxyribonucleic acid or ribonucleic acid. 2.5.1 Particular Updates. TWTI is in the process of modifying the InvaderCreator Software to include functionality for batch processing of input sequences and for output in text format. Additionally, while the Applet currently performs probe design processing on the local computer on which the Applet is installed, TWTI understands that ACLA desires that a Servlet be provided that includes additional functionality that would enable the user to save output files directly to a programmable location, rather than being sent to the Host Software. TWTI anticipates that the InvaderCreator Software will be updated to include functionality for batch processing of input sequences, and to allow text output to be saved to a programmable location, by the end of the first calendar quarter of calendar year 2003, and TWTI -7- agrees to use its commercially reasonable efforts to make such functionality available by such time. It is understood and agreed, however, that such timing is an estimate only and that TWTI shall not be considered to be in breach of this Agreement as a result of any updates not being completed or included by such timing provided that TWTI used and continues to use its commercially reasonable efforts to complete and make such updates available by such time or as soon as practicable thereafter. Because the development will require collaboration with ACLA, ACLA shall provide assistance and cooperation as reasonably requested by TWTI in connection with the development, including providing access to ACLA's facilities as reasonably requested by TWTI in order to install and test the updates and software, or otherwise for purposes of the development, and making available qualified technical employees to assist TWTI in the development. TWTI shall not be responsible for any delays or incomplete development as a result of any failure by ACLA to provide assistance or cooperation. 2.5.2 Limitations. Notwithstanding anything to the contrary, TWTI shall have no obligation to include in the InvaderCreator Software any software that TWTI reasonably determines (i) provides or includes functionality or features not reasonably necessary for designing Invader Probes or Primary Probes for Invader Reactions in the Gene Expression Field or Genotyping Field; (ii) is not Controlled by TWTI or will not be made generally available by TWTI to its end user customers as part of TWTI"s software for designing such Invader Probes and Primary Probes in the manner described in this Agreement; or (iii) is in a beta, test, or other form that may not be suitable for general commercialization. Subject to the terms and conditions of this Section 2.5, TWTI shall have no obligation to make any updates, upgrades or modifications to the InvaderCreator Software or perform any custom development. EXCEPT FOR RELEASE OF THE SOURCE CODE IN ACCORDANCE WITH THIS AGREEMENT AND THE ESCROW AGREEMENT, TWTI SHALL HAVE NO RESPONSIBILITY OR LIABILITY ARISING OUT OF ANY CHANGES TO THE INVADERCREATOR SOFTWARE. ARTICLE 3 ACCESS AND USE 3.1. Administrators. Each of ACLA and TWTI will appoint an administrator ("Administrator") who will serve as the primary point of contact with the other Party with regard to access to and use of the InvaderCreator Software under this Agreement. ACLA's Administrator will be responsible for requesting Usernames and Passwords from TWTI as set forth in Section 3.3 below, for coordinating with TWTI's Administrator with respect to all other communications regarding the InvaderCreator Software hereunder, and for ensuring that ACLA provides assistance needed by TWTI in connection with the development as described in Section 2.5.1. The initial Administrator for each Party shall be as follows and may be changed, subject to the foregoing, by providing written notice of the change to the other Party: -8- TWTI: ACLA: Name: Steve Ray Name: Mary Stepp --------- ---------- Position: Director of IT Position: IT Manager -------------- ---------- Voice: 608-273-8933 Voice: 650 210 2966 ------------ ------------ E-mail: sray@twt.com E-mail: mstepp@aclara.com ------------ ----------------- 3.2. Access and Use Rights. Subject to the terms and conditions of this Agreement, TWTI hereby grants to ACLA a non-exclusive, non-transferable (except as set forth in Section 9.2), fee bearing license, without the right to grant or authorize sublicenses except as expressly set forth in Sections 3.3 and 3.4, to access and use the InvaderCreator Software made available by TWTI hereunder in the manner described in Section 2.1 solely to generate designs for eTag Probes and Invader Probes manufactured and distributed, and used in License Product, in accordance with the License Agreement. It is acknowledged and agreed that the InvaderCreator Software outputs Primary Probe designs, rather than eTag Probe designs, and that ACLA will be responsible for using the Primary Probe designs output by the InvaderCreator Software to create eTag Probe designs. There shall be no access to or use of the Host Software or Applet under this Section 3.2, except for (i) access by the Authorized User, logged in under the Username and Password issued to the Authorized User, to the Host Software hosted by TWTI (or hosted by ACLA under Article 4); and (ii) use by such logged in Authorized User of the InvaderCreator Software; each only as contemplated and allowed by the user interface displayed by the InvaderCreator Software. There shall be no access to or use of the Servlet except for access and use by ACLA, and its Manufacturing Distributors and Enabled Customers, of the Servlet installed on the servers of ACLA, its hosting contractor, Enabled Customer, or Manufacturing Distributor, to the extent allowed and described in this Agreement. If ACLA, or a Manufacturing Distributor or Enabled Customer, desires to use a contractor to host the Servlet, ACLA, or the Manufacturing Distributor or Enabled Customer, as applicable shall first enter into a written agreement with the contractor that is at least as protective of TWTI and the Servlet as the terms and conditions of this Agreement. 3.3. Usernames and Passwords. 3.3.1 Issuer. Usernames and Passwords will be issued by either ACLA or TWTI in accordance with this Section 3.3. To the extent that TWTI maintains remote access for ACLA to issue Usernames and Passwords, ACLA's Administrator shall be responsible for such issuance; it being acknowledged that TWTI will have the right to monitor Usernames and Passwords on its system. If TWTI does not maintain such access for ACLA, TWTI will issue Usernames and Passwords, subject to the terms and conditions of this Agreement, based upon written requests provided by ACLA's Administrator to TWTI's Administrator. -9- 3.3.2 Users. Usernames and Passwords shall be issued only for employees of ACLA and its Authorized Designee that have responsibilities in the ordinary course of such employment that include Invader Probe design and/or eTag Probe design for Licensed Product, and for which access is reasonably necessary to exercise the rights of ACLA or the Authorized Designee, as applicable, all in accordance with the License Agreement. 3.3.3 Restricted Disclosure and Use. Usernames and Passwords will be used only by the Authorized User for which they are issued by TWTI or ACLA. Any unauthorized use or disclosure of a Username or Password shall be deemed to be an unauthorized use or disclosure by ACLA and the Authorized Designee that employs the Authorized User for which the Username and Password were issued; provided that TWTI agrees that it will not terminate this Agreement for such a breach by Authorized Users employed by an Authorized Designee not Affiliated with ACLA unless there has been a material breach by ACLA of Section 3.4 below. 3.3.4 Termination and Expiration. Each Username and Password shall expire automatically one (1) year after activation; provided that Usernames and Passwords may be renewed in accordance with this Section 3.3 in the same manner as set forth above. TWTI shall have the right to deny the issuance of, and terminate, Usernames and Passwords for any Authorized Designee, or individual, which has been responsible for an unauthorized use, disclosure, or other exploitation, whether of InvaderCreator Software, License Product, Invader Probes, Primary Probes (including eTag Probes), Cleavage Enzyme, or otherwise, under this Agreement or the License Agreement. 3.4. Authorized Users and Designees. Each of ACLA and its contractors and Authorized Designees shall be responsible for all actions and inactions of its employees. Additionally, ACLA shall use all reasonable commercial efforts to limit the use of the InvaderCreator Software and TWTI's Confidential Information to access and use in accordance with this Agreement, to terminate and cure promptly any unauthorized use or other exploitation that comes to ACLA's attention, and to obtain terms consistent therewith in its agreements with others pursuant to this Agreement, including without limitation the right to terminate the applicable party's rights upon notice and failure to cure within thirty (30) days. Prior to requesting or issuing a Username or Password under this Agreement for an employee of an Authorized Designee, providing a Servlet to a Manufacturing Distributor or Enabled Customer, or otherwise providing the Authorized Designee with access to the InvaderCreator Software, ACLA shall enter into a written agreement with the Authorized Designee that is materially as protective of TWTI, the InvaderCreator Software, and TWTI's other Confidential Information as the terms and conditions of Articles 2, 3, 5.6, 5.7, 6, 7, and 8 of this Agreement. 3.5. Other Restrictions. None of ACLA, and the Authorized Users and Authorized Designees, shall interfere with the operation of the InvaderCreator Software, TWTI's networks or servers, or any other Technology, equipment or facilities of TWTI, including data and applications. ACLA acknowledges and agrees that the Technology used in or by the InvaderCreator Software is sensitive trade secret information of TWTI. Accordingly, in order to protect such trade secrets and TWTI's other rights in and to the InvaderCreator Software and the -10- related Technology, none of ACLA, or the Authorized Users or Authorized Designees, shall, except to the extent that such restrictions are prohibited by applicable law: 3.5.1 attempt to delete, disable, or otherwise circumvent any security measures implemented by TWTI with respect to the InvaderCreator Software, or TWTI's networks or servers, or other Technology, equipment or facilities; 3.5.2 except to the extent expressly authorized in Article 4, reproduce, alter, create derivative works of, disassemble, de-compile, interrogate, translate, transmit, decode, or otherwise reverse engineer any portion of the InvaderCreator Software, or attempt to derive the source code of or the algorithms or Technology (including data and databases) used in or by any portion of the InvaderCreator Software; 3.5.3 except to the extent expressly authorized in Article 4, write or develop any software based upon or developed with reference to (i) the InvaderCreator Software, (ii) any Technology embodied in the InvaderCreator Software or the Source Code, or (iii) any other Confidential Information of TWTI; 3.5.4 allow access to or use of the InvaderCreator Software by or for the benefit of any party other than ACLA or the applicable Authorized Designee; or 3.5.5 assist, permit or authorize any entity to perform any of the activities prohibited by this Agreement. 3.6. License to TWTI. Subject to the terms and conditions of this Agreement, ACLA hereby grants to TWTI a worldwide, perpetual, non-terminable, royalty-free, fully paid up, non-exclusive license under all issued Patent claims for inventions based upon or arising out of the Source Code or the exercise of rights under Article 4, with the right to grant and authorize sublicenses solely in connection with the license or sublicense of other material Intellectual Property Rights owned or controlled by TWTI, to make, have made, use, sell, have sold, offer for sale, import, distribute, disclose, reproduce, and otherwise exploit any and all products, components and services. 3.7. No Other Rights. No access or use shall be made or attempted under the licenses granted by TWTI in this Agreement, except as necessary to exercise rights of ACLA or the Authorized Designee, as applicable, in accordance with the License Agreement, and all other access and use is unlicensed and hereby prohibited. ACLA acknowledges and agrees that the authorizations provided herein do not provide ACLA with any ownership of the InvaderCreator Software, but only an authorization for limited access and use in accordance with this Agreement. ALL RIGHTS NOT EXPRESSLY GRANTED HEREIN ARE RESERVED TO TWTI. -11- ARTICLE 4 BACK-UP RIGHTS 4.1. Escrow. ACLA and TWTI will agree upon a mutually acceptable escrow agent and escrow agreement within thirty (30) days after the Effective Date, such agreement not to be unreasonably withheld by either Party. Within fifteen (15) days after the Parties agree upon the escrow agent and an escrow agreement in accordance with this Section 4.1, TWTI shall place in escrow the Source Code for the InvaderCreator Software. 4.1.1 Updates. TWTI shall update the Source Code no less often than once per calendar year prior to release if material changes have been made, provided that the updated Source Code and the immediately preceding Source Code shall both be maintained in escrow. 4.1.2 Release. The Source Code deposited in escrow will be released to ACLA only upon the occurrence of a Release Condition, provided that a Release Condition shall be deemed to have not occurred if attributable to the actions of any Third Party with respect to the Hosting Environment or InvaderCreator Software and TWTI is using all reasonable commercial efforts to work with the Third Party to remedy the cause of the unavailability. Deposit and release under the escrow agreement will be subject to the terms and conditions of the escrow agreement. All Source Code released to ACLA, and the Technology used by or incorporated in the Source Code, shall be treated as the Confidential Information of TWTI under this Agreement and not the License Agreement, and shall be used only by ACLA in accordance with this Article 4. TWTI shall have no further obligations under this Agreement upon any release of the Source Code to ACLA, including no further obligations to provide updates or improvements. 4.1.3 Audits. ACLA shall have the right to have an independent technical auditor that is approved by TWT, which approval will not be unreasonably withheld, inspect the Source Code to confirm that it has been deposited for purposes of ACLA's exercise of its rights under this Section 4.1; provided that the auditor shall be required to enter into a reasonable confidentiality agreement with TWT. 4.1.4 Fees. ACLA shall be solely responsible for, and will indemnify TWTI from and against, the fees payable to the escrow agent(s) in connection with this Agreement or the escrow agreement described in this Section 4.1. 4.2. Source Code Protections. ACLA shall not copy, duplicate or otherwise reproduce the Source Code in any manner except that ACLA shall have the right to make one (1) backup copy of the Source Code, additional copies solely as reasonably necessary to exercise its rights under Section 4.3, and the executable code copies authorized in Section 4.3; provided that all such copies shall be destroyed upon termination or expiration of this Agreement. ACLA agrees to limit access to the Source Code twenty four (24) hours a day strictly to those employees of ACLA, and its contractors authorized in accordance with Section 4.3, for which access is necessary in order to carry out the permitted uses of such Source Code under this Article 4. The -12- Source Code, including copies, shall be marked as the confidential and proprietary property of TWTI to which access is restricted, and shall be kept and used solely at ACLA's facilities first identified in this Agreement above. ACLA shall ensure that the Source Code cannot be accessed in any insecure manner from any network, computer or similar device outside of such facilities of ACLA. ACLA shall inform such employees and contractors of ACLA's obligation to maintain the confidentiality of the Source Code and other confidential information. ACLA shall keep records of all person who have access to the Source Code and shall use all reasonable commercial efforts to ensure that such employees and contractors abide by the terms of such obligations. No later than five (5) days after TWTI's written request, ACLA shall provide such records to TWTI for review; provided that ACLA shall not be required to provide such records to TWTI more than one (1) time in any thirty (30) day period. In no event shall the Source Code be used in any way, either directly or indirectly, for the development of products, software, or Technology not contemplated in Section 4.3. 4.3. Source Code License. Subject to the terms and conditions of this Agreement, including Section 4.5 and Article 6 below, TWTI hereby grants to ACLA a non-exclusive, non-transferable (except as set forth in Section 9.2) license, without the right to grant or authorize sublicenses, to use the Source Code released from escrow as necessary to create during the Term derivative works of the InvaderCreator Software made available by TWTI under this Agreement that are reasonably necessary for ACLA to exercise its rights under the License Agreement. For clarity, derivative works of the Host Software shall be limited to those that are within the scope of subparagraphs (A), (B), and (C) of Section 1.7 above. ACLA shall have the right to exercise the foregoing license using contractors that have been approved in advance by TWTI in writing, such approval not to be unreasonably withheld, provided that ACLA has entered into a written agreement with the contractor that is at least as protective of TWTI and such Source Code as the terms and conditions of this Agreement. ACLA shall make TWTI a third party beneficiary with the power to enforce such agreements against the contractor. The resulting modified Source Code shall be used solely as necessary to compile such Source Code into machine readable format, and the resulting machine readable code shall be used solely in accordance with Section 4.4. ACLA shall have the right to make a reasonable number of copies of the Source Code in machine readable format as necessary to host the InvaderCreator Software in accordance with Section 4.4. 4.4. Hosting License. Subject to the terms and conditions of this Agreement, including Section 4.5 below, TWTI hereby grants to ACLA a non-exclusive, non-transferable (except as set forth in Section 9.2) license, without the right to grant or authorize sublicenses, to use a machine readable version of the Source Code released from escrow, as may be modified under Section 4.3, installed on servers located at the facilities of ACLA or its hosting contractor as necessary to host during the Term the InvaderCreator Software in the same manner as hosted by TWTI or TWTI's contractor. For clarity, ACLA shall have the right to exercise its rights under this Section 4.4 by having its contractor host the InvaderCreator Software for ACLA; provided that ACLA has entered into a written agreement with the contractor that is at least as protective of TWTI and the InvaderCreator Software as the terms and conditions of this -13- Agreement. Notwithstanding anything to the contrary, access to and use of the InvaderCreator Software, when hosted by ACLA or its contractor, shall be in accordance with the terms and conditions of this Agreement, including the license under Article 3 and associated restrictions, excepting only that ACLA or its contractor shall host the Host Software, rather than TWTI or TWTI's contractor. For clarity, access and use shall be username and password restricted in no less protective of a manner as was followed by TWTI. ACLA shall implement security and other procedures and precautions reasonably requested by TWTI, provided that the procedures or precautions were implemented by TWTI during the Term or are otherwise consistent at the then current time with reasonable procedures or precautions taken by software companies hosting, and making available to third parties, software that contains their most sensitive trade secrets. 4.5. Restrictions. ACLA agrees that it will not exercise any rights under Section 4.3 or 4.4 except during the Term after both the occurrence of a Release Condition and release of the Source Code to ACLA in accordance with this Agreement. 4.6. Fees. After the occurrence of a Release Condition and release of the Source Code in accordance with this Agreement, fees for each InvaderCreator Seat shall continue to be payable to TWTI in accordance with Article 5, except that the amount of the payment to TWTI shall be a one time payment of *** for each new InvaderCreator Seat in the event that the Source Code is released to ACLA and TWTI has no further obligations under this Agreement. For clarity, a *** payment shall be made for each individual that accesses or uses the InvaderCreator Software, but no additional payment shall be required for the same individual. 4.7. Trademarks. 4.7.1 Trademark License. All InvaderCreator Software created under Section 4.3 and hosted under Section 4.4 shall continue to display the TWTI Marks, and other proprietary markings of TWTI, in no less desirable a manner than was displayed by TWTI prior to release of the Source Code, and no additional trademarks, trade names, or logos, other than those of ACLA shall be added or displayed. TWTI hereby grants to ACLA a non-exclusive, non-transferable, royalty free license to display the TWTI Marks during the Term in such manner after release of the Source Code in accordance with this Agreement. ACLA agrees to conduct business related to the InvaderCreator Software in a manner that reflects favorably at all times on the products, goodwill, and reputation of TWTI. All ownership and goodwill arising out of the use of the TWTI Marks shall vest in and inure solely to the benefit of TWTI. TWTI reserves all rights regarding its trademarks, trade names, and logos not expressly granted to ACLA. _____________ ***Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -14- 4.7.2 Guidelines for use of Marks. All representations of TWTI Marks that ACLA intends to use shall first be submitted to TWTI for approval (which shall not be unreasonably withheld) of design, color, and other details or shall be exact copies of those used by TWTI and shall in any event comply with usage guidelines as established by TWTI from time to time. After written request of ACLA following release of the Source Code from escrow, TWTI will deliver to ACLA the then current version of such guidelines. TWTI may change its trademarks, trade names, and logos, and usage guidelines, to be used hereunder only upon ninety (90) days prior written notice to ACLA, setting forth in such notice the changes. Changes shall be limited to changes that are generally applicable to other uses of the trademarks, trade names, and logos by TWTI and its licensees thereof. From and after the end of such ninety (90) day period, as so designated in the notice, any trademarks, trade names, and logos that are to be deleted shall cease to be a TWTI Mark, any trademarks, trade names, and logos that are to be added shall thereafter be deemed to be a TWTI Mark and changes to the usage guidelines shall take effect. ACLA shall solely bear all costs and expenses that result from a change requested by TWTI. 4.7.3 Quality Control and Other Restrictions. To enable TWTI to monitor the quality of the InvaderCreator Software in connection with which its trademarks, trade names, and logos are used, and the manner in which it is made available, ACLA shall provide to TWTI, as reasonably requested by TWTI from time to time, reasonable access to and use of the InvaderCreator Software made available by ACLA under this Agreement, without charge, for such purposes as well as documentation showing the amount of down time and other access and performance issues and customer complaints. Without limiting the foregoing, all InvaderCreator Software created by ACLA, and the manner in which it is made available, shall be of at least the quality of the software that TWTI makes available, and the availability provided by TWTI, under the TWTI Marks, and no less than reasonable quality. In addition, ACLA shall maintain reasonable quality control procedures consistent with industry standards for all such InvaderCreator Software and availability. 4.7.4 Recordation. In those countries where a license to use trademarks, trade names, or logos must be recorded, TWTI shall have the right to provide and record a separate license for such licenses to ACLA hereunder. ACLA shall cooperate in the preparation and execution of such documents. Upon termination of a license, ACLA shall cooperate in the cancellation of any such licenses recorded or entered into in applicable countries. 4.7.5 Mark Infringement. ACLA shall notify TWTI promptly upon learning of any actual, alleged, or threatened infringement of, or of any unfair trade practices, trade dress imitation, passing off of counterfeit goods, or similar offenses relating to, the trademarks, trade names, or logos of TWTI. -15- ARTICLE 5 FEE, PAYMENT, AND RECORD KEEPING PROVISIONS 5.1. Fee. Except as set forth in Section 4.6, ACLA, shall pay to TWTI a one time payment of *** for each InvaderCreator Seat. For clarity, a *** payment shall be made for each individual that accesses or uses the InvaderCreator Software, but no additional payment shall be required for the same individual. 5.2. Payment. ACLA shall make full payment to TWTI for all InvaderCreator Seats issued in a calendar quarter no later than thirty (30) days after then end of the calendar quarter. Concurrent with each payment, ACLA provide a written report to TWTI setting forth the total number of Authorized Users for which Usernames and Passwords have been issued in such calendar quarter. 5.3. Mode of Payment. All payments shall be made by check or direct wire transfer of United States Dollars in immediately available funds in the requisite amount to such bank account as TWTI may from time to time designate by written notice to ACLA. 5.4. Taxes. Fees do not include, and payments will be made without reduction for, taxes (such as, without limitation, sales and withholding taxes), fees or charges. If TWTI has the legal obligation to collect and/or pay any sales, use, excise, value added, or similar taxes in connection with this Agreement, or rights granted hereunder, then the appropriate amount shall be invoiced to and paid by ACLA, unless ACLA provides TWTI with a valid tax exemption certificate authorized by the appropriate taxing authority. Any taxes, duties, fees, and charges shall otherwise be the sole responsibility of, and shall be paid by, ACLA, and ACLA shall indemnify TWTI from and against all such amounts, other than taxes on TWTI's income. ACLA shall provide TWTI with official receipts issued by the appropriate taxing authority, or such other evidence, each as is reasonably requested by TWTI to establish that such amounts have been properly paid. 5.5. Late Payment. Any payments or portions thereof due hereunder which are not paid when due shall bear interest equal to the lesser of the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional two percent (2%), or the maximum rate permitted by law, calculated on the number of days such payment is delinquent. This Section 5.4 shall in no way limit any other remedies available to either Party. 5.6. Records. ACLA shall keep, and shall cause its Authorized Designees and contractors to keep, complete, true and accurate books of account and records sufficient to _________________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -16- determine and establish compliance with the terms and conditions of this Agreement. For clarity, such records shall show the identity of all individuals that have accessed the InvaderCreator Software, the Username and Password associated with each individual, and the identity of the corresponding Authorized Designee. Such books and records shall be kept reasonably accessible for three (3) years following the end of the calendar quarter to which they pertain and shall be made available for inspection throughout such three (3) year period by an independent third party auditor selected by TWTI for such purposes in accordance with Section 5.4 below. 5.7. Audits. 5.7.1 Audit Rights; Procedure. Upon the written request of TWTI, and not more than twice in each calendar year (for each entity), ACLA and its Authorized Designees shall permit an independent auditor of an internationally recognized standing selected by TWTI, and reasonably acceptable to ACLA, at TWTI's expense, to have access during normal business hours, and upon reasonable prior written notice, only to such of the records of ACLA and the Authorized Designees as may be reasonably necessary to confirm compliance with license restrictions. For clarity, the auditor appointed by TWTI shall have the right to inspect ACLA's agreements with Authorized Designees to confirm compliance with license restrictions. The auditor, as applicable, will disclose to TWTI whether the license restrictions have been complied with and, if the auditor believes there may be a non-compliance, all information relevant to the non-compliance. 5.7.2 Cost Reimbursement. If such auditor concludes that there was a material non-compliance with a license restriction or a material breach of a material term of this Agreement, then ACLA shall reimburse TWTI for its reasonable costs related to such audit and TWTI shall be entitled to an additional audit in such calendar year. 5.7.3 Confidentiality. TWTI shall treat all information subject to review under this Section 5.5 as Confidential Information of ACLA in accordance with the confidentiality provisions of the License Agreement, and will cause its accounting firm to enter into a confidentiality agreement consistent with the License Agreement, obligating such firm to retain all such information in confidence pursuant to such confidentiality agreement. 5.7.4 Audit Disputes. If ACLA in good faith disputes the conclusion of the auditor under Section 5.7.2 above, then ACLA will inform TWTI by written notice within ten (10) business days of receiving a copy of the audit containing such conclusion, specifying in detail the reasons for disputing such conclusion. The Parties shall promptly thereafter meet and negotiate in good faith a resolution to such dispute. In the event that such Parties are unable to resolve such dispute within thirty (30) days after the audit, the matter will be resolved in accordance with Section 9.7 regarding dispute resolution. -17- ARTICLE 6 CONFIDENTIALITY AND SECURITY 6.1. Confidential Information. "Confidential Information" means any and all information that is disclosed by TWTI in written or other similar form, by inspection of tangible objects, orally, or otherwise in connection with this Agreement that if disclosed in tangible form is marked "Confidential" or with other similar designation to indicate its confidential or proprietary nature and that, if orally disclosed, is indicated orally by TWTI at the time of such disclosure to be confidential or proprietary and is confirmed as being confidential or proprietary by TWTI in a writing, designated as "Confidential" or with similar designation, and delivered to the receiving Party within thirty (30) days of such oral disclosure. 6.1.1 License Agreement. For clarity, information disclosed by ACLA in connection with this Agreement, including any probe designs created by the InvaderCreator Software which are transmitted to TWTI prior to implementation of the changes described in Section 2.5.1, shall be treated as "Confidential Information" of ACLA under, and to the extent set forth in, the License Agreement. Information disclosed by TWTI in connection with this Agreement, or in connection with the InvaderCreator Software or use or access thereof, shall be treated as Confidential Information of TWTI under, and to the extent set forth in, this Agreement and not under the License Agreement. In the case of doubt as to whether or not information disclosed by TWTI is Confidential Information under this Agreement or under the License Agreement, it shall be deemed to be Confidential Information under this Agreement and not the License Agreement. 6.1.2 InvaderCreator Information. Notwithstanding anything to the contrary, and whether or not marked or designated as such, the InvaderCreator Software itself and the Source Code, and all information embodied in the InvaderCreator Software or the Source Code, such as information concerning the algorithms, processes, procedures or other Technology incorporated in or used by the InvaderCreator Software, or the manner in which the InvaderCreator Software operates, shall be deemed to be the Confidential Information of TWTI under this Agreement and not under the License Agreement. 6.2. Obligations. ACLA and each contractor and Authorized Designee shall keep, and will ensure that its officers, directors, employees and agents keep, completely confidential and will not publish or otherwise disclose and will not use except as expressly permitted in this Agreement any Confidential Information of TWTI. The foregoing obligations will not apply to any information to the extent that it can be established by the receiving Party that such information: 6.2.1 was already known to the receiving Party as evidenced by its written records, other than under an obligation of confidentiality, at the time of disclosure; -18- 6.2.2 was generally available to the public or was otherwise part of the public domain at the time of its disclosure to the receiving Party; 6.2.3 became generally available to the public or otherwise becomes part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; 6.2.4 was subsequently lawfully disclosed to the receiving Party by a Third Party other than under an obligation of confidentiality and other than in contravention of a confidentiality obligation of such Third Party; or 6.2.5 was developed or discovered by employees of the receiving Party or its Affiliates who had no access to the Confidential Information of the disclosing Party as evidenced by the written records of the receiving Party. Each of ACLA and its contractors and Authorized Designees shall obtain written agreements from each of its employees and contractors having access to TWTI's Confidential Information under this Agreement materially as protective of the Confidential Information as the terms and conditions of this Article 6. 6.3. Other Permitted Use and Disclosures. Notwithstanding the provisions of Section 6.2, the Confidential Information of TWTI may be disclosed to the extent such disclosure is reasonably necessary to comply with applicable governmental laws, regulations, or orders; provided that if a party is required to make any such disclosure, it will, to the extent it may legally do so, give reasonable advance notice to TWTI of such disclosure and will use its reasonable efforts to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). 6.4. Terms of Agreement. Neither Party shall disclose or make any public announcements concerning this Agreement or the terms hereof, including, without limitation, the existence and terms or conditions of this Agreement, without the prior written consent of the other Party. Notwithstanding the foregoing, each Party shall have the right to issue a press release accordance with the License Agreement and shall have the right to disclose the existence and terms and conditions of this Agreement: (i) to advisors and investors on a need-to-know basis under conditions which reasonably ensure the confidentiality thereof; (ii) as required by any court or other governmental body; (iii) as otherwise required by law; (iv) in confidence to legal counsel of such parties; (v) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement; (vi) in confidence, in connection with a merger, acquisition of stock or assets, proposed merger or acquisition, or the like; or (vii) as required in connection with any government or regulatory filings, including without limitation filings with the SEC, provided that such disclosing Party shall: (i) give reasonable advance written notice to the non-disclosing Party of the proposed disclosure and the reason for such disclosure; (ii) consider in good faith comments and requests of the non-disclosing Party regarding such proposed disclosure that are received by the disclosing Party within two (2) business days after -19- the non-disclosing Party's receipt of the proposed disclosure; and (iii) use reasonable efforts to secure confidential treatment of such disclosed information. 6.5. Markings. ACLA and its Authorized Designees shall not remove or obscure any trademark, trade name, copyright notice, patent marking or other proprietary notice from the InvaderCreator Software, Source Code, or any materials provided or made available by TWTI in connection with this Agreement. In addition, ACLA shall use reasonable commercial efforts to mark Source Code created under Article 4 as the Confidential Information of TWTI and ACLA and shall mark such Source Code and the resulting InvaderCreator Software with appropriate markings as reasonably necessary to protect and preserve TWTI's and ACLA's rights with respect to their Intellectual Property Rights under applicable law. 6.6. Security. ACLA shall immediately notify TWTI in writing if ACLA becomes aware of any circumstances under which any unauthorized access or use of the InvaderCreator Software or Source Code may have occurred, or the InvaderCreator Software, or TWTI's other Technology, otherwise may have been exposed to prejudice or loss. Without limiting the foregoing, ACLA shall, at its sole cost and upon TWTI's request, take all actions necessary to remedy and cure any unauthorized use and disclosure that may have occurred under such circumstances. ARTICLE 7 DISCLAIMERS/LIMITATION OF LIABILITY 7.1. InvaderCreator Software. 7.1.1 TWTI represents and warrants to ACLA that the InvaderCreator Software does not (i) to its knowledge as of the Effective Date infringe the Patent rights of any Third Party; or (ii) infringe the copyright or trade secret rights of any Third Party. 7.1.2 ACLA'S SOLE AND EXCLUSIVE REMEDY, AND TWTI'S SOLE AND EXCLUSIVE LIABILITY, FOR BREACH OF THE REPRESENTATION OR WARRANTY IN SECTION 7.1.1 SHALL BE RELEASE OF THE SOURCE CODE FROM ESCROW IN ACCORDANCE WITH THIS AGREEMENT. 7.2. No Other Warranties. Except as set forth in Section 7.1.1, THE INVADERCREATOR SOFTWARE IS MADE AVAILABLE "AS IS" AND ON AN "AS AVAILABLE" BASIS, AND ALL ACCESS AND USE IS AT THE RISK OF ACLA, ITS AUTHORIZED DESIGNEES, AND USERS. TWTI DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND TITLE, AND ANY AND ALL WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE. TWTI DOES NOT -20- REPRESENT OR WARRANT THAT ACCESS TO OR USE OF THE INVADERCREATOR SOFTWARE WILL BE UNINTERRUPTED, ERROR-FREE, USEFUL, OR SECURE, OR THAT THE INVADERCREATOR SOFTWARE WILL BE ACCESSIBLE AT ANY PARTICULAR TIME. 7.3. Loss of Data. TWTI SHALL HAVE NO LIABILITY OR RESPONSIBILITY ARISING OUT OF OR AS A RESULT OF ANY LOSS OF DATA OR INFORMATION, WHETHER OR NOT STORED BY TWTI. ACLA and its Authorized Designees shall be solely responsible for maintaining and backing up all data and other information related to or in connection with the use of the InvaderCreator Software, even if the user chooses to have TWTI maintain data on TWTI's systems. 7.4. Output. TWTI DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES REGARDING THE QUALITY, RELIABILITY, USEFULNESS, OR SAFETY OF THE OUTPUT OR RESULTS GENERATED BY THE INVADERCREATOR SOFTWARE OR ANY PRODUCTS OR PROBES BASED THEREON. TWTI HEREBY DISCLAIMS ALL RESPONSIBILITY, AND SHALL HAVE NO LIABILITY, WHETHER TO ACLA OR OTHERWISE, DUE TO ANY SUCH OUTPUT, PRODUCTS, OR PROBES, WHETHER FOR INFRINGEMENT OR OTHERWISE, except to the extent set forth in the License Agreement. 7.5. Disclaimer of Liability. IN NO EVENT SHALL TWTI BE LIABLE FOR ANY LOST PROFITS OR REVENUE, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT, ACCESS TO OR USE OF THE INVADERCREATOR SOFTWARE, OR THE RESULTS GENERATED THEREBY, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, OR BASED UPON CLAIMS OF CUSTOMERS OR OTHER THIRD PARTIES AND WHETHER OR NOT EITHER PARTY HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. ARTICLE 8 TERM AND TERMINATION 8.1. Term. The term of this Agreement shall commence on the Effective Date and shall continue in full force and effect until expiration or termination of the License Agreement for any reason, unless this Agreement is earlier terminated in accordance with its terms; provided that if the Source Code was properly released to ACLA in accordance with Article 4, and the escrow agreement described in Section 4.1, at least twelve (12) calendar months prior to expiration of the License Agreement, then this Agreement will not terminate as a result of -21- expiration of the License Agreement, but shall remain subject to termination as set forth in this Agreement. 8.2. Termination for Cause. Either Party shall have the right to terminate this Agreement upon final determination, in accordance with Section 9.7 below, of material failure by the other Party to comply with any material term or condition of this Agreement. Subject to the foregoing, a failure of ACLA to make payment shall be considered such a material failure if not cured within thirty (30) days after receiving written notice thereof. 8.3. Effect of Termination. 8.3.1 Return of Materials. Within thirty (30) days after any termination or expiration of this Agreement, ACLA and its Authorized Designee's shall return or destroy any and all copies of the InvaderCreator Software and Source Code in the possession of ACLA or any other party pursuant to this Agreement. 8.3.2 Accrued Liability. Termination or expiration of this Agreement for any reason shall not release either Party hereto from any liability which at the time of such termination or expiration has already accrued to the other Party prior to such time. Such termination or expiration will not relieve a Party from accrued payment obligations or from obligations which are expressly indicated in this Agreement to survive termination or expiration of this Agreement. 8.3.3 Survival. Articles 1, 5, 6, 7 and 9, and Sections 2.3.2, 2.5.2 (last sentence), 3.3.3, 3.4 (first two sentences), 3.5, 3.6, 4.2, 4.6, 4.7.1 (last two sentences), 4.7.4, and 8.3 shall survive any termination or expiration of this Agreement. All other terms and conditions shall be deemed terminated and of no further force or effect. For avoidance of doubt, all access and use authorizations under this Agreement shall terminate immediately upon termination or expiration of this Agreement. All rights and licenses based upon the licenses to ACLA in this Agreement shall be terminated, and of no further force or effect. ARTICLE 9 GENERAL 9.1. Relationship of the Parties. The Parties are independent contractors. Nothing in this Agreement is intended or will be deemed to constitute a partnership, agency or employer-employee relationship between the Parties. Neither Party will incur any debts or make any commitments for the other Party. 9.2. Assignments. Except as expressly provided herein, neither this Agreement nor any interest hereunder will be assignable, nor any other obligation delegable, by a Party without the prior written consent of the other Party; provided, however, that a Party shall have the right to assign and otherwise transfer this Agreement as a whole without consent to any successor that -22- acquires all or substantially all of the business or assets of such Party by way of merger, consolidation, other business reorganization, or the sale of stock or assets, provided that the assigning Party notifies the other Party in writing of such assignment, both the License Agreement and the Supply Agreement are concurrently transferred in their entirety to such successor in accordance with their terms, and such successor agrees in writing to be bound by the terms and conditions of this Agreement, the License Agreement, and the Supply Agreement. This Agreement shall be binding upon successors and permitted assigns of the Parties. Any assignment not in accordance with this Section 9.2 will be null and void. 9.3. Force Majeure. Except with respect to payment of money, no Party shall be liable to the other for failure or delay in the performance of any of its obligations under this Agreement for the time and to the extent such failure or delay is caused by earthquake, riot, civil commotion, war, terrorist acts, strike, flood, or governmental acts or restriction, or other cause that is beyond the reasonable control of the respective Party. The excused Party shall be excused for a time period reasonably sufficient to remedy the effects of such an event. The Party affected by such force majeure will provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and will use commercially reasonable efforts to overcome the difficulties created thereby and to resume performance of its obligations as soon as practicable. If the performance of any such obligation under this Agreement is delayed owing to such a force majeure for any continuous period of more than one hundred thirty (30) days, the Parties hereto will consult with respect to an equitable solution. 9.4. Entire Agreement of the Parties; Amendments. This Agreement, the Supply Agreement, the License Agreement, the Letter related to the Transition Manufacturing Plan, and the Letter related to InvaderCreator Access Prior to Implementation of Updates, all entered into concurrently, constitutes and contains the entire understanding and agreement of the Parties respecting the subject matter hereof and except as expressly provided in Section 2.1 of the License Agreement cancels and supersedes any and all prior and contemporaneous negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter, including, without limitation, the Development and Commercialization Agreement. No waiver, modification or amendment of any provision of this Agreement will be valid or effective unless made in writing and signed by the Parties. 9.5. Captions. The captions to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement. 9.6. Governing Law. This Agreement will be governed by and interpreted in accordance with the laws of the State of California, applicable to contracts entered into and to be performed wholly within the State of California, excluding conflict of laws principles. -23- 9.7. Dispute Resolution. 9.7.1 General. Except as otherwise provided in this Section 9.7 below, in the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement or the rights or obligations of the Parties hereunder, either Party shall have the right to initiate dispute resolution by sending written notice of the dispute, and an intent to arbitrate such dispute, to the other Party; provided, however, that any dispute concerning the scope, construction, validity, enforceability or infringement of any Patent within the TWTI IP shall be heard and decided in a court of competent jurisdiction under the local patent laws of the jurisdictions having issued the Patent or Patents in question. Within twenty (20) days after such notice (either, a "Dispute Notice"), each Party shall cause its Chief Executive Officer or the Chief Executive Officer's high-level executive (at the senior vice president level or higher) to meet in person to negotiate in good faith a resolution to the dispute within twenty (20) days of the first such meeting. If the dispute is unresolved during such period, then any Party may initiate arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA") then in force. The Parties shall use their commercially reasonable efforts to conclude the arbitration within six (6) months after the arbitrator has been appointed. The venue of such arbitration shall be in Madison, Wisconsin for disputes brought by ACLA and Santa Clara County, California for disputes brought by TWTI. 9.7.2 Judgments. An award rendered pursuant to this Section 9.7 shall be final and binding upon all parties participating in such arbitration. The arbitrator may, upon competent proof, grant any remedy or relief that the arbitrator deems just and equitable under the terms and conditions of this Agreement. Nothing in this Agreement shall be deemed as preventing any Party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of the dispute. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and/or an order of enforcement as the case may be. 9.7.3 Preliminary Injunctions. Notwithstanding anything to the contrary in this Section 9.7, a Party shall have the right to seek a temporary restraining order or preliminary injunction from any court of competent jurisdiction in order to prevent immediate and irreparable injury, loss or damage on a provisional basis, pending the decision of the arbitrator(s) on the merits under this Section 9.7. 9.8. Notices and Deliveries. Any notice, request, delivery, approval or consent required or permitted to be given under this Agreement will be in writing and will be deemed to have been sufficiently given if delivered in person, transmitted by telecopier (receipt verified) or by express courier service (signature required) or five (5) days after it was sent by registered letter, return receipt requested (or its equivalent), provided that no postal strike or other disruption is then in effect or comes into effect within two (2) days after such mailing, to the Party to which it is directed at its address or facsimile number shown below or such other address or facsimile number as such Party will have last given by notice to the other Party. -24- If to TWTI, addressed to: Third Wave Technologies, Inc. 502 South Rosa Road Madison, Wisconsin 53719 Attn.: President Fax: 608-273-8618 With a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Attn.: Ian B. Edvalson, Esq. Fax: 650-493-6811 If to ACLARA, addressed to: ACLARA BioSciences, Inc. 1288 Pear Avenue Mountain View, California 94043 Attn.: President and CEO Fax: 650-210-9271 With a copy to: Latham & Watkins 135 Commonwealth Drive Menlo Park, California 94025 Attn.: Michael W. Hall, Esq. Fax: 650-463-2600 9.9. Waiver. A waiver by any Party of any of the terms and conditions of this Agreement in any instance will not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement will be cumulative and none of them will be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party. 9.10. Severability. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, or causes an Intellectual Property Right of either Party to be unenforceable, such provision will be ineffective -25- only to the extent of such prohibition, unenforceability, or invalidity, without invalidating the remainder of this Agreement. The Parties will make a good faith effort to replace the applicable provision with a valid one which the Parties agree has effect that is consistent with the original provision. In the event the Parties do not agree upon such a substitute provision, either Party shall have the right to terminate this Agreement by providing sixty (60) days written notice of termination to the other. 9.11. Compliance with Laws. Notwithstanding anything to the contrary contained herein, all rights and obligations of ACLA and TWTI are subject to prior compliance with, and each Party shall comply with, all United States and foreign export and import laws, regulations, and orders, and such other United States and foreign laws, regulations, and orders as may be applicable, including obtaining all necessary approvals required by the applicable agencies of the governments of the United States and foreign jurisdictions. 9.12. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, any one of which need not contain the signature of more than one Party but all such counterparts taken together will constitute one and the same agreement. IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized representatives to execute this Agreement. THIRD WAVE TECHNOLOGIES, INC. ACLA BIOSCIENCES, INC. ("TWTI") ("ACLA") By: ___________________________ By: ________________________________ Name: _________________________ Name: ______________________________ Title: ________________________ Title: _____________________________ -26- EX-10.35 6 dex1035.txt TRANSITION MANUFACTURING PLAN LETTER DTD 10/15/02 Exhibit 10.35 October 15, 2002 Joseph M. Limber ACLARA BioSciences, Inc. 1288 Pear Avenue Mountain View, CA 94043 Re: Transition Manufacturing Plan Dear Joe, Concurrent with entering into this letter agreement ("Letter"), ACLARA BioSciences, Inc., a Delaware corporation, with its place of business at 1288 Pear Avenue, Mountain View, CA 94043 ("ACLA") and Third Wave Technologies, Inc., a Delaware corporation, with its place of business at 502 S. Rosa Road, Madison, Wisconsin 53719 ("TWTI") are entering into a License Agreement, a Supply Agreement, and an InvaderCreator(R) Access Agreement, each of even date herewith (the "Concurrent Agreements") which collectively involve, among other things, certain licenses between the parties, the supply of Cleavase(R) enzyme by TWTI to ACLA, and access by ACLA to TWTI's InvaderCreator(R) software. Unless otherwise indicated, terms used in this Letter with an initial capital letter which are defined in the Concurrent Agreements shall have the meaning given to such terms in the Concurrent Agreements. 1. On or before the applicable date as set forth in Schedule 1 to this Letter, TWTI agrees to deliver to ACLA in accordance with the Concurrent Agreements the corresponding Cleavage Enzyme and other materials (collectively the "Deliverables") in the format described in Schedule 1. 2. This Letter shall be deemed to fulfill the requirement for ACLA's order for the Deliverables under Section 2.4(c) of the Supply Agreement. TWTI shall deliver to ACLA the Deliverables in accordance with Section 2.6 of the Supply Agreement. 3. TWTI shall invoice ACLA for the Deliverables in accordance with the Supply Agreement and ACLA shall pay the corresponding amounts for the Deliverables as set forth on Schedule 1 in accordance with the Supply Agreement and reconciliation, if applicable, in accordance with the License Agreement. Notwithstanding the foregoing, within five (5) business days after the date of this Letter written above, ACLA shall prepay by wire transfer a non-refundable amount of *** which amount shall be creditable against the amounts owed to TWTI with respect to *** of bulk Cleavase Enzyme *** ordered and to be delivered hereunder as described in Schedule 1, Order B (the "Initial ***"); the remainder of the amount for the Initial *** shall be due and payable by wire transfer within three (3) business days upon ACLA's Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as * * *. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. ____________________ ***Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Manufacturing Transition Plan Page 2 of 3 receipt of the Initial ***. For clarity, the prepayment amount shall be in addition to the amount set forth in Section 4.1(a) of the License Agreement. For clarity, with respect to the Initial ***, title will transfer upon receipt by ACLA. 4. Cleavage Enzyme included in the Deliverables shall conform to the applicable Specifications in accordance with the Supply Agreement. Other materials in the Deliverables other than Cleavage Enzyme are defined in Schedule 1 and shall conform to written specifications therefor, such specifications to be mutually agreed by TWTI and ACLA within two (2) weeks after the date hereof. Unless otherwise agreed all terms and conditions of the Concurrent Agreements shall apply to the Deliverables as if the same were Cleavage Enzyme thereunder. 5. Notwithstanding Paragraph 4 above and the provisions of the Supply Agreement, with respect to the Initial ***, TWTI hereby agrees to replace during the period ending *** years from ACLA's receipt of the Initial *** (the "Replacement Period") any expired quantities of the Initial *** based on the applicable shelf life therefor. Upon expiration of any quantity of the Initial *** unused during the Replacement Period, ACLA shall notify TWTI in writing of its desire to have such quantity replaced and return such unused quantity. TWTI's obligation to replace expired quantities of the Initial *** shall also apply to replacement quantities that may expire during the Replacement Period, subject to the preceding sentence. Promptly upon receipt of such notice and expired quantity, TWTI shall replace such quantity with an identical quantity of bulk Cleavase Enzyme *** meeting the then-current Specifications therefor in accordance with TWTI's standard lead times. Replacement of expired quantities of the Initial *** is ACLA's sole remedy under this Paragraph 5 and there shall be no refund of the purchase price of the Initial ***. For clarity, it is understood that ACLA agrees to use the Initial *** prior to ordering any additional quantities of bulk Cleavase Enzyme *** in accordance with the Supply Agreement. Additionally subject to mutually agreed changes to the Specifications pursuant to Section 1.12 of the Supply Agreement, the shelf life for the Initial *** or any replacement quantities delivered pursuant to this Paragraph 5 may be extended based on additional stability data. 6. The Parties acknowledge and agree that the Confidential Information (as defined under the License Agreement) and Technology disclosed to ACLA by TWTI pursuant to the Development and Commercialization Agreement shall be deemed to be included within the Confidential Information (as defined under the License Agreement) of the Concurrent Agreements and the Parties rights and obligations with respect to such Confidential Information shall be governed by the Concurrent Agreements, as applicable. For the sake of clarity, such Confidential Information includes but is not limited to Target sequences, Primary Probe, stacker probe and Invader Probe sequences, manufacturing and testing processes, standard operating procedures, formulations, and assay protocols, in each case disclosed to ACLA by TWTI under the Development and Commercialization Agreement. 7. Within thirty (30) days hereof, TWTI will ship, the materials and components listed on Schedule 2 to this Letter and developed by the Parties pursuant to the Development and ____________________ ***Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Manufacturing Transition Plan Page 3 of 3 Commercialization Agreement together with copies of available documentation related thereto and developed by the Parties pursuant to the Development and Commercialization Agreement (the "Development Materials"). It being understood that certain Development Materials may have been shipped prior the date hereof. The Development Materials shall be deemed to be included within the TWTI Technology of the Concurrent Agreements and the Parties rights and obligations with respect to such Confidential Information shall be governed by the Concurrent Agreements, as applicable. Notwithstanding anything to the contrary, it is understood that ACLA shall have the rights to incorporate any and all physical materials within the Development Materials (e.g., oligonucleotide probes and in vitro transcripts) into Licensed Products and Probe Sets for sale to End Users in accordance with the terms and conditions of the Concurrent Agreements. 8. All Deliverables and Development Materials provided hereunder shall be used, sold, and distributed by ACLA solely in accordance with the Concurrent Agreements and for no other purposes. 9. The terms and conditions of this Letter are additional to the terms and conditions of the Concurrent Agreement and shall not be deemed to limit such terms and conditions. If ACLA is in agreement with the foregoing, please indicate ACLA's agreement by countersigning this Letter below and returning the signed Letter to TWT. Very Truly Yours, Third Wave Technologies, Inc. Accepted and Agreed: ACLARA BioSciences, Inc. By:_____________________________ Title: _________________________ Date: __________________________ SCHEDULE 1 ORDER A: ACLA hereby orders the reagents described in Deliverables A below for shipment as set forth below. Deliverables A: --------------------------------------------------------------------- Reagent Name TWT Part No. Quantity (tubes) --------------------------------------------------------------------- *** *** *** --------------------------------------------------------------------- *** *** *** --------------------------------------------------------------------- *** *** *** --------------------------------------------------------------------- *** *** *** --------------------------------------------------------------------- *** *** *** --------------------------------------------------------------------- Deliverables A Reagent Description: --------------------------------------------------------------------- Reagent Name Fill Volumes (tube) --------------------------------------------------------------------- *** *** --------------------------------------------------------------------- *** *** --------------------------------------------------------------------- *** *** --------------------------------------------------------------------- *** *** --------------------------------------------------------------------- *** *** --------------------------------------------------------------------- ACLA agrees to provide TWTI all raw materials reasonably necessary to manufacture the above quantities of eTagTM Separation Reagent 1. Correspondingly, TWTI agrees to use all such raw materials supplied by ACLA solely for purposes of manufacturing such eTagTM Separation Reagent 1. Deliverables A Packaging/Labeling: TWTI to package and label tubes as mutually agreed by the Parties including design content reasonably designated by ACLA in accordance with the License Agreement. Shipment Date: Within thirty (30) days of the date of this Letter written above. Price: *** ____________________ ***Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE 1 (Continued) ORDER B: ACLA hereby orders *** of bulk Cleavase Enzyme *** for shipment as set forth below which meet the Specifications therefor as set forth in the Supply Agreement. Shipment Date: To be shipped on or before December 28, 2002. Price: ***, subject to the credit for the pre-paid amount set forth in Paragraph 3. ____________________ ***Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE 2 DEVELOPMENT MATERIALS *** ______________ *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. EX-10.36 7 dex1036.txt INVADERCREATOR ACCESS LETTER DTD 10/15/02 Exhibit 10.36 October 15, 2002 Joseph M. Limber ACLARA BioSciences, Inc. 1288 Pear Avenue Mountain View, CA 94043 Re: InvaderCreator(R) Access Prior to Implementation of Updates Under the InvaderCreator(R) Access Agreement Dear Joe: Concurrent with entering into this letter agreement ("Letter"), ACLARA BioSciences, Inc., a Delaware corporation, with its place of business 1288 Pear Avenue, Mountain View, CA 94043 ("ACLA") and Third Wave Technologies, Inc., a Delaware corporation, with its place of business at 502 S. Rosa Road, Madison, Wisconsin 53719 ("TWT") are entering into a License Agreement, a Supply Agreement, and an InvaderCreator(R) Access Agreement (the "Concurrent Agreements") which collectively involve, among other things, certain licenses between the parties, the supply of Cleavase(R) enzyme by TWT to ACLA, and access by ACLA to TWT's InvaderCreator(R) software. Terms used in this Letter with an initial capital letter which are defined in the Concurrent Agreements shall have the meaning given to such terms in the Concurrent Agreements. As you know, TWT has agreed, as set forth in Section 2.5.1 of the InvaderCreator(R) Access Agreement, to use its commercially reasonable efforts to make certain updates available as part of the InvaderCreator(R) Software under the InvaderCreator(R) Access Agreement. As you are also aware, the InvaderCreator(R) Software is currently being revised by TWT so that access to and use of the InvaderCreator(R) Software will no longer be limited to the particular network addresses and locations that ACLA is currently required to provide to TWT for access and use. The InvaderCreator(R) Access Agreement, however, has been drafted to describe the manner in which "InvaderCreator(R) Software" will be accessed and used after it incorporates such revisions, which are anticipated to be available by the end of the first calendar quarter of 2003 as set forth in Section 2.5.1 of the InvaderCreator Access Agreement. Accordingly, this Letter confirms the understanding of TWT and ACLA that, prior to TWT's commercial implementation and release of such revisions, access to and use of the InvaderCreator(R) Software will be provided by TWT in accordance with and subject to the terms and conditions of the InvaderCreator(R) Access Agreement, except that no Servlet will be available, data and results may be sent to the Host Software and stored on the equipment of TWT, and text output will not be available. In addition, access and use will be limited by network addresses and locations that ACLA will continue to be required to provide until such revisions are implemented and released by TWT. All terms and conditions of the InvaderCreator Access Agreement shall otherwise apply. If ACLA is in agreement with the foregoing, please indicate ACLA's agreement by countersigning this Letter below and returning the signed Letter to TWT. Very Truly Yours, Third Wave Technologies, Inc. Accepted and Agreed: ACLARA BioSciences, Inc. By: _____________________________ Title: __________________________ Date: ___________________________ -2- EX-10.37 8 dex1037.txt TERMINATION AGREEMENT ROCHE DIGITAL 10/10/02 Exhibit 10.37 Termination Agreement This Termination Agreement ("Agreement") is effective as of October 10, 2002 ("Effective Date"), by and between Roche Diagnostics Corporation, having its principal office at 9115 Hague Road, Indianapolis, Indiana 46250 ("Roche"), and ACLARA Biosciences, Inc., having its principal office at 1288 Pear Avenue, Mountain View, California, USA ("ACLARA"). Roche and ACLARA are collectively referred to as "Parties" and individually as "Party." Recitals Whereas, the Parties entered into an agreement dated 26 October 2001 ("Supply and Distributorship Agreement") under which ACLARA appointed Roche as the exclusive distributor of certain microfluidics products ("Products") and undertook to supply Roche with its requirements for such Products and to assist customers of Roche to adapt certain assays for use with such Products; Whereas, the Parties desire to terminate the Supply and Distributorship Agreement and to reaffirm the surviving terms under such Agreement and to provide one other with a mutual release set forth below; and Now, therefore, in view of the foregoing premises and in consideration of the mutual promises and covenants contained in the Agreement, Roche and ACLARA agree as follows: Article 1. Definitions. Capitalized terms used herein shall have the meaning as provided in the Supply and Distributorship Agreement, unless as otherwise set forth below. Article 2. Termination of the Supply and Distributorship Agreement. 2.1 Subject to the terms and conditions of this Agreement, as of the Effective Date, the Parties hereby terminate the Supply and Distributorship Agreement and any and all rights, obligations or duties created thereunder. 2.2 Paragraph 2.1 notwithstanding, the Parties re-affirm the survival of the following provisions of the Supply and Distributorship Agreement: Section 2 ("Confidential Information"), 5.4 ("Impact on Confidential Information"), Section 10 ("Indemnification"), and Section 13 ("General Provisions"), which surviving provisions are the sole remaining obligations that exist between the Parties. Article 3. Mutual Release. Page 1 3.1 Each Party hereby forever releases and discharges the other Party and its servants, agents, employees, officers, directors and shareholders, and all others, of and from any and all claims and demands of every kind and nature, known and unknown, suspected and unsuspected, disclosed and undisclosed and in particular of and from all claims and demands of every kind and nature, known and unknown, suspected and unsuspected, disclosed and undisclosed, for damages actual and consequential, past, present and future, arising out of or in any way connected with the Supply and Distributorship Agreement. 3.2 It is understood and agreed that this is a full and final release of any and all claims described as aforesaid, including those that are now unknown, unanticipated, unsuspected and undisclosed, as well as those which are now known, anticipated, suspected, or disclosed. 3.3 Each Party acknowledges that it has been fully advised by its attorney of the contents of Section 1542 of the Civil Code of the State of California, and that section and the benefits thereof are hereby expressly waived. Section 1542 reads as follows: "Section 1542. (General Release--Claims Extinguished.) 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." 3.4 Each Party warrants and represents that (1) it has the power and authority to execute, deliver and grant this release, (2) all actions necessary for the due authorization, execution and delivery of this release have been duly taken, (3) this release is a legal, valid and binding obligation of the Party granting this release, and (4) this release is enforceable in accordance with its terms. 3.5 Each Party granting the release hereunder will indemnify and save harmless the other Party herein from any loss, claim, expense, demand or cause of action of any kind or character through the assertion by any person of a claim or claims connected with the subject matter of this release and from any loss incurred directly or indirectly by reason of the falsity or inaccuracy of any representation herein by the Party granting the release. Article 4. Entire Agreement. 4.1 This Agreement contains the entire agreement between the Parties hereto. Terms of this termination and release are contractual and not a mere recital. This Agreement is executed by each Party granting the release without reliance upon any representation of the by the Party, or its representatives, receiving the release, and the Party granting the release has carefully read the release Page 2 of Article 3, has been advised of its meaning and consequences by its attorney, and signs the same of its own free will. The release under this Agreement shall bind the heirs, personal representatives, successors and assigns of each Party, and inure to the benefit of each Party receiving the release hereunder, its agents, employees, servants, directors, officers, shareholders, successors, and assigns. In Witness Whereof, the Parties have caused this Agreement to be duly executed by their duly authorized representatives as of the date first shown herein. ACLARA Biosciences, Inc. Roche Diagnostics Corporation By: /s/ Joseph M. Limber By: /s/ Andrew D. Cothrel ------------------------- ------------------------------- Name: Joseph M. Limber Name: Andrew D. Cothrel Title: President and CEO Title: Vice President, Operations Date: October 10, 2002 Date: October 28, 2002 _________________________ _______________________________ Page 3 EX-10.38 9 dex1038.txt GENERAL RELEASE AND SEPARATION LIMBER 10/10/02 Exhibit 10.38 GENERAL RELEASE AND SEPARATION AGREEMENT This General Release and Separation Agreement (hereafter "Agreement") is entered into as of this 10th day of October, 2002, (the "Effective Date") between Joseph M. Limber (the "Executive"), and ACLARA BioSciences, Inc. (the "Company"), effective eight days after the Executive's signature (the "Effective Date"), unless the Executive revokes his acceptance as provided in Paragraph 9(c), below. WHEREAS, the Executive was the President and Chief Executive Officer of the Company, and a Member of the Board of Directors; WHEREAS, the Executive tendered his resignation as President and Chief Executive Officer of the Company, and the Company accepted such resignation effective as of December 1, 2002 or such earlier date as the Company and the Executive mutually agree; WHEREAS, the Company and the Executive now wish to document the termination of their employment relationship and fully and finally to resolve all matters between them; THEREFORE, in exchange for the good and valuable consideration set forth herein, the adequacy of which is specifically acknowledged, the Executive and the Company hereby agree as follows: 1. Resignation as President and Chief Executive Officer. The Executive hereby confirms his resignation of all positions that the Executive held as an officer of the Company, including his positions as President and Chief Executive Officer of the Company, and the Company confirms its acceptance of such resignations, effective December 1, 2002 or such earlier date as the Company and the Executive mutually agree (the "Resignation Date"). The Executive shall receive a severance payment of $167,500 to be paid by the Company in a lump sum on January 15, 2003. Such payment shall be subject to normal withholdings for payroll taxes and similar amounts. 2. Board Membership. The Executive agrees that he shall remain a member of the Board of Directors of the Company (the "Board") following the Resignation Date and until the date of the Company's annual meeting of stockholders in 2003. The Executive hereby tenders his resignation as director effective the date of the Company's annual meeting of stockholders in 2003, or such earlier date as the Company and the Executive mutually agree. 3. Continuing Employment; Resignation. For the period commencing on the Resignation Date and ending on December 31, 2003 (the "Transition Period"), the Executive shall remain an employee of the Company with the title of Executive Director (while serving as a member of the Board) and make himself available to the Company, as the Company may request, for up to five days per month in the period ending January 31, 2003 and for up to one day per month thereafter, at such times as the Company and the Executive mutually agree. During the Transition Period, the Executive shall effect an orderly transition of his duties to the Company's new Chief Executive Officer or Acting Chief Executive Officer (the "CEO") and 1 perform such other services as the CEO or the Board may reasonably request. For his availability and services during the Transition Period, whether or not the Executive is requested to provide services, the Company shall pay the Executive at his current annual base salary rate of $335,000 through December 31, 2002 and at an annual salary rate of $167,500 for the remainder of the Transition Period, such amounts to be paid in semi-monthly installments in accordance with the Company's regular payroll practices. All such payments will be subject to normal withholdings for payroll taxes and similar amounts. The Executive hereby agrees that his resignation of employment with the Company shall be effective December 31, 2003. Nothwithstanding the foregoing, this Agreement shall not prohibit the Executive from accepting additional employment during the Transition Period; provided, however, that during the Transition Period the Executive may not, without Board approval, accept additional employment with any company that the Board reasonably determines is a competitor of the Company. Companies which may be viewed as competitors include, but are not limited to, biotechnology tools companies or other companies with a potentially adverse intellectually property interest. 4. Payment of Accrued Wages and Expenses. On or before December 1, 2002, the Company shall pay to the Executive an amount equal to all accrued wages owed to him through that date, including accrued vacation through December 1, 2002, less applicable withholding, and all expenses submitted by the Executive as of December 1, 2002. The Executive agrees to submit requests for expense reimbursement, in accordance with the Company's expense reimbursement policies, on or before December 1, 2002. 5. Bonus. The Executive agrees that he shall not be eligible for a bonus for the calendar years ending December 31, 2002 and 2003. 6. Benefits. Except as provided herein, the Executive will not be eligible for any employer-sponsored benefits after the Transition Period. The Executive acknowledges and agrees that he will not be entitled to accrue paid vacation days or paid holidays during the Transition Period. The Executive will be eligible for healthcare benefits during the Transition Period, after which standard COBRA benefits will apply. 7. Stock Options. Pursuant to the Amended and Restated ACLARA BioSciences, Inc. 1997 Stock Plan (the "Plan"), the Executive has been granted certain stock options (each an "Option"). Information concerning the number of shares, the vesting schedule and certain other information with respect to each Option is set forth on Exhibit A hereto. The Executive hereby acknowledges and agrees that the information set forth on Exhibit A is complete and accurate as to each of the Executive's Options. As provided in the Plan, the Executive's Options shall continue to vest during the term of the Transition Period, so long as the Executive remains an Employee of the Company (as defined in the Plan). Concurrently herewith, the Executive is also entering into a Change In Control Agreement with the Company, attached hereto as Exhibit B. Except as set forth in this Agreement or in an Exhibit to this Agreement, each Option granted to the Executive shall be governed by the terms of the applicable option agreement and the Plan. 8. Repayment of Loan Made to the Executive. The Executive entered into certain secured, interest-bearing promissory notes (the "Notes") in favor of the Company with an aggregate principal amount of $485,149.13 as of October 4, 2002. The Executive acknowledges that Exhibit C accurately sets forth the outstanding principal and interest amounts due and owing 2 as of October 4, 2002 and hereby agrees to repay such amounts to the Company (plus additional interest accrued as indicated on a daily basis on Exhibit C) within five days after the Effective Date. 9. General Release of Claims by the Executive. In consideration for receiving the benefits set forth in this Agreement, the Executive agrees to execute a release in the form attached as Exhibit D upon termination of the Transition Period. (a) The Executive, on behalf of himself and his executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and employee benefit plans in which the Executive is or has been a participant by virtue of his employment with the Company, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys' fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, "Claims"), which the Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the Resignation Date, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever the Executive's employment by the Company or the changes in the terms and conditions of the Executive's employment as of the Resignation Date, and any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Older Workers Benefit Protection Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, and similar state or local statutes, ordinances, and regulations. (b) THE EXECUTIVE ACKNOWLEDGES THAT HE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES 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." 3 BEING AWARE OF SAID CODE SECTION, THE EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT. (c) In accordance with the Older Workers Benefit Protection Act of 1990, the Executive acknowledges that he is aware of the following: (i) He has a right to consult with an attorney before accepting this offer; (ii) He has 21 days from the date this offer is received to consider this offer; and (iii) He has seven days after accepting this offer to revoke his acceptance, and his acceptance will not be effective until that revocation period has expired. 10. The Company, on behalf of itself and its respective successors, agents, attorneys and representatives, hereby agrees to release and forever discharge the Executive and his executors, heirs, representatives and assigns, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys' fees and costs), whether in law or equity, asserted or unasserted (collectively, "Claims"), which the Company has or may have against the Executive based on any events or circumstances known to the Company's Board of Directors or executive officers as of the date of execution of this Agreement by the Company. Notwithstanding the generality of the foregoing, the Company does not release the Executive from his obligation to repay certain loans described in Paragraph 8 of this Agreement or from his continuing obligations to the Company under the terms of the Company's Employee Confidentiality and Invention Assignment Agreement. 11. Nondisparagement. The Executive agrees that neither he nor anyone acting by, through, under or in concert with him shall disparage or otherwise communicate negative statements or opinions about the Company, its Board members, officers, employees or business. The Company agrees that neither its Board members nor officers shall disparage or otherwise communicate negative statements or opinions about the Executive. 12. Cooperation. The Executive agrees to give reasonable cooperation, at the Company's request, in any pending or future litigation or arbitration brought against the Company and in any investigation the Company may conduct. The Executive shall be reimbursed for all time spent, after the Transition Period, at an hourly rate of $300 per hour. The Company shall reimburse the Executive for all expenses reasonably incurred by him in compliance with this Paragraph. Notwithstanding the foregoing, the Company shall have no obligation to pay the Executive for time spent and expenses incurred by the Executive in any pending or future litigation or arbitration where the Executive is an unindemnified co-defendant 4 or party to the arbitration or litigation. 13. Confidential Information; Return of Company Property. (a) The Executive hereby expressly confirms his continuing obligations to the Company pursuant to the Confidential Information and Invention Assignment Agreement executed by the Executive on [insert date of agreement] (the "Confidentiality Agreement"). (b) The Executive shall deliver to the Company within 10 (ten) business days of the Company's request, all originals and copies of correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Company's customers, business plans, marketing strategies, products, processes or business of any kind and/or which contain proprietary information or trade secrets which are in the possession or control of the Executive or his agents or representatives. (c) The Executive shall return to the Company within 10 (ten) business days of the Company's request, all equipment of the Company in his possession or control. 14. Non-Solicitation of Company Employees. For the period commencing on the Effective Date and ending on December 31, 2004, the Executive shall not, directly or indirectly, solicit, induce, recruit or encourage any of the Company's employees or consultants to leave their employment or consulting relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for the benefit of the Executive or for any other person or entity. 15. Taxes. To the extent any taxes may be payable by the Executive for the benefits provided to him by this Agreement beyond those withheld by the Company, the Executive agrees to pay them himself and to indemnify and hold the Company and the other entities released herein harmless for any tax claims or penalties, and associated attorneys' fees and costs, resulting from any failure by him to make required payments. 16. In the Event of a Claimed Breach. All controversies, claims and disputes arising out of or relating to this Agreement, including without limitation any alleged violation of its terms, shall be resolved by final and binding arbitration before a single neutral arbitrator in Santa Clara County, California, in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association ("AAA"). The arbitration shall be commenced by filing a demand for arbitration with the AAA within 14 (fourteen) days after the filing party has given notice of such breach to the other party. The arbitrator shall award the prevailing party attorneys' fees and expert fees, if any. Notwithstanding the foregoing, it is acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations imposed on them under Section 13(a) hereof, and that in the event of any such failure, an aggrieved person will be irreparably damaged and will not have an adequate remedy at law. Any such person shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action shall be brought in 5 equity to enforce any of the provisions of Section 13(a) of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 17. Choice of Law. This Agreement shall in all respects be governed and construed in accordance with the laws of the State of California, including all matters of construction, validity and performance, without regard to conflicts of law principles. 18. Notices. All notices, demands or other communications regarding this Agreement shall be in writing and shall be sufficiently given if either personally delivered or sent by facsimile or overnight courier, addressed as follows: (a) If to the Company: ACLARA BioSciences, Inc. 1288 Pear Avenue Mountain View, California 94043 Attn: Chief Financial Officer Phone: (650) 210-1200 Facsimile: (650) 210-9271 (b) If to the Executive: Joseph M. Limber 1515 Arriba Court Los Altos, California 94024 19. Severability. Except as otherwise specified below, should any portion of this Agreement be found void or unenforceable for any reason by a court of competent jurisdiction, the parties intend that such provision be limited or modified so as to make it enforceable, and if such provision cannot be modified to be enforceable, the unenforceable portion shall be deemed severed from the remaining portions of this Agreement, which shall otherwise remain in full force and effect. If any portion of this Agreement is so found to be void or unenforceable for any reason in regard to any one or more persons, entities, or subject matters, such portion shall remain in full force and effect with respect to all other persons, entities, and subject matters. This paragraph shall not operate, however, to sever the Executive's obligation to provide the binding release to all entities intended to be released hereunder. 20. Understanding and Authority. The parties understand and agree that all terms of this Agreement are contractual and are not a mere recital, and represent and warrant that they are competent to covenant and agree as herein provided. 21. Integration Clause. This Agreement and the Exhibits hereto contain the entire agreement of the parties with regard to the changes in terms and conditions of and separation of the Executive's employment, and supersedes any prior agreements as to that matter. This Agreement shall not supersede the Indemnification Agreement between the Executive and the 6 Company, including limitations on the Company's obligation to indemnify the Executive, which shall remain in effect. This Agreement may not be changed or modified, in whole or in part, except by an instrument in writing signed by the Executive and the Chief Executive Officer or other responsible officer of the Company. 21. Execution in Counterparts. This Agreement may be executed in counterparts with the same force and effectiveness as though executed in a single document. The parties have carefully read this Agreement in its entirety; fully understand and agree to its terms and provisions; and intend and agree that it is final and binding on all parties. IN WITNESS WHEREOF, and intending to be legally bound, the parties have executed the foregoing on the dates shown below. JOSEPH M. LIMBER COMPANY /s/ Joseph M. Limber /s/ Thomas R. Baruch - -------------------------------- ---------------------------------- By: Thomas R. Baruch Title: Chairman Date October 11, 2002 Date_____________________________ 7 Exhibit A Stock Options as of October 4, 2002
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Shares Grant Date Exercise Price Shares Vested Shares Exercised Vesting Schedule ---------------- ---------- -------------- ------------- ---------------- ---------------- - ------------------------------------------------------------------------------------------------------------------------------------ 600,000 May 6, 1998 $0.40 600,000 600,000 fully vested - ------------------------------------------------------------------------------------------------------------------------------------ 150,000 Mar. 19, 1999 0.40 128,125 150,000 1/4/th/ one year from the vesting commencement date, followed by 1/48/th/ per month thereafter - ------------------------------------------------------------------------------------------------------------------------------------ 232,500 Dec. 1, 1999 0.63 232,500 232,500 fully vested - ------------------------------------------------------------------------------------------------------------------------------------ 112,500 Jan. 16, 2000 3.33 75,000 0 1/4/th/ one year from the vesting commencement date, followed by 1/48/th/ per month thereafter - ------------------------------------------------------------------------------------------------------------------------------------ 250,000 Apr. 11, 2001 5.02 0 0 in three annual increments on April 11, 2004, 2005 and 2006, with acceleration based on the achievement of certain prices for the Company's common stock, as set forth in the stock option agreement - ------------------------------------------------------------------------------------------------------------------------------------ 100,000 Mar. 5, 2002 3.70 0 0 1/4/th/ one year from the vesting commencement date, followed by 1/48/th/ per month thereafter - ------------------------------------------------------------------------------------------------------------------------------------
8 Exhibit B Change in Control Agreement 9 Exhibit C Promissory Notes as of October 4, 2002
- ------------------------------------------------------------------------------------------------------------------------------------ Date of Note Maturity Date Interest rate Principal Amount Accrued Interest Total Due ------------ ------------- ------------- ---------------- ----------------- --------- - ------------------------------------------------------------------------------------------------------------------------------------ Jan. 13, 2000 Apr. 13, 2002 5.8% compounded semiannually $ 236,540.80 $ 39,979.80 $ 276,520.60 - ------------------------------------------------------------------------------------------------------------------------------------ Jan. 13, 2000 Mar. 19, 2003 5.8% compounded semiannually 60,000.00 10,150.64 70,150.64 - ------------------------------------------------------------------------------------------------------------------------------------ Jan. 13, 2000 Apr. 13, 2002 5.8% compounded semiannually 147,250.00 24,912.08 172,162.08 - ------------------------------------------------------------------------------------------------------------------------------------ Jul. 28, 2000 Apr. 13, 2002 6.6% compounded annually 41,358.33 5,921.72 47,280.05 - ------------------------------------------------------------------------------------------------------------------------------------
Payment after October 4, 2002 will cause interest to accrue at an aggregate total of $88.39 per day for all loans 10 Exhibit D GENERAL RELEASE Joseph M. Limber (the "Executive"), on behalf of himself and his executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and employee benefit plans in which the Executive is or has been a participant by virtue of his employment with the Company, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys' fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, "Claims"), which the Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever the Executive's employment by the Company or the separation thereof, and any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Older Workers Benefit Protection Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, and similar state or local statutes, ordinances, and regulations. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES 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." BEING AWARE OF SAID CODE SECTION, THE EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT. 11 In accordance with the Older Workers Benefit Protection Act of 1990, the Executive acknowledges that he is aware of the following: (i) He has a right to consult with an attorney before accepting this offer; (ii) He has 21 days from the date this offer is received to consider this offer; and (iii) He has seven days after accepting this offer to revoke his acceptance, and his acceptance will not be effective until that revocation period has expired. JOSEPH M. LIMBER Dated: __________, 2003 12 EX-10.39 10 dex1039.txt CHANGE IN CONTROL AGREEMENT LIMBER 10/10/02 Exhibit 10.39 ACLARA BIOSCIENCES, INC. 1288 Pear Avenue, Mountain View, CA 94043 October 10, 2002 Joseph M. Limber 1515 Arriba Court Los Altos, CA 94024 Re: Change in Control Agreement Dear Mr. Limber: In connection with General Release and Separation Agreement entered into as of October 10, 2002 by you and ACLARA Biosciences, Inc. (the "Company"), the Company hereby agrees that after this letter agreement (this "Agreement") has been fully executed, you shall receive the severance benefits set forth in this Agreement in the event of a Hostile Takeover (as defined below) or a Change in Control (as defined below). 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through the termination of your service as an executive officer of the Company on December 1, 2002 or such earlier date as you and the Company shall agree in accordance with the General Release and Separation Agreement (such service to be referred to herein as "Service"). 2. Change in Control/Hostile Takeover. You shall receive no benefits under this Agreement unless there has been a Change in Control or a Hostile Takeover. (a) For purposes of this Agreement, a "Change in Control" shall mean (i) an acquisition of any voting securities of the Company (the "Voting Securities") by any "person" (as the term "person" is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such person has "beneficial ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) ("Beneficial Ownership") of 15% or more of the combined voting power of the Company's then outstanding Voting Securities without the approval of the Board; (ii) a merger or consolidation that results in more than 50% of the combined voting power of the Company's then outstanding Voting Securities of the Company or its successor changing ownership (whether or not approved by the Board); (iii) the sale of all or substantially all of the Company's assets; (iv) approval by the shareholders of the Company of a plan of complete liquidation of the Company; or (v) the individuals constituting the Board as of the date of this Agreement (the "Incumbent Board") cease for any reason to constitute at least 1/2 of the members of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of the Incumbent Board, such new director shall be considered a member of the Incumbent Board. Page 2 (b) For purposes of this Agreement, a "Hostile Takeover" means a transaction or series of transactions that results in any person acquiring Beneficial Ownership of more than 50% of the combined voting power of the Company's then outstanding Voting Securities without the approval of the Board. 3. Acceleration of Vesting Upon Change of Control or Hostile Takeover. Upon a Change of Control or a Hostile Takeover during the term of this Agreement, you shall immediately become 100% vested with respect to any options to purchase the Company's capital stock that you then hold and/or any restrictions with respect to restricted shares of the Company's capital stock that you then hold shall immediately lapse. 4. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Unless expressly provided otherwise, "Company" as used herein shall mean the Company as defined in this Agreement and any successor to its business and/or assets as aforesaid. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder had you continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 5. Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of its Secretary, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 6. Parachute Payments. Notwithstanding anything contained in this Agreement to the contrary, in the event that the benefits provided for in this Agreement to you together with all other payments and the value of any benefit received or to be received by you: (a) constitute "parachute payments" within the meaning of Section 280G of the Code, and (b) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then your benefits pursuant to the terms of this Agreement shall be payable either: Page 3 (i) in full, or (ii) as to such lesser amount which would result in no portion of such benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by you on an after-tax basis, of the greatest amount of benefits under this Agreement, notwithstanding that all or some portion of such benefits may be subject to the excise tax imposed under Section 4999 of the Code. Unless the Company and you otherwise agree in writing, any determination required under this Section 7 shall be made in writing by the Company's independent public accountants serving immediately before the Hostile Takeover or Change in Control (the "Accountants"), whose determination shall be conclusive and binding upon you and the Company for all purposes. For purposes of making the calculations required by this Section 7, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company shall cause the Accountants to provide detailed supporting calculations of its determinations to you and the Company. You and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 7. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without regard to its conflicts of law principles. All references to sections of the 1934 Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The section headings contained in this Agreement are for convenience only, and shall not affect the interpretation of this Agreement. 8. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 10. Entire Agreement. This Agreement and the General Release and Separation Agreement between the Company and you, dated as of October 10, 2002 sets forth Page 4 the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto, and any prior agreement of the parties hereto in respect of the subject matter contained herein, including, without limitation, any prior severance or change in control agreements (including that certain Change in Control Agreement between you and the Company dated November 7, 2001 (the "Prior Agreement")), is hereby terminated and cancelled. By executing this Agreement you hereby waive (within the meaning of Section 8 of the Prior Agreement) any rights you may currently have or have in the future to any benefits of any sort under the Prior Agreement. Any of your rights hereunder shall be in addition to any rights you may otherwise have under benefit plans or agreements of the Company (other than severance plans or agreements or the Prior Agreement) to which you are a party or in which you are a participant, including, but not limited to, any Company sponsored employee benefit plans and stock options plans. The provisions of this Agreement shall not in any way abrogate your rights under such other plans and agreements. 11. At-Will Employment. Nothing contained in this Agreement shall (a) confer upon you any right to continue in the employ of the Company, (b) constitute any contract or agreement of employment, or (c) interfere in any way with the at-will nature of your employment with the Company. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which shall then constitute our agreement on this subject. Sincerely, ACLARA BIOSCIENCES, INC. By: /s/ Thomas R. Baruch --------------------------- Its: Chairman Agreed and Accepted, this 10th day of October, 2002. /s/ Joseph M. Limber - --------------------- Joseph M. Limber -----END PRIVACY-ENHANCED MESSAGE-----