As filed with the Securities and Exchange Commission on February 1, 2005
Registration Number 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DexCom, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
3841
(Primary Standard Industrial Classification Code Number) |
33-0857544
(I.R.S. Employer Identification Number) |
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DexCom, Inc. 5555 Oberlin Drive San Diego, California 92121 (858) 200-0200 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) |
Andrew P. Rasdal
President and Chief Executive Officer
DexCom, Inc.
5555 Oberlin Drive
San Diego, California 92121
(858) 200-0200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: |
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Gordon K. Davidson, Esq.
Robert A. Freedman, Esq. Nicholas S. Khadder, Esq. FENWICK & WEST LLP 801 California Street Mountain View, California 94041 (650) 988-8500 |
Charles Ruck, Esq.
Shayne Kennedy, Esq. LATHAM & WATKINS LLP 650 Town Center Drive Suite 2000 Costa Mesa, California 92626 (714) 540-1235 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered |
Proposed Maximum
Aggregate Offering Price(1) |
Amount of
Registration Fee |
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Common Stock, $0.001 par value | $70,000,000 | $8,239 | ||
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated February 1, 2005
Shares
DEXCOM, INC. |
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Common Stock
$ per share
This investment involves risk. See "Risk Factors" beginning on page 7.
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Per Share |
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Total |
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Initial public offering price | $ | $ | ||||
Underwriting discount | $ | $ | ||||
Proceeds, before expenses, to DexCom, Inc. | $ | $ | ||||
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The underwriters have a 30-day option to purchase up to additional shares of common stock from us to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities commission has approved of anyone's investment in these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Piper Jaffray | SG Cowen & Co. | |
William Blair & Company |
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First Albany Capital |
The date of this prospectus is , 2005.
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Page
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Summary | 1 | |
Risk Factors | 7 | |
Information Regarding Forward-Looking Statements | 26 | |
Use of Proceeds | 27 | |
Dividend Policy | 27 | |
Capitalization | 28 | |
Dilution | 30 | |
Selected Financial Data | 32 | |
Management's Discussion and Analysis of Financial Condition and
Results of Operations |
33 | |
Business | 40 | |
Management | 68 | |
Related Party Transactions | 81 | |
Principal Stockholders | 82 | |
Description of Capital Stock | 85 | |
Shares Eligible for Future Sale | 89 | |
Underwriting | 91 | |
Legal Matters | 93 | |
Experts | 93 | |
Where You Can Find More Information | 94 | |
Index to Financial Statements | F-1 |
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover of this prospectus, but the information may have changed since that date.
The items in the following summary are described in more detail later in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should carefully read the more detailed information set out in this prospectus, especially the risks of investing in our common stock that we discuss under the "Risk Factors" section, as well as the financial statements and the related notes to those statements included elsewhere in this prospectus. References in this prospectus to "we," "us," "our" and "DexCom" refer to DexCom, Inc. unless the context requires otherwise.
Our Business
We are a medical device company focused on the design and development of continuous glucose monitoring systems for people with diabetes. We have developed proprietary technology and expertise that are enabling us to develop two continuous glucose monitoring systems: a short-term system with a sensor that can be inserted by a patient and used continuously for three days, and a long-term system with a sensor that can be implanted by a physician in a short outpatient procedure requiring only local anesthesia. When fully developed, our long-term sensor is expected to be used continuously for up to one year. Both sensors wirelessly transmit the patient's blood glucose, or blood sugar, levels to a small cell phone-sized receiver, which allows the patient to view real-time and trended blood glucose information with the touch of a button and alerts the patient when glucose levels are inappropriately high or low. We are currently conducting an 80- to 100-patient clinical trial of our short-term system, which we believe may support a premarket approval, or PMA, application by the end of the first half of 2005. We have received an investigational device exemption, and are conducting an 80-patient clinical trial, of our long-term system, and we expect to submit a PMA application for this system in 2006. To date, we have data from over 1,500 patient days of real-time usage of our continuous glucose monitoring systems from over 200 patients in clinical trials.
Market Opportunity
Diabetes is a chronic, life-threatening disease for which there is no known cure. The disease is caused by the body's inability to produce or effectively utilize the hormone insulin. This inability prevents the body from adequately regulating blood glucose levels. Worldwide, approximately 171 million people suffer from the disease. In 2002, there were an estimated 13 million diagnosed diabetes patients in the United States. This number is expected to rise by more than 1.3 million people each year as a result of an aging population, inappropriate diets and increasingly sedentary lifestyles. Diabetes is the fifth leading cause of death by disease in the United States, and complications related to diabetes include heart disease, limb amputations, loss of kidney function and blindness.
Diabetes is typically classified into two major groups: Type 1 and Type 2. Type 1 diabetes patients suffer from an absence of insulin and require frequent insulin injections in order to regulate and maintain blood glucose levels. Type 2 diabetes patients are unable to produce sufficient levels of insulin or become insulin resistant and, depending on the severity, may require dieting, exercise, oral medications or insulin injections to regulate blood glucose levels. The American Diabetes Association, or ADA, estimates that there are 1.3 million Type 1 diabetes patients and 2.8 million Type 2 diabetes patients who use insulin in the United States. In addition to Type 1 and Type 2 diabetes patients, pregnant women who have never had diabetes before may begin to have high blood glucose levels during pregnancy. According to the ADA, this condition, known as gestational diabetes, affects approximately 135,000 women in the United States each year.
The ADA estimates that the direct medical costs and indirect expenditures attributable to diabetes in the United States were $132 billion in 2002 and are expected to increase to $156 billion by 2010. Of
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the $132 billion in overall expenses, the ADA estimates that approximately $23 billion were associated with diabetes care. According to industry sources, the worldwide market for personal glucose monitoring systems and related disposables, which include test strips and lancets, was approximately $5.1 billion in 2003, and is expected to grow at an annual compound rate of approximately 11.6% to $8.9 billion in 2008.
Importance of Glucose Monitoring
Blood glucose levels can be affected by the carbohydrate and fat content of meals, exercise, stress, illness or impending illness, hormonal releases, variability in insulin absorption and changes in the effects of insulin in the body. As a result, blood glucose levels may fluctuate throughout the day and patients are often unaware that their levels are too high, a condition referred to as hyperglycemia, or too low, a condition referred to as hypoglycemia. According to the ADA, an important component of effective diabetes management is frequent monitoring of blood glucose levels. The landmark 1993 Diabetes Control and Complications Trial, or DCCT, consisting of patients with Type 1 diabetes, and the 1998 UK Prospective Diabetes Study, consisting of patients with Type 2 diabetes, demonstrated that patients who intensely managed blood glucose levels significantly reduced the incidence and severity of diabetes-related complications. In the DCCT, a major component of intensive management was monitoring blood glucose levels at least four times per day. Despite evidence that tightly managing blood glucose levels reduces long-term complications associated with diabetes, industry sources estimate that people with diabetes test, on average, less than twice per day.
Limitations of Existing Glucose Monitoring Products
Single-point finger stick devices are the most prevalent devices for glucose monitoring. These devices require taking a blood sample with a finger stick, placing a drop of blood on a test strip and inserting the strip into a glucose meter that yields a single-point in time blood glucose measurement. We believe that these devices suffer from several limitations, including:
We believe a significant market opportunity exists for a glucose monitoring system that provides continuous blood glucose information and that is convenient and easy-to-use.
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The DexCom Solution
We are developing blood glucose monitoring systems that continuously measure a patient's blood glucose level and transmit that information to a small cell phone-sized receiver. In a clinical trial using our first generation long-term sensor, patients reduced the amount of time they spent hyperglycemic by 25% and the time they spent hypoglycemic by 47%. Correspondingly, these patients increased the time they spent at target blood glucose levels by 88%. These results were published in a peer-reviewed article in the March 2004 issue of Diabetes Care . Relying on our broad-based technology platform, we are developing, and testing in clinical trials, short-term and long-term continuous blood glucose monitoring systems that are designed to offer the following advantages to diabetes patients:
While we believe our glucose monitoring systems offer these advantages, patients may not perceive the benefits of continuous glucose monitoring and may be unwilling to change their current treatment regimens. Our products, and in particular our long-term continuous glucose monitoring system, can be more invasive than current self-monitored glucose testing systems, including single-point finger stick devices, and patients may be unwilling to insert or implant a sensor in their body, especially if their current diabetes management involves no more than two finger sticks per day. Additionally, our systems may not be approved as replacement devices for single-point finger stick devices and may be more costly to use.
Our Strategy
Our objective is to become the leading provider of continuous glucose monitoring systems and related products to enable people with diabetes to manage their disease more conveniently and effectively. To achieve this objective, we are pursuing the following business strategies:
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Corporate Information
We were incorporated in Delaware in May 1999. Our principal offices are located at 5555 Oberlin Drive, San Diego, California 92121, and our telephone number is (858) 200-0200. Our World Wide Web address is http://www.dexcom.com. The information found on, or accessible through, our website is not a part of this prospectus.
We are seeking to register our trademark, DexCom, with the U.S. Patent and Trademark Office. All other trademarks, tradenames and service marks appearing in this prospectus are the property of their respective owners.
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The Offering
Common stock offered by us | shares | |
Common stock to be outstanding after this offering |
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shares |
Initial public offering price |
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$ per share |
Use of proceeds |
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We intend to use the net proceeds of this offering for clinical trials and other research and development, building our commercialization infrastructure, working capital and general corporate purposes. See "Use of Proceeds." |
Proposed NASDAQ National Market symbol |
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DXCM |
The number of shares of common stock to be outstanding after this offering is based on 40,097,491 shares outstanding as of December 31, 2004, and excludes:
Except as otherwise noted, all information in the prospectus assumes:
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Summary Financial Data
The following table summarizes our financial data. The statements of operations data for the years ended December 31, 2002, 2003 and 2004 and for the period from May 13, 1999 (inception) through December 31, 2004 and the balance sheet data as of December 31, 2004 have been derived from our audited financial statements included elsewhere in this prospectus. You should read this data together with our financial statements and related notes to those statements included elsewhere in this prospectus and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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Period from
May 13, 1999 (inception) through December 31, 2004 |
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Years Ended December 31,
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2002
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2003
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2004
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(in thousands, except share and per share data)
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Statements of Operations Data: | |||||||||||||||
Costs and expenses: | |||||||||||||||
Research and development | $ | 6,311 | $ | 8,934 | $ | 12,179 | $ | 36,113 | |||||||
General and administrative | 1,860 | 1,250 | 1,440 | 7,590 | |||||||||||
Stock-based compensation: | |||||||||||||||
Research and development | | | 291 | 291 | |||||||||||
General and administrative | | | 157 | 157 | |||||||||||
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Total costs and expenses | 8,171 | 10,184 | 14,067 | 44,151 | |||||||||||
Interest and other income, net |
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463 |
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270 |
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121 |
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1,405 |
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Net loss | (7,708 | ) | (9,914 | ) | (13,946 | ) | (42,746 | ) | |||||||
Accretion to redemption value of Series B and Series C redeemable convertible preferred stock | (2,451 | ) | (3,235 | ) | (3,235 | ) | (10,139 | ) | |||||||
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Net loss attributable to common stockholders | $ | (10,159 | ) | $ | (13,149 | ) | $ | (17,181 | ) | $ | (52,885 | ) | |||
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Basic and diluted net loss per share attributable to common stockholders (1) | $ | (2.48 | ) | $ | (3.03 | ) | $ | (3.76 | ) | ||||||
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Shares used to compute basic and diluted net loss per share attributable to common stockholders (1) | 4,092,421 | 4,339,851 | 4,572,649 | ||||||||||||
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Pro forma basic and diluted net loss per share (unaudited) (1) | $ | (0.44 | ) | ||||||||||||
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Shares used to compute pro forma basic and diluted net loss per share (unaudited) (1) | 31,690,525 | ||||||||||||||
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As of December 31, 2004 |
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Actual
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Pro Forma
As Adjusted (2) |
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(in thousands)
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Balance Sheet Data: | ||||||
Cash and cash equivalents | $ | 27,229 | $ | |||
Working capital | 25,705 | |||||
Total assets | 29,358 | |||||
Redeemable convertible preferred stock | 76,974 | |||||
Total stockholders' equity (deficit) | (49,310 | ) |
(1) See Note 2 of the notes to our financial statements for a description of the method used to compute basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share.
(2) On a pro forma as adjusted basis to give effect to the conversion of all outstanding shares of preferred stock into common stock upon the closing of this offering and to reflect the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the range on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
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Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition and results of operations would suffer. In that case, the trading price of our common stock would likely decline and you might lose all or part of your investment in our common stock. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our operations and business results.
We are a development stage company and we do not have, and may never have, any products.
We are a development stage medical device company with a limited operating history, and we currently do not have any commercialized products or any source of revenue. We have invested all of our time and resources in developing our continuous glucose monitoring systems, which we initially intend to commercialize in the form of a short-term continuous glucose monitoring system, and subsequently, in the form of a long-term continuous glucose monitoring system. Our existing products under development will require additional clinical evaluation, regulatory approval, significant marketing efforts and substantial additional investment before they can provide us with any revenue. Our efforts may not lead to commercially successful products for a number of reasons, including:
We do not expect to be able to commercialize our short-term continuous glucose monitoring system or long-term continuous glucose monitoring system before 2006 and 2007, respectively. If we are unable to develop, obtain regulatory approval for or successfully commercialize our continuous glucose monitoring systems, we will be unable to generate revenue.
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We have incurred losses since inception and anticipate that we will incur continued losses for the foreseeable future.
We have incurred net losses in each year since our inception in May 1999, including net loss attributable to common stockholders of $17.2 million for the year ended December 31, 2004. As of December 31, 2004, we had a deficit accumulated during the development stage of $52.9 million. We have financed our operations primarily through private placements of our equity securities and have devoted substantially all of our resources to research and development relating to our continuous glucose monitoring systems. We expect our research and development expenses to increase in connection with our clinical trials and other development activities related to our products. If we receive approval for marketing of a product by the Food and Drug Administration, or FDA, we expect to incur significant sales and marketing expenses, and manufacturing expenses. Additionally, if we complete our initial public offering, we expect that our general and administrative expenses will increase due to the additional operational and regulatory burdens applicable to public companies. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. These losses, among other things, have had and will continue to have an adverse effect on our stockholders' equity.
We have not received, and may never receive, FDA approval to market our continuous glucose monitoring systems.
We do not have the necessary regulatory approvals to market our continuous glucose monitoring systems or any other product in the United States or in any foreign market. We plan initially to launch our products, once approved, in the United States. The regulatory approval process for our continuous glucose monitoring systems involves, among other things, successfully completing clinical trials and obtaining a premarket approval, or PMA, from the FDA. The PMA process requires us to prove the safety and efficacy of our continuous glucose monitoring systems to the FDA's satisfaction. This process can be expensive and uncertain, requires detailed and comprehensive scientific and human clinical data, generally takes one to three years after a PMA application is filed and may never result in the FDA granting a PMA. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:
Even if approved, our continuous glucose monitoring systems may not be approved for the indications that are necessary or desirable for successful commercialization of our systems. We may not obtain the necessary regulatory approvals to market our continuous glucose monitoring systems in the United States or anywhere else. Any delay in, or failure to receive or maintain, approval for our continuous glucose monitoring systems could prevent us from generating revenue or achieving profitability.
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We expect to operate in a highly competitive market, we face competition from large, well-established medical device manufacturers with significant resources, and we may not be able to compete effectively.
The market for glucose monitoring devices is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. If our products are approved for marketing, we will compete directly with Roche Disetronic, a division of Roche Diagnostics; LifeScan, Inc., a division of Johnson & Johnson; the MediSense and TheraSense divisions of Abbott Laboratories; and Bayer Corporation, each of which manufactures and markets products for the single-point finger stick device market. Collectively these companies currently account for substantially all of the glucose monitoring market. Several companies are developing or marketing early generation short-term continuous glucose monitoring products that will compete directly with our planned products. These devices include the Guardian Continuous Glucose Monitoring System and the CGMS System Gold, both of which have received FDA approval for limited applications and are currently marketed by Medtronic, Inc., and the Freestyle Navigator Glucose System, which has not yet received FDA approval and is being developed by TheraSense. In August 2004, Medtronic announced that it had filed a PMA supplement for its Guardian device that, if approved, will allow it to show real-time glucose measurements to patients. Furthermore, several other companies are developing non-invasive continuous glucose monitoring products. One of these non-invasive devices, the Cygnus GlucoWatch, now owned by Animas Corporation, has received FDA approval. Most of the companies developing or marketing competing devices are publicly traded or divisions of publicly-traded companies, and these companies enjoy several competitive advantages, including:
As a result, we may not be able to compete effectively against these companies or their products.
No continuous glucose monitoring system has yet received FDA clearance as a replacement for single-point finger stick devices, and our products may never be approved for that indication.
We do not expect our initial products will eliminate the need for single-point finger stick devices. We believe that our initial products, if approved, will be indicated for use by patients to obtain real-time blood glucose levels, trend information and alerts, but not as a substitute for single-point finger stick devices. No precedent for FDA approval of continuous glucose monitoring systems as a substitute for such devices has been established. Accordingly, there is no established study design or agreement regarding performance requirements or measurements in clinical trials for continuous glucose monitoring systems. To our knowledge, the only company to attempt to obtain approval from the FDA for the replacement of single-point finger stick devices with a continuous glucose monitoring system
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has experienced substantial delays, and there can be no guarantee that we will not also experience such delays.
If we are unable to successfully complete the pre-clinical studies or clinical trials necessary to support a PMA application, our ability to commercialize our continuous glucose monitoring systems and our financial position will be impaired.
Before submitting a PMA application, we must successfully complete pre-clinical studies and clinical trials that we believe will demonstrate that the product is safe and effective. Product development, including pre-clinical studies and clinical trials, is a long, expensive and uncertain process and is subject to delays and failure at any stage. Furthermore, the data obtained from the trial may be inadequate to support approval of a PMA application. While we obtained an Investigational Device Exemption, or IDE, prior to commencing the current clinical trial for our long-term continuous glucose monitoring system, FDA approval of an IDE application permitting us to conduct testing does not mean that the FDA will consider the data gathered in the trial sufficient to support approval of a PMA application, even if the trial's intended safety and efficacy endpoints are achieved.
The commencement or completion of any of our clinical trials may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons, including, but not limited to, the following:
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The results of pre-clinical studies do not necessarily predict future clinical trial results, and predecessor clinical trial results may not be repeated in subsequent clinical trials. We believe the data and performance from each of our last three clinical trials relating to our long-term system were likely insufficient to support a PMA application. Our ongoing clinical trials may produce similar results, in which case we would not rely on them for our PMA applications. Additionally, the FDA may disagree with our interpretation of the data from our pre-clinical studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove safety or efficacy, and may require us to pursue additional pre-clinical studies or clinical trials, which could further delay the approval of our products. If we are unable to demonstrate the safety and efficacy of our products in our clinical trials, we will be unable to obtain regulatory approval to market our products. The data we collect from our current clinical trials, our pre-clinical studies and other clinical trials may not be sufficient to support FDA approval.
If we are unable to obtain acceptable prices or adequate reimbursement for our products from third-party payors, we will be unable to generate significant revenue.
The availability of insurance coverage and reimbursement for newly approved medical devices is uncertain. In the United States, patients using existing single-point finger stick devices are generally reimbursed all or part of the product cost by Medicare or other third-party payors. The commercial success of our continuous glucose monitoring systems in both domestic and international markets will be substantially dependent on whether third-party coverage and reimbursement is available for patients that use our systems. Third-party coverage may be particularly difficult to obtain if our systems are not approved by the FDA as replacements for existing single-point finger stick devices. Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new medical devices, and, as a result, they may not cover or provide adequate payment for our systems. In order to obtain reimbursement arrangements, we may have to agree to a net sales price lower than the net sales price we might charge in other sales channels. The continuing efforts of government and third-party payors to contain or reduce the costs of healthcare may limit our revenue. Our initial dependence on the commercial success of our short-term continuous glucose monitoring system makes us particularly susceptible to any cost containment or reduction efforts. Accordingly, even if our short-term continuous glucose monitoring system or future products we develop are approved for commercial sale, unless government and other third-party payors provide adequate coverage and reimbursement for our products, patients may not use them.
In some foreign markets, pricing and profitability of medical devices are subject to government control. In the United States, we expect that there will continue to be federal and state proposals for similar controls. Also, the trends toward managed healthcare in the United States and proposed legislation intended to reduce the cost of government insurance programs could significantly influence the purchase of healthcare services and products and may result in lower prices for our products or the exclusion of our products from reimbursement programs.
Our continuous glucose monitoring systems may never achieve market acceptance even if we obtain regulatory approvals.
To date, only those patients and physicians involved in our clinical trials have used our products and, even if we obtain regulatory approval, people with diabetes or the medical community may not
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endorse our short-term or long-term continuous glucose monitoring systems. The degree of market acceptance of our products will depend on a number of factors, including:
Our products, and in particular our long-term continuous glucose monitoring system, can be more invasive than current self-monitored glucose testing systems, including single-point finger stick devices, and patients may be unwilling to insert or implant a sensor in their body, especially if their current diabetes management involves no more than two finger sticks per day. Moreover, patients may not perceive the benefits of continuous glucose monitoring and may be unwilling to change their current treatment regimens. In addition, physicians tend to be slow to change their medical treatment practices because of perceived liability risks arising from the use of new products and the uncertainty of third party reimbursement. Physicians may not recommend or prescribe our products until there is long-term clinical evidence to convince them to alter their existing treatment methods and there are recommendations from prominent physicians that our products are effective in monitoring blood glucose levels. If our continuous glucose monitoring systems are approved but do not achieve an adequate level of acceptance by patients, physicians and healthcare payors, we may not generate significant product revenue and we may not become profitable.
We depend on clinical investigators and clinical sites to enroll patients in our clinical trials and other third parties to manage the trials and to perform related data collection and analysis, and, as a result, we may face costs and delays that are outside of our control.
We rely on clinical investigators and clinical sites to enroll patients in our clinical trials and other third parties to manage the trial and to perform related data collection and analysis. However, we may not be able to control the amount and timing of resources that clinical sites may devote to our clinical trials. If these clinical investigators and clinical sites fail to enroll a sufficient number of patients in our clinical trials or fail to ensure compliance by patients with clinical protocols, we will be unable to complete these trials, which could prevent us from obtaining regulatory approvals for our products. Our agreements with clinical investigators and clinical sites for clinical testing place substantial responsibilities on these parties and, if these parties fail to perform as expected, our trials could be delayed or terminated. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or
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accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for, or successfully commercialize, our products.
We may be unable to complete the development and commercialization of our continuous glucose monitoring systems or other products without additional funding.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on research and development, including conducting clinical trials for our continuous glucose monitoring systems. Even before we receive approval to market one of our continuous glucose monitoring systems, we expect to spend significant additional amounts on commercializing the product, including development of a direct sales force and expansion of manufacturing capacity. In 2004, our net cash used in operating activities was $12.4 million. We expect that our cash used by operations will increase significantly in each of the next several years, and we may need additional funds to complete the development and commercialization of both our short-term and long-term continuous glucose monitoring systems. Additional financing may not be available on a timely basis on terms acceptable to us, or at all. Any additional financing may be dilutive to stockholders or may require us to grant a lender a security interest in our assets. The amount of funding we will need will depend on many factors, including:
If adequate funds are not available, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support or other resources devoted to our products. Any of these factors could harm our financial condition.
If we are unable to establish sales, marketing and distribution capabilities or enter into and maintain arrangements with third parties to sell, market and distribute our continuous glucose monitoring systems, our business may be harmed.
We do not have a sales organization and have no experience as a company in the sale, marketing and distribution of glucose monitoring products. To achieve commercial success for any approved product
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we must either develop a sales and marketing force or enter into arrangements with others to market and sell our products. Following product approval, we currently plan to establish a small direct sales force to market our products in the United States. Our sales force will be competing with the experienced and well-funded marketing and sales operations of our competitors. Developing a sales force is expensive and time consuming and could delay or limit the success of any product launch. We may not be able to develop this capacity on a timely basis or at all. If we are unable to establish sales and marketing capabilities, we will need to contract with third parties to market and sell our approved products in the United States. To the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services in the United States, our product revenue could be lower than if we directly marketed and sold our continuous glucose monitoring systems. Furthermore, to the extent that we enter into co-promotion or other marketing and sales arrangements with other companies, any revenue received will depend on the skills and efforts of others, and we do not know whether these efforts will be successful. If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate product revenue and may not become profitable.
We have limited manufacturing capabilities and manufacturing personnel, and if our manufacturing capabilities are insufficient to produce an adequate supply of products, our growth could be limited and our business could be harmed.
We currently have limited resources, facilities and experience to commercially manufacture our products. In order to produce our continuous glucose monitoring systems in the quantities we anticipate to meet market demand, we will need to increase our manufacturing capacity by a significant factor over the current level. There are technical challenges to increasing manufacturing capacity, including equipment design and automation, material procurement, problems with production yields, and quality control and assurance. Developing commercial-scale manufacturing facilities will require the investment of substantial additional funds and the hiring and retaining of additional management and technical personnel who have the necessary manufacturing experience. We may not successfully complete any required increase in manufacturing capacity in a timely manner or at all. Even if our products receive regulatory approval, if we are unable to manufacture a sufficient supply of product, maintain control over expenses or otherwise adapt to anticipated growth, or if we underestimate growth, we may not have the capability to satisfy market demand and our business will suffer.
Additionally, the production of our continuous glucose monitoring systems must occur in a highly controlled and clean environment to minimize particles and other yield- and quality-limiting contaminants. Weaknesses in process control or minute impurities in materials may cause a substantial percentage of defective products in a lot. If we are not able to maintain stringent quality controls, or if contamination problems arise, our clinical development and commercialization efforts could be delayed, which would harm our business and our results of operations.
Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply problems and price fluctuations, which could harm our business.
We rely on Flextronics to manufacture and supply the handheld personal receiver included as part of our continuous glucose monitoring systems and the circuit boards for our short-term and long-term sensors; we rely on AMI Semiconductor to manufacture and supply the application specific integrated circuit, or ASIC, that is incorporated into the transmitter for our continuous glucose monitoring systems; we rely on Quallion to manufacture and supply the battery included in our short-term sensor and the third generation of our long-term sensor; and we rely on Vita Needle to manufacture and supply the insertion needle in our short-term continuous glucose monitoring system. Each of these suppliers is a sole-source supplier. Our contract manufacturers also rely on sole-source suppliers to
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manufacture some of the components used in our products. Our manufacturers and suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors, any of which could delay or impede their ability to meet our demand. Our reliance on these outside manufacturers and suppliers also subjects us to other risks that could harm our business, including:
Any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products.
Technological breakthroughs in the glucose monitoring market could render our products obsolete.
The glucose monitoring market is subject to rapid technological change and product innovation. Our products are based on our proprietary technology, but a number of companies and medical researchers are pursuing new technologies for the monitoring of glucose levels. FDA approval of a commercially viable continuous glucose monitor or sensor produced by one of our competitors could significantly reduce market acceptance of our systems. Several of our competitors are in various stages of developing continuous glucose monitors or sensors, including non-invasive and invasive devices, and the FDA has approved three of these products. In addition, the National Institutes of Health and other supporters of diabetes research are continually seeking ways to prevent, cure or improve treatment of diabetes. Therefore, our products may be rendered obsolete by technological breakthroughs in diabetes monitoring, treatment or prevention.
Potential long-term complications from our continuous glucose monitoring systems may not be revealed by our clinical experience to date.
If unanticipated long-term side-effects result from the use of either of our systems, we could be subject to liability and our systems would not be widely adopted. Our clinical trials have been limited to seven months of continuous use with our first generation long-term sensor, six months of continuous use with our second generation long-term sensor and three days of continuous use with our short-term
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sensor. Additionally, we have not clinically tested repeated use of our long-term sensor in the same patient, and we have limited clinical experience with repeated use of our short-term sensor in the same patient. We cannot assure you that long-term use would not result in unanticipated complications. Furthermore, the interim results from our current pre-clinical studies and clinical trials may not be indicative of the clinical results obtained when we examine the patients at later dates. It is possible that repeated use of our short-term or long-term systems, or implantation of our long-term sensor for more than seven months, will result in unanticipated adverse effects, potentially even after the device is removed.
Even if our products are approved by regulatory authorities, if we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. In particular we and our suppliers are required to comply with the quality system regulation, or QSR, and other regulations, which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our products. The FDA enforces the QSR through unannounced inspections. We have not yet been inspected by the FDA and will have to successfully complete such an inspection before we ship any commercial products. Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate response to any observations, could result in, among other things, any of the following actions:
If any of these actions were to occur, it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.
Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly
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post-marketing testing and surveillance to monitor the safety or efficacy of the product. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as the QSR, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.
We face the risk of product liability claims and may not be able to maintain or obtain insurance.
Our business exposes us to the risk of product liability claims that is inherent in the testing, manufacturing and marketing of medical devices, including those which may arise from the misuse or malfunction of, or design flaws in, our products. We may be subject to product liability claims if our products cause, or merely appear to have caused, an injury. Claims may be made by patients, healthcare providers or others selling our products. Although we have product liability and clinical trial liability insurance that we believe is appropriate, this insurance is subject to deductibles and coverage limitations. Our current product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, the coverages may not be adequate to protect us against any future product liability claims. In addition, if any of our products are approved for marketing, we may seek additional insurance coverage. If we are unable to obtain insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may harm our business. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business.
We may be subject to claims against us even if the apparent injury is due to the actions of others. For example, we rely on the expertise of physicians, nurses and other associated medical personnel to perform the medical procedure and related processes to implant our long-term sensor into patients. If these medical personnel are not properly trained or are negligent, the capabilities of our products may be diminished or the patient may suffer critical injury, which may subject us to liability. These liabilities could prevent or interfere with our product commercialization efforts. Defending a suit, regardless of merit, could be costly, could divert management attention and might result in adverse publicity, which could result in the withdrawal of, or inability to recruit, clinical trial volunteers or result in reduced acceptance of our products in the market.
We conduct business in a heavily regulated industry and if we fail to comply with these laws and government regulations, we could suffer penalties or be required to make significant changes to our operations.
The healthcare industry is subject to extensive federal, state and local laws and regulations relating to:
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These laws and regulations are extremely complex and, in some cases, still evolving. In many instances, the industry does not have the benefit of significant regulatory or judicial interpretation of these laws and regulations. If our operations are found to be in violation of any of the federal, state or local laws and regulations which govern our activities, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines or curtailment of our operations. The risk of being found in violation of these laws and regulations is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's time and attention from the operation of our business.
In addition, healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the healthcare regulatory environment may change in a way that restricts our operations.
We are not aware of any governmental healthcare investigations involving our executives or us. However, any future healthcare investigations of our executives, our managers or us could result in significant liabilities or penalties to us, as well as adverse publicity.
Our inability to adequately protect our intellectual property could allow our competitors and others to produce products based on our technology, which could substantially impair our ability to compete.
Our success and ability to compete is dependent, in part, upon our ability to maintain the proprietary nature of our technologies. We rely on a combination of patent, copyright and trademark law, and trade secrets and nondisclosure agreements to protect our intellectual property. However, such methods may not be adequate to protect us or permit us to gain or maintain a competitive advantage. Our patent applications may not issue as patents in a form that will be advantageous to us, or at all. Our issued patents, and those that may issue in the future, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products.
To protect our proprietary rights, we may in the future need to assert claims of infringement against third parties to protect our intellectual property. The outcome of litigation to enforce our intellectual property rights in patents, copyrights, trade secrets or trademarks is highly unpredictable, could result in substantial costs and diversion of resources, and could have a material adverse effect on our financial condition and results of operations regardless of the final outcome of such litigation. In the event of an adverse judgment, a court could hold that some or all of our asserted intellectual property rights are not infringed, invalid or unenforceable, and could award attorney fees.
Despite our efforts to safeguard our unpatented and unregistered intellectual property rights, we may not be successful in doing so or the steps taken by us in this regard may not be adequate to detect or deter misappropriation of our technology or to prevent an unauthorized third party from copying or otherwise obtaining and using our products, technology or other information that we regard as proprietary. Additionally, third parties may be able to design around our patents. Furthermore, the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the
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United States. Our inability to adequately protect our intellectual property could allow our competitors and others to produce products based on our technology, which could substantially impair our ability to compete.
We do not currently have any registered trademarks. We recently filed for the registration of a trademark for the name "DexCom" but our application has been preliminarily rejected. If we cannot obtain a trademark registration for DexCom, we may have to change our company name or market our products under a different name, which could result in significant expense.
We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief.
Third parties could, in the future, assert infringement or misappropriation claims against us with respect to our current or future products. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Therefore, we cannot be certain that we have not infringed the intellectual property rights of such third parties or others. Our competitors may assert that our continuous glucose monitoring systems or the methods we employ in the use of our systems are covered by U.S. or foreign patents held by them. This risk is exacerbated by the fact that there are numerous issued patents and pending patent applications relating to self-monitored glucose testing systems and implantable sensors in the medical technology field. Because patent applications may take years to issue, there may be applications now pending of which we are unaware that may later result in issued patents that our products infringe. There could also be existing patents of which we are unaware that one or more components of our system may inadvertently infringe. As the number of competitors in the market for self-monitored glucose testing systems grows, the possibility of inadvertent patent infringement by us or a patent infringement claim against us increases.
Any infringement or misappropriation claim could cause us to incur significant costs, could place significant strain on our financial resources, divert management's attention from our business and harm our reputation. If the relevant patents were upheld as valid and enforceable and we were found to infringe, we could be prohibited from selling our product that is found to infringe unless we could obtain licenses to use the technology covered by the patent or are able to design around the patent. We may be unable to obtain a license on terms acceptable to us, if at all, and we may not be able to redesign our products to avoid infringement. A court could also order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in addition, treble the compensatory damages and award attorney fees. These damages could be substantial and could harm our reputation, business, financial condition and operating results. A court also could enter orders that temporarily, preliminarily or permanently enjoin us and our customers from making, using, selling, offering to sell or importing our products, or could enter an order mandating that we undertake certain remedial activities. Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties.
The prosecution and enforcement of patents licensed to us by third parties are not within our control, and without these technologies, our products may not be successful and our business would be harmed.
We rely on a license from SM Technologies, LLC to use various technologies that are material to our business. We do not own the patents that underlie this license. This license grants us exclusive rights under specific patents related to our biointerface membranes and our sensor membranes and allows us to use those rights only in the field of diabetes treatment and management. Our rights to use these technologies and employ the inventions claimed in the licensed patents are subject to our abiding by
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the terms of the license. In addition, we do not control the prosecution of the patents subject to this license or the strategy for determining when such patents should be enforced. As a result, we are largely dependent upon our licensor to determine the appropriate strategy for prosecuting and enforcing those patents.
We do not currently comply with Federal Communications Commission, or FCC, regulations for the radio transmissions used by our products, and will need to change the frequencies we use, or obtain exemptions for our systems, before we can commercialize our products.
Our continuous glucose monitoring systems rely on radio transmissions from the sensor to a handheld receiver. Our long-term continuous glucose monitoring system operates in the band of frequencies allocated to the Medical Implant Communications Service, or MICS, which is an ultra-low power, unlicensed, mobile radio service for transmitting data in support of diagnostic or therapeutic functions associated with implanted medical devices. However, our long-term continuous glucose monitoring system does not fully comply with the requirements imposed by the FCC on MICS devices. We anticipate applying for an exemption, but may not obtain such an exemption in time for our potential product release, if at all. If we cannot obtain an exemption, we may be required to re-engineer our sensors to transmit over a different frequency that is not restricted. Any change to our transmission frequency may require changes to our regulatory approvals. We have not tested, in a clinical setting, any of our current generation systems on a frequency other than that allocated to the MICS. While other frequencies are available, traffic on those frequencies may be significant given the lack of restrictions, and we cannot predict the effect such traffic would have on the operation of our sensors.
All of our operations are conducted at a single location. Any disruption at our facility could increase our expenses.
All of our operations are conducted at a single location in San Diego, California. We take precautions to safeguard our facility, including insurance, health and safety protocols, and off-site storage of computer data. However, a natural disaster, such as a fire, flood or earthquake, could cause substantial delays in our operations, damage or destroy our manufacturing equipment or inventory, and cause us to incur additional expenses. The insurance we maintain against fires, floods, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.
We may be liable for contamination or other harm caused by materials that we handle, and changes in environmental regulations could cause us to incur additional expense.
Our research and development and clinical processes involve the handling of potentially harmful biological materials as well as hazardous materials. We are subject to federal, state and local laws and regulations governing the use, handling, storage and disposal of hazardous and biological materials and we incur expenses relating to compliance with these laws and regulations. If violations of environmental, health and safety laws occur, we could be held liable for damages, penalties and costs of remedial actions. These expenses or this liability could have a significant negative impact on our financial condition. We may violate environmental, health and safety laws in the future as a result of human error, equipment failure or other causes. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We are subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes to or restrictions on permitting requirements or processes, hazardous or biological material storage or handling might require an unplanned capital investment or relocation. Failure to comply with new or existing laws or regulations could harm our business, financial condition and results of operations.
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Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.
Following commercial launch of our products in the United States, we may market our products internationally. Outside the United States, we can market a product only if we receive a marketing authorization and, in some cases, pricing approval, from the appropriate regulatory authorities. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval in addition to other risks. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We have not taken any actions to obtain foreign regulatory approvals. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market on a timely basis, or at all.
Our success will depend on our ability to attract and retain our personnel.
We are highly dependent on our senior management, especially Andrew P. Rasdal, our President and Chief Executive Officer, and each of Andrew K. Balo, our Vice President of Clinical and Regulatory Affairs and Quality Systems, Mark Brister, our Vice President, Advanced Development Teams, James H. Brauker, our Vice President of Research and Development, and Steven J. Kemper, our Chief Financial Officer. Our success will depend on our ability to retain our current management and to attract and retain qualified personnel in the future, including scientists, clinicians, engineers and other highly skilled personnel. Competition for senior management personnel, as well as scientists, clinicians and engineers, is intense and we may not be able to retain our personnel. The loss of the services of members of our senior management, scientists, clinicians or engineers could prevent the implementation and completion of our objectives, including the development and introduction of our products. The loss of a member of our senior management or our professional staff would require the remaining executive officers to divert immediate and substantial attention to seeking a replacement. Each of our officers may terminate their employment at any time without notice and without cause or good reason.
We expect to rapidly expand our operations and grow our research and development, product development and administrative operations. This expansion is expected to place a significant strain on our management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our development and commercialization activities.
We will incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters.
Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the Securities and Exchange Commission, or SEC, will result in increased costs to us as we evaluate the implications of any new rules and regulations and respond to new requirements under such rules and regulations. We will be required to comply with these rules and regulations after the completion of this offering. For example, we are evaluating our internal controls systems in order to allow us to report on, and our independent registered public accounting firm to attest to, our internal controls, as required by Section 404 of the Sarbanes-Oxley Act. While we anticipate being able to fully implement
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the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since there is no precedent available by which to measure compliance adequacy. As a development stage company with limited capital and human resources, we will need to divert management's time and attention away from our business in order to ensure compliance with these regulatory requirements. This diversion of management's time and attention may have a material adverse effect on our business, financial condition and results of operations.
Changes in or interpretations of accounting rules and regulations, such as expensing of stock options, could result in unfavorable accounting charges or require us to change our compensation policies.
Accounting methods and policies for business and market practices, including policies regarding expensing stock options, are subject to further review, interpretation and guidance from relevant accounting authorities, including the SEC. For example, we currently are not required to record stock-based compensation charges if the employee's stock option exercise price equals or exceeds the fair value of our common stock at the date of grant. Although the standards have not been finalized and the timing of a final statement has not been established, the Financial Accounting Standards Board, or FASB, has announced their support for expensing the fair value of stock options granted. If we were to change our accounting policy to expense the fair value of stock options granted and retroactively restate all prior periods presented, then our operating expenses and reported losses could increase. We rely heavily on stock options to compensate existing employees and attract new employees. If we are required to expense stock options, we may then choose to reduce our reliance on stock options as a compensation tool. If we reduce our use of stock options, it may be more difficult for us to attract and retain qualified employees. Although we believe that our accounting practices are consistent with current accounting pronouncements, changes to or interpretations of accounting methods or policies in the future may require us to reclassify, restate or otherwise change or revise our financial statements.
Risks Relating to this Offering
An active trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. An active trading market for our shares may never develop or be sustained following this offering. Accordingly, you may not be able to sell your shares quickly or at the market price if trading in our stock is not active. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us. The initial public offering price may vary from the market price of our common stock after this offering. You may not be able to sell their common stock at or above the initial public offering price.
The market price for our common stock is likely to be volatile and could result in a decline in the value of your investment.
Our stock price is likely to be volatile. The stock market in general and the securities of medical device companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. This has been especially true for development stage companies such as ours. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The following factors, in addition to other risk factors described in this section and general market and economic conditions, may have a significant impact on the market price of our common stock:
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A decline in the market price of our common stock could cause you to lose some or all of your investment and may adversely impact our ability to attract and retain employees and raise capital. In addition, stockholders may initiate securities class action lawsuits if the market price of our stock drops significantly. Whether or not meritorious, litigation brought against us could result in substantial costs and could divert the time and attention of our management. Our insurance to cover claims of this sort may not be adequate.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
We cannot specify with certainty the particular uses of the net proceeds we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in "Use of Proceeds." Accordingly, you will have to rely upon the judgment of our management with respect to the use of the proceeds, with only limited information concerning management's specific intentions. Our management may spend a portion or all of the net proceeds from this offering in ways that our stockholders may not desire or that may not yield a favorable return. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
Concentration of ownership among our existing directors, executive officers, and principal stockholders may prevent new investors from influencing significant corporate decisions.
Upon closing of this offering, based upon beneficial ownership as of December 31, 2004, our current directors, executive officers, holders of more than 5% of our common stock, and their affiliates will, in the aggregate, beneficially own approximately % of our outstanding common stock. As a result, these stockholders will be able to exercise a controlling influence over matters requiring
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stockholder approval, including the election of directors and approval of significant corporate transactions, and will have significant control over our management and policies. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests.
If there are substantial sales of our common stock, our stock price could decline.
If our existing stockholders sell a large number of shares of our common stock or the public market perceives that these sales may occur, the market price of our common stock could decline. Based on shares outstanding on December 31, 2004, upon the closing of this offering, assuming no outstanding options are exercised prior to the closing of this offering, we will have approximately shares of common stock outstanding. All of the shares offered under this prospectus will be freely tradable without restriction or further registration under the federal securities laws, unless purchased by our affiliates. Taking into consideration the effect of lock-up agreements entered into by our stockholders, the remaining 40,097,491 shares outstanding upon the closing of this initial public offering will be available for sale pursuant to Rules 144 and 701, and the volume, manner of sale and other limitations under these rules, as follows:
Existing stockholders holding an aggregate of 39,237,514 shares of common stock and one warrantholder holding a warrant to purchase 87,458 shares of our common stock, based on shares outstanding as of December 31, 2004, have rights with respect to the registration of these shares of common stock with the Securities and Exchange Commission. See "Description of Capital StockRegistration Rights." If we register their shares of common stock following the expiration of the lock-up agreements, they can immediately sell those shares in the public market.
Promptly following this offering, we intend to register up to approximately 13,006,237 shares of common stock that are authorized for issuance under our stock option plans and employee stock purchase plan. As of December 31, 2004, 6,706,237 shares were subject to outstanding options, of which 2,299,279 shares were vested. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above and restrictions on our affiliates.
You will incur immediate and substantial dilution as a result of this offering.
The initial public offering price is substantially higher than the book value per share of our common stock. As a result, purchasers in this offering will experience immediate and substantial dilution of $ per share in the tangible book value of our common stock from the initial public offering price, based on the number of shares outstanding as of December 31, 2004. This is due in large part to earlier investors in the company having paid substantially less than the assumed initial public offering price when they purchased their shares. Investors who purchase shares of common stock in this offering will contribute approximately % of the total amount we have raised to fund our operations but will own only approximately % of our common stock, based on the number of shares outstanding as of December 31, 2004. In addition, the exercise of currently outstanding options to purchase common stock and future equity issuances, including future public or private securities
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offerings and any additional shares issued in connection with acquisitions, will result in further dilution.
Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of our stock.
Upon the closing of this offering, provisions of our restated certificate of incorporation and amended and restated bylaws and applicable provisions of Delaware law may make it more difficult for or prevent a third party from acquiring control of us without the approval of our board of directors. These provisions:
In addition, Section 203 of the Delaware General Corporation Law generally limits our ability to engage in any business combination with certain persons who own 15% or more of our outstanding voting stock or any of our associates or affiliates who at any time in the past three years have owned 15% or more of our outstanding voting stock. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirors at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties, principally in the sections entitled "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Use of Proceeds" and "Business." All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should" or "will" or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under "Risk Factors" or elsewhere in this prospectus, which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our common stock, you should be aware that the occurrence of the events described in the section entitled "Risk Factors" and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.
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We estimate the net proceeds to us from the sale of shares of common stock that we are selling in this offering will be approximately $ million, assuming an initial public offering price of $ per share, the midpoint of the range on the front cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' over-allotment option is exercised in full, we estimate we will receive net proceeds of approximately $ million.
Of the net proceeds from this offering, we expect to use approximately:
The amounts actually spent for these purposes may vary significantly and will depend on a number of factors, including our operating costs, capital expenditures and other factors described under "Risk Factors." While we have no present understandings, commitments or agreements to enter into any potential acquisitions, we may also use a portion of the net proceeds for the acquisition of, or investment in, technologies or products that complement our business. Accordingly, management will retain broad discretion as to the allocation of the net proceeds of this offering.
Pending the uses described above, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds will yield a favorable return.
We have never declared or paid cash dividends on our capital stock and do not anticipate declaring or paying cash dividends in the foreseeable future. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant.
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You should read this capitalization table together with the sections of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the financial statements and related notes to those statements included elsewhere in this prospectus.
The following table sets forth our capitalization as of December 31, 2004:
|
As of December 31, 2004
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Actual
|
Pro Forma
As Adjusted |
|||||||||
|
|
(unaudited)
|
|||||||||
|
(in thousands, except share data)
|
||||||||||
Cash and cash equivalents | $ | 27,229 | $ | ||||||||
|
|
||||||||||
Redeemable convertible Series B preferred stock, $0.001 par value, 11,304,114 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma as adjusted | $ | 20,878 | $ | ||||||||
Redeemable convertible Series C preferred stock, $0.001 par value, 13,043,478 shares authorized, actual; 12,790,870 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma as adjusted | 34,740 | ||||||||||
Redeemable convertible Series D preferred stock, $0.001 par value, 8,700,000 shares authorized, actual; 8,355,886 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma as adjusted | 21,356 | ||||||||||
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|
||||||||||
Stockholders' equity (deficit): | |||||||||||
Preferred stock, $0.001 par value, no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma as adjusted | | ||||||||||
Convertible Series A preferred stock, $0.001 par value, 3,000,000 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma as adjusted | 3 | ||||||||||
Common stock, $0.001 par value, 50,000,000 shares authorized, 4,646,621 shares issued and outstanding, actual; 100,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted | 5 | ||||||||||
Additional paid-in capital | 6,215 | ||||||||||
Deferred stock-based compensation | (2,648 | ) | |||||||||
Deficit accumulated during the development stage | (52,885 | ) | |||||||||
|
|
||||||||||
Total stockholders' equity (deficit) | (49,310 | ) | |||||||||
|
|
||||||||||
Total capitalization | $ | 27,664 | $ | ||||||||
|
|
28
The information in the table above excludes, as of December 31, 2004:
29
If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering.
As of December 31, 2004, we had a negative net tangible book value of $(49.3) million, or $(10.61) per share of common stock, not taking into account the conversion of our outstanding preferred stock. Net tangible book value per share is equal to our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of outstanding shares of our common stock. Our pro forma net tangible book value as of December 31, 2004 was approximately $27.7 million, or $0.69 per share of common stock. Our pro forma net tangible book value and pro forma net tangible book value per share give effect to the conversion of all outstanding shares of our preferred stock into common stock.
Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by investors in this offering and pro forma net tangible book value per share of our common stock immediately after the completion of this offering. After giving effect to the conversion of all of our preferred stock and the sale of shares of common stock offered by this prospectus at the assumed initial public offering price of $ per share, the midpoint of the range on the front cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2004 was approximately $ million, or approximately $ per share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to our common stockholders and an immediate dilution of $ per share to new investors in this offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share | $ | ||||||
Historical net tangible book value per share as of December 31, 2004 | $ | (10.61 | ) | ||||
Pro forma increase in net tangible book value per share attributable to conversion of redeemable convertible preferred stock | 11.30 | ||||||
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|||||||
Pro forma net tangible book value per share as of December 31, 2004 | 0.69 | ||||||
Increase in pro forma net tangible book value per share attributable this offering | |||||||
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|||||||
Pro forma as adjusted net tangible book value per share after this offering | |||||||
|
|||||||
Dilution per share to new investors in this offering | $ | ||||||
|
If the underwriters exercise their over-allotment option to purchase up to additional shares in this offering, our pro forma as adjusted net tangible book value per share as of December 31, 2004 will be $ , representing an immediate increase in pro forma net tangible book value per share attributable to this offering of $ to our existing investors and an immediate dilution per share to new investors in this offering of $ .
The following table sets forth, on a pro forma as adjusted basis, as of December 31, 2004, the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions
30
and estimated expenses at an assumed initial public offering price of $ per share, the mid-point of the range on the front cover of this prospectus.
|
Shares Purchased
|
Total Consideration
|
Weighted
Average Price Per Share |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number
|
Percent
|
Amount
|
Percent
|
|||||||||
Existing stockholders | 40,097,491 | $ | 71,351,738 | $ | 1.78 | ||||||||
New investors | |||||||||||||
|
|
|
|
||||||||||
Total | 100 | % | $ | 100 | % | ||||||||
|
|
|
|
If the underwriters exercise their over-allotment option in full, our existing stockholders would own % and our new investors would own % of the total number of shares of our common stock outstanding after this offering.
In the preceding tables, the shares of common stock outstanding exclude, as of December 31, 2004:
31
The statements of operations data for the years ended December 31, 2002, 2003 and 2004 and for the period from May 13, 1999 (inception) through December 31, 2004 and the balance sheet data as of December 31, 2003 and 2004 have been derived from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the years ended December 31, 2000 and 2001 and the balance sheet data as of December 31, 2000, 2001 and 2002 have been derived from our audited financial statements not included in this prospectus. The following selected financial data should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and financial statements and related notes to those statements included elsewhere in this prospectus.
|
|
|
|
|
|
Period from
May 13, 1999 (inception) through December 31, 2004 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Years Ended December 31,
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||||||||||||||||||||
|
2000
|
2001
|
2002
|
2003
|
2004
|
||||||||||||||||
|
(in thousands, except share and per share data)
|
||||||||||||||||||||
Statements of Operations Data: | |||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||
Research and development | $ | 2,902 | $ | 5,039 | $ | 6,311 | $ | 8,934 | $ | 12,179 | $ | 36,113 | |||||||||
General and administrative | 1,112 | 1,685 | 1,860 | 1,250 | 1,440 | 7,590 | |||||||||||||||
Stock-based compensation: | |||||||||||||||||||||
Research and development | | | | | 291 | 291 | |||||||||||||||
General and administrative | | | | | 157 | 157 | |||||||||||||||
|
|
|
|
|
|
||||||||||||||||
Total costs and expenses | 4,014 | 6,724 | 8,171 | 10,184 | 14,067 | 44,151 | |||||||||||||||
Interest and other income, net |
|
|
49 |
|
|
451 |
|
|
463 |
|
|
270 |
|
|
121 |
|
|
1,405 |
|
||
|
|
|
|
|
|
||||||||||||||||
Net loss | (3,965 | ) | (6,273 | ) | (7,708 | ) | (9,914 | ) | (13,946 | ) | (42,746 | ) | |||||||||
Accretion to redemption value of Series B and Series C redeemable convertible preferred stock | (93 | ) | (1,126 | ) | (2,451 | ) | (3,235 | ) | (3,235 | ) | (10,139 | ) | |||||||||
|
|
|
|
|
|
||||||||||||||||
Net loss attributable to common stockholders | $ | (4,058 | ) | $ | (7,399 | ) | $ | (10,159 | ) | $ | (13,149 | ) | $ | (17,181 | ) | $ | (52,885 | ) | |||
|
|
|
|
|
|
||||||||||||||||
Basic and diluted net loss per share attributable to common stockholders (1) | $ | (1.17 | ) | $ | (1.95 | ) | $ | (2.48 | ) | $ | (3.03 | ) | $ | (3.76 | ) | ||||||
|
|
|
|
|
|||||||||||||||||
Shares used to compute basic and diluted net loss per share attributable to common stockholders (1) | 3,454,051 | 3,792,998 | 4,092,421 | 4,339,851 | 4,572,649 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
Pro forma basic and diluted net loss per share (unaudited) (1) | $ | (0.44 | ) | ||||||||||||||||||
|
|||||||||||||||||||||
Shares used to compute pro forma basic and diluted net loss per share (unaudited) (1) | 31,690,525 | ||||||||||||||||||||
|
|||||||||||||||||||||
|
As of December 31, |
|
|||||||||||||||||||
|
2000
|
2001
|
2002
|
2003
|
2004
|
|
|||||||||||||||
|
(in thousands)
|
|
|||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||||
Cash and cash equivalents | $ | 13,897 | $ | 7,777 | $ | 29,844 | $ | 20,016 | $ | 27,229 | |||||||||||
Working capital | 13,542 | 7,280 | 29,079 | 19,152 | 25,705 | ||||||||||||||||
Total assets | 14,362 | 8,640 | 30,611 | 20,767 | 29,358 | ||||||||||||||||
Redeemable convertible preferred stock | 16,989 | 16,989 | 49,356 | 52,384 | 76,974 | ||||||||||||||||
Total stockholders' deficit | (3,191 | ) | (8,930 | ) | (19,485 | ) | (32,601 | ) | (49,310 | ) |
(1) See Note 2 of the notes to our financial statements for a description of the method used to compute basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives and intentions, as set forth under "Information Regarding Forward-Looking Statements." Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in the following discussion and under "Risk Factors," "Business" and elsewhere in this prospectus.
Overview
We are a development stage medical device company focused on the design and development of continuous glucose monitoring systems for people with diabetes. Since inception we have devoted substantially all of our resources to start-up activities, raising capital and research and development, including product design, testing, manufacturing and clinical trials. We have focused our development activities on two continuous glucose monitoring systems: a short-term system with a sensor that can be inserted by a patient and a long-term system with a sensor that can be implanted by a physician. Our glucose monitoring systems are designed to provide real-time continuous blood glucose values, trend data and alerts to assist patients in managing their blood glucose levels. We have not generated any revenue from our development activities and will not be able to generate revenue until one of our products is approved, if ever.
To date, we have data from over 1,500 patient days of real-time usage of our continuous glucose monitoring systems in over 200 patients in clinical trials. We are currently conducting an 80- to 100-patient clinical trial for our short-term system, which we believe may support a premarket approval, or PMA, application by the end of the first half of 2005. Additionally, we are conducting an 80-patient clinical trial for our second generation long-term system and expect its results to support a PMA application in 2006. Our clinical trials may be delayed due to scheduling issues with patients and investigators, institutional review boards, sensor performance and manufacturing supply constraints, among other factors. Support of these clinical trials requires significant resources in research and development, manufacturing, quality assurance, and clinical and regulatory personnel.
In anticipation of approval of our products, we plan to increase our manufacturing capacity and personnel to enable us to produce commercial quantities of our devices. Due to the lead-time associated with increases in capacity, this expansion will be initiated prior to the anticipated approval of our products by the Food and Drug Administration, or FDA. Our capacity expansion could be constrained by the lack of readily available laboratory and manufacturing space, equipment design, production and validation, regulatory approval of our factory and personnel staffing. Prior to obtaining regulatory approval, we may also begin to hire sales and marketing personnel. If we obtain the necessary regulatory approvals, we plan to launch our products in the United States with our own direct sales force.
To date, we have not generated any revenue, and we have incurred net losses in each year since our inception in May 1999. Through December 31, 2004, we had a deficit accumulated during the development stage of $52.9 million. We expect our losses to continue and increase as we expand our clinical trial activities and initiate commercialization activities. We have financed our operations primarily through private placements of equity securities. In December 2004, we raised aggregate net cash proceeds of approximately $21.4 million in a private placement of shares of our Series D preferred stock.
33
Financial Operations
Revenue
To date, we have not generated any revenue from the sale of our continuous glucose monitoring systems. We do not expect to generate any revenue from our systems until at least 2006.
Research and Development
Our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology, clinical trials, regulatory expenses and manufacturing expenses incurred to build our clinical trial sensors and receivers. These expenses are primarily related to employee compensation, including salary, fringe benefits, recruitment, relocation and temporary employee expenses. We also incur significant expenses to operate our clinical trials including trial design, clinical site reimbursement, data management and associated travel expenses. Our research and development expenses also include fees for outside design services, contractors and materials, and assembly expenses for our sensors and receivers. From our inception through December 31, 2004, we have incurred $36.1 million in research and development expenses.
General and Administrative
Our general and administrative expenses primarily consist of compensation for our executive, financial and administrative functions. Other significant expenses include professional fees for our outside legal counsel and our independent auditors and expenses for board meetings. From our inception through December 31, 2004, we have incurred $7.6 million for general and administrative expenses.
Stock-Based Compensation
Stock-based compensation consists of compensation expense related to employee stock option programs. This compensation expense is reflected separately in our financial statements and is allocated among our research and development expenses and general and administrative expenses. Stock-based compensation expense, which is a non-cash charge, results from employee stock option grants at exercise prices that, for financial reporting purposes, are deemed to be below the estimated fair value of the underlying common stock on the date of grant. Given the absence of an active market for our common stock, our board of directors determined the estimated fair value of our common stock on the date of grant. Stock-based compensation equals the difference between the reassessed estimated fair value per share of our common stock on the date of grant and the exercise price per share and is amortized on an accelerated basis over the vesting period of the stock option. From inception through December 31, 2004, we have incurred $448,000 in stock-based compensation expense.
Results of Operations
Years Ended December 31, 2002, 2003 and 2004
Revenue. We generated no revenue during 2002, 2003 and 2004.
Research and Development. Research and development expenses, excluding stock-based compensation expenses, were $6.3 million in 2002, $8.9 million in 2003 and $12.2 million in 2004. The $2.6 million increase from 2002 to 2003 was primarily due to increases of $1.2 million for the addition of 13 full-time employees, $588,000 for semiconductor design and $289,000 for receiver design. The $3.3 million increase from 2003 to 2004 was primarily due to increases of $1.1 million for the addition of 15 full-time employees and seven temporary employees to support development of our continuous glucose monitoring systems, $862,000 for clinical trials expenses, $480,000 for sensor
34
design, $460,000 related to our new facility and $339,000 for tooling, fixtures and process improvement. In total, during 2004 we incurred approximately $1.4 million in clinical trial expenses and approximately $1.5 million for materials and assembly of our systems. We began development of our short-term continuous glucose monitoring system in April 2004, and all research and development expenses prior to that date primarily related to our long-term system. We expect research and development expenses for future periods to increase as we continue the development of our continuous glucose monitoring systems, conduct additional clinical trials, research and develop new product opportunities and hire additional employees. We had no stock-based compensation expense related to research and development in December 31, 2002 and 2003, and we had stock-based compensation expense of $291,000 related to research and development in 2004.
General and Administrative. General and administrative expenses, excluding stock-based compensation expenses, were $1.9 million in 2002, $1.2 million in 2003 and $1.4 million in 2004. The $611,000 decline from 2002 to 2003 was primarily related to the elimination of marketing and consulting expenses. The $190,000 increase from 2003 to 2004 was primarily related to increased finance and accounting, board meeting, insurance and travel expenses. We expect our general and administrative expenses to increase significantly as we prepare for commercialization and also due to expenses associated with operating as a publicly-traded company. We had no stock-based compensation expense related to general and administrative in 2002 and 2003, and we had stock-based compensation expense of $157,000 related to general and administrative in 2004.
Interest and Other Income, Net. Interest and other income, net, was $463,000 in 2002, $270,000 in 2003 and $121,000 in 2004. The declines were primarily due to lower interest rates and lower average cash balances in 2003 and 2004.
Liquidity and Capital Resources
We are in the development stage and have incurred losses since our inception in May 1999. As of December 31, 2004 we had a deficit accumulated during the development stage of $52.9 million. We have funded our operations solely from the private placement of equity securities, raising aggregate net proceeds of $69.9 million through December 31, 2004. As of December 31, 2004, we had working capital of $25.7 million, including $27.2 million in cash and cash equivalents.
Net Cash Used in Operating Activities. Net cash used in operating activities was $7.0 million in 2002, $9.5 million in 2003 and $12.4 million in 2004. The net cash used reflects operating losses during each period and is primarily related to payroll and fringe benefits, facilities, supplies and outside services used to support our clinical trials and other development programs. From 2002 to the end of 2004 we added 28 full time employees and 13,000 square feet of additional leased space.
Net Cash Provided by (Used in) Investing Activities. Net cash used in investing activities was $8.0 million in 2002. Net cash provided by investing activities was $7.4 million in 2003 and net cash used in investing activities was $1.7 million in 2004. The net cash used in 2002 and provided in 2003 was primarily related to the purchase and subsequent sale of short-term marketable securities. The net cash used in 2004 was primarily driven by $830,000 for sensor development equipment and $575,000 for leasehold improvements in our facility. We invested $262,000 in property and equipment during 2002 and $409,000 during 2003.
Net Cash Provided by Financing Activities. Net cash provided by financing activities was $29.3 million in 2002, $33,000 in 2003 and $21.4 million in 2004. The net cash provided was primarily from our Series C preferred stock financing in 2002 and our Series D preferred stock financing in 2004.
35
Operating Capital and Capital Expenditure Requirements
To date, we have not commercialized any products. We anticipate that we will continue to incur net losses for the next several years as we develop our products, expand our clinical development team and corporate infrastructure, and prepare for the potential commercial launch of our continuous glucose monitoring systems.
We do not expect to generate significant product revenue until we successfully obtain marketing approval for and begin selling our continuous glucose monitoring systems. We believe that the net proceeds from this offering, together with our cash and cash equivalent balances and interest we earn on these balances, will be sufficient to meet our anticipated cash requirements for the foreseeable future. If our available cash and cash equivalents and net proceeds from this offering are insufficient to satisfy our liquidity requirements, or if we develop additional products, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity and debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could harm our business.
Because of the numerous risks and uncertainties associated with the development of continuous glucose monitoring technologies, such as our short-term and long-term systems, we are unable to estimate the exact amounts of capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, including, but not limited to:
36
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of December 31, 2004 and the effect those obligations are expected to have on our liquidity and cash flows in future periods:
|
Payments Due by Period
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations
|
Total
|
Less than
1 Year |
1-3 Years
|
3-5 Years
|
More than
5 Years |
|||||||||||
Operating leases | $ | 2,180,000 | $ | 338,000 | $ | 703,000 | $ | 748,000 | $ | 391,000 | ||||||
Royalty obligations | 1,392,000 | 116,000 | 232,000 | 232,000 | 812,000 | |||||||||||
|
|
|
|
|
||||||||||||
Total | $ | 3,572,000 | $ | 454,000 | $ | 935,000 | $ | 980,000 | $ | 1,203,000 | ||||||
|
|
|
|
|
Our long-term obligations are primarily related to our facility lease and a license agreement that requires us to pay minimum annual royalties.
Related Party Transactions
For a description of our related party transactions, see the "Related Party Transactions" section of this prospectus.
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet activities.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 1 to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.
Stock-Based Compensation
We account for employee stock options using the intrinsic-value method in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees , Financial Accounting Standards Board, or FASB, Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation , an interpretation of APB No. 25, and related interpretations. We have adopted the disclosure-only provisions of Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation , as amended.
The information regarding net loss as required by SFAS No. 123, presented in Note 1 to our financial statements, has been determined as if we had accounted for our employee stock options under the fair value method. The resulting effect on net loss pursuant to SFAS No. 123 is not likely to be
37
representative of the effects on net loss pursuant to SFAS No. 123 in future years, since future years are likely to include additional grants and the irregular impact of future years' vesting.
Stock-based compensation expense, which is a non-cash charge, results from employee stock option grants at exercise prices that, for financial reporting purposes, are deemed to be below the estimated fair value of the underlying common stock on the date of grant. Given the absence of an active market for our common stock, our board of directors determined the estimated fair value of our common stock on the date of grant based on several factors, including progress and milestones achieved in our business, sales of convertible preferred stock and valuation of existing comparable publicly-traded companies. Stock-based compensation expense per share equals the difference between the fair value per share of our common stock on the date of grant and the exercise price per share, and is amortized on an accelerated basis over the vesting period of the option, which is generally four years.
From inception through December 31, 2004, we recorded deferred stock-based compensation of $3.1 million. At December 31, 2004, we had a total of $2.6 million remaining to be amortized. Total unamortized deferred stock-based compensation recorded for all option grants through December 2008, is expected to be amortized as follows:
For the Years Ending December 31,
|
Amount
|
|||
---|---|---|---|---|
2005 | $ | 1,533,000 | ||
2006 | 702,000 | |||
2007 | 328,000 | |||
2008 | 85,000 | |||
|
||||
Total | $ | 2,648,000 | ||
|
Clinical Trial Accounting
We record accruals for estimated clinical study expenses, comprising payments for work performed by contract research organizations, physicians and participating hospitals. These expenses are a significant component of research and development expenses. We accrue expenses for clinical studies performed by contract research organizations based on estimates of work performed under the contracts. Expenses for setting up clinical trial sites are accrued immediately. Clinical expenses related to patient enrollment are accrued as patients are enrolled in the trial.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised in 2004), Share-Based Payment , or SFAS No. 123R, which replaces SFAS No. 123, Accounting for Stock-Based Compensation , and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees . SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning in the first period restated. We are evaluating the
38
requirements of SFAS No. 123R and expect that the adoption of SFAS No. 123R will have a material impact on our results of operations and earnings per share. We have not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.
Quantitative and Qualitative Disclosures about Market Risk
The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short-term investments in a variety of securities, including money market funds and corporate debt securities. Due to the short-term nature of our investments, we believe that we have no material exposure to interest rate risk.
To date we have recorded no product sales and have not entered into any agreements denominated in other than U.S. dollars. Accordingly we believe we have no material exposure to risk from changes in foreign currency exchange rates.
39
Overview
We are a medical device company focused on the design and development of continuous glucose monitoring systems for people with diabetes. We have developed proprietary technology and expertise that are enabling us to develop two continuous glucose monitoring systems: a short-term system with a sensor that can be inserted by a patient and used continuously for three days, and a long-term system with a sensor that can be implanted by a physician in a short outpatient procedure requiring only local anesthesia. When fully developed, our long-term sensor is expected to be used continuously for up to one year. Both sensors wirelessly transmit the patient's blood glucose, or blood sugar, levels to a small cell phone-sized receiver, which allows the patient to view real-time and trended blood glucose information with the touch of a button and alerts the patient when glucose levels are inappropriately high or low. We are also designing and developing our glucose monitoring systems to offer convenience and comfort to diabetes patients, and to have an intuitive user interface. Currently, none of our products are approved for sale in the United States or elsewhere.
Worldwide, approximately 171 million people suffer from diabetes. In 2002, there were an estimated 13 million diagnosed diabetes patients in the United States and approximately 4.1 million of these patients were insulin-dependent. The number of diagnosed diabetes patients is expected to rise by more than 1.3 million people each year as a result of an aging population, inappropriate diets and increasingly sedentary lifestyles. Diabetes is the fifth leading cause of death by disease in the United States, and complications related to diabetes include heart disease, limb amputations, loss of kidney function and blindness. According to the American Diabetes Association, or ADA, the direct medical costs and indirect expenditures attributable to diabetes in the United States were an estimated $132 billion in 2002 and are expected to increase to $156 billion by 2010. Of the $132 billion in overall expenses, the ADA estimates that approximately $23 billion were associated with diabetes care. According to industry sources, the worldwide market for personal glucose monitoring systems and related disposables, which include test strips and lancets, was approximately $5.1 billion in 2003, and is expected to grow at an annual compound rate of approximately 11.6% to $8.9 billion in 2008.
Clinical evidence suggests that intensive glucose management with the goal of reducing time patients spend in hyperglycemic states, or above target glucose levels, and hypoglycemic states, or below target glucose levels, reduces serious long-term complications. In our clinical trial using our long-term sensor, patients reduced the amount of time they spent in a hyperglycemic state by 25% and the time they spent in a hypoglycemic state by 47%. Correspondingly, these patients increased the time they spent at target blood glucose levels by 88%. These results were published in a peer-reviewed article in the March 2004 issue of Diabetes Care . We are currently conducting an 80- to 100-patient clinical trial for our short-term system, which we believe may support a premarket approval, or PMA, application by the end of the first half of 2005. We have received an investigational device exemption, and are conducting an 80-patient clinical trial, for our second generation long-term system and we expect to submit a PMA application for this system in 2006. To date, we have data from over 1,500 patient days of real-time usage of our systems by over 200 patients in clinical trials.
Market Opportunity
Diabetes
Diabetes is a chronic, life-threatening disease for which there is no known cure. The disease is caused by the body's inability to produce or effectively utilize the hormone insulin. This inability prevents the body from adequately regulating blood glucose levels. Worldwide, approximately 171 million people suffer from the disease. In 2002, there were an estimated 13 million diagnosed diabetes patients in the
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United States. This number is expected to rise by more than 1.3 million people each year as a result of an aging population, inappropriate diets and increasingly sedentary lifestyles. According to a report published in Diabetes Care in 2003, diabetes is the fifth leading cause of death by disease in the United States. Complications related to diabetes include heart disease, limb amputations, loss of kidney function and blindness.
Glucose, the primary source of energy for cells, must be maintained at certain concentrations in the blood in order to permit optimal cell function and health. Normally, the pancreas provides control of blood glucose levels by secreting the hormone insulin to lower blood glucose levels when concentrations are too high. In people with diabetes, the body does not produce sufficient levels of insulin, or fails to utilize insulin effectively, causing blood glucose to rise above normal. This condition is called hyperglycemia and often results in chronic long-term complications such as heart disease, limb amputations, loss of kidney function and blindness. When blood glucose levels are high, patients often administer insulin in an effort to drive blood glucose levels down. Unfortunately, insulin administration can drive blood glucose levels below the normal range resulting in hypoglycemia. In cases of severe hypoglycemia, diabetes patients risk acute complications, such as loss of consciousness or death. Due to the drastic nature of acute complications associated with hypoglycemia, many patients are afraid of driving down blood glucose levels. Consequently, patients often remain in a hyperglycemic state, exposing themselves to long-term chronic complications.
Diabetes is typically classified into two major groups: Type 1 and Type 2. According to the ADA, in 2002 there were approximately 1.3 million diagnosed Type 1 diabetes patients in the United States. Type 1 diabetes usually develops in early childhood and is characterized by an absence of insulin resulting from destruction of the insulin producing cells of the pancreas. Individuals with Type 1 diabetes must rely on frequent insulin injections in order to regulate and maintain blood glucose levels. Also, in 2002, there were approximately 12 million people in the United States who had been diagnosed with Type 2 diabetes, which results when the body is unable to produce sufficient levels of insulin or becomes insulin resistant. Depending on the severity of Type 2 diabetes, individuals may require dieting, exercise, oral medications or insulin injections to regulate blood glucose levels. As of 2002, approximately 2.8 million Type 2 patients were estimated to be using insulin injections. In addition to Type 1 and Type 2 diabetes patients, pregnant women who have never had diabetes before may develop high blood glucose levels during pregnancy. This condition is known as gestational diabetes and is caused in some pregnant women by hormonal changes that block the action of insulin in the mother's body. Uncontrolled glucose levels can adversely affect the fetus, leading to neonatal complications. According to the ADA, approximately 135,000 cases of gestational diabetes occur in the United States each year. Gestational diabetes usually resolves after pregnancy, but, according to the ADA, there is a 67% probability that it will return in future pregnancies. Treatment for gestational diabetes includes special meal plans and scheduled physical activity, and may also include daily blood glucose testing and insulin injections.
The ADA estimates that the direct medical costs and indirect expenditures attributable to diabetes in the United States were $132 billion in 2002, and could reach $156 billion by 2010. Of the $132 billion in overall expenses, the ADA estimates that approximately $23 billion were associated with diabetes care. A portion of that amount is attributable to the costs associated with monitoring blood glucose levels. According to industry sources, the worldwide market for personal glucose monitoring systems and related disposables, which includes test strips and lancets, was approximately $5.1 billion in 2003, and is expected to grow at an annual compound rate of approximately 11.6% to $8.9 billion in 2008.
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Importance of Glucose Monitoring
Blood glucose levels can be affected by the carbohydrate and fat content of meals, exercise, stress, illness or impending illness, hormonal releases, variability in insulin absorption and changes in the effects of insulin in the body. Given the many factors that affect blood glucose levels, maintaining glucose within a normal range is difficult, resulting in frequent excursions above or below normal blood glucose levels that can be unpredictable. Patients manage their blood glucose levels by administering insulin or ingesting carbohydrates throughout the day in order to maintain blood glucose within normal ranges. Patients frequently overcorrect and fluctuate between hyperglycemic and hypoglycemic states, often multiple times during the same day. As a result, many patients with diabetes are routinely outside the normal blood glucose range. Patients are often unaware that their glucose levels are either too high or too low, and their inability to completely control glucose levels and the associated serious complications can be frustrating and, at times, overwhelming.
In an attempt to maintain blood glucose levels within the normal range, patients with diabetes must first measure their glucose levels. Often after measuring their blood glucose levels, patients make therapeutic adjustments. As adjustments are made, additional blood glucose measurements may be necessary to gauge the individual's response to the adjustments. More frequent testing of blood glucose levels provides patients with information that can be used to better understand and manage their diabetes. The ADA recommends that patients test their blood glucose levels at least three or four times per day.
According to the ADA, an important component of effective diabetes management is frequent monitoring of blood glucose levels. The landmark 1993 Diabetes Control and Complications Trial, or DCCT, consisting of patients with Type 1 diabetes, and the 1998 UK Prospective Diabetes Study, consisting of patients with Type 2 diabetes, demonstrated that patients who intensely managed blood glucose levels significantly reduced the incidence and severity of diabetes-related complications. In the DCCT, a major component of intensive management was monitoring blood glucose levels at least four times per day. The DCCT demonstrated that intensive management reduced the risk of complications by 76% for eye disease, 60% for nerve disease and 50% for kidney disease. However, the DCCT also found that intensive management led to a three-fold increase in the frequency of hypoglycemic events. Despite evidence that intensive glucose management reduces the long-term complications associated with diabetes, industry sources estimate that people with diabetes test, on average, less than twice per day.
Limitations of Existing Glucose Monitoring Products
Single-point finger stick devices are the most prevalent devices for glucose monitoring. These devices require taking a blood sample with a finger stick, placing a drop of blood on a test strip and inserting the strip into a glucose meter that yields a single-point in time blood glucose measurement. We believe that these devices suffer from several limitations, including:
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The following graph shows the limited information provided by four single-point measurements during a single day using a traditional single-point finger stick device, compared to the data provided by our continuous sensor. The data presented in the graph is from a clinical trial we completed in 2003 with our long-term continuous glucose monitoring system, where the patient was blinded to the continuous glucose data. The continuous data indicates that, even with four finger sticks in one day, the patient's blood glucose levels were above the target range of 80-140 mg/dl, or milligrams per deciliter, for a period of 13.5 hours.
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tests are often performed on areas that are sore from prior tests. Patients also suffer pain when the finger prick site is disturbed during regular activities.
Several companies have attempted to address the limitations of single-point finger stick devices by developing continuous glucose monitoring systems. To date, three continuous glucose monitors have received FDA approval. We believe that one of the products is no longer marketed. Another continuous glucose monitor is approved for physician interpretation only, not allowing patients to see their blood glucose trends. Finally, a third continuous monitoring device is only approved to alert the patient at inappropriately high or low glucose levels. We believe that none of the products that have received FDA approval are approved for more than three days of use or for use as a replacement for single-point finger stick devices.
We believe a significant market opportunity exists for a glucose monitoring system that provides continuous blood glucose information and that is convenient and easy-to-use.
The DexCom Solution
We are developing blood glucose monitoring systems that continuously measure a patient's blood glucose level and transmit that information to a small cell phone-sized receiver. In a clinical trial using our first generation long-term sensor, patients reduced the amount of time they spent in a hyperglycemic state by 25% and the time they spent in a hypoglycemic state by 47%. Correspondingly, these patients increased the time they spent at target blood glucose levels by 88%. These results were published in a peer-reviewed article in the March 2004 issue of Diabetes Care . Relying on our broad-based technology platform, we are developing, and testing in clinical trials, short-term and long-term continuous blood glucose monitoring systems that are designed to offer the following advantages to diabetes patients:
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Our Strategy
Our objective is to become the leading provider of continuous glucose monitoring systems and related products to enable people with diabetes to more conveniently and effectively manage their disease. To achieve this objective, we are pursuing the following business strategies:
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successful use of our products. We also plan to have in-house reimbursement specialists to assist physicians and patients in obtaining proper reimbursement from third-party healthcare payors.
Our Technology Platform
The development of a continuous glucose monitor requires successful coordination and execution of a wide variety of technology disciplines, including biomaterials, membrane systems, electrochemistry, low power microelectronics, telemetry, software, algorithms, implant tools and sealed protective housings. We have developed in-house expertise in these disciplines. We believe we have a broad technology platform that will support the development of multiple products for glucose monitoring.
Sensor Technology
The key enabling technologies for our sensors are biomaterials, membrane systems, electrochemistry and low power microelectronics. We have applied our biomaterials expertise by developing a polymeric biointerface membrane system that modifies the human body's foreign body response, which is inherently hostile to implanted objects. When an implant is placed into the body, it triggers the body to respond by encapsulating and isolating the implanted object with scar tissue, known as the foreign body response. Typically, this complete response takes between three and four weeks, although sensor function may be severely hampered much sooner. Historically, the challenge with implantable sensors has been their inability to operate due to the foreign body response because glucose is blocked from reaching the sensor. Our proprietary polymer membrane technology is designed to modify the human body's response, providing for the continual transport of glucose and oxygen to the sensor. This technology is currently used in our long-term sensor.
Complementing the biointerface membrane, our sensing membrane technology consists of multiple polymer layers configured to selectively allow the appropriate mix of glucose and oxygen to travel through the membrane. Within the sensing membrane, the glucose and oxygen react with a specific enzyme to create an extremely low level electrical signal, measured in pico-amperes. This electrical signal is then translated into glucose measurements. We believe that the capability to measure very low levels of current and to accurately translate those measurements into glucose values is also a unique and distinguishing feature of our technology. These technologies are used in both our long-term and short-term sensors. We have also developed technology to allow sensitive electronics to be packaged in a fully-contained, sealed unit that can be quickly and safely implanted by a physician with our long-term sensor, or inserted by a patient with our short-term sensor. Our sensors are designed to function without damage from fluids or other substances in the body and to be quickly and safely removed.
Receiver Technology
Both our short-term and long-term glucose monitoring systems use radiofrequency telemetry to wirelessly transmit information from the sensor to our platform receiver. We have developed the technology for reliable transmission and reception and have consistently demonstrated a high degree of capture of transmissions from sensor to receiver in our clinical trials. Our receiver then processes and displays real-time and trended glucose values, and provides alerts. We have used our extensive database of continuous glucose data from our clinical trials to create software and algorithms for the display of data to patients.
Other Technology Applications
We have gained our technology expertise by learning to design implants that can withstand the rigors of functioning within the human body for extended periods of time. In addition to the foreign body
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response, we have overcome other problems related to operating within the human body, such as device sealing, miniaturization, durability, sensor geometry and surgical techniques. We believe the expertise gained in overcoming these problems will support the development of additional products beyond glucose sensing.
Our Products Under Development
We are developing short-term and long-term continuous blood glucose monitoring systems. These systems include either a small insertable sensor or an implantable sensor that continuously measures glucose levels in subcutaneous tissue, and a handheld receiver to which the sensor wirelessly transmits glucose levels at specified intervals. Our short-term and long-term systems are based on many of the same underlying core technologies and are being designed to offer several performance and ease-of-use advantages to provide continuous blood glucose monitoring to patients. Our research and development expenses were $6.3 million in 2002, $8.9 million in 2003 and $12.2 million in 2004, excluding stock-based compensation expenses.
Short-Term Continuous Glucose Monitoring Sensor
Our short-term insertable sensor includes a tiny wire-like electrode coated with our sensing membrane system. This sensor comes packaged with an integrated insertion device and is contained in a small plastic housing platform, or pod. The base of the pod has adhesive that attaches it to the skin. The electrode is intended to be easily and reliably inserted by the patient by exposing the adhesive, placing the pod against the surface of the skin of the abdomen and pushing down on the insertion device. The insertion device extends a narrow gauge needle containing the electrode into the subcutaneous tissue and retracts the needle, leaving behind the electrode in the tissue and the pod adhered to the skin. The patient then disposes of the insertion device. After a stabilization period of a few hours, the patient is required to calibrate the receiver with data from a single-point finger stick device and the sensor begins wirelessly transmitting the continuous glucose data to the handheld receiver. We anticipate that patients will be required to calibrate the short-term sensor with finger sticks throughout the three-day usage period to ensure reliable operation. At this time, we do not believe our first generation short-term sensor will eliminate the need for finger sticks, although in the future we intend to seek a claim from the FDA that allows our short-term system to replace the use of finger stick devices.
Our short-term sensor is expected to function for three days before being replaced. After three days, the patient simply removes the pod and attached electrode from the skin and discards them. A new sensor and pod can then be inserted and used with the same receiver. We are currently conducting a clinical trial for our short-term continuous glucose monitoring system, which we believe may support a PMA application.
Long-Term Continuous Glucose Monitoring Sensor
Our long-term implantable sensor consists of a multi-layer membrane system, circuit board, microprocessor, radio transmitter and a battery sealed in a self-contained unit. Our long-term sensor is currently implanted under the skin in the lower abdomen by a surgeon using local anesthesia. In the future we expect that the implant will be performed by trained endocrinologists. Once the sensor is implanted, it requires a stabilization period of a few weeks before becoming operational. After the stabilization period, the patient is required to calibrate the receiver with data from a single-point finger stick device. We anticipate that patients will be required to calibrate the long-term sensor with finger sticks throughout the usage period. At this time, we do not believe our long-term sensor will eliminate the need for finger sticks, although in the future we intend to seek a claim from the FDA that allows our long-term system to replace the use of finger stick devices.
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We are designing our long-term sensor to function for up to one year. We have demonstrated nearly seven months of functional life in a clinical trial with our first generation long-term sensor and six months of functional life in a clinical trial with our second generation long-term sensor. At the end of its life, the sensor can be removed by a physician in a short procedure, and another sensor inserted. We expect to file a PMA application for our long-term system in 2006.
Handheld Receiver
We have designed our receiver to be used with both our short-term and long-term sensors. Our small cell phone-sized receiver is carried by the patient and wirelessly receives continuous glucose values data from either sensor. Proprietary algorithms and software, developed from our extensive database of continuous glucose data from clinical trials, are programmed into the receiver to process the glucose data from the sensor and display it on a user-friendly graphical user interface. With a push of a button, the patient can access their current glucose value and one-, three- and nine-hour trended data. Additionally, when glucose values are inappropriately high or low, the receiver provides an audible alert or vibrates. The receiver is a self-contained, durable unit with a rechargeable battery.
Clinical Development Program
Evaluating Continuous Glucose Monitoring Systems
Continuous glucose monitoring is an emerging technology. There are no clearly established guidelines or universally accepted measures for evaluating the performance of continuous glucose monitoring products, especially with respect to accuracy. As a result, analyses of continuous glucose monitoring products have generally utilized traditional single-point accuracy measures that were derived from the field of analytical chemistry to evaluate conventional single-point finger stick devices. However, we do not know whether the FDA, other regulatory bodies or physicians will consider these single-point measures to be the appropriate means to demonstrate the safety and efficacy of continuous glucose monitoring systems for real-time monitoring of glucose values and trends by patient or as a replacement for conventional blood glucose meters, nor do we know what threshold levels of these measures the FDA or others will determine to constitute acceptable performance. The FDA or others analyzing our clinical results may determine that different measures from those we have used are better indicators of accuracy, clinical utility and safety. In reporting data from our clinical trials, we report those measurements that we believe most appropriately characterize the performance of our continuous blood glucose systems in three primary areas: accuracy, clinical utility and safety.
Accuracy Measures. Typically, to measure accuracy in our clinical trials, we compare the output from our continuous glucose monitoring systems at a specific point in time to a reference measurement at the same point in time. These two measurements are called paired points. The reference value is usually measured by a laboratory instrument, such as a Yellow Springs Instrument, or a conventional blood glucose meter using samples from finger sticks. These paired points are then compared to each other using statistical analyses intended to measure accuracy.
The primary statistical analyses we use include the following:
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Clinical Utility Measures. We have designed some of our clinical trials to measure whether the use of real-time continuous glucose data reduces the time a patient spends in abnormally high and low glucose ranges, and increases the time spent in the target range. In our studies, we measure a patient's blood glucose level continuously for a defined period of time, using our continuous glucose monitoring systems, but do not permit the patient to view the data. These measurements are used to establish a baseline. Subsequently, we measure the same patient's blood glucose level continuously for a similar or longer period of time, but the patient is allowed to view and utilize the data. These unblinded glucose levels are then compared to the baseline glucose levels to determine whether the use of the data from our continuous glucose monitoring system affected the amount of time the patient's blood glucose level was high, low and within the target range.
Safety Measures. The safety profile of any new product must be clearly established before it can be approved for commercial use. Data must be collected to demonstrate that patients can use the device safely, the device operates safely and any procedure associated with the device is also safe. We typically record adverse events related to the implant or insertion and removal of our sensors, related to the operation of the systems or related to the patient's use of the data from the systems. Of most concern is the occurrence of serious or unexpected adverse events. The desired result is that adverse events are not more serious and do not occur more frequently than similar products currently commercially available and utilized by patients for the same purpose.
Clinical Trials
We began our first human clinical trial in 2001 and to date have completed numerous pre-clinical studies and clinical trials related to our long-term and short-term continuous glucose monitoring systems. Throughout these studies and trials we have experienced successes and failures, which we have relied upon in the continual design and development of our products. As a result, we have developed a first, second and third generation of our long-term sensor, referred to as G1, G2 and G3, respectively, and a short-term sensor, or STS, all of which have been or are currently being evaluated in human clinical trials. Throughout these trials, there have been no serious or unexpected adverse events reported related to the implant or explant of the devices or the use of our systems. Given the ongoing process of design and development, we believe that our more recent clinical trials are most relevant to
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an understanding of our current clinical performance. The table below and the following discussion summarize our clinical trials that were completed in 2003 or later, and our ongoing clinical trials:
Product
|
Clinical Trial
|
Type of
Trial |
Year
Completed |
Clinical Trial Sites
|
Patients
|
|||||
---|---|---|---|---|---|---|---|---|---|---|
G1 | Feasibility IDE Trial | Unblinded | 2003 | 3 Sites; United States | 15 | |||||
G2 | First Human Use #1 | Unblinded | 2003 | 1 Site; New Zealand | 10 | |||||
G2 | First Human Use #2 | Unblinded | 2004 | 1 Site; Australia | 5 | |||||
G2 | First Human Use #3 | Blinded | 2004 | 3 Sites; New Zealand | 11 | |||||
G2 | IDE Study | Unblinded | Ongoing | 8 Sites; United States | 80 | |||||
G3 | First Human Use | Blinded | 2004 | 1 Site; Australia | 5 | |||||
STS | First Human Use Trials | Blinded | 2004 | 3 Sites; United States | 45 | |||||
STS | Feasibility Trials | Unblinded | 2004-05 | 4 Sites; United States | 28 | |||||
STS | Approval Support Trial | Unblinded | Ongoing | 4 Sites; United States | 80-100 |
Long-Term Implantable Sensor Trials
G1 Feasibility IDE Trial. In 2003, we completed an IDE trial designed to assess whether our G1 sensor could achieve the bias endpoint of a continuous glucose monitor that had already been approved by the FDA. The trial was also designed to measure the potential clinical benefit to patients of real-time blood glucose data. Fifteen patients at three sites in the United States were enrolled and implanted in the IDE trial. To determine whether our G1 sensor met the endpoint measurements of the previously approved device, we calculated the bias of our G1 sensor compared to reference points from a single-point finger stick device. In order to pass this bias endpoint, our sensor had to demonstrate a bias of less than 15 mg/dl, or milligrams per deciliter, when compared to reference finger stick values at 50 mg/dl, 80 mg/dl and 100 mg/dl, and a bias of less than 15% when compared to finger stick reference values at 150 mg/dl and 200 mg/dl. The graph below shows that our sensor achieved the bias endpoint.
Bias Requirement: Less Than 15
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To measure the potential clinical benefit to patients of access to real-time blood glucose information, we divided the trial into two primary phases. In the blinded phase of the trial, data was collected by our G1 sensor, but patients were blinded to the continuous data from the G1 sensor, to establish a baseline control period. In the unblinded phase of the trial, the patients were unblinded to the continuous data from the G1 sensor and allowed to use this information in managing their glucose levels. The glucose values from the unblinded phase were then compared with the blinded phase to analyze whether glucose profiles were affected by access to continuous real-time data. The sensors in three patients did not function adequately in both blinded and unblinded phases of the trial to report meaningful comparison data and were excluded from the analysis. The results of this comparison are summarized in the figure below.
Improvement in Glucose Profiles (in 12 of 15 patients)
These data were presented at the 2003 Annual Meeting of the American Diabetes Association and subsequently published in a peer-reviewed article in Diabetes Care in March 2004.
G2 First Human Use #1. The primary goal for the first human use studies of our G2 sensor, which is 60% smaller in volume than the G1 sensor, was to characterize the G2 sensor's performance. In the first G2 sensor trial, we implanted 10 patients in New Zealand for an extended period of time. Accuracy of the G2 sensor was evaluated by comparing data points from the G2 sensor to points measured using single-point finger stick devices over the entire trial period using Clarke Error Grid and MARD analyses. The sensors in three patients did not function adequately over the trial period to report data and have been excluded from the analysis. The results of our accuracy analyses are summarized below.
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Accuracy Measures: G2 Sensor versus Single-Point Finger Stick Device
(approximately 130 days in 7 of 10 patients)
|
Clarke Error Grid
A&B% |
Clarke Error Grid
D&E% |
MARD%
|
|||
---|---|---|---|---|---|---|
G2 Sensor versus Single-Point Finger Stick Device | 95.3 | 3.1 | 24.7 |
To measure the potential clinical benefit to patients of access to real-time blood glucose information, we divided the trial into two primary phases. After an initial evaluation period during which the G2 sensor data was blinded to the patients and physicians, continuous glucose data from the sensor was displayed to the patients and they were allowed to use that data to manage their glucose levels. Glucose excursion profiles were compared between the blinded and unblinded phases of the trial to analyze whether glucose excursions were affected by access to continuous real-time data. The sensors in three patients did not function adequately over the trial period to report data and have been excluded from the analysis. The results are summarized below.
Improvement in Glucose Profiles (approximately 130 days in 7 of 10 patients)
Hyperglycemic exposure is a calculation that seeks to quantify patients' exposure to sustained levels of hyperglycemia. The measure is an integration of how high a patients' blood glucose reaches combined with the time it stays high. The calculation takes the average value of each hyperglycemic excursion above 200 mg/dl, subtracts 200 mg/dl from it, and then multiplies that difference by the hours spent above 200 mg/dl. We believe that a reduction in hyperglycemic exposure would be beneficial to patients with diabetes.
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Hyperglycemic Exposure (approximately 130 days in 7 of 10 patients)
Results from this trial were presented at the 2004 meeting of the European Association for the Study of Diabetes.
G2 First Human Use #3. We implanted five patients in Australia with G2 sensors to investigate potential performance improvements by implanting in a location other than the lower abdomen, as in our previous G2 implants. We worked closely with a group of physicians, including surgeons experienced in subcutaneous implants and an exercise physiologist, to identify the new location and implant technique.
While the new location and implant techniques seemed to simplify the implant procedure, patients experienced more discomfort in the first few days immediately after surgery than we had observed with previous G1 and G2 implants in the lower abdomen. There were no serious or unanticipated adverse events related to these implants other than the higher degree of initial discomfort noted by patients. We evaluated the sensors for accuracy by comparing data points from the G2 sensor to data points from a single-point finger stick device.
The following table summarizes the data obtained during the trial.
Accuracy Measures: G2 Sensor versus Single-Point Finger Stick Device
(approximately 112 days in 5 of 5 patients)
|
Clarke Error Grid A&B%
|
Clarke Error Grid D&E%
|
MARD%
|
|||
---|---|---|---|---|---|---|
G2 Sensor versus Single-Point Finger Stick Device | 87.7 | 7.7 | 34.2 |
We have abandoned this alternate location for implanting sensors given the higher discomfort in the few days post-implant with no corresponding performance improvement. We continue to consider other implant site and technique options, but continue to concentrate on implants in the subcutaneous tissue of the lower abdomen.
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G2 First Human Use #3. In a third G2 sensor clinical trial, we implanted eleven patients at three sites in New Zealand with a G2 sensor that was further reduced in volume by 33% from the first G2 sensors implanted. The sensors were evaluated for accuracy by comparing data points from the G2 sensor to data points from a single-point finger stick device collected throughout the trial and also from a laboratory device collected during a 12 hour in-clinic trial. Patients remained blinded to the data throughout the study. All devices were removed at approximately three months, prior to planned trial completion, to investigate a change in performance.
The following table summarizes the data obtained during the trial.
Accuracy Measures: G2 Sensor versus Single-Point Finger Stick Device
(approximately 112 days in 11 of 11 patients)
|
Clarke Error Grid
A&B% |
Clarke Error Grid
D&E% |
MARD%
|
|||
---|---|---|---|---|---|---|
G2 Sensor versus Single-Point Finger Stick Device | 90.0 | 5.2 | 30.0 |
The following table summarizes the data obtained during the 12 hour in-clinic study. The sensors in four patients were not functioning at the time of the in-clinic trial and are not included in the analysis from that trial.
Accuracy Measures: 12 Hour In-Clinic Study (in 7 of 11 patients)
|
Clarke Error Grid
A&B% |
Clarke Error Grid
D&E% |
MARD%
|
|||
---|---|---|---|---|---|---|
G2 Sensor versus In-Clinic Single-Point Finger Stick Device | 97.3 | 0.9 | 24.7 | |||
G2 Sensor versus Lab Reference | 94.6 | 2.7 | 28.5 |
G3 First Human Use. The goal of our first human use trial of the G3 sensor, which is approximately 50% smaller in volume than the G2 sensor, was to evaluate the impact of the G3 sensor's reduced size on overall device performance. We implanted five patients with G3 sensors at one site in Australia by an endocrinologist who had no formal surgical training or experience. We believe our G3 sensor implantations were the first ever implants performed by an endocrinologist.
The glucose monitoring performance of the G3 sensor was lower than expected. The devices were explanted and analyzed. Improvements to the G3 sensor are being verified in animal studies, and our next human feasibility trial implants are targeted for the first half of 2005.
Short-Term Insertable Sensor Feasibility Studies
We have conducted 14 clinical feasibility trials of our short-term sensor. The objective of these trials was to assess the performance of the sensor in patients, especially the ability of the sensor to accurately measure blood glucose levels. Each feasibility trial consisted of between four and eight patients. In most cases, two sensors were inserted in each patient. The initial studies were performed over a period of 12 hours, which we subsequently increased to 24 hours and then to 72 hours. Collectively, we have inserted over 120 sensors in over 60 patients in our feasibility studies. Over 25 of these patients in the latest studies were unblinded to the data from the short-term sensor and allowed to use that data to manage their glucose levels. In the unblinded studies, patients inserted the sensors by themselves and wore the sensors at home and at work in their daily routines.
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Alpha Prototype Feasibility Trials. The first seven trials in this study involved a prototype or alpha version of the sensor pod. As expected, we experienced some deployment and connectivity failures in these early trials, which we substantially corrected in the beta version of the pod.
To evaluate the accuracy of the short-term sensor, paired values from our short-term sensor and the single-point finger stick device were compared. For each feasibility trial, the table below provides the results of the R-value, MARD and, in the early trials, Clarke Error Grid A&B% and Clarke Error Grid D&E% analyses of the paired points. The table also summarizes, for each feasibility trial, the duration of the trial, the number of patients enrolled, the number of short-term sensors inserted, or deployed, and the number of short-term sensors analyzed, which includes those sensors that we determined were successfully deployed and reliably generating data.
Alpha Prototype StudiesPatients Blinded to Continuous Sensor Data
(Median Values Reported)
|
|
|
|
|
|
|
Clarke Error Grid
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Trial
|
|
|
Sensors
Deployed |
Sensors
Analyzed |
|
|
||||||||||
Duration
|
Patients
|
R-Value
|
MARD%
|
A&B%
|
D&E%
|
|||||||||||
Alpha 1 | 12 hours | 5 | 8 | 6 | 0.94 | 12.7 | 100.0 | 0.0 | ||||||||
Alpha 2 | 12 hours | 5 | 9 | 5 | 0.93 | 14.1 | 100.0 | 0.0 | ||||||||
Alpha 3 | 24 hours | 5 | 11 | 5 | 0.95 | 14.4 | 97.4 | 0.0 | ||||||||
Alpha 4 | 24 hours | 5 | 10 | 9 | 0.96 | 13.6 | 97.1 | 2.9 | ||||||||
Alpha 5 | 12 hours | 6 | 5 | 3 | 0.95 | 17.4 | 95.7 | 4.4 | ||||||||
Alpha 6 | 24 hours | 5 | 8 | 6 | 0.97 | 10.9 | 100.0 | 0.0 | ||||||||
Alpha 7 | 72 hours | 4 | 9 | 8 | 0.95 | 12.5 | 98.6 | 1.0 |
Beta Product Version Feasibility Studies. After the initial seven trials using the alpha prototype pod, we completed a second or beta version of the pod and conducted further feasibility studies. The objective of these feasibility studies was to test the improved version of the pod and continue to assess the performance and accuracy of the system.
For each trial in our beta version feasibility study, the table below provides the results of the R-value and MARD analyses of the paired points. The table also summarizes, for each trial, the duration of the trial, the number of patients enrolled, the number of short-term sensors deployed and the number of short-term sensors included in the analysis.
Beta Product Version StudiesPatients Blinded to Continuous Sensor Data
(Median Values Reported)
|
|
|
|
|
R-Value
|
MARD%
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Trial
|
|
|
Sensors
Deployed |
Sensors
Analyzed |
||||||||||||||||
Duration
|
Patients
|
Day 1
|
Day 2
|
Day 3
|
Day 1
|
Day 2
|
Day 3
|
|||||||||||||
Beta 1 | 72 hours | 4 | 8 | 8 | 0.93 | 0.94 | 0.97 | 19.2 | 10.0 | 10.1 | ||||||||||
Beta 2 | 72 hours | 6 | 12 | 12 | 0.92 | 0.88 | 0.94 | 15.0 | 17.1 | 10.3 |
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Beta Product Version StudiesPatients Unblinded to Continuous Sensor Data
(Median Values Reported)
|
|
|
|
|
R-Value
|
MARD%
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Trial
|
|
|
Sensors
Deployed |
Sensors
Analyzed |
||||||||||||||||
Duration
|
Patients
|
Day 1
|
Day 2
|
Day 3
|
Day 1
|
Day 2
|
Day 3
|
|||||||||||||
Beta 3 | 72 hours | 5 | 10 | 8 | 0.97 | 0.96 | 0.97 | 12.3 | 10.3 | 10.0 | ||||||||||
Beta 4 | 72 hours | 5 | 12 | 8 | 0.93 | 0.97 | 0.94 | 14.9 | 7.6 | 13.2 | ||||||||||
Beta 5 | 72 hours | 5 | 10 | 10 | 0.95 | 0.97 | 0.97 | 15.3 | 10.3 | 7.5 | ||||||||||
Beta 6 | 72 hours | 5 | 12 | 9 | 0.94 | 0.97 | 0.96 | 9.9 | 7.4 | 8.3 | ||||||||||
Beta 7 | 72 hours | 8 | 17 | 16 | 0.96 | 0.98 | 0.98 | 8.4 | 7.4 | 6.0 |
On-Going Trials
Short-Term Sensor Trials. We are currently conducting an 80- to 100-patient trial in the United States with our short-term sensor. Patients are inserting the sensors themselves, wearing and using them continuously at home and at work during their daily activities, and are allowed to view and utilize the continuous glucose data from the sensors during the trial. We are using bias as a primary endpoint to measure efficacy and are tracking and reporting adverse events for safety. In addition to the data required to measure the primary endpoints, we are also collecting data relating to other measures of accuracy. The short-term sensors are being evaluated for accuracy by comparing data points from the short-term sensor to paired points from a single-point finger stick device collected throughout the trial. This trial is intended to generate data that we believe will support a PMA application with the FDA. We do not expect to report data from this trial until the entire trial has reached its completion.
Long-Term Sensor Trials. We received approval from the FDA to conduct an 80-patient trial in the United States with our G2 sensor. Twenty patients were enrolled in the first phase of the trial, and we expect to implant 25 more in the second phase during the first quarter of 2005. Patients are viewing and utilizing the continuous glucose data from the sensors during the trial. We are using bias as a primary endpoint to measure efficacy and adverse events as a primary safety endpoint. The G2 sensors are being evaluated for accuracy by comparing data points from the G2 sensor to reference points from a single-point finger stick device collected throughout the trial. This trial is intended to generate data that we believe will support a PMA application with the FDA. Initially, we expect to request approval for continuous use of our long-term system for a period of less than one year and in the future we intend to seek an indication for use of up to one year. We do not expect to report data from this trial until after the entire trial has reached its completion.
Sales and Marketing
We do not have a sales and marketing organization and have no experience as a company in the sale, marketing and distribution of glucose monitoring products. To achieve commercial success for any approved product we must either develop a sales and marketing organization or enter into arrangements with others to market and sell our products. We believe that referrals by physicians and diabetes educators, together with self-referrals by patients, will drive initial adoption of our continuous glucose monitoring systems. Following product approval, we currently plan to establish a small, specialized sales force to directly market our products in the United States primarily to endocrinologists, diabetes care educators and patients. Although the number of diabetes patients is significant, the number of physicians and educators influencing these patients is relatively small. There are an estimated 3,700 endocrinologists in the United States. As a result, we believe a direct, highly-specialized and focused sales force will be effective for us to reach our target market.
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We intend to use a variety of marketing tools to drive initial adoption, ensure continued usage and establish brand loyalty for our continuous glucose monitoring systems by:
Our sales force will be competing with the experienced and well-funded marketing and sales operations of our competitors. Developing a sales force is expensive and time consuming and could delay or limit the success of any product launch.
Competition
The market for blood glucose monitoring devices is intensely competitive, subject to rapid change and significantly affected by new product introductions. Four companies, Roche Disetronic, a division of Roche Diagnostics; LifeScan, Inc., a division of Johnson & Johnson; the MediSense and TheraSense divisions of Abbott Laboratories; and Bayer Corporation, currently account for substantially all of the worldwide sales of self-monitored glucose testing systems. These competitors' products use a meter and disposable test strips to test blood obtained by pricking the finger or, in some cases, the forearm. In addition, other companies are developing or marketing minimally invasive or noninvasive glucose testing devices and technologies that could compete with our devices. There are also a number of academic and other institutions involved in various phases of our industry's technology development.
To date, the FDA has approved, for limited applications, three continuous monitors or sensorstwo by Medtronic, the CGMS System Gold and Guardian System, and one by Cygnus, the GlucoWatch. All of these products have been approved for limited indications.
Only the Medtronic CGMS System Gold and the Cygnus GlucoWatch are currently in commercial use. However, Cygnus recently ceased operations and sold its remaining assets to Animas. Medtronic's CGMS system does not provide patients real-time blood glucose measurements, but rather stores these values for later retrieval by a healthcare professional to obtain historical trending information. Medtronic's Guardian System, which received FDA approval in February 2004, does not show real-time glucose measurements but rather has the capability to notify the patient when it detects dangerously high or low levels of blood glucose. In August 2004, Medtronic announced that it had filed a PMA supplement for a Guardian device that, if approved, will allow it to show real-time glucose measurements to patients.
A number of companies are developing next-generation real-time continuous glucose monitoring or sensing devices and technologies, including several companies that are developing non-invasive continuous glucose monitoring products to measure the patient's blood glucose level. Progress of others developing continuous glucose monitors is difficult to assess, but we know that TheraSense has submitted an approval application for a real-time continuous monitor or sensor to the FDA, and we believe that others will be submitted to the FDA before we can submit our first application for premarket approval. There can be no assurance when, if ever, any continuous monitor or sensor will be approved as a substitute for current glucose monitors or sensors.
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Many of our competitors are either publicly traded or are divisions of publicly-traded companies, and they enjoy several competitive advantages, including:
As a result, we cannot assure you that we will be able to compete effectively against these companies or their products.
We believe that the principal competitive factors in our market include:
Manufacturing
We manufacture our continuous glucose monitoring systems with components supplied by outside vendors and with parts manufactured by us internally. Key components that we manufacture internally include the electrodes and membranes for our short-term sensors, and our proprietary biointerface and sensing membranes for our long-term sensors. The remaining components and assemblies are purchased from outside vendors. We then assemble, test, package and ship the finished clinical trial sensors and receivers, which consist of a sensor, a radio-frequency transmitter and a receiver and, in the case of our short-term sensor, an insertion device.
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We purchase certain components and materials from single sources due to quality considerations, costs or constraints resulting from regulatory requirements. Currently, those single sources are AMI Semiconductor, Inc., which produces the application specific integrated circuits used in our sensors and transmitters; Flextronics International Ltd., which assembles the printed circuit boards for our sensors and receivers; Quallion LLC, which produces the batteries for our third generation implantable long-term sensor and our short-term sensor; and Vita Needle, which manufactures the insertion needle for our short-term continuous glucose monitoring system. Generally, agreements with these and our other suppliers can be terminated by either party upon short notice. We may not be able to quickly establish additional or replacement suppliers for our single-source components, especially after our products are commercialized, in part because of the FDA approval process and because of the custom nature of the parts we designed. Any supply interruption from our vendors or failure to obtain alternate vendors for any of the components would limit our ability to manufacture our systems, and could have a material adverse effect on our business.
Our manufacturing facility is located in our headquarters in San Diego, California, where we have more than 3,500 square feet of laboratory space and approximately 3,000 square feet of class 100K clean rooms. This facility was approved for medical device manufacturing in July 2004 by the Food and Drug Branch of the State of California Department of Health Services. We have not been inspected by the FDA and will have to successfully complete an FDA inspection before we can ship any commercial products.
We believe that our current facility will be adequate to manufacture our products at least through the first year of commercial production. We currently have limited resources, facilities and experience to commercially manufacture our products. In order to produce our continuous glucose monitoring systems in the quantities we anticipate to meet market demand, we will need to increase our manufacturing capacity by a significant factor over the current level. There are technical challenges to increasing manufacturing capacity, including equipment design and automation, material procurement, problems with production yields, and quality control and assurance. Additionally, the production of our continuous glucose monitoring systems must occur in a highly controlled and clean environment to minimize particles and other yield- and quality-limiting contaminants. Developing commercial-scale manufacturing facilities will require the investment of substantial additional funds and the hiring and retaining of additional management and technical personnel who have the necessary manufacturing experience. We may not successfully complete any required increase in manufacturing capacity in a timely manner or at all. Even if our products receive regulatory approval, if we are unable to manufacture a sufficient supply of product, maintain control over expenses or otherwise adapt to anticipated growth, or if we underestimate growth, we may not have the capability to satisfy market demand and our business will suffer.
Intellectual Property
Protection of our intellectual property is a strategic priority for our business. We rely on a combination of patent, copyright and other intellectual property laws, trade secrets, nondisclosure agreements and other measures to protect our proprietary rights. As of December 31, 2004, we had obtained six issued U.S. patents, and had 40 additional U.S. patent applications pending. We believe it will take up to five years, and possibly longer, for these pending U.S. patent applications to result in issued patents. Our issued patents expire between 2006 and 2021. We have filed 20 foreign patent applications seeking rights corresponding to aspects of our issued U.S. patents and pending U.S. patent applications.
We also rely on licenses to use various patented technologies that are material to our business. In addition to our own patents, we have entered into an exclusive license agreement in the field of implantable devices for diabetes for nine U.S. patents that cover portions of the biointerface
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technologies used in our sensors. We do not own the patents that underlie these licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents are subject to our abiding by the terms of those licenses. In addition, we do not control the prosecution of the patents subject to this license or the strategy for determining when such patents should be enforced. As a result, we are largely dependent upon our licensor to determine the appropriate strategy for prosecuting and enforcing those patents.
Together, our patents, patent applications and exclusive licenses of patents protect aspects of our core membrane and sensor technologies, and our patent applications cover product concepts for continuous glucose monitoring. We believe that our patent and license position will provide us with sufficient rights to develop, sell and protect our proposed commercial products. However, our patent applications may not result in issued patents, and we cannot assure you that any patents that have issued or might issue will protect our intellectual property rights. Furthermore, we cannot assure you that all of our patents will be upheld. Any patents issued to us may be challenged by third parties as being invalid or unenforceable, or third parties may independently develop similar or competing technology that avoids our patents. We cannot be certain that the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.
The medical device industry in general, and the glucose testing sector of this industry in particular, are characterized by the existence of a large number of patents and frequent litigation based on assertions of patent infringement. We are aware of numerous patents issued to third parties that relate to aspects of our business, including the design and manufacture of continuous glucose monitoring sensors and membranes, as well as methods for continuous glucose monitoring. The owners of each of these patents could assert that the manufacture, use or sale of our continuous glucose monitoring systems infringes one or more claims of their patents. Each of these patents contains multiple claims, any one of which may be independently asserted against us on commercialization of our product. There may be patents of which we are presently unaware that relate to aspects of our technology that could materially and adversely affect our business. In addition, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that materially and adversely affect our business.
Any adverse determination in litigation or interference proceedings to which we may become a party relating to patents could subject us to significant liabilities to third parties or require us to seek licenses from other third parties. Furthermore, if we are found to willfully infringe third-party patents, we could, in addition to other penalties, be required to pay treble damages. Although patent and intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. We may be unable to obtain necessary licenses on satisfactory terms, if at all. If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, which would have a significant adverse impact on our business.
We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information and other intellectual property by generally requiring our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and assignment of invention agreements on commencement of their employment or engagement. Agreements with our employees also forbid them from bringing the proprietary rights of third parties to us. We also generally require confidentiality or material transfer agreements from third parties that receive our confidential data or materials. We
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cannot provide any assurance that employees and third parties will abide by the confidentiality or assignment terms of these agreements. Despite measures taken to protect our intellectual property, unauthorized parties might copy aspects of our products or obtain and use information that we regard as proprietary.
We do not currently have any registered trademarks. We recently filed for the registration of a trademark for the name "DexCom" but our application was rejected. If we cannot obtain a trademark registration for DexCom, we may have to change our company name or market our products under a different name, which could result in significant expense.
Government Regulation
Our products are medical devices subject to extensive and ongoing regulation by the Food and Drug Administration, or FDA, and regulatory bodies in other countries. The Federal Food, Drug and Cosmetic Act, or FDCA, and the FDA's implementing regulations govern product design and development, pre-clinical and clinical testing, premarket clearance or approval, product manufacturing, product labeling, product storage, advertising and promotion, product sales and distribution, and post-market clinical surveillance. We do not have the necessary regulatory approval to market our continuous glucose monitoring systems or any other products in the United States or in any foreign market.
FDA Regulation
Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either prior 510(k) clearance or prior premarket approval, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Devices requiring fewer controls because they are deemed to pose lower risk are placed in Class I or II. Class I devices are subject to general controls such as labeling, premarket notification, and adherence to the FDA's Quality System Regulation, or QSR. Class II devices are subject to special controls such as performance standards, postmarket surveillance, FDA guidelines, as well as general controls. Some Class I and Class II devices are exempted by regulation from the premarket notification, or 510(k) clearance requirement or the requirement of compliance with the QSR. Devices are placed in Class III, which requires approval of a PMA application, if they are deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or to be "not substantially equivalent" either to a previously 510(k) cleared device or to a "preamendment" Class III device in commercial distribution before May 28, 1976 for which PMA applications have not been required. We believe our long and short-term continuous glucose monitoring systems will require premarket approval, which requires a demonstration of the safety and efficacy of the device, and is a more time-consuming and expensive process than a 510(k) clearance.
A PMA application must be supported by valid scientific evidence, which typically requires extensive data, including technical, pre-clinical, clinical, manufacturing and labeling data, to demonstrate to the FDA's satisfaction the safety and efficacy of the device. A PMA application also must include a complete description of the device and its components, a detailed description of the methods, facilities and controls used to manufacture the device, and proposed labeling. After a PMA application is submitted and found to be sufficiently complete, the FDA begins an in-depth review of the submitted information. During this review period, the FDA may request additional information or clarification of information already provided. Also during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. In addition, the FDA generally will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with QSR, which
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requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures.
FDA review of a PMA application generally takes between one and three years, but may take significantly longer. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:
If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter, or approvable letter, which usually contains a number of conditions which must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device for certain indications. If the FDA's evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA may also determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and then the data submitted in an amendment to the PMA. The PMA process can be expensive, uncertain and lengthy and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing.
New PMA applications or PMA supplements may be required for modifications to the manufacturing process, labeling and device specifications, materials or design of a device that is approved through the PMA process. PMA approval supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA application and may not require as extensive clinical data or the convening of an advisory panel.
Clinical trials are almost always required to support a PMA application and are sometimes required for a 510(k) clearance. These trials generally require submission of an application for an investigational device exemption, or IDE, to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a non-significant risk device and eligible for more abbreviated IDE requirements. Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards at the clinical trial sites. The FDA's approval of an IDE allows clinical testing to go forward, but does not bind the FDA to accept the results of the trial as sufficient to prove the product's safety and efficacy, even if the trial meets its intended success criteria. All clinical trials must be conducted in accordance with the FDA's IDE regulations which govern investigational device labeling, prohibit promotion, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials must further comply with the FDA's regulations for institutional review
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board approval and for informed consent. Required records and reports are subject to inspection by the FDA. The results of clinical testing may be unfavorable or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient for the FDA to grant approval or clearance of a product. The commencement or completion of any of our clinical trials may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons, including, but not limited to, the following:
We expect to file a PMA application for our short-term continuous glucose monitoring system by the end of the first half of 2005, and for our second generation long-term continuous glucose monitoring system in 2006. Accordingly, we do not expect our short-term system to be approved for sale before 2006 at the earliest, and do not expect our long-term system to be approved for sale before 2007. Our clinical trials may not generate favorable data to support these PMA applications, and we may not be able to obtain such approvals on a timely basis, or at all. Delays in receipt of or failure to receive such approvals, the loss of previously received approvals, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and
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results of operations. Even if granted, the approvals may include significant limitations on the intended use and indications for use for which our products may be marketed.
After a device is approved and placed in commercial distribution, numerous regulatory requirements apply. These include:
Also, the FDA may require us to conduct postmarket surveillance studies or order us to establish and maintain a system for tracking our products through the chain of distribution to the patient level. The FDA and the Food and Drug Branch of the California Department of Health Services enforce regulatory requirements by conducting periodic, unannounced inspections and market surveillance. Inspections may include the manufacturing facilities of our subcontractors.
Failure to comply with applicable regulatory requirements, including those applicable to the conduct of our clinical trials, can result in enforcement action by the FDA, which may lead to any of the following sanctions:
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We and our contract manufacturers, specification developers, and some suppliers of components or device accessories, are also required to manufacture our products in compliance with current Good Manufacturing Practice, or GMP, requirements set forth in the QSR. The QSR requires a quality system for the design, manufacture, packaging, labeling, storage, installation and servicing of marketed devices, and includes extensive requirements with respect to quality management and organization, device design, buildings, equipment, purchase and handling of components, production and process controls, packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and record keeping. The FDA enforces the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors. If the FDA believes we or any of our contract manufacturers or regulated suppliers is not in compliance with these requirements, it can shut down our manufacturing operations, require recall of our products, refuse to approve new marketing applications, institute legal proceedings to detain or seize products, enjoin future violations, or assess civil and criminal penalties against us or our officers or other employees. Any such action by the FDA would have a material adverse effect on our business. We cannot assure you that we will be able to comply with all applicable FDA regulations.
International Regulation
International sales of medical devices are subject to foreign government regulations, which may vary substantially from country to country. The time required to obtain approval in a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ. There is a trend towards harmonization of quality system standards among the European Union, United States, Canada and various other industrialized countries.
The primary regulatory environment in Europe is that of the European Union, which includes most of the major countries in Europe. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout Europe. The method of assessing conformity varies depending on the class of the product, but normally involves a combination of self-assessment by the manufacturer and a third party assessment by a "Notified Body." This third party assessment may consist of an audit of the manufacturer's quality system and specific testing of the manufacturer's product. An assessment by a Notified Body of one country within the European Union is required in order for a manufacturer to commercially distribute the product throughout the European Union. Outside of the European Union, regulatory approval needs to be sought on a country-by-country basis in order for us to market our products.
Third-Party Reimbursement
The availability of insurance coverage and reimbursement for newly approved medical devices is uncertain. In the United States, patients using existing single-point finger stick devices are generally reimbursed all or part of the product cost by Medicare or other third-party payors. The commercial success of our products in both domestic and international markets will be substantially dependent on whether third-party coverage and reimbursement is available for patients that use our products. Third-party coverage may be particularly difficult to obtain if our systems are not approved by the FDA as
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replacements for existing single-point finger stick devices. Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new medical devices, and, as a result, they may not cover or provide adequate payment for our products. In order to obtain reimbursement arrangements, we may have to agree to a net sales price lower than the net sales price we might charge in other sales channels. The continuing efforts of government and third-party payors to contain or reduce the costs of healthcare may limit our revenue. Our initial dependence on the commercial success of our short-term continuous glucose monitoring system makes us particularly susceptible to any cost containment or reduction efforts. Accordingly, even if our short-term continuous glucose monitoring system or future products are approved for commercial sale, unless government and other third-party payors provide adequate coverage and reimbursement for our products, patients may not use them.
In some foreign markets, pricing and profitability of medical devices are subject to government control. In the United States, we expect that there will continue to be federal and state proposals for similar controls. Also, the trends toward managed healthcare in the United States and proposed legislation intended to reduce the cost of government insurance programs could significantly influence the purchase of healthcare services and products and may result in lower prices for our products or the exclusion of our products from reimbursement programs.
Advisory Boards
Clinical Advisory Board
We have established a clinical advisory board, consisting of individuals with recognized expertise in related fields. Our members advise us concerning product development and clinical trial design. Members of our clinical advisory board meet formally and informally with us. Several members of our clinical advisory board are employed by academic institutions and may have commitments to, or agreements with, other entities that may limit their availability to us. Members of our clinical advisory board may also serve as consultants to other medical product companies, including those that may be competitive with ours. The following persons are members of our clinical advisory board:
Name
|
Affiliation
|
|
---|---|---|
Richard Bergenstal, M.D. | International Diabetes Center | |
Bruce Bode, M.D. | Atlanta Diabetes Associates | |
Patrick Boyle, M.D. | University of New Mexico | |
John Buse, M.D. | University of North Carolina | |
Steven Edelman, M.D. | University of California, San Diego | |
Satish Garg, M.D. | Barbara Davis Center | |
Lois Jovanovic, M.D. | Sansum Research Foundation | |
Christopher Saudek, M.D. | Johns Hopkins University | |
William Tamborlane, M.D. | Yale University |
Scientific Advisory Board
We have established a scientific advisory board, consisting of individuals with recognized expertise in related fields. Our members advise us concerning technical approaches to product design and development. Members of our scientific advisory board meet formally and informally with us. Several members of our scientific advisory board are employed by academic institutions and may have commitments to, or agreements with, other entities that may limit their availability to us. Members of our scientific advisory board may also serve as consultants to other medical product companies,
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including those that may be competitive with ours. The following persons are members of our scientific advisory board:
Name
|
Affiliation
|
|
---|---|---|
James M. Anderson, M.D., Ph.D. | Case Western University | |
Clark Colton, Ph.D. | Massachusetts Institute of Technology | |
Polly Matzinger, Ph.D. | National Institute of Health, Department of Immunology | |
Buddy D. Ratner, Ph.D. | University of Washington, Department of Bioengineering |
Employees
As of December 31, 2004, we had 55 employees. Approximately 32 employees are engaged in research and development, 8 in manufacturing, 9 in clinical, regulatory and quality assurance, and 6 in general and administrative functions. None of our employees is represented by a labor union or is covered by a collective bargaining agreement. We have never experienced any employment-related work stoppages and consider our employee relations to be good.
Facilities
We maintain our headquarters in San Diego, California in one leased facility of approximately 23,000 square feet, which includes our laboratory, research and development, manufacturing and general administration functions. The lease for this facility expires in 2010. We have the right to extend the term of this lease for one period of five years, and a right of first offer for an adjacent facility as space becomes available in that facility. We believe that our existing facility is adequate to meet our needs through at least 2006, and that suitable additional space will be available in the future on commercially reasonably terms as needed.
Legal Proceedings
We are not party to any material pending or threatened litigation.
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Directors and Executive Officers
The following table presents information regarding our directors and executive officers as of January 31, 2005.
Name
|
Age
|
Position
|
||
---|---|---|---|---|
Andrew P. Rasdal | 46 | President, Chief Executive Officer and Director | ||
Steven J. Kemper | 49 | Chief Financial Officer | ||
James H. Brauker, Ph.D. | 54 | Vice President of Research and Development | ||
Andrew K. Balo | 57 | Vice President of Clinical and Regulatory Affairs and Quality Systems | ||
Mark Brister | 43 | Vice President, Advanced Development Teams | ||
Donald L. Lucas (1)(3) | 74 | Chairman of the board of directors | ||
Brent Ahrens (2)(3) | 41 | Director | ||
Kim D. Blickenstaff (1) | 52 | Director | ||
Sean Carney (1)(2) | 35 | Director | ||
Donald A. Lucas (1)(2) | 42 | Director | ||
Glen D. Nelson, M.D. (3) | 67 | Director | ||
Jay S. Skyler, M.D (3) | 57 | Director |
(1)
Member
of the Audit Committee.
(2)
Member of the Compensation Committee.
(3)
Member of the Nominating and Governance Committee.
Andrew P. Rasdal has served as our President and Chief Executive Officer and on our board of directors since January 2002. From April 2000 to December 2001, Mr. Rasdal served as Senior Vice President of Medtronic, Inc., a medical technology company, and as President of Medtronic, Inc., Vascular Division. From February 1999 to April 2000, Mr. Rasdal served as General Manager of Medtronic, Inc., Vascular Division. Mr. Rasdal received a B.S. from San Jose State University and an M.B.A. from the Kellogg Graduate School of Business, Northwestern University.
Steven J. Kemper has served as our Chief Financial Officer since March 2003. From November 2001 to March 2003, Mr. Kemper served as Chief Financial Officer and Treasurer of CryoGen, Inc., a medical technology company. From November 1999 to August 2001, Mr. Kemper served as Chief Financial Officer of Proflowers, Inc., an online flower company. From 1996 to March 2003, Mr. Kemper also served as President of Pacific Financial Consulting. Mr. Kemper received a B.A. from the University of California, San Diego, an M.B.A. from Loyola Marymount University and an M.S. from San Diego State University. Mr. Kemper is a licensed C.P.A.
James H. Brauker, Ph.D. has served as our Vice President of Research and Development since April 2000. From October 1999 to March 2000, Dr. Brauker served as a consultant to us. Dr. Brauker received a B.S. and an M.S. from Central Michigan University and a Ph.D. from Michigan State University.
Andrew K. Balo has served as our Vice President of Clinical and Regulatory Affairs and Quality Systems since February 2002. From June 1999 to February 2002, Mr. Balo served as Vice President, Regulatory and Clinical Affairs of Innercool Therapies, Inc., a medical technology company. Mr. Balo received a B.S. from the University of Maryland.
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Mark Brister has served as our Vice President, Advanced Development Teams since May 2003. From February 1999 to May 2003, Mr. Brister served in various capacities, including Vice President, Research and Development, Vice President, Advanced Development Teams and Vice President, Peripheral Products of Medtronic, Inc., a medical technology company.
Donald L. Lucas has served as Chairman of our board of directors since September 2002 and as a director since May 2002. In 1960, Mr. Lucas began a seven-year participation, including acting as both a general partner and a limited partner, with Draper, Gaither & Anderson, the first venture capital firm organized on the West Coast in the United States. Since 1967, Mr. Lucas has been actively engaged in venture capital activities as a private individual. Mr. Lucas currently serves as a director of Cadence Design Systems, Inc., Macromedia, Inc., Oracle Corporation, PDF Solutions, Inc. and 51job, Inc. Mr. Lucas also serves as a director for several privately held companies. Mr. Lucas received a B.A. from Stanford University and an M.B.A. from the Stanford Graduate School of Business. Mr. Lucas is also trustee of Santa Clara University and Chairman Emeritus of the Stanford Institute for Economic Policy Research.
Brent Ahrens has served on our board of directors since December 2000. Mr. Ahrens is currently a General Partner of Canaan Partners, a venture capital firm, and has served in various capacities at Canaan Partners since July 1999. Mr. Ahrens received a B.S. and an M.S. from the University of Dayton and an M.B.A. from the Amos Tuck School of Business at Dartmouth College.
Kim D. Blickenstaff has served on our board of directors since June 2001. Mr. Blickenstaff is the co-founder of Biosite Incorporated, a medical technology company, and since April 1988 has served as its President, Chief Executive Officer and director. Mr. Blickenstaff received a B.A. and an M.B.A. from Loyola University.
Sean Carney has served on our board of directors since December 2004. Since 1996, Mr. Carney has been employed by Warburg Pincus LLC, a private equity firm, and has served as a Managing Director of Warburg Pincus LLC and General Partner of Warburg Pincus & Co. since January 2001. Mr. Carney also serves as a director of Arch Capital Group Ltd. Mr. Carney received an A.B. from Harvard College and an M.B.A. from Harvard Business School.
Donald A. Lucas has served on our board of directors since May 2002. Mr. Lucas is the Founding Managing Director of RWI Group, a venture capital firm founded in 1995. Mr. Lucas also serves as a Director of KhiMetrics, Inc. and the Silicon Valley Chapter of the Juvenile Diabetes Research Foundation. Mr. Lucas received a B.A. from Santa Clara University. Mr. Lucas is also a member of the University of California, San Francisco, Diabetes Center Leadership Council.
Glen D. Nelson, M.D. has served on our board of directors since October 2002. Since 2002, Dr. Nelson has served as Chairman of GDN Holdings, LLC, an aviation, health services and medical device company. From 1988 to 2002, Dr. Nelson served as Vice Chairman of Medtronic, Inc., a medical device company. Dr. Nelson also serves as a director of The St. Paul Travelers Companies, Inc. and Angiotech Pharmaceuticals, Inc. Dr. Nelson received a B.A. from Harvard University and an M.D. from the University of Minnesota.
Jay S. Skyler, M.D. has served on our board of directors since September 2002. Dr. Skyler is a Professor of Medicine, Pediatrics and Psychology and the Director of the General Clinical Research Center at the University of Miami in Florida, where he has been employed since 1976. Dr. Skyler also serves as the Chairman of the Planning Committee of the Clinical Research Institute, University of Miami Miller School of Medicine and as Study Chairman for the National Institute of Diabetes & Digestive & Kidney Diseases of the Type 1 Diabetes TrialNet clinical trial network. Dr. Skyler also
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serves as a director of Amylin Pharmaceuticals, Inc. and Precision Medical Devices, Inc. Dr. Skyler received a B.S. from Pennsylvania State University and an M.D. from Jefferson Medical College.
Each of our executive officers will serve in his office until he resigns or is removed from office. Donald A. Lucas is the son of Donald L. Lucas. With the exception of such relationship, there are no family relationships among any of our directors and executive officers.
Board of Directors Composition
Our charter documents authorize up to nine directors. We currently have eight directors. Our current directors were elected pursuant to voting provisions contained in a voting agreement that we entered into with certain holders of our common stock and preferred stock. Upon the closing of this offering, the voting agreement will be terminated and none of our stockholders will have any special rights regarding board representation.
Upon the consummation of this offering, we will file our restated certificate of incorporation. The restated certificate of incorporation will divide our board of directors into three classes, each with staggered three-year terms:
At each annual meeting of stockholders after the initial classification, the successors to directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following election. Upon the consummation of this offering, the Class I directors will consist of , and ; the Class II directors will consist of , and ; and the Class III directors will consist of and . As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.
In addition, we intend to amend our bylaws upon the consummation of this offering to provide that only the board of directors may fill vacancies on the board of directors until the next annual meeting of stockholders. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors.
This classification of the board of directors and the provisions described above may have the effect of delaying or preventing changes in our control or management. See "Description of Capital StockAnti-Takeover ProvisionsRestated Certificate of Incorporation and Amended and Restated Bylaw Provisions."
Committee Composition
Our board of directors has established three standing committees: the audit committee, the compensation committee and the nominating and governance committee.
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Audit Committee. The audit committee reviews and evaluates our financial statements, accounting practices and our internal accounting procedures, selects and engages the appointment of our independent auditors and reviews the results and scope of the audit and other services provided by our independent auditors. The members of our audit committee are Kim Blickenstaff, Sean Carney, Donald A. Lucas and Donald L. Lucas, each of whom we believe will satisfy the independence requirements of the NASDAQ National Market and the SEC.
Compensation Committee. The compensation committee reviews and makes recommendations to our board of directors regarding the compensation and benefits of our officers and directors, administers our equity compensation and employee benefits plans and reviews our general policies relating to compensation and benefits. The members of our compensation committee are Brent Ahrens, Sean Carney and Donald A. Lucas, each of whom we believe will satisfy the independence requirements of the NASDAQ National Market. Each member of this committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986.
Nominating and Governance Committee. The nominating and governance committee makes recommendations to our board of directors concerning candidates for election to our board of directors and other corporate governance matters. The members of our nominating and governance committee are Brent Ahrens, Donald L. Lucas, Glen Nelson and Jay Skyler, each of whom we believe will satisfy the independence requirements of the NASDAQ National Market.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been one of our officers or employees. None of our executive officers serves or in the past has served as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving on our board of directors or our compensation committee.
Mr. Ahrens, one of our directors, is a General Partner of Canaan Partners. Entities associated with Canaan Partners purchased 2,158,152 shares of our Series C preferred stock in May 2002 and 561,240 shares of our Series D preferred stock in December 2004. Entities associated with Canaan Partners collectively represent approximately 15.4% of our outstanding capital stock as of December 31, 2004. Mr. Ahrens disclaims beneficial ownership of all shares held by entities associated with Canaan Partners.
Mr. Carney, one of our directors, is a Managing Director of Warburg Pincus LLC and General Partner of Warburg Pincus & Co. Entities associated with Warburg Pincus Private Equity VIII, L.P. purchased 5,384,928 shares of our Series D preferred stock in December 2004. Entities associated with Warburg Pincus Private Equity VIII, L.P. collectively represent 13.4% of our outstanding capital stock as of December 31, 2004. Mr. Carney disclaims beneficial ownership of all shares owned by the Warburg Pincus entities.
Director Compensation
In March 2004, each of Kim Blickenstaff, Donald L. Lucas, Glen Nelson and Jay Skyler received an option to purchase 25,000 shares of our common stock at an exercise price of $0.25 per share. Each option vests ratably over a 48-month period and has a 10-year term.
Upon the consummation of this offering, each of our non-employee directors will receive an option to purchase shares of our common stock at the initial public offering price, and Donald L. Lucas will receive an option to purchase additional shares of our common stock as Chairman of the
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Board of Directors. None of our employee directors have received cash compensation for their services as directors. Following this offering, each non-employee director will receive an annual retainer of $ plus $ per meeting and $ per telephone meeting of the Board and committees on which they serve. The Chairman of the Board and the Chairman of the Audit Committee will also receive additional annual retainers of $ and $ , respectively. All of our directors, including our non-employee directors, are reimbursed for their reasonable expenses in attending board of directors and board of directors committee meetings.
Each eligible non-employee director who first becomes a member of our board of directors after the completion of this offering will be granted an option to purchase shares of our common stock. Following each annual meeting of our stockholders, each non-employee director that continues as a non-employee director will automatically be granted an additional option to purchase shares of our common stock and the Chairman of the Board will be granted an additional option to purchase shares of our common stock. Each option has or will have an exercise price equal to the fair market value of our common stock on the date of grant and will have a -year term and will terminate three months following the date the director ceases to be one of our directors for any reason other than death or disability, and 12 months or six months following that date if the termination is due to death or disability, respectively. We expect that all options granted under the plan will vest ratably over a period.
Executive Compensation
The following table presents compensation information for the year ended December 31, 2004 for our chief executive officer and each of our four other most highly compensated executive officers whose salary and bonus for 2004 was more than $100,000. We refer to these five executive officers as our named executive officers elsewhere in this prospectus.
|
|
Long-term
Compensation Awards |
|
|||||
---|---|---|---|---|---|---|---|---|
|
2004
Annual Compensation |
|
||||||
Name and Principal Position
|
Securities
Underlying Options |
All Other
Compensation (1) |
||||||
Salary
|
||||||||
Andrew P. Rasdal
President and Chief Executive Officer |
$ | 323,400 | 822,000 | $ | 9,819 | |||
Steven J. Kemper Chief Financial Officer |
|
|
212,635 |
|
139,631 |
|
|
9,682 |
Andrew K. Balo Vice President of Clinical and Regulatory Affairs and Quality Systems |
|
|
202,250 |
|
225,275 |
|
|
9,644 |
James H. Brauker Vice President of Research and Development |
|
|
202,250 |
|
139,631 |
|
|
6,760 |
Mark Brister Vice President, Advanced Development Teams |
|
|
195,325 |
|
232,206 |
|
|
9,641 |
(1) Represents life insurance and health insurance benefits.
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Option Grants in Last Fiscal Year
The following table presents information regarding grants of stock options during the year ended December 31, 2004 to the named executive officers. We granted these options to the named executive officers under our 1999 stock option plan. These options either vest as to 25% of the shares on the first anniversary of the date of grant with the remainder vesting ratably over a 36-month period thereafter or vest ratably over a 48-month period. Some of these options become exercisable as they vest, and others are exercisable in advance of vesting, with unvested shares subject to a right of repurchase by us at the exercise price. All of the options listed on the following table expire ten years after the date of grant and were granted at an exercise price equal to the fair market value of our common stock as determined by our board of directors on the date of grant. The percentage of total options granted to employees in 2004 is based on options to purchase a total of 2,898,504 shares of our common stock granted in 2004.
The potential realizable values identified below are calculated based on an assumed initial public offering price of $ per share, the midpoint of the range on the front cover of this prospectus, compounded at the annual 5% or 10% rate shown in the table until the expiration of the option, less the per share exercise price, multiplied by the number of shares issuable upon exercise of the option. The 5% and 10% assumed annual rates of stock price appreciation are required by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of future common stock prices. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock.
2004 Option Grants
|
|
|
|
|
Potential Realizable
Value at Assumed Annual Rates of Stock Price Appreciation for Option Term |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
Securities Underlying Options Granted |
Percent of
Total Options Granted to Employees in 2004 |
|
|
|||||||||||
Name
|
Exercise
Price Per Share |
Expiration
Date |
|||||||||||||
5%
|
10%
|
||||||||||||||
Andrew P. Rasdal |
156,000
300,000 366,000 |
5.4
10.4 12.6 |
%
|
$
|
0.25
0.25 1.20 |
2/9/2014
3/10/2014 12/24/2014 |
$ | $ | |||||||
Steven J. Kemper |
41,109
98,522 |
1.4
3.4 |
0.25
1.20 |
2/9/2014
12/24/2014 |
|||||||||||
Andrew K. Balo |
30,832
194,443 |
1.1
6.7 |
0.25
1.20 |
2/9/2014
12/24/2014 |
|||||||||||
James H. Brauker |
41,109
98,522 |
1.4
3.4 |
0.25
1.20 |
2/9/2014
12/24/2014 |
|||||||||||
Mark Brister |
30,000
202,206 |
1.0
7.0 |
0.25
1.20 |
2/9/2014
12/24/2014 |
Aggregate Option Exercises in 2004 and Year-End Option Values
The following table sets forth certain information regarding unexercised options held as of December 31, 2004, by each of the named executive officers. These values have been calculated based on the assumed initial public offering price of $ per share, the midpoint of the range on the front cover of the prospectus, less the applicable exercise price per share, multiplied by the number of shares issued or issuable, as the case may be, on the exercise of the option. All options were granted under our 1999 stock option plan. None of the named executive officers exercised any stock options during the year ended December 31, 2004.
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2004 Year-End Option Values
|
Number of Securities
Underlying Unexercised Options at December 31, 2004 |
Value of Unexercised
In-the-Money Options at December 31, 2004 |
||||||
---|---|---|---|---|---|---|---|---|
Name
|
||||||||
Exercisable
(1)
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||
Andrew P. Rasdal | 1,635,750 | 486,250 | ||||||
Steven J. Kemper | 351,995 | 130,211 | ||||||
Andrew K. Balo | 146,298 | 335,908 | ||||||
James H. Brauker | 190,897 | 237,142 | ||||||
Mark Brister | 69,375 | 412,831 |
(1) Includes options for an aggregrate of 1,600,000 shares, 342,575 shares, 100,000 shares and 100,000 shares for Mr. Rasdal, Mr. Kemper, Mr. Balo and Dr. Brauker, respectively, that are immediately exercisable, and, when and if exercised, will be subject to a repurchase right held by us, which right lapses in accordance with the respective vesting schedules for such options.
Employment, Severance and Change of Control Arrangements
In January 2005, we entered into a restated letter agreement with Mr. Rasdal. Under the letter agreement, in the event we terminate Mr. Rasdal's employment without cause or he is constructively terminated, he will receive 12 months salary as severance.
In January 2005, we entered into a restated executive change of control agreement with Mr. Rasdal. Under this agreement, if a change of control occurs and either (1) Mr. Rasdal is serving as an employee, director or consultant of ours immediately prior to the effective date of the change of control or (2) Mr. Rasdal's service as an employee, director or consultant has been terminated without cause in the period of time beginning 90 days prior to the earlier of (a) the execution of a letter of intent relating to the change of control or (b) the execution of a definitive agreement with respect to the change of control and ending upon the effective date of the change of control; in either case, provided that the change of control with the party to the letter of intent or definitive agreement is consummated within two years following such execution, then the vesting and exercisability of the shares of our common stock subject to each option granted to Mr. Rasdal shall be accelerated in full and any reacquisition or repurchase rights held by us with respect to such shares shall lapse in full.
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The following options to purchase our common stock are subject to the provisions of the executive change of control agreement:
Grant Date
|
Shares of Common Stock
Subject to Option |
Vesting Schedule
|
||
---|---|---|---|---|
December 12, 2001 | 1,000,000 | Vests as to 25% of the shares on the first anniversary of the date of grant with the remainder vesting ratably over a 36-month period thereafter. | ||
December 12, 2001 |
|
300,000 |
|
Vests as to 25% of the shares on the first anniversary of the date of grant with the remainder vesting ratably over a 36-month period thereafter. |
February 10, 2004 |
|
156,000 |
|
Vests as to 25% of the shares on the first anniversary of the vesting commencement date with the remainder vesting ratably over a 36-month period thereafter. |
March 11, 2004 |
|
300,000 |
|
Vests ratably over a 48-month period. |
December 24, 2004 |
|
366,000 |
|
Vests as to 25% of the shares on the first anniversary of the date of grant with the remainder vesting ratably over a 36-month period thereafter. |
We have also entered into change of control arrangements with Mr. Balo, Dr. Brauker, Mr. Brister and Mr. Kemper that provide that in the event of a change of control and in connection with, or 12 months following, the change of control, we terminate their employment without cause or constructively terminate Mr. Balo, Dr. Brauker, Mr. Brister or Mr. Kemper, all unvested shares of our common stock subject to all options granted to such terminated individual will fully vest. We have also agreed that in the event we terminate Mr. Balo, Dr. Brauker, Mr. Brister or Mr. Kemper's employment without cause, such terminated individual will receive six months salary as severance. In each case, our obligation to make any severance payments is expressly conditioned upon such terminated individual's execution and delivery of a general release and waiver of all claims.
Employee Benefit Plans and Option Grants
1999 Stock Option Plan
Our board of directors adopted, and our stockholders approved, our 1999 stock option plan in August 1999. As of December 31, 2004, options to purchase 6,706,237 shares of our common stock were outstanding under our 1999 stock option plan. The options outstanding under the plan had a weighted average exercise price of $0.46 per share. Our employees, consultants and directors were eligible to receive awards under the 1999 stock option plan. Our 1999 stock option plan will terminate upon the effective date of our 2005 equity incentive plan. However, any outstanding options granted under our 1999 stock option plan will remain outstanding and subject to our 1999 stock option plan and related stock option agreements until they are exercised or until they terminate or expire by their terms.
Our 1999 stock option plan is administered by the compensation committee of our board of directors, each member of which is an outside director as defined under applicable federal tax laws. Our compensation committee has the authority to interpret this plan and any agreement entered into under the plan, grant awards and make all other determinations for the administration of the plan.
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With respect to stock options, our 1999 stock option plan provides for the grant of both incentive stock options that qualify for favorable tax treatment under Section 422 of the Internal Revenue Code for their recipients and nonqualified stock options. Incentive stock options may be granted only to our employees or employees of any of our subsidiaries. Nonqualified stock options may be granted to our employees, officers, directors, consultants, independent contractors and advisors and those of any of our subsidiaries. The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. Nonqualified stock options are granted with an exercise price at least equal to the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under our 1999 stock option plan is ten years.
In the event of a change in control, this plan provides that options held by current employees, directors and consultants that are not assumed or substituted, will immediately vest in full and become exercisable prior to such change in control and all options shall expire on the consummation of the change in control.
2005 Equity Incentive Plan
Our board of directors adopted our 2005 equity incentive plan in January 2005. The 2005 equity incentive plan will serve as the successor to our 1999 stock option plan. Subject to approval by our stockholders, which we anticipate in February 2005, the 2005 equity incentive plan will become effective on the date of our initial public offering and will terminate in February 2010, unless terminated earlier by our board. The plan will authorize the award of options, restricted stock awards, stock appreciation rights, restricted stock units and stock bonuses. No awards have been granted under this plan.
Our 2005 equity incentive plan will be administered by the compensation committee of our board of directors, each member of which is an outside director as defined under applicable federal tax laws. Our compensation committee has the authority to interpret this plan and any agreement entered into under the plan, grant awards and make all other determinations for the administration of the plan.
With respect to stock options, our 2005 equity incentive plan provides for the grant of both incentive stock options that qualify for favorable tax treatment under Section 422 of the Internal Revenue Code for their recipients and nonqualified stock options. Incentive stock options may be granted only to our employees or employees of any of our subsidiaries. Nonqualified stock options, and all awards other than incentive stock options, may be granted to our employees, officers, directors, consultants, independent contractors and advisors and those of any of our subsidiaries. The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. Nonqualified stock options and restricted stock generally will, but need not, be granted with an exercise price at least equal to the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under our 2005 equity incentive plan is ten years. Automatic grants of stock options to our non-employee directors are provided for under this plan as described above under "Director Compensation."
A restricted stock award is an offer by us to sell shares of our common stock subject to restrictions. The price of a restricted stock award will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting ceases on the date the participant no longer provides services to us and unvested shares are forfeited to us.
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Stock bonuses are granted as additional compensation for performance, and therefore, are not issued in exchange for cash.
Stock appreciation rights provide for a payment, or payments, in cash or shares of common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise over the stated exercise price up to a maximum amount of cash or number of shares. Stock appreciation rights may vest based on time or achievement of performance conditions.
Restricted stock units represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of such right due to termination of employment or failure to achieve certain performance conditions. If the restricted stock unit has not been forfeited, then on the date specified in the restricted stock unit agreement, we will deliver to the holder of the restricted stock unit whole shares of our common stock, cash or a combination of our common stock and cash.
Awards granted under this plan generally may not be transferred in any manner other than by will or by the laws of descent and distribution. Our compensation committee, however, may permit nonqualified stock options to be transferred by domestic relations order or, in limited circumstances, by gift. In the event of a liquidation, dissolution or change in control transaction, except for options granted to non-employee directors, awards may be assumed or substituted by the successor company. Awards that are not assumed or substituted will immediately vest as to 100% of the common stock shares subject thereto, at such time and on such conditions as our board of directors shall determine, and the awards will expire at the time of liquidation, dissolution or closing of the change in control transaction.
There will be 6,000,000 shares of our common stock reserved for issuance under our 2005 equity incentive plan, which will include the shares of our common stock reserved under our 1999 stock option plan that were not already issued, or subject to outstanding grants, on the date of our initial public offering. The number of shares reserved for issuance under this plan will automatically be increased by any shares issued under our 1999 stock option plan and outstanding on the effective date of this registration statement that are forfeited or that are issuable upon exercise of options granted pursuant to our 1999 stock option plan that expire without having been exercised in full.
In addition, under the terms of our 2005 equity incentive plan, the number of shares of our common stock reserved for grant and issuance under the plan will increase automatically on January 1 of each of the years starting from 2006 through 2009 by an amount equal to the lesser of 3% of our total issued and outstanding shares as of the immediately preceding December 31st or the number of shares determined by our board of directors. Our board of directors or compensation committee may reduce the amount of any increase in any particular year.
Shares available for grant and issuance under our 2005 equity incentive plan include:
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During any calendar year, no person will be eligible to receive more than 500,000 shares, or, in the case of new employees during their first fiscal year of employment, 1,500,000 shares under our 2005 equity incentive plan.
2005 Employee Stock Purchase Plan
We anticipate our board of directors adopting, and our stockholders approving, our 2005 employee stock purchase plan in February 2005. Assuming adoption and approval the 2005 employee stock purchase plan will become effective on the date of our initial public offering and is designed to enable eligible employees to purchase shares of our common stock at a discount on a periodic basis following the date of this prospectus. Our compensation committee administers the 2005 employee stock purchase plan. Our employees generally are eligible to participate in this plan if they are employed by us, or a subsidiary of ours that we designate, for more than 20 hours per week, more than five months in a calendar year and for at least three months prior to the first day of an offering period. Our employees are not eligible to participate in our 2005 employee stock purchase plan if they are 5% stockholders or would become 5% stockholders as a result of their participation in the plan. Under the 2005 employee stock purchase plan, eligible employees acquire shares of our common stock through payroll deductions, or, in the case of the first offering period, through cash payments on each purchase date within such period. Our eligible employees may select a rate of payroll deduction between 1% and 10% of their cash compensation. For the first offering period, employees will be automatically granted an option based on 10% of their cash compensation during the first offering period. An employee's participation in this plan will end automatically upon termination of employment for any reason. In the event of a change of control transaction, this plan will terminate upon the effective date of such transaction and any funds in a participant's account as of such date will be used to purchase shares of our common stock on such date, unless otherwise provided by our compensation committee.
No participant will be able to accrue the right to purchase shares having a fair market value of more than $25,000, determined as of the first day of the applicable offering period, for each calendar year in which the employee participates in the 2005 employee stock purchase plan. Except for the first offering period, each offering period will be for one year and will consist of two six-month purchase periods. The first offering period will begin on the date this registration statement is declared effective by the SEC and shall end on July 31, 2006, and may consist of up to three purchase periods. The purchase periods in the first offering period may be each more or less than six months long. Subsequently, the offering periods will begin on February 1 and August 1 of each year commencing with August 1, 2005. The purchase price for shares of our common stock purchased under the 2005 employee stock purchase plan will be 85% of the lesser of the fair market value of our common stock on the first day of the applicable offering period or the fair market value of our common stock on the last day of the applicable purchase period. Our compensation committee has the power to change the starting date of any later offering period, the purchase date of a purchase period and the duration of any offering period or purchase period without stockholder approval if this change is announced before the relevant offering period or other time period. Our 2005 employee stock purchase plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code.
We have reserved 300,000 shares of our common stock for issuance under the 2005 employee stock purchase plan. The number of shares reserved for issuance under the plan will increase automatically on January 1 of each year, starting in 2006, by an amount equal to 1% of our total outstanding shares as of the immediately preceding December 31. Our board of directors or compensation committee may reduce the amount of the increase in any particular year. The 2005 employee stock purchase plan will terminate ten years after its adoption by our board of directors, unless it is terminated earlier by our board of directors or when all of the shares reserved for issuance under this plan have been issued.
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401(k) Plan
We sponsor a retirement plan intended to qualify for the favorable tax treatment afforded under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended, or the Code. Employees who have attained at least 18 years of age are generally eligible to become participants in the plan on the first day of the calendar month coinciding with or next following the date they become employed by us. Participants may make pre-tax contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit on pre-tax contributions under the Code. Participants may also make after-tax contributions subject to the statutory limit on annual additions to defined contribution plans and applicable nondiscrimination tests under the Code. We currently make no company contributions on behalf of participants to the plan, but can do so in our discretion. Pre-tax contributions by participants to the plan and the income earned on such contributions are generally not taxable to participants until withdrawn. The income earned on after-tax contributions made by participants to the plan is generally not taxable to participants until withdrawn. Participant contributions are held in trust as required by law. Each participant's retirement benefit under the plan is determined solely on the basis of contributions made on such participant's behalf and earnings thereon. No minimum benefit is provided under the plan.
Indemnification of Directors and Officers and Limitation of Liability
Our restated certificate of incorporation includes a provision that eliminates the personal liability of our directors for monetary damages resulting from breach of fiduciary duty as directors, except for liability:
These provisions are permitted under Delaware law.
Our amended and restated bylaws provide that:
These provisions are permitted under Delaware law.
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Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our current directors and executive officers to provide additional contractual assurances regarding the scope of the indemnification provided for in our restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. We believe that these provisions and agreements are necessary to attract and retain qualified directors and executive officers. Presently, there is no pending litigation or proceeding involving any of our directors, executive officers or employees for which indemnification is sought.
We have liability insurance for our directors and officers, including coverage for public securities matters.
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Preferred Stock Financings
In May and June of 2002, we sold an aggregate of 12,790,870 shares of our Series C preferred stock at $2.30 per share for an aggregate purchase price of $29.4 million. In December 2004, we sold an aggregate of 8,355,886 shares of our Series D preferred stock at $2.69 per share for an aggregate purchase price of $22.5 million. Each share of preferred stock will convert automatically into one share of our common stock upon the closing of this offering. The purchasers of these shares of preferred stock are entitled to certain registration rights. See "Description of Capital StockRegistration Rights." The investors in these financings included the directors and holders of more than 5% of our outstanding stock identified in the table below. The terms of these purchases were the same as those made available to unaffiliated purchasers.
Investor
|
Series C Preferred Stock
|
Series D Preferred Stock
|
||
---|---|---|---|---|
Directors | ||||
Kim Blickenstaff | 108,696 | | ||
Donald A. Lucas | 22,368 | |||
Donald L. Lucas | 65,298 | |||
Glen Nelson | | 37,137 | ||
Jay Skyler | | 37,137 | ||
5% Stockholders |
|
|
|
|
Entities affiliated with Canaan Partners (1) | 2,158,152 | 561,240 | ||
Entities affiliated with RWI Group (2) | 233,137 | |||
Entities affiliated with St. Paul Venture Capital | 1,726,087 | 892,487 |
(1) Brent Ahrens, one of our directors, is a General Partner of Canaan Partners.
(2) Donald A. Lucas, one of our directors, is a Founding Managing Director of RWI Group.
Other Arrangements
In the year ended December 31, 2002, we paid Windamere Venture Partners $285,563 to perform management services. Windamere Venture Partners is controlled by St. Paul Venture Capital, its sole limited partner. St. Paul Venture Capital was a holder of approximately 23.4% of our common stock as of December 31, 2004.
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The following table presents information as to the beneficial ownership of our common stock as of December 31, 2004 and as adjusted to reflect the sale of the common stock in this offering by:
The percentage of shares beneficially owned prior to the offering is based on 40,097,491 shares of common stock outstanding as of December 31, 2004, assuming that all outstanding preferred stock has been converted into common stock. The percentage of shares beneficially owned after this offering includes shares of common stock being offered but does not include the shares that are subject to the underwriters' over-allotment option. Percentage ownership figures after the offering do not include shares that may be purchased by each person in this offering.
Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. Unless indicated above, the persons and entities named below have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of December 31, 2004 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address for each listed stockholder is c/o DexCom, Inc., 5555 Oberlin Drive, San Diego, California, 92121.
|
|
Percentage of Shares Outstanding
|
|||||
---|---|---|---|---|---|---|---|
Name and Address of Beneficial Owner
|
Number of Shares
Beneficially Owned |
Before Offering
|
After Offering
|
||||
Directors and Named Executive Officers | |||||||
Brent Ahrens (1) | 6,187,275 | 15.4 | % | % | |||
Andrew Balo (2) | 187,457 | * | |||||
Kim Blickenstaff (3) | 233,696 | * | |||||
James H. Brauker (4) | 283,277 | * | |||||
Mark Brister (5) | 71,250 | * | |||||
Sean Carney (6) | 5,384,928 | 13.4 | |||||
Steven J. Kemper (7) | 354,565 | * | |||||
Donald A. Lucas (8) | 2,342,460 | 5.8 | |||||
Donald L. Lucas (9) | 2,194,629 | 5.4 | |||||
Glen D. Nelson (10) | 162,137 | * | |||||
Andrew P. Rasdal (11) | 1,635,750 | 3.9 | |||||
Jay S. Skyler (12) | 162,137 | * | |||||
All 12 directors and executive officers as a group (13) | 19,199,561 | 44.4 |
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All 5% Stockholders |
|
|
|
|
|
|
|
Entities affiliated with The St. Paul Travelers Companies, Inc. (14) | 9,370,603 | 23.4 | |||||
Entities affiliated with Canaan Partners (1) | 6,187,275 | 15.4 | |||||
Entities affiliated with Warburg Pincus Private Equity VIII, L.P. (6) | 5,384,928 | 13.4 | |||||
Entities affiliated with The Kaufmann Fund (15) | 2,770,246 | 6.9 | |||||
Entities affiliated with RWI Group (8) | 2,342,460 | 5.8 |
*Represents less than 1% of the outstanding shares of our common stock.
(1) Represents 4,052,665 shares held by Canaan Equity II L.P., 1,812,872 shares held by Canaan Equity II L.P. (QP) and 321,738 shares held by Canaan Equity II Entrepreneurs LLC. Mr. Ahrens is a General Partner of Canaan Partners, which is the General Partner of Canaan Equity II L.P., Canaan Equity II L.P. (QP) and Canaan Equity II Entrepreneurs LLC. As a General Partner, Mr. Ahrens shares voting and investment power of the shares held by the entities affiliated with Canaan Partners. Mr. Ahrens disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in the named funds. Mr. Ahren's address is c/o Canaan Partners, 2765 Sand Hill Road, Menlo Park, CA 94025
(2) Represents options to purchase 187,457 shares of our common stock that are exercisable within 60 days of December 31, 2004, 25,000 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(3) Includes options to purchase 125,000 shares of our common stock that are exercisable within 60 days of December 31, 2004, 59,271 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(4) Includes options to purchase 229,110 shares of our common stock that are exercisable within 60 days of December 31, 2004, 25,000 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(5) Includes options to purchase 71,250 shares of our common stock that are exercisable within 60 days of December 31, 2004, none of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(6) Represents 5,384,928 shares held by Warburg Pincus Private Equity VIII, L.P., including two affiliated limited partnerships. Warburg Pincus & Co. is the sole general partner of Warburg Pincus Private Equity VIII, L.P. Warburg Pincus Private Equity VIII, L.P. is managed by Warburg Pincus LLC. Mr. Carney is a partner of Warburg Pincus & Co. and a managing director and member of Warburg Pincus LLC. As a managing director of Warburg Pincus LLC, Mr. Carney shares voting and investing power over the shares held by Warburg Pincus Private Equity VIII, L.P. All shares indicated as owned by Mr. Carney are included because of his affiliation with the Warburg Pincus entities. Mr. Carney disclaims beneficial ownership of all shares owned by the Warburg Pincus entities. Mr. Carney's address is 466 Lexington Avenue, New York, NY 10017.
(7) Includes options to purchase 354,565 shares of our common stock that are exercisable within 60 days of December 31, 2004, 256,931 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(8) Represents 243,294 shares held by RWI Group III, L.P., 1,946,364 shares held by RWI Group IV, L.P. and 152,802 shares held by Pronghorn Ventures IV, LLC. Mr. Lucas is the founding managing director of the RWI Group. As a Founding Managing Director of RWI Group, Mr. Lucas shares voting and investment power of the shares held by the RWI Group affiliates. Mr. Lucas disclaims beneficial ownership of the shares held by RWI Group III, L.P., RWI Group IV, L.P. and Pronghorn Ventures IV, LLC, except to the extent of his pecuniary interest in the named funds. Mr. Lucas' address is c/o RWI Group, 835 Page Mill Road, Palo Alto, CA 94304-1011.
(9) Represents 232,289 shares held by Sand Hill Financial Company, 239,157 shares held by The Richard M. Lucas Foundation, 919,868 shares held by Teton Capital Company, 478,315 shares held by various trusts in which Mr. Lucas is a trustee and options to purchase 325,000 shares of our common stock that are exercisable within 60 days of December 31, 2004, 169,271 of which would, if they were exercised, be subject to our right of repurchase within 60 days of December 31, 2004. Mr. Lucas disclaims beneficial ownership of the shares held in the various trusts in which he is a trustee, except to the extent that he is the beneficiary of any of such trusts. Mr. Lucas disclaims beneficial ownership of the shares held by Sand Hill Financial Company, Teton Capital Company and The Richard M. Lucas Foundation, except to the extent of his pecuniary interest in the named funds. Mr. Lucas' address is c/o Sand Hill Financial Company, 3000 Sand Hill Road, Building 3-210, Menlo Park, CA 94025.
(10) Includes options to purchase 125,000 shares of our common stock that are exercisable within 60 days of December 31, 2004, 69,271 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004. Mr. Nelson's address is c/o GDN Holdings, LLC, 301 Carlson Parkway, #315, Minnetonka, MN 55305.
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(11) Includes options to purchase 1,635,750 shares of our common stock that are exercisable within 60 days of December 31, 2004, 556,250 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(12) Includes options to purchase 125,000 shares of our common stock that are exercisable within 60 days of December 31, 2004, 69,271 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(13) Shares beneficially owned by all executive officers and directors as a group includes options to purchase 3,178,132 shares of our common stock that are exercisable within 60 days of December 31, 2004, 1,230,265 of which would, if they had been exercised, be subject to our right of repurchase within 60 days of December 31, 2004.
(14) Represents 3,266,036 shares held by St. Paul Venture Capital V, LLC, 1,639,499 shares held by St. Paul Venture Capital VI, LLC, 61,875 shares held by St. Paul Venture Capital Affiliates Fund I, LLC, 750,000 shares held by Windamere, LLC, 938,007 shares held by Windamere II, LLC and 434,783 shares held by Windamere III, LLC and 2,280,403 shares held by Fog City Fund, LLC. The St. Paul Travelers Companies, Inc., a publicly-traded company, owns 100% of St. Paul Fire and Marine Insurance Company. St. Paul Fire and Marine Insurance Company owns a controlling interest and has appointed a majority of the members of the board of directors of each of St. Paul Venture Capital V, LLC and St. Paul Venture Capital VI, LLC. St. Paul Fire and Marine Insurance Company also owns a controlling interest of Windamere, LLC, Windamere II, LLC, Windamere III, LLC and Fog City Fund, LLC. St. Paul Venture Capital V, LLC, St. Paul Venture Capital VI, LLC and St. Paul Venture Capital Affiliates Fund I, LLC are jointly managed by Split Rock Partners, LLC and Vesbridge Partners, LLC, however, voting and investment power with respect to our shares have been delegated solely to Split Rock Partners, LLC. Split Rock Partners, LLC has appointed a majority of the members of the board of directors of each of Windamere, LLC, Windamere II, LLC, Windamere III, LLC and Fog City Fund, LLC. Voting and investment power over the shares held by each named fund is shared with The St. Paul Travelers Companies, Inc., St. Paul Fire and Marine Insurance Company and Split Rock Partners, LLC due to the affiliate relationships described above. Each of these entities disclaim beneficial ownership of the shares except to the extent of any pecuniary interest in each named fund. The address for The St. Paul Travelers Companies, Inc. and St. Paul Fire and Marine Insurance Company is 385 Washington Street. The address for Split Rock Partners, LLC is 10400 Viking Drive, Suite 550, Eden Prairie, MN 55344.
(15) Represents 434,783 shares held by the Federated Kaufmann Fund, 252,130 shares held by Federated Kaufmann Fund, portfolio of Federated Equity Funds, and 2,083,333 shares held by the Kaufmann Fund. The address of the Kaufmann Fund is 140 East 45th Street, 43rd Floor, New York, NY 10017.
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Upon the closing of this offering, our authorized capital stock, after giving effect to the conversion of all outstanding preferred stock into common stock and the filing of our restated certificate of incorporation, will consist of 100,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of undesignated preferred stock, $0.001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description you should refer to our restated certificate of incorporation and amended and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the provisions of applicable Delaware law.
Common Stock
As of December 31, 2004, there were 40,097,491 shares of common stock outstanding held by 128 shareholders of record. This amount assumes the conversion of all outstanding shares of our preferred stock, which will occur immediately upon the closing of this offering. After this offering, there will be shares of our common stock outstanding, or shares if the underwriters exercise their overallotment option.
Dividend Rights. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our board of directors may from time to time determine.
Voting Rights. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our restated certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election.
No preemptive or similar rights. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution or winding-up of DexCom, the assets legally available for distribution to stockholders will be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding preferred stock and payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.
Preferred Stock
As of December 31, 2004, there were 35,450,870 shares of preferred stock outstanding. Upon the closing of this offering, each outstanding share of preferred stock will be converted into one share of common stock. Immediately following the closing of this offering, we will file our restated certificate of incorporation, which will delete all references to the prior series of preferred stock, and will authorize 5,000,000 shares of undesignated preferred stock.
Following this offering, our board of directors will be authorized, subject to the limits imposed by Delaware law, to issue up to 5,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations or
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restrictions. Our board of directors can also increase or decrease the number of shares of any series, but not below the number of shares of a given series then outstanding, without any further vote or action by the stockholders.
The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of DexCom and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock. We have no current plan to issue any shares of preferred stock.
Warrants
As of December 31, 2004, we had outstanding one warrant exercisable for 87,458 shares of our common stock at an exercise price of $2.69 per share. This warrant is exercisable until two years after the date of this offering. The warrant has a net exercise provision under which its holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. The warrant also contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations and reclassifications and consolidations.
Registration Rights
Pursuant to the terms of our second amended and restated investors' rights agreement, after this offering, holders of approximately 39,237,514 shares of common stock and one warrantholder holding a warrant to purchase 87,458 shares of our common stock or their respective transferees have the right to require us to register such shares with the Securities and Exchange Commission so that those shares may be publicly resold, subject to certain limitations in such agreement.
Right to demand registration. Holders of 35,450,870 shares of common stock have demand registration rights. At any time six months after the closing of this offering, these stockholders can request that we file a registration statement so they can publicly sell their shares. The underwriters of any underwritten offering will have the right to limit the number of shares to be included in a registration statement.
Who may make a demand. At any time six months after the closing of this offering, the holders of at least 40% of the shares with the registration rights described above have the right to demand that we file a registration statement on a form other than Form S-3, so long as the amount of securities to be sold in that registration will result in aggregate proceeds of at least $7,500,000, net of any underwriters' fees, discounts or commissions. If we are eligible to file a registration statement on Form S-3, the holders of 10% of the shares with the registration rights described above will have the right to demand that we file a registration statement on Form S-3, so long as the amount of securities to be sold in that registration will result in an aggregate price to the public of not less than $1,000,000, net of any underwriters' fees, discounts or commissions.
Number of times holders can make demands. We will only be required to file an aggregate of two registration statements on demand, provided such registration statements have been declared or ordered effective, on a form other than Form S-3. If we are eligible to file a registration statement on Form S-3, we are not required to file more than two such registration statements during any 12-month period.
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Postponement. We may postpone the filing of a registration statement on a form other than Form S-3 for up to 120 days once in a 12-month period if we determine that the filing would be seriously detrimental to us and our stockholders. In the case of a registration statement on Form S-3, our postponement period is limited to no more than 120 days once in a 12-month period.
Piggyback registration rights. If we register any securities for public sale, holders of approximately 39,237,514 shares of common stock and one warrantholder holding a warrant to purchase 87,458 shares of our common stock will have the right to include their shares in the registration statement. The underwriters of any underwritten offering will have the right to limit or exclude the number of shares to be included in a registration statement, provided that no such limitation shall reduce the amount of securities held by the holders of shares with registration rights below 30% of the total amount of securities included in such registration.
Expenses of registration. We will pay all of the expenses relating to any demand, piggyback or Form S-3 registration. However, we will not pay for any expenses of any demand or Form S-3 registration if the request is subsequently withdrawn by the holders requesting that we file such registration statement, subject to limited exceptions. We are not obligated to pay any underwriting discounts or selling commission applicable to any such registration.
Expiration of registration rights. The registration rights described above will expire seven years after this offering is completed. The registration rights will terminate earlier with respect to a particular stockholder to the extent the shares held by and issuable to such holder may be sold under Rule 144 of the Securities Act in any 90 day period.
Anti-Takeover Provisions
Provisions of Delaware law and our restated certificate of incorporation and amended and restated bylaws could make the acquisition of DexCom and the removal of incumbent directors more difficult. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of DexCom to negotiate with us first.
Delaware Law
Following the closing of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date that the person became an interested stockholder, subject to exceptions, unless the business combination or the transaction in which the person became an interested stockholder is approved by our board of directors in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation's voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders.
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Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions
Our restated certificate of incorporation and our amended and restated bylaws include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control of our management team, including the following:
NASDAQ National Market Listing
We have applied to list our common stock on the NASDAQ National Market under the proposed trading symbol "DXCM."
Transfer Agent
The Transfer Agent and Registrar for our common stock is American Stock Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities.
Upon the completion of this offering, we will have shares of our common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants after December 31, 2004. Of these outstanding shares, the shares sold in this offering will be freely tradable, except that any shares held by our "affiliates" as that term is defined in Rule 144 promulgated under the Securities Act may only be sold in compliance with the limitations described below. The remaining 40,097,491 shares of our common stock will continue to be deemed "restricted securities" as defined under Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act, both of which are summarized below. In addition, all of our stockholders have entered into market stand-off agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specified exceptions, not to sell any of their stock for at least 180 days following the date of this prospectus. Subject to the provisions of Rules 144 and 701, shares will be available for sale in the public market as follows:
Lock-Up Agreements
All of our directors and officers and substantially all of our securityholders are subject to lock-up agreements or market standoff provisions that prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options or warrants to acquire shares of our common stock or any security or instrument related to such common stock, option or warrant for a period of at least 180 days following the date of this prospectus without the prior written consent of Piper Jaffray & Co. or, in limited circumstances, us.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of this offering, a person, or group of persons whose shares are required to be aggregated, including an affiliate of DexCom, who has beneficially owned shares for at least one year, is entitled to sell within any three-month period, a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock, or the average weekly trading volume in our common stock during the four calendar weeks preceding the date on which notice of the sale is filed. In addition, a person who is not deemed to have been an affiliate at any time during the three months preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years would be entitled to sell those shares under Rule 144(k) without regard to the requirements described
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above. When a person acquires shares from one of our affiliates, that person's holding period for the purpose of effecting a sale under Rule 144 would commence on the date of transfer from the affiliate. However, any such shares that are eligible for sale under Rule 144 are subject to the lock-up agreements described above and will only become eligible for sale upon the expiration or waiver of those agreements.
Rule 701
In general, under Rule 701 of the Securities Act, an employee, officer, director, consultant or advisor who purchased shares from us in connection with a compensatory stock or option plan or other written agreement in compliance with Rule 701 is eligible, 90 days after the issuer becomes subject to the reporting requirements of the Exchange Act, to resell those shares in reliance on Rule 144, but without compliance with certain restrictions, including the holding period contained in Rule 144. However, the shares issued pursuant to Rule 701 are subject to the lock-up agreements described above and will only become eligible for sale upon the expiration or waiver of those agreements.
Registration of Shares Issued Pursuant to Benefits Plans
We intend to file registration statements under the Securities Act as promptly as possible after the effective date of this offering to register shares to be issued pursuant to our employee benefit plans. As a result, any options or rights exercised under our 1999 stock option plan, our 2005 equity incentive plan, our 2005 employee stock purchase plan or any other benefit plan after the effectiveness of the registration statements will also be freely tradable in the public market, subject to the market stand-off and lock-up agreements discussed above. However, such shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144. As of December 31, 2004, there were outstanding options under our benefit plans for the purchase of 6,706,237 shares of common stock, with an average exercise price of $0.46.
Registration Rights
Pursuant to the terms of our second amended and restated investors' rights agreement, which is attached as an exhibit to this registration statement, holders of approximately 39,237,514 shares of common stock and one warrantholder holding a warrant to purchase 87,458 shares of our common stock or their transferees, have registration rights with respect to those shares of common stock. For a discussion of these rights please see "Description of Capital StockRegistration Rights." After such shares are registered, they will be freely tradable without restriction under the Securities Act.
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The underwriters named below have agreed to buy, subject to the terms of the purchase agreement, the number of shares listed opposite their names below. Piper Jaffray & Co. is acting as book-running manager for this offering and, together with SG Cowen & Co., LLC, William Blair & Company, L.L.C. and First Albany Capital Inc., is acting as representative of the underwriters. The underwriters are committed to purchase and pay for all of the shares if any are purchased, other than those shares covered by the over-allotment option described below.
Underwriters
|
Number of
Shares |
||
---|---|---|---|
Piper Jaffray & Co. | |||
SG Cowen & Co., LLC | |||
William Blair & Company, L.L.C. | |||
First Albany Capital Inc. | |||
|
|||
Total | |||
|
The underwriters have advised us that they propose to offer the shares to the public at $ per share. The underwriters propose to offer the shares to certain dealers at the same price less a concession of not more than $ per share. The underwriters may allow and the dealers may reallow a concession of not more than $ per share on sales to certain other brokers and dealers. After the offering, these figures may be changed by the underwriters.
At our request, the underwriters have reserved for sale at the initial public offering price up to shares of common stock to directors, employees and persons having business relationships with or otherwise related to DexCom. The number of shares of common stock available for sale to the general public will be reduced to the extent that such individuals purchase all or a portion of these reserved shares. Any reserved shares which are not purchased will be offered by the underwriters to the general public on the same basis as the shares of common stock offered hereby.
We have granted to the underwriters an option to purchase up to an additional shares of common stock from us at the same price to the public, and with the same underwriting discount, as set forth above. The underwriters may exercise this option any time during the 30-day period after the date of this prospectus, but only to cover over-allotments, if any. To the extent the underwriters exercise the option, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares as it was obligated to purchase under the purchase agreement.
We estimate that the total fees and expenses payable by us, excluding underwriting discounts and commissions, will be approximately $ . The following table shows the underwriting fees to be paid to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the over-allotment option.
|
No Exercise
|
Full Exercise
|
||||
---|---|---|---|---|---|---|
Per Share | $ | $ | ||||
Total | $ | $ |
We have agreed to indemnify the underwriters against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
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The underwriters have informed us that neither they, nor any other underwriter participating in the distribution of the offering, will make sales of the common stock offered by this prospectus to accounts over which they exercise discretionary authority without the prior specific written approval of the customer.
All of our directors and officers and substantially all of our securityholders are subject to lock-up agreements or market standoff provisions that prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options or warrants to acquire shares of our common stock or any security or instrument related to such common stock, option or warrant for a period of at least 180 days following the date of this prospectus without the prior written consent of Piper Jaffray & Co. or, in limited circumstances, us.
In addition, we are subject to a lock-up agreement that prohibits us from offering for sale, selling, contracting to sell, granting any option for the sale of, pledging, transferring, establishing an open put equivalent position or otherwise disposing of any shares of our common stock, options or warrants to acquire shares of our common stock or any security or instrument related to such common stock, option or warrant for a period of at least 180 days following the date of this prospectus without the prior written consent of Piper Jaffray & Co.
Prior to the offering, there has been no established trading market for our common stock. The initial public offering price for the shares of common stock offered by this prospectus will be negotiated by us and the underwriters. The factors to be considered in determining the initial public offering price include:
The initial public offering price of our common stock may not correspond to the price at which the common stock will trade in the public market subsequent to this offering, and an active public market for the common stock may never develop or, if it does develop, may not continue after this offering.
To facilitate the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock during and after the offering. Specifically, the underwriters may over-allot or otherwise create a short position in the common stock for their own account by selling more shares of common stock than we have sold to them. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the
92
underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. "Naked" short sales are sales in excess of this option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering.
In addition, the underwriters may stabilize or maintain the price of the common stock by bidding for or purchasing shares of common stock in the open market and may impose penalty bids. If penalty bids are imposed, selling concessions allowed to syndicate members or other broker-dealers participating in the offering are reclaimed if shares of common stock previously distributed in the offering are repurchased, whether in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price of the common stock at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the common stock to the extent that it discourages resales of the common stock. The magnitude or effect of any stabilization or other transactions is uncertain. These transactions may be effected on the NASDAQ National Market or otherwise and, if commenced, may be discontinued at any time.
Some underwriters and selling group members may also engage in passive market making transactions in our common stock. Passive market making consists of displaying bids on the NASDAQ National Market limited by the prices of independent market makers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of the common stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically.
From time to time in the ordinary course of their respective businesses, certain of the underwriters and their affiliates have engaged in and may in the future engage in commercial banking or investment banking transactions with us and our affiliates. They receive customary fees and commissions for these services. Piper Jaffray & Co., one of the underwriters, served as the placement agent in our December 2004 Series D preferred stock offering and received a warrant to purchase 87,458 shares of our Series D preferred stock at an exercise price of $2.69 per share, as partial consideration for its services. Upon the consummation of this offering, this warrant will be exercisable for 87,458 shares of our common stock.
Fenwick & West LLP, Mountain View, California, will pass upon the validity of the issuance of the shares of common stock offered by this prospectus. The underwriters have been represented by Latham & Watkins LLP, Costa Mesa, California.
Ernst & Young LLP, independent registered public accounting firm, have audited our financial statements at December 31, 2003 and 2004 and for each of the three years in the period ended
93
December 31, 2004 and for the period from May 13, 1999 (inception) through December 31, 2004, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, of which this prospectus is a part, under the Securities Act with respect to the common stock offered in this offering. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement or the accompanying exhibits. For additional information about us and our common stock, you should refer to the registration statement and the accompanying exhibits. Statements contained in this prospectus regarding the contents of any contract, agreement or other document to which we make reference are not necessarily complete. In each instance, we make reference to the copy of the contract, agreement or other document filed as an exhibit to the registration statement, of which this prospectus is a part.
You may also read and copy the registration statement, the related exhibits and the other materials we file with the SEC at its public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of those documents at prescribed rates by writing to the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The site's address is www.sec.gov.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934 and, accordingly, will file periodic reports, proxy statements and other information with the SEC. Our periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and on the SEC's website.
94
DEXCOM, INC.
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm | F-1 | |
Balance Sheets | F-2 | |
Statements of Operations | F-3 | |
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) | F-4 | |
Statements of Cash Flows | F-6 | |
Notes to Financial Statements | F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholders
DexCom, Inc.
We have audited the accompanying balance sheets of DexCom, Inc. (a development stage company) as of December 31, 2003 and 2004, and the related statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004 and the period from May 13, 1999 (inception) through December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DexCom, Inc. at December 31, 2003 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 and the period from May 13, 1999 (inception) through December 31, 2004, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
San
Diego, California
January 22, 2005
F-1
DEXCOM, INC.
(a development stage company)
BALANCE SHEETS
|
|
|
Pro forma
Redeemable Convertible Preferred Stock and Stockholders' Equity at December 31, 2004 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
December 31,
|
||||||||||
|
2003
|
2004
|
|||||||||
|
|
|
(Unaudited)
|
||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 20,016,186 | $ | 27,229,208 | |||||||
Prepaid and other current assets | 119,653 | 43,781 | |||||||||
|
|
||||||||||
Total current assets | 20,135,839 | 27,272,989 | |||||||||
Property and equipment, net |
|
|
611,079 |
|
|
1,851,892 |
|
|
|
|
|
Restricted cash | | 200,000 | |||||||||
Other assets | 20,063 | 33,000 | |||||||||
|
|
||||||||||
Total assets | $ | 20,766,981 | $ | 29,357,881 | |||||||
|
|
||||||||||
Liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) | |||||||||||
Current liabilities: | |||||||||||
Accounts payable and accrued liabilities | $ | 764,374 | $ | 1,239,754 | |||||||
Accrued payroll and related expenses | 219,525 | 328,476 | |||||||||
|
|
||||||||||
Total current liabilities | 983,899 | 1,568,230 | |||||||||
Deferred rent |
|
|
|
|
|
125,241 |
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible Series B preferred stock, $.001 par value, 12,000,000 and 11,304,114 shares authorized at December 31, 2003 and 2004, respectively; 11,304,114 shares issued and outstanding at December 31, 2003 and 2004; liquidation preference and redemption value of $19,775,269 and $20,914,724 at December 31, 2003 and 2004, respectively; no shares authorized, issued or outstanding pro forma |
|
|
19,726,069 |
|
|
20,878,086 |
|
$ |
|
|
|
Redeemable convertible Series C preferred stock, $.001 par value, 13,043,478 shares authorized, 12,790,870 shares issued and outstanding at December 31, 2003 and 2004; liquidation preference and redemption value of $32,748,598 and $34,807,928 at December 31, 2003 and 2004, respectively; no shares authorized, issued or outstanding pro forma | 32,657,865 | 34,740,360 | | ||||||||
Redeemable convertible Series D preferred stock, $.001 par value, 8,700,000 shares authorized, 8,355,886 shares issued and outstanding at 2004; liquidation preference and redemption value of $22,499,894 at December 31, 2004; no shares authorized, issued or outstanding pro forma | | 21,355,894 | | ||||||||
Stockholders' equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
Convertible Series A preferred stock, $.001 par value, 3,000,000 shares authorized; 3,000,000 shares issued and outstanding at December 31, 2003 and 2004; liquidation preference of $3,000,000 at December 31, 2003 and 2004 | 3,000 | 3,000 | | ||||||||
Common stock, $.001 par value, 50,000,000 shares authorized, 4,488,173 and 4,646,621 shares issued and outstanding at December 31, 2003 and 2004, respectively; 40,097,491 shares issued and outstanding pro forma (unaudited) | 4,488 | 4,646 | 40,097 | ||||||||
Additional paid-in capital | 3,095,613 | 6,215,689 | 83,157,578 | ||||||||
Deferred stock-based compensation | | (2,648,336 | ) | (2,648,336 | ) | ||||||
Deficit accumulated during the development stage | (35,703,953 | ) | (52,884,929 | ) | (52,884,929 | ) | |||||
|
|
|
|||||||||
Total stockholders' equity (deficit) | (32,600,852 | ) | (49,309,930 | ) | $ | 27,664,410 | |||||
|
|
|
|||||||||
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) | $ | 20,766,981 | $ | 29,357,881 | |||||||
|
|
See accompanying notes.
F-2
DEXCOM, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
|
|
|
|
Period from
May 13, 1999 (inception) through December 31, 2004 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31,
|
||||||||||||||
|
2002
|
2003
|
2004
|
||||||||||||
Costs and expenses: | |||||||||||||||
Research and development | $ | 6,310,907 | $ | 8,934,631 | $ | 12,178,728 | $ | 36,112,734 | |||||||
General and administrative | 1,860,552 | 1,249,960 | 1,439,700 | 7,590,319 | |||||||||||
Stock-based compensation: | |||||||||||||||
Research and development | | | 291,114 | 291,114 | |||||||||||
General and administrative | | | 157,575 | 157,575 | |||||||||||
|
|
|
|
||||||||||||
Total costs and expenses | 8,171,459 | 10,184,591 | 14,067,117 | 44,151,742 | |||||||||||
Interest and other income, net |
|
|
463,430 |
|
|
270,000 |
|
|
120,653 |
|
|
1,405,350 |
|
||
|
|
|
|
||||||||||||
Net loss | (7,708,029 | ) | (9,914,591 | ) | (13,946,464 | ) | (42,746,392 | ) | |||||||
Accretion to redemption value of Series B and Series C redeemable convertible preferred stock | (2,451,068 | ) | (3,234,512 | ) | (3,234,512 | ) | (10,138,537 | ) | |||||||
|
|
|
|
||||||||||||
Net loss attributable to common stockholders | $ | (10,159,097 | ) | $ | (13,149,103 | ) | $ | (17,180,976 | ) | $ | (52,884,929 | ) | |||
|
|
|
|
||||||||||||
Basic and diluted net loss per share attributable to common stockholders | $ | (2.48 | ) | $ | (3.03 | ) | $ | (3.76 | ) | ||||||
|
|
|
|||||||||||||
Shares used to compute basic and diluted net loss per share attributable to common stockholders | 4,092,421 | 4,339,851 | 4,572,649 | ||||||||||||
|
|
|
|||||||||||||
Pro forma basic and diluted net loss per share (unaudited) | $ | (0.44 | ) | ||||||||||||
|
|||||||||||||||
Shares used to compute pro forma basic and diluted net loss per share (unaudited) | 31,690,525 | ||||||||||||||
|
See accompanying notes.
F-3
DEXCOM, INC.
(a development stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
|
Redeemable Convertible
Preferred Stock |
Convertible
Preferred Stock |
|
|
|
|
Deficit
Accumulated During the Development Stage |
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock
|
|
|
Total
Stockholders' Equity (Deficit) |
|||||||||||||||||||||||||
|
Additional
Paid-In Capital |
Deferred
Stock-Based Compensation |
|||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||
Balance at May 13, 1999 (inception) | | $ | | | $ | | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Issuance of common stock to founders at $.001 per share for cash in May 1999 | | | | | 1,500,000 | 1,500 | | | | 1,500 | |||||||||||||||||||
Issuance of common stock at $.01 per share for technology in June 1999 | | | | | 1,900,000 | 1,900 | 17,100 | | | 19,000 | |||||||||||||||||||
Issuance of Series A convertible preferred stock at $1.00 per share for cash in July 1999, net of financing costs of $65,656 | | | 3,000,000 | 3,000 | | | 2,931,344 | | | 2,934,344 | |||||||||||||||||||
Compensation expense associated with stock options issued to consultants | | | | | | | 793 | | | 793 | |||||||||||||||||||
Net loss and comprehensive loss | | | | | | | | (938,817 | ) | (938,817 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Balance at December 31, 1999 | | | 3,000,000 | 3,000 | 3,400,000 | 3,400 | 2,949,237 | | (938,817 | ) | 2,016,820 | ||||||||||||||||||
Issuance of Series B redeemable convertible preferred stock at $1.44 per share for cash in December 2000, net of financing costs of $80,703 | 9,589,121 | 13,727,631 | | | | | | | | | |||||||||||||||||||
Issuance of Series B redeemable convertible preferred stock upon conversion of notes payable in December 2000 | 1,437,215 | 2,069,589 | | | | | | | | | |||||||||||||||||||
Issuance of common stock for cash | | | | | 351,875 | 352 | 26,835 | | | 27,187 | |||||||||||||||||||
Compensation expense associated with stock options issued to consultants | | | | | | | 14,771 | | | 14,771 | |||||||||||||||||||
Imputed dividends on Series B redeemable convertible preferred stock | | 92,621 | | | | | | | (92,621 | ) | (92,621 | ) | |||||||||||||||||
Net loss and comprehensive loss | | | | | | | | | (3,965,121 | ) | (3,965,121 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Balance at December 31, 2000 | 11,026,336 | 15,889,841 | 3,000,000 | 3,000 | 3,751,875 | 3,752 | 2,990,843 | | (4,996,559 | ) | (1,998,964 | ) | |||||||||||||||||
Issuance of Series B redeemable convertible preferred stock at $1.44 per share for cash in March 2001, net of financing costs of $6,971 | 277,778 | 393,029 | | | | | | | | | |||||||||||||||||||
Exercise of stock options for cash | | | | | 241,147 | 241 | 24,373 | | | 24,614 | |||||||||||||||||||
Compensation expense associated with stock options issued to consultants | | | | | | | 23,483 | | | 23,483 | |||||||||||||||||||
Imputed dividends on Series B redeemable convertible preferred stock | | 1,125,824 | | | | | | | (1,125,824 | ) | (1,125,824 | ) | |||||||||||||||||
Net loss and comprehensive loss | | | | | | | | | (6,273,370 | ) | (6,273,370 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Balance at December 31, 2001 | 11,304,114 | $ | 17,408,694 | 3,000,000 | $ | 3,000 | 3,993,022 | $ | 3,993 | $ | 3,038,699 | $ | | $ | (12,395,753 | ) | $ | (9,350,061 | ) |
See accompanying notes.
F-4
DEXCOM, INC.
(a development stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
|
Redeemable Convertible
Preferred Stock |
Convertible
Preferred Stock |
|
|
|
|
Deficit
Accumulated During the Development Stage |
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock
|
|
|
Total
Stockholders' Equity (Deficit) |
|||||||||||||||||||||||||
|
Additional
Paid-In Capital |
Deferred
Stock-Based Compensation |
|||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||
Balance at December 31, 2001 | 11,304,114 | $ | 17,408,694 | 3,000,000 | $ | 3,000 | 3,993,022 | $ | 3,993 | $ | 3,038,699 | $ | | $ | (12,395,753 | ) | $ | (9,350,061 | ) | ||||||||||
Issuance of Series C redeemable convertible preferred stock at $2.30 per share for cash in May and June 2002, net of financing costs of $129,341 | 12,790,870 | 29,289,660 | | | | | | | | | |||||||||||||||||||
Imputed dividends on Series B redeemable convertible preferred stock | | 1,139,445 | | | | | | | (1,139,445 | ) | (1,139,445 | ) | |||||||||||||||||
Imputed dividends on Series C redeemable preferred stock | | 1,270,267 | | | | | | | (1,270,267 | ) | (1,270,267 | ) | |||||||||||||||||
Accretion of stock issuance costs on redeemable convertible preferred stock | | 41,356 | | | | | | | (41,356 | ) | (41,356 | ) | |||||||||||||||||
Exercise of stock options for cash | | | | | 177,719 | 178 | 23,791 | | | 23,969 | |||||||||||||||||||
Net loss and comprehensive loss | | | | | | | | | (7,708,029 | ) | (7,708,029 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Balance at December 31, 2002 | 24,094,984 | 49,149,422 | 3,000,000 | 3,000 | 4,170,741 | 4,171 | 3,062,490 | | (22,554,850 | ) | (19,485,189 | ) | |||||||||||||||||
Imputed dividends on Series B redeemable convertible preferred stock | | 1,139,455 | | | | | | | (1,139,455 | ) | (1,139,455 | ) | |||||||||||||||||
Imputed dividends on Series C redeemable convertible preferred stock | | 2,059,330 | | | | | | | (2,059,330 | ) | (2,059,330 | ) | |||||||||||||||||
Accretion of stock issuance costs on redeemable preferred stock | | 35,727 | | | | | | | (35,727 | ) | (35,727 | ) | |||||||||||||||||
Exercise of stock options for cash | | | | | 317,432 | 317 | 33,123 | | | 33,440 | |||||||||||||||||||
Net loss and comprehensive loss | | | | | | | | | (9,914,591 | ) | (9,914,591 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Balance at December 31, 2003 | 24,094,984 | 52,383,934 | 3,000,000 | 3,000 | 4,488,173 | 4,488 | 3,095,613 | | (35,703,953 | ) | (32,600,852 | ) | |||||||||||||||||
Issuance of Series D redeemable convertible preferred stock at $2.69 per share for cash in December 2004, net of financing costs of $1,144,000 | 8,355,886 | 21,355,894 | | | | | | | | | |||||||||||||||||||
Imputed dividends on Series B redeemable convertible preferred stock | | 1,139,455 | | | | | | | (1,139,455 | ) | (1,139,455 | ) | |||||||||||||||||
Imputed dividends on Series C redeemable preferred stock | | 2,059,330 | | | | | | | (2,059,330 | ) | (2,059,330 | ) | |||||||||||||||||
Accretion of stock issuance costs on redeemable convertible preferred stock | | 35,727 | | | | | | | (35,727 | ) | (35,727 | ) | |||||||||||||||||
Exercise of stock option for cash | | | | | 158,448 | 158 | 23,051 | | | 23,209 | |||||||||||||||||||
Deferred stock compensation related to employee stock option grants | | | | | | | 3,097,025 | (3,097,025 | ) | | | ||||||||||||||||||
Amortization of deferred stock-based compensation | | | | | | | | 448,689 | | 448,689 | |||||||||||||||||||
Net loss and comprehensive loss | | | | | | | | | (13,946,464 | ) | (13,946,464 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Balance at December 31, 2004 | 32,450,870 | $ | 76,974,340 | 3,000,000 | $ | 3,000 | 4,646,621 | $ | 4,646 | $ | 6,215,689 | $ | (2,648,336 | ) | $ | (52,884,929 | ) | $ | (49,309,930 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
DEXCOM, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
|
|
|
|
Period from
May 13, 1999 (inception) through December 31, 2004 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31,
|
||||||||||||||
|
2002
|
2003
|
2004
|
||||||||||||
Operating activities | |||||||||||||||
Net loss | $ | (7,708,029 | ) | $ | (9,914,591 | ) | $ | (13,946,464 | ) | $ | (42,746,392 | ) | |||
Adjustments to reconcile net loss to cash used in operating activities: | |||||||||||||||
Depreciation and amortization | 388,686 | 353,550 | 486,805 | 1,462,152 | |||||||||||
Amortization of stock-based compensation | | | 448,689 | 448,689 | |||||||||||
Interest on converted notes | | | | 70,480 | |||||||||||
Loss on disposal of equipment | 25,053 | | 29,905 | 65,767 | |||||||||||
Compensation expense associated with stock options issued to consultants | | | | 39,047 | |||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Prepaid and other assets | (98,523 | ) | 62,255 | 42,872 | (76,781 | ) | |||||||||
Restricted cash | | | (200,000 | ) | (200,000 | ) | |||||||||
Accounts payable and accrued liabilities | 270,886 | 58,062 | 475,380 | 1,239,754 | |||||||||||
Accrued payroll and related expenses | 94,776 | (21,011 | ) | 108,951 | 328,476 | ||||||||||
Deferred rent | | | 125,241 | 125,241 | |||||||||||
|
|
|
|
||||||||||||
Net cash used in operating activities | (7,027,151 | ) | (9,461,735 | ) | (12,428,621 | ) | (39,243,567 | ) | |||||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Purchase of short-term marketable securities | (7,765,280 | ) | | | (7,765,280 | ) | |||||||||
Proceeds from sale of short-term marketable securities | | 7,765,280 | | 7,765,280 | |||||||||||
Purchase of property and equipment | (261,602 | ) | (408,609 | ) | (1,757,523 | ) | (3,361,528 | ) | |||||||
Proceeds on sale of equipment | | | | 1,017 | |||||||||||
Other assets | 41,703 | 9,065 | 20,063 | | |||||||||||
|
|
|
|
||||||||||||
Net cash provided by (used in) investing activities | (7,985,179 | ) | 7,365,736 | (1,737,460 | ) | (3,360,511 | ) | ||||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Proceeds from convertible notes payable | | | | 2,000,000 | |||||||||||
Proceeds from issuance of common stock | 23,969 | 33,440 | 23,209 | 133,619 | |||||||||||
Net proceeds from issuance of preferred stock | 29,289,663 | | 21,355,894 | 67,699,667 | |||||||||||
|
|
|
|
||||||||||||
Net cash provided by financing activities | 29,313,632 | 33,440 | 21,379,103 | 69,833,286 | |||||||||||
|
|
|
|
||||||||||||
Increase (decrease) in cash and cash equivalents | 14,301,302 | (2,062,559 | ) | 7,213,022 | 27,229,208 | ||||||||||
Cash and cash equivalents, beginning of period | 7,777,443 | 22,078,745 | 20,016,186 | | |||||||||||
|
|
|
|
||||||||||||
Cash and cash equivalents, ending of period | $ | 22,078,745 | $ | 20,016,186 | $ | 27,229,208 | $ | 27,229,208 | |||||||
|
|
|
|
||||||||||||
Non-cash investing and financing transactions: | |||||||||||||||
Purchase of technology in exchange for common stock | $ | | $ | | $ | | $ | 19,000 | |||||||
|
|
|
|
||||||||||||
Conversion of notes payable into Series B preferred stock | $ | | $ | | $ | | $ | 2,000,000 | |||||||
|
|
|
|
||||||||||||
Accretion to redemption value of Series B and Series C redeemable convertible preferred stock | $ | 2,451,068 | $ | 3,234,512 | $ | 3,234,512 | $ | 10,138,537 | |||||||
|
|
|
|
See accompanying notes.
F-6
DEXCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. Organization and Summary of Significant Accounting Policies
Organization and Business
DexCom, Inc., or the Company, is a development stage medical device company focused on the design and development of continuous glucose monitoring systems for people with diabetes. Since inception the Company has devoted substantially all of its resources to start-up activities, raising capital and research and development, including product design, testing, manufacturing and clinical trials. The Company has focused its development activities on two continuous glucose monitoring systems: a short-term system with a sensor that can be inserted by a patient, and a long-term system with a sensor that can be implanted by a physician. The Company's glucose monitoring systems are designed to provide real-time continuous blood glucose values, trend data and alerts to assist patients in managing their blood glucose levels. The Company has not generated any revenue from its development activities and will not be able to generate revenue until one of its products is approved, if ever.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
Significant estimates include estimated clinical study expenses that are comprised of payments for work performed by contract research organizations, physicians and participating hospitals. Expenses are accrued for clinical studies performed by contract research organizations based on estimates of work performed under contracts. Expenses for setting up clinical trial sites are accrued immediately. Clinical expenses related to patient enrollment are accrued as patients are enrolled in a trial.
Unaudited Pro Forma Information
The Company has filed a registration statement with the Securities and Exchange Commission to sell shares of its common stock to the public. If the initial public offering is completed under the terms presently anticipated, each share of the Series A convertible preferred stock and the Series B, Series C and Series D redeemable convertible preferred stock outstanding at December 31, 2004 will automatically convert into one share of common stock. Unaudited pro forma redeemable convertible preferred stock and stockholders' equity, as adjusted for the assumed conversion of all Series A convertible preferred stock and Series B, Series C and Series D of redeemable convertible preferred stock, is set forth in the accompanying balance sheets.
Cash and Cash Equivalents
The Company invests its excess cash in bank deposits and money market accounts. The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents.
F-7
Letter of Credit
At December 31, 2004, the Company had an irrevocable letter of credit outstanding with a commercial bank for approximately $200,000, securing its facility lease. The Company has deposited an aggregate of $200,000 of certificates of deposit securing the letter of credit. An equal amount of restricted cash has been separately disclosed in the accompanying balance sheets.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions.
Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets, generally three to five years, using the straight-line method. Leasehold improvements are stated at cost and amortized over the shorter of the estimated useful lives of the assets or the lease term.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards, or SFAS No. 144, Accounting for the Impairment of Disposable Long-Lived Assets , the Company will record impairment losses on long-lived assets used in operations when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. To date, the Company has not experienced any impairment losses on its long-lived assets used in operations.
Stock-Based Compensation
The Company accounts for employee stock options using the intrinsic-value method in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees , Financial Accounting Standards Board, or FASB, Interpretation, or FIN No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25 , and related interpretations and has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
Options or stock awards issued to non-employees are recorded at their fair value as determined in accordance with SFAS No. 123 and Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services and recognized over the related service period.
The information regarding net loss as required by SFAS No. 123, as amended, has been determined as if the Company had accounted for its employee stock options under the fair-value method. The resulting effect on net loss pursuant to SFAS No. 123 is not likely to be representative of the effects on
F-8
net loss pursuant to SFAS No. 123 in future years, since future years are likely to include additional grants and the irregular impact of future years' vesting.
The following table illustrates the weighted-average assumptions for the Black-Scholes option pricing model used in determining the fair value of options granted to employees:
|
Years Ended December 31,
|
|||||
---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||
Dividend Yield | 0% | 0% | 0% | |||
Risk-free interest rate | 4.5% | 3.0% | 3.7% | |||
Volatility | | | 60% | |||
Expected life | 4 years | 4 years | 5 years |
The Company has used the minimum value method to determine the fair value of options granted prior to its initial filing in a registration statement under the Securities Act of 1933 relating to an initial public offering of the Company's common stock. This method does not consider the expected volatility of the underlying stock, and is only available to non-public entities. Accordingly, the Company has used an estimated volatility factor of 60% for option grants issued during the year ended December 31, 2004 in anticipation to the filing of its registration statement.
In connection with the grant of certain stock options to employees during the year ended December 31, 2004, the Company recorded deferred stock-based compensation within stockholders' equity (deficit) of $3,097,025, which represents the difference between the fair value of the common stock and the option exercise price at the date of grant. Such amount will be amortized over the vesting period of the applicable options on an accelerated basis. The Company recorded stock-based compensation expense of $448,689 for the year ended December 31, 2004. The expected future amortization expense for deferred stock-based compensation for stock options granted through December 31, 2004, is as follows:
Years Ending December 31,
|
|
||
---|---|---|---|
2005 | $ | 1,533,630 | |
2006 | 702,138 | ||
2007 | 327,712 | ||
2008 | 84,856 | ||
|
|||
$ | 2,648,336 | ||
|
F-9
The table below illustrates the effect on net loss and net loss per share attributable to common stockholders had the Company applied the fair value provisions of SFAS No. 123 to employee stock compensation.
|
|
|
|
Period from
May 13, 1999 (inception) through December 31, 2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31,
|
||||||||||||
|
2002
|
2003
|
2004
|
||||||||||
Net loss attributable to common stockholders, as reported | $ | (10,159,097 | ) | $ | (13,149,103 | ) | $ | (17,180,976 | ) | $ | (52,884,929 | ) | |
Add: Stock-based employee compensation expense included in net loss | | | 448,689 | 448,689 | |||||||||
Deduct: Stock-based employee compensation expense determined under fair-value method | (28,332 | ) | (43,419 | ) | (609,685 | ) | (702,082 | ) | |||||
|
|
|
|
||||||||||
Pro forma net loss attributable to common stockholders | $ | (10,187,429 | ) | $ | (13,192,522 | ) | $ | (17,341,972 | ) | $ | (53,138,322 | ) | |
|
|
|
|
||||||||||
Basic and diluted net loss per share attributable to common stockholders | $ | (2.48 | ) | $ | (3.03 | ) | $ | (3.76 | ) | ||||
|
|
|
|||||||||||
Pro forma basic and diluted net loss per share attributable to common stockholders | $ | (2.49 | ) | $ | (3.04 | ) | $ | (3.79 | ) | ||||
|
|
|
Fair Value of Financial Instruments
Financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities, are carried at cost, which management believes approximates fair value given their short-term nature.
Comprehensive Loss
SFAS No. 130, Reporting Comprehensive Income , requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income and other comprehensive income, including foreign currency translation adjustments, and unrealized gains and losses on investments, shall be reported, net of their related tax effect, to arrive at comprehensive income. Comprehensive loss was not different than net loss for the period from May 13, 1999 (inception) through December 31, 2004.
F-10
Deferred Rent
Rent expense is recorded on a straight-line basis over the term of the lease. The difference between rent expense accrued and amounts paid under the lease agreement is recorded as deferred rent in the accompanying balance sheets.
Income Taxes
In accordance with SFAS No. 109, Accounting for Income Taxes , a deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R, which replaces SFAS No. 123, and supercedes APB Opinion No. 25. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning in the first period restated. The Company is evaluating the requirements of SFAS No. 123R and expects that the adoption of SFAS No. 123R will have a material impact on the Company's results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.
2. Net Loss Per Common Share
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, redeemable convertible preferred stock, convertible preferred stock, stock options and the outstanding warrant are considered
F-11
to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.
The calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders assumes the conversion of all shares of Series A convertible preferred stock, Series B, Series C and Series D redeemable convertible preferred stock into shares of common stock using the as-if-converted method, as if such conversion had occurred as of January 1, 2004, or the original issuance date, if later. The calculation of pro forma net loss per share attributable to common stockholders excludes incremental common stock issuable upon exercise of options and the warrant, as their effect would be antidilutive.
|
Years Ended December 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||||||
Historical | ||||||||||
Numerator: | ||||||||||
Net loss | $ | (7,708,029 | ) | $ | (9,914,591 | ) | $ | (13,946,464 | ) | |
Accretion to redemption value of Series B and Series C redeemable convertible preferred stock | (2,451,068 | ) | (3,234,512 | ) | (3,234,512 | ) | ||||
|
|
|
||||||||
Net loss attributable to common stockholders | $ | (10,159,097 | ) | $ | (13,149,103 | ) | $ | (17,180,976 | ) | |
|
|
|
||||||||
Denominator: | ||||||||||
Denominator for basic and diluted net loss per share attributable to common stockholders | 4,092,421 | 4,339,851 | 4,572,649 | |||||||
|
|
|
||||||||
Basic and diluted net loss per share attributable to common stockholders | $ | (2.48 | ) | $ | (3.03 | ) | $ | (3.76 | ) | |
|
|
|
||||||||
Pro forma | ||||||||||
Pro forma net loss (unaudited) | $ | (13,946,464 | ) | |||||||
|
||||||||||
Pro forma basic and diluted net loss per share (unaudited) | $ | (0.44 | ) | |||||||
|
||||||||||
Shares used above |
|
|
|
|
|
|
|
|
4,572,649 |
|
Pro forma adjustments to reflect assumed weighted-average effect of conversion of preferred stock (unaudited) | 27,117,876 | |||||||||
|
||||||||||
Pro forma shares used to compute basic and diluted net loss per share (unaudited) | 31,690,525 | |||||||||
|
F-12
Historical outstanding anti-dilutive securities not included in diluted net loss per share attributable to common stockholders calculation:
|
Years Ended December 31,
|
|||||
---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||
Redeemable convertible preferred stock | 24,094,984 | 24,094,984 | 32,450,870 | |||
Convertible preferred stock | 3,000,000 | 3,000,000 | 3,000,000 | |||
Series D redeemable convertible preferred stock warrant | | | 87,458 | |||
Options to purchase common stock | 2,903,593 | 4,078,673 | 6,706,237 | |||
|
|
|
||||
29,998,577 | 31,173,657 | 42,244,565 | ||||
|
|
|
3. Property and Equipment
Property and equipment consist of the following:
|
December 31,
|
||||||
---|---|---|---|---|---|---|---|
|
2003
|
2004
|
|||||
Furniture and fixtures | $ | 121,227 | $ | 350,300 | |||
Computer equipment | 433,353 | 459,851 | |||||
Machinery and equipment | 672,645 | 1,233,079 | |||||
Leasehold improvements | 315,842 | 652,459 | |||||
|
|
||||||
1,543,067 | 2,695,689 | ||||||
Accumulated depreciation and amortization | (931,988 | ) | (843,797 | ) | |||
|
|
||||||
Property and equipment, net | $ | 611,079 | $ | 1,851,892 | |||
|
|
Depreciation expense for the years ended December 31, 2002, 2003 and 2004 and for the period from May 13, 1999 (inception) through December 31, 2004 was $388,686, $353,550, $486,805 and $1,462,152, respectively.
F-13
4. Commitments and contingencies
Leases
The Company leases its primary facilities under a seven-year operating lease agreement that expires on January 13, 2011. Future minimum lease payments related to the newly executed lease commitment are as follows:
Year Ending December 31,
|
|
|||
---|---|---|---|---|
2005 | $ | 338,169 | ||
2006 | 345,485 | |||
2007 | 357,573 | |||
2008 | 368,660 | |||
2009 | 379,748 | |||
Thereafter | 390,835 | |||
|
||||
Total | $ | 2,180,470 | ||
|
Rent expense for the years ended December 31, 2002, 2003 and 2004 and for the period from May 13, 1999 (inception) through December 31, 2004 was $174,586, $165,451, $503,006 and $1,170,466, respectively.
5. License Agreement
In August 2001, the Company acquired the exclusive right to manufacture and sell products using the SM Technologies, LLC intellectual property in the field of diabetes. The Company is required to make minimum advanced royalty payments as noted in the table below. In addition, the Company shall pay a royalty of $12.00 per unit (subject to an annual 3% increase after product commercialization), per licensed product sold by the Company. The intellectual property is currently used in the Company's long-term sensor. The license expires concurrent with the last patent to expire.
Future minimum advanced royalties are as follows:
Year Ending December 31,
|
|
|||
---|---|---|---|---|
2005 | $ | 116,000 | ||
2006 | 116,000 | |||
2007 | 116,000 | |||
2008 | 116,000 | |||
2009 | 116,000 | |||
Thereafter | 812,000 | |||
|
||||
Total | $ | 1,392,000 | ||
|
6. Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
In December 2004, the Company issued 8,355,886 shares of Series D redeemable convertible preferred stock at a price of $2.69 per share for net cash proceeds of $21,355,894.
F-14
In December 2004, in connection with the issuance of the Series D redeemable convertible preferred stock, the Company issued a warrant to Piper Jaffray & Co. to purchase 87,458 shares of Series D redeemable convertible preferred stock at an exercise price of $2.69 per share. The warrant is exercisable for a period of 10 years.
The authorized, issued and outstanding shares of convertible preferred stock and redeemable convertible preferred stock by series are as follows:
|
December 31, 2003
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Shares
Authorized |
Shares
Issued and Outstanding |
Carrying Amount
|
Aggregate
Liquidation Preference |
||||||
Series A Convertible Preferred Stock | 3,000,000 | 3,000,000 | $ | 3,000,000 | $ | 3,000,000 | ||||
Series B Redeemable Convertible Preferred Stock | 12,000,000 | 11,304,114 | 19,726,069 | 19,775,269 | ||||||
Series C Redeemable Convertible Preferred Stock | 13,043,478 | 12,790,870 | 32,657,865 | 32,748,598 | ||||||
|
|
|
|
|||||||
28,043,478 | 27,094,984 | $ | 55,383,934 | $ | 55,523,867 | |||||
|
|
|
|
|||||||
|
|
December 31, 2004 |
||||||||
|
Shares
Authorized |
Shares
Issues and Outstanding |
Carrying Amount
|
Aggregate
Liquidation Preference |
||||||
Series A Convertible Preferred Stock | 3,000,000 | 3,000,000 | $ | 3,000,000 | $ | 3,000,000 | ||||
Series B Redeemable Convertible Preferred Stock | 11,304,114 | 11,304,114 | 20,878,086 | 20,914,724 | ||||||
Series C Redeemable Convertible Preferred Stock | 13,043,478 | 12,790,870 | 34,740,360 | 34,807,928 | ||||||
Series D Redeemable Convertible Preferred Stock | 8,700,000 | 8,355,886 | 21,355,894 | 22,499,894 | ||||||
|
|
|
|
|||||||
36,047,592 | 35,450,870 | $ | 79,974,340 | $ | 81,222,546 | |||||
|
|
|
|
The holders of Series B, Series C and Series D preferred stock are entitled to receive non-cumulative dividends at a rate of 7% per annum when, as and if declared by the Board of Directors. Subject to the rights of the holders of Series B, Series C and Series D preferred stock, the holders of Series A preferred stock are entitled to receive annual non-cumulative dividends of $0.075 per share, when, as and if declared by the Board of Directors. As of December 31, 2004, no dividends had been declared. The holders of Series B, Series C and Series D preferred stock shall participate, pro rata, on an as-converted to common stock basis, in any distribution made with respect to any class or series of stock having any preference or priority inferior to or parity with any preference or priority of the Series B, Series C and Series D preferred stock.
F-15
The Series A, Series B, Series C and Series D preferred stock is convertible, at the option of the holder, at anytime after the date of issuance, into shares of common stock at initial conversion prices of $1.00, $1.44, $2.30 and $2.69 per share, respectively, subject to adjustment. The Series A, Series B, Series C and Series D preferred stock will automatically convert into shares of common stock at the then effective conversion price upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 with aggregate proceeds of at least $25,000,000 and a price to the public not less than $4.15 per share. The Series A and Series B preferred stock will automatically convert into shares of common stock at the then effective conversion price upon the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Series A and Series B preferred stock, voting together as a single class. The Series C and Series D preferred stock will automatically convert into shares of common stock at the then effective conversion price upon the dates specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Series C and Series D preferred stock, voting as a single class. The Series C preferred stock will automatically convert into shares of common stock at the then effective conversion price upon the date specified by written consent or agreement of the holders of at least a majority of the then holders of Series C preferred stock, voting as a separate class. The Series D preferred stock will automatically convert into shares of common stock at the then effective conversion price upon the date specified by written consent or agreement of the holders of at least a majority of the then holders of Series D preferred stock, voting as a separate class.
At any time after December 1, 2007, the Series B, Series C and Series D stockholders may elect to have the Company redeem all outstanding shares of Series B, Series C and Series D preferred stock. The corporation must effect the redemptions by paying the holders of Series B, Series C and Series D preferred stock, in cash, a sum per share equal to the Series B liquidation amount, Series C liquidation amount and Series D liquidation amount.
In the event of any liquidation, dissolution or winding up of the Company, the Series D preferred stock shall be the first entitled to be paid out of the assets of the Company in an amount equal to their liquidation value of $2.69 per share plus all accrued and unpaid dividends. Next in preference, the holders of Series C preferred stock are entitled to receive $2.30 per share plus (i) $0.42 per share and (ii) all accrued and unpaid dividends. Next in preference, the holders of Series B preferred stock are entitled to receive $1.44 per share plus (i) $0.41 per share and (ii) all accrued and unpaid dividends. After payments to the holders of Series D, Series C and Series B preferred stock, the holders of Series A preferred stock are entitled to receive $1.00 per share plus all accrued and unpaid dividends. If upon the occurrence of such event, the assets and funds distributed among the holders of preferred stock are insufficient to permit full payment, the entire assets and funds of the Company would be distributed among the preferred shareholders in proportion to the product of the liquidation preference of each such share and the number of such shares owned by each such holder. After the full payment of the liquidation value of Series A, Series B, Series C and Series D preferred stock, the remaining assets of the Company will be available for distribution on a pro rata basis among the holders of common stock and preferred stock based on the number of shares of common stock such holders would be entitled to receive if they converted their preferred stock into common at such time.
F-16
In December 2004 the Company's Articles of Incorporation were amended in connection with the issuance of the Series D redeemable convertible preferred stock. The amended Articles of Incorporation modified the dividend provisions of the Series B and Series C redeemable convertible preferred stock. Prior to the amendment, the holders of the Series B and Series C redeemable convertible preferred stock were entitled to receive cumulative dividends at a rate of 7% per annum (i) when, as and if declared by the Board of Directors and (ii) upon a liquidation, redemption or otherwise conversion of the Series B redeemable convertible preferred stock. For the years ended December 31, 2002, 2003 and 2004 and the period from May 13, 1999 (inception) through December 31, 2004 the Company accrued dividends of $2,409,712, $3,198,785, $3,198,785 and $10,025,727, in connection with the dividend provisions.
1999 Stock Plan
In 1999, the Company adopted the 1999 Incentive Stock Plan, or the Plan, as amended and reserved 10,075,522 shares of common stock for grants under the Plan. The Plan provides for the grant of incentive and nonstatutory stock options, stock bonuses and rights to purchase stock to employees, directors or consultants of the Company. The Plan provides that incentive stock options will be granted at no less than fair value of the Company's common stock and nonstatutory stock options will be granted at no less than 85% of the fair market value of the common stock, as determined by the Board of Directors at the date of the grant. Options generally vest 25% one year from date of grant and ratably each month thereafter for a combined total period of 48 months and expire up to ten years from date of grant.
F-17
A summary of the Company's stock option activity, and related information for the period from May 13, 1999 (inception) through December 31, 2004 follows:
|
Options Outstanding
and Exercisable |
|||||
---|---|---|---|---|---|---|
|
Number of Shares
|
Weighted-Average
Exercise Price |
||||
Outstanding at May 13, 1999 (inception) | | $ | | |||
Granted | 766,500 | $ | 0.10 | |||
Cancelled | (5,000 | ) | $ | 0.10 | ||
|
||||||
Outstanding at December 31, 1999 | 761,500 | $ | 0.10 | |||
Granted | 614,000 | $ | 0.12 | |||
Exercised | (71,875 | ) | $ | 0.10 | ||
|
||||||
Outstanding at December 31, 2000 | 1,303,625 | $ | 0.11 | |||
Granted | 493,000 | $ | 0.15 | |||
Exercised | (241,147 | ) | $ | 0.10 | ||
Cancelled | (131,666 | ) | $ | 0.10 | ||
|
||||||
Outstanding at December 31, 2001 | 1,423,812 | $ | 0.12 | |||
Granted | 1,707,500 | $ | 0.15 | |||
Exercised | (177,719 | ) | $ | 0.13 | ||
Cancelled | (50,000 | ) | $ | 0.15 | ||
|
||||||
Outstanding at December 31, 2002 | 2,903,593 | $ | 0.14 | |||
Granted | 1,917,339 | $ | 0.25 | |||
Exercised | (317,432 | ) | $ | 0.11 | ||
Cancelled | (424,827 | ) | $ | 0.13 | ||
|
||||||
Outstanding at December 31, 2003 | 4,078,673 | $ | 0.14 | |||
Granted | 3,008,504 | $ | 0.78 | |||
Exercised | (158,448 | ) | $ | 0.15 | ||
Cancelled | (222,492 | ) | $ | 0.22 | ||
|
||||||
Outstanding at December 31, 2004 | 6,706,237 | $ | 0.46 | |||
|
F-18
The following table summarizes information about stock options outstanding at December 31, 2004:
Options Outstanding
|
Options Vested
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Price
|
Number
Outstanding |
Weighted
Average Remaining Contractual Life |
Weighted
Average Exercise Price |
Number
Vested |
Weighted
Average Exercise Price |
|||||||
$0.10 | 162,500 | 4.8 | $ | 0.10 | 162,500 | $ | 0.10 | |||||
$0.15 | 1,789,334 | 6.9 | $ | 0.15 | 1,256,920 | $ | 0.15 | |||||
$0.25 | 3,067,063 | 8.7 | $ | 0.25 | 879,859 | $ | 0.25 | |||||
$1.20 | 1,687,340 | 10.0 | $ | 1.20 | | | ||||||
|
|
|||||||||||
6,706,237 | 2,299,279 | |||||||||||
|
|
Deferred Stock-Based Compensation
No employee stock compensation expense was reflected in the Company's reported net loss in any period prior to 2004, as all options granted had an exercise price equal to the estimated fair value of the underlying common stock on the date of grant. During 2004, stock options were granted with exercise prices that were equal to the estimated fair value of the common stock at the date of grant as determined by the Board of Directors. Subsequent to the commencement of the initial public offering process, the Company determined that certain of the stock options granted during 2004 were granted at exercise prices that were below the reassessed fair value of the common stock on the date of grant. With respect to these options granted, the Company has recorded deferred stock-based compensation of $3,097,025 during the year ended December 31, 2004. Deferred stock-based compensation is recognized and amortized on an accelerated basis in accordance with FIN No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans , over the vesting period of the related awards, which is generally four years.
Reserved Shares
The Company has reserved shares of common stock for future issuance as follows:
|
December 31,
|
||||
---|---|---|---|---|---|
|
2003
|
2004
|
|||
Conversion of Series A convertible preferred stock | 3,000,000 | 3,000,000 | |||
Conversion of Series B redeemable convertible preferred stock | 11,304,114 | 11,304,114 | |||
Conversion of Series C redeemable convertible preferred stock | 12,790,870 | 12,790,870 | |||
Conversion of Series D redeemable convertible preferred stock | | 8,355,886 | |||
Series D redeemable convertible preferred stock warrant | | 87,458 | |||
Stock options under the Company's plans: | |||||
Granted and outstanding | 4,078,673 | 6,706,237 | |||
Reserved for future grant | 238,676 | 2,402,664 | |||
|
|
||||
31,412,333 | 44,647,229 | ||||
|
|
F-19
7. Income Taxes
At December 31, 2004, the Company has federal and state tax net operating loss carryforwards of approximately $41.4 million and $40.0 million, respectively. The federal and state tax loss carryforwards will expire in 2019 and 2007, respectively, unless previously utilized. The Company also has federal and state research and development tax credit carryforwards of approximately $852,000 and $842,000, respectively. The federal research and development tax credit will begin to expire in 2019, unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the Company's net operating loss and credit carryforwards may be limited in the event that a cumulative change in ownership of more than 50% has occurred within a three-year period.
Significant components of the Company's deferred tax assets as of December 31, 2004 are shown below. A valuation allowance of approximately $18,453,000 has been established as of December 31, 2004 to offset the deferred tax assets, as realization of such assets is uncertain.
|
December 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 11,358,000 | $ | 16,801,000 | ||||
Research and development credit carryforwards | 1,121,000 | 1,399,000 | ||||||
Other, net | 189,000 | 253,000 | ||||||
|
|
|||||||
Total deferred tax assets | 12,668,000 | 18,453,000 | ||||||
Valuation allowance for deferred tax assets | (12,668,000 | ) | (18,453,000 | ) | ||||
|
|
|||||||
Net deferred taxes | $ | | $ | | ||||
|
|
8. Related Party Transaction
The Company has paid fees for management services totaling $285,563, $0, $0 and $1,743,604 for the years ended December 31, 2002, 2003 and 2004, and for the period from May 13, 1999 (inception) through December 31, 2004 to a venture capital firm, which owns an equity interest in the Company.
9. Employee Benefit Plan
The Company has a defined contribution 401(k) retirement plan, or the 401(k) Plan, covering substantially all employees that meet certain age requirements. Employees may contribute up to 90% of their compensation per year (subject to a maximum limit by federal tax law). Under the 401(k) Plan, the Company may elect to match a discretionary percentage of contributions. No such matching contributions have been made to the 401(k) Plan since its inception.
F-20
Shares
DEXCOM, INC.
Common Stock
PROSPECTUS
Until , 2005, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Piper Jaffray
SG Cowen & Co.
William Blair & Company
First Albany Capital
, 2005
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by the Registrant in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the NASDAQ National Market filing fee.
Securities and Exchange Commission registration fee | $ | 8,239 | ||
NASD filing fee | 7,500 | |||
NASDAQ National Market filing fee | ||||
Accounting fees and expenses | ||||
Legal fees and expenses | ||||
Road show expenses | ||||
Printing and engraving expenses | ||||
Blue sky fees and expenses | ||||
Transfer agent and registrar fees and expenses | ||||
Miscellaneous | ||||
|
||||
Total | $ | |||
|
ITEM 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's restated certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability:
As permitted by the Delaware General Corporation Law, the Registrant's amended and restated bylaws provide that:
II-1
Prior to the completion of the offering, the Registrant intends to enter into Indemnification Agreements with each of its current directors and officers to provide such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Registrant regarding which indemnification is sought. Reference is also made to Section 6 of the Underwriting Agreement, which provides for the indemnification of officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provision in the Registrant's restated certificate of incorporation, amended and restated bylaws and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and officers may be sufficiently broad to permit indemnification of the Registrant's directors and officers for liabilities arising under the Securities Act.
The Registrant has directors' and officers' liability insurance for securities matters prior to the closing of this offering.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
Exhibit Document
|
Number
|
|
---|---|---|
Underwriting Agreement | 1.01 | |
Registrant's Restated Certificate of Incorporation | 3.02 | |
Registrant's Amended and Restated Bylaws | 3.05 | |
Second Amended and Restated Investors' Rights Agreement dated December 30, 2004 | 4.02 | |
Form of Indemnification Agreement | 10.01 |
ITEM 15. Recent Sales of Unregistered Securities.
1. Since January 1, 2002, we have granted stock options to purchase 5,333,343 shares of our common stock at exercise prices ranging from $0.10 to $1.20 per share per share to our employees, consultants and directors under our 1999 stock option plan. Since January 1, 2002, we have issued and sold an aggregate of 659,892 shares of our common stock to employees and consultants at prices ranging from $0.10 to $0.25 per share pursuant to exercises of options granted under our 1999 stock option plan.
2. In May and June of 2002, we issued and sold an aggregate of 12,790,870 shares of our Series C redeemable convertible preferred stock to private investors for an aggregate purchase price of approximately $29,419,001 in cash. These shares of Series C redeemable convertible preferred stock are convertible into 12,790,870 shares of common stock.
3. In December 2004, we issued and sold an aggregate of 8,355,886 shares of our Series D redeemable convertible preferred stock to private investors for an aggregate purchase price of
II-2
approximately $22,499,894 in cash. These shares of Series D redeemable convertible preferred stock are convertible into 8,355,886 shares of common stock.
4. In December 2004, we issued a warrant to purchase up to 87,458 shares of our Series D redeemable convertible preferred stock at an exercise price of $2.69 per share to Piper Jaffray & Co. Upon completion of this offering, this warrant will be exercisable for 87,458 shares of our common stock.
The sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationship with the Registrant, to information about the Registrant.
ITEM 16. Exhibits and Financial Statement Schedules.
Number
|
Exhibit Title
|
|
---|---|---|
1.01 | * | Form of Underwriting Agreement. |
3.01 | Registrant's Amended and Restated Certificate of Incorporation. | |
3.02 | * | Certificate of Amendment of Registrant's Amended and Restated Certificate of Incorporation. |
3.03 | * | Registrant's Restated Certificate of Incorporation (to be effective immediately after the closing of this offering). |
3.04 | Registrant's Amended and Restated Bylaws. | |
3.05 | * | Registrant's Amended and Restated Bylaws (to be effective immediately after the closing of this offering). |
4.01 | * | Form of Specimen Certificate for Registrant's common stock. |
4.02 | Second Amended and Restated Investors' Rights Agreement, dated December 30, 2004. | |
5.01 | * | Opinion of Fenwick & West LLP regarding legality of the securities being registered. |
10.01 | Form of Indemnification Agreement between Registrant and each of its directors and executive officers. | |
10.02 | 1999 Stock Option Plan and related agreements. | |
10.03 | * | 2005 Equity Incentive Plan and forms of stock option agreement and stock option exercise agreements. |
10.04 | * | 2005 Employee Stock Purchase Plan and form of subscription agreement. |
10.05 | * | Amended and Restated Executive Change of Control Agreement dated January 31, 2005 between DexCom, Inc. and Andrew Rasdal. |
10.06 | * | Amended and Restated Employment Agreement dated January 31, 2005 between DexCom, Inc. and Andrew Rasdal. |
10.07 | * | Form of Change of Control Agreement with Executive Officers. |
10.08 | Sorrento Valley Business Park Lease dated December 3, 2004 between Hub Properties Trust and DexCom, Inc. | |
II-3
10.09 | * | Exclusive Patent License Agreement dated August 17, 2001 between SM Technologies, LLC and DexCom, Inc. |
10.10 | * | Agreement Regarding Terms of Sale dated May 23, 2003 between AMI Semiconductor, Inc. and DexCom, Inc. |
10.11 | * | Agreement between DexCom, Inc. and Quallion LLC, dated May 21, 2003. |
23.01 | * | Consent of Fenwick & West LLP (included in Exhibit 5.01). |
23.02 | Consent of Independent Registered Public Accounting Firm. | |
24.01 | Power of Attorney (See Page II-5). |
*To be filed by amendment.
Financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto.
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on this 1st day of February, 2005.
DEXCOM, INC. | |||
|
|
By: |
/s/ ANDREW P. RASDAL Andrew P. Rasdal President and Chief Executive Officer |
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Andrew P. Rasdal and Steven J. Kemper, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Name
|
Title
|
Date
|
||
---|---|---|---|---|
|
|
|
|
|
Principal Executive Officer: | ||||
/s/ ANDREW P. RASDAL Andrew P. Rasdal |
|
President, Chief Executive Officer and Director |
|
February 1, 2005 |
Principal Financial Officer and Principal Accounting Officer: |
|
|
|
|
/s/ STEVEN J. KEMPER Steven J. Kemper |
|
Chief Financial Officer |
|
February 1, 2005 |
Additional Directors: |
|
|
|
|
/s/ DONALD L. LUCAS Donald L. Lucas |
|
Chairman of the Board of Directors |
|
February 1, 2005 |
II-5
/s/ BRENT AHRENS Brent Ahrens |
|
Director |
|
February 1, 2005 |
/s/ KIM BLICKENSTAFF Kim Blickenstaff |
|
Director |
|
February 1, 2005 |
/s/ SEAN CARNEY Sean Carney |
|
Director |
|
February 1, 2005 |
/s/ DONALD A. LUCAS Donald A. Lucas |
|
Director |
|
February 1, 2005 |
/s/ GLEN D. NELSON Glen D. Nelson, M.D. |
|
Director |
|
February 1, 2005 |
/s/ JAY SKYLER Jay Skyler, M.D. |
|
Director |
|
February 1, 2005 |
II-6
Number
|
Exhibit Title
|
|
---|---|---|
1.01 | * | Form of Underwriting Agreement. |
3.01 | Registrant's Amended and Restated Certificate of Incorporation. | |
3.02 | * | Certificate of Amendment of Registrant's Amended and Restated Certificate of Incorporation. |
3.03 | * | Registrant's Restated Certificate of Incorporation (to be effective immediately after the closing of this offering). |
3.04 | Registrant's Amended and Restated Bylaws. | |
3.05 | * | Registrant's Amended and Restated Bylaws (to be effective immediately after the closing of this offering). |
4.01 | * | Form of Specimen Certificate for Registrant's common stock. |
4.02 | Second Amended and Restated Investors' Rights Agreement, dated December 30, 2004. | |
5.01 | * | Opinion of Fenwick & West LLP regarding legality of the securities being registered. |
10.01 | Form of Indemnification Agreement between Registrant and each of its directors and executive officers. | |
10.02 | 1999 Stock Option Plan and related agreements. | |
10.03 | * | 2005 Equity Incentive Plan and forms of stock option agreement and stock option exercise agreements. |
10.04 | * | 2005 Employee Stock Purchase Plan and form of subscription agreement. |
10.05 | * | Amended and Restated Executive Change of Control Agreement dated January 31, 2005 between DexCom, Inc. and Andrew Rasdal. |
10.06 | * | Amended and Restated Employment Agreement dated January 31, 2005 between DexCom, Inc. and Andrew Rasdal. |
10.07 | * | Form of Change of Control Agreement with Executive Officers. |
10.08 | Sorrento Valley Business Park Lease dated December 3, 2004 between Hub Properties Trust and DexCom, Inc. | |
10.09 | * | Exclusive Patent License Agreement dated August 17, 2001 between SM Technologies, LLC and DexCom, Inc. |
10.10 | * | Agreement Regarding Terms of Sale dated May 23, 2003 between AMI Semiconductor, Inc. and DexCom, Inc. |
10.11 | * | Agreement between DexCom, Inc. and Quallion LLC, dated May 21, 2003. |
23.01 | * | Consent of Fenwick & West LLP (included in Exhibit 5.01). |
23.02 | Consent of Independent Registered Public Accounting Firm. | |
24.01 | Power of Attorney (See Page II-5). |
*To be filed by amendment.
Exhibit 3.01
DEXCOM, INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
DEXCOM, INC., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Dexcom, Inc. and the original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 13, 1999.
2. Pursuant to Section 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of this corporation's prior Amended and Restated Certificate of Incorporation.
3. The terms and provisions of this Amended and Restated Certificate of Incorporation have been duly approved by vote of the required number of shares of outstanding stock of this corporation pursuant to Subsection 242 of the General Corporation Laws of the Stare of Delaware.
4. The text of the Amended and Restated Certificate of Incorporation is as hereby restated and further amended to read in its entirety as set forth in Exhibit A attached hereto.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed this 29th day of December, 2004.
DEXCOM, INC. | ||
|
|
/s/ STEVEN J. KEMPER Steven J. Kemper Vice President and CFO |
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DEXCOM, INC.,
a Delaware Corporation
ARTICLE I
The name of this corporation is DexCom, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent of the corporation in the State of Delaware at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business and the purposes to be conducted and promoted by the corporation shall be to conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two classes of stock to be designated "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is 86,047,592 shares. 50,000,000 shares shall be Common Stock with a par value of $0.001 per share and 36,047,592 shares shall be Preferred Stock with a par value of $0.001 per share, 3,000,000 of which are designated "Series A Preferred Stock," 11,304,114 of which are designated "Series B Preferred Stock", 13,043,478 of which are designated "Series C Preferred Stock" and 8,700,000 of which are designated "Series D Preferred Stock" (the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are collectively referred to herein as " Series Preferred Stock ").
B. Rights Preferences and Restrictions of Preferred Stock. The Preferred Stock authorized by this Amended and Restated Certificate of Incorporation may be issued from time to time in one or more series. The rights, preferences, privileges, and restrictions granted to and imposed on the Series Preferred Stock are as set forth below in this Article IV(B). Subject to Section 6 of this Article IV(B), the Board of Directors of the Company (the " Board ") is hereby authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or of any of them. Subject to compliance with Section 6 of this Article IV(B) and any other applicable protective voting rights which have been or may be granted to the Series Preferred Stock or other series of Preferred Stock in Certificates of Determination or the corporation's Certificate of Incorporation (" Protective Provisions "), but notwithstanding any other rights of the Series Preferred Stock or any other series of Preferred Stock, the rights, privileges, preferences and restrictions of any such additional series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent), or senior to any of those of any present or future class or series of Preferred or Common Stock. Subject to compliance with applicable Protective Provisions, the Board is also authorized to
1
increase or decrease the number of shares of any series, prior or subsequent to the issue of that series, but not below the number of shares of such series then-outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
1. Dividend Provisions.
(a) In each calendar year, the holders of shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Series A Preferred Stock or Common Stock of this corporation, at the annual rate of seven percent (7%) of the applicable Issue Price (as defined below) on each outstanding share of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, when, as and if declared by the Board. Such dividends shall not be cumulative. The " Original Series B Issue Price " of the Series B Preferred Stock shall be $1.44 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares of Series B Preferred Stock after the date of the filing of this Amended and Restated Certificate of Incorporation (the " Filing Date ")). The " Original Series C Issue Price " of the Series C Preferred Stock shall be $2.30 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares of Series C Preferred Stock after the Filing Date). The " Original Series D Issue Price " of the Series D Preferred Stock shall be $2.6927 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares of Series D Preferred Stock after the Filing Date). The Original Series B Issue Price, the Original Series C Issue Price and the Original Series D Issue Price each may be referred to herein as the " Issue Price " (as applicable). Any partial payment made hereunder will be made pro rata among the holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock such that the aggregate amount to be paid shall be distributed ratably among the holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in proportion to the aggregate preferential amount each such holder is otherwise untitled to receive. The Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall also participate, pro rata on an as-converted to Common Stock basis, with any distribution made with respect to any class or series of stock having any preference or priority inferior to or on parity with any such preference or priority of the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock.
(b) Subject to the rights of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and any other series of Preferred Stock which may from time to time come into existence, the holders of shares of Series A Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock of this corporation, at the rate of $0.075 per share per annum (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares of Series A Preferred Stock), when, as and if declared by the Board. Such dividends shall not be cumulative. Any partial payment will be made pro rata among the holders of Series A Preferred Stock such that an equal amount shall be paid with respect to each such share of Series A Preferred Stock held by them.
(c) Unless full dividends on the Series Preferred Stock for the then current dividend period shall have been paid or declared and a sum sufficient for the payment thereof set apart and the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock participate in full pursuant to the last sentence of Section 1(a) above, no dividend whatsoever (other than a dividend payable solely in
2
Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) shall be paid or declared, and no distribution shall be made, on any share of Common Stock.
2. Liquidation Preference.
(a) Series D Preferred Stock. In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, prior and in preference to any distribution of any of the assets or funds of the corporation to the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the holders of the Common Stock by reason of their ownership of such stock, the holders of the Series D Preferred Stock shall be entitled to be paid out of the assets of the corporation an amount per share of Series D Preferred Stock equal to the Original Series D Issue Price plus all declared and unpaid dividends on such shares of Series D Preferred Stock for each share of Series D Preferred Stock held by them (such amount the " Series D Liquidation Amount "). If upon the occurrence of such event, the assets and funds thus distributed among the holders of Series D Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire remaining assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series D Preferred Stock in proportion to the aggregate preferential amount each such holder is otherwise entitled to receive.
(b) Series C Preferred Stock. After the payment to the holders of Series D Preferred Stock as set forth in Section 2(a) above, the holders of the Series C Preferred Stock shall be entitled to be paid out of the assets of the corporation an amount per share of Series C Preferred Stock equal to the Original Series C Issue Price plus (i) $0.422128767123327 and (ii) all declared and unpaid dividends on such share of Series C Preferred Stock for each share of Series C Preferred Stock held by them (such amount the " Series C Liquidation Amount "). If upon the occurrence of such event, the assets and funds thus distributed among the holders of Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire remaining assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock in proportion to the aggregate preferential amount each such holder is otherwise entitled to receive.
(c) Series B Preferred Stock. After the payment to the holders of Series D Preferred Stock and Series C Preferred Stock as set forth in Sections 2(a) and 2(b) above, the holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Series A Preferred Stock and Common Stock by reason of their ownership of such stock, an amount per share of Series B Preferred Stock equal to the Original Series B Issue Price plus (i) $0.41010410958957 and (ii) all declared and unpaid dividends of such shares of Series B Preferred Stock for each share of Series B Preferred Stock held by them (such amount the " Series B Liquidation Amount "). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire remaining assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock in proportion to the aggregate preferential amount each such holder is otherwise entitled to receive.
(d) Series A Preferred Stock. After the payment to the holders of Series D Preferred Stock, Series C Preferred Stock and Series B Preferred Stock as set forth in Sections 2(a), 2(b) and 2(c), the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Common Stock by reason of their ownership of such stock, an amount per share of Series A Preferred Stock equal to the Original Series A Issue Price plus all declared and unpaid dividends of such shares of Series A Preferred Stock for each share of Series A Preferred Stock held by them (such amount the " Series A Liquidation
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Amount "). The " Original Series A Issue Price " of the Series A Preferred Stock shall be $1.00 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares of Series A Preferred Stock after the Filing Date). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of Preferred Stock that may from time to time come into existence, the entire remaining assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the aggregate preferential amount each such holder is otherwise entitled to receive.
(e) Participation with Common Stock. Upon the completion of the distributions required in Sections 2(a), 2(b), 2(c) and 2(d) and any other distribution that may be required with respect to series of Preferred Stock that may from time to time come into existence, the remaining assets of the corporation available for distribution to stockholders shall be distributed pro rata among the holders of Common Stock and Series Preferred Stock based on the number of shares of Common Stock such holders would be entitled to receive if they converted their Series Preferred Stock at such time; provided, however, that the holders of a series of Series Preferred Stock shall not be entitled to further participate in any distribution of the remaining assets of the corporation pursuant to this subparagraph (e) with respect to such series of Series Preferred Stock following receipt by such holders of Series Preferred Stock of aggregate distributions pursuant to this Section 2 equal to $5.00 for each outstanding share of Series A Preferred Stock, $4.32 for each outstanding share of Series B Preferred Stock, $6.90 for each outstanding share of Series C Preferred Stock, and $8.0781 for each outstanding share of Series D Preferred Stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares of Series Preferred Stock).
(f) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of this corporation shall be deemed to include (without limitation), (A) a consolidation or merger of the corporation with or into any other entity or entities or any other reorganization of this corporation in which the holders of the corporation's outstanding capital stock immediately before such consolidation, merger or reorganization do not, immediately after such consolidation, merger, or reorganization, retain stock or other ownership interests representing a majority of the voting power of the surviving entity or entities as a result of their stockholdings in the corporation immediately before such consolidation, merger or reorganization provided, however, that an equity financing primarily for capital raising purposes shall not be deemed to be a reorganization hereunder; or (B) a sale of all or substantially all of the assets of the corporation (any such occurrence being referred to as an " Acquisition ").
(ii) In any of such events described in subsection 2(f)(i) above, if the consideration received by the corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other similar restrictions on free marketability:
(1) If traded on a securities exchange or through The Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and
(3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined in good faith by the corporation's Board and the holders
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of at least fifty percent (50%) of the voting power of all then outstanding shares of Series Preferred Stock.
(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subsection 2(f)(ii)(A) (1), (2) or (3) hereof to reflect the approximate fair market value thereof, as mutually determined in good faith by the corporation's Board and the holders of at least fifty percent (50%) of the voting power of all then outstanding shares of Series Preferred Stock.
(iii) in the event the requirements of this subsection 2(f) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as the requirements of this Section 2 have been complied with: or
(B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(f)(iv) below.
(iv) The corporation shall give each holder of record of Series Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the corporation has given the first notice provided for herein or sooner than ten (10) days after the corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of Preferred Stock that are entitled to such notice rights or similar notice rights.
(g) No stockholder of the corporation shall enter into any transaction or series of related translations resulting in a liquidation, dissolution or winding up pursuant to the terms unless the terms of such transaction or transactions provide that the consideration to be paid to the stockholders of the corporation is to be allocated in accordance with the preferences and priorities set forth in this Section 2.
3. Redemption.
(a) At any time after December 1, 2007 (the " Redemption Date "), provided that the holders of not less than fifty percent (50%) of the voting power of all then outstanding shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as a single class, provide written notice to the Company at any time not less than six months prior to the Redemption Date that all of the outstanding Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock be redeemed, and concurrently with surrender by the holders of the certificates representing such shares, this corporation shall, to the extent it may lawfully do so, redeem all outstanding shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. The corporation shall effect such redemption by paying the holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in cash therefor a sum per share of Series B Preferred Stock (the " Series B Redemption Price "), Series C Preferred Stock (the " Series C Redemption Price ") and Series D Preferred
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Stock (the " Series D Redemption Price ") equal to the Series B Liquidation Amount, Series C Liquidation Amount and Series D Liquidation Amount, respectively (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares of Series Preferred Stock after the Filing Date).
(b) At least fifteen (15) but no more than thirty (30) days prior to the Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock to be redeemed, at the address last shown on the records of this corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Series B Redemption Price, the Series C Redemption Price, and the Series D Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to this corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (the " Redemption Notice "). Except as provided in subsection 3(c) hereof, on or after the Redemption Date each holder of Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock to be redeemed shall surrender to this corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have been a default in payment of the Series B Redemption Price, the Series C Redemption Price and/or the Series D Redemption Price, all rights of the holders of shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock designated for redemption in the Redemption Notice as holders of such stock (except the right to receive the Series B Redemption Price, Series C Redemption Price or Series D Redemption Price, as the case may be, without interest upon surrender of their certificate or certificates), shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the corporation legally available for redemption of shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem shares ratably in proportion to the aggregate Series B Redemption Price, Series C Redemption Price and aggregate Series D Redemption Price for the shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock held by stockholders on the Redemption Date). The shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the corporation has become obliged to redeem on the Redemption Date but which it has not redeemed.
(d) Series A Preferred Stock . The Series A Preferred Stock is not redeemable.
4. Conversion. The holders of the Series Preferred Stock shall have conversion rights as follows:
(a) Right to Convert. Each share of Series Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this corporation or of any transfer agent for such stock into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue
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Price for such series of Series Preferred Stock by the " Conversion Price " applicable to such share, determined as hereinafter provided, in effect on the date that the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Series A Issue Price; provided, however, that the Conversion Price for the Series A Preferred Stock shall be subject to adjustment as set forth in subsection 4(d) below. The initial Conversion Price per share for shares of Series B Preferred Stock shall be the Original Series B Issue Price; provided, however , that the Conversion Price for the Series B Preferred Stock shall be subject to adjustment as set forth in Section 4(d) below. The initial Conversion Price per share for shares of Series C Preferred Stock shall be the Original Series C Issue Price; provided, however , that the initial Conversion Price for the Series C Preferred Stock shall be subject to adjustment as set forth in Section 4(d) below. The initial Conversion Price per share for shares of Series D Preferred Stock shall be the Original Series D Issue Price; provided, however , that the initial Conversion Price for the Series D Preferred Stock shall be subject to adjustment as set forth in Section 4(d) below.
(b) Automatic Conversion.
(i) On Approved IPO. Each share of Series Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series Preferred Stock immediately upon (except as provided in subsection 4(c) below) the corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the " Securities Act "), with proceeds to the corporation net of underwriter's fees to the corporation of not less than $25,000,000 and a price to the public of not less than $4.15 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like following the Filing Date) (an " Approved IPO ").
(ii) By Consent of Series A and B. Each share of Series A Preferred Stock and Series B Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such series of Series Preferred Stock immediately upon (except as provided in subsection 4(c) below) the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class on an as-converted to Common Stock basis.
(iii) By Consent of Series C and D. Upon the written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock, voting together as a single class on an as-converted to Common Stock basis, each share of Series C Preferred Stock and Series D Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series Preferred Stock immediately upon (except as provided in subsection 4(c) below) the corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act, with proceeds to the corporation net of underwriter's fees to the corporation of not less than $25,000,000 and a price to the public of less than $4.15 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like following the Filing Date) but not less than $2.6925 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like following the Filing Date).
(iv) By Consent of Series C. Each share of Series C Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for the Series C Preferred Stock immediately upon (except as provided in subsection 4(c) below)
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the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Series C Preferred Stock.
(v) By Consent of Series D. Except as otherwise provided in Section 4(b) (iii) of this Article IV(B) each share of Series D Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for the Series D Preferred Stock immediately upon (except as provided in subsection 4(c) below) the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Series D Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series Preferred Stock shall be entitled to convert the some into shares of Common Stock, he, she or it shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Series Preferred Stock, and shall give written notice to this corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act or any other transaction set forth in subsection 2(f)(i) hereof, the conversion may, at the option of any holder tendering Series Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering or the closing of such transaction, in which event the person(s) entitled to receive the Common Stock upon such conversion of the Series Preferred Stock shall not be deemed to have converted such Series Preferred Stock until immediately prior to the closing of such sale of securities or the closing of such transaction.
(d) Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the date upon which any shares of Series D Preferred Stock were first issued (the " Original Purchase Date "), any Additional Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price for a series of Series Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of shares of Additional Stock so issued would purchase at such Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issuance shall be calculated on a fully diluted basis, as if all shares of Series Preferred Stock and all other securities convertible into or exchangeable for Common Stock at such time had been fully converted into or exchanged for
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shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of stock or convertible securities had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into or exchanged for shares of Common Stock, if so convertible or exchangeable) as of such date. For purposes of adjusting the Conversion Price of a series of Preferred Stuck, the grant, issue or sale of Additional Stock consisting of the same class of security or warrants to purchase such security issued or issuable at the same price at two or more closings held within a six-month period shall be aggregated and shall be treated as one sale of Additional Stock occurring on the earliest date on which such securities were granted, issued or sold.
(B) No adjustment of the Conversion Price for the Series Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward.
(C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this corporation for any underwriting or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the Original Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii) hereof:
(1) The aggregate maximum number of shares of Common Stock deliverable upon exercise assuming the satisfaction of any conditions to exercisability including, without limitation, the passage of time, but without taking into account potential antidilution adjustments of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 4(d)(i)(C) and 4(d)(i)(D) hereof), if any, received by the corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange assuming satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and 4(d)(i)(D) hereof).
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(3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities including, but not limited to, a change resulting from the antidilution provisions thereof the Conversion Price of the Series Preferred Stock, to the extent in any way affected by or computed using such options, tights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Prior of the Series Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or tights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E) (1) and (2) hereof shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E) (3) or (4) hereof.
(ii) " Additional Stock " shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this corporation after the Original Purchase Date other than:
(A) shares of Common Stock issued pursuant to a transaction for which an adjustment is made pursuant to subsections 4(d)(iii), 4(e) or 4(f) hereof; or
(B) shares of Common Stock issuable or issued to employees, consultants, directors or vendors (if in transactions with primarily non-financing purposes) of this corporation after the Original Purchase Date directly or pursuant to incentive agreements, stock option plans, stock bonuses or awards, contracts or other arrangements approved by the Board (or a committee thereof) at any time following the Original Purchase Date, provided that the total number of shares of Common Stock so issuable or issued does not exceed 4,108,504 shares (appropriately adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) or such grater number as may be approved from time to time by the Board including a majority of the Preferred Stock Directors (as defined below) (the " Employee Reserve "); provided , however , that the Employee Reserve shall automatically be increased to include (1) shares of Common Stock not issued pursuant to such agreements, plans, bonuses, awards, contracts or other arrangements outstanding as of the Original Purchase Date (or approved thereafter) as a result of the termination or expiration of such arrangement, and (2) shares of Common Stock reacquired by this corporation from employees, directors, consultants or vendors at cost pursuant to agreements which permit the corporation to repurchase such shares upon termination of services to the corporation; or
(C) shares of Common Stock issued or issuable in a public offering before or in connection with which all outstanding shares of Series Preferred Stock will be converted to Common Stock; or
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(D) shares of Common Stock issued upon conversion of the Series Preferred Stock; or
(E) shares of Common Stock or securities convertible into or exchangeable for Common Stock issued after the Original Purchase Date to lenders or lessors or strategic partners investing in this corporation primarily in connection with a commercial (non-financing) relationship with the corporation, pursuant to an arrangement approved by the Board following the Original Purchase Date; provided that at the time of any such issuance, the aggregate of such issuance and similar issuances do not exceed two hundred fifty thousand (250,000) shares of Common Stock (assuming full conversion and exercise of all convertible and exercisable securities, such amount being subject to adjustment in the event of any stock dividend, combination, split, recapitalization and the like) or such additional shares of Common Stock or securities convertible into or exchangeable for Common Stock as may be approved by the Board, including a majority of the Preferred Stock Directors (the " Strategic Reserve ");
(F) shares of Common Stock and Preferred Stock issued upon exercise of options, warrants or other convertible securities outstanding as of the Original Purchase Date; or
(G) such additional shares of Common Stock or Preferred Stock as may be expressly designated from time to time in writing signed by holders of at least a majority of the then outstanding Series Preferred Stock as not constituting shares of "Additional Stock" hereunder.
(iii) In the event the corporation should at any time or from time to time after the Original Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as " Common Stock Equivalents ") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), than, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E) hereof.
(iv) If the number of shares of Common Stock outstanding at any time after the Original Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the number of outstanding shares of Common Stock.
(e) Other Distributions. In the event this corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii) hereof, then, in each such case for the purpose of this subsection 4(e) hereof the holders of the Series Preferred Stock shall be entitled to a proportionate share of any such distribution as though they
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were the holders of the number of shares of Common Stock of the corporation into which their shares of Series Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations, Reclassification, Reorganizations, Mergers and Consolidations.
(i) Adjustment for Reclassification, Exchange and Substitution . If at any time or from time to time after the Original Purchase Date the Common Stock issuable upon the conversion of any series of Series Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise ( other than by an event for which adjustment is otherwise made under Section 4(d)(iii) or (iv), under Section 4(e) or Section 4(f)(ii)), then in any event each holder of such series of Series Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of such series of Series Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms hereof.
(ii) Reorganizations, Mergers and Consolidations. If at any time or from time to time after the Original Purchase Date there is a reorganization of the corporation ( other than a recapitalization, reclassification or other exchange of shares provided for elsewhere in Section 4(f)(i) or by an event for which adjustment is made under Section 4(d)(iii) or (iv) or under Section 4(e)) or a merger or consolidation of the corporation with or into another entity (excluding an Acquisition), then, as part of such reorganization, merger or consolidation, provision shall be made so that the holders of each series of Series Preferred Stock thereafter shall be entitled to receive, upon conversion of shares of such series of Series Preferred Stock, the number of shares of stock or other securities or property of the corporation, or of such successor entity resulting from such reorganization, merger or consolidation, to which a holder of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4(f)(ii) with respect to the rights of the holders of Series Preferred Stock after the reorganization, merger or consolidation to the end that the provisions of this Section 4(f)(ii) (including adjustment of the Conversion Price then in effect and number of shares issuable upon conversion of the Series Preferred Stock) shall be applicable after the event and be as nearly equivalent to the provisions hereof as may be practicable. This Section 4(f)(ii) shall similarly apply to successive reorganizations, mergers and consolidations.
(g) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of any share or shares of the Series Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, after aggregating all shares of Common Stock of such holder, the corporation shall pay cash equal to such fraction multiplied by the then effective fair market value of such shares of Preferred Stock.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of the Series Preferred Stock pursuant to this Section 4, this corporation, at its expense, shall cause independent public accountants selected by the corporation and reasonably acceptable to the holders of a majority of the Series Preferred Stock (who may be the independent public accountants then auditing the books of the corporation) to promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder
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of Series Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This corporation shall, upon the written request at any time of any holder of Series Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this corporation shall mail to each holder of Series Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. In the event the corporation shall propose to take any action of the type or types requiring an adjustment to the Conversion Price or the number or character of the Series Preferred Stock as set forth herein, the corporation shall mail written notice of such proposed action to each holder of Series Preferred Stock, at least thirty (30) days prior to the taking of such proposed action.
(i) Reservation of Stock Issuable Upon Conversion. This corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation.
(j) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his, her, or its address appearing on the books of this corporation.
5. Voting Rights.
(a) General. The holder of each share of Series Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting tights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Except as otherwise provided by law or this Certificate of Incorporation (including, without limitation, Section 6 of this
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Article IV(B), the holders of Series Preferred Stock shall vote on an as-converted to Common Stock basis with the holders of the outstanding shares of Common Stock, and not as a separate class or series.
(b) Election of Directors. The Board shall consist of nine (9) directors subject to increase in accordance with Section 6 below. If no Series Preferred Stock is outstanding, the holders of Common Stock will elect all directors. In the event there are any shares of Series A Preferred Stock outstanding, the holders of Series A Preferred Stock, voting as a class, shall be entitled to elect one (1) director to the Board of the corporation (the " Series A Director "). In the event there are shares of Series B Preferred Stock outstanding, the holders of Series B Preferred Stock, voting as a class, shall be entitled to elect one (1) director to the Board of the corporation (the " Series B Director "). In the event that there are shares of Series C Preferred Stock outstanding, the holders of Series C Preferred Stock, voting as a class, shall be entitled to elect one (1) director to the Board of the corporation (the " Series C Director "). In the event that there are shares of Series D Preferred Stock outstanding, the holders of Series D Preferred Stock, voting as a class, shall be entitled to elect one (1) director to the Board of the corporation (the " Series D Director "). The Series A Director, Series B Directors, Series C Director and Series D Director are collectively referred to herein as the " Preferred Stock Directors "). For so long as any Series Preferred Stock is outstanding, the holders of Common Stock, voting as a class, shall have the right to elect one (1) director to the Board of the corporation. The remaining directors of the corporation shall be elected only upon the vote or written consent of the holders of a majority of the outstanding Common Stock and Series Preferred Stock (calculated on an as-converted to Common Stock basis), voting together as a single class.
6. Protective Provisions.
(a) Series D Preferred Stock. So long as shares of Series D Preferred Stock are outstanding, this corporation shall not (whether by merger, consolidation, amendment of charter documents, filing of certificate of designation, by operation of law, or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock:
(A) amend this corporation's Certificate of Incorporation, bylaws or any certificates of designation, or approve any certificate of designation, so as to adversely affect the rights, preferences or privileges of or the restrictions provided for the benefit of the Series D Preferred Stock; provided, however, that notwithstanding anything to the contrary in this Section 6(a), no separate consent of the Series D Preferred Stock shall be required for any approval or consummation of an Acquisition in which holders of Series D Preferred Stock receive an amount per share at least equal to the Series D Liquidation Amount.
(B) increase the number of authorized shares of Series D Preferred Stock;
(C) except as otherwise specifically provided herein, authorize or issue, or obligate itself to issue, any other equity security (other than shares of any series of Series Preferred Stock that is authorized hereunder as of the Filing Date), including any other security convertible into or exercisable for any such equity security, having a preference over, or being on a parity with, the Series D Preferred Stock with respect to any of the rights, privileges or preferences of, or restrictions provided for the benefit of the Series D Preferred Stock; or
(D) reclassify, or obligate itself to reclassify, any other equity security outstanding, including any other security convertible into or exercisable for any equity security, such that the reclassified security has a preference over, or is made on a parity with, the Series D Preferred Stock with respect to any of the rights, privileges or preferences of, or restrictions provided for the benefit of the Series D Preferred Stock.
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(b) Series C Preferred Stock and Series D Preferred Stock. So long as shares of Series C Preferred Stock or Series D Preferred Stock are outstanding, this corporation shall not (whether by merger, consolidation, amendment of charter documents, filing of a certificate of designation, operation of law or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at a majority of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock, voting together on an as-converted to Common Stock basis:
(A) approve or consummate any Acquisition or any other liquidation, dissolution or winding up of the corporation;
(B) amend this corporation's Certificate of Incorporation so as to modify the definitions of the terms "Approved IPO" or "Acquisition" as set forth in Sections 4(b) and 2(f)(i) herein, respectively;
(C) redeem or repurchase any share or shares of Preferred Stock or Common Stock; provided, however , that this restriction shall not apply to either the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the corporation or any subsidiary pursuant to agreements under which the corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment, or the redemption of certain series of Series Preferred Stock pursuant to and in accordance with Section 3 hereof; or
(D) increase the authorized number of Board members from nine (9).
(E) declare or pay any dividend or other distribution upon shares of capital stock of this corporation; provided however that this restriction shall not apply to any matter exempted from subsection (C) above; or
(F) file or commence a case, proceeding or other action under any law governing bankruptcy, insolvency or relief of debtors or seek appointment of a receiver, trustee, custodian or any similar person for this corporation.
(c) Series C Preferred Stock. So long as shares of Series C Preferred Stock are outstanding, this corporation shall not (whether by merger, consolidation, amendment of charter documents, filing of certificate of designation, by operation of law, or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock:
(A) amend this corporation's Certificate of Incorporation, bylaws or any certificates of designation, or approve any certificate of designation, so as to adversely affect the rights, preferences or privileges of or the restrictions provided for the benefit of the Series C Preferred Stock; provided , however , that notwithstanding anything to the contrary in this Section 6(c), no separate consent of the Series C Preferred Stock shall be required for any approval or consummation of an Acquisition in which holders of Series C Preferred Stock receive an amount per share at least equal to the Series C Liquidation Amount.
(B) increase the number of authorized shares of Series C Preferred Stock; or
(C) except as otherwise specifically provided herein, authorize or issue, or obligate itself to issue, any other equity security (other than shares of any series of Series Preferred Stock that is authorized hereunder as of the Filing Date), including any other security convertible into or exercisable for any such equity security, having a preference over, or being on a parity with, the Series C Preferred Stock with respect to any of the rights, privileges or preferences of, or restrictions provided for the benefit of the Series C Preferred Stock; or
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(D) reclassify, or obligate itself to reclassify, any other equity security outstanding, including any other security convertible into or exercisable for any equity security, but excluding the Series D Preferred Stock, such that the reclassified security has a preference over, or is made on a parity with, the Series C Preferred Stock with respect to any of the rights, privileges or preferences of, or restrictions provided for the benefit of the Series C Preferred Stock.
(d) Series A and B Preferred Stock. So long as shares of Series A Preferred Stock or Series B Preferred Stock are outstanding, this corporation shall not (whether by merger, consolidation, amendment of charter documents, filing of a certificate of designation, operation of law, or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at a majority of the then outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together on an as-converted to Common Stock basis:
(A) amend this corporation's Certificate of Incorporation, bylaws or any certificates of designation, or approve any certificate of designation, so as to adversely affect the rights, preferences or privileges of or the restrictions provided for the benefit of the Series A or Series B Preferred Stock; provided, however , that notwithstanding anything to the contrary in this Section 6(d), no separate consent of the Series A and Series B Preferred Stock shall be required for any approval or consummation of an Acquisition in which holders of Series A and Series B Preferred Stock receive an amount per share at least equal to the Series A Liquidation Amount and Series B Liquidation Amount, respectively.
(B) increase the number of authorized shares of Series A or Series B Preferred Stock; or
(C) reclassify, or obligate itself to reclassify, any other equity security outstanding, including any other security convertible into or exercisable for any equity security, but excluding the Series C Preferred Stock and the Series D Preferred Stock, such that the reclassified security has a preference over, or is made on a parity with, the Series A or Series B Preferred Stock with respect to any of the rights, privileges or preferences of, or restrictions provided for the benefit of the Series A or Series B Preferred Stock.
(e) Series Preferred Stock. So long as any shares of Series Preferred Stock are outstanding, this corporation shall not (whether by merger, consolidation, amendment of charter documents, filing of a certificate of designation, operation of law, or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at a majority of the then outstanding shares of Series Preferred Stock, voting together on an as-converted to Common Stock basis:
(i) merge into or consolidate with any other corporation or entity (other than a wholly owned subsidiary corporation) that does not constitute an Acquisition;
(ii) amend the corporation's Certificate of Incorporation, Bylaws or any certificates of designation so as to adversely affect the rights, preferences and privileges of the or the restrictions provided for any series of the Series Preferred Stock;
(iii) increase the authorized number of Board members from nine (9);
(iv) pay dividends or make other distributions on the capital stock of the corporation, provided , however , that this restriction shall not apply to matters exempted under subsection (v) below;
(v) redeem or repurchase any share or shares of Preferred Stock or Common Stock; provided however , that this restriction shall not apply to either the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the corporation or any subsidiary pursuant to agreements under which the corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the
16
termination of employment, or the redemption of certain series of Series Preferred Stock pursuant to Section 3 hereof;
(vi) incur debt (other than (A) bank and lease credit facilities having an aggregate amount not to exceed $5 million and (B) trade payables); or
(vii) issue any security of a subsidiary of the corporation, other than to the corporation itself.
7. Status of Converted Stock. In the event any shares of Series Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section 4 hereof, the shares so converted or redeemed shall be cancelled and shall not be issuable by the corporation. The Certificate of Incorporation of this corporation shall be appropriately amended to effect the corresponding reduction in the corporation's authorized capital stock.
C. Common Stock.
1. Dividend Rights. Subject to the rights of holders of all classes of stock at the time outstanding having rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the corporation, the assets of the corporation shall be distributed as provided in Section 2 of Article IV(B) hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of this corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title S of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the same compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the Creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.
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For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation, and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:
(a) The management of the business and the conduct of the affairs of the corporation shall be vested in its Board. Subject to the provisions of Article IV(B) hereof, the number of directors which shall constitute the whole Board shall be fixed by, or in the manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot.
(b) After the original or other Bylaws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of Section 109 of the General Corporation Law of the State of Delaware, and, after the corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the Bylaws of the corporation may be exercised by the Board of the corporation; provided, however , that any provision for the classification of directors of the corporation for staggered terms pursuant to the provision of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by the stockholders of the corporation entitled to vote unless provisions for such classification shall be set forth in this Certificate of Incorporation.
(c) Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the Certificate of Incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection (b) of Section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class.
ARTICLE VIII
The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the provision of paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented.
ARTICLE IX
The corporation shall, to the fullest extent permitted by the provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said Section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.
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ARTICLE X
From time to time, subject to Section 6 of Article IV(B) hereof, any of the provisions of this Certificate of Incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this Certificate of Incorporation are granted subject to the provisions of this Article X.
ARTICLE XI
Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the corporation.
ARTICLE XII
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws of the corporation.
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Exhibit 3.04
AMENDED AND RESTATED
BYLAWS
OF
DEXCOM, INC.
(A DELAWARE CORPORATION)
Table of Contents
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Page
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ARTICLE I |
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OFFICES |
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1 |
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Section 1. |
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Registered Office |
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1 |
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Section 2. |
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Other Offices |
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1 |
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ARTICLE II |
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CORPORATE SEAL |
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1 |
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Section 3. |
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Corporate Seal |
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1 |
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ARTICLE III |
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STOCKHOLDERS' MEETINGS |
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1 |
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Section 4. |
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Place of Meetings |
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1 |
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Section 5. |
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Annual Meeting |
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1 |
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Section 6. |
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Special Meetings |
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3 |
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Section 7. |
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Notice of Meetings |
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4 |
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Section 8. |
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Quorum |
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4 |
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Section 9. |
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Adjournment and Notice of Adjourned Meetings |
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4 |
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Section 10. |
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Voting Rights |
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4 |
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Section 11. |
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Joint Owners of Stock |
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5 |
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Section 12. |
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List of Stockholders |
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5 |
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Section 13. |
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Action Without Meeting |
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5 |
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Section 14. |
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Organization |
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6 |
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ARTICLE IV |
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DIRECTORS |
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6 |
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Section 15. |
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Number and Term of Office |
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6 |
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Section 16. |
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Powers |
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6 |
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Section 17. |
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Term of Directors |
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6 |
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Section 18. |
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Vacancies |
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7 |
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Section 19. |
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Resignation |
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7 |
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Section 20. |
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Removal |
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7 |
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(a) |
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Subject to any limitations imposed by applicable law, the Board of |
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Section 21. |
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Meetings |
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8 |
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(a) |
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Annual Meetings |
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8 |
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(b) |
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Regular Meetings |
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8 |
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(c) |
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Special Meetings |
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8 |
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(d) |
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Telephone Meetings |
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8 |
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(e) |
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Notice of Meetings |
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8 |
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(f) |
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Waiver of Notice |
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8 |
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Section 22. |
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Quorum and Voting |
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9 |
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Section 23. |
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Action Without Meeting |
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9 |
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Section 24. |
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Fees and Compensation |
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9 |
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Section 25. |
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Committees |
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9 |
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(a) |
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Executive Committee |
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9 |
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(b) |
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Other Committees |
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9 |
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(c) |
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Term |
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10 |
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(d) |
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Meetings |
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10 |
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Section 26. |
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Organization |
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10 |
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ARTICLE V |
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OFFICERS |
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10 |
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Section 27. |
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Officers Designated |
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10 |
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Section 28. |
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Tenure and Duties of Officers |
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11 |
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(a) |
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General |
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11 |
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(b) |
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Duties of Chairman of the Board of Directors |
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11 |
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(c) |
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Duties of President |
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11 |
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(d) |
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Duties of Vice Presidents |
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11 |
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(e) |
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Duties of Secretary |
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11 |
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(f) |
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Duties of Chief Financial Officer |
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11 |
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Section 29. |
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Delegation of Authority |
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12 |
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Section 30. |
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Resignations |
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12 |
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Section 31. |
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Removal |
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12 |
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ARTICLE VI |
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EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION |
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12 |
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Section 32. |
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Execution of Corporate Instruments |
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12 |
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Section 33. |
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Voting of Securities Owned by the Corporation |
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12 |
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ARTICLE VII |
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SHARES OF STOCK |
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12 |
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Section 34. |
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Form and Execution of Certificates |
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12 |
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Section 35. |
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Lost Certificates |
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13 |
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Section 36. |
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Transfers |
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13 |
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Section 37. |
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Fixing Record Dates |
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13 |
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Section 38. |
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Registered Stockholders |
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14 |
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ARTICLE VIII |
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OTHER SECURITIES OF THE CORPORATION |
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14 |
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Section 39. |
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Execution of Other Securities |
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14 |
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ARTICLE IX |
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DIVIDENDS |
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15 |
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Section 40. |
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Declaration of Dividends |
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15 |
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Section 41. |
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Dividend Reserve |
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15 |
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ARTICLE X |
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FISCAL YEAR |
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15 |
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Section 42. |
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Fiscal Year |
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15 |
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ARTICLE XI |
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INDEMNIFICATION |
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15 |
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Section 43. |
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Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents |
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15 |
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(a) |
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Directors, Executive Officers and Officers |
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15 |
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(b) |
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Employees and Other Agents |
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16 |
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(c) |
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Expenses |
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16 |
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(d) |
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Enforcement |
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16 |
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(e) |
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Non-Exclusivity of Rights |
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17 |
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(f) |
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Survival of Rights |
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17 |
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(g) |
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Insurance |
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17 |
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(h) |
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Amendments |
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17 |
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(i) |
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Saving Clause |
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17 |
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(j) |
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Certain Definitions |
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17 |
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iii
ARTICLE XII |
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NOTICES |
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18 |
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Section 44. |
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Notices |
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18 |
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(a) |
|
Notice to Stockholders |
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18 |
|
(b) |
|
Notice to Directors |
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18 |
|
(c) |
|
Affidavit of Mailing |
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18 |
|
(d) |
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Time Notices Deemed Given |
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18 |
|
(e) |
|
Methods of Notice |
|
19 |
|
(f) |
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Failure to Receive Notice |
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19 |
|
(g) |
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Notice to Person with Whom Communication Is Unlawful |
|
19 |
|
(h) |
|
Notice to Person with Undeliverable Address |
|
19 |
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ARTICLE XIII |
|
AMENDMENTS |
|
19 |
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Section 45. |
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Amendments |
|
19 |
|
ARTICLE XIV |
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RIGHT OF FIRST REFUSAL |
|
20 |
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Section 46. |
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Right of First Refusal |
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20 |
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ARTICLE XV |
|
LOANS TO OFFICERS |
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22 |
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Section 47. |
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Loans to Officers |
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22 |
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ARTICLE XVI |
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MISCELLANEOUS |
|
22 |
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Section 48. |
|
Annual Report |
|
22 |
iv
BYLAWS
OF
DEXCOM, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the principal office of the corporation required to be maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the General Corporation Law of Delaware, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation
1
Notice (as defined in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90 th ) day nor earlier than the close of business on the one hundred twentieth (120 th ) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120 th ) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90 th ) day prior to such annual meeting or the tenth (10 th ) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business
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on the tenth (10 th ) day following the day on which such public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting and shall be held at such place, on such date, and at such time as the Board of Directors shall fix. At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons properly requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
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Section 7. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person or represented by proxy duly authorized at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy duly authorized at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the outstanding shares of such class or classes or series present in person or represented by proxy duly authorized at the meeting shall be the act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No
4
proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the Delaware General Corporation Law, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present.
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the Delaware General Corporation Law if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the Delaware General Corporation Law.
5
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office.
The authorized number of directors of the corporation shall be fixed by the Board of Directors from time to time.
Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient.
Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Term of Directors.
(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
(b) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as
6
such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (a) the names of such candidate or candidates have been placed in nomination prior to the voting and (b) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
Section 18. Vacancies.
(a) Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the Delaware General Corporation Law.
(c) At any time or times that the corporation is subject to §2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or the Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of the stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL, the term of office of any director shall terminate upon that election of a successor. (CGCL §305(c).
Section 19. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.
Section 20. Removal.
(a) Subject to any limitations imposed by applicable law, the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the
7
holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation entitled to vote at an election of directors or (ii) without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors.
(b) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected.
Section 21. Meetings
(a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
(b) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors. No formal notice shall be required for a regular meeting of the Board of Directors.
(c) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, postage prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(f) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of
8
notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of D i rectors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
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(c) Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock, the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman of the Board of D i rectors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of
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the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28.
(c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from-time to time.
(d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall
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designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other. person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the
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name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware General Corporation Law.
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination
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of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or
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where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.
(a) Directors, Executive Officers and Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) and officers to the fullest extent not prohibited by the Delaware General Corporation Law or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the
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corporation under the Delaware General Corporation Law or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
(b) Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the Delaware General Corporation Law or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person to such officers or other persons as the Board of Directors shall determine.
(c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board ofDirectors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the
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applicable standard of conduct set forth in the Delaware General Corporation Law or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law or any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware General Corporation Law, the corporation or any other applicable law, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
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(3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail or by overnight delivery service, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission.
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(e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice.
(g) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(h) Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
Section 45. Amendments. Subject to paragraph (h) of Section 43 of the Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the stockholders entitled to vote. The Board of Directors shall also have the power, if such power is conferred upon the Board of Directors by the Certificate of Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors who shall constitute the whole Board of Directors).
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ARTICLE XIV
RIGHT OF FIRST REFUSAL
Section 46. Right of First Refusal. No stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of common stock, of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw:
(a) If the stockholder desires to sell or otherwise transfer any of his shares of common stock, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (c).
(c) In the event the corporation elects to acquire any of the shares of the transferring stockholder as specified in said transferring stockholder's notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholder's notice; provided that if the terms of payment set forth in said transferring stockholder's notice were other than cash against delivery, the corporation shall pay for said shares on the same terms and conditions set forth in said transferring stockholder's notice.
(d) In the event the corporation does not elect to acquire all of the shares specified in the transferring stockholder's notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation herein, transfer the shares specified in said transferring stockholder's notice which were not acquired by the corporation as specified in said transferring stockholder's notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer.
(e) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw:
(1) A stockholder's transfer of any or all shares held either during such stockholder's lifetime or on death by will or intestacy to such stockholder's immediate family or to any custodian or trustee for the account of such stockholder or such stockholder's immediate family or to any limited partnership of which the stockholder, members of such stockholder's immediate family or any trust for the account of such stockholder or such stockholder's immediate family will be the general of limited partner(s) of such partnership. "Immediate family" as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer.
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(2) A stockholder's bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw.
(3) A stockholder's transfer of any or all of such stockholder's shares to the corporation or to any other stockholder of the corporation.
(4) A stockholder's transfer of any or all of such stockholder's shares to a person who, at the time of such transfer, is an officer or director of the corporation.
(5) A corporate stockholder's transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or all of its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw.
(f) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation.
(g) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed.
(h) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur:
(1) On May 12, 2009; or
(2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.
(i) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION, AS PROVIDED IN THE BYLAWS OF THE CORPORATION."
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ARTICLE XV
LOANS TO OFFICERS
Section 47. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
ARTICLE XVI
MISCELLANEOUS
Section 48. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporation's shares, as determined by Section 605 of the CGCL, additional information as required by Section 1501(b) of the CGCL shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived.
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Exhibit 4.02
DEXCOM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the 30 th day of December 2004 by and among Dexcom, Inc., a Delaware corporation (the " Company "), the investors listed on Schedule A hereto, (each an " Investor ," and collectively the " Investors "), Piper Jaffray & Co. (" Piper " and, except as the context may require, also an "Investor" and one of the "Investors" hereunder) and John F. Burd, Glenn Holdings, L. P. Bret Megargel, Lauren Otsuki, Windamere Venture Partners LLC, Markwell/Dexcom Liquidating Trust, Mark Shults, Stuart Updike, Rathburn K. Rhodes, Barbara J. Gilligan, Andy Rasdal and Mark D. LoGuidice (each a " Founder ," and collectively the " Founders ").
RECITALS
WHEREAS , the Company and the Founders (or predecessors to such Founders) entered into an Amended and Restated Investors' Rights Agreement (the " Original Investors' Rights Agreement ") dated as of December 4, 2000, with certain holders of its Series A Preferred Stock (the " Series A Preferred Stock ") and purchasers of its Series B Preferred Stock (the " Series B Preferred Stock ");
WHEREAS , in connection with the Company's Series C Preferred Stock financing on May 17, 2002, the Company and the Founders (or predecessors to such Founders) amended and restated the Original Investors' Rights Agreement by entering into an Amended and Restated Investors' Rights Agreement (the " Prior Agreement ") dated as of May 17, 2002, with certain holders of its Series A Preferred Stock, Series B Preferred Stock and purchasers of its Series C Preferred Stock (the " Series C Preferred Stock "); and
WHEREAS , in connection with the Company's issuance and sale of shares of its Series D Preferred Stock (the " Series D Preferred Stock " and together with the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the " Series Preferred Stock ") under that certain Series D Preferred Stock Purchase Agreement of even date herewith (the " Purchase Agreement "), the parties hereto desire to amend and restate the Prior Agreement to include the purchasers of the Series D Preferred Stock and to amend and restate certain other terms of the agreement.
AGREEMENT
NOW, THEREFORE , in consideration of the mutual promises and covenants set forth herein, and other good and valuable consideration the sufficiency of which is hereby acknowledged, the Investors who are parties to the Prior Agreement and represent the holders of at least 60% of the Registrable Securities thereunder hereby agree that the Prior Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows:
1. REGISTRATION RIGHTS . The Company covenants and agrees as follows:
1.1 Definitions . For purposes of this Agreement:
(a) The term " Act " means the Securities Act of 1933, as amended.
(b) The term " Form S-3 " means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
(c) The term " Founders' Shares " means the shares of Common Stock held by each of the Founders in the amounts set forth in Schedule B attached hereto (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations (collectively, a " Recapitalization ").
(d) The term " Holder " means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof. Each Holder shall be deemed to hold that number of Registrable Securities that are (i) issued and outstanding and held by such Holder and (ii) issuable upon conversion of any then exercisable or convertible securities held by such Holder. Except as may be set forth in subsection (g) below, Piper (and any authorized transferee of the Warrant) shall be deemed to be a Holder of the Registrable Securities issuable upon conversion of the Series D Preferred Stock issuable (but not yet issued) upon exercise of the Warrant, whether or not such Warrant has been exercised (such Registrable Securities that are issuable upon conversion of shares of Series D Preferred Stock that have not yet been issued upon exercise of the Warrant hereafter, the " Warrant Registrable Securities ").
(e) The term " 1934 Act " shall mean the Securities Exchange Act of 1934, as amended.
(f) The term " register ," " registered ," and " registration " refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document by the SEC.
(g) The term " Registrable Securities " means (i) the Common Stock issuable or issued upon conversion of the Series Preferred Stock held by Investors (or their assigns), (ii) the Founders' Shares; provided, however, that such shares of Common Stock shall not be deemed Registrable Securities and the Founders shall not be deemed Holders for the purposes of Sections 1.2, 1.12 or 1.13; (iii) the Common Stock issued or issuable upon the conversion of any Series D Preferred Stock issued or issuable upon exercise of any warrant issued to Piper pursuant to the terms and conditions of that certain letter agreement between Piper and the Company dated June 28, 2004 (the " Warrant "); provided, however, that such shares of Common Stock shall not be deemed Registrable Securities and the holder of the Warrant shall not be deemed a Holder with respect to such Registrable Securities for the purposes of Sections 1.2, 1.12 or 1.13, (iv) any Common Stock (including Common Stock issuable or issued upon conversion or exercise of securities) acquired by an Investor pursuant to Section 2.2 hereof or any other preemptive right or right of first refusal granted by the Company to an Investor; and (v) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in (i), (ii), (iii) and (iv) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his or her rights under this Section 1 are not assigned and any Registrable Securities that have been sold in an offering registered under the Act or in an open market transaction under Rule 144 of the Act.
(h) The number of shares of " Registrable Securities then outstanding " shall mean the number of shares of Common Stock which are Registrable Securities that are (1) then outstanding and (2) issuable pursuant to then exercisable or convertible securities, excluding any Warrant Registrable Securities.
(i) The term " SEC " shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i) the December 30, 2006, and (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a sale of securities in an SEC Rule 145 transaction), a written
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request from the Holders of at least forty percent (40%) of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of all or any portion of the Registrable Securities then outstanding (provided that the anticipated aggregate offering price, net of underwriting fees, discounts and commissions, would exceed $7,500,000), then the Company shall:
(i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and
(ii) use reasonable, diligent efforts to effect, as soon as practicable after receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(b), within twenty (20) days of the effectiveness of such notice by the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request hereunder (" Initiating Holders ") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than 120 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2:
(i) after the Company has effected two registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective;
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(ii) if the Company has effected a registration pursuant to this Section 1.2 within the preceding twelve (12) months, and such registration has been declared or ordered effective;
(iii) during the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;
(iv) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.12 below; or
(v) if Holders of a majority of the Registrable Securities to be registered make a request to the Company in writing that the registration be withdrawn.
1.3 Company Registration. If at any time after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a sale of securities in a SEC Rule 145 transaction) (but without any obligation to do so), the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable in connection with an acquisition or merger or upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after the effectiveness of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (I) includes any prospectus required
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by Section 10(a)(3) of the Act or (II) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (I) and (II) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act.
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and promptly take such actions (including making appropriate filings with the SEC) as are necessary to supplement or correct such prospectus so as to correct the untrue statement of material facts or to disclose the omitted material facts.
(g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company on written request therefor such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 if, due to the operation of subsection (a) above, the number of shares
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or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a).
1.6 Expenses of Demand Registration. The Company shall bear and pay all expenses, other than underwriting discounts and commissions relating to Registrable Securities, incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.2 for each Holder, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company in its capacity as counsel to the selling Holders hereunder; if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one counsel for the selling Holders selected by them; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered or such registration request lapses in accordance with Section 1.5(b) above (in which cases all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities then outstanding agree to forfeit their right to one demand registration pursuant to Section 1.2.
1.7 Expenses of Company Registration . The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company in its capacity as counsel to the selling Holders hereunder; if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one counsel for the selling Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities.
1.8 Underwriting Requirements . In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders); provided that (i) in no event shall the number of shares of Registrable Securities to be included in such underwriting (excluding any Founders' Shares) be reduced unless all other securities to be sold other than by the Company, including the Founders' Shares, are first entirely excluded from such underwriting, and (ii) the number of shares of Registrable Securities to be included in such underwriting shall not be reduced to less than thirty percent (30%) of any offering after the initial public offering of the Company's securities. For purposes of the preceding proviso concerning apportionment, for any selling stockholder which is a Holder of Registrable Securities and which is
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a partnership, limited liability company or corporation, the partners, retired partners, members, retired members and stockholders of such Holder, or the estates and family members of any such partners, retired partners, members and retired members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence.
1.9 Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder (and any partner, director, member or officer of such Holder), any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any expenses, losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such expenses, losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a " Violation "): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law, or any other federal or state law; and the Company will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such expense, loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such expense, loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder, severally, and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any expenses, losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject under the Act, the 1934 Act or other federal or state law, insofar as such expenses, losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be
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indemnified pursuant to this subsection 1.10(b) in connection with investigating or defending any such expense, loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such expense, loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, further, that, in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding or if the indemnifying party fails to assume the defense of the claim on a timely basis. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10.
(d) The foregoing indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the " Final Prospectus "), such indemnity agreement shall not inure to the benefit of any indemnified party if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act.
(e) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. No Holder shall be required to contribute any amount in excess of the net proceeds received by such Holder in the offering.
8
(f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(g) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective (or as earlier required by any stock exchange on which the Company's securities are traded);
(c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive a written request from the Holders of at least ten percent (10%) of the Registrable Securities then outstanding that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holders, the Company will:
(a) promptly (and in any event, within twenty (20) days after such request) give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and
(b) as soon as reasonably practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided,
9
however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $1,000,000 (net of any underwriters' fees, discounts or commissions); (3) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.12; (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; or (6) if Holders of a majority of the Registrable Securities to be registered make a request to the Company in writing that the registration be withdrawn.
(c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses other than underwriting discounts and commissions incurred in connection with registrations requested pursuant to Section 1.12, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company (including fees and disbursements of counsel for the Company in its capacity as counsel to the selling Holders hereunder; if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one counsel for the selling Holders) shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.12 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities then outstanding agree to forfeit their right to have the Company bear the expenses of one (1) Form S-3 registration pursuant to this Section 1.12. Registrations effected pursuant to this Section 1.12 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to one or more transferees or assignees of such securities, other than to a direct competitor of the Company having competitive business operations, as reasonably determined by the Company (an " Assignee "), (i) who is an employee, member, partner, affiliate of such Holder or affiliated partnership or limited liability company managed by such Holder, or (ii) who each, after such assignment or transfer, acquires at least ten percent (10%) (subject to appropriate adjustment for any Recapitalization) of the Registrable Securities originally purchased by the Investor, provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such Assignee and the securities with respect to which such registration rights are being assigned; (b) such Assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.14 below; and (c) such assignment shall be effective only if
10
immediately following such transfer the further disposition of such securities by the Assignee is restricted under the Act. For the purposes of determining the number of shares of Registrable Securities held by an Assignee, the holdings of Assignees of a partnership or limited liability company who are partners, retired partners, members or retired members of such partnership or limited liability company (including spouses and ancestors, lineal descendants and siblings of such partners, members or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership or limited liability company; provided that all Assignees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1.
1.14 "Market Stand-Off' Agreement. Each Investor hereby agrees that, during the period of duration specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that:
(a) such market stand-off agreement shall be applicable only to the first such registration statement of the Company that covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering;
(b) such market stand-off time period shall not exceed 180 days;
(c) all officers and Founders of the Company enter into similar agreements;
(d) all holders of one percent (1.0%) or more of the Company's outstanding Common Stock (assuming the conversion of all Preferred Stock into Common Stock) enter into similar agreements or are bound by provisions similar to this Section 1.14; and
(e) any discretionary waivers or terminations of the lockup provisions contained herein or contained in other agreements with the persons described in clause (d) are applied or offered to all persons subject to such lockup restrictions on a pro rata basis based on the number of securities of the Company held by each such person (on an as-converted to Common Stock basis, in the case of convertible securities) subject to such lockup provisions.
Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company's initial public offering that are consistent with this Section 1.14 or that are necessary to give further effect thereto.
In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this Section 1.14 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-14 or Form S-15 or similar forms which may be promulgated in the future.
1.15 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided for in this Section 1 after seven (7) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public.
(i) In addition, no Holder shall be entitled to exercise any right provided for in this Section 1 during such time (and only during such time) following the closing of the first Company-initiated registered public offering of Common Stock of the Company if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any 90-day period.
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1.16 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding (excluding the Founders' Shares), enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 or 1.3 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included, or (b) to make a demand registration other than under a registration statement on Form S-3 or any successor registration statement thereto.
2. ADDITIONAL COVENANTS.
2.1 Delivery of Financial Statements. The Company shall deliver to each Investor who holds not less than one million (1,000,000) shares of Series Preferred Stock (subject to adjustment in the event of any stock dividend, combination, split, recapitalization and the like), on an as-converted to Common Stock basis, and to each Investor who holds Series C Preferred Stock or Series D Preferred Stock (or in either case, Common Stock issued upon conversion thereof):
(i) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (" GAAP "), and audited and certified by independent public accountants of nationally recognized standing selected by the Company;
(ii) as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, schedule as to the sources and application of funds for such fiscal quarter, and an unaudited balance sheet as of the end of such fiscal quarter; and
(iii) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget (prepared on a monthly basis) for the next fiscal year approved by the Company's Board of Directors and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and
(iv) within thirty (30) days of the end of each month, an unaudited income statement and schedule as to the sources and application of funds and balance sheet for and as of the end of such month, in reasonable detail.
2.2 Right of First Offer. Subject to the terms and conditions specified in this Section 2.2, the Company hereby grants to each Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.2, Investor includes any partners, members and affiliates of an Investor ( provided , in each such case, that such person can establish to the Company's reasonable satisfaction that it is an "accredited investor" pursuant to Regulation D promulgated under the Securities Act). An Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners, members and affiliates in such proportions as it deems appropriate.
(a) Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock (" Shares "), the Company shall
12
first make an offering of such Shares to each Investor in accordance with the following provisions:
(i) The Company shall deliver a notice in accordance with Section 3.5 hereof (" Notice ") to each Investor stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares.
(ii) Within thirty (30) calendar days after receipt of the Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series Preferred Stock then held, by such Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). The Company shall promptly, in writing, inform each Investor which purchases all the shares available to it (" Fully-Exercising Investor ") of any other Investor's failure to do likewise. During the ten-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to elect to purchase or obtain that portion of the Shares for which Investors were entitled to subscribe but which were not subscribed for by the Investors which is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series Preferred Stock then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Series Preferred Stock then held, by all Fully-Exercising Investors who wish to purchase some of the unsubscribed Shares.
(iii) If all Shares which Investors are entitled to obtain pursuant to Section 2.2(b) are not elected to be obtained as provided in subsection 2.2(b) hereof, the Company may, during the 90-day period following the expiration of the period provided in Section 2.2 (b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith.
(b) The right of first offer in this Section 2.2 shall not be applicable (i) to the issuance or sale of the number of shares of Common Stock (or options therefor) that constitutes the then applicable Employee Reserve (as that term is defined in the Company's Certificate of Incorporation); (ii) to or after consummation of an Approved IPO (as such term is defined in the Company's Certificate of Incorporation); (iii) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities provided such convertible or exercisable securities were first offered to the Investors except if (1) excluded pursuant to this Section 2.2(b) or (2) outstanding as of the date hereof; (iv) any securities that constitute the then applicable Strategic Reserve (as defined in the Company's Certificate of Incorporation); or (v) to the issuance of securities pursuant to the Purchase Agreement.
The right of first offer set forth in this Section 2.2 may not be assigned or transferred by an Investor except in connection with a transfer of the underlying shares held by the Investor.
2.3 Inspection. The Company shall permit each Investor who holds not less than two hundred fifty thousand (250,000) shares of Series Preferred Stock of the Company (subject to adjustment in the event of any stock dividend, combination, split, recapitalization and the like), on an
13
as-converted to Common Stock basis (or Common Stock issued upon conversion thereof), subject to execution of reasonable nondisclosure agreements (if appropriate), to visit and inspect the properties of the Company, including its corporate and financial records, and to discuss its business and finances with the officers of the Company, during normal business hours following reasonable notice and as often as may be reasonably requested.
2.4 Stock Vesting. Unless otherwise approved by the Board of Directors of the Company (including either the Canaan Director, the RWI Director, or the Warburg Director (as defined in the Second Amended and Restated Voting Agreement of even date herewith by and among the Company and the Investors (the " Voting Agreement ")), all shares of Common Stock and options to purchase shares of Common Stock issued by the Company after the date of this Agreement to employees, directors and consultants shall be subject to vesting as follows: (i) twenty-five percent (25%) of such stock shall vest at the end of the first year following the vesting commencement date determined by the Board of Directors, and (ii) the remainder shall vest in equal monthly increments over the next three years.
2.5 Key Man Insurance. The Company will use commercially diligent efforts to maintain in full force and effect for so long as the policies are available on commercially reasonable terms or until such other time as approved by the Board of Directors (including either the Canaan Director, the RWI Director or the Warburg Director term life insurance in the amount of $3,000,000 and $1,000,000 on the lives of Andy Rasdal and Jim Brauker, respectively, naming the Company as the beneficiary.
2.6 Directors' and Officers' and Other Insurance. The Company will use best efforts to maintain in full force and effect, except as otherwise approved by the Board of Directors (including the RWI Director or Warburg Director) directors' and officers' liability insurance in the amount of $3,000,000. The Company will use commercially reasonable efforts to maintain general commercial, fire and casualty insurance policies with coverage customary for companies similarly situated to the Company.
2.7 Proprietary Information Agreement. The Company will cause each employee, officer and consultant of the Company to be hired at any time after the date hereof to sign a Proprietary Information Agreement in substantially the form provided to special counsel to Warburg Pincus and its affiliated entities.
2.8 Termination of Certain Covenants. The covenants set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5 and 2.6 shall terminate and be of no further force or effect immediately prior to the consummation of the first to occur of (i) an Approved IPO, (ii) a sale of all or substantially all of the assets of the Company, and (iii) an Acquisition of the Company (as defined in the Company's Certificate of Incorporation).
3. MISCELLANEOUS.
3.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California without regard to the principles of conflicts of law.
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3.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
3.5 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified, or (ii) three (3) business days following deposit with the United States Post Office by certified mail or one (1) business day following deposit with an overnight courier, by overnight mail, postage prepaid, and (a) if addressed to a holder of Series C Preferred Stock, at such stockholder's address appearing on the signature page to the Purchase Agreement, (b) if addressed to a Founder or Investor other than a Founder or Investor in (a) above, at such Investor's or Founder's address appearing on the books of the Company, or at such address as any party may designate by ten (10) days advance written notice to the Company, or (c) if addressed to the Company, at its principal office.
3.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors holding at least a majority of the Registrable Securities then outstanding; provided, however, that the piggyback registration rights granted to the Founders under Section 1.3 of this Agreement may not be eliminated or materially and adversely changed in a manner different than the corresponding change to the piggyback registration rights of other Holders without the written consent of persons holding a majority of the Founders' Shares; and provided, further, that the grant to third parties of piggyback registration rights under Section 1.3 hereof on a pari passu basis with the piggyback registration rights of the Investors under Section 1.3 shall not be deemed to be a material and adverse change to the piggyback registration rights of the Founders under this Agreement. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
3.10 Waiver of Preemptive Rights. On behalf of themselves as well as all other "Investors" who are parties to the Prior Agreement, the Investors signing this Agreement who are also parties to the Prior Agreement hereby waive all preemptive rights, including without limitation rights of first offer and rights of notice under Section 2.3 of the Prior Agreement with respect to the issuance of shares of Series D Preferred Stock under the Purchase Agreement, as it may be amended from time to time hereafter.
3.11 Entire Agreement. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and supercedes any and all prior or contemporaneous agreements with respect to the subject matter hereof, including without limitation the Prior Agreement.
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Schedule A
INVESTORS
Name
|
|
---|---|
Warburg Pincus Private Equity VIII, L.P. |
|
Warburg Pincus Netherlands Private Equity VIII I C.V. |
|
Warburg Pincus Netherlands Private Equity VIII II C.V. |
|
Warburg Pincus Germany Private Equity VIII K.G. |
|
Vertical Fund I, L.P. |
|
Vertical Fund II, L.P. |
|
Glen Nelson |
|
Jay Skyler |
|
RWI Group III, L. P. |
|
RWI Group IV, L. P. |
|
Pronghorn Ventures IV, LLC |
|
Brenden Joseph Cassin and Isabel B. Cassin, Trustees of the Cassin Family Trust U/D/T, dated 1/31/96 |
|
Cassin Family Partners, a California Limited Partnership |
|
Cassin Educational Initiative Foundation |
|
Robert S. Cassin Charitable Trust UTA, dated 2/20/97 |
|
David Ferris Ellison Trust |
|
Margaret Elizabeth Ellison Trust |
|
Donald L. Lucas, TTEE, Donald L. Lucas & Lygia S. Lucas Trust, dated 12/3/84 |
|
Donald L. Lucas, SUCC TTEE, Donald L. Lucas Profit Sharing Trust, dated 1/1/84 |
|
Monmouth College |
|
Richard M. Lucas Foundation |
|
Sand Hill Financial Company |
|
Tako Ventures |
|
Teton Capital Company |
|
Transylvania University |
|
Black Diamond Ventures X, LLC |
|
St. Paul Venture Capital VI, LLC |
|
St. Paul Venture Capital Affiliates Fund I, LLC |
|
St. Paul Venture Capital V, LLC |
|
Fog City Fund, LLC |
|
Windamere LLC |
|
Windamere II, LLC |
|
Windamere III, LLC |
|
Canaan Equity II L. P. |
|
Canaan Equity II, L. P. (QP) |
|
Canaan Equity II Entrepreneurs LLC |
|
GC&H Investments |
|
The Kaufmann Fund |
|
Pirateship & Co., as Nominee for Invesco Global Health Sciences Fund |
|
Kim Blickenstaff |
|
Nancy S. Olson Trust dated March 19, 1998 |
|
Dr. Andrew D. Firlik |
|
Lawrence Auriana |
|
Vivian Wohl |
|
John Gorman |
|
Hans Utsch |
|
Seth Rudnick |
|
Campfire Family LLC |
|
Arthur J. Samberg |
|
Kevin O'Brien |
|
Sheila Clancy |
|
Mark LoGuidice in his own right and as proxy for the following stockholder: |
|
David L. Pierson |
|
Mary Anne Burr |
|
Philip J. LoGuidice, Jr. |
|
Rae Ko Fairfield |
|
Terrence A. Fairfield |
|
Daniel Fairfield |
|
Maurice Mell Smith, M. D. |
|
Robert A. Compton |
|
George A. Trutza |
|
Mark Steven Kuzio |
|
Larry C. Heaton II |
|
Kevin T. Foley, M. D. |
|
Steven Michael Foster |
|
Nicholas Lake |
|
Sheila J. Clancy |
|
John A. Pafford |
|
Stephen H. Penfold |
Schedule B
LIST OF FOUNDERS
Name
|
---|
John F. Burd |
The 8 of a Kind Trust |
Glenn Holdings, L. P. |
Bret Megargel |
Lauren Otsuki |
Mark LoGuidice |
Windamere Venture Partners LLC |
Markwell/Dexcom Liquidating Trust |
Mark Shults |
Stuart Updike |
Rathburn K. Rhodes |
Barbara J. Gilligan |
Andy Rasdal |
SCHEDULE C
INVESTORS FOR WHOM MARK LOGUIDICE IS THE PROXY
David L. Pierson |
Mary Anne Burr |
Philip J. LoGuidice, Jr. |
Rae Ko Fairfield |
Terrence A. Fairfield |
Daniel Fairfield |
Maurice Mell Smith, M. D. |
Robert A. Compton |
George A. Trutza |
Mark Steven Kuzio |
Larry C. Heaton II |
Kevin T. Foley, M. D. |
Steven Michael Foster |
Nicholas Lake |
Sheila J. Clancy |
John A. Pafford |
Stephen H. Penfold |
Exhibit 10.01
This Indemnity Agreement (this " Agreement "), dated as of , 2005, is made by and between DexCom, Inc., a Delaware corporation (the " Company "), and [ ], a director and/or officer of the Company (the " Indemnitee ").
A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and because the exposure frequently bears no reasonable relationship to the compensation of such directors and officers;
B. Based on their experience as business managers, the Board of Directors of the Company (the " Board ") has concluded that, to retain and attract talented and experienced individuals to serve as officers and directors of the Company, and to encourage such individuals to take the business risks necessary for the success of the Company, it is necessary for the Company contractually to indemnify officers and directors and to assume for itself maximum liability for expenses and damages in connection with claims against such officers and directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which the Company is organized (the " Law ") empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by the Law is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company free from undue concern for claims for damages arising out of or related to such services to the Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions.
1.1 Agent. For the purposes of this Agreement, " agent " of the Company means any person who is or was a director or officer of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interest of the Company or a subsidiary of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or an affiliate of the Company; or was a director or officer of a foreign or domestic corporation which was a predecessor corporation of the Company, or was a director or officer of another enterprise or affiliate of the Company at the request of, for the convenience of, or to represent the interests of such predecessor corporation. The term " enterprise " includes any employee benefit plan of the Company, its subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, " expenses " includes all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements and other out-of-pocket costs) actually and reasonably incurred by the Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement.
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1.3 Proceeding. For the purposes of this Agreement, " proceeding " means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever.
1.4 Subsidiary. For purposes of this Agreement, " subsidiary " means any corporation of which more than fifty percent (50%) of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more of its subsidiaries or by one or more of the Company's subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as an agent of the Company, at the will of the Company (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an agent of the Company, faithfully and to the best of his ability, so long as he or she is duly appointed or elected and qualified in accordance with the applicable provisions of the charter documents of the Company or any subsidiary of the Company; provided , however , that the Indemnitee may at any time and for any reason resign from such position (subject to any contractual obligation that the Indemnitee may have assumed apart from this Agreement), and the Company or any subsidiary shall have no obligation under this Agreement to continue the Indemnitee in any such position.
3. Directors' and Officers' Insurance. The Company shall, to the extent that the Board determines it to be economically reasonable, maintain a policy of directors' and officers' liability insurance (" D&O Insurance "), on such terms and conditions as may be approved by the Board.
4. Mandatory Indemnification. Subject to Section 9 below, the Company shall indemnify the Indemnitee:
4.1 Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and
4.2 Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any amounts paid in settlement of any such proceeding and all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his duty to the Company, unless and only to the extent that the Court of Chancery or the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the Court of Chancery or such other court shall deem proper.
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4.3 Exception for Amounts Covered by Insurance. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to the Indemnitee by D&O Insurance.
5. Partial Indemnification and Contribution.
5.1 Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him or her in the investigation, defense, settlement or appeal of a proceeding but is not entitled, however, to indemnification for all of the total amount thereof, then the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification.
5.2 Contribution. If the Indemnitee is not entitled to the indemnification provided in Section 4 for any reason other than the statutory limitations set forth in the Law, then in respect of any threatened, pending or completed proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such proceeding), the Company shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 5.2 were determined by pro rata allocation or any other method of allocation that does not take account of the foregoing equitable considerations.
6. Mandatory Advancement of Expenses.
6.1 Advancement. Subject to Section 9.1 below and except as prohibited by law, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company or by reason of anything done or not done by him in any such capacity. The Indemnitee hereby undertakes to promptly repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Certificate of Incorporation or Bylaws of the Company, the Law or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of this Section 6, the Company shall not be obligated to advance any expenses to the Indemnitee arising from a lawsuit filed directly by the Company against the Indemnitee if an absolute majority of the members of the Board reasonably determines in good faith, within thirty (30) days of the Indemnitee's request to be advanced expenses, that the facts known to them at the time such determination is made demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If such a
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determination is made, the Indemnitee may have such decision reviewed by another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being deemed to refer to "advancement of expenses," and the burden of proof shall be on the Company to demonstrate clearly and convincingly that, based on the facts known at the time, the Indemnitee acted in bad faith. The Company may not avail itself of this Section 6.2 as to a given lawsuit if, at any time after the occurrence of the activities or omissions that are the primary focus of the lawsuit, the Company has undergone a change in control. For this purpose, a change in control shall mean a given person or group of affiliated persons or groups increasing their beneficial ownership interest in the Company by at least twenty (20) percentage points without advance Board approval.
7. Notice and Other Indemnification Procedures.
7.1 Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the expenses for any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that: (a) the Indemnitee shall have the right to employ his or her own counsel in any such proceeding at the Indemnitee's expense and (b) if (i) the employment of counsel by the Indemnitee has been previously authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitee's counsel shall be at the expense of the Company.
8. Determination of Right to Indemnification.
8.1 To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or matter described therein, the Company shall indemnify the Indemnitee against expenses actually and reasonably incurred by him or her in connection with the investigation, defense or appeal of such proceeding, or such claim, issue or matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not apply to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee unless the Company shall prove by clear and convincing evidence to a forum listed in Section 8.3 below that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which the validity of the Company's claim under Section 8.2 hereof that the Indemnitee is not entitled to indemnification
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will be heard from among the following, except that the Indemnitee can select a forum consisting of the stockholders of the Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are not parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee and the Board, which counsel shall make such determination in a written opinion;
(d) A panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by the Indemnitee and the last of whom is selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware.
8.4 As soon as practicable, and in no event later than thirty (30) days after the forum has been selected pursuant to Section 8.3 above, the Company shall, at its own expense, submit to the selected forum its claim that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is not a court, then after the final decision of such forum is rendered, the Company or the Indemnitee shall have the right to apply to the Court of Chancery of Delaware, for the purpose of appealing the decision of such forum, provided that such right is executed within sixty (60) days after the final decision of such forum is rendered. If the forum selected in accordance with Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee to appeal any decision of such court shall be governed by the applicable laws and rules governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify the Indemnitee against all expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all expenses incurred by the Indemnitee in connection with any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of the Indemnitee in any such proceeding was frivolous or not made in good faith.
9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to proceedings specifically authorized by the Board or brought to establish or enforce a right to indemnification and/or advancement of expenses arising under this Agreement, the charter documents of the Company or any subsidiary or any statute or law or otherwise, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld; or
9.3 Securities Law Actions. To indemnify the Indemnitee on account of any suit in which judgment is rendered against the Indemnitee for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b)
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of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication.
10. Non-Exclusivity. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or Bylaws, the vote of the Company's stockholders or disinterested directors, other agreements or otherwise, both as to action in the Indemnitee's official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee.
11. General Provisions.
11.1 Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of expenses to the Indemnitee to the fullest extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, then: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.
11.4 Subrogation. In the event of full payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
11.5 Counterparts. This Agreement may be executed in one or more counterparts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.
11.7 Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given: (a) if delivered by hand and signed for by the party addressee; or (b) if mailed by certified or registered mail, with postage prepaid, on
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the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice.
11.8 Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws.
11.9 Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring any action to enforce rights under this Agreement (including, without limitation, the expenses of any Proceeding described in Section 1.3) the Indemnitee shall be entitled to all reasonable fees and expenses in bringing and pursuing such action, unless a court of competent jurisdiction finds each of the material claims of the Indemnitee in any such action was frivolous and not made in good faith.
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IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity Agreement effective as of the date first written above.
COMPANYDEXCOM, INC. | INDEMNITEE: | |||
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[SIGNATURE PAGE TO DEXCOM, INC. INDEMNITY AGREEMENT]
Exhibit 10.02
DEXCOM, INC.
1999 STOCK OPTION PLAN
As approved by the Board of Directors on August 11, 1999 and amended through December 7, 2004
1. PURPOSES.
(a) Eligible Option Recipients . The persons eligible to receive Options are the Employees, Directors and Consultants of the Company and its Affiliates.
(b) Available Options . The purpose of the Plan is to provide a means by which eligible recipients of Options may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Options: (i) Incentive Stock Options and (ii) Nonstatutory Stock Options.
(c) General Purpose . The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Options, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with subsection 3(c).
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Dexcom, Inc., a Delaware corporation.
(g) "Consultant" means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant" shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a director's fee by the Company for their services as Directors.
(h) "Continuous Service" means that the Optionholder's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Optionholder's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionholder renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Optionholder renders such service, provided that there is no interruption or termination of the Optionholder's Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.
(i) "Covered Employee" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means (i) before the Listing Date, the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person's position with the Company or an Affiliate of the Company because of the sickness or injury of the person and (ii) after the Listing Date, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock shall be determined in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations.
(o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(p) "Listing Date" means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with the provisions of Section 25100(o) of the California Corporate Securities Law of 1968.
(q) "Non-Employee Director" means a Director of the Company who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option.
(s) "Officer" means (i) before the Listing Date, any person designated by the Company as an officer and (ii) on and after the Listing Date, a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
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(t) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Outside Director" means a Director of the Company who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code.
(x) "Plan" means this DexCom, Inc. 1999 Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(z) "Securities Act" means the Securities Act of 1933, as amended.
(aa) "Ten Percent Stockholder" means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) Administration by Board . The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).
(b) Powers of Board . The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each Option shall be granted; what type of Option shall be granted; the provisions of each Option granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to an Option; and the number of shares with respect to which an Option shall be granted to each such person.
(ii) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.
(c) Delegation to Committee .
(i) General . The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term "Committee" shall apply to any
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person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded . At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Options to eligible persons who are either (1) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option or (2) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or) (ii) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Options to eligible persons who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) Share Reserve . Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Options shall not exceed in the aggregate Ten Million Seventy-Five Thousand Five Hundred Twenty-Two (10,075,522) shares of Common Stock.
(b) Reversion of Shares to the Share Reserve . If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Option shall revert to and again become available for issuance under the Plan. If any Common Stock acquired pursuant to the exercise of an Option shall for any reason be repurchased by the Company under an unvested share repurchase option provided under the Plan, the stock repurchased by the Company under such repurchase option shall not revert to and again become available for issuance under the Plan.
(c) Source of Shares . The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
(d) Share Reserve Limitation . Prior to the Listing Date, at no time shall the total number of shares issuable upon exercise of all outstanding Options and the total number of shares provided for under any stock bonus or similar plan of the Company exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Section 260.140.45 of Title 10 of the California Code of Regulations, based on the shares of the Company which are outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) Eligibility for Specific Options . Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders . No Ten Percent Stockholder shall be eligible for the grant of an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent
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(110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be eligible for the grant of a Nonstatutory Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant
(c) Section 162(m) Limitation . Subject to the provisions of Section 10 relating to adjustments upon changes in stock, no employee shall be eligible to be granted Options covering more than two hundred fifty thousand (250,000) shares of the Common Stock during any calendar year. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, this subsection 5(c) shall not apply until (i) the earliest of: (1) the first material modification of the Plan (including any increase in the number of shares reserved for issuance under the Plan in accordance with Section 4); (2) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or (4) the first meeting of stockholders at which Directors of the Company are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under Section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
(a) Term . Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option . Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option . Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option granted prior to the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option granted on or after the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
(d) Consideration . The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) by (1) delivery to the Company of other Common Stock,
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(2) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock) with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option . An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(e), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option . A Nonstatutory Stock Option granted prior to the Listing Date shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or after the Listing Date shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(f), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) Vesting Generally . The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments which may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised.
(h) Minimum Vesting Prior to the Listing Date . Notwithstanding the foregoing subsection 6(g), Options granted prior to the Listing Date shall provide for vesting of the total number of shares at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment. However, in the case of such Options granted to Officers, Directors or Consultants, the Option may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company; for example, the vesting provision of the Option may provide for vesting of less than twenty percent (20%) per year of the total number of shares subject to the Option.
(i) Termination of Continuous Service . In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement, which, for Options granted prior to the Listing Date, shall not be less than thirty (30) days, unless such termination is for cause), or (ii) the expiration of the term of the
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Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.
(j) Extension of Termination Date . An Optionholder's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.
(k) Disability of Optionholder . In the event an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement, which, for Options granted prior to the Listing Date, shall not be less than six (6) months) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.
(l) Death of Optionholder . In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement, which, for Options granted prior to the Listing Date, shall not be less than six (6) months) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.
(m) Early Exercise . The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Subject to the "Repurchase Limitation" in subsection 9(h), any unvested shares so purchased may be subject to an unvested share repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate.
(n) Right of Repurchase . Subject to the "Repurchase Limitation" in subsection 9(h), the Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares acquired by the Optionholder pursuant to the exercise of the Option.
(o) Right of First Refusal . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or any part of the shares exercised pursuant to the Option. Except as expressly provided in this subsection 6(o), such right of first refusal shall otherwise comply with any applicable provisions of the Bylaws of the Company.
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(p) Re-Load Options . Without in any way limiting the authority of the Board to make or not to make grants of Options hereunder, the Board shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionholder to a further Option (a "Re-Load Option") in the event the Optionholder exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option shall (i) provide for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the same exercise price and term provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollars ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 9(d) and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options under subsection 5(c) and shall be subject to such other terms and conditions as the Board may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.
7. COVENANTS OF THE COMPANY.
(a) Availability of Shares . During the terms of the Options, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Options.
(b) Securities Law Compliance . The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Options and to issue and sell shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
(a) Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Acceleration of Exercisability and Vesting . The Board shall have the power to accelerate the time at which an Option may first be exercised or the time during which an Option or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Option stating the time at which it may first be exercised or the time during which it will vest.
(b) Stockholder Rights . No Optionholder shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms.
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(c) No Employment or other Service Rights . Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Optionholder any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Option was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(d) Incentive Stock Option $100,000 Limitation . To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
(e) Investment Assurances . The Company may require an Optionholder, as a condition of exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the Company as to the Optionholder's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that the Optionholder is acquiring the stock subject to the Option for the Optionholder's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the Option has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.
(f) Withholding Obligations . To the extent provided by the terms of an Option Agreement, the Optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under an Option by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option; or (iii) delivering to the Company owned and unencumbered shares of the Common Stock.
(g) Information Obligation . Prior to the Listing Date, to the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Optionholders at least annually. This subsection 9(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information.
(h) Repurchase Limitation . The terms of any repurchase option shall be specified in the Option and may be either at Fair Market Value at the time of repurchase or at not less than the original purchase price. To the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations, any repurchase option contained in an Option granted prior to the
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Listing Date to a person who is not an Officer, Director or Consultant shall be upon the terms described below:
(i) Fair Market Value . If the repurchase option gives the Company the right to repurchase the shares upon termination of employment at not less than the Fair Market Value of the shares to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of termination of Continuous Service (or in the case of shares issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Optionholder (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock") and (ii) the right terminates when the shares become publicly traded.
(ii) Original Purchase Price . If the repurchase option gives the Company the right to repurchase the shares upon termination of Continuous Service at the original purchase price, then (i) the right to repurchase at the original purchase price shall lapse at the rate of least twenty percent (20%) of the shares per year over five (5) years from the date the Option is granted (without respect to the date the Option was exercised or became exercisable) and (ii) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of termination of Continuous Service (or in the case of shares issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Optionholder (for example, for purposes of satisfying the requirements of Section 1202(c)(3) the Code regarding "qualified small business stock").
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) Capitalization Adjustments . If any change is made in the stock subject to the Plan, or subject to any Option, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Options will be appropriately adjusted in the class(es) and number of securities and price per share of stock subject to such outstanding Options. The Board, the determination of which shall be final, binding and conclusive, shall make such adjustments. (The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.)
(b) Change in ControlDissolution or Liquidation . In the event of a dissolution or liquidation of the Company, then such Options shall be terminated if not exercised (if applicable) prior to such event.
(c) Change in ControlAsset Sale, Merger, Consolidation or Reverse Merger . In the event of (i) a sale of substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Options outstanding under the Plan or shall substitute similar Options (including an option to acquire the same consideration paid to the stockholders in the transaction described in this subsection 10(c) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation refuses to
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assume such Options or to substitute similar Options for those outstanding under the Plan, then with respect to Options held by Optionholders whose Continuous Service has not terminated, the vesting of such Options shall be accelerated in full, and the Options shall terminate if not exercised at or prior to such event. With respect to any other Options outstanding under the Plan, such Options shall terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) Amendment of Plan . The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) Stockholder Approval . The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments . It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights . Rights under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing.
(e) Amendment of Options . The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) Plan Term . The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Options may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights . Suspension or termination of the Plan shall not impair rights and obligations under any Option granted while the Plan is in effect except with the written consent of the Optionholder.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.
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ATTACHMENT I
STOCK OPTION AGREEMENT
DEXCOM, INC.
1999 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock Option Agreement, Dexcom, Inc. (the "Company") has granted you an option under its 1999 Stock Option Plan (the "Plan") to purchase the number of shares of the Company's Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Company's form of Early Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as provided in the Plan, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which your option plus all other incentive stock options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as nonstatutory stock options.
4. ISO EXERCISE LIMITATION.
(a) The aggregate Fair Market Value of the shares of Common Stock with respect to which you may exercise your option for the first time during any calendar year, when added to the aggregate Fair Market Value of the shares of Common Stock subject to any other options designated as Incentive Stock Options and granted to you under any stock option plan of the Company or an Affiliate prior to the Date of Grant with respect to which such options are exercisable for the first time during the same calendar year, shall not exceed $100,000 (the "ISO Exercise Limitation") unless applicable law requires that your option be exercisable sooner. For purposes of this Section 4, your options designated as Incentive Stock Options shall be taken into account in the order in which they were granted to you, and the Fair Market Value of shares of Common Stock shall be determined as of the time the option with respect to such shares of
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Common Stock is granted. If Section 422 of the Code is amended to provide for a different limitation from that set forth in this provision, the ISO Exercise Limitation shall be deemed amended effective as of the date required or permitted by such amendment to the Code.
(b) Notwithstanding the provisions of Section 4(a), if the ISO Exercise Limitation would prevent you from exercising your option as to vested shares, then the ISO Exercise Limitation shall terminate as to such vested shares as such shares vest, and you may exercise your option as to such vested shares. Upon such termination of the ISO Exercise Limitation, your option shall be deemed a Nonstatutory Stock Option to the extent of the number of vested shares of Common Stock subject to your option that exceed the ISO Exercise Limitation.
(c) The ISO Exercise Limitation shall terminate, and you may fully exercise your option, as to all vested shares of Common Stock subject to your option, upon the earlier of the following events:
(d) Upon such termination of the ISO Exercise Limitation, your option shall be deemed a Nonstatutory Stock Option to the extent of the number of shares of Common Stock subject to your option that exceed the ISO Exercise Limitation.
5. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice , which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , by delivery of already owned shares of Common Stock either that you have held for the period required to avoid a charge to the Company's reported earnings (generally six months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. "Delivery" for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company's stock.
6. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
7. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must also comply with other applicable
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laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
8. TERM. The term of your option commences on the Date of Grant and expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in the preceding paragraph relating to "Securities Law Compliance," your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous Service due to your Disability;
(c) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the tenth (10th) anniversary of the Date of Grant.
If your option is an incentive stock option, note that, to obtain the federal income tax advantages associated with an "incentive stock option," the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option's exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an "incentive stock option" if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment terminates.
9. EXERCISE.
(a) You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer,
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make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period.
10. TRANSFERABILITY. Your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.
11. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Company's bylaws in effect at such time the Company elects to exercise its right. The Company's right of first refusal shall expire on the Listing Date.
12. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws as amended from time to time, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option. In addition, if the "Exercise Schedule" of your Grant Notice indicates "Early Exercise," then such shares will also be subject to a right of repurchase by the Company pursuant to the terms and conditions of your Early Exercise Stock Purchase Agreement.
13. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective shareholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
14. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a "cashless exercise" pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option.
(b) Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the
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determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein.
15. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
16. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.
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DEXCOM, INC.
STOCK OPTION GRANT NOTICE
1999 STOCK OPTION PLAN
DexCom, Inc. (the "Company"), pursuant to its 1999 Stock Option Plan (the "Plan"), hereby grants to Optionholder an option to purchase the number of shares of the Company's Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.
Optionholder: | ||
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Vesting Commencement Date: | ||
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Number of Shares Subject to Option: | ||
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Exercise Price (Per Share): | ||
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Type of Grant: | o | Incentive Stock Option | o | Nonstatutory Stock Option | ||||
Exercise Schedule: |
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Same as Vesting Schedule |
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Early Exercise Permitted |
Vesting Schedule: |
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1/4th of the shares vest one year after the Vesting Commencement Date 1/48th of the shares vest monthly thereafter over the next three years |
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Payment: |
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By one or a combination of the following items (described in the Stock Option Agreement): |
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By cash or check |
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Pursuant to a Regulation T Program if the Shares are publicly traded | ||||||||
By delivery of already-owned shares if the Shares are publicly traded |
Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS: | ||||
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DEXCOM, INC.
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OPTIONHOLDER:
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Title: | Date: | |||||
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ATTACHMENTS: Stock Option Agreement, 1999 Stock Option Plan and Notice of Exercise
ATTACHMENT II
1999 STOCK OPTION PLAN
ATTACHMENT III
NOTICE OF EXERCISE
Dexcom, Inc.
6725 Mesa Ridge Road, Suite 100 San Diego, CA 92121 |
Date of Exercise: |
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Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.
Type of option (check one): | Incentive o | Nonstatutory o | ||
Stock option dated: |
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Number of shares as to which option is exercised: |
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Certificates to be issued in name of: |
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Total exercise price: |
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$ |
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Cash payment delivered herewith: |
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$ |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 1999 Stock Option Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and are deemed to constitute "restricted securities" under Rule 701 and "control securities" under Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety days (90) after the stock of the Company becomes publicly traded ( i.e., subject tot the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Shares or other securities of the Company held by me, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. I further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to my Shares until the end of such period.
Very truly yours, | ||
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DEXCOM, INC.
EARLY EXERCISE STOCK PURCHASE AGREEMENT
UNDER THE 1999 STOCK OPTION PLAN
THIS AGREEMENT is made by and between DexCom, Inc. , a Delaware corporation (the "Company"), and ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds a stock option dated to purchase shares of common stock ("Common Stock") of the Company (the "Option") pursuant to the Company's 1999 Stock Option Plan (the "Plan"); and
WHEREAS , the Option consists of a Stock Option Grant Notice and a Stock Option Agreement; and
WHEREAS, Purchaser desires to exercise the Option on the terms and conditions contained herein; and
WHEREAS, Purchaser wishes to take advantage of the early exercise provision of the Purchaser's Option and therefore to enter into this Agreement;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. INCORPORATION OF PLAN AND OPTION BY REFERENCE. This Agreement is subject to all of the terms and conditions as set forth in the Plan and the Option. If there is a conflict between the terms of this Agreement and/or the Option and the terms of the Plan, the terms of the Plan shall control. If there is a conflict between the terms of this Agreement and the terms of the Option, the terms of the Option shall control. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan. Defined terms not explicitly defined in this Agreement or the Plan but defined in the Option shall have the same definitions as in the Option.
2. PURCHASE AND SALE OF COMMON STOCK.
(a) Agreement to purchase and sell Common Stock. Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to sell to Purchaser, shares of the Common Stock of the Company in accordance with the Notice of Exercise duly executed by Purchaser and attached hereto as Exhibit A .
(b) Closing. The closing hereunder, including payment for and delivery of the Common Stock, shall occur at the offices of the Company immediately following the execution of this Agreement, or at such other time and place as the parties may mutually agree; provided, however, that if stockholder approval of the Plan is required before the Option may be exercised, then the Option may not be exercised, and the closing shall be delayed, until such stockholder approval is obtained. If such stockholder approval is not obtained within the time limit specified in the Plan, then this Agreement shall be null and void.
3. UNVESTED SHARE REPURCHASE OPTION
(a) Repurchase Option. In the event Purchaser's Continuous Service terminates, then the Company shall have an irrevocable option (the "Repurchase Option") for a period of ninety (90) days after said termination (or in the case of shares issued upon exercise of the Option after such date of termination, within ninety (90) days after the date of the exercise), or such longer period as may be agreed to by the Company and the Purchaser, to repurchase from Purchaser or Purchaser's personal representative, as the case may be, those shares that Purchaser received pursuant to the exercise of the Option that have not as yet vested as of such termination date in
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accordance with the Vesting Schedule indicated on Purchaser's Stock Option Grant Notice (the "Unvested Shares").
(b) Shares Repurchasable at Purchaser's Original Exercise Price. The Company may repurchase all or any of the Unvested Shares at a price ("Option Price") equal to the Purchaser's Exercise Price for such shares as indicated on Purchaser's Stock Option Grant Notice.
4. EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall be exercised by written notice signed by an Officer of the Company and delivered or mailed as provided herein. Such notice shall identify the number of shares of Common Stock to be purchased and shall notify Purchaser of the time, place and date for settlement of such purchase, which shall be scheduled by the Company within the term of the Repurchase Option set forth above. The Company shall be entitled to pay for any shares of Common Stock purchased pursuant to its Repurchase Option at the Company's option in cash or by offset against any indebtedness owing to the Company by Purchaser (including without limitation any Note given in payment for the Common Stock), or by a combination of both. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Common Stock being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the Common Stock being repurchased by the Company, without further action by Purchaser.
5. CAPITALIZATION ADJUSTMENTS TO COMMON STOCK. In the event of a "Capitalization Adjustment" affecting the Company's outstanding Common Stock as a class as designated in the Plan, then any and all new, substituted or additional securities or other property to which Purchaser is entitled by reason of Purchaser's ownership of Common Stock shall be immediately subject to the Repurchase Option and be included in the word "Common Stock" for all purposes of the Repurchase Option with the same force and effect as the shares of the Common Stock presently subject to the Repurchase Option, but only to the extent the Common Stock is, at the time, covered by such Repurchase Option. While the total Option Price shall remain the same after each such event, the Option Price per share of Common Stock upon exercise of the Repurchase Option shall be appropriately adjusted.
6. CORPORATE TRANSACTIONS. In the event of a Corporate Transaction described in subsection 10(c) of the Plan, then the Repurchase Option may be assigned by the Company to the successor of the Company (or such successor's parent company), if any, in connection with such Corporate Transaction. To the extent the Repurchase Option remains in effect following such Corporate Transaction, it shall apply to the new capital stock or other property received in exchange for the Common Stock in consummation of the Corporate Transaction, but only to the extent the Common Stock was at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Option to reflect the Corporate Transaction upon the Company's capital structure; provided, however, that the aggregate Option Price shall remain the same.
7. ESCROW OF UNVESTED COMMON STOCK. As security for Purchaser's faithful performance of the terms of this Agreement and to insure the availability for delivery of Purchaser's Common Stock upon exercise of the Repurchase Option herein provided for, Purchaser agrees, at the closing hereunder, to deliver to and deposit with the Secretary of the Company or the Secretary's designee ("Escrow Agent"), as Escrow Agent in this transaction, three (3) stock assignments duly endorsed (with date and number of shares blank) in the form attached hereto as Exhibit B , together with a certificate or certificates evidencing all of the Common Stock subject to the Repurchase Option; said documents are to be held by the Escrow Agent and delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of the Company and Purchaser set forth in Exhibit C , attached hereto and incorporated by this reference, which instructions shall also be delivered to the Escrow Agent at the closing hereunder.
8. RIGHTS OF PURCHASER. Subject to the provisions of the Option, Purchaser shall exercise all rights and privileges of a stockholder of the Company with respect to the shares deposited in escrow.
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Purchaser shall be deemed to be the holder of the shares for purposes of receiving any dividends that may be paid with respect to such shares and for purposes of exercising any voting rights relating to such shares, even if some or all of such shares have not yet vested and been released from the Company's Repurchase Option.
9. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not sell, assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Common Stock while the Common Stock is subject to the Repurchase Option. After any Common Stock has been released from the Repurchase Option, Purchaser shall not sell, assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Common Stock except in compliance with the provisions herein and applicable securities laws. Furthermore, the Common Stock shall be subject to any right of first refusal in favor of the Company or its assignees that may be contained in the Company's Bylaws.
10. RESTRICTIVE LEGENDS. All certificates representing the Common Stock shall have endorsed thereon legends in substantially the following forms (in addition to any other legend which may be required by other agreements between the parties hereto):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AS PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by appropriate blue sky officials.
11. INVESTMENT REPRESENTATIONS. In connection with the purchase of the Common Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Common Stock. Purchaser is acquiring the Common Stock for investment for Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the Common Stock has not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the Common Stock must be held indefinitely unless the Common Stock is subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Common Stock. Purchaser understands that the certificate evidencing the Common Stock will be imprinted with a legend that prohibits the transfer
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of the Common Stock unless the Common Stock is registered or such registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701, under the Securities Act, as in effect from time to time, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of issuance of the securities, such issuance will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the securities exempt under Rule 701 may be sold by Purchaser ninety (90) days thereafter, subject to the satisfaction of certain of the conditions specified by Rule 144 and the market stand-off provision described in Purchaser's Stock Option Agreement.
(e) In the event that the sale of the Common Stock does not qualify under Rule 701 at the time of purchase, then the Common Stock may be resold by Purchaser in certain limited circumstances subject to the provisions of Rule 144, which requires, among other things: (i) the availability of certain public information about the Company and (ii) the resale occurring following the required holding period under Rule 144 after the Purchaser has purchased, and made full payment of (within the meaning of Rule 144), the securities to be sold.
(f) Purchaser further understands that at the time Purchaser wishes to sell the Common Stock there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public current information requirements of Rule 144 or 701, and that, in such event, Purchaser would be precluded from selling the Common Stock under Rule 144 or 701 even if the minimum holding period requirement had been satisfied.
12. MARKET STAND-OFF AGREEMENT. By exercising the Option Purchaser agrees that the Company (or a representative of the underwriters) may, in connection with any underwritten registration of the offering of any securities of the Company under the Securities Act, require that the Purchaser not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by Purchaser, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. Purchaser further agrees to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to Purchaser's Common Stock until the end of such period. The underwriters of the Company's stock are intended third party beneficiaries of this Section 12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
13. SECTION 83 (b) ELECTION. Purchaser understands that Section 83(a) of the Code, taxes as ordinary income the difference between the amount paid for the Common Stock and the fair market value of the Common Stock as of the date any restrictions on the Common Stock lapse. In this context, "restriction" includes the right of the Company to buy back the Common Stock pursuant to the Repurchase Option set forth above. Purchaser understands that Purchaser may elect to be taxed at the time the Common Stock is purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) attached hereto as Exhibit D (an "83(b) Election") of the Code with the Internal Revenue Service within thirty (30) days from the date of purchase. Even if the fair market value of the Common Stock at the time of the execution of this Agreement equals the amount paid for the Common Stock, the 83(b) Election must be made to avoid income under Section 83(a) in
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the future. Purchaser understands that failure to file such an 83(b) Election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that Purchaser must file an additional copy of such 83(b) Election with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Common Stock hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser assumes all responsibility for filing an 83(b) Election and paying all taxes resulting from such election or the lapse of the restrictions on the Common Stock.
14. REFUSAL TO TRANSFER. The Company shall not be required (a) to transfer on its books any shares of Common Stock of the Company which shall have been transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.
15. NO EMPLOYMENT RIGHTS. This Agreement is not an employment contract and nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company (or a parent or subsidiary of the Company) to terminate Purchaser's employment for any reason at any time, with or without cause and with or without notice.
16. MISCELLANEOUS.
(a) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or sent by telegram or fax or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at such party's address hereinafter shown below its signature or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto.
(b) Successors and Assigns. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser, Purchaser's successors, and assigns. The Company may assign the Repurchase Option hereunder at any time or from time to time, in whole or in part.
(c) Attorneys' Fees; Specific Performance. Purchaser shall reimburse the Company for all costs incurred by the Company in enforcing the performance of, or protecting its rights under, any part of this Agreement, including reasonable costs of investigation and attorneys' fees. It is the intention of the parties that the Company, upon exercise of the Repurchase Option and payment of the Option Price, pursuant to the terms of this Agreement, shall be entitled to receive the Common Stock, in specie, in order to have such Common Stock available for future issuance without dilution of the holdings of other stockholders. Furthermore, it is expressly agreed between the parties that money damages are inadequate to compensate the Company for the Common Stock and that the Company shall, upon proper exercise of the Repurchase Option, be entitled to specific enforcement of its rights to purchase and receive said Common Stock.
(d) Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of California. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state or federal court for the district encompassing the Company's principal place of business.
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(e) Further Execution. The parties agree to take all such further action(s) as may reasonably be necessary to carry out and consummate this Agreement as soon as practicable, and to take whatever steps may be necessary to obtain any governmental approval in connection with or otherwise qualify the issuance of the securities that are the subject of this Agreement.
(f) Independent Counsel. Purchaser acknowledges that this Agreement has been prepared on behalf of the Company by Cooley Godward llp, counsel to the Company and that Cooley Godward llp does not represent, and is not acting on behalf of, Purchaser. Purchaser has been provided with an opportunity to consult with Purchaser's own counsel with respect to this Agreement.
(g) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto.
(h) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.
(i) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of , .
DEXCOM, INC. | |||
By | |||
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Title | |||
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Address: |
6725 Mesa Ridge Road, #100
San Diego, CA 92121 |
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[NAME] | |||
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Address: | |||
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Attachments:
Exhibit A | Notice of Exercise | |
Exhibit B | Assignment Separate from Certificate | |
Exhibit C | Joint Escrow Instructions | |
Exhibit D | 83(b) Election Form |
6
NOTICE OF EXERCISE
DexCom, Inc.
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
Date of Exercise: , 20
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.
Type of option (check one): | Incentive o | Nonstatutory o | ||||
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Stock option dated: |
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Number of shares as to which option is exercised: |
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Certificates to be issued in name of: |
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Total exercise price: |
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$ |
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Cash payment delivered herewith: |
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$ |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 1999 Stock Option Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and are deemed to constitute "restricted securities" under Rule 701 and "control securities" under Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety days (90) after the stock of the Company becomes publicly traded ( i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws.
(j) I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Shares or other securities of the Company held by me, for a
1
period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. I further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to my Shares until the end of such period.
Very truly yours, | ||
[NAME] | ||
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EXHIBIT B
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto DexCom, Inc., a Delaware corporation (the "Company"), pursuant to the Repurchase Option under that certain Early Exercise Stock Purchase Agreement, dated , by and between the undersigned and the Company (the "Agreement"), ( ) shares of Common Stock of the Company standing in the undersigned's name on the books of the Company represented by Certificate No(s). and does hereby irrevocably constitute and appoint the Cooley Godward LLP attorney to transfer said Common Stock on the books of the Company with full power of substitution in the premises. This Assignment may be used only in accordance with and subject to the terms and conditions of the Agreement, in connection with the repurchase of shares of Common Stock issued to the undersigned pursuant to the Agreement, and only to the extent that such shares remain subject to the Company's Repurchase Option under the Agreement.
Dated: | ||||
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[NAME] | ||||
(Signature) |
( INSTRUCTION: Please do not fill in any blanks other than the "Signature" line and the "Print Name" line. )
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
JOINT ESCROW INSTRUCTIONS
DexCom, Inc.
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
Dear Sir or Madam:
As Escrow Agent for both DexCom, Inc. , a Delaware corporation ("Company"), and the undersigned purchaser of Common Stock of the Company ("Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Early Exercise Stock Purchase Agreement ("Agreement"), dated , to which a copy of these Joint Escrow Instructions is attached as Exhibit C, in accordance with the following instructions:
1. In the event the Company or an assignee shall elect to exercise the Repurchase Option set forth in the Agreement, the Company or its assignee will give to Purchaser and you a written notice specifying the number of shares of Common Stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of Common Stock to be transferred, to the Company against the simultaneous delivery to you of the purchase price (which may include suitable acknowledgment of cancellation of indebtedness) of the number of shares of Common Stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of Common Stock to be held by you hereunder and any additions and substitutions to said shares as specified in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as the Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of the Repurchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder; provided, however, that if at the time of termination of this escrow you are advised by the Company that the property subject to this escrow is the subject of a pledge or other security agreement, you shall deliver all such property to the pledgeholder or other person designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions, your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties or their assignees. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be Secretary of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company may appoint any officer or assistant officer of the Company as successor Escrow Agent and Purchaser hereby confirms the appointment of such successor or successors as the Purchaser's attorney-in-fact and agent to the full extent of your appointment.
12. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, including delivery by express courier or five days after deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties hereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto:
COMPANY: |
DexCom, Inc.
6725 Mesa Ridge Road, Suite 100 San Diego, CA 92121 |
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PURCHASER: | ||||
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ESCROW AGENT: |
DexCom, Inc.
6725 Mesa Ridge Road, Suite 100 San Diego, CA 92121 |
15. By signing these Joint Escrow Instructions you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts (including without limitation the firm of Cooley Godward llp) as you may deem necessary properly to advise you in
connection with your obligations hereunder. You may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Company shall be responsible for all fees generated by such legal counsel in connection with your obligations hereunder.
17. This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to "you" or "your" herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Agreement and these Joint Escrow Instructions in whole or in part.
18. This Agreement shall be governed by and interpreted and determined in accordance with the laws of the State of California, as such laws are applied by California courts to contracts made and to be performed entirely in California by residents of that state.
Very truly yours, | ||||
DEXCOM, INC. | ||||
By | ||||
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Title | ||||
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PURCHASER:
[NAME] |
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ESCROW AGENT:
DEXCOM, INC. |
Director
of Internal Revenue
Internal Revenue Service Center
5045 East Butler Avenue
Fresno, CA 93888
Gentlemen:
This statement constitutes an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended from time to time.
Pursuant to Treasury Regulations Section 1.83-2, the following information is submitted:
1. | Name: | ("Purchaser") | ||||||
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Address: | ||||||||
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Social Security No.: | ||||||||
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Property Description: shares of the Common Stock (the "Stock") of DexCom, Inc., a Delaware corporation (the "Corporation"). |
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3. |
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The date on which the property was transferred is . |
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4. |
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The taxable year for which the election is made is the calendar year . |
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5. |
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Restrictions: |
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"In the event Purchaser's Continuous Service terminates, then the Company shall have an irrevocable option (the "Repurchase Option") for a period of ninety (90) days after said termination (or in the case of shares issued upon exercise of the Option after such date of termination, within ninety (90) days after the date of the exercise), or such longer period as may be agreed to by the Company and the Purchaser, to repurchase from Purchaser or Purchaser's personal representative, as the case may be, those shares that Purchaser received pursuant to the exercise of the Option that have not as yet vested as of such termination date in accordance with the Vesting Schedule indicated on Purchaser's Stock Option Grant Notice." |
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6. |
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The fair market value at the time of transfer of the Stock, determined without regard to any restriction other than a restriction which by its terms will never lapse, is $ per share. |
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The amount paid by the undersigned taxpayer for the property is $ . |
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A copy of this statement has been furnished to DexCom, Inc. and the transferee of the property if different from the Purchaser. |
Dated: | |||
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Very truly yours, | |||
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Exhibit 10.08
SORRENTO VALLEY BUSINESS PARK
LEASE
FROM
HUB PROPERTIES TRUST,
a Maryland Real Estate Investment Trust,
TO
DEXCOM, INC,
a Delaware corporation.
5555 Oberlin Drive
San Diego, California 92121
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Page
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Article | 1 | Reference Data | 1 | |||
1.1 | Introduction and Subjects Referred To | 1 | ||||
1.2 | Exhibits | 2 | ||||
Article | 2 | Premises and Term | 2 | |||
2.1 | Premises | 2 | ||||
2.2 | Term | 3 | ||||
2.3 | Extension Option | 3 | ||||
2.4 | Measurement of the Premises | 5 | ||||
2.5 | Right to Lease Additional Space | 5 | ||||
Article | 3 | Commencement and Condition | 6 | |||
3.1 | Commencement | 6 | ||||
3.2 | Condition of Premises | 6 | ||||
3.3 | Preparation of the Premises by Tenant | 7 | ||||
3.4 | Construction Representatives | 8 | ||||
Article | 4 | Rent, Additional Rent, Insurance and Other Charges | 8 | |||
4.1 | The Annual Fixed Rent | 8 | ||||
4.2 | Additional Rent | 9 | ||||
4.3 | Real Estate Taxes | 9 | ||||
4.4 | Operating Costs | 10 | ||||
4.5 | Personal Property and Sales Taxes | 12 | ||||
4.6 | Insurance | 12 | ||||
4.7 | Utilities | 14 | ||||
4.8 | Late Payment of Rent | 14 | ||||
4.9 | Security Deposit | 14 | ||||
Article | 5 | Landlord's Covenants | 16 | |||
5.1 | Common Area Maintenance and Lighting | 16 | ||||
5.2 | Water | 16 | ||||
5.3 | Repairs | 16 | ||||
5.4 | Repair Cost Waiver | 16 | ||||
5.5 | Interruption | 16 | ||||
5.6 | Outside Services | 17 | ||||
5.7 | Access to Building | 17 | ||||
5.8 | Parking | 17 | ||||
Article | 6 | Tenant's Additional Covenants | 18 | |||
6.1 | Affirmative Covenants | 18 | ||||
6.2 | Negative Covenants | 21 | ||||
Article | 7 | Casualty or Taking | 29 | |||
7.1 | Termination | 29 | ||||
7.2 | Restoration | 29 | ||||
7.3 | Award | 29 | ||||
7.4 | Termination Waiver | 30 | ||||
Article | 8 | Defaults | 30 | |||
8.1 | Default of Tenant | 30 | ||||
8.2 | Remedies | 31 | ||||
8.3 | Remedies Cumulative | 32 | ||||
8.4 | Landlord's Right to Cure Defaults | 32 | ||||
8.5 | Holding Over | 32 | ||||
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8.6 | Effect of Waivers of Default | 32 | ||||
8.7 | No Waiver, etc | 33 | ||||
8.8 | No Accord and Satisfaction | 33 | ||||
Article | 9 | Rights of Holders | 33 | |||
9.1 | Rights of Mortgagees or Ground Lessors | 33 | ||||
9.2 | Modifications | 34 | ||||
9.3 | Non-Disturbance | 34 | ||||
Article | 10 | Miscellaneous Provisions | 34 | |||
10.1 | Notices | 34 | ||||
10.2 | Quiet Enjoyment; Landlord's Right to Make Alterations, Etc | 34 | ||||
10.3 | Lease Not to be Recorded; Confidentiality of Lease Terms | 35 | ||||
10.4 | Assignment of Rents and Transfer of Title; Limitation of Landlord's Liability | 35 | ||||
10.5 | Landlord's Default | 36 | ||||
10.6 | Notice to Mortgagee and Ground Lessor | 36 | ||||
10.7 | Building or Complex Name Change | 37 | ||||
10.8 | Waiver of Jury Trial | 37 | ||||
10.9 | Brokerage | 37 | ||||
10.10 | OSHPAD Requirements | 37 | ||||
10.11 | Applicable Law and Construction | 37 |
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Article 1
Reference Data
1.1 Introduction and Subjects Referred To.
This is a lease (this " Lease ") entered into by and between Hub Properties Trust, a Maryland real estate investment trust (" Landlord ") and DexCom, Inc., a Delaware corporation (" Tenant ").
Each reference in this Lease to any of the following terms or phrases shall be construed to incorporate the corresponding definition stated in this Section 1.1.
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Date of this Lease: |
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December 3, 2003. |
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Complex: |
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The four (4) buildings (the " Buildings ") of the Sorrento Valley Business Park with addresses of 5555, 5601, 5626 and 5627 Oberlin Drive, San Diego, California and the parking facilities and all other appurtenances, and the land parcels on which they are located and the sidewalks adjacent thereto. |
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Building: |
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That certain building in the Complex with an address of 5555 Oberlin Drive, San Diego, California 92121. |
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Premises: |
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The entire rentable area of the Building, substantially as shown on Exhibit A hereto. |
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Premises Rentable |
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Area: 23,099 square feet. |
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Complex Rentable Area: |
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105,203 square feet. |
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Original Term: |
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The period commencing on the Commencement Date (as defined in Section 3.1) and expiring on the day preceding the seventh (7 th ) anniversary of the Rent Commencement Date, except that if the Rent Commencement Date shall occur on a day other than the first day of a month, the Original Term shall expire on the last day of the month in which such anniversary shall occur. |
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Rent Commencement Date: |
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Four (4) months after the Commencement Date (for example, if the Commencement Date is January 9, 2004, the Rent Commencement Date shall be May 9, 2004). |
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Annual Fixed Rent: |
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The following amounts: |
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Rate (per s.f. of Premises Rentable Area per month) |
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Annual |
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Monthly |
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1 | $ | 1.18 | $ | 327,081.84 | $ | 27,256.82 | |||||||||
2 | $ | 1.22 | $ | 338,169.36 | $ | 28,180.78 | |||||||||
3 | $ | 1.25 | $ | 346,485.00 | $ | 28,873.75 | |||||||||
4 | $ | 1.29 | $ | 357,572.52 | $ | 29,797.71 | |||||||||
5 | $ | 1.33 | $ | 368,660.04 | $ | 30,721.67 | |||||||||
6 | $ | 1.37 | $ | 379,747.56 | $ | 31,645.63 | |||||||||
7 | $ | 1.41 | $ | 390,835.08 | $ | 32,569.59 |
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For purposes of the timing of the adjustments in the amount of Annual Fixed Rent during the Original Term, the first " Year " shall be the period beginning on the Rent Commencement Date and ending on the day preceding the first anniversary of the Rent Commencement Date, with each succeeding Year being the twelve (12) month period following the preceding Year, except that the last year shall include any partial month from the seventh anniversary of the Commencement Date through the last day of the Original Term and Tenant shall pay Annual Fixed Rent for such partial month the Rate for Year 7. |
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Tenant's Percentage: |
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Twenty one and 96/100 percent (21.96%), being the ratio of the Premises Rentable Area to the Complex Rentable Area . |
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Permitted Uses: |
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General office uses, biomedical research and development, biomedical manufacturing in accordance with Good Manufacturing Practices, and such other uses as are permitted under existing zoning and other laws applicable to the Complex, subject to the provisions of Section 6.2. |
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Security Deposit: |
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$200,000. |
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Commercial General Liability Insurance Limits: |
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$3,000,000 per occurrence (combined single limit) for property damage, bodily and personal injury and death. |
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Original Address of Landlord: |
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c/o REIT Management & Research LLC 5627 Oberlin Drive San Diego, CA 92121 Attention: Area Manager |
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Landlord's Agent: |
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REIT Management & Research LLC or such other entity as shall be designated by Landlord from time to time. |
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Original Address of Tenant: |
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6725 Mesa Ridge Road Suite 100 San Diego, CA 92121 |
1.2 Exhibits. The Exhibits listed below are incorporated in this Lease by reference and are to be construed as a part of this Lease.
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EXHIBIT A. |
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Plan showing the Premises. |
EXHIBIT A-1. | Plan showing the Parking Spaces. | |||
EXHIBIT B. | Rules and Regulations. | |||
EXHIBIT C. | Alterations Requirements. | |||
EXHIBIT D. | Contractor's Insurance Requirements. | |||
EXHIBIT E. | Clerk's Certificate. | |||
EXHIBIT F. | Description of Demolition Work. | |||
EXHIBIT G. | Description of Limited Phase II Environmental Site Assessment. |
Article 2
Premises and Term
2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, the Premises,
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excluding the exterior of the Building and any pipes, conduits, wires and appurtenant fixtures or equipment serving the Premises together with other portions of the Building or Complex.
Tenant shall have, as appurtenant to the Premises, rights to use, in common with others, subject to reasonable rules of general applicability to tenants of the Complex from time to time made by Landlord of which Tenant is given notice: (a) the common pipes, conduits, wires and appurtenant fixtures of the Complex serving the Premises, and (b) the common walkways and driveways (if any) necessary for access to the Building.
2.2 Term. The term of this Lease shall be for a period beginning on the Commencement Date (as defined in Section 3.1) and continuing for the Original Term and any extension of the term hereof in accordance with the provision of this Lease, unless sooner terminated as hereinafter provided. When the Commencement Date has been determined, such date shall be evidenced by a document executed by Landlord and Tenant and delivered each to the other, but the failure of Landlord and Tenant to execute or deliver such document shall have no effect upon such date. The Original Term and any extension of the term hereof in accordance with the provisions of this Lease is hereinafter referred to as the " term " of this Lease.
2.3 Extension Option. So long as at the time of the Option Notice there exists no Default of Tenant (or Landlord shall have waived such condition in its sole discretion), this Lease is still in full force and effect, and the named Tenant as set forth in Section 1.1 (or any successor by merger) and/or any Affiliate shall actually occupy the entire Premises, Tenant shall have the right to extend the term of this Lease for one (1) additional period of five (5) years (the " Extended Term "). The Extended Term shall commence on the day succeeding the expiration of the Original Term and shall end on the day immediately preceding the fifth anniversary of the commencement of the Extended Term. All of the terms, covenants and provisions of this Lease applicable immediately prior to the expiration of the Original Term shall apply to the Extended Term except that (i) the Annual Fixed Rent for the Extended Term shall be the Market Rate (as hereinafter defined) for the Premises determined as of the commencement of the Extended Term, as designated by Landlord by notice to Tenant (" Landlord's Notice "), but subject to Tenant's right to dispute as hereinafter provided, and (ii) Tenant shall have no further right to extend the term of this Lease beyond the Extended Term hereinabove provided. If Tenant shall elect to exercise the aforesaid option, it shall do so by giving Landlord notice of its election (the " Option Notice ") not later than nine (9) months, nor sooner than twelve (12) months, prior to the expiration of the Original Term. Such Option Notice shall request Landlord's determination of the Market Rate within thirty (30) days and shall apply to the entire Premises and shall be unconditional and irrevocable by Tenant except as hereinafter provided. If Tenant fails to give the Option Notice to Landlord, the term of this Lease shall automatically terminate no later than the end of the Original Term, and Tenant shall have no further option to extend the term of this Lease, it being agreed that time is of the essence with respect to the giving of the Option Notice. If Tenant shall extend the term hereof pursuant to the provisions of this Section 2.3, such extension shall be automatically effected without the execution of any additional documents, but Landlord and Tenant shall, at the request of either, execute an amendment to this Lease, in a commercially reasonable form prepared by Landlord, confirming such extension of the term and the Annual Fixed Rent for the Extended Term.
" Market Rate " shall mean the then annual rental rate and terms for the Premises for the Extended Term (determined as set forth below). Landlord shall give Tenant Landlord's Notice not later thirty (30) days after Tenant gives an Option Notice. If Tenant disagrees with the Market Rate designated in Landlord's Notice, Tenant shall notify Landlord of such disagreement and of Tenant's designation of the Market Rate by notice given not later than fifteen (15) days after the giving of Landlord's Notice, and if Tenant fails to so notify Landlord, then the Market Rate shall be as designated in Landlord's Notice and such designation shall be final and conclusive. If Tenant notifies Landlord that it disagrees with Landlord's designation of Market Rate within such fifteen (15) day period and the parties cannot agree upon the Market Rate by the date that is thirty (30) days following Landlord's Notice, then
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Tenant shall have the right to withdraw and cancel the Option Notice by giving written notice thereof to Landlord on or before the date that is thirty (30) days after the giving of Landlord's Notice, but if Tenant fails to notify Landlord of its decision to withdraw and cancel the Option Notice within such time period, then the Option Notice shall become binding and irrevocable and the Market Rate shall be determined by appraisal as follows: Within fifteen (15) days after the expiration of such thirty (30) day period, Landlord and Tenant shall each give notice to the other specifying the name and address of the appraiser each has chosen. The two appraisers so chosen shall meet within ten (10) days after the second appraiser is appointed and if, within twenty (20) days after the second appraiser is appointed, the two appraisers shall not agree upon a determination of the Market Rate in accordance with the following provisions of this Section 2.3, they shall together appoint a third appraiser. If only one appraiser shall be chosen whose name and address shall have been given to the other party within such fifteen (15) day period and who shall have the qualifications hereinafter set forth, that sole appraiser shall render the decision which would otherwise have been made as hereinabove provided.
If said two appraisers cannot agree upon the appointment of a third appraiser within ten (10) days after the expiration of such twenty (20) day period, then either party, on behalf of both and on notice to the other, may request such appointment by the American Arbitration Association (or any successor organization) in accordance with its then prevailing rules. In the event that all three appraisers cannot agree upon such Market Rate within ten (10) days after the third appraiser shall have been selected, then each appraiser shall submit his or her designation of such Market Rate to the other two appraisers in writing; and Market Rate shall be determined by calculating the average of the two numerically closest (or, if the values are equidistant, all three) values so determined.
Each of the appraisers selected as herein provided shall have at least ten (10) years experience as a commercial real estate broker in the city of San Diego dealing with properties of the same type and quality as the Building. Each party shall pay the fees and expenses of the appraiser it has selected and the fees of its own counsel, witnesses and similar expenses. Each party shall pay one half (1/2) of the fees and expenses of the third appraiser (or the sole appraiser, if applicable) and all other expenses of the appraisal. The decision and award of the appraiser(s) shall be in writing and shall be final and conclusive on all parties, and counterpart copies thereof shall be delivered to both Landlord and Tenant. Judgment upon the award of the appraiser(s) may be entered in any court of competent jurisdiction.
Both appraisers or a majority of them (or the sole appraiser, if applicable) shall determine the Market Rate of the Premises for the applicable period as of the commencement of the Extended Term and render a decision and award as to their determination to both Landlord and Tenant (a) within twenty (20) days after the appointment of the second appraiser, (b) within twenty (20) days after the appointment of the third appraiser or (c) within fifteen (15) days after the appointment of the sole appraiser, as the case may be. In rendering such decision and award, the appraiser(s) shall assume (i) that the Premises are available in the then rental market, (ii) that Landlord has had a reasonable time to locate a tenant, (iii) that neither Landlord nor the prospective tenant is under a compulsion to rent, (iv) that Landlord and Tenant are typically motivated, well-informed and well-advised, and each is acting in what it considers its own best interest, (v) the Premises (w) are fit for immediate occupancy and use "as is", (x) require no additional work by Landlord or Tenant, (y) are appropriate and desired for immediate occupancy by Tenant, and (z) contain no work that has been carried out thereon by Tenant, its subtenant(s), or its or their successors-in-interest during the Original Term which has diminished the rental value of the Premises, and (vi) that in the event the Premises are destroyed or damaged by fire or other casualty prior to the commencement of the Extended Term, they have been fully restored. The appraisers shall also take into consideration any increases or possible increases in rent then being included in leases for comparable space in the Building or in comparable buildings based on changes in price indices, including cost of living, or periodic market rental adjustments. In rendering such decision and award, the appraiser(s) shall consider the market fixed annual rents then being charged for comparable space in comparable buildings in the city of San Diego, but shall not modify the provisions of this Lease.
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If the dispute between the parties as to the Market Rate has not been resolved before the commencement of Tenant's obligation to pay the Annual Fixed Rent based upon determination of such Market Rate, then Tenant shall pay the Annual Fixed Rent under the Lease based upon the Market Rate designated by Landlord in Landlord's Notice until either the agreement of the parties as to the Market Rate, or the decision of the appraiser(s), as the case may be, at which time Tenant shall pay any underpayment of the Annual Fixed Rent to Landlord, or Landlord shall refund any overpayment of the Annual Fixed Rent to Tenant.
Landlord and Tenant hereby waive the right to an evidentiary hearing before the appraiser(s) and agree that the appraisal shall not be an arbitration nor be subject to state or federal law relating to arbitrations.
2.4 Measurement of the Premises. Landlord and Tenant agree that the Premises Rentable Area identified in Section 1.1 is recited for Landlord's administrative purposes only and that, although the Annual Fixed Rent and the Tenant's Percentage has been determined by reference to such square footage (regardless of the possibility that the actual measurement of the Premises may be more or less than the number identified, irrespective of measurement method used), Annual Fixed Rent and Tenant's Percentage shall not be changed except as expressly provided in this Lease.
2.5 Right to Lease Additional Space. So long as (i) there then exists no Default of Tenant, (ii) the Tenant named in Section 1.1 of this Lease (or any successor by merger) and/or any Affiliate shall occupy the entire Premises, and (iii) this Lease is still in full force and effect, then if any space in the building located at 5601 Oberlin Drive, San Diego, CA shall become available for lease by Landlord, Landlord shall so notify Tenant, and shall identify the space available (the " Offered Space ") and the date on which such Offered Space is expected to be available, and Tenant may, by giving notice to Landlord within ten (10) days after receipt of such notice, irrevocably elect to lease the Offered Space on the terms of this Section 2.5. If Tenant shall have so elected to lease the Offered Space, it shall enter into an amendment to this Lease within ten (10) days after it shall have received the same from Landlord, confirming the lease of such Offered Space to Tenant pursuant to the terms hereof, such amendment to be in a commercially reasonable form prepared by Landlord. If Tenant shall not elect to lease the Offered Space within the aforesaid 10-day period, then Landlord shall thereafter be free to lease any or all of such Offered Space to a third party or parties from time to time on such terms and conditions as it may deem appropriate.
Tenant shall lease the Offered Space subject to all of the terms, covenants and agreements of this Lease in effect from and after the date on which the Offered Space becomes a part of the Premises, except that (i) the Annual Fixed Rent for the Offered Space shall be the Market Rate for the Offered Space, (ii) Tenant's Percentage shall be adjusted to reflect the expansion of the Premises to include the Offered Space, and (iii) if the Offered Space shall become available for lease as of a date on which there are less than three (3) years remaining in the term of this Lease (excluding any unexercised option to extend), then the term with respect to the Offered Space shall be the term for which Landlord intends to offer such space to third parties (which need not be co-terminus with that applicable to the Premises then demised to Tenant under the Lease). Landlord shall designate the Market Rate and, if applicable, the term for the Offered Space, in Landlord's notice to Tenant of the availability of the Offered Space. If Tenant shall elect to lease the Offered Space but shall disagree with Landlord's designation of the Market Rate, then Tenant shall so notify Landlord of such disagreement in Tenant's notice electing to lease the Offered Space, otherwise the Market Rate for the Offered Space shall be as designated by Landlord. If Tenant disagrees timely with Landlord's designation of the Market Rate for the Offered Space and the parties cannot agree upon the Market Rate within ten (10) days after Tenant's notice, the Market Rate for the Offered Space shall be determined in the manner provided in Section 2.3. Subject to Landlord's obligations under Article 5, Tenant shall lease the Offered Space in "as is" condition, and Landlord shall not be required to construct any leasehold improvements to the Offered Space or to provide Tenant with any financial contribution for such purpose. Landlord and Tenant agree that time shall be of the essence of this Section 2.5.
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The provisions of this Section 2.5 shall not apply, and space shall not be deemed "available for lease" hereunder, if Landlord shall intend either (a) to enter into a lease of such space to any party pursuant to the terms of a lease in effect as of the Date of this Lease or to any entity controlling, controlled by or under common control with Landlord, or (b) to renew or extend the lease with (or grant a new lease to) the entity (or any party affiliated with such entity) then occupying such space.
Article 3
Commencement and Condition
3.1 Commencement. The " Commencement Date " shall be the date that is five (5) " Business Days " (i.e., weekdays that are not holidays of the federal government) after the date (the " Completion Date ") on which all of the work required to be performed pursuant to Section 3.2 has been completed and Landlord has delivered to Tenant the Final Phase II Assessment. The " Final Phase II Assessment " shall mean the Limited Phase II Environmental Site Assessment described in Exhibit G, as supplemented by any additional environmental assessments performed pursuant to Section 3.2. Notwithstanding the foregoing, if Tenant is not satisfied with the Final Phase II Assessment for any reason in Tenant's sole discretion, then Tenant shall have the right to terminate this Lease by giving notice to Landlord not later than the expiration of such five (5) Business Day period; and this Lease shall cease and come to an end without further liability or obligation on the part of either party upon the giving of such notice, it being agreed that time is of the essence with respect to the giving of such notice.
Landlord shall use all reasonable efforts to cause the Completion Date to occur by January 1, 2004. If the Completion Date has not occurred by January 15, 2004, then Tenant shall have the right to terminate this Lease by giving notice to Landlord at any time after January 15, 2004 but before the occurrence of the Completion Date; and this Lease shall cease and come to an end without further liability or obligation on the part of either party upon the giving of such notice, it being agreed that time is of the essence with respect to the giving of such notice. The foregoing termination right shall be Tenant's sole and exclusive remedy at law or in equity for Landlord's failure to cause the Completion Date to occur by any date, and if Tenant shall not exercise such right before the occurrence of the Completion Date, then Tenant shall have no right to terminate this Lease due to any delay in the occurrence of the Completion Date.
3.2 Condition of Premises. Landlord shall complete, or cause others to complete, the demolition work in the Premises described in Exhibit F (the " Demolition Work "). After the Demolition Work has been completed, Occupational Services, Inc. shall perform a Limited Phase II Environmental Site Assessment of the Premises and certain areas adjacent to the Building, as described in Exhibit G, a complete copy of which shall be delivered to Tenant. If, based on the conclusions in such Limited Phase II Environmental Site Assessment, any remediation work is required to bring the Premises or other areas covered by such assessment into compliance with Environmental and Health Laws (as defined in Section 6.2.8), then Landlord (i) may terminate this Lease if Landlord determines, in its sole discretion, that the contamination requiring remediation is significant, by notice given to Tenant within ten (10) Business Days after delivery of the Limited Phase II Environmental Site Assessment, and this Lease shall cease and come to an end without further liability or obligation on the part of either party upon the giving of such notice, or if Landlord shall not so elect to terminate this Lease, (ii) shall perform, or cause others to perform, all such remediation work, and cause such additional environmental assessments to be performed as are necessary to establish that such work has been completed and that no additional remediation work is required. If the Limited Phase II Environmental Site Assessment does not indicate that any remediation work is required, then the Limited Phase II Environmental Site Assessment shall be the Final Phase II Assessment.
Subject to completion of the Demolition Work and any remediation work required by the preceding paragraph, Tenant agrees to accept delivery of the Premises in the condition existing as of the Date of this Lease. Tenant acknowledges that it has been given an adequate opportunity to inspect
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the Premises and the common areas and facilities of the Complex and, subject to the completion of any work required to be performed by Landlord pursuant to the preceding sentence, has found the condition of both satisfactory and is not relying on any representations of Landlord or Landlord's agents or employees as to such condition, and Landlord shall have no obligation with respect thereto except as may be expressly set forth in this Lease.
3.3 Preparation of the Premises by Tenant. (a) Tenant, at Tenant's sole cost and expense except to the extent of Landlord's Contribution (hereinafter defined), shall be responsible for making all alterations or improvements to the Premises required or desired by Tenant, subject to Landlord's approval, as hereinafter provided. The initial alterations and improvements to be made by Tenant to prepare the Premises for Tenant's occupancy are hereinafter referred to as " Tenant's Work ". Promptly after the Date of this Lease, Tenant shall prepare plans and specifications for Tenant's Work (" Tenant's Plans ") in accordance with the requirements of Exhibit C attached hereto. Tenant's Plans shall be subject to review and approval by Landlord as provided in Exhibit C and this Section 3.3, such approval not to be unreasonably withheld, conditioned or delayed. Failure by Landlord to respond to Tenant's Plans or any resubmission thereof (either by disapproval, request for additional information, request for revision or communication of a reason for failure to approve) within ten (10) Business Days after the date of Landlord's receipt of Tenant's Plans or any such resubmission shall constitute approval thereof, provided, however that no such automatic approval shall occur unless Tenant's submission contains the following notice, printed in a prominent place on the outside thereof in not less fourteen (14) point bold-faced type: "LANDLORD REVIEW REQUIRED; FAILURE TO RESPOND TO THIS SUBMISSION WITHIN TEN (10) BUSINESS DAYS SHALL RESULT IN AUTOMATIC APPROVAL PURSUANT TO LEASE SECTION 3.3."
(b) Upon approval of Tenant's Plans by Landlord, Tenant shall cause its contractor(s) to perform Tenant's Work in accordance with Tenant's Plans, diligently and continuously until Tenant's Work is substantially complete. Tenant's Work shall be performed in accordance with the requirements of Exhibit C and the applicable provisions of Article 6, and Tenant shall be responsible for all construction management.
(c) Tenant's Work shall be considered substantially complete and the " Substantial Completion Date " shall occur on the first day that all of the following requirements have been met: (i) all work shown and described in Tenant's Plans, and any modifications thereto approved by Landlord, has been completed, with only punchlist items (i.e., minor details of decoration or mechanical adjustment) excepted; (ii) Tenant's architect has issued a certificate of substantial completion on the standard AIA form, which has been delivered to Landlord; (iii) all electrical, mechanical, plumbing and HVAC facilities installed by Tenant are functioning properly; (iv) the Premises are reasonably free of debris and construction materials, (v) all required governmental inspections have been successfully completed and a certificate of occupancy has been issued permitting occupancy and use of the Premises by Tenant for the Permitted Uses; and (vi) Tenant has obtained and delivered to Landlord all of the documents listed in Paragraph H of Exhibit C.
(d) Provided this Lease is in full force and effect, then, subject to the provisions of the following paragraph, Landlord will provide Tenant with an improvement allowance (the " Landlord's Contribution ") equal to the lesser of (i) $646,772.00, or (ii) the actual cost of Tenant's Work, as evidenced by the invoices submitted by Tenant establishing such cost. For purposes of this Section 3.3, the " cost " of Tenant's Work shall mean all fees and expenses of Tenant's architectural and engineering professionals in connection with Tenant's Work; all contractor charges for labor, materials, general conditions and contractor's overhead and profit; permitting fees; and fees paid to independent construction managers, if any.
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(e) Tenant may requisition Landlord for payment of Landlord's Contribution, in one or more installments, but not more often than once per calendar month, provided that Landlord may withhold ten percent (10%) of the amount of each requisition paid prior to the Substantial Completion Date (hereinafter " Progress Payments ") until the Final Payment (hereinafter defined). Each requisition for a Progress Payment shall include (i) a detailed breakdown of the costs of Tenant's Work and other reimbursable costs incurred to the date of the requisition, (ii) a copy of each Application for Payment from Tenant's contractor for the contractor's costs and charges to be reimbursed by the Progress Payment, (iii) copies of invoices from Tenant's architect, supplier(s) and others, as applicable, for all costs of Tenant's Work (to the extent not submitted with a prior requisition), (iv) a copy of the Certificate for Payment (substantially on the AIA form) issued by Tenant's Architect with respect to the contractor's Application for Payment, including a certification from Tenant's architect that all of the construction work to be reimbursed by the Progress Payment has been completed in accordance with the approved Tenant's Plans, and (v) waivers and releases of liens from all parties providing labor or materials covering the work to be paid for by the Progress Payment and all prior work. Landlord shall make each Progress Payment to Tenant within thirty (30) days after Landlord's receipt of a Progress Payment requisition with all required supporting documentation, unless, within such period, Landlord notifies Tenant of its rejection of all or part of such requisition, specifying the reasons therefor. If Landlord so notifies Tenant, then Landlord shall pay to Tenant all amounts as to which Landlord does not make objection, and shall pay to Tenant the amounts withheld by Landlord within ten (10) Business Days after reasonable satisfaction of such objections.
(f) After the occurrence of the Substantial Completion Date, Tenant may submit a requisition to Landlord for payment of the balance of Landlord's Contribution and all retained amounts (the " Final Payment "). Such requisition shall include (i) a final, detailed breakdown of all of the costs of Tenant's Work and other reimbursable costs, (ii) all of the documentation required by clauses (ii), (iii) (iv) and (v) of the preceding paragraph to the extent not previously provided, and (iii) a certification from Tenant's chief financial officer that Tenant has made full payment for all of the work and other items covered by the prior Progress Payments. Landlord shall make the Final Payment to Tenant as provided in the last two sentences of the preceding paragraph.
(g) Notwithstanding any provision of this Section 3.3 to the contrary, Landlord shall not be required to make payment of Landlord's Contribution with respect to any requisition (whether for a Progress Payment or the Final Payment) submitted later than three hundred and sixty (360) days after the Date of this Lease or at any time there exists a Default of Tenant (as defined in Section 8.1).
3.4 Construction Representatives. Both Landlord and Tenant shall appoint one individual as its " Construction Representative " who is authorized to act on its behalf in connection with any matters arising pursuant to this Article 3. The Construction Representative may be changed from time to time by notice hereunder from the then current Construction Representative to the other party's Construction Representative or by notice from Landlord or Tenant pursuant to Section 10.1. The initial Construction Representatives shall be Lynn Schemmel (Landlord) and Steven Kemper (Tenant). Notwithstanding Section 10.1, any notices or other communication under this Article 3 may be made by letter or other writing sent by U.S. mail, facsimile or email, provided the communication is made by one party's Construction Representative to the other party's Construction Representative.
Article 4
Rent, Additional Rent, Insurance and Other Charges
4.1 The Annual Fixed Rent. Tenant's obligation to pay Annual Fixed Rent shall begin on the Rent Commencement Date. Tenant shall pay Annual Fixed Rent to Landlord, or as otherwise directed by Landlord, without offset, abatement (except as provided in Article 7), deduction or demand. Annual Fixed Rent shall be payable in equal monthly installments, in advance, on the first day of each and
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every calendar month during the term of this Lease, at the Original Address of Landlord, or at such other place as Landlord shall from time to time designate by notice, by check drawn on a domestic bank.
Annual Fixed Rent for any partial month shall be prorated on a daily basis (based on a 365 day year), and if Annual Fixed Rent commences on a day other than the first day of a calendar month, the first payment which Tenant shall make to Landlord shall be payable on the date Annual Fixed Rent commences and shall be equal to such prorated amount plus the instalment of Annual Fixed Rent for the succeeding calendar month.
4.2 Additional Rent. Tenant covenants and agrees to pay Tenant's Percentage (21.96% as of the Date of this Lease) of Taxes and Operating Costs as provided in Section 4.3 and 4.4, and all other charges and amounts payable by or due from Tenant to Landlord (all such amounts referred to in this sentence being " Additional Rent "). Notwithstanding any provision of Section 4.3 or 4.4 to the contrary, Tenant's obligation to pay Tenant's Percentage of Taxes and Operating Costs as provided in Sections 4.3 and 4.4 shall commence on Rent Commencement Date.
4.3 Real Estate Taxes. Tenant shall pay to Landlord, as Additional Rent, an amount (" Tenant's Tax Share ") equal to Tenant's Percentage of the Taxes (as hereinafter defined) due (or estimated to be due by governmental authority) for any fiscal tax period (a " Tax Year ") during the term hereof. Except as otherwise provided in the immediately following paragraph, Tenant shall pay Tenant's Tax Share to Landlord at least ten (10) days prior to the date or dates within any year during the term hereof that the same, or any fractional share thereof, shall be due and payable to any governmental authority responsible for collection of same (as stated in a written notice to Tenant given at least twenty (20) days prior to the date or dates any such payment shall be due, which notice shall set forth the manner of computation of any Tenant's Tax Share due from Tenant), except that such payment shall be made to Landlord not later than ten (10) days after such notice to Tenant, if such notice is given subsequent to the date twenty (20) days prior to the date the same is due and payable as aforesaid.
At Landlord's election, Tenant shall pay to Landlord, as Additional Rent on the first day of each calendar month during the term but otherwise in the manner provided for the payment of Annual Fixed Rent, estimated payments on account of Tenant's Tax Share, such monthly amounts to be sufficient to provide Landlord by the time Tax payments are due or are to be made by Landlord a sum equal to Tenant's Tax Share, as reasonably estimated by Landlord from time to time on account of Taxes for the then current Tax Year. If the total of such monthly remittances for any Tax Year is greater than Tenant's Tax Share for such Tax Year, Landlord shall credit such overpayment against Tenant's subsequent obligations on account of Taxes (or promptly refund such overpayment if the term of this Lease has ended and Tenant has no further obligations to Landlord); if the total of such remittances is less than Tenant's Tax Share for such Tax Year, Tenant shall pay the difference to Landlord within ten (10) days after being so notified by Landlord.
If, after Tenant shall have made all payments due to Landlord pursuant to this Section 4.3, Landlord shall receive a refund of any portion of Taxes as a result of an abatement of such Taxes by legal proceedings, settlement or otherwise (without either party having any obligation to undertake any such proceedings), Landlord shall pay or credit to Tenant Tenant's Percentage of that percentage of the refund (after first deducting any expenses, including attorneys', consultants' and appraisers' fees, incurred in connection with obtaining any such refund) which equals the percentage of the applicable Tax Year included in the term hereof, provided however, in no event shall Tenant be entitled to receive more than the sum of payments actually made by Tenant on account of Taxes with respect to such Tax Year.
In the event that the Commencement Date shall occur or the term of this Lease shall expire or be terminated during any Tax Year, or should the Tax Year or period of assessment of real estate taxes be changed or be more or less than one (1) year, or should Tenant's Percentage be modified during any
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Tax Year due to a change in the rentable area of the Building and/or the Premises or otherwise, as the case may be, then the amount of Tenant's Tax Share which may be otherwise payable by Tenant as provided in this Section 4.3 shall be pro-rated on a daily basis based on a 365 day Tax Year.
The term " Taxes " shall mean all taxes, assessments, excises and other charges which are general or special, ordinary or extraordinary, foreseen or unforeseen, of any kind or nature which are levied, assessed or imposed at any time during the term by any governmental authority upon or against the Complex, or taxes in lieu thereof, and additional types of taxes to supplement real estate taxes due to legal limits imposed thereon. If, at any time during the term of this Lease, any tax or excise on rents or other taxes, however described, are levied or assessed against Landlord, either wholly or partially in substitution for, or in addition to, real estate taxes then assessed or levied on the Complex, such tax or excise on rents shall be included in Taxes; however, Taxes shall not include franchise, estate, inheritance, succession, capital levy, income or excess profits taxes assessed on Landlord or taxes or penalties specifically assessed against other tenants of the Complex. Taxes also shall include all court costs, attorneys', consultants' and accountants' fees, and other expenses incurred by Landlord contesting Taxes through and including all appeals. Taxes shall include any estimated payment made by Landlord on account of a fiscal tax period for which the actual and final amount of taxes for such period has not been determined by the governmental authority as of the date of any such estimated payment.
Tenant shall also pay to Landlord, upon demand, as Additional Rent, such portion of all Taxes levied or assessed against Landlord or the Complex which are attributable to the value of any leasehold improvements installed by or on behalf of Tenant in the Premises.
4.4 Operating Costs. Tenant shall pay to Landlord, as Additional Rent, an amount (" Tenant's Operating Cost Share ") equal to Tenant's Percentage of Operating Costs (as hereinafter defined) paid or incurred by Landlord in any twelve-month period established by Landlord (an " Operating Year "). Except as otherwise provided in the immediately following paragraph Tenant shall pay Tenant's Operating Cost Share to Landlord within twenty (20) days from the date Landlord shall furnish to Tenant an itemized year-end statement thereof, prepared, allocated and computed in accordance with then prevailing customs and practices of the real estate industry in the San Diego area, consistently applied.
At the election of Landlord, Tenant shall pay to Landlord, as Additional Rent on the first day of each calendar month during the term but otherwise in the manner provided for the payment of Annual Fixed Rent, estimated payments on account of Tenant's Operating Cost Share, such monthly amounts to be sufficient to provide to Landlord, by the end of each Operating Year, a sum equal to Tenant's Operating Cost Share for such Operating Year, as reasonably estimated by Landlord from time to time during such Operating Year. If, at the expiration of each Operating Year in respect of which monthly instalments of Tenant's Operating Cost Share shall have been made as aforesaid, the total of such monthly remittances is greater than the actual Tenant's Operating Cost Share for such Operating Year, Landlord shall credit such overpayment against Tenant's subsequent obligations on account of Operating Costs (or promptly refund such overpayment if the term of this Lease has ended and Tenant has no further obligation to Landlord); if the total of such remittances is less than Tenant's Operating Cost Share for such Operating Year, Tenant shall pay the difference to Landlord within thirty (30) days after being so notified by Landlord and provided with the year-end statement of Operating Costs.
In the event that the Commencement Date shall occur or the term of this Lease shall expire or be terminated during any Operating Year or Tenant's Percentage shall be modified during any Operating Year due to a change in the rentable area of the Building and/or the Premises or otherwise, as the case may be, then the amount of Tenant's Operating Cost Share which may be payable by Tenant as provided in this Section 4.4 shall be pro rated on a daily basis based on a 365 day Operating Year.
The term " Operating Costs " shall include all costs and expenses paid or incurred for the operation, cleaning, management, maintenance, repair, replacement, upkeep and security of the common areas
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and common facilities and equipment of the Complex, including the structural and exterior portions of the Buildings (collectively, the " Common Areas "), including, without limitation:
(a) all salaries, wages, fringe benefits, payroll taxes and worker's compensation insurance premiums related thereto and all other costs paid or incurred with respect to employment of personnel engaged in operation, administration, cleaning, maintenance, repair, upkeep and security of the Common Areas, including, without limitation, supervisors, property managers, accountants, bookkeepers, janitors, carpenters, engineers, mechanics, electricians and plumbers;
(b) the cost of utilities consumed in connection with the operation, repair and maintenance of the common areas, and the cost of water (and associated sewer charges) provided to the Complex (including water provided to the tenants);
(c) all costs, including supplies, material and equipment costs, for cleaning the Common Areas (including, without limitation, trash removal and exterior window cleaning), and landscaping;
(d) the cost of replacements for tools and other similar equipment used in repair, maintenance, cleaning, protection and security of the Common Areas, provided that, in the case of any such equipment used jointly on other property of Landlord, such costs shall be suitably prorated among the Complex and such other properties;
(e) all costs and premiums for fire, casualty, rental income, liability and such other insurance as may be maintained from time to time by Landlord with respect to the Complex and premiums for fidelity bonds covering persons having custody or control over funds or other property of Landlord;
(f) all costs of maintenance, repair, operation, administration, and protection of the Common Areas, including structural repairs and replacement of equipment (other than repairs for which Landlord has received full reimbursement from contractors, other tenants of the Building or from others), necessary to keep the Complex in good working order, repair, appearance and condition (including, without limitation, fees, if any, imposed upon Landlord, or charged to the Complex, by the state or municipality in which the Complex is located on account of the need for increased or augmented public or life safety services;
(g) all costs incurred in connection with the administration and supervision of all matters referred to in items (a) through (f) hereof and in performing Landlord's obligations under Article 5, including Landlord's office overhead costs provided that, if any such administrative or supervisory personnel are also employed on or provide service to other property of Landlord, such cost of compensation shall be suitably prorated among the Complex and such other properties;
(h) payments under all service contracts relating to matters referred to in Items (a) through (g) hereof;
(i) a management fee of up to three percent (3%) of gross rents payable by tenants of the Complex;
(j) attorney's fees and disbursements (exclusive of any such fees and disbursements incurred in tax abatement proceedings or in the preparation of leases) and auditing and other professional fees and expenses; and
(k) CC&R (as defined in Section 6.12) assessments and dues.
Notwithstanding the foregoing, Operating Costs shall not include any costs directly related to the negligence of Landlord or any other tenant of the Complex.
If, during the term of this Lease, Landlord shall make any capital expenditure (as determined in accordance with generally accepted accounting principals) that is an Operating Cost, Landlord shall
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include in Operating Costs for the Operating Year in which such expenditure was made and in Operating Costs for each succeeding Operating Year an annual charge-off of such capital expenditure. Annual charge-offs shall be equal to the level payments of principal and interest necessary to amortize the original capital expenditure over the useful life of the improvement, repair, alteration or replacement made with the capital expenditure using an interest rate reasonably determined by Landlord as being the interest rate being charged at the time of the original capital expenditure for long-term mortgages by institutional lenders on like properties within the San Diego area; and the useful life shall be determined reasonably by Landlord in accordance with then prevailing customs and practices of the real estate industry in the San Diego area, consistently applied.
In addition, if during any portion of any Operating Year for which Operating Costs are being computed, less than ninety five percent (95%) of the rentable area of the Complex was leased to tenants or if Landlord is supplying less than ninety five percent (95%) of the rentable area of the Complex with the services and utilities being supplied hereunder, Landlord will reasonably project, on an item-by-item basis, the Operating Costs that would have been incurred if one hundred percent (100%) of the Complex were occupied for such Operating Year and such services and utilities were being supplied to one hundred percent (100%) of the rentable area of the Complex, and such projected amount shall, for the purposes hereof, be deemed to be the Operating Costs for such Operating Year. For purposes of the "gross up" provision contained in this paragraph, Landlord shall only increase Operating Costs which by their nature vary based on the occupancy of the Complex. Landlord shall not increase those Operating Costs which by their nature are fixed independently of the level of occupancy of the Complex.
4.5 Personal Property and Sales Taxes. Tenant shall pay all taxes charged, assessed or imposed upon the personal property of Tenant and all taxes on the sales of services or inventory, merchandise and any other goods by Tenant in or upon the Premises.
4.6 Insurance. Tenant shall, at its expense, take out and maintain, from the date upon which Tenant first enters the Premises for any reason, and throughout the term and thereafter so long as Tenant is in occupancy of any part of the Premises, the following insurance:
(a) Commercial general liability insurance (on an occurrence basis, including without limitation, broad form contractual liability, bodily injury, property damage, fire legal liability, and products and completed operations coverage) under which Tenant is named as an insured and Landlord and Landlord's Agent (and the holder of any mortgage on the Building or the Complex, as set out in a notice from time to time) are named (on a 1993 ISO CGL Form or its equivalent) as additional insureds as their interests may appear, in an amount which shall, at the beginning of the term, be at least equal to the Commercial General Liability Insurance Limits, and, which, from time to time during the term, shall be for such higher limits, if any, as Landlord shall determine to be customarily carried in the area in which the Premises are located at property comparable to the Premises and used for similar purposes;
(b) Worker's compensation insurance with statutory limits covering all of Tenant's employees working on the Premises; and
(c) So-called "special form" property insurance on a "replacement cost" basis with an agreed value endorsement covering all furniture, furnishings, fixtures and equipment and other personal property brought to the Premises by Tenant or any party claiming under Tenant and all improvements and betterments to the Premises performed at Tenant's expense.
All such policies shall contain deductibles not in excess of that reasonably approved by Landlord, shall contain a clause confirming that such policy and the coverage evidenced thereby shall be primary with respect to any insurance policies carried by Landlord and shall be obtained from responsible companies qualified to do business and in good standing in the State of California, which companies
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shall have a general policy holder's rating in Best's of at least A+ X or otherwise acceptable to Landlord. A copy of each paid-up policy evidencing such insurance (appropriately authenticated by the insurer) or a certificate (on ACORD Form 27 or its equivalent) of the insurer, certifying that such policy has been issued, providing the coverage required by this Section and containing provisions specified herein, shall be delivered to Landlord prior to the commencement of the term of this Lease and, upon renewals, not less than thirty (30) days prior to the expiration of such coverage. Each such policy shall be non-cancelable and not materially changed with respect to the interest of Landlord and such mortgagees of the Building or the Complex (and others that are in privity of estate with Landlord of which Landlord provides notice to Tenant from time to time) without at least thirty (30) days' prior written notice thereto. Any insurance required of Tenant under this Lease may be furnished by Tenant under a blanket policy carried by it provided that such blanket policy shall reference the Premises, and shall guarantee a minimum limit available for the Premises equal to the insurance amounts required in this Lease. Landlord may, at any time, and from time to time, inspect and/or copy any and all insurance policies required to be procured by Tenant hereunder.
Landlord and Tenant shall each endeavor to secure an appropriate clause in, or an endorsement upon, each property damage insurance policy obtained by it and covering the Building, the Premises or the personal property, fixtures and equipment located therein or thereon, pursuant to which the respective insurance companies waive subrogation or permit the insured, prior to any loss, to agree with a third party to waive any claim it might have against said third party. The waiver of subrogation or permission for waiver of any claim hereinbefore referred to shall extend to the agents of each party and its employees and, in the case of Tenant, shall also extend to all other persons and entities occupying or using the Premises by, through or under Tenant. If and to the extent that such waiver or permission can be obtained only upon payment of an additional charge then the party benefiting from the waiver or permission shall pay such charge upon demand, or shall be deemed to have agreed that the party obtaining the insurance coverage in question shall be free of any further obligations under the provisions hereof relating to such waiver or permission from such insurance companies.
Subject to the provisions of the preceding paragraph, and insofar as may be permitted by the terms of the insurance policies carried by it, each party hereby releases the other with respect to any claim which it might otherwise have against the other party for any loss or damage excluding any deductible amounts, to the extent such damage is actually covered or would have been covered by policies of insurance required by this Lease to be carried by the respective parties hereunder. In addition, Tenant agrees to exhaust any and all claims against its insurer(s) prior to commencing an action against Landlord for any property loss.
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If this Lease is assigned or if the Premises or any part thereof are sublet (or occupied by any party other than Tenant and its employees) Landlord may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Annual Fixed Rent and Additional Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Subsection 6.2.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Lease.
Any sublease of all or any portion of the Premises shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subject or subordinate, that other than the payment of Annual Fixed Rent and Additional Rent due pursuant to Sections 4.1, 4.3 or 4.4 or any obligation relating solely to those portions of the Premises which are not part of the subleased premises, the subtenant shall comply with and be bound by all of the obligations of Tenant hereunder, that unless Landlord waives such prohibition, the subtenant may not enter into any sub-sublease, sublease assignment, license or any other agreement granting any right of occupancy of any portion of the subleased premises; and that Landlord shall be an express beneficiary of any such obligations, and that in the event of termination of this Lease or reentry or dispossession of Tenant by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any mortgagee of the Complex, as holder of a mortgage or as Landlord under this Lease if such mortgagee succeeds to that position, shall (a) be liable for any act or omission of Tenant under such sublease, (b) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, or (c) be bound by any previous modification of such sublease unless consented to by Landlord and such mortgagee or by any previous prepayment of more than one (1) month's rent, (d) be bound by any covenant of Tenant to undertake or complete any construction of the Premises or any portion thereof, (e) be required to account for any security deposit of the subtenant other than any security deposit actually received by Landlord, (f) be bound by any obligation to make any payment to such subtenant or grant any credits unless specifically agreed to by Landlord and such mortgagee, (g) be responsible for any monies owing by Landlord to the credit of Tenant or (h) be required to remove any person occupying the Premises or any part thereof; and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn. The provisions of this paragraph shall not be deemed a waiver of the provisions set forth in the first paragraph of this Subsection 6.2.1.
Tenant shall not enter into, nor shall it permit any person having an interest in the possession, use, occupancy or utilization of any part of the Premises to enter into, any sublease, license, concession, assignment or other agreement for use, occupancy or utilization of the Premises (i) which provides for rental or other compensation based on the income or profits derived by any person or on any other formula such that any portion of such sublease rental, or other consideration for a license, concession, assignment or other occupancy agreement, would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Internal Revenue Code or any similar or successor provision thereto, or would otherwise disqualify Landlord for treatment as a real estate investment trust under Sections 856-869 of the Internal Revenue Code, (ii) under which fifty percent (50%) or more of the total rent or other compensation received by Tenant is attributable to personal property or (iii) which would otherwise be subject to the prohibitions of Section 406 of ERISA or result in imposition of any tax pursuant to Section 511 or Section 4975 of the Internal Revenue Code; and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffectual as a conveyance of any right or interest in the possession, use, occupancy or utilization of such part of the Premises.
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No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder, and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the obligation to obtain the Landlord's written approval in the case of any other subletting or assignment. The joint and several liability of Tenant named herein and any immediate and remote successor in interest of Tenant (by assignment or otherwise), and the due performance of the obligations of this Lease on Tenant's part to be performed or observed, shall not in any way be discharged, released or impaired by any (a) agreement which modifies any of the rights or obligations of the parties under this Lease, (b) stipulation which extends the time within which an obligation under this Lease is to be performed, (c) waiver of the performance of an obligation required under this Lease, or (d) failure to enforce any of the obligations set forth in this Lease. No assignment, subletting or occupancy shall affect the Permitted Uses. Any subletting, assignment or other transfer of Tenant's interest in this Lease in contravention of this Subsection 6.2.1 shall be voidable at Landlord's option. Tenant shall not occupy any space in the Building (by assignment, sublease or otherwise) other than the Premises.
If the rent and other sums (including, without limitation, all monetary payments plus the reasonable value of any services performed or any other thing of value given by any assignee or subtenant in consideration of such assignment or sublease), either initially or over the term of any assignment or sublease (other than a Permitted Assignment of a Permitted Sublease), payable by such assignee or subtenant exceed the Annual Fixed Rent plus Additional Rent called for hereunder with respect to the space assigned or sublet, Tenant shall pay seventy-five percent (75%) of such excess to Landlord, as Additional Rent, payable monthly at the time for payment of Annual Fixed Rent. Nothing in this paragraph shall be deemed to abrogate the provisions of this Subsection 6.2.1 and Landlord's acceptance of any sums pursuant to this paragraph shall not be deemed a granting of consent to any assignment of the Lease or sublease of all or any portion of the Premises.
6.2.2 Nuisance. Tenant shall not injure, deface or otherwise harm the Premises; nor commit any nuisance; nor permit in the Premises any vending machine (except such as is used for the sale of merchandise to employees of Tenant) or inflammable fluids or chemicals (except such as are customarily used in connection with standard office uses and biotechnology research and manufacturing); nor permit any cooking to such extent as requires special exhaust venting; nor permit the emission of any objectionable noise or odor; nor make, allow or suffer any waste; nor make any use of the Premises which is improper, offensive or contrary to any law or ordinance or which will invalidate or increase the premiums for any of Landlord's insurance or which is liable to render necessary any alteration or addition to the Building; nor conduct any auction, fire, "going out of business" or bankruptcy sales.
6.2.3 Equipment. Landlord reserves the right to reasonably prescribe the position of all heavy business machines and equipment, including safes, so as to distribute the weight. Tenant shall not put a load upon any floor of the premises exceeding 450 pounds per square foot. Business machines and mechanical equipment which cause vibration or noise outside of the Premises shall be placed and maintained by Tenant at Tenant's expense in settings sufficient to absorb and prevent such vibration, noise and annoyance to other tenants of the Complex. Tenant shall not move any safe, heavy machinery, heavy equipment, freight, construction materials or fixtures into or out of the Premises without Landlord's prior consent which consent may include a requirement to provide insurance naming Landlord, and the holder of any mortgage affecting the Complex, as additional insureds, with such coverage and in such amount as Landlord reasonably requires. If any such safe, machinery, heavy equipment, freight, or fixtures requires special handling, Tenant agrees to employ only persons holding a master rigger's license to do said work, and that all work in connection therewith shall comply with applicable laws and regulations. Any such moving shall be at the sole risk and hazard of Tenant and Tenant hereby agrees to exonerate,
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indemnify and save Landlord harmless against and from any liability, loss, injury, claim or suit resulting directly or indirectly from such moving. Tenant shall schedule such moving at such times as Landlord shall reasonably designate.
6.2.4 Electricity. Tenant shall not connect to the electrical distribution system serving the Premises a total load exceeding the capacity of such system or the maximum load permitted from time to time under applicable governmental regulations.
6.2.5 Installations, Alterations or Additions. Tenant shall make no installations, alterations or additions in, to or on the Premises and shall not permit the making of any holes in the walls, partitions, ceilings or floors without on each occasion obtaining the prior consent of Landlord, and then only pursuant to plans and specifications approved by Landlord in advance in each instance. Notwithstanding anything to the contrary in this Lease (including without limitation Exhibit C), Tenant may make cosmetic changes to the Premises (e.g. changes to carpet and paint) and changes to Tenant's improvements within the Premises that do not affect the systems or structure of the Building and do not cost more than $10,000.00 for any one job, upon not less than ten (10) days prior written notice to Landlord (which notice shall describe the work to be performed in reasonable detail) but without Landlord's prior consent. With respect to alterations that require Landlord's prior consent, Landlord shall not unreasonably withhold, condition or delay such consent for alterations that comply with the requirements of Exhibit C, provided that Landlord may, without limitation, withhold its consent to any proposed alterations that (i) are inconsistent with premises devoted to first-class office or biomedical research, development and manufacturing uses, (ii) alter the structural elements or exterior of the Building, (iii) will cause any Operating Cost to materially exceed what is normal for similar premises used for similar uses in the Complex, or (iv) will adversely affect the value or marketability of the Building, as reasonably determined by Landlord. All work to be performed to the Premises by Tenant (a) shall be performed in a good and workmanlike manner by contractors approved in advance by Landlord and in compliance with the provisions of Exhibit C and all applicable zoning, building, fire, health and other codes, regulations, ordinances and laws, (b) shall be made at Tenant's sole cost and expense and at such times and in such a manner as Landlord may from time to time designate, and (c) shall become part of the Premises and the property of Landlord without being deemed Additional Rent for tax purposes, Landlord and Tenant agreeing that Tenant shall be treated as the owner for tax purposes until the expiration or earlier termination of the term hereof, subject to Landlord's rights pursuant to Subsection 6.1.9 to require Tenant to remove the same at or prior to the expiration or earlier termination of the term hereof. Tenant shall pay promptly when due the entire cost of any work to the Premises so that the Premises, Building and Complex shall at all times be free of liens for labor and materials, and, at Landlord's request, Tenant shall furnish to Landlord a bond or other security acceptable to Landlord assuring that any such work will be completed in accordance with the plans and specifications theretofore approved by Landlord and assuring that the Premises will remain free of any mechanics' lien or other encumbrances that may arise out of such work. Prior to the commencement of any such work, and throughout and until completion thereof, Tenant shall maintain, or cause to be maintained, the insurance required by Exhibit D, all with coverage limits as stated therein or such higher limits as shall be reasonably required by Landlord. In addition, Tenant shall save Landlord harmless and indemnified from all injury, loss, claims or damage to any person or property occasioned by or arising out of such work. Whenever and as often as any mechanic's or materialmen's lien shall have been filed against the Building or the Complex based upon any act of Tenant or of anyone claiming through Tenant, Tenant shall within three (3) days of notice from Landlord to Tenant take such action by bonding, deposit or payment as will remove or satisfy the lien.
Landlord or its representatives shall have the right to post, and keep posted upon the Premises, notices of non-responsibility or such other notices which Landlord may deem to be
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proper for the protection of Landlord's interest in the Premises and the Building. Tenant, before the commencement of any work from which a mechanic's or materialmen's lien may arise, shall give to Landlord written notice of Tenant's intention to commence such work in sufficient time to enable Landlord to post such notices.
Tenant shall not, at any time, directly or indirectly, employ or permit the employment of any contractor, mechanic or laborer in the Premises, if such employment will interfere or cause any conflict with other contractors, mechanics or laborers engaged in the construction, maintenance or operation of the Building by Landlord, Tenant or others. In the event of any such interference or conflict, Tenant, upon demand of Landlord, shall cause all contractors, mechanics or laborers causing such interference or conflict to leave the Building immediately.
6.2.6 Signs. Tenant shall not paint or place any signs or place any awnings, aerials, or the like, visible from outside the Premises. Landlord will not unreasonably withhold consent for signs or lettering on the entry doors to the Premises provided such signs conform to building standards adopted by Landlord and Tenant has submitted to Landlord a plan or sketch of the sign to be placed on such entry doors. Tenant may also install Except for an entry-door sign approved by Landlord, Tenant shall not install any signs on the exterior of the Building.
So long as (i) there then exists no Default of Tenant, (ii) the Tenant named in Section 1.1 of this Lease (or any successor by merger) and/or any Affiliate shall occupy not less than eighty percent (80%) of the Premises, and (iii) this Lease is still in full force and effect, then Tenant shall have the right, at its sole cost and expense, to install and maintain on each of the monument signs dedicated to the Building a sign identifying Tenant, which shall conform to the CC&R's and all applicable laws and codes, and shall be subject to Landlord's prior approval, not to be unreasonably withheld, conditioned or delayed. Notwithstanding any provision of this Lease to the contrary, any such monument signage shall be maintained in good repair and condition by Tenant at its sole cost and expense, and Tenant and shall remove such signage upon the expiration or earlier termination of the Lease. Tenant's rights hereunder to install and maintain monument signage are personal to Tenant and shall not be assignable to any assignee, subtenant or other party except in connection with an assignment of this Lease to a successor to Tenant by merger or acquisition, or a sublease to an Affiliate who shall occupy at least eighty percent (80%) of the Premises.
6.2.7 Abandonment. Tenant shall not abandon or vacate the Premises during the term.
6.2.8 Hazardous Materials. Tenant shall not (a) introduce on or transfer to or store on the Premises, the Building or the Complex or use on the Premises, any Hazardous Materials (as hereinafter defined), except such Hazardous Materials in such amounts as are reasonably necessary for the conduct of the Permitted Uses, and then only in compliance with all Environmental and Health Laws (as hereinafter defined) and the terms and conditions of recommendations, policies or requirements of any insurer of the Building or Complex (" Insurance Conditions "); (b) dump, flush or otherwise dispose of any Hazardous Materials into the drainage, sewage or waste disposal systems serving the Premises, the Building or the Complex; (c) generate, release, spill or dispose of any Hazardous Materials in or on the Premises, the Building or the Complex, or (d) transfer any Hazardous Materials from the Premises to any other location (except the transfer of such Hazardous Materials expressly permitted to be used on the Premises from the Premises for disposal and then only in compliance with all Environmental and Health Laws and Insurance Conditions); and shall not commit or suffer to be committed in or on the Premises, the Building or the Complex any act which would require any reporting or filing of any notice with any governmental agency pursuant to any Environmental and Health Laws except in connection with the Permitted Uses.
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Tenant agrees that if it or anyone claiming under it shall transfer to the Premises, store, use or dispose (except to the extent expressly permitted above), generate, release, threaten release or spill, any Hazardous Materials, it shall forthwith remove the same, at its sole cost and expense, in the manner provided by all applicable Environmental and Health Laws, regardless of when such Hazardous Materials shall be discovered. Furthermore, Tenant shall pay any fines, penalties or other assessments imposed by any governmental agency with respect to any such Hazardous Materials and shall forthwith repair and restore any portion of the Premises, the Building or the Complex which it shall disturb in so removing any such Hazardous Materials to the condition which existed prior to Tenant's disturbance thereof.
Tenant agrees to deliver promptly to Landlord any notices, orders or similar documents received from any governmental agency or official concerning any violation of any Environmental and Health Laws or with respect to any Hazardous Materials affecting the Premises, the Building or the Complex. In addition, Tenant shall, within ten (10) days of receipt, accurately complete any questionnaires from Landlord or other informational requests relating to Tenant's use of the Premises and, in particular, to Tenant's use, generation, storage and/or disposal of Hazardous Materials at, to, or from the Premises.
Tenant shall indemnify, defend (by counsel satisfactory to Landlord), protect, and hold Landlord free and harmless from and against any and all claims, or threatened claims, including without limitation, claims for death of or injury to any person or damage to any property, actions, administrative proceedings, whether formal or informal, judgments, damages, punitive damages, liabilities, penalties, fines, costs, taxes, assessments, forfeitures, losses, expenses, attorneys' fees and expenses, consultant fees, and expert fees that arise from or are caused in whole or in party, directly or indirectly, by (i) Tenant's use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, or (ii) Tenant's failure to comply with any Environmental and Health Laws. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs (including, without limitation, capital, operating and maintenance costs) incurred in connection with any investigation or monitoring of site conditions, repair, cleanup, containment, remedial, removal or restoration work, or detoxification or decontamination of the Premises, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. For purposes of this Subsection 6.2.8, any acts or omissions of Tenant, or its subtenants or assignees or its or their employees, agents, or contractors (whether or not they are negligent, intentional, willful or unlawful) shall be attributable to Tenant.
The term " Hazardous Materials " shall mean and include any Excepted Waste, asbestos and asbestos-containing materials, air pollutants or contaminants, crude and refined oil and the products and by-products of oil and petroleum, radioactive, biological, medical or infectious wastes or materials, and any other toxic or hazardous wastes, materials and substances which are defined, determined or identified as a hazardous substance or hazardous waste, extremely hazardous waste, infectious waste, non-RCRA waste, retrograde material, restricted hazardous waste, volatile organic compound, waste or similarly defined, determined or identified in any Environmental and Health Laws, or in any judicial or administrative interpretation of Environmental and Health Laws.
The term " Environmental and Health Laws " shall mean any and all present and future federal, state, county and municipal or other local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions applicable to the Complex relating to Hazardous Materials or the environment or to emissions, discharges or releases or threatened releases of Hazardous Materials into the environment, including, without limitation, into the ambient air, surface water, ground water or in, on or under any land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release or threatened release, disposal, transport
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or handling of Hazardous Materials or the cleanup or other remediation thereof. Environmental and Health Laws include, without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability At of 1980, as amended (42 U.S.C. §9601 et. seq. ), the Hazardous Materials Transportation Act, as amended (49 U.S.C. §1801 et seq. ), the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. §6901 et seq. ), the California Safe Drinking Water and Toxic Enforcement Act of 1986 (Health and Safety Code §25249.5 et seq. ), the California Hazardous Waste Control Act (Health and Safety Code §25100 et seq. )
The obligations of Tenant contained in this Subsection 6.2.8 shall survive the expiration or termination of this Lease.
Landlord represents that to the best of Landlord's knowledge there are no Hazardous Materials in the Premises except as disclosed in Environmental Site Assessment for the Sorrento Valley Business Park, 5555, 5601, 5626 and 5627 Oberlin Drive, San Diego California, prepared by Act Environmental, Inc., dated December 30, 1996, and the Phase I Environmental Site Assessment of 5555 Oberlin Drive, San Diego, CA, prepared by Occupational Services, Inc., dated November 26, 2002 (collectively, the " Environmental Report "), copies of which has been provided to Tenant. Landlord agrees that so long as the condition requiring removal or remediation of Hazardous Materials is not caused by Tenant or any party for whom Tenant is responsible, Landlord shall, in a manner that complies with all applicable Environmental and Health Laws, perform or cause others to perform all remediation and cleanup of the Common Areas of the Complex necessary to cause the same to comply in all material respects with Environmental and Health Laws, to the extent the failure to do so shall materially adversely affect Tenant or expose it to material liability. If Tenant shall become aware of any condition which Tenant alleges shall obligate Landlord to perform remediation it shall give Landlord notice of such condition (" Tenants' Notice ") which shall expressly state that failure to perform remediation timely shall afford Tenant the right to terminate the term of this Lease. Landlord and Tenant agree that in the event of any dispute between them concerning the obligation of Landlord to perform the remediation or cleanup of any Hazardous Materials pursuant to this paragraph is not resolved within ten (10) days of receipt of Tenant's Notice, either party may submit the dispute to the American Arbitration Association for resolution by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The decision of the arbitrator, who shall be an independent California Registered Environmental Assessor with experience dealing with the type of Hazardous Materials at issue in similar properties in the San Diego area, shall be made within thirty (30) days of submission and shall be final and binding on Landlord and Tenant and judgment thereon may be entered in any court of competent jurisdiction.
In the event (i) the time required for Landlord to complete any remediation which Landlord is obligated to perform pursuant to the preceding paragraph shall exceed the lesser of nine (9) months or one-half of the remainder of the term hereof measured from the date of Tenant's Notice (whichever is less being the " Completion Period "), or (ii) Landlord shall not complete any remediation it is required to perform within the Completion Period, then Tenant shall have the right, as its sole remedy, to terminate the term of this Lease by giving notice of its desire to do so to Landlord within ten (10) days after the earlier of the agreement by the parties or the determination of the arbitrator as to such obligation of Landlord in the first case, and in the second case, the expiration of such Completion Period, whereupon on the date thirty (30) days after the giving of such notice, the term of this Lease shall terminate with the same force and effect as if such date were the date on which the term of this Lease were scheduled to expire. The nine-month remediation period described clauses (i) and (ii) of the preceding sentence shall be reduced to six (6) months in the case of any condition requiring remediation by Landlord discovered during the last three (3) years of the term.
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Article 7
Casualty or Taking
7.1 Termination. In the event that the Premises, the Building or the Complex, or any material part thereof shall be destroyed or damaged by fire or casualty to such an extent that the time reasonably necessary for Landlord to make repairs as required by Section 7.2 in the ordinary course, as reasonably estimated by Landlord, shall exceed either nine (9) months or one-half of the remainder of the term hereof (whichever is less) from the date of fire or other casualty, or the Premises, the Building or the Complex, or any material part thereof shall be taken by any public authority or for any public use or shall be condemned by the action of any public authority, then this Lease may be terminated at the election of Landlord. Such election, which may be made notwithstanding the fact that Landlord's entire interest may have been divested, shall be made by the giving of notice by Landlord to Tenant within sixty (60) days after the date of the taking or casualty.
In the event that (i) at least twenty-five percent (25%) of the Premises is damaged by fire or other casualty to such an extent that the time reasonably necessary for Landlord to make repairs as required by Section 7.2 in the ordinary course shall exceed either nine (9) months or one-half of the remainder of the term hereof (whichever is less) from the date of fire or other casualty, or (ii) at least twenty-five percent (25%) of the Premises is damaged by fire or other casualty and repairs are not actually substantially completed within nine (9) months from the date of the fire or other casualty, or (iii) any material portion of the Premises is taken by an exercise of eminent domain, then in any such case Tenant shall have the right to terminate the term of this Lease by giving notice of its desire to do so to Landlord within sixty (60) days after, in the first or third case, such damage or taking, and in the second case, the expiration of such nine-month period, whereupon on the date thirty (30) days after the giving of such notice, the term of this Lease shall terminate with the same force and effect as if such date were the date on which the term of this Lease were scheduled to expire. The nine-month repair periods described in clauses (i) and (ii) of the preceding sentence shall be reduced to six (6) months in the case of a casualty occurring during the last three (3) years of the term. Notwithstanding the foregoing to the contrary, Tenant shall have no right to terminate the term of this Lease due to a fire or other casualty if the cause thereof was due to the negligence or other wrongful conduct of Tenant or any subtenant of Tenant or any agent, employee or invitee of Tenant or its subtenant(s).
7.2 Restoration. If neither Landlord nor Tenant elects to so terminate, this Lease shall continue in force and (so long as the damage is not caused by the negligence or other wrongful act of Tenant or its employees, agents, contractors or invitees) a just proportion of the Annual Fixed Rent reserved, according to the nature and extent of the damages sustained by the Premises, shall be suspended or abated until the Premises (excluding any improvements to the Premises made at Tenant's expense), or what may remain thereof, shall be put by Landlord in proper condition for use, which Landlord covenants to do with reasonable diligence to the extent permitted by the net proceeds of insurance recovered or damages awarded for such destruction, taking, or condemnation and subject to zoning and building laws or ordinances then in existence. " Net proceeds of insurance recovered or damages awarded " refers to the gross amount of such insurance or damages actually made available to Landlord (and not retained by any Superior Lessor or Superior Mortgagee) less the reasonable expenses of Landlord incurred in connection with the collection of the same, including without limitation, fees and expenses for legal and appraisal services.
7.3 Award. Irrespective of the form in which recovery may be had by law, all rights to damages or compensation shall belong to Landlord in all cases. Tenant hereby grants to Landlord all of Tenant's rights to such damages and covenants to deliver such further assignments thereof as Landlord may from time to time request. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for relocation expenses, provided that such action
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shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority.
7.4 Termination Waiver. Tenant waives the provisions of California Civil Code Sections 1932(2) and 1933(4) (and all similar or successor statutes) which relate to the termination of leases when the thing leased is destroyed, and agrees that such event shall be governed by the terms of this Lease.
Article 8
Defaults
8.1 Default of Tenant. The occurrence of any one or more of the following shall constitute a " Default of Tenant " under this Lease:
(a) The failure by Tenant to make any payment of Annual Fixed Rent, Additional Rent or any other payment required to be made by Tenant hereunder (collectively, " Rent "), as and when due, where such failure shall continue for ten ( 10) days after notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure §1161.
(b) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed and performed by Tenant, other than as specified in subsection (a) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure §1161; provided, further, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure within such thirty (30) day period and thereafter diligently prosecute such cure to completion within sixty (60) days from the date of such notice from Landlord.
(c) An assignment by Tenant or any guarantor of Tenant for the benefit of creditors.
(d) The taking by execution or levy of Tenant's leasehold interest.
(e) The filing of a lien or other involuntary encumbrance against Tenant's leasehold interest or Tenant's other property, including said leasehold interest, or against the property of any guarantor of Tenant, which filing shall not be discharged within ten (10) days after Tenant receives notice thereof.
(f) The filing of a petition by Tenant or any guarantor of Tenant for liquidation, or for reorganization or an arrangement under any provision of any bankruptcy law or code as then in force and effect.
(g) The filing of an involuntary petition under any of the provisions of any bankruptcy law or code against Tenant or any guarantor of Tenant and such involuntary petition shall not be dismissed within thirty (30) days thereafter.
(h) The appointment of a custodian, receiver or similar agent shall be authorized or appointed to take charge of all or substantially all of the assets of Tenant or any guarantor of Tenant.
(i) The dissolution or liquidation of Tenant or any guarantor of Tenant or the adoption of any plan or the commencement of any proceeding, the result of which is or is intended to include the dissolution or liquidation of Tenant or any guarantor of Tenant.
(j) The entry of an order in any proceeding by or against Tenant or any guarantor of Tenant decreeing or permitting the dissolution of Tenant or any guarantor of Tenant or the winding up of its affairs.
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8.2 Remedies. In the event of a Default of Tenant, in addition to all other rights or remedies Landlord may have, Landlord, acting through its employees, agents or servants, may terminate this Lease by notice to Tenant in the manner provided in Section 10.1. In addition to all other rights or remedies Landlord may have, in the event of a Default of Tenant, Landlord shall have the immediate right to re-enter and repossess the Premises. Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided by law, and should Landlord elect to terminate this Lease, Landlord may recover from Tenant:
(1) The worth at the time of the award of the unpaid Rent which is due, owing and unpaid by Tenant to Landlord at the time of termination; and
(2) The worth at the time of the award of the amount by which the unpaid Rent which would have been earned after termination until the time of the award exceeds the amount of the rent loss Tenant proves could have been reasonably avoided; and
(3) The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of rental loss which Tenant proves could be reasonably avoided; and
(4) All other amounts necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of events are likely to result therefrom including all costs (including attorneys' fees) of recovering possession of the Premises, removing persons or property from the Premises, repairs, brokers' fees, advertising and alterations to the Premises in connection with reletting the Premises; and
(5) At Landlord's election, other amounts in addition to or in lieu of the above as may be permitted from time to time by applicable law.
All computations of the worth at the time of amounts recoverable by Landlord under clauses (1), (2) and (4) above shall be computed by allowing interest at the Default Rate (as defined in Section 8.4). The worth at the time of award recoverable by Landlord under clause (3) above shall be computed by discounting the amount otherwise recoverable by Landlord at the discount rate of the Federal Reserve Bank of San Francisco plus one percent (1%).
If the Premises or any part of the Premises are vacated or abandoned, or if Landlord takes possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by applicable law, and if Landlord does not elect to terminate this Lease, Landlord may from time to time, without terminating this Lease, recover all Rent as it becomes due and, at Landlord's election, relet the Premises or any part of the Premises upon such terms, at such rent, upon such conditions and for such a period of time as Landlord in its sole discretion may deem advisable. Landlord shall also have the right to make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable and necessary for the purpose of reletting the Premises; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall apply to any unpaid amounts due Landlord hereunder the net proceeds, if any, of any reletting of the Premises, after deducting all expenses in connection therewith, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparing the Premises for such reletting. Tenant hereby waives all right to receive all or any portion of the net proceeds of any such reletting. Landlord shall in no event be liable for failure to relet the Premises, or, in the event that the Premises are relet, for failure to collect the rent under such reletting.
In the event that Tenant should breach this Lease, Landlord may, at it option, enforce all of its rights and remedies under this Lease, including the right to recover the Rent as it becomes due hereunder. Additionally, Landlord shall be entitled to recover from Tenant all costs of maintenance and
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preservation of the Premises, and all costs, including attorneys' fees, to protect the Premises and Landlord's interest under this Lease.
At any time after a Default of Tenant occurs, Landlord may re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No re-entry into the Premises by Landlord pursuant to this paragraph shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant.
To the fullest extent permitted by law, Tenant hereby waives all rights of redemption or relief from forfeiture under California Civil Procedure Sections 1174 and 1179, or under any other present or future law, in the event Tenant is evicted or Landlord takes possession of the Premises by reason of any Default of Tenant.
8.3 Remedies Cumulative. Any and all rights and remedies which Landlord may have under this Lease, and at law and equity for Tenant's failure to comply with its obligations under this Lease shall be cumulative and shall not be deemed inconsistent with each other, and any two or more of all such rights and remedies may be exercised at the same time insofar as permitted by law. Notwithstanding any provision of this Lease to the contrary, in no event shall Tenant be liable for any loss of business, or any other indirect, special or consequential damages, except as provided in Section 8.5.
8.4 Landlord's Right to Cure Defaults. At any time with or without notice, Landlord shall have the right, but shall not be required, to pay such sums or do any act which requires the expenditure of monies which may be necessary or appropriate by reason of the failure or neglect of Tenant to comply with any of its obligations under this Lease (irrespective of whether the same shall have ripened into a Default of Tenant), and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon demand, as Additional Rent, all such sums including reasonable attorneys fees, together with interest thereon at a rate (the " Default Rate ") equal to the greater of six percent (6%) over the Prime Rate or twelve percent (12%) per annum, but in no event in excess of the maximum rate of interest then permitted to be agreed to by the parties under applicable law. " Prime Rate " shall mean the annual floating rate of interest, determined daily and expressed as a percentage from time to time announced by the largest national or state-chartered banking institution in the state or district in which the Complex is located as its "prime" or "base" rate. If, at any time, both the largest national and state-chartered banking institutions having their principal offices in the City of San Diego, shall cease to announce such a floating rate, Prime Rate shall mean a rate of interest, determined daily, which is two (2) percentage points above the 14-day moving average closing trading price of 90-day Treasury Bills.
8.5 Holding Over. Any holding over by Tenant after the expiration or early termination of the term of this Lease shall be treated as a daily tenancy at sufferance at a rate equal to one hundred and fifty percent (150%) of the greater of the fair market rental value for the Premises on a month-to-month basis or the Annual Fixed Rent in effect immediately prior to the expiration or earlier termination of the term plus Additional Rent and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all damages, direct and/or consequential (foreseeable and unforeseeable), sustained by reason of any such holding over. Otherwise, all of the covenants, agreements and obligations of Tenant applicable during the term of this Lease shall apply and be performed by Tenant during such period of holding over as if such period were part of the term of this Lease.
8.6 Effect of Waivers of Default. Any consent or permission by Landlord to any act or omission by Tenant shall not be deemed to be consent or permission by Landlord to any other similar or dissimilar act or omission and any such consent or permission in one instance shall not be deemed to be consent or permission in any other instance.
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8.7 No Waiver, etc. The failure of Landlord or Tenant to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed to have been a waiver of such breach by Landlord, or by Tenant, unless such waiver be in writing signed by the party to be charged. No consent or waiver, express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty.
8.8 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than the Annual Fixed Rent, Additional Rent or any other charge then due shall be deemed to be other than on account of the earliest installment of such rent or charge due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent or other charge be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided.
Article 9
Rights of Holders
9.1 Rights of Mortgagees or Ground Lessors. This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages, which may now or hereafter affect the Building or the Complex and/or any such lease, whether or not such mortgages shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and all consolidations of such mortgages. This Section shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Lease is subject and subordinate is herein called " Superior Lease " and the lessor of a Superior Lease or its successor in interest, at the time referred to, is herein called " Superior Lessor "; and any mortgage to which this Lease is subject and subordinate, is herein called " Superior Mortgage " and the holder of a Superior Mortgage is herein called " Superior Mortgagee ". Landlord represents that the Complex is not subject to any Superior Lease as of the Date of this Lease.
If any Superior Lessor or Superior Mortgagee or the nominee or designee of any Superior Lessor or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, then at the request of such party so succeeding to Landlord's rights (herein called " Successor Landlord ") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease, except that the Successor Landlord (unless formerly the landlord under this Lease) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of Landlord under this Lease, (b) responsible for any monies owing by or on deposit with Landlord to the credit of Tenant, (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against Landlord, (d) bound by any modification of this Lease subsequent to such Superior Lease or Superior
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Mortgage, or by any previous prepayment of Annual Fixed Rent or Additional Rent for more than one (1) month, which was not approved in writing by the Successor Landlord, (e) liable to the Tenant beyond the Successor Landlord's interest in the Building, (f) responsible for the performance of any work to be done by Landlord under this Lease to render the Premises ready for occupancy by the Tenant, or (g) required to remove any person occupying the Premises or any part thereof, except if such person claims by, through or under the Successor Landlord. Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid.
9.2 Modifications. If any Superior Lessor or Superior Mortgagee shall require any modification(s) of this Lease, Tenant shall, at Landlord's request, promptly execute and deliver to Landlord such instruments effecting such modification(s) as Landlord shall require, provided that such modification(s) do not adversely affect in any material respect any of Tenant's rights under this Lease. In addition, and notwithstanding Section 9.1 to the contrary, any Superior Lessor or Superior Mortgagee may, at its option, subordinate the Superior Lease or Superior Mortgage of which it is the lessor or holder to this Lease by giving Tenant ten (10) days prior written notice of such election, whereupon this Lease shall, irrespective of dates of execution, delivery and recording, be superior to such Superior Lease or Superior Mortgage and no other documentation shall be necessary to effect such change.
9.3 Non-Disturbance. Landlord represents that the Lease is not subject to any Superior Mortgage or Superior Lease as of the Date of this Lease. Landlord shall use diligent efforts (without the obligation to incur expense or liability in connection with such efforts) to obtain a so-called non-disturbance agreement from any future Superior Lessor or Superior Mortgagee which agreement may be in the form customarily used by such Superior Lessor or Superior Mortgagee, or if no such form exists, in any commercially reasonable form, subject to the conditions and limitations of Sections 9.1 and 9.2, provided, however, that if, despite such reasonable efforts, Landlord is unable to obtain such agreement, such failure shall not constitute a default by Landlord under this Lease.
Article 10
Miscellaneous Provisions
10.1 Notices. Except as may be expressly provided herein otherwise, all notices, requests, demands, consents, approval or other communications to or upon the respective parties hereto shall be in writing, shall be delivered by hand or mailed by certified or registered mail, return receipt requested, or by a nationally recognized courier service that provides a receipt for delivery such as Federal Express, United Parcel Service or U.S. Postal Service Express Mail and shall be addressed as follows: If intended for Landlord, to the Original Address of Landlord set forth in Section 1.1 of this Lease with a copy to REIT Management & Research LLC, 400 Centre Street, Newton, MA 02464, Attn: Jennifer B. Clark (or to such other address or addresses as may from time to time hereafter be designated by Landlord by notice to Tenant); and if intended for Tenant, addressed to Tenant at the Original Address of Tenant set forth in Section 1.1 of this Lease until the Commencement Date and thereafter to the Complex (or to such other address or addresses as may from time to time hereafter be designated by Tenant by notice to Landlord). Notices shall be effective on the date delivered to (or the first date such delivery is attempted and refused by) the party to which such notice is required or permitted to be given or made under this Lease. Notices from Landlord may be given by Landlord's Agent, if any, or Landlord's attorney.
10.2 Quiet Enjoyment; Landlord's Right to Make Alterations, Etc. Landlord agrees that, upon Tenant's paying the rent and performing and observing the agreements, conditions and other provisions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises during the term hereof without any manner of hindrance or molestation from
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Landlord or anyone claiming under Landlord, subject, however, to the terms of this Lease; provided, however, Landlord reserves the right at any time and from time to time, without the same constituting breach of Landlord's covenant of quiet enjoyment or an actual or constructive eviction, and without Landlord incurring any liability to Tenant or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, improvements, repairs or replacements in or to the interior and exterior of the Building (including the Premises) and the fixtures and equipment thereof, and in or to the Building or the Complex, or properties adjacent thereto, as Landlord may deem necessary or desirable, and to change (provided that there be no unreasonable obstruction of the right of access to the Premises by Tenant and that Landlord use commercially reasonable efforts to minimize, to the extent practical, any interference with the conduct of business at the Premises) the arrangement and/or location of entrances or passageways, doors and doorways, corridors, elevators, or other common areas of the Building and the Complex.
Without incurring any liability to Tenant, Landlord may permit access to the Premises and open the same, whether or not Tenant shall be present, upon any demand of any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal or court officer Landlord reasonably believes is entitled to such access for the purpose of taking possession of, or removing, Tenant's property or for any other lawful purpose (but this provision and any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official making such demand has any right or interest in or to this Lease, or in or to the Premises), or upon demand of any representative of the fire, police, building, sanitation or other department of the city, state or federal governments.
10.3 Lease Not to be Recorded; Confidentiality of Lease Terms. Tenant agrees that it will not record this Lease. Both parties shall, upon the request of either, execute and deliver a notice or short form of this Lease in such form, if any, as may be acceptable for recording with the land records of the governmental entity responsible for keeping such records. In no event shall such document set forth the rent or other charges payable by Tenant pursuant to this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease and is not intended to vary the terms and conditions of this Lease.
Tenant acknowledges that the terms under which the Landlord has leased the Premises to Tenant (including, without limitation, the rental rate(s), term and other financial and business terms), constitute confidential information of Landlord (" Confidential Information "). Tenant covenants and agrees to keep the Confidential Information confidential and not to disclose the same to third parties; provided, however, that such Confidential Information may be disclosed by Tenant to those of its officers, employees, attorneys, accountants, lenders, potential investors or acquirers of Tenant, and financial advisors (collectively, " Representatives ") who need to know such information in connection with Tenant's use and occupancy of the Premises and for financial reporting and credit related activities and to comply with laws, including securities laws and regulations. Tenant furthermore agrees to inform its Representatives of the confidential nature of such Confidential Information and to use all reasonable efforts to cause each Representative to treat such Confidential Information confidentially and in accordance with the terms of this paragraph.
10.4 Assignment of Rents and Transfer of Title; Limitation of Landlord's Liability. With reference to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, whether absolute or conditional in nature or otherwise, which assignment is made to the holder of a mortgage on property which includes the Premises, Tenant agrees that the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage shall never be treated as an assumption by such holder of any of the obligations of Landlord hereunder unless such holder shall, by notice sent to Tenant, specifically otherwise elect and that, except as aforesaid, such holder shall be treated as having assumed Landlord's obligations hereunder (subject to the limitations set forth in Section 9.1) only upon foreclosure of such holder's mortgage and the taking of possession of the Premises.
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The term " Landlord " as used in this Lease, so far as covenants or obligations to be performed by Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of Landlord's interest in the Complex, and in the event of any transfer or transfers of such title to said property, Landlord (and in case of any subsequent transfers or conveyances, the then grantor) shall be concurrently freed and relieved from and after the date of such transfer or conveyance, without any further instrument or agreement, of all liability with respect to the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord, shall, subject as aforesaid, be binding on Landlord, its successors and assigns, only during and in respect of their respective period of ownership of such interest in the Complex. Notwithstanding the foregoing, in no event shall the acquisition of Landlord's interest in the Building or the Complex by a purchaser which, simultaneously therewith, leases Landlord's entire interest in the Building or the Complex back to Landlord or the seller thereof be treated as an assumption by operation of law or otherwise, of Landlord's obligations hereunder. Tenant shall look solely to such seller-lessee, and its successors from time to time in title, for performance of Landlord's obligations hereunder. The seller-lessee, and its successors in title, shall be the Landlord hereunder unless and until such purchaser expressly assumes in writing the Landlord's obligations hereunder.
Tenant shall not assert nor seek to enforce any claim for breach of this Lease against any of Landlord's assets other than Landlord's interest in the Complex, and Tenant agrees to look solely to such interest, including Landlord's interest in the rents therefrom, for the satisfaction of any liability or claim against Landlord under this Lease, it being specifically agreed that in no event whatsoever shall Landlord ever be personally liable for any such liability. In addition, Landlord hereby notifies Tenant that the Declaration of Trust of Hub Properties Trust provides, and Tenant agrees, that no trustee, officer, director, general or limited partner, member, shareholder, beneficiary, employee or agent of Landlord (including any person or entity from time to time engaged to supervise and/or manage the operation of Landlord) shall be held to any liability, jointly or severally, for any debt, claim, demand, judgment, decree, liability or obligation of any kind (in tort, contract or otherwise) of, against or with respect to Landlord or arising out of any action taken or omitted for or on behalf of Landlord.
10.5 Landlord's Default. Landlord shall not be deemed to be in breach of, or in default in the performance of, any of its obligations under this Lease unless it shall fail to perform such obligation(s) and such failure shall continue for a period of thirty (30) days, or such additional time as is reasonably required to correct any such breach or default, after written notice has been given by Tenant to Landlord specifying the nature of Landlord's alleged breach or default. Tenant shall have no right to terminate this Lease for any breach or default by Landlord hereunder and no right, for any such breach or default, to offset or counterclaim against any rent due hereunder. In no event shall Landlord ever be liable to Tenant for any punitive damages or for any loss of business or any other indirect, special or consequential damages suffered by Tenant from whatever cause. Tenant further agrees that if Landlord shall have failed to cure any such breach or default within thirty (30) days of such notice to Landlord (or if such breach or default cannot be cured within said time, then within such additional time as may be necessary if within said thirty days Landlord has commenced and is diligently pursuing the remedies necessary to cure such breach or default), then the holder(s) of any mortgage(s) or the lessor under any ground lease entitled to notice pursuant to Section 10.6 shall have an additional thirty (30) days within which to cure such breach or default if such breach or default cannot be cured within that time, then such additional time as may be necessary, if within such thirty (30) days any such holder or lessor has commenced and is diligently pursuing the remedies necessary to cure such breach or default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure).
10.6 Notice to Mortgagee and Ground Lessor. After receiving notice from any person, firm or other entity that it holds a mortgage which includes the Premises as part of the mortgaged premises, or
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that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Premises as part of the demised premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such holder or ground lessor, and the curing of any of Landlord's defaults by such holder or ground lessor shall be treated as performance by Landlord.
10.7 Building or Complex Name Change. Landlord shall have the right to change the name of the Building or the Complex at any time and Tenant expressly waives any and all claims for damages against Landlord resulting therefrom.
10.8 Waiver of Jury Trial. Landlord and Tenant hereby waive their respective right to trial by jury of any cause of action, claim, counterclaim or cross-complaint in any action, proceeding and/or hearing brought by either Landlord against Tenant or Tenant against Landlord on any matter whatsoever arising out of, or in any way connected with, this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or damage, or the enforcement of any remedy under any law, statute or regulation, emergency or otherwise, now or hereafter in effect.
10.9 Brokerage. Tenant warrants and represents that it has dealt with no broker in connection with the consummation of this Lease, other than Colliers International and Irving Hughes (the " Brokers "), and in the event of any brokerage claims or liens, other than by the Brokers, against Landlord or the Complex predicated upon or arising out of prior dealings with Tenant, Tenant agrees to defend the same and indemnify and hold Landlord harmless against any such claim, and to discharge any such lien. Landlord warrants and represents that it has dealt with no broker in connection with the consummation of this Lease, other than the Brokers, and Landlord agrees to pay the commissions of the Brokers pursuant to a separate agreement between Landlord and Colliers International. In the event of any brokerage claims against Tenant by either of the Brokers arising from Landlord's breach of its agreement to pay said commissions, or by any other brokers predicated upon or arising out of prior dealings with Landlord, Landlord agrees to defend the same and indemnify and hold Tenant harmless against any such claim.
10.10 OSHPAD Requirements. Without limiting any other provision contained in this Lease, Tenant hereby represents and warrants to Landlord that Tenant's operation of the Premises and the condition of the Premises shall not require any compliance with the requirements of, or certification of compliance from, the California Office of Statewide Health Planning and Development ("OSHPAD") or any similar governmental certificates due to the nature of Tenant's operation of the Premises. Landlord shall not be liable for, and Tenant shall indemnify, defend and hold Landlord harmless from and against all liabilities, damages, claims, costs and expenses (including, without limitation, reasonable attorneys' fees and costs) arising in connection with, any failure of Tenant's operation of the Premises to comply with, or any failure of the Premises to comply with, the requirements of OSHPAD or other similar or related governmental entities. In the event compliance with the requirements of OSHPAD or any other similar or related governmental entity is required in connection with Tenant's operation of the Premises by Tenant or by any assignee or subtenant of Tenant, Tenant shall be solely responsible for the cost of making any alterations or taking any other necessary actions to cause such compliance and Landlord shall have no liability in connection therewith.
10.11 Applicable Law and Construction. This Lease shall be governed by and construed in accordance with the laws of the state or district in which the Complex is located and if any provisions of this Lease shall to any extent be invalid, the remainder of this Lease shall not be affected thereby. Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement which may be made between the parties concurrently with the execution and delivery of this Lease and which shall expressly refer to this Lease. All understandings and agreements heretofore made between the parties are merged in this Lease and any other such written agreement(s)
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made concurrently herewith, which alone fully and completely express the agreement of the parties and which are entered into after full investigation, neither party relying upon any statement or representation not embodied in this Lease or any other such written agreement(s) made concurrently herewith. This Lease may be amended, and the provisions hereof may be waived or modified, only by instruments in writing executed by Landlord and Tenant. The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Lease. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and Tenant shall have no right to the Premises hereunder until the execution and delivery hereof by both Landlord and Tenant. Except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and assigns. If two or more persons or parties are named as Tenant herein, (i) each of such persons or parties shall be jointly and severally liable for the obligations of the Tenant hereunder, and Landlord may proceed against any one without first having commenced proceedings against any other of them and (ii) Landlord may require that all notices, requests, demands, consents, approvals or other communications delivered by Tenant under the Lease must be executed by each person or party named as Tenant herein. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both an independent covenant and a condition and time is of the essence with respect to the exercise of any of Tenant's rights under this Lease. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment of Tenant. Except as otherwise set forth in this Lease, any obligations of Tenant (including, without limitation, rental and other monetary obligations, repair obligations and obligations to indemnify Landlord), shall survive the expiration or earlier termination of this Lease, and Tenant shall immediately reimburse Landlord for any expense incurred by Landlord in curing Tenant's failure to satisfy any such obligation (notwithstanding the fact that such cure might be effected by Landlord following the expiration or earlier termination of this Lease).
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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WITNESS the execution hereof under seal on the day and year first above written.
Landlord: | |||
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Hub Properties Trust |
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By: |
/s/ JENNIFER B. CLARK Jennifer B. Clark Senior Vice President |
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Tenant: |
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DexCom, Inc. |
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By: |
/s/ STEVEN KEMPER Name: Steven Kemper Title: CFO, Assistant Secretary |
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EXHIBIT A
PLAN SHOWING THE PREMISES
[See attached copy.]
EXHIBIT A-1
PLAN SHOWING THE PARKING SPACES
[See attached copy.]
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances and driveways in or about the Complex shall not be obstructed by Tenant or used by Tenant for any purpose other than for access to the Premises and the Complex.
2. Tenant shall not place objects against glass partitions, doors or windows which would be unsightly from the exterior of the Building. No signs, advertisements, placards, pictures, names, notices, or lettering shall be exhibited, inscribed, painted or fixed by Tenant on any window or outside or inside of the Building or Complex without the prior consent of Landlord.
3. All window coverings shall be of a uniform shape, color, material and design as prescribed by Landlord and approved by Tenant, such approval not to be unreasonably withheld.
4. Tenant shall not place a load upon any floor of the Building exceeding the lesser of the floor load which such floor was designed to carry or that allowed by law.
5. No additional or different locks or bolts shall be affixed on doors by Tenant without reasonable prior notice to Landlord and without providing Landlord with copies thereof. Tenant shall return all keys to Landlord upon termination of Tenant's lease.
6. Tenant shall not use the Premises so as to cause any increase above normal insurance premiums on the Building.
7. No vehicles or animals (except a seeing-eye dog) shall be brought into or kept in or about the Premises. No space in the Building shall be used for the sale of merchandise of any kind at auction or for storage thereof preliminary to such sale.
8. Tenant shall not engage or pay any employees of the Complex without approval from the Landlord.
9. Tenant shall cooperate with Landlord in minimizing loss and risk thereof from fire and associated perils.
10. Tenant shall, at Tenant's expense, provide artificial light and electric current for the Landlord and/or its contractors, agents and employees during the making of repairs, alterations, additions or improvements in or to the Premises.
11. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were designed and constructed. Any equipment or apparatus within the Premises, including, without limitation, x-ray effluent drains, shall be maintained by Tenant throughout the term hereof, at Tenant's sole cost and expense.
12. Landlord reserves the right to establish, modify and enforce parking rules and regulations, provided the same are reasonable, consistent with the type of parking rules in effect in comparable office parks in the San Diego area, and apply uniformly to all tenants of the Complex.
13. All refuse from the Premises shall be disposed of in accordance with the requirements established therefor by Landlord for the Complex.
14. Except for the use of coffee makers and microwave ovens, no cooking shall be done or permitted by Tenant on the Premises.
15. No smoking is allowed in the Building (including the Premises) or any other building or structure in the Complex.
16. No Tenant shall make, or permit to be made, any noises which shall disturb or interfere with occupants of the Complex.
17. The requirements of Tenant to which it is entitled hereunder will be attended to only upon application at the Building office. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special written instructions from Landlord, and no
employee will admit any person (Tenant or otherwise) to any office, or sign acceptance of delivery for any Tenant, without written specific instructions from Tenant.
18. Landlord reserves the right at any time to rescind, alter or waive any rule or regulation at any time prescribed for the Building and to impose additional rules and regulations when in its judgment reasonably exercised Landlord deems it necessary, desirable or proper for its best interest and for the best interest of tenants and other occupants and invitees thereof. No alteration or waiver of any rule or regulation in favor of one Tenant shall operate as an alteration or waiver in favor of any other Tenant. Landlord shall not be responsible to any Tenant for the non-observance or violation by any other Tenant however resulting of any rules or regulations at any time prescribed for the Complex. In the event of any conflict between these Rules and Regulations, or any further or modified rules and regulations from time to time issued by Landlord, and the Lease provisions, the Lease provisions shall govern and control.
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EXHIBIT C
ALTERATIONS REQUIREMENTS
A. Generally
1. All alterations, installations or improvements (" Alterations ") to be made by Tenant in, to or about the Premises, including any Alterations to be made prior to Tenant's occupancy of the Premises for the Permitted Use, shall be made in accordance with the requirements of this Exhibit and with any additional requirements stated in the Lease.
2. All submissions, inquiries approvals and other matters shall be processed through Landlord's Building manager or regional property manager.
3. Additional and differing provisions in the Lease, if any, will be applicable and will take precedence over the terms of this Exhibit.
B. Plans
1. Before commencing construction of any Alterations, Tenant shall submit for Landlord's written approval, either a description of the Alterations or drawings and specifications for the Alterations as follows:
2. Landlord shall review the description or Plans submitted by Tenant (" Tenant's Design Submission ") and notify Tenant of approval or disapproval. If Landlord disapproves Tenant's Design Submission, Landlord shall specify the reasons for its disapproval and Tenant shall revise Tenant's Design Submission to meet Landlord's objections, and shall resubmit the same to Landlord as so revised until Tenant's Design Submission is approved by Landlord. No approval by Landlord of Tenant's Design Submission shall constitute a waiver of any of the requirements of this Exhibit or the Lease. Tenant shall not make any changes to Tenant's Design Submission after approval by Landlord, including changes required to obtain governmental permits, without obtaining Landlord's written approval in each instance.
3. All mechanical, electrical, structural and floor loading requirements shall be subject to approval of Landlord's engineers. Landlord also reserves the right to require Tenant to submit copies of shop drawings for Landlord's review and approval.
4. Before commencing construction of any Alterations, Tenant shall provide Landlord with two (2) complete copies of Tenant's Design Submission in final form as approved by Landlord.
C. Selection of Contractors and Subcontractors
Before commencing construction of any Alterations, Tenant shall submit to Landlord the names of Tenant's general contractor (the " General Contractor ") and any subcontractors performing work on the
electrical, mechanical, plumbing or life-safety systems of the Building for Landlord's approval, such approval not to be unreasonably withheld, conditioned or delayed. If Landlord shall reject the General Contractor or any such subcontractor, Landlord shall advise Tenant of the reasons(s) in writing and Tenant shall submit another selection to Landlord for Landlord's approval, such approval not to be unreasonably withheld, conditioned or delayed.
D. Insurance
1. Before commencing construction of any Alterations, Tenant will deliver to Landlord:
E. Building Permit and Other Legal Requirements
1. Before commencing construction of any Alterations, Tenant shall furnish Landlord with a valid permit for the construction of the Alterations from the building department or other agency having jurisdiction in the municipality in which the Building is located (unless the Alterations are of a cosmetic nature not requiring a building permit). Tenant shall keep the original building permit posted on the Premises during the construction of the Alterations.
2. Tenant Design Submission, the Alterations, and the construction of the Alterations shall each be in strict compliance with (i) all applicable laws, codes, rules and regulations, including, without limitation, the Americans with Disabilities Act, state and local health department requirements, and occupational health and safety laws and regulations (and no approval of Tenant's Design Submission shall relieve Tenant of this obligation or invest Landlord with any responsibility for ensuring such compliance), and (ii) all building permits, consents, licenses, variances, and approvals issued in connection with the Alterations. Tenant shall ensure that the General Contractor and all subcontractors have the requisite licenses to perform their work. Tenant shall procure all permits, governmental approvals, licenses, variances and consents required for the Alterations and shall provide Landlord with a complete copy thereof promptly upon receipt of same by Tenant.
F. Materials and Workmanship
1. All equipment and installations must be equal to the Building standard and all materials shall be new, commercial grade and of first-class quality. Any deviation from these requirements will be permitted only if clearly indicated or specified on Tenant's Design Submission and approved by Landlord.
2. Alterations shall be constructed in a professional and good and workmanlike manner, in accordance with Tenant's Design Submission.
3. The General Contractor shall guaranty all materials and workmanship against defects for a period of not less than one (1) year from installation. Notwithstanding any limitations contained in such guaranty or in any contract, purchase order or other agreement, during the entire term of the Lease, Tenant shall promptly repair or replace, at Tenant's cost, any defective aspect of the Alterations except for insubstantial defects that do not adversely effect the Building or the appearance or rental value of the Premises, as determined by Landlord in its sole discretion.
4. Alterations (other than upgrades of Building systems) must be compatible with the existing mechanical, plumbing, HVAC, electrical and life safety systems of the Building (collectively the " Building Systems "). In the event any Alterations shall interfere with the proper functioning of any
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Building System, Tenant shall promptly cause such repairs, replacements or adjustments to be made to the Alterations as are necessary to eliminate any such interference at Tenant's sole cost and expense
G. Prosecution of the Work
1. All construction activities shall be conducted so as to avoid disturbance of other tenants. Landlord may require that all demolition and other categories of work that may disturb other tenants of the Building be scheduled and performed on weekends or after normal working hours. and Tenant shall provide the Building manager with at least two Business Days' notice prior to proceeding with such work.
2. Alterations costing in excess of $10,000 shall be performed under the supervision of a superintendent or foreman of the General Contractor at all times.
3. The General Contractor or HVAC subcontractor shall block off supply and return grilles, diffusers and ducts to keep dust from entering into the Premises HVAC system and thoroughly clean all HVAC units in the work area at the completion of the Alterations.
4. Construction debris shall be stored in appropriate containers and removed from the construction area on a regular basis and the construction area shall be kept neat and reasonably clean at all times. All construction debris is to be discarded in waste containment provided by the General Contractor only. No material or debris shall be stored outside the Building without the prior written approval of the Landlord's Construction Representative.
5. Landlord shall have the right to instruct the General Contractor to deliver to Landlord, at Tenant's expense, any items to be removed from the Premises during the construction of the Alterations.
6. Tenant, either directly or through the General Contractor, will immediately notify Landlord, in writing, of any damage to the Building caused by the General Contractor or any subcontractors. Such damage shall be repaired within 72 hours unless otherwise directed by the Landlord in writing. Any damage that is not repaired may be repaired by Landlord at Tenant's expense.
7. The General Contractor and all subcontractors shall cause their employees to adhere to all applicable Rules and Regulations of the Complex.
8. Landlord shall have the right to supervise and inspect the Alterations as the work progresses and to require Tenant to remove or correct any aspect of the Alterations that does not substantially conform, in any material respect, to Tenant's Design Submission approved by Landlord. Such supervision and inspection shall be at Landlord's sole expense unless Landlord reasonably determines that Tenant's Alterations do not conform to Tenant's Design Submission, in which case Tenant shall pay, as Additional Rent, Landlord's reasonable costs of all future supervision.
H. Documents to Be Furnished to Landlord Upon Completion of Tenant's Work
1. Within thirty (30) days after construction of the Alterations has been completed, except for so-called punch list items, Tenant shall furnish Landlord with the following documents:
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EXHIBIT D
CONTRACTOR'S INSURANCE REQUIREMENTS
Building:
Tenant:
Premises:
The undersigned contractor or subcontractor (" Contractor ") has been hired by the tenant or occupant (hereinafter called " Tenant ") of the Building named above or by Tenant's contractor to perform certain work (" Work ") for Tenant in the Premises identified above. Contractor and Tenant have requested the undersigned landlord (" Landlord ") to grant Contractor access to the Building and its facilities in connection with the performance of the Work and Landlord agrees to grant such access to Contractor upon and subject to the following terms and conditions:
1. Contractor agrees to indemnify and save harmless the Landlord, and if Landlord is a general or limited partnership each of the partners thereof, and if Landlord is a nominee trust the trustee(s) and all beneficiaries thereof, and all of their respective officers, employees and agents, from and against any claims, demands, suits, liabilities, losses and expenses, including reasonable attorneys' fees, arising out of or in connection with the Work (and/or imposed by law upon any or all of them) because of personal injuries, including death, at any time resulting therefrom and loss of or damage to property, including consequential damages, whether such injuries to person or property are claimed to be due to negligence of the Contractor, Tenant, Landlord or any other party entitled to be indemnified as aforesaid except to the extent specifically prohibited by law (and any such prohibition shall not void this agreement but shall be applied only to the minimum extent required by law).
2. Contractor shall provide and maintain at its own expense, until completion of the Work, the following insurance:
(a) Worker's Compensation and Employers Liability Insurance covering each and every workman employed in, about or upon the Work, as provided for in each and every statute applicable to Workmen's Compensation and Employers' Liability Insurance.
(b) Commercial General Liability Insurance including coverages for Protective and Contractual Liability (to specifically include coverage for the indemnification clause of this agreement) for not less than the following limits:
Bodily Injury: |
$5,000,000 per person
$5,000,000 per occurrence |
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Property Damage: |
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$5,000,000 per occurrence $5,000,000 aggregate |
(c) Commercial Automobile Liability Insurance (covering all owned, non-owned and/or hired motor vehicles to be used in connection with the Work) for not less than the following limits:
Bodily Injury: |
$5,000,000 per person
$5,000,000 per occurrence |
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Property Damage: |
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$5,000,000 per occurrence. |
Contractor shall furnish a certificate from its insurance carrier or carriers to the Building office before commencing the Work, showing that it has complied with the above requirements regarding insurance and providing that the insurer will give Landlord ten (10) days' prior written notice of the cancellation of any of the foregoing policies.
The insurance provided in (b) and (c) above shall name Landlord as an additional insured.
3. Contractor shall require all of its subcontractors engaged in the Work to provide the following insurance:
(a) Commercial General Liability Insurance including Protective and Contractual Liability coverages with limits of liability at least equal to the limits stated in paragraph 2(b).
(b) Commercial Automobile Liability Insurance (covering all owned, non-owned and/or hired motor vehicles to be used in connection with the Work) with limits of liability at least equal to the limits stated in paragraph 2(c).
Upon the request of Landlord, Contractor shall require all of its subcontractors engaged in the Work to execute an Insurance Requirements agreement in the same form as this Agreement.
Agreed to and executed this day of , 20 .
Contractor: | Landlord: | |||||
By: | By: | |||||
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Name: | Name: | |||||
Title: | Title: |
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EXHIBIT E
CLERK'S CERTIFICATE
I, Steven Kemper, the duly elected and acting [Asst. Secretary] of DexCom, a Delaware corporation (the " Corporation "), hereby certify that:
(A) at a meeting of the board of directors of the Corporation held on October 30, 2003 in accordance with law and the Bylaws of the Corporation the following resolutions were duly adopted:
VOTED: a. To approve a lease of approximately 23,000 rentable square feet of space for terms of 7 years with respect to in the building commonly known as 555 Oberlin in San Diego, which lease grants the Corporation an option to extend the term for 1 terms of 5 years each, substantially in the form of the draft presented at this meeting, a copy of which shall be placed on file in the office of the [Secretary/Clerk] and be incorporated by reference in this vote;
b. To authorize Steven Kemper and Andy Rasdal, or any one of them (each hereinafter referred to as a "Signatory"), to execute and deliver in the name and on behalf of the Corporation the above-described lease and to execute and deliver all other documents, agreements and instruments, including, without limitation, notices of lease, and to take all other actions with respect to the foregoing which any Signatory, in such Signatory's discretion, shall determine to be necessary or appropriate to effect or secure the transactions contemplated herein, the execution and delivery of any of the foregoing or the taking of any such action to be conclusive evidence of such Signatory's determination and of the Signatory's authority so to do granted by this vote;
(B) as of this date the following individuals are duly elected and qualified officers of the Corporation holding at this date, the offices specified next to their names and the signature next to each such name is such individual's true signature.
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Steven Kemper | CFO, Asst. Secretary |
/s/ Steven Kemper
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(C) The form of lease attached to this Certificate is the form referred to in the foregoing vote.
(D) The resolutions set forth above are unmodified and continue to be in full force and effect and the Corporation has adopted no other resolutions in respect of the subject matter thereof.
In witness whereof, I have hereunto set my hand and affixed the seal of the Corporation this 3 day of December, 2003.
/s/Steven Kemper
[Secretary/Clerk] |
EXHIBIT F
PROPOSED LEASED SPACE
5555 Oberlin Drive, San Diego
DEMOLITION SCOPE OF WORK
November 5, 2003
The scope of work shall include all labor, materials, tools, equipment and services to perform the following:
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POST DEMOLITION
AIR SAMPLING RESULTS
Conducted for:
Signal Research Division of Celgene Corporation
Conducted at:
5555 Oberlin Drive
San Diego, CA 92121
Conducted by:
Krista Wood, Industrial Hygienist III
Occupational Services, Inc.
6397 Nancy Ridge Drive
San Diego, CA 92121
December 23, 2003
Occupational Services, Inc.
[LOGO of Occupational Services, Inc.]
1.0 INTRODUCTION
On December 16, 2003 and December 19, 2003, Occupational Services, Inc. ("OSI") conducted air sampling post laboratory demolition to provide sufficient information regarding the nature and extent of contamination, if any, at the project address of 5555 Oberlin Drive, San Diego, CA 92121.
2.0. EXECUTIVE SUMMARY
Airborne Lead
A total of six air samples were collected for airborne lead. The results of the laboratory analysis reported all lead samples less than the limit of detection of 0.38 ug. Each measurement was less than or equal to the outdoor sample; therefore, indoor contamination cannot be identified. Also each sample was far below the Cal/OSHA permissible exposure limit (PEL) of 50 ug/m 3 . OSI recommends no further action. Please refer to Appendix A for air sampling results.
Airborne Total Dust
A total of six air samples were collected for total dust and indicated concentrations ranging from none detected for all indoor air samples to 0.57 mg/m 3 for the outdoor sample. Each measurement was less than the outdoor sample; therefore, indoor contamination cannot be identified. Also each sample was below the level of quantitation of 0.05 mg except for the outdoor sample; which was 0.57 mg/m 3 . Each sample was far below the Cal/OSHA PEL of 10 mg/ m 3 . OSI recommends no further action. Please refer to Appendix B for air sampling results.
Airborne Microbial (Total Fungal Spores)
A total of six air samples were collected for total fungal spores on December 16, 2003. A total of approximately eight spores were observed in Office 160 of Stachybotrys and none were detected in the outdoor sample. Also, elevated levels of Aspergillus/Penicillium spores were found in Office 160. The reported Stachybotrys and Aspergillus/Penicillium samples are not particularly high in the office sample. However, the higher value indoors of Stachybotrys and Aspergillus/Penicillium indicate that a source of Stachybotrys and/or Aspergillus/Penicillium infestation is present. A total of three air samples were collected from within the wall cavities in Office 160 on December 19, 2003 with a WallCheck. A total of approximately three spores of Stachybotrys were found in the North wall and approximately 41 spores of Aspergillus/Penicillium were found in the West Wall. Even though the WallCheck indicated the presence of Stachybotrys and Aspergillus/Penicillium spores, OSI suggests the building owner conduct further testing in Room 160 to confirm mold grown. Please refer to Appendix C for air sampling results.
Airborne Total Volatile Organics
A total of six air samples were collected for total volatile organics. The results of the laboratory analysis reported all volatile organics at less than the limit of detection of 10 ug. OSI recommends no further action. Please refer to Appendix D for air sampling results.
3.0 BACKGROUND
This investigation consisted of inspections of the demolished space and testing for airborne total dust, lead, total fungal spores and total volatile organics.
OSI conducted a visual inspection of the noted area on December 16, 2003 and found that the space had been removed of all porous materials within the construction area and there were no visual signs of contamination, mold growth or water leaks.
4.0 METHODS AND INSTRUMENTATION
OSI arrived at the project address, 5555 Oberlin Drive, San Diego, CA 92121, on December 16, 2003 at approximately 6:30 am.
OSI collected six air samples for total lead, six air samples for total dust, six air samples for total fungal spores and six air samples for total volatile organics for analysis in the following locations:
On December 19, 2003, OSI arrived at the project address at approximately 12:00 pm to obtain additional airborne microbial samples to determine the extent of contamination of Stachybotrys and Aspergillus/Penicillium .
OSI collected three wall-check samples for total fungal spores in Office 160 in the East wall, West wall and North wall. The South wall was not checked because it is a concrete structure.
Airborne Lead
OSI installed the Aircheck® 52 Sampler pump in six designated areas throughout the facility. Unweighed 0.8 um MCE cassettes were connected upstream of each sampling pump. Pre and post calibration of each sampling pump was conducted with a precision rotameter and was within ± 5% of 2.0 liters per minute (L/min). The procedure for sample collecting was followed as recommended by NIOSH 7300. Each sample was collected for four hours at an average flow rate of 2.0 L/min. Four indoor air samples, an outdoor sample and a field blank were analyzed.
The samples were submitted along with a chain of custody and shipped priority overnight via FedEx to Galson Laboratories (accredited by the American Industrial Hygiene Association) in Syracuse, New York. The method of analysis for the Lead samples was NIOSH 7300.
Airborne Total Dust
OSI installed the Airchece® 52 Sampler pump in six designated areas throughout the facility. Preweighed 5 um PVC cassettes were connected upstream of each sampling pump. Pre and post calibration of each sampling pump was conducted with a precision rotameter and was within ± 5% of 2.0 liters per minute (L/min). The procedure for sample collecting was followed as recommended by NIOSH 0500. Each sample was collected for sixty minutes at an average flow rate of 2.0 L/min. Four indoor air samples, an outdoor sample and a field blank were analyzed.
The samples were submitted along with a chain of custody and shipped priority overnight via FedEx to Galson Laboratories (accredited by the American Industrial Hygiene Association) in Syracuse, New York. The method of analysis for the total dust samples was NIOSH 0500.
Airborne Microbial (Total Fungal Spores)
On December 16, 2003, OSI used the Air-O-Cell spore trap sampler, which is a particulate sampling cassette designed for the rapid collection and analysis of a wide range of airborne aerosols that include mold spores. Airborne particles are drawn through the cassette, directed to the slide, and
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impacted on an adhesive collection media. The Air-O-Cell Cassettes (expiration date: 11/04) were installed in five designated areas. Pre and post calibration of the sampling pump (serial # 1249011) was within ± 5% of 15 liters per minute (1/min). The sampling method used was written by Aerotech Laboratories. Each sample was collected for five minutes at a flow rate of 15 1/min. Because of the ubiquity of fungi, a negative control was also submitted and evaluated against the samples collected. A total of six samples were collected for the purpose of determining the presence of viable fungi.
On December 19, 2003, OSI used the Air-O-Cell spore trap sampler and a WallCheck. The WallCheck is a precision-tooled adapter specially designed to work with Air-O-Cell Cassettes and developed to locate and identify hidden gross fungal amplification with limited physical destruction of building interiors. Air is drawn at a flow rate of 15 liters per minute (1/min) through 1 / 4 " tubing and impacted onto an Air-O-Cell Cassette. The WallCheck adapter is designed for sampling wall cavities for viable and nonviable fungi. The Air-O-Cell Cassettes (expiration date: 11/04) were installed in the East wall, West wall and South wall. Pre and post calibration of the sampling pump (serial # 1249011) was within ± 5% of 15 liters per minute (1/min). The sampling method used was written by Aerotech Laboratories. Each sample was collected for two minutes at a flow rate of 15 1/min.
The samples were submitted along with a chain of custody and shipped priority overnight via FedEx to Aerotech Laboratories (accredited by the American Association of Laboratory Accreditation) in Phoenix, Arizona. The slides of each cassette are removed for direct examination and identification. Samples at Aerotech Laboratories are analyzed via light microscope at 600X magnification with 100% of the sample being analyzed.
Airborne Total Volatile Organics
OSI installed the Aircheck® 52 Sampler pump in six designated areas throughout the facility. Coconut Shell Charcoal tubes (Catalog No. 226-01) were connected upstream of each sampling pump. Pre and post calibration of each sampling pump was conducted with a precision rotameter and was within ± 5% of 0.02 liters per minute (L/min). The samples were taken in accordance with the report entitled "ASTM Standard Practice for Sampling Atmospheres to Collect Organic Compound Vapors (Activated Charcoal Tube Adsorption Method). The procedure for sample collecting was followed as recommended by the report. Each sample was collected for 100 minutes at an average flow rate of 0.02 L/min. Four indoor air samples, an outdoor sample and a field blank were analyzed.
The samples were submitted along with a chain of custody and shipped priority overnight via FedEx to Galson Laboratories (accredited by the American Industrial Hygiene Association) in Syracuse, New York. The method of analysis for the total volatile organic samples was NIOSH 1500/1501.
5.0 DISCUSSION
Airborne Lead
Cal/OSHA has set permissible exposure limit (PEL) for lead at 50 ug/m 3 . The PEL is defined as average concentration for a conventional 8 hour work day and 40 hour work week, to which it is believed that nearly all workers may be reportedly exposed, day after day without adverse health effects. In this case, the samples collected from the facility were evaluated against samples collected from the outdoors.
Airborne Total Dust
Cal/OSHA has set permissible exposure limit (PEL) for dust at 10 mg/m 3 . The PEL is defined as average concentration for a conventional 8 hour work day and 40 hour work week, to which it is believed that nearly all workers may be reportedly exposed, day after day without adverse health
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effects. In this case, the samples collected from the facility were evaluated against samples collected from the outdoors.
Airborne Microbial (Total Fungal Spores)
Standards do not exist with respect to acceptable air and surface concentrations; therefore, guidelines indicate that suspect area samples should be evaluated against samples collected from non-suspect areas and from the outdoors. OSI evaluates the total quantity and relative amounts of the different genus identified, and compares indoor types and levels with those found in the outdoor environment.
The general guideline to follow is that the concentration and types of spores in the inside sample should be similar to or lower than the concentration and types of spores found in the outdoor sample. Due to the high variability in results; this test is mainly useful as a "check" to alert one to potential problems that might have been missed by visual inspection. NOTE: Accurate measurements of true airborne concentrations requires multiple samples taken during different times, and it can involve complex statistical analysis . The category Aspergillus / Penicillium are small (1-3 microns), round, colorless spores. A culture sample would be necessary to differentiate between them.
Levels in excess of the outdoor sample do not necessarily imply that the conditions are unsafe or hazardous. The type and concentrations of the airborne microorganisms will determine the hazard.
Airborne Total Volatile Organics
Standards do not exist with respect to acceptable air concentrations to total volatile organics; therefore, guidelines indicate that suspect area samples should be evaluated against samples collected from the outdoors. Cal/OSHA has set permissible exposure limit (PEL) for n-hexane (a volatile organic) at 50 ppm. All results are less than 0.1 ppm. No volatile organics were found.
6.0 RESULTS CONCLUSION AND RECOMMENDATION
Airborne Lead
Each measurement is below the level of quantitation of 0.38 ug and far below the Cal/OSHA PEL for lead of 50 ug/m 3 . OSI recommends no further action. The results are presented in Appendix A.
Airborne Total Dust
The total dust concentration for the outdoor air sample was 0.57 mg/m 3 . The total dust concentrations for the indoor air samples were all below the level of quantitation of <0.05 mg. The mass in the control sample was undetected. All samples are far below the Cal/OSHA PEL for total dust of 10 mg/m 3 . OSI recommends no further action. The results are presented in Appendix B.
Airborne Microbial (Total Fungal Spores)
A total of approximately 8 spores were observed in Office 160 of Stachybotrys and none were detected on the outdoor sample. Also, elevated levels of Aspergillus/Penicillium spores were found in Office 160 for the sampling event conducted on December 16, 2003 . The reported Stachybotrys and Aspergillus/Penicillium values are not particularly high in the office sample. However, the higher value indoors of Stachybotrys and Aspergillus/Penicillium indicate that a source of Stachybotrys and/or Aspergillus/Penicillium infestation is present.
A total of approximately three spores of Stachybotrys were found in the North wall and approximately 41 spores of Aspergillus/Penicillium were found in the West Wall for the sampling event conducted on December 19, 2003 . Even though the WallCheck indicated the presence of Stachybotrys
4
and Aspergillus/Penicillium spores, OSI suggests the building owner conduct further testing in Room 160 to confirm mold grown. Please refer to Appendix C for air sampling results.
Airborne Total Volatile Organics
The total volatile organic concentration for the outdoor air sample was < 10 ug. The total volatile organic concentrations for the indoor air samples were each < 10 ug. The mass in the control sample was undetected and the limit of quantitation was 10 ug (each measurement is below level of quantitation). OSI recommends no further action. The results are presented in Appendix D.
Prepared by: |
|
Reviewed & Approved by: |
Occupational Services, Inc. | Occupational Services, Inc. | |
/s/ KRISTA WOOD Krista Wood, Industrial Hygienist III, CIAQI Certified Indoor Air Quality Technician Board-Certified by the Association of Energy Engineers |
|
/s/ JEFF SILVERS Jeff Silvers, MPH, CIH, CSP Vice President |
5
Appendix A
Sampling ResultsAirborne Lead
Sample ID#
|
Location
|
Lab ID #
|
Air Volume
m 3 |
Total ug
|
Concentration
mg/ m 3 |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Cassette #3 | North Administration | L100059-1 | 0.4512 | < 0.38 | < 0.8 | |||||
Cassette #1 | North Construction | L100059-2 | 0.4416 | < 0.38 | < 0.9 | |||||
Cassette #5 | South Construction | L100059-3 | 0.4464 | < 0.38 | < 0.8 | |||||
Cassette #6 | Office 160 | L100059-4 | 0.4416 | < 0.38 | < 0.9 | |||||
Cassette #4 | Outside | L100059-5 | 0.4296 | < 0.38 | < 0.9 | |||||
Cassette #2 | Control | L100059-6 | NA | < 0.38 | NA |
|
|
|
|
|
Level of quantitation: |
|
0.38 ug |
|
|
Analytical Method: | NIOSH 7300 | |||
OSHA PEL (TWA): | 50 ug/ m 3 | |||
Collection Media: | Filter | |||
|
|
|
|
|
|
|
|
---|---|---|
< | Less Than | |
NA | Not Applicable | |
ug | Micrograms | |
m 3 | Cubic Meters |
6
Appendix B
Sampling ResultsAirborne Total Dust
Sample ID#
|
Location
|
Lab ID #
|
Air Volume
m 3 |
Total ug
|
Concentration
mg/ m 3 |
|||||
---|---|---|---|---|---|---|---|---|---|---|
196471 | North Administration | L100058-1 | 0.1062 | < 0.05 | < 0.5 | |||||
196472 | North Construction | L100058-2 | 0.1062 | < 0.05 | < 0.5 | |||||
196470 | South Construction | L100058-3 | 0.1062 | < 0.05 | < 0.5 | |||||
196469 | Office 160 | L100058-4 | 0.1062 | < 0.05 | < 0.5 | |||||
196467 | Outside | L100058-5 | 0.1128 | 0.064 | 0.57 | |||||
196468 | Control | L100058-6 | NA | < 0.05 | NA |
|
|
|
Level of quantitation: |
|
0.05 mg |
Analytical Method: | NIOSH 0500 | |
OSHA PLI.. (TWA): | I0 mg/ m3 | |
Collection Media: | PVC PW | |
|
|
|
|
|
|
---|---|---|
< | Less Than | |
NA | Not Applicable | |
mg | Milligrams | |
m 3 | Cubic Meters |
7
Appendix C
Sampling ResultsTotal Fungal Spores
December 16, 2003
Sample
ID# |
Location
|
Total
Count |
*Results
|
*Altemaria
|
*Amerospores
|
*Ascospores
|
*Aspergillus/
Penicillium- Like |
Basidiospores
|
*Bipolaris/
Dreschlera |
*Cladosporium
|
*Oidium/
Peronospora |
*Smuts/
Myxomycetes/ Periconia |
*Stachybotrys
|
*Unclassified
Conidia |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1. | North Administration | 30 | 400 | | 213 | 53 | | 53 | 13 | 67 | | | | |||||||||||||||
2. | North Construction | 92 | 1227 | | 813 | 53 | 160 | 40 | | 93 | | 13 | | 53 | ||||||||||||||
3. | South Construction | 57 | 760 | | 373 | 40 | 133 | 53 | | 133 | 13 | | | 13 | ||||||||||||||
4. | Office 160 | 131 | 1747 | | 480 | 80 | 827 | 27 | | 200 | | | 107 | 27 | ||||||||||||||
5. | Outside | 134 | 1787 | 13 | 627 | 133 | 173 | 53 | | 693 | | 13 | 80 | |||||||||||||||
6. | Control | | | | | | | | | | | | | |
December 19, 2003
Sample
ID# |
Location
|
Total
Count |
*Results
|
*Altemaria
|
*Amerospores
|
*Ascospores
|
*Aspergillus/
Penicillium- Like |
Basidiospores
|
*Chaetomium
|
*Cladosporium
|
*Stachybotrys
|
*Unclassified
Conidia |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1. | Office 160 East Wall | 42 | 1400 | 33 | | 233 | 700 | 100 | 167 | 167 | | | ||||||||||||
2. | Office 160 West Wall | 73 | 2433 | | 33 | 33 | 1367 | 433 | 333 | 233 | | | ||||||||||||
3. | Office 160 North Wall | 29 | 967 | | 233 | 100 | 133 | 167 | 33 | 167 | 100 | 33 |
8
Appendix D
Sampling ResultsAirborne Total Volatile Organics
Sample ID#
|
Location
|
Lab ID#
|
Air Volume
liter |
Front
ug |
Back
ug |
Total
ug |
Conc.
mg/m 3 |
Conc.
ppm |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
North Admin #1 | North Administration | L100060-1 | 20 | < 10 | < 10 | < 10 | < 0.5 | < 0.1 | ||||||||
North Const. #2 | North Construction | L100060-2 | 20 | < 10 | < 10 | < 10 | < 0.5 | < 0.1 | ||||||||
South Const. #3 | South Construction | L100060-3 | 20 | < 10 | < 10 | < 10 | < 0.5 | < 0.1 | ||||||||
Office 160 #4 | Office 160 | L100060-4 | 20 | < 10 | < 10 | < 10 | < 0.5 | < 0.1 | ||||||||
Outside #5 | Outside | L100060-5 | 20 | < 10 | < 10 | < 10 | < 0.5 | < 0.1 | ||||||||
Control #6 | Control | L100060-6 | NA | < 10 | < 10 | < 10 | NA | NA |
|
|
|
Level of quantitation: |
|
10 ug |
Analytical Method: | NIOSH 1500/1501; GC/FID | |
OSHA PEL (TWA): | NA | |
Collection Media: | Charcoal |
|
|
|
---|---|---|
< | Less Than | |
NA | Not Applicable | |
ug | Micrograms | |
m 3 | Cubic Meters | |
ppm | Parts per Million |
9
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 22, 2005, in the Registration Statement (Form S-1) and related Prospectus of Dexcom, Inc. expected to be filed on or about February 1, 2005.
/s/ ERNST & YOUNG LLP | |
San Diego, California January 28, 2005 |
|