-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UB0UYKywl3xOoWFEDoe81z5e8Wsuc5hbQJxF4SVJyAwcQZ3/L9Xh7Sw//ZVRbhY6 rxn3mRGPxWC2Y9aDzHusYA== 0000950137-06-005715.txt : 20060510 0000950137-06-005715.hdr.sgml : 20060510 20060510154433 ACCESSION NUMBER: 0000950137-06-005715 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060510 DATE AS OF CHANGE: 20060510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THIRD WAVE TECHNOLOGIES INC /WI CENTRAL INDEX KEY: 0001120438 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 391791034 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31745 FILM NUMBER: 06825887 BUSINESS ADDRESS: STREET 1: 502 S ROSA RD CITY: MADISON STATE: WI ZIP: 53719-1256 BUSINESS PHONE: 608-663-7036 MAIL ADDRESS: STREET 1: 502 S. ROSA ROAD CITY: MADISON STATE: WI ZIP: 53719 10-Q 1 c05069e10vq.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD ________ to ________. COMMISSION FILE NUMBER: 000-31745 THIRD WAVE TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 39-1791034 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.)
502 S. ROSA ROAD, MADISON, WI 53719 (Address of principal executive offices) (Zip Code)
(888) 898-2357 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of Exchange Act. (Check one): Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No The number of shares outstanding of the registrant's Common Stock, $.001 par value, as of May 5, 2006, was 41,481,882. ================================================================================ THIRD WAVE TECHNOLOGIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006 TABLE OF CONTENTS
PAGE NO. -------- PART I FINANCIAL INFORMATION......................................... 3 Item 1. Consolidated Financial Statements......................... 3 Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and December 31, 2005........................................... 3 Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2006 and 2005........................ 5 Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2006 and 2005.......... ............. 6 Notes to Consolidated Financial Statements..................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................................... 14 Item 4. Controls and Procedures................................... 15 PART II OTHER INFORMATION............................................ 15 Item 1. Legal Proceedings......................................... 15 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....................................................... 16 Item 3. Defaults Upon Senior Securities........................... 16 Item 4. Submission Of Matters To A Vote Of Security Holders....... 16 Item 5. Other Information......................................... 16 Item 6. Exhibits.................................................. 16 SIGNATURES........................................................... 17 EXHIBITS
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THIRD WAVE TECHNOLOGIES, INC. Consolidated Balance Sheets
March 31, December 31, 2006 2005 ------------- ------------- Unaudited ASSETS Current assets: Cash and cash equivalents $ 24,566,350 $ 27,681,704 Short-term investments 11,035,000 11,035,000 Accounts receivable, net of allowance for doubtful accounts of $200,000 at March 31, 2006 and December 31, 2005, respectively 3,469,560 3,764,519 Inventories 3,349,118 2,248,183 Prepaid expenses and other 927,275 235,794 ------------- ------------- Total current assets 43,347,303 44,965,200 Equipment and leasehold improvements: Machinery and equipment 15,699,826 15,563,119 Leasehold improvements 2,346,946 2,346,938 ------------- ------------- 18,046,772 17,910,057 Less accumulated depreciation and amortization 13,543,893 13,192,617 ------------- ------------- 4,502,879 4,717,440 ------------- ------------- Restricted cash -- 805,184 Intangible assets, net of accumulated amortization 2,265,432 2,641,620 Indefinite-lived intangible assets 1,007,411 1,007,411 Goodwill 489,873 489,873 Capitalized license fees 3,552,183 2,797,046 Other assets 952,716 980,954 ------------- ------------- Total assets $ 56,117,797 $ 58,404,728 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,364,132 $ 6,850,207 Accrued payroll and related liabilities 2,838,280 2,158,870 Other accrued liabilities 2,196,831 2,344,835 Deferred revenue 125,313 121,497 Capital lease obligations due within one year 109,886 114,693 Long-term debt due within one year 383,351 378,551 ------------- ------------- Total current liabilities 13,017,793 11,968,653 Long-term debt 542,780 639,564 Deferred revenue - long-term 118,119 145,382 Capital lease obligations - long-term 185,087 191,924 Other liabilities 5,356,409 5,384,904
3 Shareholders' equity: Participating preferred stock, Series A, $.001 par value, 10,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $.001 par value, 100,000,000 shares authorized, 41,622,827 shares issued, 41,404,827 shares outstanding at March 31, 2006 and 41,461,377 shares issued, 41,243,377 shares outstanding at December 31, 2005 41,623 41,461 Additional paid-in capital 200,188,852 199,097,187 Unearned stock compensation -- (114,892) Treasury stock - 218,000 shares acquired at an average price of $4.02 per share (877,159) (877,159) Foreign currency translation adjustment 47,478 47,442 Accumulated deficit (162,503,185) (158,119,738) ------------- ------------- Total shareholders' equity 36,897,609 40,074,301 ------------- ------------- Total liabilities and shareholders' equity $ 56,117,797 $ 58,404,728 ============= =============
See accompanying notes to consolidated financial statements. 4 THIRD WAVE TECHNOLOGIES, INC. Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, ------------------------- 2006 2005 ----------- ----------- Revenues: Clinical product sales $ 4,709,787 $ 3,101,709 Research product sales 2,995,688 3,812,567 License and royalty revenue 27,263 93,083 Grant revenue 141,882 118,884 ----------- ----------- Total revenues 7,874,620 7,126,243 ----------- ----------- Operating expenses: Cost of goods sold Product cost of goods sold 1,469,650 1,538,676 Intangible and long-term asset amortization 693,391 461,395 ----------- ----------- 2,163,041 2,000,071 Research and development 2,302,013 2,465,380 Selling and marketing 3,028,635 3,364,493 General and administrative 4,060,595 3,013,746 Litigation 1,001,934 765,518 ----------- ----------- Total operating expenses 12,556,218 11,609,208 ----------- ----------- Loss from operations (4,681,598) (4,482,965) Other income (expense): Interest income 373,182 347,000 Interest expense (55,846) (89,387) Other (19,185) (195,187) ----------- ----------- Total other income (expense) 298,151 62,426 ----------- ----------- Net loss $(4,383,447) $(4,420,539) =========== =========== Net loss per share - basic and diluted $ (0.11) $ (0.11) Weighted average shares outstanding Basic 41,310,561 41,123,521 Diluted 41,310,561 41,123,521
See accompanying notes to consolidated financial statements. 5 THIRD WAVE TECHNOLOGIES, INC. Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, ---------------------------- 2006 2005 ----------- ----------- OPERATING ACTIVITIES: Net loss $(4,383,447) $(4,420,539) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 407,082 459,113 Amortization of intangible assets 376,188 376,188 Amortization of licensed technology 317,203 85,207 Noncash stock compensation 966,546 (414,464) Loss on disposal of equipment 9,691 8,696 Changes in operating assets and liabilities: Accounts receivable 302,888 1,282,310 Inventories (1,100,935) (152,683) Prepaid expenses and other assets (621,138) (378,181) Accounts payable 157,505 960,041 Accrued expenses and other liabilities 70,205 (183,429) Deferred revenue (23,447) 157,540 ----------- ----------- Net cash used in operating activities (3,521,659) (2,220,201) INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements (182,733) (10,170) Purchases of licensed technology (333,212) -- Change in restriced cash balance 805,184 -- ----------- ----------- Net cash provided by (used in) investing activities 289,239 (10,170) FINANCING ACTIVITIES: Payments on long-term debt (91,984) (28,118) Payments on capital lease obligations (31,123) (17,555) Proceeds from issuance of common stock, net 240,173 116,803 ----------- ----------- Net cash provided by financing activities 117,066 71,130 ----------- ----------- Net decrease in cash and cash equivalents (3,115,354) (2,159,241) ----------- ----------- Cash and cash equivalents at beginning of period 27,681,704 55,619,981 ----------- ----------- Cash and cash equivalents at end of period $24,566,350 $53,460,740 =========== ===========
Noncash investing and financing activities: During the three months ended March 31, 2006 and 2005, the Company entered into capital lease obligations of $19,479 and $96,496, respectively. During the three months ended March 31, 2006 the Company entered into a license agreement under which the Company will pay 1,000,000 Euros over two years. The estimated present value of the license is $1,122,338. See accompanying notes to consolidated financial statements. 6 THIRD WAVE TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2006 (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements of Third Wave Technologies, Inc. have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results that may be expected for the year ending December 31, 2006. The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements and footnotes thereto included in our Form 10-K for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission. (2) Net Loss Per Share In accordance with accounting principles generally accepted in the United States, basic net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the respective periods. Diluted net loss per share takes into account the weighted average shares from options that could potentially dilute basic net income per share in the future. Shares associated with stock options are excluded for the three months ended March 31, 2006 and 2005 because they are anti-dilutive. The following table presents the calculation of basic and diluted net loss per share:
THREE MONTHS ENDED MARCH 31, ---------------------------- 2006 2005 ----------- ----------- Numerator: Net loss $(4,383,447) $(4,420,539) ============ ============ Denominator Weighted average shares outstanding - basic 41,310,561 41,123,521 Dilutive securities - stock options N/A N/A ----------- ----------- Weighted average shares outstanding - diluted 41,310,561 41,123,521 Basic net loss per share $ (0.11) $ (0.11) Dilutive net loss per share $ (0.11) $ (0.11)
(3) Stock-Based Compensation The Company has Incentive Stock Option Plans for its employees and Nonqualified Stock Option Plans (collectively, the Plans) for employees and non-employees under which an aggregate of 13,213,183 stock options may be granted. Options under the Plans have a maximum life of ten years. Options vest at various intervals, as determined by the Board of Directors at the date of grant. At March 31, 2006, approximately 2.2 million shares were available for future grant under the plans. The Company also has an Employee Stock Purchase Plan (Purchase Plan) under which an aggregate of 1,256,800 common shares may be issued. Employees are eligible to participate in the Purchase Plan if they work at least 20 hours per week and more than five months in any calendar year. Eligible employees may make contributions through payroll deductions of up to 10% of their compensation. The price of common stock purchased under the Purchase Plan is 85% of the lower of the fair market value of the common stock at the beginning or end of the offering period. There were no shares sold to employees in the three months ended March 31, 2006, and 2005. At March 31, 2006, approximately 431,000 shares were available for issuance under the plan. The following table summarizes the activity under the Plan for the three months ended March 31, 2006:
NUMBER OF WEIGHTED EXERCISE SHARES EXERCISE PRICE --------- ----------------- Outstanding at December 31,2005 9,101,298 $ 4.34 Granted 417,000 2.94 Exercised (161,450) 1.49 Forfeited (700,546) 5.09 --------- ------ Outstanding at March 31, 2006 8,656,302 $ 4.27 Options Exercisable at March 31, 2006 5,392,448 $ 4.73
The weighted-average fair value of stock options granted in the three months ended March 31, 2006 and 2005 was $1.89 and $4.93, respectively, using the Black-Scholes option-pricing model. The calculations were made assuming a dividend yield of 0%, a weighted-average expected option life of five years and a weighted-average risk-free interest rate of 4.7%, and 4.5% in 2006 and 2005, respectively. The volatility factor used in the Black-Scholes model for 2006 and 2005 was 77% and 83%, respectively. Prior to January 1, 2006, we used the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, in accounting for stock options granted under our Plans. Generally, no compensation cost was required to be recognized for options granted to employees because the options had an exercise price equal to the market value per share of the underlying common stock on the date of grant. Prior to 2006, the Purchase Plan was considered noncompensatory under APB Opinion No. 25 and, therefore, no expense was recorded for the 15% discount. Options granted to non-employee consultants were accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," and therefore were measured based upon their fair value as calculated using the Black-Scholes option pricing model. The fair value of options granted to non-employees was periodically remeasured as the underlying options vested. On January 1, 2006, The Company adopted SFAS No. 123 (revised 2004), "Share-Based Payment", which is a revision of SFAS No. 123. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods: (1) a "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all-share based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date; or (2) a "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company has adopted the modified prospective approach. 7 As prescribed in the modified prospective approach, prior periods have not been restated to reflect the effects of implementing FAS 123(R). For the three month period ended March 31, 2005, the pro forma stock option expense, net loss and net loss per share are as follows: Net loss, as reported $(4,420,539) Add: Stock-based compensation, as reported (414,464) Add: Stock-based compensation, using fair value method (1,064,014) ----------- Pro forma net loss $(5,899,017) Net loss per share, basic and diluted, as reported $ (0.11) Pro forma net loss per share, basic and diluted $ (0.14)
(4) Inventories Inventories are carried at the lower of cost or market using the first-in, first-out (FIFO) method for determining cost. Inventories consist of the following:
MARCH 31, DECEMBER 31, 2006 2005 ---------- ------------ Raw materials $1,992,979 $1,486,166 Finished goods and work in process 2,206,139 1,437,017 Reserve for excess and obsolete inventory (850,000) (675,000) ---------- ---------- Total inventories $3,349,118 $2,248,183 ========== ==========
(5) Stock Compensation Included in operating expenses are the following stock compensation charges, net of reversals related to terminated employees:
THREE MONTHS ENDED MARCH 31, -------------------- 2006 2005 -------- --------- Cost of goods sold $ 40,913 $ (5,749) Research and development 155,790 (259,850) Selling and marketing 198,946 29,708 General and administrative 570,897 (178,573) -------- --------- Total stock compensation $966,546 $(414,464) -------- ---------
(6) Comprehensive Loss The components of comprehensive loss are as follows:
THREE MONTHS ENDED MARCH 31, ------------------------- 2006 2005 ----------- ----------- Net loss $(4,383,447) $(4,420,539) Other comprehensive income (loss): Foreign currency translation adjustments 36 (854) ----------- ----------- Comprehensive loss $(4,383,411) $(4,421,393) =========== ===========
8 (7) Amortizable Intangible Assets Amortizable intangible assets consist of the following:
MARCH 31, 2006 DECEMBER 31, 2005 -------------------------- -------------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION ----------- ------------ ----------- ------------ Costs of settling patent litigation $10,533,248 $ 8,267,816 $10,533,248 $ 7,891,628 Reacquired marketing and distribution rights 2,211,111 2,211,111 2,211,111 2,211,111 Customer agreements 38,000 38,000 38,000 38,000 ----------- ----------- ----------- ----------- Total $12,782,359 $10,516,927 $12,782,359 $10,140,739 =========== =========== =========== ===========
(8) Restructuring and Impairment of Long Lived Assets During the third quarter of 2002, we announced a restructuring plan designed to simplify product development and manufacturing operations and reduce operating expenses. The restructuring charges recorded were determined based upon plans submitted by the Company's management and approved by the Board of Directors using information available at the time. The restructuring charge included $2.5 million for the consolidation of facilities, $500,000 for prepayment penalties mainly under capital lease arrangements, an impairment charge of $7.2 million for abandoned leasehold improvements and equipment to be sold and $900,000 of other costs related to the restructuring. The Company also recorded a $1.1 million charge within cost of goods sold related to inventory that was considered obsolete based upon the restructuring plan. The facilities charge contained estimates based on the Company's potential to sublease a portion of its corporate office. The Company has offered the corporate office space for sublease, but has been unable to sublease the space. Accordingly, the Company decreased its estimate of the amount of sublease income it expects to receive. The estimated lease and operating expenses were also reduced, based on a portion of the office space being utilized. The following table shows the changes in the restructuring accrual since December 31, 2005. The remaining restructuring balance of $0.9 million is for rent payments on a non-cancelable lease, net of estimated sublease income, which will continue to be paid over the lease term through 2011. The current portion of the accrual is included in other accrued liabilities on the balance sheets and the remainder is included in other long-term liabilities. Accrued restructuring balance at December 31, 2005 $957,563 Payments made (41,485) -------- Accrued restructuring balance at March 31, 2006 $916,078 --------
(9) Shareholders' Equity The Board of Directors had authorized a program for the repurchase by the Company of up to 5% of its outstanding common stock. Third Wave has repurchased 218,000 shares of common stock as of December 31, 2005 for $877,159. The program expired on December 31, 2005. (10) Reclassifications Certain reclassifications have been made to the 2005 financial statements to conform to the 2006 presentation. 9 THIRD WAVE TECHNOLOGIES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2006 and for the three months ended March 31, 2006 and 2005 should be read in conjunction with our Form 10-K for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission. In this Form 10-Q, the terms "we," "us," "our," "Company," and "Third Wave" each refer to Third Wave Technologies, Inc. The following discussion of our financial condition and results of our operations should be read in conjunction with our Financial Statements, including the Notes thereto, included elsewhere in this Form 10-Q. OVERVIEW Third Wave Technologies, Inc. develops and markets molecular diagnostic reagents for a variety of DNA and RNA analysis applications to meet the needs of our customers. The Company offers a number of products based on its Invader (R) chemistry for clinical testing. Third Wave offers in vitro diagnostic kits and analyte specific, general purpose, and research use only reagents for nucleic acid analysis. We believe our proprietary Invader(R) chemistry, a novel, molecular chemistry, is easier to use, cost-effective, and enables higher testing throughput. These and other advantages conferred by our chemistry are enabling us to provide clinicians and researchers with superior molecular solutions. More than 145 clinical laboratory customers are using Third Wave's molecular diagnostic reagents. Other customers include pharmaceutical and biotechnology companies, academic research centers and major health care providers. Third Wave has received clearance from the U.S. Food and Drug Administration for its Invader (R) UGT1A1 Molecular Assay. The Invader (R) UGT1A1 Molecular Assay is used to identify patients who may be at increased risk of adverse reaction to the chemotherapy Camptosar(R) (irinotecan) by detecting and identifying specific mutations in the UGT1A1 gene that have been associated with that risk. Camptosar, marketed in the United States by Pfizer, Inc., is used to treat colorectal cancer and has been relabeled to include dosing recommendations based on a patient's genetic profile. The Company also markets a growing number of products, including analyte specific reagents (ASRs). These ASRs allow certified clinical reference laboratories to create assays that test for infectious disease (e.g., hepatitis C virus), inherited disorders (e.g., Factor V Leiden), and a host of other markers associated with genetic predispositions and other diseases. The Company has developed or plans to develop a menu of molecular diagnostic products for clinical applications that include genetic testing, pharmacogenetics, and women's health. The Company also has a number of other Invader (R) products for research, agricultural and other applications. Our financial results may vary significantly from quarter to quarter due to fluctuations in the demand for our products, timing of new product introductions and deliveries made during the quarter, the timing of research, development and grant revenues, and increases in spending, including expenses related to our product development submissions for FDA clearances or approvals and intellectual property litigation. CRITICAL ACCOUNTING POLICIES Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, inventories, equipment and leasehold improvements and intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be 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. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are reviewed by management on an ongoing basis, and by the Audit Committee at the end of each quarter prior to the public release of our financial results. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. 10 REVENUE RECOGNITION Revenue from product sales is recognized upon delivery which is generally when the title passes to the customer, provided that the Company has completed all performance obligations and the customer has accepted the products. Customers have no contractual rights of return or refunds associated with product sales. Consideration received in multiple element arrangements is allocated to the separate units based upon their relative fair values. Grant and development revenues consist primarily of research grants from agencies of the federal government and revenue from companies with which the Company has established strategic alliances, the revenue from which is recognized as research is performed. Payments received which are related to future performance are deferred and recorded as revenue when earned. Grant payments designated to purchase specific assets to be used in the performance of a contract are recognized as revenue over the shorter of the useful life of the asset acquired or the contract. License and royalty revenue includes amounts earned from third parties for licenses of the Company's intellectual property and are recognized when earned under the terms of the related agreements. License revenues are generally recognized upon receipt unless the Company has continuing performance obligations, in which case the license revenue is recognized ratably over the period of expected performance. RESTRUCTURING AND OTHER CHARGES The restructuring and other charges resulting from the restructuring plan in the third quarter of 2002 have been recorded in accordance with EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)", Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges," and Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The restructuring charge was comprised primarily of costs to consolidate facilities, impairment charges for abandoned leasehold improvements and equipment to be sold or abandoned, prepayment penalties related mainly to capital lease obligations on equipment to be sold or abandoned, and other costs related to the restructuring. The remaining accrued restructuring balance is for rent payments on a non-cancelable lease, net of estimated sublease income. In calculating the cost to consolidate the facilities, we estimated the future lease and operating costs to be paid until the leases are terminated and the amount, if any, of sublease receipts for each location. This required us to estimate the timing and costs of each lease to be terminated, the amount of operating costs, and the timing and rate at which we might be able to sublease the site. To form our estimates for these costs, we performed an assessment of the affected facilities and considered the current market conditions for each site. Our assumptions on the lease payments, operating costs until terminated, and the offsetting sublease receipts may turn out to be incorrect and our actual cost may be materially different from our estimates. LONG-LIVED ASSETS--IMPAIRMENT Equipment, leasehold improvements and amortizable identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For assets held and used, if the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. For assets removed from service and held for sale, we estimate the fair market value of such assets and record an adjustment if fair value less costs to sell is lower than carrying value. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests under SFAS No. 142, "Goodwill and Other Intangible Assets." The annual impairment tests are completed in the quarter ended September 30. STOCK-BASED COMPENSATION EXPENSE Prior to 2006, we accounted for share-based payments to employees using APB Opinion No. 25's intrinsic value method and, as such, generally recognized no compensation cost for employee stock options when granted. On January 1, 2006 we adopted SFAS No. 123(R) as a result of which we recognize expense for all share-based payments to employees, including grants of employee stock options, based on their fair values. We have adopted the modified prospective transition method as permitted by SFAS No. 123(R). 11 INVENTORIES--SLOW MOVING AND OBSOLESCENCE Significant management judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand may exceed future demand either because of process improvements or technology advancements, the amount on hand is more than can be used to meet future need, or estimates of shelf lives may change. We currently consider all inventory that we expect will have no activity within one year as well as any additional specifically identified inventory to be subject to a provision for excess inventory. We also provide for the total value of inventories that we determine to be obsolete based on criteria such as changing manufacturing processes and technologies. At March 31, 2006, our inventory reserves were $850,000, or 20% of our $4.2 million total gross inventories. RESULTS OF OPERATIONS Three Months Ended March 31, 2006 and 2005 REVENUES. Revenues for the three months ended March 31, 2006 of $7.9 million represented an increase of $0.8 million, compared to revenues of $7.1 million the corresponding period of 2005. Following is a discussion of changes in revenues: Total clinical molecular diagnostic product revenue increased to $4.7 million in the quarter ended March 31, 2006 from $3.1 million in the quarter ended March 31, 2005. U.S. clinical molecular diagnostic revenue increased to $4.4 million in the three months ended March 31, 2006 from $2.9 million for the corresponding period in 2005. Research product revenues decreased to $3.0 million in the three months ended March 31, 2006 from $3.8 million in the three months ended March 31, 2005. The decrease in research product sales during 2006 resulted from a decrease in genomic research product sales to a Japanese research institute for use by several end users compared to prior year. The decrease in research revenue from the Japan research institute was partially offset by an increase in revenue from our Agbio business. Significant Customer. We generated $2.0 million, or 25% of our revenues, from sales to a major Japanese research institute for use by several end-users during the three months ended March 31, 2006, compared to $3.1 million, or 44% of our revenues during the three months ended March 31, 2005. COST OF GOODS SOLD. Cost of goods sold consists of materials used in the manufacture of product, depreciation on manufacturing capital equipment, salaries and related expenses for management and personnel associated with our manufacturing and quality control departments and amortization of licenses and settlement fees. For the three months ended March 31, 2006, cost of goods sold increased to $2.2 million, compared to $2.0 million for the corresponding period of 2005. The increase in the three month period was primarily due to the increase in sales volume. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consist primarily of salaries and related personnel costs, material costs for assays and product development, fees paid to consultants, depreciation and facilities costs and other expenses related to the design, development, testing and enhancement of our products and acquisition of technologies used or to be used in our products. Research and development costs are expensed as they are incurred. Research and development expenses for the three months ended March 31, 2006 were $2.3 million, compared to $2.5 million for the three months ended March 31, 2005. The decrease in research and development expenses was primarily due to a decrease in development expense and material costs for assay development, offset by an increase in stock based compensation expense of $0.4 million. We will continue to invest in research and development, and expenditures in this area may increase as we expand our product development efforts. In addition, as the Company moves towards consideration of FDA cleared or approved products, there will be increased expenses attributed to these activities. SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist primarily of salaries and related personnel costs for our sales and marketing management and field sales force, commissions, office support and related costs, and travel and entertainment. Selling and marketing expenses for the three months ended March 31, 2006 were $3.0 million, a decrease of $0.4 million, compared to $3.4 million for the corresponding period of 2005. The decrease in selling and marketing expenses was due to a decrease in personnel related and equipment expense, offset by an increase in stock based compensation expense of $0.2 million compared to the same period in 2005. 12 GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, legal and professional fees, office support and depreciation. General and administrative expenses increased to $4.1 million in the three months ended March 31, 2006, from $3.0 million for the corresponding period in 2005. The increase in general and administrative expense was due to an increase in personnel related expenses, legal fees, and a $0.7 million increase in stock based compensation expense. LITIGATION EXPENSE. Litigation expense consists of legal fees and other costs associated with patent infringement and other lawsuits. Litigation expense increased to $1.0 million in the three months ended March 31, 2006 from $0.8 million in the corresponding period in 2005. The increase was a result of the additional lawsuits with Innogenetics, Chiron Corporation, Bayer Corporation, Digene Corporation and Stratagene. With the exception of Stratagene, these lawsuits were resolved in the quarter ending March 31, 2006, and we anticipate litigation expense to be below the 2005 levels for the remainder of the year. INTEREST INCOME. Interest income for the three months ended March 31, 2006 was $0.4 million, compared to $0.3 million for the corresponding period of 2005. The increase in interest income was due to higher interest rates compared to 2005. INTEREST EXPENSE. Interest expense for the three months ended March 31, 2006 and 2005 was approximately $0.1 million. OTHER INCOME (EXPENSE): Other expense for the three months ended March 31, 2006 was approximately $19,000 compared to $0.2 million for the same period in 2005. The decrease in other expense was primarily due to the adjustments related to foreign currency transactions in the three months ended March 31, 2005. OTHER ITEMS- SUBSEQUENT EVENT: On March 31, 2006, Third Wave Technologies Japan, K.K., a Japanese corporation ("Third Wave Japan") and wholly-owned subsidiary of Third Wave Technologies, Inc. (the "Company"), entered into a Series A Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement") with Mitsubishi Corporation ("Mitsubishi") and CSK Institute for Sustainability, LTD., a wholly owned subsidiary of CSK Holdings ("CSK" and, together with Mitsubishi, the "Investors"). Under the Purchase Agreement, Mitsubishi agreed to invest (Y)480 million (approximately $4.2 million) and CSK agreed to invest (Y)100 million (approximately $800,000) in Third Wave Japan in exchange for convertible, Series A preferred stock of Third Wave Japan and warrants to purchase an additional (Y)100 million (approximately $800,000) worth of Third Wave Japan common stock. Upon completion of the transactions contemplated under the Purchase Agreement, the Investors will own approximately 17% of Third Wave Japan prior to the exercise of the warrant or 20% after exercise of the warrant. The transaction was completed on April 21, 2006. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have financed our operations primarily through private placements of equity securities, research grants from federal and state government agencies, payments from strategic collaborators, equipment loans, capital leases, product sales, a convertible note and an initial public offering. As of March 31, 2006, we had cash and cash equivalents and short-term investments of $35.6 million. Net cash used in operations for the three months ended March 31, 2006 was $3.5 million, compared to $2.2 million in the corresponding period in 2005. The change was primarily due to an increase in inventories. Net cash provided by investing activities for the three months ended March 31, 2006 was $0.3 million, compared to net cash used of $10,000 in the corresponding period in 2005. Investing activities included capital expenditures of $0.2 million in the three months ended March 31, 2006 versus $10,000 for the same period in 2005. Investing activities in the three months ended March 31, 2006 included the payment on license fee arrangements of $0.3 million and a change in the restricted cash balance of $0.8 million. Net cash provided by financing activities was $0.1 million in the three months ended March 31, 2006 and 2005. Cash provided by financing activities in the three months ending March 31, 2006 consisted of proceeds from the sale of common stock under the Company's employee stock purchase plan and stock option plans of $0.2 million compared to $0.1 million in the corresponding period of 2005. In the three months ended March 31, 2006, $0.1 million was used to repay debt, compared to $28,000 in the same period in 2005. Additionally, in the three months ended March 31, 2006 and 2005, $31,000 and $18,000 was used for capital lease obligations, respectively. 13 The Company has three notes payable to a bank in the original amounts of $200,000, $270,000, and $800,000. These notes have respective final maturity dates of July 1, 2007, October 1, 2009, and July 1, 2008, bear annual interest at 4.25%, 4.93%, and 5.2%, respectively, and require monthly principal and interest payments. The borrowings under the notes payable are secured by short-term investments consisting of certificates of deposit in the aggregate amount of $1,000,000. The Company has an available and unused $1,300,000 letter of credit with the same bank that expires on September 1, 2006. We believe that current cash reserves together with our ability to establish borrowing arrangements will be sufficient to support short-term and long-term liquidity requirements for current operations (including annual capital expenditures). However, we cannot assure you that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. We also cannot assure you that we will not require substantial additional funding before we can achieve profitable operations. Our capital requirements depend on numerous factors, including the following: - our progress with our research and development programs; - the needs we may have to pursue FDA clearances or approvals of our products; - our level of success in selling our products and technologies; - our ability to establish and maintain successful collaborative relationships; - the costs we incur in securing intellectual property rights, whether through patents, licenses or otherwise; - the costs we incur in enforcing and defending our patent claims and other intellectual property rights; - the need to respond to competitive pressures; - the possible acquisition of complementary products, businesses or technologies; and - the timing of capital expenditures FORWARD-LOOKING STATEMENTS This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this Form 10-Q the words "believe," "anticipates," "intends," "plans," "estimates," and similar expressions are forward-looking statements. Such forward-looking statements contained in this Form 10-Q are based on current expectations. Forward-looking statements may address the following subjects: results of operations; customer growth and retention; development of technologies; losses or earnings; operating expenses, including, without limitation, marketing expense and technology and development expense; and revenue growth. We caution investors that there can be no assurance that actual results, outcomes or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, our limited operating history, unpredictability of future revenues and operating results, competitive pressures and also the potential risks and uncertainties discussed under the heading "Overview" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-Q and in the "Risk Factors" and Management's Discussion and Analysis of Financial Condition and Results of Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission, which factors are specifically incorporated herein by this reference. You should also carefully consider the factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update any forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is currently confined to changes in foreign exchange and interest rates. Our exposure to market risk was discussed in the Quantitative and Qualitative Disclosures About Market Risk section of our annual report on Form 10-K for the fiscal 14 year ended December 31, 2005 filed with the Securities and Exchange Commission. There have been no material changes to such exposures during the first quarter of 2006. ITEM 4. CONTROLS AND PROCEDURES As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, the Company's management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no significant changes during the period covered by this report in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, we may be involved in litigation relating to claims arising out of our operations in the usual course of business. In September 2004, we filed a suit against Stratagene Corporation in the United States District Court for the Western District of Wisconsin. The complaint alleged patent infringement of two of our patents concerning our proprietary Invader technology by Stratagene's sale of its QPCR and QRTPCR Full Velocity products. The case was tried before a jury in August 2005, and the jury found that Stratagene willfully infringed our patents and that our patents were valid. The jury awarded us $5.29 million in damages. The Court subsequently entered a permanent injunction barring Stratagene from making, selling or offering to sell its Full Velocity QPCR and QRT-PCR products and any other products that practice our patented Invader methods. In December 2005, the Court tripled the damages award to $15.9 million and ruled that Stratagene must pay attorney fees of $4.2 million. In January 2006, the Court awarded additional interest on the damages award in the amount of $485,716, increasing the total damages amount to $16.4 million. Also in January 2006, Stratagene posted a $21 million civil bond to stay payment of the judgment while it conducts its appeal. Stratagene has appealed the verdict, the award of enhanced damages, and the award of attorneys' fees and costs to the Court of Appeals for the Federal Circuit in Washington, D.C. In May 2005, Stratagene Corporation filed suit against us in the United States District Court for the District of Delaware. The complaint alleges patent infringement of claims of two Stratagene patents relating to our Invader Plus chemistry. The complaint was served on us in September 2005. A trial date of November 5, 2007 was set by the Court. In September 2005, Innogenetics filed suit against us in the United States District Court for the Western District of Wisconsin. The complaint alleged that our HCVg ASRs infringe a patent owned by Innogenetics relating to the detection of the hepatitis C virus. In February 2006, we reached an agreement with Innogenetics that resolved the litigation. In connection with the agreement, Third Wave acquired a non-exclusive license to Innogenetics' patent for the United States. The agreement includes certain opt-out rights for Third Wave, as well as an option to extend both the term and global reach of the license. In October 2005, we filed a declaratory judgment suit in the United States District Court for the Western District of Wisconsin against Digene Corporation seeking a ruling that our HPV ASRs do not infringe any valid claims of Digene's human papillomavirus related patents. In January 2006, we reached an agreement with Digene to dismiss the suit without prejudice. We also agreed that neither party would file a suit against the other relating to the Digene human papillomavirus patents for one year. Also in October 2005, we filed a declaratory judgment suit in the United States District Court for the Western District of Wisconsin against Chiron Corporation and Bayer Corporation seeking a ruling that our HCVg ASRs do not infringe any valid claims of Chiron's hepatitis C related patents. In February 2006, we reached an agreement with Chiron and Bayer to dismiss the suit without prejudice. No license were granted or taken under the agreement and no payment of any monies was made to any of the companies. The Company intends to vigorously pursue its infringement claims against third parties and to vigorously defend itself against infringement claims brought against it by third parties. There can be no assurance, however, that the Company will prevail in these 15 proceedings and should the outcome of any of these actions be unfavorable, the Company's business, financial condition, results of operations and cash flows could be materially adversely affected. ITEM 1A. RISK FACTORS There have been no material changes in our risk factors from those disclosed in our Form 10-K for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) None (b) Use of Proceeds. Pursuant to our Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission and declared effective February 9, 2001, (Registration No. 333-42694), we commenced our initial public offering of 7,500,000 registered shares of common stock, $0.001 par value, on February 9, 2001, at a price of $11.00 per share (the "Offering"). The Offering was completed on February 14, 2001, and all of the 7,500,000 shares were sold, generating gross proceeds of approximately $82,500,000. The managing underwriters for the Offering were Lehman Brothers Inc., CIBC World Markets, Dain Rauscher Incorporated, Robert W. Baird & Co. Incorporated, and Fidelity Capital Markets. In connection with the Offering, we incurred approximately $5.8 million in underwriting discounts and commissions, and approximately $1.9 million in other related expenses. The net offering proceeds to us, after deducting the foregoing expenses, were approximately $74.8 million. From the time of receipt through March 31, 2006, we have invested the net proceeds from the Offering in investment-grade, interest-bearing securities. We used $4.0 million of the proceeds to satisfy a cancellation fee for the termination of a distribution agreement with Endogen Corporation. We used approximately $35.2 million for general corporate purposes, including working capital and research and development activities. We expect to use the remainder of the net proceeds for general corporate purposes, including working capital and expanding research and development and sales and marketing efforts to accelerate the commercialization of new products and the development of new partnerships. A portion of the net proceeds may also be used to acquire or invest in complementary businesses or products to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we may evaluate potential acquisitions of these businesses, products, or technologies. We have no current agreements or commitments regarding any such transaction. (c) None ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None. ITEM 5. OTHER INFORMATION. On February 14, 2006, the Company's board of directors established the Company's Long Term Incentive Plan No. 3. Under the plan, awards were made to select employees, including the Company's executive officers, covering the 2006-2008 period to provide a continued emphasis on specified financial performance goals which the board considers to be important contributors to long-term stockholder value. These cash awards will be payable only if the Company achieves specified goals over the performance period for the following three measurements: the Company's total shareholder return ranking as compared to its peer group, the Company's stock price growth and the growth in the Company's clinical molecular diagnostics revenue. A copy of the plan was filed as Exhibit 10.29 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission and is hereby incorporated by reference herein. The foregoing description of the plan does not purport to be complete and is qualified in its entirety by reference to the full text of the plan. ITEM 6. EXHIBITS The exhibits required to be filed as a part of this Report are listed in the Exhibit Index 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THIRD WAVE TECHNOLOGIES, INC. Date: May 4, 2006 /s/ Kevin Conroy ---------------------------------------- Kevin Conroy, Chief Executive Officer Date: May 4, 2006 /s/ Maneesh Arora ---------------------------------------- Maneesh Arora, Chief Financial Officer 17 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION INCORPORATED BY REFERENCE TO - ------- ----------- ---------------------------- 3.1 Amended and Restated Bylaws of the Registrant Exhibit 3.1 to Registrant's Current Report on Form 8-K filed April 17, 2006 10.1 Severance Agreement between James J. Herrmann Exhibit 10.26 to Registrant's Annual Report and Third Wave Technologies, Inc. dated on Form 10-K for the fiscal year ended January 31, 2006 December 31, 2005 10.2 Third Wave Technologies, Inc. LTIP 3 dated Exhibit 10.29 to Registrant's Annual Report February 14, 2006 on Form 10-K for the fiscal year ended December 31, 2005 10.3 Series A Preferred Stock and Warrant Purchase Agreement between Registrant, Mitsubishi Corporation and CSK Institute for Sustainability, LTD., dated April 21, 2006 10.4 Investor Rights Agreement between Registrant, Third Wave Technologies Japan, KK, Mitsubishi Corporation and CSK Institute for Sustainability, LTD., dated April 21, 2006 31.1 CEO's Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 31.2 CFO's Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002. 32 CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, of Chapter 63 of Title 18 of the United States Code
18 EX-10.3 2 c05069exv10w3.txt SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT EX-10.3 ================================================================================ THIRD WAVE TECHNOLOGIES JAPAN, K.K. SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT MARCH 31, 2006 ================================================================================ THIRD WAVE TECHNOLOGIES JAPAN, K.K. SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT This Series A Preferred Stock and Warrant Purchase Agreement (this "AGREEMENT") is made as of March 31, 2006 (the "EFFECTIVE DATE"), by and among Third Wave Technologies Japan, K.K., a Japanese corporation (the "COMPANY"), and the persons and entities (each, an "INVESTOR" and collectively, the "INVESTORS") listed on the Schedule of Investors attached as Exhibit A. SECTION 1 AUTHORIZATION AND SALE OF SERIES A PREFERRED STOCK AND WARRANTS 1.1 AUTHORIZATION. The Company will, prior to the Closing (as defined below), authorize (a) the sale and issuance of up to 8,056 shares (the "SHARES") of the Company's Series A Preferred Stock (the "SERIES A PREFERRED"), having the rights, privileges, preferences and restrictions set forth in the Articles of Incorporation of the Company, in substantially the form attached as Exhibit B, and subject to possible post-Effective Date revisions by the Japanese Legal Affairs Bureau (the "Bureau," and such Articles of Incorporation, the "ARTICLES"); and (b) the issuance of warrants, with the terms set forth on as Exhibit H, subject to possible post-Effective Date revisions by the Bureau (the "WARRANTS"), for the purchase of up to 1,388 shares of the Company's Common Stock (the "WARRANT SHARES"). 1.2 SALE AND ISSUANCE OF SHARES. Subject to the terms and conditions of this Agreement, the Investors agree to purchase, and the Company agrees to sell and issue to the Investors, the number of Shares set forth in the column designated "Number of Series A Shares" opposite each such Investor's name on Exhibit A, at a cash purchase price of Y71,996 per share, for an aggregate purchase price of Y579,999,776 (the "PURCHASE PRICE"). 1.3 ISSUANCE OF WARRANTS. Subject to the terms and conditions of this Agreement, the Investors agree to purchase, and the Company agrees to issue to the Investors, a Warrant exercisable for the number of Warrant Shares set forth in the column designated "Number of Warrant Shares" opposite each such Investor's name on Exhibit A, each at an exercise price of Y71,996 per share, for an aggregate exercise price of Y99,930,448 (the "EXERCISE PRICE"). 1.4 PAYMENT. Subject to Section 5, the Investors shall remit the Purchase Price by wire transfer of immediately available funds to the subscription account (betsudan yokin koza) designated by the Company to receive payment from the Investors for the Shares (the "SUBSCRIPTION ACCOUNT"), to arrive on or before April 10, 2006, or such other date as the parties may mutually agree. The Company shall deliver to the Investors written wiring instructions for the Subscription Account at least five (5) business days prior to the Closing Date (as defined below). SECTION 2 CLOSING DATES; DELIVERY 2.1 CLOSING. (a) The purchase, sale and issuance of the Shares and the Warrants (the "CLOSING") shall take place on April 10, 2006, or such other date as the Company and the Investors shall agree (the "CLOSING DATE"). (b) The Closing shall be held at the offices of Anderson Mori & Tomotsune, Izumi Garden Tower, 1-6-1 Roppongi, Minato-ku, Tokyo, Japan, at 5:00 p.m. local time, on the Closing Date, or at such other time and place upon which the Company and the Investors shall agree. 2.2 DELIVERY. At the Closing, the Company will deliver to each Investor a certificate registered in such Investor's name representing the number of Shares that such Investor is purchasing against delivery to the Subscription Account of the Purchase Price therefor, as set forth in the column designated "Purchase Price" opposite such Investor's name on Exhibit A. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on the Schedule of Exceptions attached as Exhibit C (the "SCHEDULE OF EXCEPTIONS") delivered to the Investors in connection with this Agreement, the Company represents and warrants to the Investors as of the date of this Agreement as follows: 3.1 ORGANIZATION AND STANDING. The Company is a corporation duly incorporated and existing under, and by virtue of, the laws of Japan. The Company has the requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted. The Company is presently qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified could reasonably be expected to have a material adverse effect on the Company's financial condition and business as now conducted and proposed to be conducted (a "MATERIAL ADVERSE EFFECT"). 3.2 CORPORATE POWER. Upon the Closing, the Company will have all requisite legal and corporate power and authority to execute and deliver this Agreement, the Investor Rights Agreement to be entered into by and among the Company, Third Wave Technologies, Inc. (the "PARENT") and the Investors, in substantially the form attached as Exhibit D (the "RIGHTS AGREEMENT"), to sell and issue the Shares and the Warrants hereunder, to issue the Warrant Shares upon exercise of the Warrants, to issue the shares of the Company's Common Stock issuable upon conversion of the Shares, and to carry out and perform its obligations under the terms of this Agreement and the Rights Agreement (together sometimes collectively referred to herein as the "AGREEMENTS"). 3.3 SUBSIDIARIES. The Company does not own or control, directly or indirectly, any interest in any corporation, partnership, limited liability company, association or other business entity. -2- 3.4 CAPITALIZATION.(a) The authorized capital stock of the Company consists or will, upon the Closing, consist of 160,000 shares of Common Stock, of which 40,000 shares are issued and outstanding as of the date of this Agreement, all of which are beneficially owned by Third Wave Technologies, Inc., and 8,056 shares of Preferred Stock, all of which are designated Series A Preferred and none of which are issued and outstanding prior to the Closing. The Common Stock and the Series A Preferred shall have the rights, preferences, privileges and restrictions set forth in the Articles. (b) The outstanding shares have been duly authorized and validly issued in compliance with applicable laws, and are fully paid and nonassessable. (c) The Company has reserved: (i) 8,056 shares of Series A Preferred for issuance pursuant to this Agreement; (ii) 1,388 shares of Common Stock for issuance upon conversion of the Series A Preferred and upon exercise of the Warrants. (iii) 8,820 shares of Common Stock authorized for issuance to employees, consultants and directors pursuant to stock options (d) The Shares, when issued and delivered and paid for in compliance with the provisions of this Agreement will be validly issued, and will be fully paid and nonassessable. The Common Stock issuable upon conversion of the Shares (the "CONVERSION SHARES") and the Warrant Shares have been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, the Articles and applicable law, and in the case of the Warrant Shares, in compliance with the provisions of the Warrants, will be validly issued, and will be fully paid and nonassessable. The Shares, the Warrants, the Warrant Shares and the Conversion Shares will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon the Investors; provided, however, that the Shares, the Warrants, the Warrant Shares and the Conversion Shares are subject to restrictions on transfer as set forth herein and in the Rights Agreement. Except as set forth in the Rights Agreement, the Shares, the Warrants, the Warrant Shares and the Conversion Shares are not subject to any preemptive rights or rights of first refusal. (e) Except for the conversion privileges of the Series A Preferred, the rights provided pursuant to the Rights Agreement or as otherwise set forth herein, and except for the Warrants, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its directors and its shareholders necessary for the authorization, execution, delivery and performance of the Agreements by the Company; the authorization, sale, issuance and delivery of the Shares, the Warrants, the Warrant Shares and the Conversion Shares; and the performance of all of the Company's obligations under the Agreements has been taken or will be taken prior to the Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding -3- obligations of the Company, enforceable in accordance with their terms, except (i) as limited by laws of general application relating to bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally and the relief of debtors, and (ii) as limited by rules of law governing specific performance, injunctive relief or other equitable remedies and by general principles of equity. 3.6 FINANCIAL STATEMENTS. The Company has delivered to the Investors its unaudited balance sheet and statement of operations for the period ended December 31, 2004 (the "FINANCIAL STATEMENTS"). The Financial Statements are correct in all material respects and present fairly the financial condition and operating results of the Company as of the date(s) and during the period(s) indicated. 3.7 CHANGES. To the Company's knowledge, since December 31, 2004, there has not been any event or condition that has had a Material Adverse Effect. 3.8 MATERIAL OBLIGATIONS. The Company has no material liabilities or obligations, absolute or contingent (individually or in the aggregate), except (i) liabilities and obligations which have been incurred in the ordinary course of business which have not been, in any case, material (ii) liabilities and obligations reflected in the Financial Statements, and (iii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financial Statements. 3.9 MATERIAL CONTRACTS. Section 3.9 of the Schedule of Exceptions sets forth all contracts, agreements and instruments to which the Company is a party or by which it is bound that involve (i) obligations of, or payments to, the Company in excess of Y10,000,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company (the "MATERIAL CONTRACTS"). To the Company's knowledge, all of the Material Contracts are valid, binding and in full force and effect in all material respects, subject to laws of general application relating to bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally and the relief of debtors, and rules of law governing specific performance, injunctive relief or other equitable remedies and to general principles of equity. To the Company's knowledge, the Company is not in material default under any of such Material Contracts 3.10 INTELLECTUAL PROPERTY. (a) To the Company's knowledge (without having conducted any special investigation or patent search), the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses (software or otherwise), product processes and similar proprietary rights relating to any of the foregoing ("INTELLECTUAL PROPERTY") necessary to the business of the Company as presently conducted, the lack of which could reasonably be expected to have a Material Adverse Effect, without any conflict with or infringement of the rights of others. Section 3.10(a) of the Schedule of Exceptions contains a complete list of the Company's patents, trademarks, copyrights and domain names and pending patent, trademark and copyright applications. Except for agreements with its own employees or consultants, standard end-user license agreements, support/maintenance agreements and agreements -4- entered in the ordinary course of the Company's business, the Company is not bound by or party to any outstanding options, licenses or agreements relating to the foregoing and the Company is not bound by or a party to any options, licenses or agreements with respect to the Intellectual Property of any other person or entity. The Company has not received any written communication alleging that the Company has violated any of the Intellectual Property of any other person or entity. The Company is not obligated to make any payments by way of royalties, fees or otherwise to any owner or licensor of or claimant to any Intellectual Property with respect to the use thereof in connection with the conduct of its business as presently conducted. There are no agreements, understandings, instruments, contracts, judgments, orders or decrees to which the Company is a party or by which it is bound which involve indemnification by the Company with respect to infringements of Intellectual Property. (b) The Company is not aware that any of its employees are obligated under any contract or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with the use of his or her efforts to promote the interests of the Company or that would conflict with the Company's business as presently conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as presently conducted, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees made prior to their employment by the Company. (c) Each founder, director with executive authority, employee and consultant of the Company with access to confidential information of the Company has executed a confidential information and invention assignment agreement, substantially in the form(s) delivered to the Investors. Section 3.10(c) of the Schedule of Exceptions contains a complete list of all founders and directors with executive authority, employees and consultants of the Company with access to confidential information of the Company. No such employee has excluded works or inventions made prior to his or her employment with the Company from his or her assignment of inventions pursuant to such employee's confidential information and invention assignment agreement. 3.11 TITLE TO PROPERTIES AND ASSETS; LIENS. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no material mortgage, pledge, lien, lease, encumbrance or charge, other than (i) for liens for current taxes not yet due and payable, (ii) for liens imposed by law and incurred in the ordinary course of business for obligations not past due, (iii) for liens in respect of pledges or deposits under workers' compensation laws or similar legislation, and (iv) possible minor liens, encumbrances and defects in title which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation of any material term of its Articles of Incorporation, as amended to date, or, to the Company's knowledge, -5- in any material respect of any term or provision of any material mortgage, indebtedness, indenture, contract, agreement, instrument, judgment, order or decree to which it is party or by which it is bound. To the Company's knowledge, the Company is not in violation of any statute, rule or regulation applicable to the Company so as to have a Material Adverse Effect. To the Company's knowledge, the execution, delivery and performance of and compliance with the Agreements, and the issuance of the Shares, the Warrants, the Warrant Shares, and the Conversion Shares, will not result in any material violation of, or materially conflict with, or constitute a material default under, the Company's Articles of Incorporation, as amended to date, or, to the Company's knowledge, any of its material agreements, nor result in the creation of any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.13 LITIGATION. There are no actions, suits, proceedings or, to the Company's knowledge, investigations pending against the Company or its properties (nor has the Company received notice of any threat thereof) before any court or governmental agency that, if determined adversely to the Company, would have a Material Adverse Effect. The Company is not subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. 3.14 GOVERNMENTAL CONSENT. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Shares, the Warrants, the Warrant Shares and the Conversion Shares, or the consummation of any other transaction contemplated by this Agreement, except the filing of a securities notice to be filed pursuant to the Securities and Exchange Law of Japan and certain reports pursuant to the Foreign Exchange and Foreign Trade Law of Japan. 3.15 OFFERING. The offer, sale and issuance of the Shares and the Warrants to be issued in conformity with the terms of this Agreement, the issuance of the Warrant Shares to be issued upon exercise of the Warrants and the issuance of the Conversion Shares, constitute transactions exempt from the registration requirements of the Japanese Securities and Exchange Law, as amended. 3.16 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns required to be filed by it with appropriate governmental agencies, except where the failure to do so would not have a Material Adverse Effect. All taxes shown to be due and payable on such returns, any assessments imposed, and, to the Company's knowledge, all other taxes due and payable by the Company on or before the Closing have been paid or will be paid prior to the time they become delinquent. The Company has not been advised in writing (i) that any of its returns have been or are being audited as of the date hereof, or (ii) of any deficiency in assessment or proposed judgment with respect to its federal, state or local taxes. 3.17 EMPLOYEES. To the Company's knowledge, there is no strike, labor dispute or union organization activities pending or threatened between it and its employees. None of the Company's employees belongs to any union or collective bargaining unit. -6- 3.18 INSURANCE. The Company has in full force and effect fire and casualty insurance policies and insurance against other hazards, risks and liabilities to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated. 3.19 PERMITS. The Company has all permits and licenses necessary for the conduct of its business as currently conducted, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default under any such permit or license. 3.20 ENVIRONMENTAL AND SAFETY LAWS. To the Company's knowledge, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 3.21 MINUTE BOOKS. The minute books of the Company contain a materially complete summary of all meetings of directors and shareholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 3.22 USE OF PROCEEDS. The net proceeds to be paid to the Company at the Closing are to be used for general working capital purposes in accordance with the Company's annual budget as approved by the board of directors of the Company. Except in connection with acquisition transactions, repurchases of shares for use in a stock option plan that has been duly approved by the Company's shareholders, or where it has been outlined by the Company to and approved by the Investors, no proceeds will be used in the payment of any funded debt of the Company or in the repurchase or cancellation of securities held by any shareholder. 3.23 DISCLOSURE. The Company has provided each Investor with all the information reasonably available to it without undue expense that such Investor has requested for deciding whether to purchase the Shares. To the Company's knowledge, neither the Agreements nor any other documents or certificates delivered in connection herewith, including but not limited to the Company's business plan dated November 2, 2005, when taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Company does not represent or warrant that it will achieve any financial projections provided to the Investors and represents only that such projections were prepared in good faith. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor severally represents and warrants to the Company with respect to the purchase of the Shares, the Warrants, the Warrant Shares and the Conversion Shares as follows: 4.1 AUTHORIZATION. (a) Such Investor has all requisite power and authority to execute and deliver the Agreements, to purchase the Shares and the Warrants hereunder and to carry out and perform its obligations under the terms of the Agreements. All action on the part of the Investor -7- necessary for the authorization, execution, delivery and performance of the Agreements, and the performance of all of the Investor's obligations under the Agreements, has been taken or will be taken prior to the Closing. (b) The Agreements, when executed and delivered by such Investor, will constitute valid and legally binding obligations of the Investor, enforceable in accordance with their terms except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies or by general principles of equity. (c) No consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by the Investor in connection with the execution and delivery of the Agreements or the performance of the Investor's obligations hereunder or thereunder. 4.2 LEGENDS. Such Investor understands and agrees that the certificates evidencing the Shares, the Warrant Shares or any Conversion Shares, or any other securities issued in respect of the Shares, the Warrant Shares or any Conversion Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall bear the legends required by the other agreements referenced or contemplated herein. 4.3 PROJECTIONS Such Investor acknowledges and agrees that: (i) the Company does not guarantee the accuracy of any financial projections or any estimates, forecasts or plans provided in connections with the transactions contemplated hereby, and (ii) the assumptions upon which the financial projections were based relate to events over which the Company will have little or no control and that actual results may be less attractive than the financial projections indicate. 4.5 ACCORD WITH JAPANESE LAW. Such Investor represents that it has satisfied itself as to the full observance of Japanese law in connection with any invitation to subscribe for the Shares or any use of this Agreement, including, without limitation, (i) Japanese legal requirements for the purchase of Shares, (ii) any governmental or other consents that may need to be obtained, and (iii) any income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Shares. Such Investor's subscription and payment for, and its continued beneficial ownership of the Shares, will not violate any applicable Japanese securities or other laws. SECTION 5 CONDITIONS TO INVESTORS' OBLIGATIONS TO CLOSE An Investor's obligation to purchase the Shares and the Warrants at the Closing is subject to the fulfillment on or before the Closing of each of the following conditions, unless waived by the applicable Investor purchasing the Shares and the Warrants: -8- 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties made by the Company in Section 3 (as modified by the disclosures on the Schedule of Exceptions, as may be amended) shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 SECURITIES LAW COMPLIANCE. The Company shall have obtained all necessary securities law permits and qualifications, or have the availability of exemptions therefrom, required by any governmental entity for the offer and sale of the Shares, the Warrants, the Warrant Shares and the Conversion Shares. 5.4 ARTICLES OF INCORPORATION. The Articles shall have been duly authorized and executed to authorize the Shares, the Warrants, the Warrant Shares and the Conversion Shares. 5.5 RIGHTS AGREEMENT. The Company and the Parent shall have executed and delivered the Rights Agreement in substantially the form attached as Exhibit D. 5.6 AGREEMENT BETWEEN COMPANY AND PARENT. The Company and the Parent shall have executed and delivered such agreement in substantially in the form attached as Exhibit E. 5.7 CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENTS. Each founder, director with executive authority, employee and consultant of the Company listed on Section 3.10(c) of the Schedule of Exceptions shall have executed a confidentiality and invention assignment agreement, substantially in the form(s) delivered to the Investors. 5.8 DUE DILIGENCE REVIEW; APPROVAL. The Investors shall have completed due diligence review to their satisfaction, including financial, legal, technical and business due diligence, and the investment committees of the Investors shall have approved the transactions contemplated hereunder. 5.9 BUSINESS PLAN. The Company shall have prepared and delivered to the Investors a detailed, comprehensive business plan and budget which includes an explanation of the Company's intended use of the proceeds from the sale of the Shares to the Investors. 5.10 MANAGEMENT TEAM. The Company shall have identified, to the Investors' reasonable satisfaction, core management candidates for the Company. 5.11 CLOSING DELIVERABLES. The Company shall have delivered to counsel to the Investors the following: (a) a certificate executed by the President of the Company on behalf of the Company, in substantially the form attached as Exhibit F, certifying the satisfaction of the conditions to closing listed in Sections 5.1 and 5.2; and (b) a certificate executed by a director of the Company on behalf of the Company, in substantially the form attached as Exhibit G, attaching and certifying to the truth and correctness -9- of the Articles, and certifying to the truth and correctness of the board and shareholder resolutions adopted in connection with the transactions contemplated by this Agreement. SECTION 6 CONDITIONS TO COMPANY'S OBLIGATION TO CLOSE The Company's obligation to sell and issue the Shares and the Warrants at the Closing is subject to the fulfillment on or before the Closing of the following conditions, unless waived by the Company: 6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties made by the Investors in Section 4 shall be true and correct in all material respects as of the Closing Date. 6.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by Investors on or prior to the Closing shall have been performed or complied with in all material respects. 6.3 ARTICLES OF INCORPORATION. The Articles shall have been duly authorized and executed to authorized the Shares, the Warrants, the Warrant Shares and the Conversion Shares. 6.4 RIGHTS AGREEMENT. The Investors shall have executed and delivered the Rights Agreement in substantially the form attached as Exhibit D. 6.5 PAYMENT OF PURCHASE PRICE. The Investors shall have delivered to the Subscription Account the Purchase Price. SECTION 7 MISCELLANEOUS 7.1 AMENDMENT. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and the Investors. 7.2 NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by confirmed facsimile or otherwise delivered by hand or by messenger addressed: (a) if to an Investor, at the Investor's address or facsimile number as shown in the Company's records, as may be updated in accordance with the provisions hereof; or (b) if to the Company, one copy should be sent to its address or facsimile number set forth on the signature page of this Agreement and addressed to the attention of the President, or at such other address or facsimile number as the Company shall have furnished to the Investors. -10- Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or seventy-two (72) hours after the same has been deposited in a regularly maintained receptacle for the deposit of the mail, addressed and mailed as aforesaid or, if sent by confirmed facsimile, upon confirmation of facsimile transfer. 7.3 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of Japan as applied to agreements entered into among Japanese residents to be performed entirely within Japan, without regard to principles of conflicts of law. 7.4 EXPENSES. The Company and the Investors shall each pay their own expenses in connection with the transactions contemplated by this Agreement. 7.5 SURVIVAL. The representations, warranties, covenants and agreements made in this Agreement shall survive any investigation made by any party hereto and the closing of the transactions contemplated hereby. 7.6 SUCCESSORS AND ASSIGNS. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any Investor without the prior written consent of the Company. Any attempt by an Investor without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties. 7.7 ENTIRE AGREEMENT. This Agreement, the other agreements referenced or contemplated herein, and the exhibits and schedules hereto and thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or therein. 7.8 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. -11- 7.9 SEVERABILITY. Unless otherwise expressly provided herein, the rights of the Investors hereunder are several rights, not rights jointly held with any of the other Investors. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, and the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties' intent in entering into this Agreement. 7.10 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. All references in this Agreement to sections, paragraphs, exhibits and schedules shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto. 7.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.12 FACSIMILE EXECUTION AND DELIVERY. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof. 7.13 JURISDICTION; VENUE. All disputes or claims arising under or relating to this Agreement shall be settled by the parties amicably through good faith discussions upon the written request of any party. In the event that any such dispute or claim arising under or relating to this Agreement cannot be resolved thereby within a period of sixty (60) days after such notice has been given, such dispute or claim shall be subject to the exclusive jurisdiction of the Tokyo District Court. 7.14 FURTHER ASSURANCES. Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement. (The remainder of this page is left intentionally blank.) -12- IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. COMPANY: THIRD WAVE TECHNOLOGIES JAPAN, K.K. By: /s/ Ivan Trifunovich ------------------------------------ Name: Ivan Trifunovich Title: Director INVESTORS: MITSUBISHI CORPORATION By: /s/ Tsunehiko Yanagihara ------------------------------------ Name: Tsunehiko Yanagihara Title: General Manager, Life Sciences Business Unit CSK INSTITUTE FOR SUSTAINABILITY, LTD. By: /s/ Masahiro Aozono ------------------------------------ Name: Masahiro Aozono Title: President & CEO (SIGNATURE PAGE TO SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT) EXHIBIT A SCHEDULE OF INVESTORS
PURCHASE PRICE PER NUMBER OF NUMBER OF SHARE AND WARRANT SERIES A WARRANT EXERCISE PRICE PER INVESTOR SHARES SHARES SHARE -------- --------- --------- ------------------ Mitsubishi Corporation 6,667 1,149 Y71,996 6-3 Marunouchi 2-chome Chiyoda-ku Tokyo 100-8086 Japan (Fax) +81-3-3210-5223 Tsunehiko.yanagihara@mitsubishicorp.com CSK Institute for Sustainability, LTD. 1,389 239 Y71,996 CSK Aoyama Building 2-26-1 Minami-Aoyama Minato-ku Tokyo 107-0062 Japan (Fax) +81-3-6438-4120 cskis@csk.com
EX-10.4 3 c05069exv10w4.txt INVESTOR RIGHTS AGREEMENT EX-10.4 INVESTOR RIGHTS AGREEMENT This Investor Rights Agreement (the "AGREEMENT") is made as of April 21, 2006, by and among Third Wave Technologies Japan, K.K., a Japanese corporation (the "COMPANY"), Third Wave Technologies, Inc., a Delaware corporation (the "PARENT"), and the entities listed on Exhibit A attached hereto (each, an "INVESTOR," and collectively, the "INVESTORS"). RECITALS A. WHEREAS: The Parent currently owns all of the outstanding capital stock issued by the Company. B. WHEREAS: The Investors intend to purchase from the Company shares of its Series A Preferred Stock, pursuant to the Series A Preferred Stock Purchase Agreement between the Company and the Investors, dated of even date herewith (the "SERIES A PURCHASE AGREEMENT"). C. WHEREAS: In consideration for the Investors' investments in the Company, the Investors, the Company and the Parent have agreed to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual promises herein contained, and other consideration, the receipt and adequacy of which hereby is acknowledged, the parties hereto agree as follows: SECTION 1 CERTAIN DEFINITIONS For purposes of this Agreement, the following terms have the following meanings: 1.1 "AFFILIATE" means any business entity which controls, is controlled by or is under common control of a party and, for the purposes of this definition, a business entity shall be deemed to "control" another business entity if it owns, directly or indirectly, at least twenty percent (20%) of the shares of such business entity or any other comparable equity or ownership interest with respect to a business entity other than a company; 1.2 "CHANGE OF CONTROL" means (i) a merger or consolidation of the Company or Parent, as the case may be, or other transaction where the Company's shareholders or the Parent's stockholders, as the case may be, immediately before the transaction do not hold more than fifty percent (50%) of the outstanding voting shares of the surviving entity after such transaction, or (ii) a sale, lease, transfer or other disposition of all or substantially all of the assets of the Company or the Parent, as the case may be. 1.3 "ELIGIBLE INVESTORS" shall mean the Shareholders other than the Seller. 1.4 "CO-SALE SHARE" means, as to each Eligible Investor's Right of Co-Sale, the percentage determined by dividing (i) the number of shares of Stock held by the Eligible Investor by (ii) the number of shares of Stock held by the Seller and all Eligible Investors participating in the Right of Co-Sale pursuant to Section 6 hereof. 1.5 "NEW SECURITIES" shall have the meaning in Section 3.2. 1.6 "PREEMPTIVE RIGHT" means the preemptive right provided to the Shareholders in Section 3 of this Agreement. 1.7 "QUALIFIED IPO" means the Company's sale of its common stock in a bona fide, firm commitment underwriting pursuant to a registration statement filed with the Japanese Financial Services Agency, with aggregate proceeds to the Company of at least Y1,000,000,000 and a per share price to the public of at least two times the price paid by the Investors for the Company's Series A Preferred Stock under the Series A Purchase Agreement. 1.8 "RIGHT OF CO-SALE" means the right of co-sale provided to the Eligible Investors in Section 6 of this Agreement. 1.9 "RIGHT OF FIRST REFUSAL" means the right of first refusal provided to the Company and the Eligible Investors in Section 5 of this Agreement. 1.10 "SERIES A PREFERRED STOCK" means the Company's Series A Preferred Stock. 1.11 "SERIES A PURCHASE AGREEMENT" shall have the meaning in the Recitals. 1.12 "SELLER" means the Parent or any Investor proposing to Transfer Stock. 1.13 "SHAREHOLDERS" means the Parent and the Investors. 1.14 "STOCK" means and includes all common stock and preferred stock of the Company. 1.15 "TRANSFER" means and includes any sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift or other transfer or disposition of any kind, including but not limited to transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly, except: (a) any transfers by the Parent in connection with a Change of Control of the Parent; (b) any transfers by any Shareholder to its Affiliate other than transfers between TWJ and TWT; (c) any bona fide gift, provided that the Seller shall inform the Eligible Investors of such gift prior to effecting it and provided that the pledgee, transferee or donee or other recipient executes a counterpart copy of this Agreement and becomes bound thereby as was the Seller; 2 (d) by operation of law; or (e) any transfer to the Company or an Eligible Investor pursuant to the terms of this Agreement. 1.16 "BUSINESS DAY" means any day from Monday to Friday, except for the holidays on which commercial banking institutions in either Japan or the State of Wisconsin in the US are authorized or obligated by law to be closed. SECTION 2 INFORMATION AND INSPECTION RIGHTS 2.1 INFORMATION RIGHTS. So long as at least fifty percent (50%) of the Series A Preferred Stock remains outstanding and the Investors continue to own at least eighty percent (80%) of the shares of such Series A Preferred Stock (or shares of common stock issued upon conversion of the Series A Preferred Stock) held by the Investors as of the date of this Agreement, the Company will furnish the following reports to any Investor: (a) within one hundred twenty (120) days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles in Japan consistently applied, certified by independent public accountants of recognized national standing selected by the Company. (b) within forty-five (45) days after the end of the first, second, and third quarterly accounting periods in each fiscal year of the Company, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and unaudited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period. (c) within fifteen (15) days after the end of each month, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such monthly period, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period. (d) within forty-five (45) days after the end of each fiscal quarter, an up-to-date capitalization table, including the names of each shareholder and option or warrant holder and the number of shares, options or warrants held by each such holder, certified by the management member chiefly responsible for the finances of the Company. (e) at least thirty (30) days prior to the beginning of each fiscal year, an operating plan for such fiscal year, including consolidated capital and operating expense budgets, cash flow projections and income and loss projections for the Company and its subsidiaries in respect of such 3 fiscal year, all itemized in reasonable detail and prepared on a monthly basis, and, promptly after preparation, any revisions to any of the foregoing. 2.2 INSPECTION RIGHTS. So long as at least fifty percent (50%) of the Series A Preferred Stock remains outstanding and the Investors continue to own at least eighty percent (80%) of the shares of such Series A Preferred Stock (or shares of common stock issued upon conversion of the Series A Preferred Stock) held by the Investors as of the date of this Agreement, the Company will afford to each Investor that owns at least fifteen percent (15%) of the then issued and outstanding Series A Preferred Stock, and to each such Investor's accountants and counsel, reasonable access during normal business hours and with reasonable advance notification, to all of the Company's respective properties, books and records. Each such Investor shall have such other reasonable access, with reasonable advance notification, to management and information as is necessary for it to comply with applicable laws and regulations and reporting obligations. The Company shall not be required to disclose details of contracts with or work performed for specific customers and other business partners where to do so would violate confidentiality obligations to those parties. The Investors may exercise their rights under this Section 2.2 only for purposes reasonably related to their interests under this Agreement and related agreements. The rights granted pursuant to this Section 2.2 may not be assigned or otherwise conveyed by the Investors or by any subsequent transferee of any such rights without the prior written consent of the Company. 2.3 CONFIDENTIALITY. Anything in Section 2 to the contrary notwithstanding, no Investor by reason of this Agreement shall have access to any trade secrets or confidential information of the Company. Each Investor hereby agrees to hold in the strictest confidence and trust, and to take reasonable precautions to prevent the unauthorized use or disclosure of, any confidential information provided pursuant to this Agreement. The Company shall not be required to comply with any obligation under this Section 2 in respect of any Investor whom the Company reasonably determines to be a competitor or an officer, employee, director or holder of more than ten percent (10%) of the stock of a competitor. 2.4 TERMINATION OF INFORMATION AND INSPECTION RIGHTS. Each Investor's information and inspection rights set forth in this Section 2 shall terminate in accordance with Section 10.1 hereof. SECTION 3 PREEMPTIVE RIGHTS 3.1 PREEMPTIVE RIGHTS TO SHAREHOLDERS. The Company hereby grants to the Shareholders, the preemptive right to purchase a pro rata share of New Securities (as defined in Section 3.2) which the Company may, from time to time, propose to sell and issue (the "PREEMPTIVE RIGHT"). A Shareholder's pro rata share, for purposes of the Preemptive Right, is the ratio of the number of shares of common stock owned by such Shareholder immediately prior to the issuance of New Securities, assuming full conversion of the Shares and exercise of any option or warrant held by said Shareholder, to the total number of shares of common stock outstanding immediately prior to the issuance of New Securities, assuming full conversion of the Shares and exercise of all outstanding 4 convertible securities, rights, options and warrants to acquire common stock of the Company. Each Shareholder shall have a right of over-allotment such that if any Shareholder fails to exercise its right hereunder to purchase its pro rata share of New Securities, the other Shareholders may purchase the non-purchasing Shareholder's portion on a pro rata basis within ten (10) Business Days from the Purchase Deadline (as defined below). 3.2 NEW SECURITIES. "NEW SECURITIES" shall mean any capital stock (including common stock and/or preferred stock) of the Company whether now authorized or not, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided that the term "New Securities" does not include: (a) securities purchased under the Series A Purchase Agreement; (b) shares of common stock issued or issuable upon conversion of shares of preferred stock; (c) shares of common stock issued or issuable upon exercise of any warrants issued pursuant to the Series A Purchase Agreement; (d) shares of common stock issued or issuable (including securities convertible into or exercisable for common stock) to officers, directors and employees of, or consultants to, the Company pursuant to stock grants, option plans, purchase plans or other stock incentive programs or similar arrangements approved by the Board of Directors of the Company, or upon exercise of options or warrants granted to such parties pursuant to any such plan or arrangement; (e) shares of common stock issued upon the exercise or conversion of options or convertible securities of the Company outstanding as of the date of this Agreement, as amended, or that are subsequently issued pursuant to the carve-outs of Sections 3.2(a)-(j) hereof, as amended; (f) shares of common stock issued or issuable (including securities convertible into or exercisable for common stock) as a dividend or distribution on preferred stock, or pursuant to any event for which adjustment is made to the number of shares of common stock outstanding, including, without limitation, a stock split, stock dividend, subdivision of shares of common stock or other similar transaction, or pursuant to any other event for which adjustment is made pursuant to the Articles of Incorporation of the Company (the "ARTICLES"); (g) shares of common stock issued in a registered public offering under the Securities and Exchange Law, as amended, pursuant to which all outstanding shares of preferred stock are automatically converted into common stock; (h) shares of common stock issued or issuable (including securities convertible into or exercisable for common stock) pursuant to the acquisition of another entity by the Company by merger, purchase of equity, purchase of substantially all of the assets, or other reorganization, or pursuant to a joint venture agreement, provided, that such issuances are approved by the Board of Directors of the Company; 5 (i) shares of common stock issued or issuable (including securities convertible into or exercisable for common stock) to lenders, service providers, equipment lessors or other financial institutions pursuant to a commercial leasing, debt financing, service or consulting transaction, each as approved by the Board of Directors of the Company; and (j) shares of common stock issued or issuable (including securities convertible into or exercisable for common stock) in connection with sponsored research, collaboration, license, development, OEM, marketing, acquisition, or other similar agreements or strategic transactions approved by the Board of Directors of the Company. 3.3 NOTICE OF EXERCISE. In the event the Company proposes to undertake an issuance of New Securities, it shall give each Shareholder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Shareholder shall have ten (10) Business Days after any such notice is mailed or delivered (the "PURCHASE DEADLINE") to agree to purchase such Shareholder's pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. 3.4 FAILURE TO EXERCISE. In the event the Shareholders fail to exercise fully their Preemptive Rights within said ten (10) Business Day period and after the expiration of the additional ten (10) Business Day period for the exercise of the over-allotment provisions of Section 3.1, the Company shall have ninety (90) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within ninety (90) days from the date of said agreement) to sell the New Securities respecting which the Shareholders' Preemptive Rights set forth in Section 3.1 were not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to Shareholders pursuant to Section 3.3. In the event the Company has not sold the New Securities within such ninety (90) day period, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Shareholders in the manner provided in Section 3.1 above. 3.5 ASSIGNMENT OF PREEMPTIVE RIGHT. The Preemptive Right may not be assigned or transferred, except that (i) such right is assignable by each Shareholder to the Affiliates of any such Shareholder, and (ii) such right is assignable between and among any of the Shareholders. 3.6 INAPPLICABILITY AND TERMINATION OF PREEMPTIVE RIGHT. The Preemptive Right shall not be applicable to the Company's Qualified IPO, and shall terminate in accordance with Section 10.1 hereof. SECTION 4 RESTRICTIONS ON TRANSFER 4.1 GENERAL. Before a Seller may Transfer any Stock, securities convertible into Stock, or Stock issued upon conversion of any securities held by the Seller as of the date hereof (as adjusted for any stock dividends, stock splits, recapitalizations and the like), the Company or its assignee(s) and the 6 Eligible Investors shall have a Right of First Refusal to purchase such Stock on the terms and conditions set forth herein. 4.2 NOTICE OF PROPOSED TRANSFER. Prior to the Seller Transferring any Stock, the Seller shall deliver to the Company and the Eligible Investors a written notice (the "TRANSFER NOTICE") stating: (i) the Seller's bona fide intention to sell or otherwise Transfer such Stock (the "OFFERED SHARES"); (ii) the name, address and phone number of each proposed purchaser or other transferee ("PROPOSED TRANSFEREE"); (iii) the aggregate number of Offered Shares to be Transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Seller proposes to Transfer the Offered Shares (the "OFFERED PRICE"); (v) each Eligible Investor's right to exercise either its Right of First Refusal or its Right of Co-Sale (but not both rights) with respect to the Offered Shares; and (vi) a deadline, consistent with the terms of this Agreement, within which the Company and Eligible Investors must exercise such rights. SECTION 5 RIGHT OF FIRST REFUSAL 5.1 TRANSFER OF SHARES TO THE COMPANY. The Company may elect itself as the transferee of the Offered Shares, provided that the Company shall purchase all but not less than all of the Offered Shares and shall give written notice of such election to the Seller within fifteen (15) Business Days after the date on which the Transfer Notice is, pursuant to Section 11.1 hereof, deemed to have been delivered to the Company and the Eligible Investors (the "INITIAL REFUSAL PERIOD"). 5.2 INITIAL EXERCISE BY THE ELIGIBLE INVESTORS. Subject to the limitations of this Section 5.2, the Eligible Investors and their Affiliates appointed by the Eligible Investors shall have the Right of First Refusal to purchase all or any part of the Offered Shares should the Company not elect itself as the transferee of the Offered Shares pursuant to Section 5.1 hereof; provided that each Eligible Investor so electing gives written notice of the exercise of such right to the Seller within the Initial Refusal Period. Upon the earlier to occur of (a) the termination of the Initial Refusal Period and (b) the time when the Seller has received written confirmation from the Company regarding its exercise of its Right First Refusal, the Eligible Investors' Rights of First Refusal shall expire. To the extent that the Company elects not to purchase the Offered Shares, the Company shall allocate the Offered Shares to the Eligible Investors, and shall give written notice thereof to the Seller within the Initial Refusal Period. To the extent that the aggregate number of shares that the Eligible Investors desire to purchase exceeds the number of Offered Shares, each Eligible Investor will be entitled to purchase a fraction of the Offered Shares, the numerator of which shall be the number of shares of common stock (assuming conversion of all securities then outstanding that are convertible into common stock) owned by such Eligible Investor on the date of the Transfer Notice and the denominator of which shall be the number of shares of Stock held by all Eligible Investors exercising their Right of First Refusal. Within five (5) Business Days after the expiration of the Initial Refusal Period (the "CONFIRMATION PERIOD"), the Seller will give written notice to the Company and each Eligible Investor specifying the number of Offered Shares that was subscribed by the Company or the Eligible Investors exercising their Rights of First Refusal, as the case may be (the "CONFIRMATION NOTICE"). The Confirmation Notice shall specify the number of Offered Shares to be purchased by the Company or those Eligible Investors who are exercising their Rights of First Refusal. If the Company does not elect itself as the transferee of the 7 Offered Shares, the Confirmation Notice shall also specify the number of Offered Shares not purchased, if any, and list each Participating Investor's (as defined in Section 5.3 hereof) share of the Offered Shares. This Right of First Refusal shall not apply with respect to Offered Shares sold by the Investors under the Right of Co-Sale. 5.3 SUBSEQUENT EXERCISE BY THE ELIGIBLE INVESTORS. Each Eligible Investor electing to exercise its Right of First Refusal to purchase at least its full pro rata share of the Offered Shares under Section 5.2 hereof (a "PARTICIPATING INVESTOR") shall have a right of reallotment such that if, after the Eligible Investors exercise their respective Rights of First Refusal, there remain any Offered Shares that are not purchased by the Eligible Investors within the Initial Refusal Period, then each such Participating Investor may elect to purchase all (or any portion of) such Participating Investor's pro rata share of the Offered Shares not previously purchased. For the purpose of the preceding sentence, each Participating Investor's pro rata share shall be a fraction of the Offered Shares not previously purchased, the numerator of which shall be the number of shares of common stock (assuming conversion of all securities then outstanding that are convertible into common stock) owned by such Participating Investor on the date of the Transfer Notice and the denominator of which shall be the total number of shares of common stock (assuming conversion of all securities then outstanding that are convertible into common stock) held by all Participating Investors on the date of the Transfer Notice. Each Eligible Investor exercising its right pursuant to this Section 5.3 shall do so by giving written notice to the Seller within seven (7) Business Days after delivery of the Confirmation Notice to such Eligible Investor pursuant to Section 11.1 (the "SUBSEQUENT REFUSAL PERIOD"). 5.4 PURCHASE PRICE. The purchase price for the Offered Shares to be purchased by the Company or by an Eligible Investor exercising its Right of First Refusal under this Agreement will be the Offered Price, and will be payable as set forth in Section 5.5 hereof. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration will be determined by the Board of Directors of the Company in good faith, which determination will be binding upon the Company, each Eligible Investor and the Seller, absent fraud or error. 5.5 PAYMENT. Payment of the purchase price for the Offered Shares purchased by the Company or by an Eligible Investor exercising its Right of First Refusal will be made within ten (10) Business Days after the later of (i) the end of the Confirmation Notice Period, or (ii) where applicable, the end of the Subsequent Refusal Period. Payment of the purchase price will be made, at the option of the Company or the exercising Eligible Investor, (i) in cash (by check), (ii) by cancellation of all or a portion of any outstanding indebtedness of the Seller to the Company or the Eligible Investor, as the case may be, or (iii) by any combination of the foregoing. 5.6 RIGHTS AS A SHAREHOLDER. If the Company or any Eligible Investor exercises its Right of First Refusal to purchase the Offered Shares, then, upon the date that the notice of such exercise by the Company or any Eligible Investor is deemed delivered to the Seller pursuant to Section 11.1 hereof, the Seller will have no further rights as a holder of the Offered Shares except the right to receive payment for the Offered Shares from the Company or the Eligible Investor(s), as the case may be, in accordance with the terms of this Agreement, and the Seller will forthwith cause all certificate(s) evidencing such Offered Shares, properly endorsed for Transfer, to be surrendered for Transfer to the Company or the Eligible Investor, as the case may be. 8 5.7 SELLER'S RIGHT TO TRANSFER. If the Company and each Eligible Investor have not elected to purchase all or any portion of the Offered Shares, then, with respect to such portion of Offered Shares (the "TRANSFERABLE PORTION"), the Right of First Refusal shall not apply to such Transfer, and the Seller may Transfer the Transferable Portion to any Proposed Transferee, at the Offered Price or at a higher price; provided that such Transfer shall still be subject to the Investors' Right of Co-Sale as defined in Section 6 hereof; provided further that such Transfer (i) is consummated within ten (10) Business Days after the end of the Subsequent Refusal Period, (ii) is on terms no more favorable than the terms proposed in the Transfer Notice and (iii) is in accordance with all the terms of this Agreement. If the Offered Shares are not so Transferred during such ten (10) Business Day period, then the Seller may not Transfer any of such Offered Shares without complying again in full with the provisions of this Agreement. SECTION 6 RIGHT OF CO-SALE 6.1 EXERCISE BY THE INVESTORS. To the extent that the Company and the Investors do not exercise their respective Rights of First Refusal with respect to the Offered Shares pursuant to Section 5 hereof, then each Investor who has not exercised its Right of First Refusal in Section 5 (a "CO-SALE ELIGIBLE INVESTOR") shall have the right to participate in such sale of Offered Shares on the same terms and conditions as specified in the Transfer Notice, up to its Co-Sale Share, by notifying the Seller in writing within ten (10) Business Days after the later of (1) delivery of the Confirmation Notice, or (2) the end of the Subsequent Refusal Period, as applicable (the "INITIAL CO-SALE PERIOD"); provided, however, that no Co-Sale Eligible Investor shall have a Co-Sale Right in connection with any transfer set forth in Section 1.16 (a) to (e). The Co-Sale Eligible Investor shall indicate the number of shares of Stock it then holds that it wishes to sell pursuant to this Section 6.1 (the "SELLING INVESTOR SHARES"). To the extent that one or more of the Co-Sale Eligible Investors exercises their Rights of Co-Sale as described in this Section 6.1 (a "SELLING INVESTOR" for purposes of this Section 6), the number of Offered Shares that the Seller may sell in the Transfer shall be correspondingly reduced. If, after the end of the Initial Co-Sale Period, any Co-Sale Eligible Investors decline to participate in sales under this Section 6, then, within five (5) Business Days after the Initial Co-Sale Period, the Seller will notify the Selling Investors of the extent to which other Co-Sale Eligible Investors declined to exercise their Co-Sale Right (the "CO-SALE NOTICE"). The Selling Investors shall within ten (10) Business Days after delivery of the Co-Sale Notice (the "SUBSEQUENT CO-SALE PERIOD") notify the Seller of the additional Selling Investor Shares that such Selling Investor wishes to sell. If the aggregate amount of Selling Investor Shares proposed to be sold by Selling Investors under this Subsequent Co-Sale Period exceeds the number of Offered Shares stated in the Co-Sale Notice, the number of Selling Investor Shares that each Selling Investor may sell under this Subsequent Co-Sale Period shall be reduced pro rata according to each Selling Investor's Co-Sale Share. The sale of the Offered Shares and the Selling Investor Shares shall occur within twenty-five (25) Business Days from the beginning of the Initial Co-Sale Period (the "CLOSING"). This Right of Co-Sale shall not apply with respect to Offered Shares sold or to be sold to Eligible Investors or the Company under the Right of First Refusal. 6.2 CONSUMMATION OF CO-SALE. A Selling Investor may exercise the Right of Co-Sale by delivering to the Seller at or before the Closing, one or more certificates, properly endorsed for Transfer, representing a number of Selling Investor Shares not to exceed the number of shares of Stock 9 to which Selling Investor is entitled in Section 6.1, representing such Selling Investor Shares to be Transferred by the Seller on behalf of the Selling Investor. If the Selling Investor does not hold a certificate in that series, class or type of stock representing the number of Selling Investor Shares to be sold by such Selling Investor pursuant to this Section 6, then the Company shall promptly issue a certificate representing the proper number of Selling Investor Shares to be sold pursuant to this Right of Co-Sale. Following the Closing, the Company shall deliver a certificate for the remaining balance of the Stock held by the Selling Investor and not sold pursuant to this Section 6, if any, to such Selling Investor. At the Closing, such certificates or other instruments will be Transferred and delivered to the Transferee as set forth in the Transfer Notice in consummation of the Transfer of the Offered Shares pursuant to the terms and conditions specified in the Transfer Notice, and the Seller will remit, or will cause to be remitted, to each Selling Investor, within ten (10) days after such Closing, that portion of the proceeds of the Transfer to which each Selling Investor is entitled by reason of each Selling Investor's participation in such Transfer pursuant to the Right of Co-Sale. 6.3 MULTIPLE SERIES, CLASS OR TYPE OF STOCK. If the Offered Shares consist of more than one series, class or type of Stock, the Seller has the right to Transfer hereunder each such series, class or type; provided that if, as to the Right of Co-Sale, a Selling Investor does not hold any of such series, class or type, and the Proposed Transferee is not willing, at the Closing, to purchase some other series, class or type of Stock from such Selling Investor, or is unwilling to purchase any Stock from such Selling Investor at the Closing, then such Selling Investor will have the put right set forth in Section 6.4(b) hereof. 6.4 REFUSAL TO TRANSFER: PUT RIGHT. (a) Refusal to Transfer. Any attempt by any Seller to Transfer any Stock in violation of any provision of this Agreement will be void. The Company will not be required (i) to transfer on its books any Stock that has been sold, gifted or otherwise Transferred in violation of this Agreement, or (ii) to treat as owner of such Stock, or to accord the right to vote or pay dividends to any purchaser, donee or other transferee to whom such Stock may have been so Transferred. (b) Put Right. If a Seller Transfers any Stock in contravention of the Investors' Right of Co-Sale under this Agreement (a "PROHIBITED TRANSFER"), or if the Proposed Transferee of Offered Shares desires to purchase a class, series or type of Stock offered by the Seller but not held by an Investor or the Proposed Transferee is unwilling to purchase any Stock from an Investor, such Investor may, by delivery of written notice to such Seller (a "PUT NOTICE") within ten (10) Business Days after the later of (i) the Closing, or (ii) the date on which such Investor becomes aware of the Prohibited Transfer or the terms thereof, require such Seller to purchase from such Investor, for cash or such other consideration as the Seller received in the Prohibited Transfer or at the Closing, a number of Selling Investor Shares (of the same class or type as Transferred in the Prohibited Transfer or at the Closing if such Investor then owns Stock of such class or type; otherwise of preferred stock or common stock) having a purchase price equal to the aggregate purchase price that the Investor would have received in the closing of such Prohibited Transfer if such Investor had elected to exercise its Right of Co-Sale with respect thereto or in the Closing if the Proposed Transferee had been willing to purchase the Selling Investor Shares of the Investor. The closing of such sale to the Seller will occur within ten (10) days after the date of such Investor's Put Notice to such Seller. 10 SECTION 7 RESTRICTIVE LEGEND AND STOP TRANSFER ORDERS 7.1 TRANSFERS. No securities shall be Transferred unless (i) such Transfer is made with the prior written consent of the Company's Board of Directors, which consent shall not be unreasonably withheld, and (ii) prior to such Transfer, the transferee or transferees sign a counterpart to this Agreement pursuant to which it or they agree to be bound by the terms of this Agreement. The Company shall not be required (a) to transfer on its books any shares that shall have been sold or Transferred in violation of any of the provisions of this Agreement or (b) to treat as the 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. 7.2 LEGENDS. The Shareholders understand and agree that the Company will cause the legends set forth below, or legends substantially equivalent thereto, to be placed upon any certificate(s) or other documents or instruments evidencing ownership of Stock by the Shareholders: "ANY TRANSFER OR SALE OF THE SHARES REPRESENTED HEREBY IS SUBJECT TO APPROVAL BY THE BOARD OF DIRECTORS OF THE COMPANY." "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO AN INVESTOR RIGHTS AGREEMENT (A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY) AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON HOLDING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID INVESTOR RIGHTS AGREEMENT." 7.3 STOP TRANSFER INSTRUCTIONS. In order to ensure compliance with the restrictions referred to herein, each Seller agrees that the Company may issue appropriate "stop transfer" certificates or instructions and that, if the Company Transfers its own securities, it may make appropriate notations to the same effect in its records. SECTION 8 CALL OPTION 8.1 EXERCISE BY PARENT. During the time period commencing on the effective date of a Change of Control of the Parent and terminating at the end of the one hundred eightieth (180th ) day thereafter (the "CALL OPTION TERMINATION DATE"), the Parent shall be entitled, at its option, to require the Investors to sell all (but not less than all) of their shares of Stock (the "CALLED STOCK") to the Parent or its designee (which may be the Company) (the "CALL OPTION"). The Parent may exercise the Call Option by delivery of written notice (the "Call Notice") to the Investors at any time after the public announcement of the Change of Control of the Parent and before fifteen (15) days prior to the Call Option Termination Date, provided that, the Call Option may only be consummated on or after the 11 effective date of such Change of Control and provided further that the Call Notice shall be delivered to the Investors at least fifteen (15) days prior to the date determined by Parent (or its designee) for consummation of the Call Option, during which fifteen (15) day period the Investors may discuss with the Parent the advisability of consummating the Call Option; provided, however, that after such fifteen (15) day period, Parent (or its designee) may consummate the Call Option and purchase the Called Stock, in its sole discretion. In the event of a Change of Control of Parent, Parent shall use its commercially reasonable efforts to give Investors notification, including the name of the acquirer, of such event immediately following the public announcement of such event, regardless of whether Parent (or its designee) provides notice of exercise of the Call Option at such time. 8.2 PURCHASE PRICE. The price to be paid by the Parent or its designee for the Called Stock (the "CALL PRICE") shall be the Fair Value (as defined below) of the Called Stock on the date of delivery of the Call Notice to the Investors. "FAIR VALUE" shall be determined as follows: (a) If the Called Stock is publicly traded on a national securities exchange or the Japanese over-the-counter market, the Fair Value shall be deemed to be the average of the closing prices of the Called Stock on such exchange or market, as the case may be, over the one (1) year period (or such shorter period as such Called Stock may have traded on such national securities exchange or over-the-counter market) ending three (3) Business Days prior to the date of delivery of the Call Notice to the Investors (the "AVERAGE PRICE"); provided, however, the Fair Value of the Called Stock in this circumstance will be an amount at least equal to a fourteen percent (14%) internal rate of return for the Investors. (b) If there is no active public market for the Called Stock, the Fair Value will be determined by good faith negotiation between the Parent and the Investors. If such negotiation fails to determine the Fair Value within thirty (30) days after delivery of the Call Notice, the Parent and the Investors will select an appraiser to determine the Fair Value of the Called Stock. If the parties cannot agree on an appraiser, each will select an appraiser, who will then select a third appraiser and that third appraiser shall determine the Fair Value of the Called Stock; provided, however, the Fair Value of the Called Stock in this circumstance will be an amount at least equal to a fourteen percent (14%) internal rate of return for the Investors. 8.3 PROCEDURE. Within ten (10) days after the determination of the Call Price, the Parent or its designee shall pay to the Investors in cash the Call Price, at which time the Parent or its designee will become the record holder of the Called Stock, and the Investors shall deliver the certificate(s) for the Called Stock (if certificates were issued), properly endorsed for Transfer, to the Parent or its designee. SECTION 9 VOTING, BOARD OF DIRECTORS AND APPROVAL PROVISIONS 9.1 VOTING SHARES. So long as at least fifty percent (50%) of the Series A Preferred Stock remains outstanding and the Investors continue to own at least eighty percent (80%) of the shares of such Series A Preferred Stock (or shares of common stock issued upon conversion of the Series A Preferred Stock) held by the Investors as of the date of this Agreement, the Parent and the Investors 12 (each a "VOTING PARTY", and collectively, the "VOTING PARTIES") each agree to vote all shares of Stock now or hereafter owned by them, whether beneficially or otherwise, or as to which they have voting power (collectively, the "VOTING SHARES") in accordance with the provisions of this Section 9. 9.2 ELECTION OF BOARD OF DIRECTORS (a) Voting. During the term of this Agreement, each Voting Party agrees to vote all Voting Shares in such manner as may be necessary to elect (and maintain in office) as members of the Company's Board of Directors the following individuals: (i) one (1) Series A Designee (as defined below) as the representative of the holders of the Series A Preferred Stock (or shares of common stock issued upon conversion of the Series A Preferred Stock) (the "SERIES A DIRECTOR"); and (ii) three (3) Common Designees (as defined below) as the representatives of the holders of the Company's common stock (the "COMMON DIRECTORS"). Each Voting Party shall take all actions necessary to vote all Voting Shares in accordance with this Section 9.2(a), including without limitation attending and voting at any meeting for the election of directors, or completion of proxies or written consents. (b) Designation of Directors. The designees to the Company's Board of Directors described above (each a "DESIGNEE") shall be selected as follows: (i) The Series A Director shall initially be Tsunehiko Yanagihara. Thereafter, with respect to each election of the Series A Director, the Designee for the Series A Director (the "SERIES A DESIGNEE") shall be chosen, and may be removed, by Mitsubishi Corporation. (ii) The Common Directors shall initially be Ivan Tifunovich, Stephane Perrey,and Kevin Conroy. Thereafter, with respect to each election of the Common Directors, the Designees for the Common Director (the "COMMON DESIGNEES") shall be chosen, and may be removed, by the Parent. (c) Changes in Designees. From time to time during the term of this Agreement, Voting Parties who may elect or remove a Designee pursuant to this Agreement may, in their sole discretion: (i) notify the Company in writing of an intention to remove from the Company's Board of Directors any incumbent Designee who occupies a seat on the Board of Directors for which such Voting Parties are entitled to designate the Designee; or (ii) notify the Company in writing of an intention to select a new Designee for election to a seat on the Board of Directors for which such Voting Parties are entitled to designate the Designee (whether to replace a prior Designee or to fill a vacancy in such seat). In the event of such an initiation of a removal or selection of a Designee under this Section 9.2(c), the Company shall take such reasonable actions as are necessary to facilitate such removals or 13 elections, including, without limitation, soliciting the votes of the appropriate shareholders, and the appropriate Voting Parties shall vote their Voting Shares to cause: (a) the removal from the Company's Board of Directors of the Designee or Designees so designated for removal; and (b) the election to the Company's Board of Directors of any new Designee or Designees so designated. 9.3 BOARD OF DIRECTORS VOTING REQUIREMENTS. So long as at least fifty percent (50%) of the Series A Preferred Stock remains outstanding and the Investors continue to own at least eighty percent (80%) of the shares of such Series A Preferred Stock (or shares of common stock issued upon conversion of the Series A Preferred Stock) held by the Investors as of the date of this Agreement, the Company may not, without the unanimous consent of the Board of Directors (of which no director's consent shall be withheld unreasonably, in bad faith or contrary to the Company's best interests or such director's applicable fiduciary duty), approve or authorize: (a) the Company's annual budget (in its entirety) and business plan including its mid-term strategy; provided, however, that each member of the Board of Directors will vote in favor of a budget that substantially comports with any of the Company's budgets, operations and practices in the ordinary course of business from and during the Company's previous fiscal years; (b) the Company's fiscal year-end financial statements; provided, however, that each member of the Board of Directors will vote in favor of the Company's financial statements if such statements were prepared in accordance with past practices and generally accepted accounting principals under applicable laws; (c) a declaration or payment of a dividend on shares of the Company's capital stock in a given fiscal year, if (i) the aggregate amount of dividends to be distributed in such fiscal year exceeds the Company's net profits for such fiscal year, or (ii) no dividend was declared or paid by the Company in the previous three (3) fiscal years; (d) a sale of any part of the Company's business or assets valued at a sale price greater than ten percent (10%) of the fair market value of the total assets of the Company prior to the consummation of such sale or Y1,000,000,000; (e) a purchase of a business or assets for a purchase price greater than ten percent (10%) of the fair market value of the total assets of the Company after the consummation of such purchase or Y1,000,000,000; (f) salaries, bonuses or retirement bonuses for a member of the Board of Directors in an amount greater than Y100,000,000 during any year; (g) a term sheet, proposal or letter of intent or any other contract or agreement (i) which will result in payment or receipt by the Company of an amount greater than ten percent (10%) of the fair market value of the total assets of the Company or an amount greater than the gross sales generated by the Company during the preceding fiscal year, (ii) the term of which will exceed three (3) years and that has an aggregate value of greater than ten percent (10%) of the fair market value of the total assets of the Company, (iii) regarding a license with respect to the Company's intellectual property that requires payments in an aggregate amount greater than ten percent (10%) of the fair market value of the total assets of the Company, or (iv) regarding the payment or receipt by the Company of royalty payments that have an aggregate value of greater than ten percent (10%) of the fair market value of 14 the total assets of the Company. The consent requirement applicable to this subsection (g) shall be deemed to apply, in any event, to any material amendment after the date of this Agreement of any of the following agreements: the Agreement between Parent and the Company being entered into contemporaneously herewith, the Development and Commercialization Agreement with BML, Inc., the Development Agreement and the Distribution Agreement with Daiichi Pure Chemical Co. Ltd., the Development and Commercialization Agreement with Shimadzu Corporation and Toppan Printing Co. Ltd., and the License Agreement with RIKEN; (h) any Transfer by Parent, which results in (i) Parent's shareholding ratio in the Company being less than fifty percent (50%) of the voting stock of Company and/or (ii) such transferee's shareholding ratio in Company being more than that of the second largest investor, Mitsubishi Corporation; and (i) Amendment of the Memorandum of Association or Articles of Association. 9.4 ISSUES TO BE RESOLVED. The following issues are subject to the simple majority resolutions in the Board of Directors: (a) a declaration or payment of a dividend on shares of the Company's capital stock in a given fiscal year, except for the case set forth in Section 9.3 (c); (b) a sale of any part of the Company's business or assets, except for the case set forth in Section 9.3 (d) and except for sales in the ordinary course of the Company's business; (c) a purchase of a business or assets, except for the case set forth in Section 9.3 (e) and except for purchases in the ordinary course of the Company's business; (d) salaries, bonuses or retirement bonuses for a member of the Board of Directors, except for the case set forth in Section 9.3 (f); (e) approval of any transaction that will result in a change of more than ten percent (10%) in the composition of the Company's shareholders; (f) Loans, guarantees, extension of payment, purchase or sales contracts for over one (1) year, if cumulative amounts for each customer or product exceed one hundred (100) million yen; (g) Acquisition of stocks, if cumulative amounts for each customer exceed thirty (30) million yen; (h) Acquisition of fixed assets, if such acquisition is over one hundred (100) million yen per transaction; (i) Investments, loans and guarantees to any new Affiliate, if the cumulative amount invested in such Affiliate exceeds thirty (30) million yen; 15 (j) Settling a lawsuit or any committing funds in connection with a similar matter, if such action results in the payment by the Company of over thirty (30) million yen per transaction; (k) Taxable write-down, if cumulative amounts for each customer exceed thirty (30) million yen; and (l) Acceptance of director's doing the same kind of business as the company or representing the Shareholders in the contract. 9.5 PARENT APPROVAL RIGHTS. The Company's stock option plan and stock option grants issued thereunder or otherwise must be approved and authorized in writing by the Parent. SECTION 10 TERMINATION AND WAIVER 10.1 TERMINATION. Each of the Investors' information and inspection rights pursuant to Section 2 hereof, the Shareholders' Preemptive Right pursuant to Section 3 hereof, the Eligible Investors' Right of First Refusal and the Investors' Right of Co-Sale pursuant to Sections 4, 5 and 6 hereof, respectively, and the voting provisions pursuant to Section 9 hereof, and the board voting rights pursuant to Sections 9.3 and 9.4 hereof will terminate upon the earliest to occur of (i) the effectiveness of a registration statement pursuant to a Qualified IPO, (ii) the date on which this Agreement is terminated by a writing executed by the Company, the Parent and the Investors, (iii) the dissolution of the Company, (iv) exercise of the Call Option, or (v) termination by the Company or its successor in the event of a Change of Control of the Company that directly or indirectly results in the Investors no longer holding, collectively, at least twenty percent (25%) of the then issued and outstanding shares of the Series A Preferred Stock (or shares of common stock issued upon conversion of the Series A Preferred Stock), provided, however, that in the event of such a Change of Control, TWT shall notify the Investors of the name of the acquiror and a summary of the expected or actual terms and conditions of such acquisition at any time within the period spanning from ninety (90) days prior to, until ninety (90) days after, the effective date such the Change of Control and discuss the advisability of terminating this Agreement with the Investors for fifteen (15) days from the date of such notice to the Investors, after which time the Company or its successor may, upon written notice to the Investors, immediately effect the above described termination. The Company's Right of First Refusal will terminate upon the earliest to occur of (i) a written election of the Company pursuant to an action by the Board of Directors or (ii) the occurrence of any of (i), (iii) or (iv) in the preceding sentence. 10.2 WAIVER. Any waiver by a party of its rights hereunder will be effective and binding on all parties hereto only if evidenced by a written instrument executed by such party or its authorized representative. No waivers of, or exceptions to, any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further continuing waiver of any such term, condition or provision. SECTION 11 16 MISCELLANEOUS PROVISIONS 11.1 NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by confirmed facsimile or otherwise delivered by hand or by messenger addressed: (a) if to an Eligible Investor, at the Eligible Investor's address or facsimile number as shown in the Company's records, as may be updated in accordance with the provisions hereof; or (b) if to the Company, at its address or facsimile number set forth on the cover page of this Agreement and addressed to the attention of the President, or at such other address or facsimile number as the Company shall have furnished to the Eligible Investors. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or seventy-two (72) hours after the same has been deposited in a regularly maintained receptacle for the deposit of the mail, addressed and mailed as aforesaid or, if sent by confirmed facsimile, upon confirmation of facsimile transfer. 11.2 INAPPLICABILITY OF CERTAIN RIGHTS. The Eligible Investors' Right of First Refusal and Right of Co-Sale pursuant to Sections 4, 5 and 6 hereof, respectively, shall not apply to any Change of Control of the Parent, even if the Parent's Stock is transferred as part of such Change of Control. 11.3 SUCCESSORS AND ASSIGNS. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any Shareholder without the prior written consent of the Company. Any attempt by a Shareholder without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties. Any transferee of a Seller who is required to become a party hereto will be considered a "Seller" for purposes of this Agreement. 11.4 SEVERABILITY. Unless otherwise expressly provided herein, the rights of the Shareholders hereunder are several rights, not rights jointly held with any other Shareholder. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, and the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties' intent in entering into this Agreement. 11.5 AMENDMENT. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company, the Parent and the Investors. 11.6 CONTINUITY OF OTHER RESTRICTIONS. Any Offered Shares not purchased by the Company or any Eligible Investor under their Rights of First Refusal hereunder will continue to be subject to all other restrictions imposed upon such shares of Stock by law, including any restrictions imposed under the Articles or by agreement. 17 11.7 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of Japan as applied to agreements entered into among Japanese residents to be performed entirely within Japan, without regard to principles of conflicts of law. 11.8 OBLIGATION OF COMPANY: BINDING NATURE OF EXERCISE. The Company agrees to use its best efforts to enforce the terms of this Agreement except where it elects to effect a waiver, to inform the Shareholders of any breach hereof (to the extent the Company has knowledge thereof) and to assist the Shareholders in the exercise of its rights and the performance of its obligations hereunder. Any exercise of the Right of First Refusal or Right of Co-Sale will be binding upon the party so exercising, and may not be withdrawn without the written consent of the Company or the Seller as to whom it is given, as the case may be, except that such exercise may be withdrawn unilaterally by the exercising party if there is any legal prohibition as to a party's consummation of its purchase or sale hereunder. 11.9 SPECIFIC PERFORMANCE. The rights of the parties under this Agreement are unique and, accordingly, the parties shall, in addition to such other remedies as may be available to any of them at law or in equity, have the right to enforce their rights hereunder by actions for specific performance to the extent permitted by law. 11.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, will be deemed an original, and all such counterparts together will constitute one and the same instrument. 11.11 FURTHER ASSURANCES. Each party hereby agrees to execute and deliver all such further instruments and documents and take all such other actions as necessary or required under each of the Commercial Code of Japan and the Corporation Law of Japan, or as reasonably requested by the other party, in either event, in order to carry out the intent and purposes of this Agreement. 11.12 CONFLICT. In the event of any conflict between the terms of this Agreement and the Articles, the terms of the Articles will control. In the event of any conflict between the Company's books and records and this Agreement or any notice delivered hereunder, the Company's books and records will control absent fraud or error. 11.13 ATTORNEYS' FEES. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 11.14 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. All references in this Agreement to sections, paragraphs, exhibits and schedules shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto. 18 11.15 ENTIRE AGREEMENT. This Agreement, the other Agreements and the exhibits and schedules hereto and thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or therein. 11.16 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 11.17 FACSIMILE EXECUTION AND DELIVERY. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof. 11.18 JURISDICTION; VENUE. All disputes or claims arising under or relating to this Agreement shall be settled by the parties amicably through good faith discussions upon the written request of any party. In the event that any such dispute or claim arising under or relating to this Agreement cannot be resolved thereby within a period of sixty (60) days after such notice has been given, such dispute or claim (other than a dispute under Section 8.2) shall be subject to the exclusive jurisdiction of the Tokyo District Court. 11.19 FURTHER ASSURANCES. Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement. 19 IN WITNESS WHEREOF, the parties hereto have executed this Agreement of the day and year first above written. COMPANY: THIRD WAVE TECHOLOGIES JAPAN, K.K. By: /s/ Ivan Trifunovich --------------------------------- Name: Ivan Trifunovich Title: Director PARENT: THIRD WAVE TECHNOLOGIES, INC. By: /s/ Kevin Conroy --------------------------------- Name: Kevin Conroy Title: President & CEO INVESTORS: MITSUBISHI CORPORATION By: /s/ Tsunehiko Yanagihara --------------------------------- Name: Tsunehiko Yanagihara Title: General Manager, Life Sciences Business Unit CSK INSTITUTE FOR SUSTAINABILITY, LTD. By: /s/ Masahiro Aozono --------------------------------- Name: Masahiro Aozono Title: President & CEO [Signature Page to Investor Rights Agreement] EXHIBIT A INVESTORS Mitsubishi Corporation CSK Institute for Sustainability, LTD. EX-31.1 4 c05069exv31w1.txt 302 CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION I, Kevin Conroy, Chief Executive Officer of Third Wave Technologies, Inc. (the "registrant"), certify that: 1. I have reviewed this Quarterly Report on Form 10-Q (the "Report") of the registrant; 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report, based on such evaluation; and (d) disclosed in the Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and, 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 4, 2006 /s/ Kevin Conroy ---------------------------------------- Kevin Conroy, Chief Executive Officer 19 EX-31.2 5 c05069exv31w2.txt 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION I, Maneesh Arora, Chief Financial Officer of Third Wave Technologies, Inc. (the "registrant"), certify that: 1. I have reviewed this Quarterly Report on Form 10-Q (the "Report") of the registrant; 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report, based on such evaluation; and (d) disclosed in the Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and, 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 4, 2006 /s/ Maneesh Arora ---------------------------------------- Maneesh Arora, Chief Financial Officer 20 EX-32 6 c05069exv32.txt CEO AND CFO CERTIFICATION PURSUANT TO SECTION 1350 EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with Third Wave Technologies, Inc. (the "Company) Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Kevin Conroy, Chief Executive Officer of the Company, and Maneesh Arora, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C Section 1350, that on the date of this certification: (1) The Quarterly Report on Form 10-Q (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in this Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Kevin Conroy ---------------------------------------- Kevin Conroy Chief Executive Officer May 4, 2006 /s/ Maneesh Arora ---------------------------------------- Maneesh Arora Chief Financial Officer May 4, 2006 21 -----END PRIVACY-ENHANCED MESSAGE-----