GenMark Diagnostics, Inc. Annual Report 2016

Plain-text annual report

GENMARK DIAGNOSTICS, INC. FORM 10-K (Annual Report) Filed 02/28/17 for the Period Ending 12/31/16 Address Telephone CIK 5964 LA PLACE COURT CARLSBAD, CA 92008 (760) 448-4300 0001487371 Symbol GNMK SIC Code Industry 3841 - Surgical and Medical Instruments and Apparatus Advanced Medical Equipment & Technology Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549____________________________________________ FORM 10-K____________________________________________ (Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the year ended December 31, 2016 ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34753 ____________________________________________ GenMark Diagnostics, Inc.(Exact name of registrant as specified in its charter)____________________________________________ Delaware 27-2053069(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 5964 La Place Court, Carlsbad, California 92008-8829(Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: 760-448-4300 Securities registered pursuant to Section 12(b) of the ActTitle of Each Class: Name of Each Exchange on which Registered: Common Stock, par value $0.0001 per share The NASDAQ Stock Market LLC(NASDAQ Global Market) Securities registered pursuant to Section 12(g) of the Act: None ____________________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, as amended. YES ¨ NO x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended. YES ¨ NO x 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 forsuch 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 mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuantto Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x As of June 30, 2016, the last business day of the registrant’s most recent completed second quarter, the aggregate market value of the common stock held by non-affiliates of the registrant wasapproximately $350,814,000 based on the closing sale price for the registrant’s common stock on the NASDAQ Global Market on that date of $8.70 per share. This number is provided only forthe purpose of this report on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person. The number of outstanding shares of the registrant’s common stock on February 24, 2017 was 47,051,202 . The common stock is listed on the NASDAQ Global Market (trading symbol“GNMK”). ____________________________________________ DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year are incorporated byreference into Part III of this report. Table of ContentsTABLE OF CONTENTS PagePART I. Item 1.Business3 Item 1A.Risk Factors10 Item 1B.Unresolved Staff Comments22 Item 2.Properties22 Item 3.Legal Proceedings23 Item 4.Mine Safety Disclosures23 PART II. Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities24 Item 6.Selected Consolidated Financial Data25 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations27 Item 7A.Quantitative and Qualitative Disclosures about Market Risk36 Item 8.Financial Statements and Supplementary Data37 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure59 Item 9A.Controls and Procedures59 Item 9B.Other Information62 PART III. Item 10.Directors, Executive Officers and Corporate Governance62 Item 11.Executive Compensation62 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Maters62 Item 13.Certain Relationships and Related Transactions, and Director Independence62 Item 14.Principal Accountant Fees and Services62 Item 15.Exhibits and Financial Statement Schedule63 Item 16.Form 10-K Summary631Table of ContentsForward-Looking Statements This Annual Report on Form 10-K, or Annual Report, particularly in Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” and the documents incorporated herein by reference, include forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Allstatements, other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statementsregarding our future financial position, business strategy, research and development efforts, and plans and objectives of management for future operations. Whenused in this Annual Report, the words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “intend,” “expect,” “target,” “anticipate,” “aim,” “plan”and similar expressions, including their use in the negative, are intended to identify forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which weoperate and management’s beliefs and assumptions. They are not guarantees of future performance or development and involve known and unknown risks,uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Annual Report may turnout to be inaccurate. Risks and other factors that may cause such differences include, but are not limited to, those described under the heading “Risk Factors” inItem 1A of Part I of this Annual Report. In light of these risks, uncertainties and assumptions, actual results and timing of events could differ materially and adversely from those anticipated orimplied in the forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements.Except as required by law, we do not intend to update these forward-looking statements publicly or to update the reasons actual results could differmaterially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Trademarks and Trade Names GenMark ® , eSensor ® , XT-8 ® and ePlex ® and our other logos and trademarks are the property of GenMark Diagnostics, Inc. or its subsidiaries. All otherbrand names or trademarks appearing in this Annual Report are the property of their respective holders. Our use or display of other parties’ trademarks, trade dressor products in this Annual Report does not imply that we have a relationship with, or the endorsement or sponsorship of, the trademark or trade dress owners. Use of External Estimates This Annual Report includes market share and industry data and forecasts that we obtained from industry publications and surveys. Industry publications,surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance asto the accuracy or completeness of such included information. We have not independently verified any of the data from third-party sources nor have we ascertainedthe underlying economic assumptions relied upon therein. While we are not aware of any misstatements regarding the industry and market data presented herein,the data involve risks and uncertainties and are subject to change based on various factors.2Table of ContentsPART I. Item 1.BUSINESS GenMark Diagnostics, Inc., or GenMark, is a molecular diagnostics company focused on developing and commercializing multiplex molecular tests that aidin the diagnosis of complex medical conditions and help guide therapy decisions. References herein to “we,” “us” or “our” refer to GenMark Diagnostics, Inc. andits wholly owned subsidiaries, unless the context specifically requires otherwise. Overview We currently develop and commercialize high-value, simple to perform, clinically relevant multiplex molecular tests based on our proprietary eSensorelectrochemical detection technology. We currently sell our XT-8 instrument and related diagnostic and research tests, as well as certain custom manufacturedreagents, which collectively we refer to as our XT-8 system. Our XT-8 system supports a broad range of molecular tests with a compact and easy-to-useworkstation and disposable test cartridges. In addition, we have developed and are commercializing of our sample-to-answer ePlex instrument and RespiratoryPathogen (RP) Panel. We intend to offer a number of additional associated diagnostic tests for use with our ePlex instrument, which we collectively refer to as ourePlex system.Since inception, we have incurred net losses from operations each year, and we expect to continue to incur losses for the foreseeable future. Our net lossesfor the fiscal year ended December 31, 2016 and 2015 were approximately $50.6 million and $42.2 million , respectively. As of December 31, 2016 , we had anaccumulated deficit of $355.3 million . Our operations to date have been funded principally through sales of capital stock, borrowings, and cash from operations.We expect to incur increasing expenses over the next several years, principally to commercialize our ePlex system, as well as to further increase our manufacturingcapabilities and domestic and international commercial organization. Our Strategy Our goal is to become the market leading provider of automated, multiplex molecular diagnostic testing systems. In order to achieve this objective, we intendto: •Successfully Commercialize our ePlex System . We believe the ePlex system is an attractive solution for a broad range of hospitals and laboratoriesthat lack the technical or economic resources to perform molecular diagnostic testing with existing products and technology. We believe the ePlexsystem will expand our current potential user base from approximately 1,000 domestic customers to approximately 12,000 potential customers globally.•Expand our Menu of Clinical Diagnostic Products . We intend to develop a broad menu of molecular diagnostic tests for our ePlex system that webelieve will satisfy important medical needs and present attractive commercial opportunities. For example, in June 2016 we obtained CE Mark of ourePlex instrument and RP Panel, and in December 2016 we submitted 510(k) applications to the United States Food and Drug Administration, or theFDA, for our ePlex instrument and RP Panel. During 2017, we intend to complete the development of, CE Mark, and submit 510(k) applications to theFDA our ePlex blood culture identification (BCID) family of panels, which include a gram-positive (GP), a gram-negative (GN), and a fungal pathogenpanel. In addition, we are actively evaluating the development of additional assay panels that we believe will meet important, unmet clinical needs,which our ePlex system is uniquely positioned to address.•Grow our Installed Base of Customers . We have identified those laboratories and hospitals that we believe will benefit from our product portfolio. Weintend to leverage our commercial organization to drive placements of our ePlex system both domestically and internationally. We anticipate that theexpansion of our installed base of customers will drive sales of our test cartridges, from which we anticipate generating the majority of our revenues forthe foreseeable future.•Increase Test Utilization . We intend to increase the use of our diagnostic tests by developing and offering tools and support tailored to our productssuch as education programs and seminars, product training for our customers, and reimbursement support. These activities are designed to aid inestablishing the clinical and health economic utility of multiplex molecular diagnostic tests, which we believe will increase adoption of our products.Revenues, net loss, and total assets for the past three years are contained in our consolidated financial statements in Part II of this Annual Report.Substantially all of our revenues for the periods reported in our consolidated financial statements in Part II of this Annual Report were derived from customerslocated within the United States.3Table of ContentsOur TechnologyOur eSensor TechnologyOur proprietary eSensor technology is based on the principles of deoxyribonucleic acid, or DNA, hybridization and electrochemical detection. DNAnaturally forms a double-stranded structure, with each strand binding with high affinity, or hybridizing, only to a complementary strand. Our technology takesadvantage of this highly specific binding by first creating two types of single-stranded DNA, the capture probe and the signal probe. The capture probe and signalprobe are each complementary to a different segment of the target DNA that is the focus of the particular diagnostic test. Using our technology and processes, weattach our capture probes to a proprietary monolayer on the surface of a gold electrode within our test cartridges. We separately attach ferrocene, a proprietarylabel, to our signal probes.Before placing the sample into our XT-8 test cartridge, the technician mixes the amplified DNA sample with our signal probe. If the target biomarker ispresent in the prepared patient sample, a segment of the biomarker DNA will hybridize with a solution containing our signal probe. This solution is then run pastan electrode, against which our capture probes have been immobilized. The as-yet unbound segment of the target biomarker binds to our capture probe, creating atarget DNA, signal probe, capture probe complex at the surface of the electrode. This complex produces an electrochemical signal which is analyzed andinterpreted by our XT-8 system.With our ePlex sample-to-answer test cartridges, the operator adds a patient sample directly or with minimal preparation into the sample chamber, closes thelid, and inserts the test cartridge into the ePlex instrument. Within the instrument, the same steps performed by a technician with the XT-8 system are performedwithin the ePlex test cartridge, resulting in the delivery of target DNA and signal probes to the eSensor electrodes within the ePlex cartridge. As with XT-8, when acomplex forms as a result of a target match, the complex produces an electrochemical signal that is interpreted by the ePlex system.Our XT-8 and ePlex test cartridges utilize the combination of distinct electrodes and multiple signal probes to detect dozens of target biomarkers from asingle sample, thereby enabling highly multiplexed testing. Our eSensor technology is highly specific for the target biomarker, and is not based on optical orfluorescent detection. As a result, our diagnostic tests are less prone to sample contamination risk and do not require many of the time-consuming washing andpreparation steps required by competing technologies. The sample preparation steps required before using our XT-8 test cartridges are nucleic acid purification anda polymerase chain reaction, or PCR, amplification, which involves amplifying, or generating billions of copies of the target DNA molecules, followed by transferof the sample to our test cartridge and insertion of the test cartridge into any open module in our XT-8 system. In some XT-8 tests, amplified DNA is subject to anadditional enzymatic treatment to produce a single-stranded-DNA. In contrast, the ePlex system generally requires no pre-analytic steps to be performed by theuser, except, in limited cases, certain minimal up-front sample handling.We believe our proprietary electrochemical detection technology has several advantages over other signal detection platforms, including high sensitivity andaccuracy, streamlined sample preparation, efficient multiplexing, effective use of lab space, low maintenance, and the ability to cost-effectively develop additionaltests.Digital MicrofluidicsDigital microfluidics is another innovative technology included within our ePlex system which we have exclusively licensed within a defined field of usefrom an affiliate of Illumina, Inc. Digital microfluidics is a technique for moving small droplets of liquid using electrowetting, a process for making a surfacehydrophobic or hydrophilic based on the application of a voltage to a surface. Our ePlex printed circuit board contains eSensor electrodes capable of nucleic aciddetection along with electrowetting electrodes capable of digital microfluidics. The ePlex system uses numerous choreographed digital inputs to perform the fluidmanipulations associated with sample-to-answer molecular diagnostics. Drops are dispensed, mixed, merged, heated, cooled, split and delivered, all under preciseand programmable digital control. In this manner, standard procedures of the molecular diagnostics lab (e.g., DNA purification, PCR, exonuclease digestion, etc.)can be performed automatically within our ePlex cartridge. Our Instrument Systems Our XT-8 System . Our XT-8 instrument is a post-PCR multiplex workstation that has a modular design consisting of an integrated touch screen and up tothree analyzers. Each analyzer contains eight modules into which individual test cartridges are placed. The test cartridge modules operate independently of eachother allowing up to 24 independent test cartridges to be loaded at one time, with the remaining modules available for use at any future time while the system isrunning.4Table of ContentsWe believe that our XT-8 system offers reference laboratories and hospitals the following benefits:Key Features & BenefitsDescriptionBroad Test MenuWe offer the following four FDA-cleared assays on our XT-8 instrument: a Respiratory Viral Panel, Cystic FibrosisGenotyping Test, Thrombofilia Risk Test, and a Warfarin Sensitivity Test. We also offer a Hepatitis C (HCV)Genotyping Test and associated custom manufactured reagents, as well as a 2C19 Genotyping Test, each of which isavailable for research use only (RUO).Fast TurnaroundApproximately 30 minutes post-PCR to result from an amplified DNA sample with minimal technician time needed.Accurate ResultsOur Cystic Fibrosis Genotyping Test, our Warfarin Sensitivity Test and our Thrombophilia Risk Test demonstrated100% accuracy in clinical studies compared to DNA sequencing and other standards.Ease of UseMinimal manual processing steps, intuitive touch-screen interface and clear result reports.Random AccessEach of up to 24 test cartridge modules can be accessed independently resulting in a highly flexible workflow.Minimal MaintenanceNo routine maintenance or calibration is required.Multiplex CapabilityDetects numerous distinct biomarkers in a single sample reducing the need for reflex testing.Our ePlex System. Our ePlex instrument is a multiplex, sample-to-answer platform that fully integrates nucleic acid extraction, amplification anddetection and has a modular design consisting of an integrated touch screen and up to four analyzers. Each analyzer contains six modules into which individualePlex panel test cartridges are placed. The test cartridge modules operate independently supporting continuous random access of up to 24 independent testcartridges.We believe our ePlex system offers reference laboratories and hospitals the following benefits:Key Features & BenefitsDescriptionBroad Test MenuWe obtained CE Mark for our ePlex system and RP Panel in June 2016, and filed 510(k) applications with the FDAfor the ePlex instrument and RP Panel in December 2016. During 2017, we intend to complete the development of,CE Mark, and submit 510(k) applications to the FDA our ePlex blood culture identification (BCID) family of panels,which include a gram-positive (GP), a gram-negative (GN), and a fungal pathogen panel. In addition, we are activelyevaluating the development of additional assay panels that we believe will meet important, unmet clinical needs,which our ePlex system is uniquely positioned to address.Ease of UseMinimal manual processing steps, intuitive touch-screen interface and clear result reports.True Sample-to-AnswerThe user simply adds a raw or minimally prepared sample to the test cartridge and inserts the cartridge into theinstrument. Fast TurnaroundResults are capable of being produced in approximately 1-2 hours from sample input.Random AccessEach of up to 24 test cartridge modules can be accessed independently resulting in a highly flexible workflow.Minimal Routine MaintenanceMinimal maintenance or calibration is required.Multiplex CapabilityDetects numerous distinct biomarkers in a single sample reducing the need for reflex testing.Positive Patient Identification (PosID) Incorporates patented positive patient identification technology to reduce sample reporting errors.IT IntegrationMultiple design features to improve operational efficiency, such as bi-directional laboratory information system (LIS)connectivity and remote access capability to reduce downtime and service costs.Market Opportunity We believe the aggregate global total addressable market for the tests we currently offer, are actively developing on ePlex, or may consider developing isapproximately $2.5 billion. Many factors are driving the strong opportunity in this market, including increased demand for infectious disease diagnostic solutionsand an increased focus on value-based medical care that enhances patient outcomes, improves key quality metrics, and reduces the total cost-of-care.5Table of ContentsResearch and Development Our research and development (R&D) team is focused on expanding our ePlex test menu. In addition, our R&D team is supporting the following initiatives:•On Market Product Support. A role of our R&D team is to assist our manufacturing and quality assurance teams in ensuring high product qualityand thorough complaint handling and investigation. This team also supports improvements in quality control methods and metrics and are activeparticipants in the continuous improvement processes utilized by our product manufacturing teams.•Improving the Clinical and Practical Utility of our Tests. Our R&D organization also supports the clinical utility and value of our moleculardiagnostic tests. We have previously and intend to continue to partner with academic and reference laboratories to perform validation and clinicalstudies on our tests. Key aspects of our efforts are aimed at improving workflow in the laboratory setting, positively comparing our tests to historical or“gold standard” tests, and demonstrating that our tests can help improve patient care and lower diagnostic and medical treatment costs. We intend topublish the results from these clinical studies in peer-reviewed or trade journals, submit them to regulatory bodies and present them at industryconferences in support of our commercialization strategy.Manufacturing We manufacture our proprietary test cartridges, certain related components and ancillary reagents in our Carlsbad, California facilities. We perform reagentformulation, test cartridge manufacturing and packaging of final components and test cartridges in accordance with applicable guidelines for medical devicemanufacturing. We currently lease an aggregate of approximately 87,000 square feet at two nearby locations in Carlsbad, California, where we maintain ourcorporate office and manufacturing facilities.We currently outsource the manufacture of our XT-8 instrument to Leica Biosystems Melbourne Pty Ltd., or Leica, and outsource the manufacture of ourePlex instrument to Plexus Corp, or Plexus. We rely on third party suppliers, including in certain instances, sole source suppliers, for certain raw materials andother supplies and components used in our products. We have implemented a quality management system designed to comply with FDA regulations and ISO standards governing diagnostic medical deviceproducts. These regulations control the design, manufacture, testing and release of diagnostics products, as well as raw material receipt and control. In 2012, ourCarlsbad, California corporate headquarters facility obtained ISO 13485 certification. We control methods for the consistent manufacturing of our proprietary testcartridges and reagents at our facilities. Our key outsourcing partners are regularly audited to help ensure a continual supply of high quality components.We plan to continue to manufacture components that we determine are highly proprietary or highly customized, while outsourcing more commodity-likecomponents. We are likely to establish additional outsourcing partnerships as we manufacture additional products. Sales and Marketing Our current sales and marketing strategy is to expand our business globally with the commercialization of our ePlex system in the United States and Europe,while also continuing to support the placement and use of our XT-8 system in the United States. Our products are sold in the United States through ageographically dispersed direct sales and technically specialized service organization, which is supported by a centralized team of product managers andmarketing, customer support, and technical support personnel. We utilize a direct sales and technical support team to sell our ePlex system in certain key Europeancountries, which are augmented by distributors in other locations internationally.Our sales representatives typically have experience in molecular diagnostics and a network of laboratory contacts within their respective territories. Weutilize our representatives’ knowledge along with market research databases to target and qualify our customers. We execute a variety of sales campaigns andstrategies to meet the buying criteria of the different customer segments we serve. To support the growth in our customer base and our launch plans for our ePlexsystem, we continue to make investments in these customer facing organizations.Our sales cycle typically includes customer evaluations and validations of our products. Upon successful validation, a customer may generally acquire ourinstrument system in the following ways:6Table of Contents•Capital Purchase: The instrument is paid for upfront and in its entirety by the customer. Customers are also eligible to receive structured pricingincentives if they enter into an optional annual minimum cartridge purchase commitment. •Reagent Rental: A reagent rental agreement requires that a customer commit to purchase a minimum number of test cartridges over the term of theagreement, and a portion of the charge for each cartridge is attributable to a usage fee for the instrument.Customers Our target customers include hospital-based laboratories and research institutions. We believe our ePlex system will expand our current potential user basefrom approximately 1,000 domestic customers to approximately 12,000 potential customers globally. In 2016 and 2015, Laboratory Corporation of America, Inc.represented 27% and 17%, respectively, of our total revenue. In 2014, no single customer represented more than 10% of our total revenue. Competition We primarily face competition in the molecular diagnostic testing markets with testing products and systems developed by public and private companiessuch as bioMerieux (which acquired Biofire Diagnostics, Inc.), Luminex Corporation (which acquired Nanosphere, Inc.), Danaher Corporation (which acquiredCephied), Siemens, Hologic, Inc., Seegene, Roche Diagnostics and Abbott Molecular Diagnostics. Our diagnostic tests also face competition with laboratorydeveloped tests, or LDTs, developed by national and regional reference laboratories and hospitals. We believe that our testing systems compete largely on the basisof accuracy, reliability, enhanced laboratory workflow, multiplex capability, ease-of-use and return on investment for customers.Many of our competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales anddistribution organizations than we do. Many of our competitors also offer broader product lines and have greater brand recognition than we do. Moreover, ourexisting and new competitors may make rapid technological developments that may result in our technologies and products becoming obsolete before we recoverthe expenses incurred to develop them or before they generate significant revenue. Intellectual Property To establish and protect our proprietary technologies and products, we rely on a combination of our patents, copyrights, trademarks, and trade secrets, aswell as other intellectual property rights in our technology and business information. Our intellectual property portfolio for our core electrochemical technologywas initially built through the combination of our acquisition of the Clinical Micro Sensors business from Motorola and licensing patents from the CaliforniaInstitute of Technology. We also have exclusively licensed the digital microfluidics technology utilized in our ePlex system within a defined field of use from anaffiliate of Illumina. We believe that our patent portfolio, which includes over 100 owned and exclusively licensed U.S. and foreign patents and approximately 30 pendingapplications, provides us with extensive protection of our eSensor systems. We continue to pursue the issuance of new patents to protect our ongoing research,development and commercial activities, in particular with respect to our ePlex system and related consumables. In general, patents have a term of at least 20 yearsfrom the application filing date or earlier claimed priority date. A majority of our issued and exclusively licensed patents are scheduled to expire by 2021, withapproximately one half of the patents expiring by 2018. Several of our pending applications have the potential to mature into patents that may expire between 2028and 2034. Our success depends to a significant degree upon our ability to police infringement and continue to develop proprietary products and technologieswithout infringing the intellectual property rights of others. We also rely in part on trade secret protection of our intellectual property. We attempt to protect our trade secrets by entering into confidentiality agreementswith third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in intellectualproperty, such as patents and copyrights arising from their work for us. All employees sign an agreement not to compete unfairly with us during their employmentand upon termination of their employment through the misuse of confidential information. We also have filed for registration, or obtained registration, in the U.S. and other countries for marks used with our products and technology. Our issuedtrademarks in the United States and/or Europe include eSensor®, word and design marks for GenMark®, GenMark DX®, eSensor®, XT-8®, eSensor XT-8®,ePlex®, and GenMark ePlex®, among others.7Table of ContentsGovernment Regulation The design, development, manufacture, testing and sale of our molecular diagnostic products are subject to regulation by numerous governmental authorities,principally the FDA, and corresponding state and foreign regulatory agencies. Regulation by the FDA In the United States, the Federal Food, Drug, and Cosmetic Act, or FDCA, FDA regulations and other federal and state statutes and regulations govern,among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing,manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. The FDA regulates the design,manufacturing, servicing, sale and distribution of medical devices, including molecular diagnostic test kits and instrumentation systems. Failure to comply withapplicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending applications,warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminalprosecution. Unless an exemption applies, each medical device we wish to distribute commercially in the United States will require marketing authorization fromthe FDA prior to distribution.The two primary types of FDA marketing authorization required applicable to a device are premarket notification, also called 510(k) clearance, andpremarket approval, also called PMA. We have obtained 510(k) clearance from the FDA for the following molecular diagnostic tests for use on our XT-8 system:the Respiratory Viral panel, the eSensor Warfarin Sensitivity Test, the Cystic Fibrosis Genotyping Test, and the Thrombophilia Risk Test. In December 2016, wefiled 510(k) applications with the FDA for our ePlex instrument and RP Panel.Proposed Regulation of Laboratory Developed Tests (LDTs). In October 2014, the FDA promulgated draft guidance which describes a new proposedregulatory framework for LDTs. Based on this proposal, clinical laboratories that develop and use LDTs would be required to comply with specific regulatoryrequirements (e.g., adverse even reporting, quality system regulation, or QSR, premarket submission, and FDA review) prior to the use of LDTs for clinicaldiagnostic purposes. The timeline for phasing in the proposed regulatory requirements would begin upon finalization of the FDA guidance document. The ultimateimpact of this draft guidance on our customers remains uncertain. Regulation after FDA Clearance or Approval . Any devices we manufacture or distribute pursuant to clearance or approval by the FDA are subject topervasive and continuing regulation by the FDA and certain state agencies. We are required to adhere to applicable regulations setting forth detailed GoodManufacturing Practices, or GMP, requirements, as set forth in the QSR, which includes testing, control and documentation requirements. Non-compliance withthese standards can result in fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, refusal of the government togrant 510(k) clearance or PMA of devices, withdrawal of marketing approvals and criminal prosecutions. We have designed and implemented quality systemprocesses within our manufacturing facilities in order to comply with FDA’s GMP requirements. Because we are a medical device manufacturer, we must also comply with FDA’s medical device reporting requirements whenever there is evidence thatreasonably suggests that one of our products may have caused or contributed to a death or serious injury. We must also report any incident in which our producthas malfunctioned if that malfunction would likely cause or contribute to a death or serious injury if it were to recur.Labeling, advertising, and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission.Medical devices approved or cleared by the FDA may not be promoted for unapproved or uncleared uses, otherwise known as “off-label” promotion. The FDA andother agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution. We have implemented quality system processesand advertising/promotional policies designed to comply with these requirements. Environmental Regulations . We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions,manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. Some of these laws requireus to obtain licenses or permits to conduct our operations. We have numerous policies and quality system procedures in place to ensure compliance with these lawsand to minimize the risk of occupational exposure to hazardous materials. We do not expect the operations of our products to produce significant quantities ofhazardous or toxic waste or radiation that would require the use of extraordinary disposal practices. Although the costs to comply with these applicable laws andregulations have not been material, we cannot predict the impact on our business of new or amended laws or regulations or any changes in the way existing andfuture laws and regulations are interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits.8Table of ContentsExport of Our Products . Medical devices that are legally marketed in the U.S. may be exported anywhere in the world without prior FDA notification orapproval. Devices that have not been approved or cleared in the U.S. must follow the export provisions of the FDCA. Depending on which section of the FDCA wemay export under, we may need to request an export permit letter or export certificate, or we may need to submit a simple notification. Export certificates may berequested by foreign customers or foreign governments to provide proof of the products’ status as regulated by the FDA. The export certificate is prepared by theFDA and contains information about a product’s regulatory or marketing status in the United States. Clinical Laboratory Improvement Amendments of 1988 . The use of our products is also affected by the Clinical Laboratory Improvement Amendmentsof 1988, or CLIA, and related federal and state regulations, which provide for regulation of laboratory testing. Any customers using our products for clinical use inthe United States will be regulated under CLIA, which establishes quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness ofpatient test results regardless of where the test was performed. In particular, these regulations mandate that clinical laboratories must be certified by the federalgovernment or a federally approved accreditation agency, or must be located in a state that has been deemed exempt from CLIA requirements because the state hasin effect laws that provide for requirements equal to or more stringent than CLIA requirements. Moreover, these laboratories must meet quality assurance, qualitycontrol and personnel standards, and they must undergo proficiency testing and inspections. The CLIA standards applicable to clinical laboratories are based on thecomplexity of the method of testing performed by the laboratory, which range from “waived” to “moderate complexity” to “high complexity.” We expect that mostof our products will be categorized as “high complexity,” since most molecular diagnostic tests are currently FDA-cleared as CLIA “high complexity” devices. Foreign Government Regulation . We intend to market our products in European and other select international markets. The regulatory pre-marketrequirements for in vitro diagnostic, or IVD, devices vary from country to country. Some countries impose product standards, packaging requirements, labelingrequirements and import restrictions on devices. Each country has its own tariff regulations, duties and tax requirements. Failure to comply with applicable foreignregulatory requirements may subject us to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions andcriminal prosecution. Fraud and Abuse Regulations We are subject to numerous federal and state health care anti-fraud laws, including the federal anti-kickback statute and False Claims Act, or the FCA, thatare intended to reduce waste, fraud and abuse in the health care industry. These laws are broad and subject to evolving interpretations. They prohibit manyarrangements and practices that are lawful in industries other than health care, including certain payments for consulting and other personal services, somediscounting arrangements, the provision of gifts and business courtesies, the furnishing of free supplies and services, and waivers of payments. In addition, manystates have enacted or are considering laws that limit arrangements between medical device manufacturers and physicians and other health care providers andrequire significant public disclosure concerning permitted arrangements. These laws are vigorously enforced against medical device manufacturers and haveresulted in manufacturers paying significant fines and penalties and being subject to stringent corrective action plans and reporting obligations. We must operateour business within the requirements of these laws and, if we were accused of violating them, we could be forced to expend significant resources on investigation,remediation and monetary penalties. Patient Protection and Affordable Care Act Our operations are affected by the federal Patient Protection and Affordable Care Act of 2010, as modified by the Health Care and Education ReconciliationAct of 2010, which we refer to as the Health Care Act. The Health Care Act imposes a 2.3% excise tax on sales of medical devices by manufacturers. In December2015, the excise tax was suspended for 2016 and 2017. We are unable to predict whether the suspension will be continued beyond 2017. Taxable devices includeany medical device defined in section 201(h) of the FDCA and intended for use by humans, with limited exclusions for devices purchased by the general public atretail for individual use. There is no exemption for small companies, and we paid the tax from January 2013 through December 2015. The Health Care Act alsorequires manufacturers to report to the Department of Health and Human Services detailed information about financial arrangements with physicians and teachinghospitals. These reporting provisions preempt state laws that require reporting of the same information, but not those that require reports of different or additionalinformation. Failure to comply with these requirements subjects the manufacturer to significant civil monetary penalties. Employees As of December 31, 2016 , we had 308 employees, of which: 163 employees were involved in research and development; 51 in operations, manufacturingand quality assurance; 62 in sales and marketing; and 32 in general and administrative functions. Our success will depend in large part upon our ability to attractand retain employees. We face competition in this9Table of Contentsregard from other companies, research and academic institutions, government entities and other organizations. None of our employees are covered by a collectivebargaining agreement.Corporate and Available Information Our corporate office is located at 5964 La Place Court, Carlsbad, California. We also lease additional manufacturing space nearby to our corporate office inCarlsbad, California. We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments tothose reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or theSEC. We also make these documents and certain public financial information available on our website, which is www.genmarkdx.com . Our SEC reports and otherfinancial information can be accessed through the investor relations section of our website. Some of the information found on our website is not part of this or anyother report we file with or furnish to the SEC. Item 1A.RISK FACTORS You should consider each of the following factors as well as the other information in this Annual Report in evaluating our business and our prospects. Therisks and uncertainties described below are not the only ones we face. If any of the following risks actually occur, our business and financial results could beharmed. In that case, the trading price of our common stock could decline. You should also refer to the other information set forth in this Annual Report, includingour financial statements and the related notes.We may be unsuccessful in obtaining FDA clearance for our ePlex system within our expected timeframe.We are investing significantly in the commercialization of our ePlex instrument and the development of its related molecular diagnostic panels to expandour future product offerings. Our ePlex system requires 510(k) clearance or pre-market approval by the FDA prior to marketing it for clinical use in the UnitedStates. In December 2016, we filed 510(k) applications with the FDA for our ePlex instrument and RP Panel. There are a number of potential risks associated withconducting clinical trials and obtaining regulatory clearance for our ePlex system. For example, we may have difficulty maintaining the level of product reliabilityand clinical accuracy required to obtain FDA clearance or approval for our ePlex system. In addition, the FDA may require that we conduct additional studies thatcould impact the cost associated with product clearance and could potentially delay commercial launch of our ePlex system in the United States. We may beunsuccessful in obtaining FDA clearance for our ePlex system within our expected timeframe, or at all, which could adversely impact our future financialperformance and cause our stock price to decline.From time to time we and our key suppliers experience, and may in the future experience, difficulties scaling manufacturing operations to the levels requiredto support our anticipated growth.To date, we have produced our products in limited quantities relative to the quantities necessary to achieve our desired revenue growth. Developing thenecessary manufacturing and quality procedures internally and in conjunction with our key suppliers for a significant number of our newly developed, highlycomplex products and product components is a challenging process. From time to time we and our suppliers experience, and may in the future experience,manufacturing variability and may not be able to consistently produce sufficient quantities of high quality products and product components at the levels necessaryto achieve our revenue growth expectations or to support our product development timelines. If we or our key suppliers continue to encounter difficulties inproducing sufficient yields of high quality products or product components, or scaling manufacturing operations as a result of, among other things, process andmanufacturing transfer complexities, quality control and quality assurance issues, and/or availability of subcomponents, equipment and raw material supplies, ourreputation may be harmed and we may not achieve our anticipated financial results or product development goals within the time frame we expect, or at all. Inaddition, finding solutions to product quality, reliability, and variability issues is time consuming and expensive, and we may incur significant additional costs orlose revenue as a result of, among other things, delayed product introduction, product recalls, shipment holds, scrapped material, and warranty and serviceobligations.To manage our anticipated future growth effectively, we must enhance our manufacturing and supply chain capabilities, infrastructure and operations,information technology infrastructure, and financial and accounting systems and controls. Organizational growth and scale-up of operations could strain ourexisting managerial, operational, financial and other resources. If our management is unable to effectively prepare for our expected future growth, our expensesmay increase more than anticipated, our revenue could grow more slowly than expected, and we may not be able to achieve our commercialization10Table of Contentsor product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth couldhave a material adverse effect on our future financial condition and prospects.Disruptions in the supply of raw materials, consumable goods or other key product components, or issues associated with their cost or quality from our singlesource suppliers, could result in delays or difficulties successfully commercializing our ePlex system or a significant disruption in sales and profitability. We must manufacture or engage third parties to manufacture components of our products in sufficient quantities and on a timely basis, while maintainingproduct quality, acceptable manufacturing costs and complying with regulatory requirements. Our instrument systems and certain critical components are custom-made by only a few outside suppliers. In certain instances, we and our customers have a sole source supply for certain key products, product components andancillary items used to run our tests. If we are unable to satisfy our forecasted demand from existing suppliers for our products, or we or our customers are unableto find alternative suppliers for key product components or ancillary items at reasonably comparable prices, it could have a material adverse effect on our financialcondition and results of operations. Additionally, although we have entered into supply agreements with most of our suppliers of strategic reagents and parts tohelp ensure component availability and flexible purchasing terms with respect to the purchase of such components, if our suppliers discontinue production of a keycomponent for one or more of our products, we may be unable to identify or secure a viable, cost-effective alternative on reasonable terms, or at all, which couldlimit our ability to manufacture our products.In determining the required quantities of our products and the manufacturing schedule, we must make significant judgments and estimates based onseasonality, inventory levels, current market trends and other related factors. Because of the inherent nature of estimates and our limited experience in marketingour products, there could be significant differences between our estimates and the actual amounts of products we require. This can result in shortages if we fail toanticipate demand, or excess inventory and write-offs if we order more than we need.Reliance on third-party manufacturers entails risk to which we would not be subject if we manufactured these components ourselves, including:•reliance on third parties for regulatory compliance and quality assurance;•possible breaches of manufacturing agreements by the third parties because of factors beyond our control;•possible regulatory violations or manufacturing problems experienced by our suppliers;•possible termination or non-renewal of agreements by third parties, based on their own business priorities, at times that are costly or inconvenient forus;•the potential obsolescence and/or inability of our suppliers to obtain required components;•the potential delays and expenses of seeking alternate sources of supply or manufacturing services;•the inability to qualify alternate sources without impacting performance claims of our products;•reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or assemblers;•the potential for financial hardship or other detrimental circumstances at key suppliers that may impact our ability to source key materials or servicesrequired for the manufacturing of our products; and•increases in prices of raw materials and key components.The manufacturing operations for our test cartridges use highly technical processes involving unique, proprietary techniques. In addition, the manufacturingequipment we use would be costly and time consuming to repair or replace. Any interruption in our operations or decrease in the production capacity of ourmanufacturing facility or the facilities of any of our key suppliers because of equipment failure, natural disasters such as earthquakes, tornadoes and fires, orotherwise, would limit our ability to meet customer demand for our products and would have a material adverse effect on our business, financial condition andresults of operations. In the event of a disruption, we may lose customers and we may be unable to regain those customers thereafter. Our insurance may not besufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.We may not expand sales of our ePlex system outside the United States at the levels we anticipate.In June 2016, we obtained CE Mark under the European In-Vitro Diagnostic Devices Directive (98/79/EC) for our ePlex instrument and ePlex RP Panel.We are commercializing our ePlex system in Europe utilizing a direct sales and technical support team in certain key European countries, which we haveaugmented with a third party logistics provider that is responsible for managing the international delivery of our products and providing certain other relatedservices. We have also engaged a number of distributors in certain European countries and intend to further expand internationally over time. If we are11Table of Contentsunable to establish the infrastructure or recruit highly qualified personnel to support our international direct sales and support organization, if we fail to adequatelyplan for or integrate our direct sales activities with those of our third party logistics provider, or if we are unsuccessful in developing awareness and acceptance ofour products and technology internationally, our anticipated revenue growth internationally may not materialize, our customers may not receive the level of serviceor product dependability they expect from us, and our future financial performance may be adversely affected. Furthermore, any distributors we establish inparticular geographic regions may not commit the necessary resources to market and sell our products to meet our expectations. If distributors do not performadequately or in compliance with applicable laws and regulations in particular geographic areas, or if we are unable to locate distributors in particular geographicareas, our ability to realize revenue growth based on sales outside the United States would be harmed.Our financial results will depend on the acceptance and increased demand among our target customers and the medical community of our moleculardiagnostic technologies and products.Our future success depends on the belief by our target customers and the medical community that our molecular diagnostic products are a reliable,medically-relevant, accurate and cost-effective replacement for other diagnostic testing methods. Our business success depends on our ability to convince ourtarget customers to perform these tests internally with our products if they have historically outsourced their testing needs or have historically used non-molecularmethods to perform such testing, or to replace their current molecular testing platforms with our system and its related test offerings.Many other factors may affect the market acceptance and commercial success of our molecular diagnostic technology and products, including:•the relative convenience, ease of use, accuracy, reliability, scalability, cost, and time-to-result of our diagnostic products over competing products;•the introduction of new technologies and competing products that may make our technologies and products a less attractive solution for our targetcustomers;•the breadth and relevance of our menu of available diagnostic tests relative to our competitors;•our success in training our customers in the proper use of our products;•the acceptance in the medical community and key opinion leaders of our molecular diagnostic technology and products;•the extent and success of our marketing and sales efforts; and•general economic conditions.Professional societies, government agencies, practice management groups, private health/science foundations and organizations involved in healthcareissues may publish guidelines, recommendations or studies for the healthcare and patient communities. Recommendations of government agencies or these otherorganizations may relate to such matters as cost-effectiveness and use of related products. Organizations like these have in the past made recommendations aboutour competitors’ products, such as the need for less frequent screening tests, which could result in reduced product sales. Moreover, the perception by theinvestment community or stockholders that recommendations, guidelines or studies will result in decreased use of our products could adversely affect theprevailing market price for our common stock.We face intense competition from established and new companies in the molecular diagnostics field and expect to face increased competition in the future. The markets for our technologies and products are highly competitive and we expect the intensity of competition to increase. We compete with companiesengaged in the development, commercialization and distribution of similar products intended for clinical molecular diagnostic applications. Categories of ourcompetitors include: •companies developing and marketing multiplex molecular diagnostics systems, including: Luminex; Nanosphere, Inc. (which was acquired by Luminexin June 2016); bioMerieux (which acquired BioFire Diagnostics, Inc.); Abbott Molecular Diagnostics; Hologic, Inc.; Seegene and Cepheid (which wasacquired by Danaher Corporation);•large hospital-based laboratories and reference laboratories who provide large-scale testing using their own proprietary testing methods, includingQuest Diagnostics Incorporated and Laboratory Corporation of America; and•companies that manufacture laboratory-based tests and analyzers, including: Cepheid; Siemens; Hologic, Inc.; Qiagen NV; bioMérieux; RocheDiagnostics; and Abbott Molecular Diagnostics.12Table of ContentsOur diagnostic tests also face competition from LDTs developed by national and regional reference laboratories and hospitals. LDTs may not currently besubject to the same regulatory requirements, including those requiring clinical trials and FDA review and clearance or approval that may apply to our diagnosticproducts.We anticipate that we will face increased competition in the future as new companies enter the market with new technologies, our competitors improve theircurrent products and expand their menu of diagnostic tests, and as we expand our operations internationally. Many of our current and potential competitors havegreater name recognition, more substantial intellectual property portfolios, longer operating histories, significantly greater resources to invest in new technologies,more substantial experience in new product development, greater regulatory expertise, and more extensive manufacturing and distribution capabilities. It is criticalto our success that we anticipate changes in technology and customer requirements and successfully introduce enhanced and competitive technology to meet ourcustomers’ and prospective customers’ needs on a timely basis.Our quarterly revenue and operating results may vary significantly and we may experience constraints or inefficiencies caused by unanticipated accelerationand deceleration of customer demand.Revenue from our infectious disease products fluctuates based upon the occurrence of related outbreaks and changes in testing recommendations andavailable therapies. Influenza and other respiratory-related outbreaks are usually more concentrated in the first and fourth quarters of the year. New information orthe introduction of advanced treatment options with respect to a particular disease may also affect related diagnostic testing. Although certain infectious diseaseoutbreaks tend to occur each year, the timing, severity and length of these incidents varies from one year to another and can vary across different patientpopulations. In addition, we may not accurately predict changes to infectious disease testing recommendations affecting our products. As a result of one or more ofthese factors, we may not be able to accurately forecast sales from our infectious disease products.Also, unanticipated changes in customer demand for our products may result in constraints or inefficiencies related to our manufacturing, sales force,customer service and administrative infrastructure. These constraints or inefficiencies may adversely affect us as a result of delays, lost potential product sales orloss of current or potential customers due to their dissatisfaction.Our revenue, results of operations and cash flows would suffer upon the loss of a significant customer.Our largest customer, Laboratory Corporation of America, Inc., accounted for approximately 27% of our total revenue for the fiscal year ended December 31,2016. The loss of a significant customer or a significant reduction in the amount of product ordered by our significant customers may adversely affect our revenue,results of operations and cash flows.We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls. Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which may be outside of our control. These factorsinclude, but are not limited to: •the time and resources required to develop, and conduct clinical studies and obtain regulatory clearances for, our diagnostic tests;•the expenses we incur for research and development required to maintain and improve our technology, including developing our ePlex test menu;•the costs of preparing, filing, prosecuting, defending and enforcing patent claims and other patent related costs, including litigation costs and the resultsof such litigation;•the expenses we incur in connection with commercialization activities, including product marketing, sales, and distribution expenses;•the expenses we incur in licensing technologies from third parties to expand the menu of diagnostics tests we plan to offer;•our sales strategy and whether the revenues from sales of our test cartridges or systems will be sufficient to offset our expenses;•the costs to attract and retain personnel with the skills required for effective operations; and•the costs associated with being a public company.Our budgeted expense levels are based in part on our expectations concerning future revenues from sales of our products, as well as our assessment of thefuture investments needed to expand our commercial organization and support research and development activities in connection with our ePlex system. We maybe unable to reduce our expenditures in a13Table of Contentstimely manner to compensate for any unexpected events or a shortfall in revenue. Accordingly, a shortfall in demand for our products or other unexpected eventscould have an immediate and material impact on our business and financial condition.Our credit facility requires that we satisfy certain milestones in order to access funding and contains restrictions that limit our flexibility in operating ourbusiness.In January 2015, we entered into a Loan and Security Agreement, or the LSA, with Solar Capital Partners (as successor-in-interest to General ElectricCapital Corporation), and certain other lenders. Pursuant to the LSA, as amended, we borrowed $10 million in March 2015 and another $10 million in June 2016.We may borrow up to an additional $15 million if we timely obtain FDA clearance of our ePlex system. In addition, we have access to up to $5 million under arevolving credit facility, subject to certain conditions and a defined borrowing base. If we fail to satisfy the conditions to funding under our credit facility,including, but not limited to, as a result of our failure to timely achieve FDA clearance of our ePlex system, we may not have the ability to borrow additionalamounts under our credit facility.In addition, we must comply with certain affirmative and negative covenants under our credit facility, including covenants that limit or restrict our ability to,among other things:•incur additional indebtedness or issue certain preferred shares;•pay dividends on, repurchase or make distributions in respect of, our capital stock or make other restricted payments;•make certain investments or acquisitions;•sell certain assets;•create liens; or•enter into certain transactions with our affiliates. If we default under the agreement, because of a covenant breach or otherwise, the outstanding amounts thereunder could become immediately due andpayable and the lenders could terminate all commitments to extend further financing.We may need to raise additional funds in the future, and such funds may not be available on a timely basis, or at all.Until such time, if ever, as we can generate positive cash flows from operations, we will be required to finance our operations with our cash resources andamounts made available under our credit facility. We may need to raise additional funds in the future to support our operations. We cannot be certain thatadditional capital will be available as needed, on acceptable terms, or at all. If we require additional capital at a time when investment in our company, inmolecular diagnostics companies, or the marketplace in general is limited, we may not be able to raise such funds at the time that we desire, or at all. If we do raiseadditional funds through the issuance of equity or convertible securities, the percentage ownership of holders of our common stock could be significantly diluted.In addition, newly issued securities may have rights, preferences or privileges senior to those of holders of our common stock. If we raise additional funds throughcollaborations and licensing arrangements, we could be required to relinquish significant rights to our technologies and products, or grant licenses on terms that arenot favorable to us.We have a history of net losses, and we may never achieve or maintain profitability. We have a history of significant net losses and a limited history commercializing our molecular diagnostic products. Our net losses were approximately$50.6 million and $42.2 million for the years ended December 31, 2016 and 2015 , respectively. As of December 31, 2016 , we had an accumulated deficit of$355.3 million . We expect to continue to incur significant expenses for the foreseeable future in connection with our ongoing operations, primarily related toexpanding our commercial organization (sales and marketing), research and development, manufacturing, clinical and regulatory activities related to our ePlexsystem, maintaining our existing intellectual property portfolio, obtaining additional intellectual property rights, and investing in corporate infrastructure. Wecannot provide any assurance that we will achieve profitability and, even if we achieve profitability, that we will be able to sustain or increase profitability on aquarterly or annual basis. Further, because of our limited commercialization history and the rapidly evolving nature of our target market, we have limited insightinto the trends that may emerge and affect our business. We may make errors in predicting and reacting to relevant business trends, which could harm our businessand financial condition.The regulatory clearance or approval process for certain products is expensive, time consuming and uncertain, and the failure to obtain and maintain requiredclearances or approvals could prevent us from commercializing our products.The regulatory environment is constantly evolving. For example, the FDA conducted a review of the pre-market clearance process in response to internaland external concerns regarding the 510(k) program and, in January 2011, announced14Table of Contents25 action items designed to make the process more rigorous and transparent. Some of these proposals, if enacted, could impose additional regulatory requirementsfor device manufacturers which could delay our ability to obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain ourcurrent clearances. Similarly, the European Union, or EU, is proposing to update the European Directive 98/79/EC on in vitro diagnostic medical device, or IVDDirective (IVDD), that could impact the classification of our molecular diagnostic products and result in additional regulatory requirements, which could delay ourability to CE Mark our products. Delays in receipt of, or failure to obtain, clearances or approvals for future products would result in delayed, or no, realization ofrevenues from such products and in substantial additional costs, which could decrease our profitability.We must also comply with the applicable FDA and foreign regulatory agency post-market requirements. Any failure to maintain post-market compliancewith FDA or foreign regulatory requirements could harm our business, operations, and/or financial condition.We derive revenues from the sale of research use only, or RUO, tests and custom manufactured reagents, which are not intended for diagnostic purposes.Clinical laboratories are regulated under CLIA and may validate the clinical diagnostic use of an LDT specifically for use in their laboratory using any labeledproducts. The FDA has traditionally practiced enforcement discretion regarding the use of the LDTs for clinical diagnostic purposes. However, the FDA hasrecently promulgated draft guidance which outlines stringent regulatory requirements for CLIA labs in order to use LDTs for clinical diagnostic application. Theseproposed requirements, if implemented, may result in a significant reduction in the sale of our RUO or custom manufactured products, which could reduce ourrevenues and adversely affect our operations and/or financial condition.If our products do not perform as expected or the reliability of the technology on which our products are based is questioned, our operating results andbusiness would suffer. Our success depends on the market’s confidence that we can provide reliable, high quality, molecular diagnostic products. We believe that customers in ourtarget markets are likely to be particularly sensitive to product defects and errors. As a result, our reputation and the public image of our products and technologieswill be significantly impaired if our products fail to perform as expected. Although our diagnostic systems are designed to be user friendly, the functions theyperform are complex and our products may develop or contain undetected defects or errors.We currently manufacture our proprietary test cartridges at our Carlsbad, California manufacturing facilities. We outsource manufacturing of ourinstruments and much of the disposable component molding for our test cartridges. Leica, the contract manufacturer of our XT-8 instruments, and Plexus Corp., thecontract manufacturer of our ePlex instrument, both specialize in the manufacturing of electronic and electro-mechanical devices. While we work closely withPlexus and Leica to ensure continuity of supply while maintaining high quality and reliability, we cannot guarantee that these efforts will be successful.If we experience a material defect or error in any of our current or future products, it could result in the loss or delay of revenues, increased costs, delayed orreduced market acceptance, damaged reputation, diversion of development and management resources, legal and/or regulatory claims, recalls, increased insurancecosts or increased service and warranty costs, any of which could materially harm our business, financial condition and results of operations.We also face the risk of product liability exposure related to the sale of our products. We currently carry product liability insurance that covers us againstspecific product liability claims. We also carry a separate general liability and umbrella policy that covers us against certain claims but excludes coverage forproduct liability. Any claim in excess of our insurance coverage, or for which we do not have insurance coverage, would need to be paid out of our cash reserves,which would harm our financial condition. We cannot assure you that we have obtained sufficient insurance or broad enough coverage to cover potential claims.Also, we cannot assure you that we can or will maintain our insurance policies on commercially acceptable terms, or at all. A product liability claim couldsignificantly harm our business, financial condition and results of operations.We are subject to various federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws,and any violations by us of such laws could result in fines or other penalties.Our commercial, research and other financial relationships with healthcare providers and institutions are subject to various federal and state laws intended toprevent health care fraud and abuse. The federal anti-kickback statute prohibits the knowing offer, receipt or payment of remuneration in exchange for or to inducethe referral of patients or the use of products or services that would be paid for in whole or part by Medicare, Medicaid or other federal health care programs.Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. Many stateshave similar laws that apply to their state health care programs as well as private payors. Violations of the anti-kickback laws can result in exclusion from federalhealth care programs and substantial civil and criminal penalties.15Table of ContentsThe FCA imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal healthcare program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided asclaimed, or for services that are not medically necessary. We have implemented procedures designed to ensure our compliance with relevant legal requirements.Nevertheless, if our marketing, sales or other arrangements, including our reagent rental arrangements, were determined to violate anti-kickback or related laws,including the FCA, then our revenues could be adversely affected, which would likely harm our business, financial condition and results of operations.The Health Care Act also imposes reporting and disclosure requirements on device manufacturers for payments to healthcare providers and ownership oftheir stock by healthcare providers. In February 2013, the Centers for Medicine and Medicaid Services, or, CMS, released the final rule implementing the federalPhysician Payments Sunshine Act, or the Sunshine Act. The law requires certain pharmaceutical, biologic, and medical device manufacturers to annually report toCMS payments or other transfers of value they furnish to physicians and teaching hospitals. These reporting requirements took effect on August 1, 2013. Failure tosubmit required information may result in significant civil monetary penalties. We expect compliance with the PPACA and Sunshine Act to impose significantadministrative and financial burdens on us.In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states, such asCalifornia, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensationand other remuneration to physicians. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems tocomply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may run afoul of one ormore of the requirements.We are also subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other countries’ anti-corruption/anti-bribery regimes, such as the U.K.Bribery Act. The FCPA prohibits improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retainingbusiness. Safeguards we implement to discourage improper payments or offers of payments by our employees, consultants, sales agents or distributors may beineffective, and violations of the FCPA and similar laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, any of whichwould likely harm our reputation, business, financial condition and results of operations.Legislative or regulatory healthcare reforms may have a material adverse effect on our business and results of operations.Federal and state governments in the United States are undertaking efforts to control growing health care costs through legislation, regulation and voluntaryagreements with medical care providers and third-party payors. In March 2010, Congress enacted the PPACA. While the PPACA involves expanding coverage tomore individuals, it includes regulatory mandates and other measures designed to constrain medical costs. Among other requirements, the PPACA imposes a 2.3%excise tax on sales of medical devices by manufacturers. In December 2015, the excise tax was suspended for 2016 and 2017. Taxable devices include any medicaldevice defined in Section 201(h) of the FDCA and intended for use by humans, with limited exclusions for devices purchased by the general public at retail forindividual use. There is no exemption for small companies, and we paid the tax from 2013 through 2015. recently, Congress and the new administration haveproposed and taken various steps to revise, repeal, or delay implementation of various aspects of PPACA. If the PPACA is significantly revised, repealed, or ifimplementation of various aspects are delayed, such modification, repeal, or delay may impact our business, financial condition, results of operations, cash flowsand the trading price of our securities. Complying with PPACA may significantly increase our tax liabilities and costs, which could adversely affect our businessand financial condition.In August 2011, President Obama signed into law the Budget Control Act of 2011, which among other things, created automatic reductions to severalgovernment programs, including aggregate reductions of Medicare payments to providers of up to 2% per fiscal year. In April 2013, the 2% Medicare paymentreductions went into effect. In addition to the potential impacts to PPACA under the new administration, there could be sweeping changes to the Budget ControlAct and other healthcare reforms. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit theamounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additionalpricing pressure.16Table of ContentsOur products could infringe patent rights of others, which may require costly litigation and, if we are not successful, could cause us to pay substantial damagesor limit our ability to commercialize our products.Our commercial success depends on our ability to develop, manufacture and market our systems and tests and use our proprietary technology withoutinfringing the patents and other proprietary rights of third parties. As the molecular diagnostics industry expands and more patents are issued, the risk increases thatthere may be patents issued to third parties that relate to our products and technology of which we are not aware or that we must challenge to continue ouroperations as currently contemplated. Our products may infringe or may be alleged to infringe these patents.The patent positions of medical device companies can be highly uncertain and involve complex legal and factual questions for which important legalprinciples remain unresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in the United States or inmany foreign jurisdictions. Both the U.S. Supreme Court and the Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes inhow the patent laws of the United States are interpreted. For example, three Supreme Court cases, Association for Molecular Pathology et al. v. Myriad Genetics,Inc., et al., Mayo Collaborative Services v. Prometheus Laboratories, and Alice v. CLS Bank, have introduced additional questions regarding the patentability ofisolated naturally occurring genes and gene fragments, proteins, peptides, natural products, and related diagnostic and therapeutic methods, which are likely to beresolved only through continued litigation. The overall impact of these decisions and others on the molecular diagnostics industry remains uncertain and ourinterpretation of the scope of these rulings on existing or future patents may be inaccurate.There is a significant amount of uncertainty regarding the extent of patent protection and infringement. Companies may have filed pending patentapplications that cover technologies we incorporate in our products. As a result, we could be subjected to substantial damages for past infringement or be requiredto modify our products or stop selling them if it is ultimately determined that our products infringe a third party’s proprietary rights. Even if we are successful indefending against potential intellectual property infringement claims, we could incur substantial costs in doing so. Any litigation related to such claims couldconsume our resources and lead to significant damages, royalty payments, or an injunction on the sale of certain products. Any additional licenses to patentedtechnology could obligate us to pay substantial additional royalties, which could adversely impact our product costs and harm our business. If we are unable to obtain, maintain and enforce intellectual property protection covering our products, others may be able to make, use or sell productssubstantially the same as ours, which could adversely affect our ability to compete in the market. Our commercial success is dependent in part on obtaining, maintaining and enforcing intellectual property rights, including our patents and other intellectualproperty rights. If we are unable to obtain, maintain and enforce intellectual property protection covering our products, others may be able to make, use or sellproducts that are substantially the same as ours without incurring the sizeable development and licensing costs that we have incurred, which would adversely affectour ability to compete in the market.We seek to obtain and maintain patents and other intellectual property rights to restrict the ability of others to market products that compete with ourproducts. Currently, our patent portfolio is comprised on a worldwide basis of more than 100 owned and exclusively licensed patents and approximately 30additional pending patent applications. In general, patents have a term of at least 20 years from the application filing date or earlier claimed priority date. Amajority of our issued and exclusively licensed patents are scheduled to expire by 2021, with approximately one half of the patents expiring by 2018. Several ofour pending applications have the potential to mature into patents that may expire between 2028 and 2034. However, not all of the pending or future patentapplications owned by or licensed to us are guaranteed to mature into patents, and, moreover, issued patents owned by or licensed to us now or in the future may befound by a court to be invalid or otherwise unenforceable. Also, even if our patents are determined by a court to be valid and enforceable, they may not besufficiently broad to prevent others from marketing products similar to ours or designing around our patents, despite our patent rights, nor provide us with freedomto operate unimpeded by the patent rights of others.We also rely on trade-secret protection to protect our interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce.We may not be able to protect our trade secrets adequately. We have limited control over the protection of trade secrets used by our licensors, collaborators andsuppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and otheradvisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of ourtrade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. We rely, in part, on non-disclosure and confidentiality agreements withour employees, consultants and other parties to protect our trade secrets and other proprietary technology. These agreements may be breached and we may not haveadequate remedies for any breach. Moreover, others may independently develop equivalent proprietary information, and third parties may otherwise gain access to17Table of Contentsour trade secrets and proprietary knowledge. Any disclosure of confidential data into the public domain or to third parties could allow our competitors to learn ourtrade secrets and use the information in competition against us.We and our suppliers, contract manufacturers and customers are subject to various governmental regulations, and we may incur significant expenses tocomply with, and experience delays in our product commercialization as a result of, these regulations.Our manufacturing processes and facilities and those of some of our contract manufacturers must comply with the federal Quality System Regulation, orQSR, which covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage andshipping of our devices. The FDA enforces the QSR through periodic announced and/or unannounced inspections of manufacturing facilities. We and our contractmanufacturers have been, and anticipate in the future being, subject to such inspections, as well as to inspections by other federal and state regulatory agencies.We must also file reports of device corrections and removals and adhere to the FDA’s rules on labeling and promotion. The FDA and other agenciesactively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses maybe subject to significant liability, including substantial monetary penalties and criminal prosecution.Failure to comply with applicable FDA requirements, or later discovery of previously unknown problems with our products or manufacturing processes,including our failure or the failure of one of our contract manufacturers to take satisfactory corrective action in response to an adverse QSR inspection, can resultin, among other things:•administrative or judicially imposed sanctions;•injunctions or the imposition of civil penalties;•recall or seizure of our products;•total or partial suspension of production or distribution;•withdrawal or suspension of marketing clearances or approvals;•clinical holds;•warning letters;•refusal to permit the import or export of our products; and•criminal prosecution.Any of these actions, in combination or alone, could prevent us from marketing, distributing or selling our products and would likely harm our business.In addition, a product defect or regulatory violation could lead to a government-mandated or voluntary recall by us. We believe that the FDA would requestthat we initiate a voluntary recall if a product was defective or presented a risk of injury or gross deception. Regulatory agencies in other countries have similarauthority to recall devices because of material deficiencies or defects in design or manufacture that could endanger health. Any recall would divert managementattention and financial resources, could cause the price of our common stock to decline and expose us to product liability or other claims, including contractualclaims from parties to whom we sold products, and harm our reputation with customers.The use of our diagnostic products by our customers is also affected by CLIA and related federal and state regulations that provide for regulation oflaboratory testing. CLIA is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas ofpersonnel qualifications, administration, participation in proficiency testing, patient test management, quality assurance, quality control and inspections. Current orfuture CLIA requirements or the promulgation of additional regulations affecting laboratory testing may prevent some laboratories from using some or all of ourdiagnostic products.If our customers are not adequately reimbursed or compensated for the use of our products we may have difficulty selling our products.Our ability to sell our products depends in part on the extent to which reimbursement related to performing tests using our products is available fromgovernmental authorities, such as Medicare and other domestic and foreign governmental programs, private insurance plans, managed care organizations and otherorganizations. There are ongoing efforts by governmental and third-party payers to contain or reduce the costs of healthcare coverage. In addition, efforts to reformthe healthcare delivery system in the United States and Europe has increased pressure on healthcare providers to reduce costs, which has, in turn, increasedpressure on medical device manufacturers to decrease prices charged for their products. If18Table of Contentspurchasers or users of our products are not able to obtain adequate reimbursement for the cost of using our products, either directly or indirectly, they may foregoor reduce their purchase and use of our products.Obtaining coverage and reimbursement approval for a product from each government or third-party payor is a time consuming and costly process that couldrequire us to provide supporting scientific, clinical and cost-effectiveness data for the use of our product to each government or third-party payor. We may not beable to provide data sufficient to gain acceptance with respect to coverage and reimbursement. In addition, eligibility for coverage does not imply that any productwill be covered and reimbursed in all cases or reimbursed at a rate that allows our potential customers to make a profit or even cover their costs. Further, third-party payors may choose to reimburse our customers per test based on individual biomarker detection, rather than on the basis of the number of results given by thetest. This may result in our customers electing to use separate tests to screen for each disease or condition so that they can receive reimbursement for each test theyconduct. In that event, these entities may purchase separate tests for each disease, rather than products, such as ours, that can be used to return highly multiplexedtest results.We are currently reliant on the commercial success of our XT-8 system and its related test menu to partially fund our current operations and ePlexdevelopment programs.We currently market our XT-8 instrument and four FDA-cleared diagnostic tests. In addition, we sell RUO tests and custom manufactured reagents. Wehave primarily placed our XT-8 systems with customers at no initial charge through reagent rental agreements, under which customers generally commit topurchase minimum quantities of test cartridges and reagents (consumables) over a typical period of one to three years, with a component of the cartridge andreagent price allocated to recover the instrument price. We also offer our XT-8 systems for sale. As a result, to the extent that our XT-8 system and our existing andfuture products are not commercially successful or are withdrawn from the market for any reason, our operating results, financial condition and critical ePlexdevelopment programs would be harmed and we may be required to seek additional funding to support our ongoing operations.In addition, we have limited marketing, sales and distribution experience and capabilities. Our ability to achieve profitability depends on attractingcustomers for our products and building brand loyalty. To successfully perform sales, marketing, distribution and customer support functions ourselves, we face anumber of risks, including:•our ability to attract and retain the skilled support team, marketing staff and sales force necessary to commercialize and gain market acceptance for ourtechnology and our products;•the ability of our sales and marketing team to identify and penetrate the potential customer base, including hospitals and national and regional referencelaboratories; and•the difficulty of establishing brand recognition and loyalty for our products.Some hospital-based and reference laboratories may not consider adopting our XT-8 system unless we offer a broader menu of diagnostic tests or maychoose not to convert from competitive products unless and until we are able to offer a sample-to-answer instrument solution, such as our ePlex instrument. Inaddition, in order to commercialize our products, we are required to undertake time consuming and costly development activities, including clinical studies forwhich the outcome is uncertain. Products that appear promising during early development and preclinical studies may, nonetheless, fail to demonstrate the resultsneeded to support regulatory approval or, if approved, may not generate the demand we expect. If we are unable to effectively compete with our XT-8 system andits related test menu, our revenues and our ability to achieve profitability will be significantly impaired.We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, andfailure to comply with these laws could harm our business and the price of our common stock.As a public company listed in the United States, we incur significant legal, accounting and other expenses. In addition, changing laws, regulations andstandards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board(PCAOB), and The NASDAQ Global Market, may increase our legal and financial compliance costs and make some activities more time consuming. These laws,regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided byregulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result inincreased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. Ifwe nevertheless fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business may beharmed. 19Table of ContentsEconomic conditions and an uncertain economic outlook may adversely impact our business, results of operations, financial condition or liquidity.Global economic conditions may remain challenging and uncertain for the foreseeable future. These conditions may not only limit our access to capital butalso make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they could cause U.S. andforeign businesses and consumers to slow spending on our products and services, which would delay and lengthen sales cycles. Some of our customers rely ongovernment research grants to fund technology purchases. If negative trends in the economy affect the government’s allocation of funds to research, there may beless grant funding available for certain of our customers to purchase technologies from us. Certain of our customers may face challenges gaining timely access tosufficient credit or may otherwise be faced with budget constraints, which could result in decreased purchases of our products or in an impairment of their ability tomake timely payments to us. If our customers do not make timely payments to us, we may be required to assume greater credit risk relating to those customers,increase our allowance for doubtful accounts, and our days sales outstanding would be negatively impacted. Although we maintain allowances for doubtfulaccounts for estimated losses resulting from the inability of our customers to make required payments, we may not continue to experience the same loss rates thatwe have in the past. Additionally, these economic conditions and market turbulence may also impact our suppliers, causing them to be unable to supply sufficientquantities of customized components in a timely manner, thereby impairing our ability to manufacture on schedule and at commercially reasonable costs.We are exposed to risks associated with long-lived and intangible assets that may become impaired and result in an impairment charge.The carrying amounts of long-lived and intangible assets are affected whenever events or changes in circumstances indicate that the carrying amount of anyasset may not be recoverable. These events or changes might include an inability to successfully deliver an instrument to the marketplace and attain customeracceptance, a change in the rights or use of licensed intellectual property, adjustments to our depreciation assumptions, or other matters. Adverse events or changesin circumstances may affect the estimated discounted future cash flows expected to be derived from long-lived and intangible assets. If at any time we determinethat an impairment has occurred, we will be required to reflect the impaired value as a charge, resulting in a reduction in earnings in the quarter such impairment isidentified and a corresponding reduction in our net asset value. In the past we have incurred, and in the future we may incur, impairment charges. A materialreduction in earnings resulting from such a charge could cause us to fail to meet the expectations of investors and securities analysts, which could cause the price ofour stock to decline.Providing instrument systems to our customers through reagent rental agreements may harm our liquidity.Many of our systems are provided to customers via “reagent rental” agreements, under which customers are afforded the right to use the instrument in returnfor a commitment to purchase minimum quantities of reagents and test cartridges over a period of time. Accordingly, we must either incur the expense ofmanufacturing instruments well in advance of receiving sufficient revenues from test cartridges to recover our expenses or obtain third party financing sources forthe purchase of our instrument. The amount of capital required to provide instrument systems to customers depends on the number of systems placed. Our ability togenerate capital to cover these costs depends on the amount of our revenues from sales of reagents and test cartridges sold through our reagent rental agreements.We do not currently sell enough reagents and test cartridges to recover all of our fixed expenses, and therefore we currently have a net loss. If we cannot sell asufficient number of reagents and test cartridges to offset our fixed expenses, our liquidity will continue to be adversely affected.We use hazardous chemicals, biological materials and infectious agents in our business. Any claims relating to improper handling, storage or disposal of thesematerials could be time consuming and costly.Our research, product development and manufacturing processes involve the controlled use of hazardous materials, including chemicals, biologicalmaterials and infectious disease agents. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or dischargeand any resulting injury from these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of thesematerials, and our liability may exceed our insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture,storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and humanhealth and safety matters. Our operations are regulated and may require that environmental permits and approvals be issued by applicable government agencies.Compliance with environmental laws and regulations may be expensive and may impair our research, development and production efforts. If we fail to complywith these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for controlequipment or operational changes necessary to achieve and maintain compliance. In addition, we20Table of Contentscannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing and future laws and regulationsare interpreted and enforced. If we are unable to retain key employees or hire additional skilled employees, we may be unable to achieve our goals. Our performance is substantially dependent on the performance of our senior management. Competition for top management personnel is intense and wemay not be able to recruit and retain the personnel we need. Our senior managers can terminate their relationship with us at any time. The loss of services of any ofthese key personnel could significantly reduce our operational effectiveness and investor confidence and our stock price could decline. We do not maintain key-man life insurance on any of our employees. In addition, our product development and marketing efforts could be delayed or curtailed if we are unable to attract, train and retain highly skilled technicalemployees and scientific advisors. To expand our research, product development and commercial efforts, we will need to retain additional people skilled in areassuch as electrochemical and molecular science, information technology, manufacturing, sales, marketing and technical support. Because of the complex andtechnical nature of our systems and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees couldmaterially harm our ability to develop and commercialize our technology. We may not be successful in hiring or retaining qualified personnel, and any failure to doso could have a material adverse effect on our business, financial condition and results of operations.Cyberattacks and other security breaches could compromise our proprietary information which could harm our business and reputation.In the ordinary course of our business, we generate, collect and store proprietary information, including intellectual property and business information. Thesecure storage, maintenance, and transmission of and access to this information is critical to our operations, business strategy, and reputation. Computer hackersmay attempt to penetrate our computer systems or our third party IT service providers' systems and, if successful, misappropriate our proprietary information. Inaddition, an employee, contractor, or other third-party with whom we do business may attempt to circumvent our security measures in order to obtain suchinformation, and may purposefully or inadvertently cause a breach involving such information. While we will continue to implement additional protectivemeasures to reduce the risk of and detect cyber-attacks, these incidents are becoming more sophisticated and frequent, and the techniques used in such attacksevolve rapidly and are difficult to detect. Despite our cybersecurity measures, our information technology networks and infrastructure may still be vulnerable tounpermitted access by hackers or other breaches, or employee error or malfeasance. Any such compromise of our, or our third party IT service providers' datasecurity and access to, or public disclosure or loss of, confidential business or proprietary intellectual property information could disrupt our operations, damageour reputation, provide our competitors with valuable information, and subject us to additional costs which could adversely affect our business.Information technology systems implementation issues could disrupt our internal operations and adversely affect our financial results.Portions of our information technology infrastructure may experience interruptions, delays or cessations of service or produce errors in connection withongoing systems implementation work. In particular, we have implemented an enterprise resource planning software system. To more fully realize the potential ofthis system, we are continually reassessing and upgrading processes and this may be more expensive, time consuming and resource intensive than planned. Anydisruptions that may occur in the operation of this system or any future systems could increase our expenses and adversely affect our ability to report in an accurateand timely manner the results of our consolidated operations, our financial position and cash flows and to otherwise operate our business in a secure environment,all of which could adversely affect our financial results, stock price and reputation .Our ability to use our net operating loss carryforwards may be limited. As of December 31, 2016, we had net operating loss, or NOL, carryforwards available of approximately $206.9 million for U.S. federal income tax purposes.These loss carryforwards will expire in varying amounts through 2035. Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, generallyimposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income when a corporation has undergone significantchanges in stock ownership. We have determined that we have experienced multiple ownership changes under Section 382 of the Code. Our ability to use thecurrent NOL carryforwards may also be limited by the issuance of common stock in the future. To the extent our use of NOL carryforwards is limited, our incomemay be subject to corporate income tax earlier than it would if we were able to use NOL carryforwards. We have recorded a full valuation allowance against ournet deferred tax assets. 21Table of ContentsWe also had state NOL carryforwards of approximately $165.0 million as of December 31, 2016. We have recorded a full valuation allowance against ournet deferred tax assets.Provisions of our certificate of incorporation, our bylaws and Delaware law could make an acquisition of our Company, which may be beneficial to ourstockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of our board and management.Certain provisions of our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change of control thatstockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Furthermore, these provisions couldprevent or frustrate attempts by our stockholders to replace or remove members of our Board of Directors. These provisions also could limit the price that investorsmight be willing to pay in the future for our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate inthese transactions may not have the opportunity to do so. These provisions:•allow the authorized number of directors to be changed only by resolution of our Board of Directors;•provide that our stockholders may remove our directors only for cause;•establish a classified board of directors, such that not all members of the Board of Directors may be elected at one time;•authorize our Board of Directors to issue without stockholder approval up to 100,000,000 shares of common stock, that, if issued, would dilute ourstock ownership and could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is notapproved by our Board of Directors;•authorize our Board of Directors to issue without stockholder approval up to 5,000,000 shares of preferred stock, the rights of which will be determinedat the discretion of the Board of Directors that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer toprevent an acquisition that is not approved by our Board of Directors;•require that stockholder actions must be effected at a duly called stockholder meeting or by unanimous written consent;•establish advance notice requirements for stockholder nominations to our Board of Directors or for stockholder proposals that can be acted on atstockholder meetings;•limit who may call stockholder meetings; and•require the approval of the holders of 80% of the outstanding shares of our capital stock entitled to vote in order to amend certain provisions of ourcertificate of incorporation and bylaws.In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibitlarge stockholders, in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed periodof time.Item 1B.UNRESOLVED STAFF COMMENTS None. Item 2.PROPERTIES We currently operate from two facilities, each of which is located in Carlsbad, California. We do not own any real property. In February 2010, we enteredinto a lease for an approximately 31,000 square foot facility in Carlsbad, California, the term of which originally ran through September 2017. The facility is partof a three-building office and research and development project located at 5964 La Place Court, Carlsbad, California. In January 2012, we signed a leaseamendment which expanded our executive and administrative office, research and development, and manufacturing space by approximately 22,000 additionalsquare feet and extended the term of the lease through June 2021. In June 2015, we leased an additional 34,000 square feet at a nearby location in Carlsbad,California, which we utilize primarily for ePlex manufacturing operations. The term of the lease runs through September 2023, and we have an option to extend theterm of the lease for an additional five years. We believe that our currently leased facilities are adequate to meet our needs for the foreseeable future. 22Table of ContentsItem 3.LEGAL PROCEEDINGS We are from time to time subject to various claims and legal actions in the ordinary course of our business. We believe that there are currently no claims orlegal actions that would reasonably be expected to have a material adverse effect on our results of operations or financial condition. Item 4.MINE SAFETY DISCLOSURES Not applicable.23Table of ContentsPART II.Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES Market Information Our common stock has been quoted on The NASDAQ Global Market under the symbol “GNMK” since May 28, 2010. The following table sets forth for theindicated periods the high and low sales prices per share of our common stock as reported on The NASDAQ Global Market. High LowYear Ended December 31, 2016 First Quarter$7.73 $4.20Second Quarter$9.48 $5.13Third Quarter$12.17 $8.03Fourth Quarter$13.29 $10.01Year Ended December 31, 2015 First Quarter$14.40 $11.67Second Quarter$13.04 $8.81Third Quarter$10.55 $7.22Fourth Quarter$9.74 $4.63 Stock Performance Graph The graph below compares the cumulative total stockholder returns on our common stock for the period indicated with the cumulative total stockholderreturns on the NASDAQ Composite Index and the NASDAQ Biotechnology Index for the same period. The graph assumes that $100 was invested on May 28,2010 in our common stock and in each index and that all dividends were reinvested. No cash dividends have been declared on our common stock. Stockholderreturns over the indicated period should not be considered indicative of future stockholder returns. 24Table of ContentsStockholders The last reported sale price of our common stock on February 24, 2017 as reported on the NASDAQ Global Market was $11.25. As of February 24, 2017,there were 2,693 holders of record of our common stock. Dividend Policy We have never declared or paid any cash dividends on our common stock and do not expect to pay any dividends for the foreseeable future. In addition, ourLSA with Solar Capital Partners contains a negative covenant which may limit our ability to pay dividends. We currently intend to retain any future earnings tofund the operation, development and expansion of our business. Any future determination to pay dividends will be at the sole discretion of our Board of Directorsand will depend upon a number of factors, including our results of operations, capital requirements, financial condition, future prospects, contractual arrangements,restrictions imposed by applicable law, any limitations on payments of dividends present in our current and future debt arrangements, and other factors our Boardof Directors may deem relevant. Item 6.SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data relates to GenMark Diagnostics, Inc. and its consolidated subsidiaries. The selected consolidatedstatement of net loss data presented below of GenMark Diagnostics, Inc. for the years ended December 31, 2016 , 2015 , and 2014 and the selected consolidatedbalance sheet data of GenMark Diagnostics, Inc. as of December 31, 2016 , and 2015 have been derived from the audited consolidated financial statements ofGenMark Diagnostics, Inc., which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, includedelsewhere in this Annual Report. The selected consolidated statement of comprehensive loss data presented for the years ended December 31, 2013 and 2012 andthe selected consolidated balance sheet data as of December 31, 2014, 2013, and 2012 have been derived from audited financial statements not included in thisAnnual Report.The results for the periods shown below are not necessarily indicative of the results to be expected for any future periods. The selected consolidated financialdata should be read together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and with the consolidatedfinancial statements and condensed consolidated financial statements of GenMark Diagnostics, Inc. and related notes included elsewhere in this Annual Report.25Table of ContentsFIVE YEAR SELECTED FINANCIAL DATA Years ended December 31, 2016 2015 2014 2013 2012Consolidated Statements of Net Loss Data:(In thousands, except per share data)Revenue Product revenue$48,914 $39,029 $30,328 $27,204 $20,211License and other revenue360 382 266 200 258Total revenue49,274 39,411 30,594 27,404 20,469Cost of revenue19,700 15,317 13,127 15,570 11,640Gross profit29,574 24,094 17,467 11,834 8,829Operating expenses Sales and marketing14,734 14,385 12,629 12,818 6,378General and administrative14,363 13,772 12,069 11,836 10,806Research and development49,458 37,472 31,823 22,060 13,536Total operating expenses78,555 65,629 56,521 46,714 30,720Loss from operations(48,981) (41,535) (39,054) (34,880) (21,891)Other income (expense): Interest income (expense), net(1,360) (755) 224 384 (48)Other income (expense)(160) 133 (6) 897 (16)Total other income (expense)(1,520) (622) 218 1,281(64)Loss before income taxes(50,501) (42,157) (38,836) (33,599) (21,955)Income tax expense (benefit)100 40 (573) 44 148Net loss$(50,601) $(42,197) $(38,263) $(33,643) $(22,103)Net loss per share, basic and diluted$(1.15) $(1.00) $(0.93) $(0.95) $(0.84)Weighted average number of sharesoutstanding, basic and diluted44,100 42,157 41,346 35,253 26,215 As of December 31, 2016 2015 2014 2013 2012 (In thousands)Consolidated Balance Sheet Data: Cash and cash equivalents and marketablesecurities(1)(2)(3)$41,566 $45,465 $70,506 $105,589 $51,250Total assets80,324 70,667 91,970 121,754 68,016Long-term liabilities15,752 11,481 1,653 2,349 2,392Total liabilities42,173 22,070 13,946 12,586 11,566Accumulated deficit(355,270) (304,669) (262,472) (224,209) (190,566)Total stockholders’ equity (1)(2)(3)38,151 48,597 78,024 109,168 56,450 _____________________(1)In August and September 2016, we issued approximately 8.3 million shares of common stock at an average price of $9.04 per share. We raised approximately$29.1 million in net proceeds.(2)In August 2013, we issued approximately 8.7 million shares of common stock at a price of $9.84 per share. We raised approximately $81.0 million in netproceeds.(3)In June 2012, we issued approximately 11.5 million shares of common stock at a price of $4.20 per share. We raised approximately $45.1 million in netproceeds.26Table of ContentsItem 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following in conjunction with the “Selected Consolidated Financial Data” and the consolidated financial statements of GenMark andthe related notes thereto that appear elsewhere in this Annual Report. In addition to historical information, the following discussion and analysis includes forwardlooking information that involves risks, uncertainties and assumptions. Actual results and the timing of events could differ materially from those anticipated bythese forward looking statements as a result of many factors, including those discussed under the heading “Risk Factors” included elsewhere in this AnnualReport. See also “Forward Looking Statements” included elsewhere in this filing. Overview GenMark was formed by Osmetech ptc, or Osmetech, as a Delaware corporation in February 2010, and had no operations prior to its initial public offering,which was completed in June 2010. Immediately prior to the closing of the initial public offering, GenMark acquired all of the outstanding ordinary shares ofOsmetech in a reorganization under the applicable laws of the United Kingdom. Following the reorganization, Osmetech became a wholly-owned subsidiarycontrolled by GenMark, and the former shareholders of Osmetech received shares of GenMark. Any historical discussion of GenMark relates to Osmetech and itsconsolidated subsidiaries prior to the reorganization. In September 2012, GenMark placed Osmetech into liquidation to simplify its corporate structure. Theliquidation of Osmetech was competed in the fourth quarter of 2013. We are a molecular diagnostics company focused on developing and commercializing multiplex molecular tests that aid in the diagnosis of complex medicalconditions and help guide therapy decisions. We currently develop and commercialize high-value, simple to perform, clinically relevant multiplex molecular testsbased on our proprietary eSensor electrochemical detection technology. Since inception, we have incurred net losses from operations each year, and we expect to continue to incur losses for the foreseeable future. Our net lossesfor the years ended December 31, 2016 , 2015 , and 2014 were approximately $50.6 million , $42.2 million , and $38.3 million , respectively. As of December 31,2016 , we had an accumulated deficit of $355.3 million . Our operations to date have been funded principally through sales of capital stock, borrowings, and cashfrom operations. We expect to incur increasing expenses over the next several years, principally to develop and commercialize our ePlex system and additionaldiagnostic tests, as well as to further increase our manufacturing capabilities and domestic and international commercial organization.Our Products and Technology We offer four FDA-cleared diagnostic tests which run on our XT-8 instrument: our Respiratory Viral Panel; our Cystic Fibrosis Genotyping Test; ourWarfarin Sensitivity Test; and our Thrombophilia Risk Test. We also offer an HCV genotyping test and associated custom manufactured reagents, as well as a2C19 Genotyping Test, versions of which are available for use with our XT-8 instrument for research use only (RUO).In addition, we have commercially launched in Europe our sample-to-answer ePlex instrument and RP Panel, which integrates automated nucleic acidextraction and amplification with our eSensor detection technology to enable operators using ePlex to place a raw or a minimally prepared patient sample directlyinto our test cartridge and obtain results without any additional steps. This sample-to-answer capability is enabled by the robust nature of our eSensor detectiontechnology, which is not impacted to the same degree by sample impurities that we believe hinder competing technologies. We have designed our ePlex system tofurther simplify workflow and provide powerful, cost-effective molecular diagnostics solutions to a significantly expanded group of hospitals and referencelaboratories. We obtained CE Mark for our ePlex system and RP Panel in June 2016, and filed 510(k) applications with the FDA for the ePlex instrument and RPPanel in December 2016. During 2017, we intend to complete the development of, CE Mark, and submit 510(k) applications to the FDA our ePlex blood cultureidentification (BCID) family of panels, which include a gram-positive (GP), a gram-negative (GN), and a fungal pathogen panel. In addition, we are activelyevaluating the development of additional assay panels that we believe will meet important, unmet clinical needs, which our ePlex system is uniquely positioned toaddress.Revenue Revenue from operations includes product sales, principally of our diagnostic tests. We primarily place our instruments with customers through a reagentrental agreement, under which we retain title to the instrument and customers commit to purchasing minimum quantities of reagents and test cartridges over aperiod of one to three years. We also offer our instruments for sale. 27Table of ContentsCost of Revenues Cost of revenues includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of our consumable tests, includingroyalties on product sales. Cost of revenues also includes depreciation on revenue generating instruments that have been placed with our customers under a reagentrental agreement, cost of instruments sold to customers, amortization of licenses related to our products and other costs such as warranty, royalty and customer andproduct technical support. We manufacture our test cartridges in our facility and have recently invested in significant capacity for expansion. Any potentialunderutilized capacity may result in a high cost of revenues relative to revenue, if manufacturing volumes are not able to fully absorb operating costs. Ourinstruments are procured from contract manufacturers. We expect our cost of revenues to increase as we place additional instruments and manufacture and selladditional diagnostic tests; however, we expect gross margins related to our products will increase as production volumes, manufacturing efficiencies, improvedprocurement practices, instrument reliability increases and other improvements decrease costs as a percentage of sales.Sales and Marketing Expenses Sales and marketing expenses include costs associated with our direct sales force, sales management, marketing, technical support and business developmentactivities. These expenses primarily consist of salaries, commissions, benefits, stock-based compensation, travel, advertising, promotions, product samples andtrade show expenses. We expect sales and marketing expenses to increase as we increase our domestic and international commercial efforts to expand our customerbase. Research and Development Expenses Research and development expenses primarily include costs associated with the development of our ePlex instrument and its test menu. These expenses alsoinclude certain clinical study expenses incurred in preparation for FDA clearance for these products, intellectual property prosecution and maintenance costs, andquality assurance expenses. The expenses primarily consist of salaries, benefits, stock-based compensation, outside design and consulting services, laboratorysupplies and equipment, costs of consumables and materials used in product development, contract research organization costs, clinical studies and facility costs.We expense all research and development costs in the periods in which they are incurred. General and Administrative Expenses Our general and administrative expenses include expenses related to our executive, accounting and finance, compliance, information technology, legal,facilities, human resource, administrative and investor relations activities. These expenses consist primarily of salaries, benefits, stock-based compensation costs,independent auditor costs, legal and consulting fees, and travel, insurance, and public company expenses, such as stock transfer agent fees and listing fees forNASDAQ.Foreign Exchange Gains and Losses Transactions in currencies other than our functional currency are translated at the prevailing rates on the dates of the applicable transaction. Foreignexchange gains and losses arise from differences in exchange rates during the period between the date a transaction denominated in a foreign currency isconsummated and the date on which it is settled or translated. Interest Income and Interest Expense Interest income includes interest earned on our cash and cash equivalents and investments. Interest expense represents interest incurred on our loan payableand on other liabilities. Provision for Income Taxes We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in thecalculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statementpurposes.We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, includinghistorical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies inassessing the need for the valuation allowance. If it is more likely than not that we will not recover our deferred tax assets, we will increase our provision forincome taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.Our income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities.In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities foruncertain tax positions based on a two-step process. The28Table of Contentsfirst step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the positionwill be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amountthat is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, weregularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. We continually assess thelikelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable, and deferred taxes in the period in which the facts thatgive rise to a revision become known.Critical Accounting Policies and Significant Judgments and Estimates Revenue We recognize revenue from product sales and contractual arrangements, net of discounts and sales related taxes. We recognize revenue from product saleswhen there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.Where applicable, all revenue is stated net of sales taxes and trade discounts. Revenue related to royalties received from licenses is generally recognized evenlyover the contractual period to which the license relates. In those cases where we bill shipping and handling costs to customers, the amounts billed are classified asother revenue. We offer customers the choice to either purchase an instrument outright or to receive possession of an instrument free of charge in exchange for acommitment to purchase an annual minimum amount of molecular diagnostic test cartridges. When an instrument is sold, revenue is generally recognized upon shipment of the unit consistent with contract terms. When an instrument is placed free ofcharge under a "reagent rental" agreement, we retain title to the instrument and it remains capitalized on our balance sheet under property and equipment. Underour reagent rental agreements, our customers pay an instrument usage fee, which is included in the price of each test cartridge purchased. Our reagents anddiagnostic test cartridges (consumables) are priced to include the expense of instrument usage and maintenance and are included in product revenue in ourconsolidated financial statements. We sell our durable instruments and disposable test cartridges through a direct sales force in the United States and certain European countries and throughdistributor arrangements in other European jurisdictions. The instrument price is not dependent upon the purchase of any amount of disposable test cartridges.Revenue on instrument and test cartridge sales is generally recognized upon shipment consistent with contract terms, which is when title and the risk of loss andrewards of ownership have been transferred to the customer and there are no other post-shipment obligations. Allowance for Doubtful Accounts ReceivableWe maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our allowancefor doubtful accounts is based on our assessment of the collectability of specific customer accounts, the aging of accounts receivable, and the general condition ofthe economy. Changes in our allowance for doubtful accounts are charged to sales and marketing expense.InventoryWe value inventories at the lower of cost or net realizable value on a part-by-part basis and provide an inventory reserve for estimated obsolescence andexcess inventory based upon historical turnover and assumptions about future demand for our products and market conditions. We determine excess and obsoleteinventories based on an estimate of the future demand for our products within a specified time horizon, which is generally 12 months. The estimates we use fordemand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. If our actual demand is less than ourforecast demand, we may be required to take additional excess inventory charges, which would decrease gross margin and adversely impact net operating results inthe future.Property and Equipment — net Property, equipment and leasehold improvements are recorded at cost and depreciated using the straight-line method over the assets’ estimated useful lives,which are noted below. Each category of property and equipment is analyzed to determine its useful life. We look at the manufacturers’ estimates of useful life andadjust these for actual experience in our operating environment. Useful lives are reviewed periodically and occasionally changed as circumstances dictate. 29Table of ContentsMachinery and laboratory equipment3 - 5 yearsInstruments4 - 5 yearsOffice equipment3 - 7 yearsLeasehold improvementsover the shorter of the remaining life of the lease or the useful economic life of the assetRepair and maintenance costs are expensed as incurred. During 2016, 2015 and 2014, we disposed of certain assets no longer in use with a net book value of$76,000, $153,000 and $102,000, respectively, recorded to cost of revenue, sales and marketing, research and development, or general and administrative expensesbased on the asset's respective use. Impairment of Long-Lived Assets We assess the recoverability of long-lived assets, including intangible assets and instruments at customer locations by periodically evaluating the carryingvalue of such assets whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If impairment isindicated, we write down the carrying value of the asset to the estimated fair value. Stock-Based Compensation We generally grant employees and non-employee directors stock-based awards, which typically comprise stock options, restricted stock units, and/or market-based stock units, in connection with their employment or service. We grant stock options with an exercise price equal to the closing price of our common stock onthe NASDAQ Global Market on the applicable grant date. We use the Black-Scholes option-pricing model as the method for determining the estimated fair valueof stock options, the Monte Carlo Simulation Valuation Model as the method for determining the estimated fair value of our market-based stock units, and we usethe grant date fair value of our common stock for valuing restricted stock awards and units. The estimated fair value of stock-based awards exchanged foremployee and non-employee director services are expensed over the requisite service period. The stock-based compensation expense related to shares issued underour 2013 Employee Stock Purchase Plan, or ESPP, is also estimated using the Black-Scholes option-pricing model. These models require the use of highlysubjective and complex assumptions which determine the fair value of stock-based awards, including the stock award's expected term and the price volatility of theunderlying stock. These assumptions include: •Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding and is determined by using thesimplified method.•Expected Volatility . Expected volatility represents the expected volatility in our stock price over the expected term of the stock option or award.•Expected Dividend . The pricing models require a single expected dividend yield as an input. We assumed no dividends as we have never paiddividends and have no plans to do so.•Risk-Free Interest Rate . The risk-free interest rates used in the models is based on published government rates in effect at the time of grant forperiods corresponding with the expected term of the option or award.Income TaxesOur income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimatedfuture taxes to be paid. We file income tax returns in the United States, Switzerland, Germany, the United Kingdom, France, and various state jurisdictions.Significant judgments and estimates are required in determining our consolidated income tax expense. We believe that it is more likely than not that the benefit from our deferred tax assets will not be realized. In recognition of this risk, we have provided a fullvaluation allowance on the net deferred tax assets relating to our net operating loss carryforwards and other deferred tax assets. If our assumptions change and wedetermine that we will be able to realize our deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will beaccounted for as a reduction of income tax expense. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. We are not aware of any such changes that wouldhave a material effect on our results of operations, cash flows or financial position. We recognize tax liabilities in accordance with Accounting Standards Codification, or ASC, Topic 740 and we adjust these liabilities when our judgmentchanges as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution mayresult in a payment that is materially different from30Table of Contentsour current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they aredetermined. Recent Accounting Pronouncements For a summary of recent accounting pronouncements applicable to our consolidated financial statements see Note 2, "Summary of Significant AccountingPolicies and Significant Accounts" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.Results of OperationsComparison of Years Ended December 31, 2016 , 2015 and 2014 (tables in thousands): Years ended December 31, 2016 vs 2015 2015 vs 2014 2016 2015 2014 $ Change % Change $ Change % ChangeRevenue$49,274 $39,411 $30,594 $9,863 25% $8,817 29% Our revenue consists primarily of revenue from the sale of test cartridges and reagents (consumables), with a small component from our sale of instrumentsand other revenue.For the year ended December 31, 2016, our revenue grew 25%, or $9,863,000, compared to 2015. Consumables revenue during the year ended December 31,2016 increased by 23% to $46,946,000, compared to $38,061,000 in the prior year. This increase in consumable revenue was primarily driven by increased productpurchases by several key customers. Pricing changes did not have a significant impact on revenue during the current period. Additionally, during the year endedDecember 31, 2016, instrument revenue increased $957,000 compared to the same period of the prior year, primarily due to the sale of ePlex instruments.For the year ended December 31, 2015, our revenue grew 29%, or $8,817,000, compared to 2014. Consumables revenue during the year ended December 31,2015 increased by 30% to $38,061,000 compared to $29,235,000 in the prior year. This increase in consumable revenue was primarily driven by increases in ourinstalled base of XT-8 analyzers over the prior year period. Pricing changes did not have an impact on revenue during 2015. Years ended December 31, 2016 vs 2015 2015 vs 2014 2016 2015 2014 $ Change % Change $ Change % ChangeCost of Revenue$19,700 $15,317 $13,127 $4,383 29% $2,190 17%Gross Profit$29,574 $24,094 $17,467 $5,480 23% $6,627 38% The increase in cost of revenue for the twelve months ended December 31, 2016 compared to the twelve months ended December 31, 2015 was primarilyrelated to the increase in consumables revenue in the current year. Increases in our cost of revenue were attributable to product costs of $3,177,000, increasedproduct warranty and support expenses of $519,000, and increased royalty expense of $431,000 corresponding to sales volume increases, less favorablemanufacturing yields and variances of $235,000, and increased overhead expenses of $412,000, partially offset by decreased inventory reserve expense of$387,000. The improvement to gross profit during the year ended December 31, 2016, compared to December 31, 2015, was primarily due to increased sales ofhigher margin products.The increase in cost of revenue for the twelve months ended December 31, 2015 compared to the twelve months ended December 31, 2014 was primarilyrelated to the increase in consumables revenue during 2015. Increases in our cost of revenue in 2015 were attributable to product costs of $2,548,000corresponding to sales volume increases, the expansion of our customer technical support group of $200,000, increased warranty reserve of $144,000, andincreased royalty expense of $138,000, partially offset by greater manufacturing efficiencies of $761,000. The improvement to gross profit during the year endedDecember 31, 2015, compared to December 31, 2014, was primarily due to increased sales of higher margin products and a reduction in manufacturing personnelcosts. Years ended December 31, 2016 vs 2015 2015 vs 2014 2016 2015 2014 $ Change % Change $ Change % ChangeSales and Marketing$14,734 $14,385 $12,629 $349 2% $1,756 14% 31Table of ContentsSales and marketing expenses primarily comprise employee-related expenses for our domestic and international commercial organization, and marketingcommunication and trade show expenses. The increase in sales and marketing expense for the year ended December 31, 2016, compared to the year endedDecember 31, 2015, was primarily driven by increased marketing and trade show expense of $582,000, increased freight and postage expense of $184,000, andincreased travel expenses of $112,000 incurred in connection with expanding our domestic and international commercial organization, partially offset by adecrease in employee-related expenses of $522,000.The increase in sales and marketing expense for the year ended December 31, 2015, compared to the year ended December 31, 2014, was primarily drivenby a $1,747,000 increase in employee-related expenses, including increased stock-based compensation expense of $1,187,000, incurred in connection withexpanding our domestic and international commercial organization. Years ended December 31, 2016 vs 2015 2015 vs 2014 2016 2015 2014 $ Change % Change $ Change % ChangeGeneral and Administrative$14,363 $13,772 $12,069 $591 4% $1,703 14% The increase in general and administrative expense for the year ended December 31, 2016 compared to the year ended December 31, 2015 was primarilydriven by an increase in employee-related expenses of $536,000, an adjustment to our indirect tax accrual of $274,00, and an increase in travel-related expenses of$168,000, partially offset by a decrease in medical device tax expense of $447,000 as a result of the suspension of the excise tax in December 2015.The increase in general and administrative expense for the year ended December 31, 2015 compared to the year ended December 31, 2014 was primarily dueto increased employee-related expenses of $1,966,000, including increased stock-based compensation expense of $1,559,000, and increased medical device tax of$447,000 as a result of higher product sales, partially offset by a $138,000 decrease in consultant and outside service costs and decreased legal expenses of$77,000. Years ended December 31, 2016 vs 2015 2015 vs 2014 2016 2015 2014 $ Change % Change $ Change % ChangeResearch and Development$49,458 $37,472 $31,823 $11,986 32% $5,649 18% The increase in research and development expense for the year ended December 31, 2016 , compared to the year ended December 31, 2015 , was primarilydriven by increased materials, equipment and consumables used in the development and expansion of our ePlex test menu totaling $10,523,000, increasedemployee-related expenses of $2,993,000, and increased clinical trials expense of $887,000, partially offset by reduced outside services expenditures of$3,420,000.The increase in research and development expense for the year ended December 31, 2015 , compared to the year ended December 31, 2014 , was primarilydue to increased ePlex assay development expenses of $3,993,000, increased clinical trials and quality assurance expenses of $897,000, and an increase in ePlexinstrument expenses of $663,000. Overall increases in research and development expenses were attributable to employee-related expenses, clinical trials expenses,and supplies and other materials to support our ePlex system and its related test menu. Years ended December 31, 2016 vs 2015 2015 vs 2014 2016 2015 2014 $ Change % Change $ Change % ChangeOther Income (Expense)$(1,520) $(622) $218 $(898) 144% $(840) (385)% Other income (expense) represents non-operating income and expense, including, but not limited to, earnings on cash, cash equivalents, marketablesecurities, and interest expense related to debt. The change in other income (expense) for the year ended December 31, 2016 , compared to the year endedDecember 31, 2015 , was due primarily to an increase in interest expense of $655,000 under our debt facility, and a decrease in income as a result of less interestearned on marketable securities of $217,000 in the current period.The change in other income (expense) for the year ended December 31, 2015 , compared to the year ended December 31, 2014 , was due primarily to anincrease in interest expense of $860,000 under our debt facility, a decrease in income as a result of less interest earned on marketable securities of $119,000, and an$84,000 increase in unrealized foreign currency losses as a result of our expanding international operations, partially offset by income from a one-time payment of$223,000 received from the release of escrowed proceeds related to our sale of a preferred stock investment in the fourth quarter of 2014.32Table of Contents Years ended December 31, 2016 vs 2015 2015 vs 2014 2016 2015 2014 $ Change % Change $ Change % ChangeIncome Tax Expense (Benefit)$100 $40 $(573) $60 150% $613 107% Due to net losses incurred domestically, the tax provisions recorded relate to minimum tax payments in the United States. We have recorded tax liabilitiesrelated to income earned in local jurisdictions by our foreign subsidiaries. The increase in income tax expense for the year ended December 31, 2016, compared tothe year ended December 31, 2015, was primarily a result of international income taxes. The increase in income tax expense for the year ended December 31, 2015was primarily due to the expiration of the statue of limitations on uncertain tax positions resulting in the recognition of a $610,000 tax benefit in 2014.Liquidity and Capital Resources To date we have funded our operations primarily from the sale of our common stock, borrowings and cash from operations. We have incurred net lossesfrom operations each year and have not yet achieved profitability. At December 31, 2016 , we had $32,028,000 of working capital, including $41,566,000 in cash,cash equivalents, and marketable securities. Cash Flows The following table shows cash flow information for the years ended December 31, 2016 , 2015 and 2014 : Years Ended December 31, 2016 2015 2014Cash used in operating activities$(35,637) $(31,915) $(29,572)Cash provided by (used in) investing activities(24,123) 19,321 29,417Cash provided by financing activities40,359 11,133 1,287Effect of exchange rate changes on cash(25) (9) —Net increase (decrease) in cash and cash equivalents$(19,426) $(1,470) $1,132 Cash flows used in operating activities Net cash used in operating activities increased $3,722,000 to $35,637,000 for the year ended December 31, 2016, compared to $31,915,000 for the yearended December 31, 2015. The increase in cash used in operating activities was primarily due to an $8,404,000 increase in our net loss and $535,000 in lower non-cash charges primarily comprised of stock-based compensation expense, partially offset by an additional $5,217,000 cash inflow from changes in operating assetsand liabilities. The main drivers in the change in operating assets and liabilities included increases in accounts payable, accrued compensation and other liabilitiesand increases in inventory and accounts receivable.Net cash used in operating activities increased $2,343,000 to $31,915,000 for the year ended December 31, 2015, compared to $29,572,000 for the yearended December 31, 2014. The increase in cash used in operating activities was primarily due to a $3,934,000 increase in net loss and $4,658,000 in lower non-cash charges primarily related to less bad debt expense and impairment, partially offset by $3,067,000 of less cash outflow from changes in operating assets andliabilities. Cash flows provided by (used in) investing activities Net cash used in investing activities for the year ended December 31, 2016, compared to the year ended December 31, 2015, increased $43,444,000primarily due to a $36,000,000 decrease from the maturity of short-term marketable securities, an increase in purchases of marketable securities of $11,042,000 ,and increased purchase of property, plant, equipment and licenses of $4,194,000 , partially offset by a $7,792,000 increase in proceeds from the sale of marketablesecurities.Net cash provided by investing activities for the year ended December 31, 2015, compared to the year ended December 31, 2014,decreased $10,096,000 primarily due to a $10,000,000 decrease from the maturity of short-term marketable securities and a $7,274,000 decrease in proceeds fromthe sale of marketable securities related to our sale of a preferred stock investment, partially offset by a decrease in purchases of marketable securitiesof $5,408,000.Cash flows provided by financing activities Net cash provided by financing activities increased $29,226,000 to $ 40,359,000 for the year ended December 31, 2016 , compared to $11,133,000 for theyear ended December 31, 2015, primarily due to a $28,893,000 increase in net proceeds33Table of Contentsgenerated from from an at-the-market equity offering described in greater detail below, and an absence of debt issuance costs of $628,000 incurred in the prioryear, partially offset by a decrease in proceeds from the exercise of employee stock options of $277,000 .Net cash provided by financing activities increased $9,846,000 to $11,133,000 for the year ended December 31, 2015, compared to $1,287,000 for the yearended December 31, 2014, primarily due to the borrowing of $10,000,000 under our debt facility and $458,000 in higher proceeds from stock option exercises,partially offset by $718,000 in costs associated with debt issuance.We have prepared cash flow forecasts which indicate, based on our current cash resources available, that we will have sufficient resources to fund ourbusiness for at least the next 12 months. We expect capital outlays and operating expenditures to increase over the next several years as we grow our customer baseand revenues, and expand our research and development, commercialization and manufacturing activities. Factors that could affect our capital requirements, inaddition to those previously identified, include, but are not limited to: •the level of revenues and the rate of our revenue growth;•change in demand from our customers;•the level of expenses required to expand our commercial (sales and marketing) and manufacturing activities;•the level of research and development investment required to develop our diagnostic systems and test menu;•our need to acquire or license complementary technologies;•the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;•competing technological and market developments; and•changes in regulatory policies or laws that affect our operations.Loan and Security AgreementIn January 2015, we entered into a Loan and Security Agreement, of the LSA, with Solar Capital Partners (as successor-in-interest to General ElectricCapital Corporation), and certain other financial institutions party thereto, as lenders, pursuant to which we obtained (a) up to $35,000,000 in a series of term loansand (b) a revolving loan in the maximum amount of $5,000,000. Under the terms of the LSA, as amended, we could, subject to certain conditions, borrow:•$10,000,000 (Term Loan A) on or before March 31, 2015, which we borrowed in March 2015;•an additional $10,000,000 (Term Loan B), subject to our satisfaction of regulatory requirements necessary to CE Mark our ePlex system in Europe by aspecified date, which we borrowed in June 2016;•an additional $15,000,000 (Term Loan C), subject to our satisfaction of FDA 510(k) market clearance for the sale of our ePlex system in the UnitedStates by a specified date; and•up to $5,000,000 in the form of a revolving loan, which is subject to a defined borrowing base as set forth in the LSA. In July 2016, we entered into an amendment to the LSA pursuant to which the lenders internally reallocated certain funding commitments under the LSAbetween the lenders, and the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied.In February 2017, we entered into an amendment to the LSA pursuant to which the parties further extended the date by which the future fundingrequirements in respect of Term Loan C must be satisfied. In addition, the parties agreed to extend the interest-only period in respect of amounts already borrowedunder Term Loan A and Term Loan B, as well as the amounts, if any, we may borrow pursuant to Term Loan C.Pursuant to the terms of the LSA, the lenders are granted a security interest in (a) all of our personal property, other than intellectual property (which issubject to a negative pledge), but including our rights to payment in respect of intellectual property, (b) the stock of all of our domestic subsidiaries, and (c) 65% ofthe voting stock and 100% of the non-voting stock of each of our non-U.S. subsidiaries.The LSA contains customary affirmative and negative covenants, including, without limitation, delivering reports and notices relating to our financialcondition and certain regulatory events and intellectual property matters, as well as limiting the34Table of Contentscreation of liens, the incurrence of indebtedness, and the making of certain investments, payments and acquisitions, other than as specifically permitted by theLSA.Equity Distribution AgreementOn June 14, 2016, we entered into an Equity Distribution Agreement, or the Distribution Agreement, with Canaccord Genuity Inc., as sales agent, orCanaccord, pursuant to which we could, at our discretion, offer and sell, from time to time, through Canaccord shares of our common stock having an aggregateoffering price of up to $30.0 million. Under the Distribution Agreement, Canaccord could sell shares by any method deemed to be an “at-the-market” offering asdefined in Rule 415 under the Securities Act or any other method permitted by law, including in privately negotiated transactions.We began sales under the Distribution Agreement in August 2016 pursuant to an effective shelf registration statement on Form S-3 previously filed with theSEC. During the three months ended September 30, 2016, we sold 3.3 million shares of our common stock, at an average per share price of $9.04, for aggregategross proceeds of $30.0 million. We incurred $1,143,000 in related transaction costs, comprising commissions paid to Canaccord of 3.0% of the aggregate grossproceeds from each sale of shares occurring pursuant to the Distribution Agreement, or $900,000, and $243,000 in additional miscellaneous expenses.Letter of CreditIn September 2012, we provided a $758,000 letter of credit issued by Banc of California to the landlord of our executive office facility in Carlsbad,California. This letter of credit was secured with $758,000 of restricted cash at December 31, 2016. If we require additional capital, we cannot be certain that it will be available when needed or that our actual cash requirements will not be greater thananticipated. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could besignificantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additionalfunds through collaborations or licensing arrangements, we may be required to relinquish significant rights to our technologies or products, or grant licenses onterms that are not favorable to us.Contractual Obligations As of December 31, 2016 , we had the following contractual obligations (in thousands): Payments due by period Total Less than1 Year 1-3Years 4-5Years After 5YearsLease obligations (1)$10,058 $1,644 $5,677 $2,143 $594Licensing payment obligations1,750 1,494 181 75 —Instrument purchase obligations1,278 1,309 — — —Total obligations$13,086 $4,447 $5,858 $2,218 $594 _____________________(1)We enter into leases in the ordinary course of business with respect to facilities. Our lease agreements have fixed payment terms based on the passage oftime. Certain facility leases require payment of maintenance and real estate taxes. Our future operating lease obligations could change if we terminatecertain contracts or if we enter into additional leases.In January 2012, we entered into a lease amendment with the landlord of our Carlsbad, California executive office facility to rent an additional 22,000 squarefeet. The lease amendment required an additional security deposit of $22,000 and an increase in our standby letter of credit to $758,000 . We took possession of theadditional space on January 1, 2013, at which time the rent increased by approximately $35,000 per month, subject to annual increases of between 3% and 4%. Theterm of the lease was also extended to June 30, 2021.In August 2012, we entered into a three-year supply agreement with Leica for the purchase of our XT-8 instrument. Amounts reported in the table abovereflect minimum purchase commitments under this supply agreement which we can satisfy through instrument purchases or the payment of a designated fee foreach instrument we fail to purchase under the prescribed minimum amounts, subject to certain permitted exclusions.In December 2015, we entered into a manufacturing and supply agreement with Plexus for the purchase of our ePlex instrument. Amounts reported in thetable above reflect the current minimum purchase commitments under this supply agreement, which we satisfy through instrument and component part purchases. 35Table of ContentsIn June 2015, we entered into a lease agreement for additional manufacturing space located in Carlsbad, California. Pursuant to the lease agreement, rentpayments total $4,490,000 over the 90-month lease term.Impact of Inflation The effect of inflation and changing prices on our operations was not significant during the periods presented. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. We have provided a $758,000 standby letter of credit to our landlord as security for future rent in connection thelease of our Carlsbad, California corporate headquarters, which is recorded as restricted cash on our consolidated balance sheet.Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures about Market Risk Our exposure to market risk is limited to our cash and cash equivalents, all of which have maturities of less than three months, and marketable securities,which have maturities of less than one year. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs, and fiduciary control ofcash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we may in the futuremaintain a portfolio of cash equivalents and investments in a variety of securities that management believes to be of high credit quality. We currently do not hedgeinterest rate exposure. Because of the short-term maturities of our cash equivalents and short-term investments, we do not believe that an increase in market rateswould have a material negative impact on the value of our portfolio. Interest Rate Risk As of December 31, 2016 , based on current interest rates and total debt outstanding, a hypothetical 100 basis point increase or decrease in interest rateswould have an insignificant pre-tax impact on our results of operations. Foreign Currency Exchange Risks We are a U.S. entity and our functional currency is the U.S. dollar. Substantially all of our revenues were derived from sales in the United States. We havebusiness transactions in foreign currencies, however, we believe we do not have significant exposure to risk from changes in foreign currency exchange rates at thistime. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks. We will continue to monitor and evaluate our internalprocesses relating to foreign currency exchange, including the potential use of hedging strategies.36Table of ContentsItem 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders of GenMark Diagnostics, Inc.We have audited the accompanying consolidated balance sheets of GenMark Diagnostics, Inc. as of December 31, 2016 and 2015, and the related consolidatedstatements of comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2016. These financialstatements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GenMark Diagnostics, Inc. atDecember 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, inconformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), GenMark Diagnostics, Inc.'s internalcontrol over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2017 expressed an unqualified opinion thereon./s/ Ernst & Young LLPSan Diego, CaliforniaFebruary 28, 201737Table of ContentsGENMARK DIAGNOSTICS, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except par value) As of December 31, 2016 2015Current assets Cash and cash equivalents$15,959 $35,385Marketable securities25,607 10,080Accounts receivable, net of allowances of $2,740 and $2,727, respectively9,048 6,847Inventories6,633 3,054Prepaid expenses and other current assets1,202 591Total current assets58,449 55,957Non-current assets Property and equipment, net18,268 11,396Intangible assets, net2,670 2,376Restricted cash758 758Other long-term assets179 180Total assets$80,324 $70,667Current liabilities Accounts payable$8,703 $4,376Accrued compensation5,650 3,861Loan payable7,935 (373)Other current liabilities4,133 2,725Total current liabilities26,421 10,589Long-term liabilities Deferred rent3,652 1,257Long-term debt11,880 9,890Other non-current liabilities220 334Total liabilities42,173 22,070Commitments and contingencies—See note 7 Stockholders’ equity Preferred stock, $0.0001 par value; 5,000 authorized, none issued— —Common stock, $0.0001 par value; 100,000 authorized; 46,554 and 42,551 shares issued and outstanding as ofDecember 31, 2016 and December 31, 2015, respectively4 4Additional paid-in capital393,322 353,233Accumulated deficit(355,270) (304,669)Accumulated other comprehensive income (loss)95 29Total stockholders’ equity38,151 48,597Total liabilities and stockholders’ equity$80,324 $70,667 See accompanying notes to consolidated financial statements.38Table of ContentsGENMARK DIAGNOSTICS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands, except per share data) Years ended December 31, 2016 2015 2014Revenue Product revenue$48,914 $39,029 $30,328License and other revenue360 382 266Total revenue49,274 39,411 30,594Cost of revenue19,700 15,317 13,127Gross profit29,574 24,094 17,467Operating expenses Sales and marketing14,734 14,385 12,629General and administrative14,363 13,772 12,069Research and development49,458 37,472 31,823Total operating expenses78,555 65,629 56,521Loss from operations(48,981) (41,535) (39,054)Other income (expense) Interest income176 125 244Interest expense(1,536) (880) (20)Other income (expense)(160) 133 (6)Total other income (expense)(1,520) (622) 218Loss before provision for income taxes(50,501) (42,157) (38,836)Income tax expense (benefit)100 40 (573)Net loss$(50,601) $(42,197) $(38,263)Net loss per share, basic and diluted$(1.15) $(1.00) $(0.93)Weighted average number of shares outstanding basic and diluted44,100 42,157 41,346Other comprehensive loss Net loss$(50,601) $(42,197) $(38,263)Foreign currency translation adjustments77 36 —Net unrealized gains (losses) on marketable securities, net of tax(11) 3 (20)Comprehensive loss$(50,535) $(42,158) $(38,283) See accompanying notes to consolidated financial statements.39Table of ContentsGENMARK DIAGNOSTICS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(In thousands) Common Stock Additional paid-incapital Accumulated othercomprehensive loss Accumulateddeficit Totalstockholders'equity Shares Par Value Balance—December 31, 201341,520 $4 $333,363 $10 $(224,209) $109,168Stock-based compensation expense— — 5,796 — — 5,796Issuance of employee stock purchase plan shares89 — 812 — — 812Restricted stock awards issued, net ofcancellations149 — — — — —Shares issued under stock-based compensationplans101 — 531 — — 531Net loss— — — — (38,263) (38,263)Unrealized loss on marketable securities— — — (20) — (20)Balance—December 31, 201441,859 4 340,502 (10) (262,472) 78,024Issuance of stock in lieu of accrued bonuses105 — 863 — — 863Stock-based compensation expense— — 9,995 — — 9,995Issuance of employee stock purchase plan shares122 — 884 — — 884Restricted stock awards issued, net ofcancellations284 — — — — —Shares issued under stock-based compensationplans181 — 989 — — 989Net loss— — — — (42,197) (42,197)Foreign currency translation adjustments— — — 36 — 36Unrealized gain on marketable securities— — — 3 — 3Balance—December 31, 201542,551 4 353,233 29 (304,669) 48,597Issuance of stock in lieu of accrued bonuses28 — 364 — — 364Stock-based compensation expense— — 9,236 — — 9,236Issuance of employee stock purchase plan shares138 — 921 — — 921Restricted stock issued, net of cancellations421 — — — — —Shares issued under stock-based compensationplans99 — 712 — — 712Issuance of common stock, net of offeringexpenses3,317 — 28,856 — — 28,856Net loss— — — — (50,601) (50,601)Foreign currency translation adjustments— — — 77 — 77Unrealized loss on marketable securities— — — (11) — (11)Balance—December 31, 201646,554 $4 $393,322 $95 $(355,270) $38,151 See accompanying notes to consolidated financial statements.40Table of ContentsGENMARK DIAGNOSTICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years ended December 31, 2016 2015 2014Operating activities: Net loss$(50,601) $(42,197) $(38,263)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization3,916 3,405 2,656Amortization of premiums on investments89 180 702Amortization of deferred debt issuance costs388 285 —Stock-based compensation9,236 9,995 5,796Provision for bad debt13 25 —Non-cash inventory adjustments134 594 450Gain on sale of investment in preferred stock(9) (223) —Other non-cash adjustments145 186 185Changes in operating assets and liabilities: Accounts receivable(2,250) (1,983) (2,030)Inventories(3,450) (1,286) (229)Prepaid expenses and other assets(613) (36) (184)Accounts payable4,105 (757) 85Accrued compensation2,172 (458) 1,797Other liabilities1,088 355 (537)Net cash used in operating activities(35,637) (31,915) (29,572)Investing activities Payments for intellectual property licenses(1,500) (550) (350)Purchases of property and equipment(7,000) (3,756) (5,726)Purchases of marketable securities(33,688) (22,646) (28,054)Proceeds from sales of marketable securities8,015 223 7,497Maturities of marketable securities10,050 46,050 56,050Net cash provided by (used in) investing activities(24,123) 19,321 29,417Financing activities Proceeds from issuance of common stock30,920 884 812Costs incurred in conjunction with public offering(1,143) — —Principal repayment of borrowings(40) (22) (56)Costs associated with debt issuance(90) (718) —Proceeds from borrowings10,000 10,000 —Proceeds from stock option exercises712 989 531Net cash provided by financing activities40,359 11,133 1,287Effect of exchange rate changes on cash(25) (9) —Net increase (decrease) in cash and cash equivalents(19,426) (1,470) 1,132Cash and cash equivalents at beginning of year35,385 36,855 35,723Cash and cash equivalents at end of year$15,959 $35,385 $36,855Non-cash investing and financing activities: Transfer of systems from property and equipment into inventory$263 $225 $256Property and equipment costs incurred but not paid included in accounts payable$1,159 $146 $124Intellectual property acquisition included in accrued expenses$— $800 $550Supplemental cash flow information: Cash paid for interest$1,130 $572 $20Cash received for interest$266 $305 $244Cash paid for income taxes, net$65 $10 $24 See accompanying notes to consolidated financial statements.41Table of ContentsGENMARK DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and basis of presentationOrganizationGenMark Diagnostics, Inc., the Company or GenMark, was formed by Osmetech plc, or Osmetech, as a Delaware corporation in February 2010, and had nooperations prior to its initial public offering, or the IPO, which was completed in June 2010. Immediately prior to the closing of the IPO, GenMark acquired all ofthe outstanding ordinary shares of Osmetech in a reorganization, accounted for in a manner similar to a pooling-of-interests, under the applicable laws of theUnited Kingdom. As a result of the reorganization, all of the issued ordinary shares in Osmetech were cancelled in consideration of (i) the issuance of commonstock of GenMark to the former shareholders of Osmetech and (ii) the issuance of new shares in Osmetech to GenMark. Following the reorganization, Osmetechbecame a subsidiary controlled by GenMark, and the former shareholders of Osmetech received shares of GenMark. Any historical discussion of GenMark relatesto Osmetech and its consolidated subsidiaries prior to the reorganization. In September 2012, GenMark placed Osmetech into liquidation to simplify its corporatestructure. The liquidation of Osmetech was completed in the fourth quarter of 2013.Segment ReportingThe Company currently operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financialinformation is evaluated regularly by the chief operating decision maker, who is the chief executive officer, in deciding how to allocate resources and assessingperformance. The Company’s business operates in one operating segment because the Company’s chief operating decision maker evaluates the Company’sfinancial information and resources and assesses the performance of these resources on a consolidated basis. Since the Company operates in one operatingsegment, all required financial segment information can be found in the consolidated financial statements.Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S.GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes thereto. The Company’ssignificant estimates included in the preparation of the financial statements are related to accounts receivable, inventories, property and equipment, intangibleassets, employee related compensation accruals, warranty liabilities, tax valuation accounts and stock-based compensation. Actual results could differ from thoseestimates. Basis of Presentation The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. The Company has incurred net losses from operations since its inception and has an accumulated deficit of$355,270,000 at December 31, 2016 . Management expects operating losses to continue through the foreseeable future. The Company's ability to transition toattaining profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure through expanding its product offerings andconsequently increasing its product revenues. Cash, cash equivalents, restricted cash, and investments at December 31, 2016 totaled $41,566,000 . The Companyhas prepared cash flow forecasts which indicate, based on the Company’s current cash resources available, that the Company will have sufficient resources to fundits business for at least the next 12 months from the date of this filing. The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable regulations of the Securities andExchange Commission, or the SEC. Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactionshave been eliminated in consolidation.42Table of Contents2. Summary of Significant Accounting Policies and Significant Accounts Cash and Cash Equivalents and Marketable Securities Cash and cash equivalents consist of cash on deposit with banks, money market instruments and certificates of deposit with original maturities of threemonths or less at the date of purchase. Marketable securities consist of certificates of deposits that mature in greater than three months . Marketable securities areaccounted for as "available-for-sale" with the carrying amounts reported in the balance sheets stated at cost, which approximates their fair market value, withunrealized gains and losses, if any, reported as a separate component of stockholders' equity and included in comprehensive loss.Restricted Cash Restricted cash represents amounts designated for uses other than current operations and includes $758,000 at December 31, 2016 held as security for theCompany’s letter of credit with Banc of California. Fair Value of Financial Instruments The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measurefair value: •Level 1 — Quoted prices in active markets for identical assets or liabilities.•Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quotedprices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full termof the assets or liabilities.•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.The carrying amounts of financial instruments such as accounts receivable, prepaid expenses and other current assets, accounts payable, and accruedliabilities approximate the related fair values due to the short-term maturities of these instruments. Receivables Accounts receivable consist of amounts due to the Company for sales to customers and are recorded net of an allowance for doubtful accounts. Theallowance for doubtful accounts is determined based on an assessment of the collectability of specific customer accounts, the aging of accounts receivable, and areserve for unknown items based upon the Company’s historical experience.The allowance for doubtful accounts as of December 31, 2016 , is as follows (in thousands): Allowance for doubtful accountsBalance December 31, 2014$2,702Provision for doubtful accounts25Balance December 31, 2015$2,727Provision for doubtful accounts13Balance December 31, 2016$2,740The Company has included $2,702,000 in the allowance for doubtful accounts as of December 31, 2016 and 2015 for past due amounts from its formercustomer, Natural Molecular Testing Corporation.Inventories Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and include direct labor, materials, and manufacturing overhead. TheCompany periodically reviews inventory for evidence of slow-moving or obsolete parts, and writes inventory down to net realizable value, as needed. This write-down is based on management’s review of inventories on hand, compared to estimated future usage and sales, shelf-life assumptions, and assumptions about thelikelihood of obsolescence. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required.Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest thatincreased carrying amounts are recoverable. 43Table of ContentsProperty and Equipment-net Property, equipment and leasehold improvements are recorded at cost and depreciated using the straight-line method over the estimated useful lives of theassets, which are:Machinery and laboratory equipment3 – 5 yearsInstruments4 – 5 yearsOffice equipment3 – 7 yearsLeasehold improvementsover the shorter of the remaining life of the lease or the useful economic life of the asset Property and equipment includes diagnostic instruments used for sales demonstrations or placed with customers under several types of arrangements,including performance evaluation programs, or PEPs, and reagent rental agreements. PEPs are placed with customers for evaluation periods of up to three monthsand the Company retains title to the instruments under these arrangements. Maintenance and repair costs are expensed as incurred. Intangible Assets Intangible assets are comprised of licenses or sublicenses to technology covered by patents owned by third parties, and are amortized on a straight-line basisover the expected useful lives of these assets, which is generally 10 years. Amortization of licenses typically begins upon the Company obtaining access to thelicensed technology and is recorded in cost of revenues for licenses supporting commercialized products. The amortization of licenses to technology supportingproducts in development is recorded in research and development expenses. Impairment of Long-Lived Assets The Company assesses the recoverability of long-lived assets, including intangible assets, by periodically evaluating the carrying value whenever events orchanges in circumstances indicate that the carrying amount may not be recoverable. If impairment is indicated, the Company writes down the carrying value of theasset to its estimated fair value. This fair value is primarily determined based on estimated discounted cash flows. The Company did not recognize any impairmentcharges during the years ended December 31, 2016 and 2015. Revenue Recognition The Company recognizes revenue from product sales and contract arrangements, net of discounts and sales related taxes. The Company recognizes revenuefrom product sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability isreasonably assured. The Company offers customers the choice to either purchase a system outright or to receive a system free of charge in exchange for an annual minimumpurchase commitment for diagnostic test cartridges. When a system is sold, the Company generally recognizes revenue upon shipment of the unit, however, if theend user already has the instrument being purchased installed at its location, revenue is recognized when the revenue recognition terms other than delivery havebeen satisfied. When a system is placed free of charge under a “reagent rental” agreement, the Company retains title to the equipment and it remains capitalized onthe balance sheet under property and equipment. Under reagent rental agreements, the Company’s customers pay an additional system rental fee for each testcartridge purchased which varies based on the monthly volume of test cartridges purchased. The system rental fee and diagnostic test cartridges are recognized ascontingent rental payments and are included in product revenue in the Company’s consolidated financial statements. The Company has not had significant product returns and is not contractually obligated to accept returns unless such returns are related to warrantyprovisions. The Company generally does not accept reagent product returns, mainly due to FDA regulations, and does not offer volume rebates or provide priceprotection. The Company enters into PEP agreements pursuant to which an instrument is installed on the premises of a pre-qualified customer for the purpose ofallowing the customer to evaluate the instrument’s functionality over an extended trial period. The customer is generally required to purchase a minimum quantityof reagents and, at the end of the evaluation period, must purchase or return the instrument or sign a reagent rental agreement.Revenues related to royalties received from licenses are recognized evenly over the contractual period to which the license relates. In those cases where theCompany bills shipping and handling costs to customers, the amounts billed are included in product revenue.44Table of ContentsIn 2016 and 2015, Laboratory Corporation of America, Inc. represented 27% and 17% , respectively, of the Company's total revenue. In 2014, no singlecustomer represented more than 10% of the Company's total revenue.Product Warranties The Company generally offers a one -year warranty for its instruments sold to customers and up to a sixty day warranty for reagents and provides for theestimated cost of the product warranty at the time the system sale is recognized. Factors that affect the Company’s warranty reserves include the number of unitssold, historical and anticipated rates of warranty repairs and the cost per repair. The Company periodically assesses the adequacy of the warranty reserve andadjusts the amount as necessary. Product warranty reserve activity for the years ended December 31, 2016 , 2015 and 2014 is as follows (in thousands): 2016 2015 2014Beginning balance$118 $195 $226Warranty expenses incurred(421) (430) (608)Provisions522 353 577Ending balance$219 $118 $195 Research and Development Costs The Company expenses all research and development costs in the periods in which they are incurred unless there is alternative future use that supports thecapitalization of an asset. Income Taxes Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is establishedfor the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance isprovided if it is more likely than not that some or all of the deferred tax assets will not be realized. A full valuation allowance has been recorded against theCompany’s net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. The Company provides foruncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance onincome taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. TheCompany recognizes accrued interest related to uncertain tax positions as a component of income tax expense. A tax position that is more likely than not to be realized is measured at the largest amount of tax benefit that is greater than 50% likely of being realized uponsettlement with the taxing authority that has full knowledge of all relevant information. Measurement of a tax position that meets the more likely than not thresholdconsiders the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances and information available at thereporting date. Stock-Based Compensation The Company recognizes stock-based compensation expense related to stock options, shares purchased under the Company's ESPP, restricted stock awards,restricted stock units and market-based stock units granted to employees and directors in exchange for services. The compensation expense is based on the fairvalue of the applicable award utilizing various assumptions regarding the underlying attributes of the award. The stock-based compensation expense is recorded incost of revenues, sales and marketing, research and development, and/or general and administrative expenses based on the employee's respective function. The estimated fair value of stock granted, net of forfeitures expected to occur during the vesting period, is amortized as compensation expense thatapproximates straight-line expense to reflect vesting as it occurs. The stock option expense is derived from the Black-Scholes Option Pricing Model that usesseveral judgment-based variables to calculate the expense. The market-based stock expense is derived from the Monte Carlo Simulation Valuation. The inputsutilized in the valuation of the stock-based awards include the following factors: •Expected Term. Expected term represents the period that the stock-based awards are expected to be outstanding and is determined by using thesimplified method.45Table of Contents•Expected Volatility . Expected volatility represents the expected volatility in the Company’s stock price over the expected term of the option ormarket-based award and is determined by review of the Company’s and similar companies’ historical experience.•Expected Dividend . The valuation methods required a single expected dividend yield as an input. The Company assumed no dividends as it has neverpaid dividends and has no current plans to do so.•Risk-Free Interest Rate. The risk-free interest rate is based on published U.S. Treasury rates in effect at the time of grant for periods correspondingwith the expected term of the option or market-based award.The compensation expense related to the grant of restricted stock awards or units is calculated as the fair market value of the stock on the grant date asfurther adjusted to reflect expected forfeitures. Foreign Currency Translation During 2015, the Company established foreign subsidiaries with currencies other than the U.S. Dollar. The assets and liabilities of the Company's entitiesoutside the U.S. are translated into U.S. Dollars based on the foreign currency exchange rates at the end of each period, while revenues and expenses are translatedat weighted average exchange rates during the applicable period. Gains or losses resulting from these foreign currency translations of the Company's assets andliabilities are recorded in accumulated comprehensive loss in the consolidated balance sheets. Foreign currency translation impacts recorded in accumulated othercomprehensive loss for the year ended December 31, 2016 and 2015 was $77,000 and $36,000 , respectively. Transactions in foreign currencies were recognized using the rate of exchange prevailing at the date of the transaction. Foreign exchange losses, which areincluded in the accompanying consolidated statements of operations, totaled $169,000 , $91,000 and $9,000 for the years ended December 31, 2016 , 2015 and2014 , respectively, and relate primarily to transactions denominated in Euros. Net Loss per Common Share Basic net loss per share is calculated by dividing loss available to stockholders of our common stock (the numerator) by the weighted average number ofshares of the Company's common stock outstanding during the period (the denominator). Shares issued during the period and shares reacquired during the periodare weighted for the portion of the period that they were outstanding. Diluted loss per share is calculated in a similar way to basic loss per share except that thedenominator is increased to include the number of additional shares that would have been outstanding if the dilutive potential shares had been issued unless theeffect would be anti-dilutive.The calculations of diluted net loss per share for the years ended December 31, 2016 , 2015 and 2014 did not include the effects of the following stockoptions or other unvested equity awards which were outstanding as of the end of each year because the inclusion of these securities would have been anti-dilutive(in thousands). Year Ended December 31, 2016 2015 2014Options outstanding to purchase common stock2,570 3,004 2,479Other unvested equity awards2,000 1,267 948Total4,570 4,271 3,427 Concentration of Risk Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investmentsecurities, and accounts receivable. We limit our exposure to credit loss by placing our cash with high credit quality financial institutions. We have establishedguidelines relative to diversification of our cash and investment securities and their maturities that are intended to secure safety and liquidity. The following tablesummarizes customers who accounted for 10% or more of net accounts receivable: December 31, 2016 2015Laboratory Corporation of America, Inc.33% 35% 46Table of ContentsComprehensive Loss The Company has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensiveincome either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company’s comprehensive losscomprises net losses, unrealized gains and losses on available for sale securities, and foreign currency translation.Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board, or the FASB, or other standard setting bodiesthat the Company adopts as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will nothave a material impact on its financial position or results of operations upon adoption.In March 2016, the FASB issued Accounting Standards Update, or ASU, 2016-09, Improvements to Employee Share-Based Payment Accounting. Thisguidance simplifies how several aspects of share-based payments are accounted for and presented in the financial statements. This guidance is effective for theCompany beginning January 1, 2017 and the Company will adopt this ASU in the first quarter of 2017. The Company has excess tax benefits for which a benefitcould not be previously recognized of approximately $1,979,000 . Upon adoption, the balance of the unrecognized excess tax benefits will be reversed with theimpact recorded to retained earnings, including any change to the valuation allowance as a result of adoption. Due to the full valuation allowance on the Company'sU.S. deferred tax assets, the Company does not expect any impact to the financial statements as a result of this adoption.In February 2016, the FASB issued ASU 2016-02, Leases. This ASU outlines a comprehensive lease accounting model and supersedes the current leaseguidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using themodified retrospective approach and will be effective for the Company starting in the first quarter of 2019, with early adoption permitted. The Company isevaluating the effects adoption will have on its consolidated financial statements. The Company expects this adoption will result in a material increase in the assetsand liabilities on our consolidated balance sheets and will likely have an immaterial impact on our consolidated statements of comprehensive loss.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. ASU 2014-09 providesenhancements to the quality and consistency of how revenue is reported by companies while also improving comparability in the financial statements of companiesreporting using International Financial Reporting Standards or U.S. GAAP. The main purpose of the new standard is for companies to recognize revenue to depictthe transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods orservices. The new standard also will result in enhanced disclosures of revenue, provide guidance for transactions that were not previously addressedcomprehensively, and improve guidance for multiple-element arrangements. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts withCustomers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 toDecember l5, 2017, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for the Company inthe first quarter of fiscal 2018. The Company is currently evaluating the overall impact this standard will have on our consolidated financial statements, as well asthe expected timing and method of adoption. Based on our preliminary assessment, the Company does not anticipate a material impact on its financial statements.The Company is continuing this assessment, which may identify other impacts.47Table of Contents3. Intangible Assets, net Intangible assets as of December 31, 2016 and 2015 consisted of the following (in thousands): December 31, 2016 December 31, 2015 Grosscarryingamount Accumulatedamortization Netcarryingamount Grosscarryingamount Accumulatedamortization NetcarryingamountLicensed intellectual property$4,250 $(1,580) $2,670 $3,550 $(1,174) $2,376In March 2012, the Company entered into a license agreement with Caliper Life Sciences Inc., or Caliper, pursuant to which the Company obtained a non-exclusive license under Caliper’s microfluidics patent portfolio. In consideration for the license, the Company agreed to pay Caliper $400,000 in up-front paymentsrecorded as an intangible asset on the Company’s balance sheet plus certain sales-based milestone payments, as well as a royalty on the sale of certain products. Aspart of the agreement, the Company obtained an unconditional release from any and all claims based upon any alleged infringement of the licensed patents prior tothe effective date of the agreement. The Company met sales-based milestones in March 2013, March 2014 and August 2015 triggering the payment of $450,000 ,$550,000 , and $800,000 , respectively, which were made after the fiscal year during which the respective milestone was achieved.In July 2012, the Company entered into a development collaboration and license agreement with Advanced Liquid Logic, Inc., or ALL, which was acquiredby Illumina, Inc. in July 2013. Under the terms of the agreement, the Company established a collaborative program to develop in-vitro diagnostic productsincorporating ALL’s proprietary electrowetting technology in conjunction with the Company’s electrochemical detection technology. The Company paid ALL anupfront license payment of $250,000 and agreed to pay up to $1,750,000 in potential additional milestone payments. Pursuant to the agreement, as amended, theCompany will be obligated to pay to ALL a royalty consisting of a low- to mid-single digit percent of net sales of designated licensed products containing ALLcomponents. The Company met certain milestones in August 2013, June 2014 and September 2016 resulting in the payment of $200,000 , $350,000 and $700,000 ,respectively, to ALL.Intellectual property licenses had a weighted average remaining amortization period of 5.40 years as of December 31, 2016 . Amortization expense forintangible assets amounted to $406,000 , $294,000 and $227,000 for the years ended December 31, 2016 , 2015 and 2014 , respectively. Estimated futureamortization expense for these licenses is as follows (in thousands):Years Ending December 31,Future Amortization Expense2017$4972018497201949720204972021497Thereafter185Total$2,6704. Stockholders’ EquityOn June 14, 2016, the Company entered into an Equity Distribution Agreement, or the Distribution Agreement, with Canaccord Genuity Inc., as sales agent,or Canaccord, pursuant to which the Company could, at its discretion, offer and sell, from time to time, through Canaccord shares of its common stock having anaggregate offering price of up to $30,000,000 . Under the Distribution Agreement, Canaccord could sell shares by any method deemed to be an “at-the-market”offering as defined in Rule 415 under the Securities Act or any other method permitted by law, including in privately negotiated transactions.The Company began sales under the Distribution Agreement in August 2016 pursuant to an effective shelf registration statement on Form S-3 previouslyfiled with the SEC. During the three months ended September 30, 2016, the Company sold 3.3 million shares of common stock, at an average per share price of$9.04 , for aggregate gross proceeds of $30,000,000 . The Company incurred $1,143,000 in related transaction costs, comprising commissions paid to Canaccord of3.0% of the aggregate gross proceeds from each sale of shares occurring pursuant to the Distribution Agreement, or $900,000 , and $243,000 in additionalmiscellaneous expenses.48Table of Contents5. Stock-Based Compensation In 2010, the Company adopted the 2010 Equity Incentive Plan, or the 2010 Plan, which provides for the grant of incentive and nonstatutory stock options,restricted stock, stock appreciation rights, restricted stock units, restricted stock bonuses and other stock-based awards. Employee participation in the 2010 Plan isat the discretion of the compensation committee of the board of directors of the Company. All stock options granted under the 2010 Plan are exercisable at a priceequal to the closing quoted market price of the Company’s shares on the NASDAQ Global Market on the date of grant and generally vest over a period of betweenone and four years.The Company estimates potential forfeitures of stock-based award grants and adjusts compensation cost recorded accordingly. The estimate of forfeitures isbased on historical forfeiture experience and is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, fromsuch estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of evaluation and will also impact theamount of stock compensation expense to be recognized in future periods. Stock options are generally exercisable for a period up to 10 years after grant and are forfeited if employment is terminated before the options vest. As ofDecember 31, 2016 , there were 79,455 shares available for future grant of awards under the 2010 Plan. The following table summarizes stock option activity during the year ended December 31, 2016 : Number ofshares Weightedaverageexercise priceOutstanding at December 31, 20153,004,011 $9.74Granted5,000 $4.70Exercised(98,941) $7.20Forfeitures(340,520) $11.96Outstanding at December 31, 20162,569,550 $9.53Vested and expected to vest at December 31, 20162,490,256 $9.45Exercisable at December 31, 20161,937,739 $8.75 The weighted average fair value of options granted during the years ended December 31, 2016 , 2015 and 2014 was $2.27 , $6.02 and $7.45 per share,respectively. Options that were exercisable as of December 31, 2016 had a remaining weighted average contractual term of 5.67 years and an aggregate intrinsicvalue of $7,036,000 . As of December 31, 2016 , there was $3,323,000 of unrecognized compensation cost related to stock options, which is expected to berecognized over a weighted average period of 1.57 years. The intrinsic value of options exercised during the years ended December 31, 2016 , 2015 and 2014 was$896,000 , $938,000 and $584,000 , respectively. As of December 31, 2016 , there were 2,569,550 stock options outstanding, which had a remaining weightedaverage contractual term of 6.20 years and an aggregate intrinsic value of $7,532,000 . Valuation of Stock-Based AwardsThe assumptions used in the valuation of stock-based awards for the years ended December 31, 2016 , 2015 and 2014 , are summarized in the followingtable: Years Ended December 31, 2016 2015 2014Expected volatility (%)51% 49% 69%Expected life (years)5.90 6.06 6.08Risk free rate (%)1.35% 1.67% 1.82%Expected dividend yield (%)—% —% —% 49Table of ContentsRestricted Stock Awards and UnitsIn March 2013, the Company transitioned to granting restricted stock units under the 2010 Plan in lieu of granting restricted stock awards. TheCompany’s restricted stock activity for the year ended December 31, 2016 was as follows: Restricted Stock Awards Restricted Stock Units Numberofshares WeightedAverageGrant DateFair Value Numberofshares WeightedAverageGrant DateFair ValueUnvested at December 31, 201532,837 $5.00 934,977 $12.66Granted— $— 1,580,273 $5.80Vested(32,369) $4.91 (444,365) $11.79Forfeitures(312) $11.19 (304,762) $7.65Unvested at December 31, 2016156 $11.19 1,766,123 $7.18 Restricted stock awards or units may be granted at the discretion of the compensation committee of the board of directors under the 2010 Plan in connectionwith the hiring or retention of personnel and are subject to certain conditions. Restrictions expire at certain dates after the grant date in accordance with specificprovisions in the applicable award agreement.As of December 31, 2016 , there was $1,000 of unrecognized compensation cost related to restricted stock awards, which is expected to be recognized over aweighted average-period of 0.04 years. The total fair value of restricted stock awards that vested during the years ended December 31, 2016 , 2015 and 2014 was$190,000 , $580,000 and $3,466,000 , respectively.As of December 31, 2016 , there was $8,509,000 of unrecognized compensation cost related to restricted stock units, which is expected to be recognized overa weighted average period of 2.80 years. The total fair value of restricted stock units that vested during the years ended December 31, 2016 , 2015 and 2014 was$3,192,000 , $ 4,457,000 and $2,121,000 , respectively.The Company issued market-based stock units in February 2015 and February 2016, which may result in the recipient receiving shares of stock equal to upto 200% of the target number of units granted. The vesting and issuance of Company stock depends on the Company's stock performance as compared to theNASDAQ Composite Index over the three-year period following the grant. As of December 31, 2016 , there was $781,000 of unrecognized stock-basedcompensation expense related to these awards, which is expected to be recognized over a weighted average period of 1.75 years. The total fair value of market-stock units that vested during the years ended December 31, 2016 and 2015 was $ 2,433,000 and $29,000 , respectively. The Company’s market-based stock unitactivity for the year ended December 31, 2016 was as follows: Market-Based Stock Units Number ofShares WeightedAverageGrant DateFair ValueUnvested at December 31, 2015136,730 18.07Units granted335,253 4.94Vested(192,941) 8.01Cancelled(56,269) 9.81Unvested at December 31, 2016222,773 7.3450Table of Contents The fair value of these market-based stock units was estimated on the date of grant using the Monte Carlo Simulation Valuation Model, which estimates thepotential outcome of achieving the market condition based on simulated future stock prices, with the following assumptions for the year ended December 31, 2016: 2016 2015Expected volatility49% 45%Risk-free interest rate0.90% 1.10%Expected dividend—% —%Weighted average fair value$4.94 $18.07The Company granted 43,200 performance-based restricted stock units in March 2014 with a grant date fair value of $12.30 per share. The vesting andissuance of Company stock pursuant to these awards depends on obtaining regulatory clearance of a designated number of ePlex products within a defined time.Stock-based compensation expense for performance-based awards is recognized when it is probable that the applicable performance criteria will be satisfied. Theprobability of achieving the relevant performance criteria is evaluated on a quarterly basis. On December 31, 2014 , 10,800 units were earned and vested with atotal fair value of $147,000 . On each of December 31, 2016 and 2015 , 10,800 units were forfeited and cancelled as the related performance metrics were notachieved by such dates. As of December 31, 2016 , there was $133,000 in unrecognized stock-based compensation expense related to the remaining unvestedawards. Employee Stock Purchase PlanFollowing the adoption of the ESPP by the Company’s board of directors in March 2013, the Company's stockholders approved the ESPP in May 2013 at theCompany's Annual Meeting of Stockholders. A total of 650,000 shares of the Company’s common stock are reserved for issuance under the ESPP, which permitseligible employees to purchase common stock at a discount through payroll deductions.The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first or the last day of the offeringperiod, whichever is lower. Generally, each offering under the ESPP will be for a period of six months as determined by the Company's board of directors;provided that no offering period may exceed 27 months . Employees may invest up to 10% of their gross compensation through payroll deductions. In no eventmay an employee purchase more than 1,500 shares of common stock during any six-month offering period. As of December 31, 2016 , there were 267,839 sharesof common stock available for issuance under the ESPP. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation. As aresult, stock-based compensation expense related to the ESPP, calculated using the Black-Scholes model at the beginning of each six-month offering period, hasbeen recorded during the year ended December 31, 2016 .A summary of ESPP activity for the years ended December 31, 2016 and 2015 is as follows (in thousands, except share, and per share data): Year Ended December 31, 20162015Shares issued138,058122,245Weighted average fair value of shares issued$6.67$7.22Employee purchases$921$88451Table of ContentsStock-Based Compensation Expense RecognitionStock-based compensation was recognized in the consolidated statements of comprehensive loss as follows (in thousands): Years Ended December 31, 2016 2015 2014Cost of revenue$258 $209 $73Sales and marketing2,329 3,050 1,848Research and development2,482 2,498 1,194General and administrative4,167 4,238 2,681Stock-based compensation expense$9,236 $9,995 $5,796 No stock-based compensation was capitalized during the periods presented, and there was no unrecognized tax benefit related to stock-based compensationfor the years ended December 31, 2016 , 2015 and 2014 , respectively.6. Income Taxes The Company's income (loss) before provision (benefit) for income taxes for the years ended December 31, 2016, 2015, and 2014, respectively, wasgenerated in the following jurisdictions (in thousands): Years Ended December 31, 2016 2015 2014Domestic$(50,651) $(42,221) $(37,766)Foreign150 64 (1,070)Worldwide Income (Loss)$(50,501) $(42,157) $(38,836)The components of income tax expense (benefit) were as follows for the years ended December 31, 2016 , 2015 , and 2014 , respectively (in thousands): Years Ended December 31, 2016 2015 2014Current expense: U.S. federal$(10) $— $—State31 25 (573)Foreign (non-U.S. entities)70 20 —Total current expense (benefit)$91 $45 $(573)Deferred expense (benefit): U.S. Federal$4 $— $—State1 — —Total deferred expense (benefit)$5 $— $—The components of net deferred income taxes consisted of the following at December 31, 2016 and 2015 , respectively (in thousands):52Table of Contents As of December 31, 2016 2015Deferred income tax assets: NOL and credit carryforwards$74,375 $59,907Compensation accruals4,660 3,952Accruals and reserves3,437 2,201State tax provision8 8Inventory adjustments996 559Intangible assets645 361Other144 5Subtotal: deferred tax assets84,265 66,993Valuation allowance(82,481) (66,211)Total deferred tax assets1,784 782Deferred income tax liabilities: Depreciation(1,784) (782)Subtotal: deferred tax liabilities(1,784) (782)Net deferred tax assets$— $— A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to the loss from operations is summarizedfor the years ended December 31, 2016 , 2015 , and 2014 , respectively, as follows: Years Ended December 31, 2016 2015 2014U.S. Federal statutory income tax rate34.0 % 34.0 % 34.0 %Permanent differences(0.3)% (0.1)% (0.3)%State taxes2.3 % 2.4 % 2.6 %Executive compensation limitation(0.1)% (0.8)% (0.7)%Stock-based compensation(3.5)% (1.4)% (1.5)%Other(0.4)% 2.1 % 0.3 %Valuation allowance(32.2)% (36.9)% (32.9)%Total tax provision(0.2)% (0.7)% 1.5 % The Company had federal net operating loss (NOL) carryforwards available of approximately $206,900,000 as of December 31, 2016 after consideration oflimitations under Section 382 of the Internal Revenue Code, or Section 382, as further described below. Additionally, the Company had state NOL carryforwardsavailable of $165,000,000 as of December 31, 2016 . These federal and state NOLs may be used to offset future taxable income and will begin to expire in 2025and 2017, respectively.Of the $206,900,000 and $165,000,000 of federal and state NOL carryforwards at December 31, 2016 , $5,402,000 represents excess tax benefits related toequity compensation which will result in an increase in equity if and when such excess benefits are ultimately realized. The future utilization of the Company’s NOL carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result ofchanges in ownership by stockholders that hold 5% or more of the Company’s common stock . An assessment of such ownership changes under Section 382 wascompleted through December 31, 2016. As a result of this assessment, the Company determined that it experienced multiple ownership changes through 2016which will limit the future utilization of NOL carryforwards. The Company has reduced its deferred tax assets related to NOL carryovers that are anticipated toexpire unused as a result of ownership changes. These tax attributes have been excluded from deferred tax assets with a corresponding reduction of the valuationallowance with no net effect on income tax expense or the effective tax rate. Additionally, future ownership changes may further impact the utilization of existingNOLs. The Company has established a full valuation allowance for its deferred tax assets due to uncertainties that preclude it from determining that it is more likelythan not that the Company will be able to generate sufficient taxable income to realize53Table of Contentssuch assets. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize theexisting deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three year period endedDecember 31, 2016 . Such objective evidence limits the ability to consider other subjective evidence such as the Company's projections for future growth. Basedon this evaluation, as of December 31, 2016 , a valuation allowance of $82,481,000 has been recorded in order to measure only the portion of the deferred tax assetthat more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if objective negative evidence inthe form of cumulative losses is no longer present and additional weight may be given to subjective evidence, such as estimates of future taxable income duringcarryforward periods and the Company's projections for growth. The Company applies the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position forrecognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolutionof related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of beingrealized upon ultimate settlement. Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon theadoption of ASC 740 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. The following table summarizes the changes to unrecognized tax benefits for the years ended December 31, 2016 , 2015 and 2014 , respectively (inthousands): Years Ended December 31, 2016 2015 2014Beginning balance of unrecognized tax benefits$— $— $382Lapses in the statute of limitations— — (382)Ending balance of unrecognized tax benefits$— $— $—At December 31, 2016 and December 31, 2015 , the Company had not accrued any interest or penalties related to uncertain tax positions. The Company doesnot anticipate that there will be a significant change in the amount of unrecognized tax benefits over the next twelve months. The Company recognizes interest andpenalties related to uncertain tax positions in income tax expense. The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company's Federal and state returns since inceptionare subject to examination due to the carryover of net operating losses. As of December 31, 2016 , the Company’s tax years from 2011 through 2012 are subject toexamination by the United Kingdom tax authorities. The statute of limitations for the assessment and collection of income taxes related to other foreign tax returnsvaries by country. In the foreign countries where the Company has operations, these time periods generally range from three to five years after the year for whichthe tax return is due or the tax is assessed. 7. Commitments and Contingencies Leases The Company has lease agreements for its office, manufacturing, warehousing and laboratory space and for office equipment. Rent and operating expensescharged were $1,871,000 , $1,233,000 and $1,147,000 for the years ended December 31, 2016 , 2015 , and 2014 , respectively. Pursuant to the Company’s leaseagreements, a portion of the monthly rent has been deferred. The balance deferred at December 31, 2016 and 2015 was $4,097,000 and $1,445,000 , respectively. Annual future minimum obligations for leases as of December 31, 2016 are as follows (in thousands):54Table of ContentsYears Ending December 31,Amount2017$1,64420181,79220191,91320201,97220211,372Thereafter1,365Total minimum lease payments$10,058Legal Proceedings From time to time, the Company is party to litigation and other legal proceedings in the ordinary course, and incidental to the conduct of its business. Whilethe results of any litigation or other legal proceedings are uncertain, the Company does not believe the ultimate resolution of any pending legal matters is likely tohave a material effect on its financial position or results of operations.8. Inventories Inventory on hand as of December 31, 2016 and 2015 comprised the following (in thousands): December 31, 2016 2015Raw materials$2,171 $1,147Work-in-process1,488 693Finished goods2,974 1,214 $6,633 $3,054 9. Property and Equipment, net Property and equipment comprised the following as of December 31, 2016 and 2015 (in thousands): December 31, 2016 2015Property and equipment—at cost: Plant and machinery$10,145 $7,728Instruments9,869 8,195Office equipment1,714 1,526Leasehold improvements10,100 4,311Total property and equipment—at cost31,828 21,760Less accumulated depreciation(13,560) (10,364)Property and equipment, net$18,268 $11,396 Depreciation expense was $3,510,000 , $3,112,000 and $2,429,000 for the years ended December 31, 2016 , 2015 and 2014 , respectively. During the yearsended December 31, 2016 , 2015 and 2014 , the Company disposed of certain assets no longer in use with a net book value of $76,000 , $153,000 , and $102,000 ,respectively, recorded to cost of revenue, sales and marketing, research and development, or general and administrative expenses based on the asset's respectiveuse. 55Table of Contents10. Loan payableAs of December 31, 2016 and 2015 , long-term debt consisted of the following (in thousands): December 31, 2016 December 31, 2015Term Loans Term Loan A - 6.9% principal $10,000 $10,000 Term Loan B - 6.9% principal 10,000 — Final fee obligation 400 400 Unamortized issuance costs (585) (883)Total debt, net 19,815 9,517 Current portion of long-term debt (7,935) 373Long-term debt $11,880 $9,890Term LoansIn January 2015, the Company entered into a Loan and Security Agreement, or the LSA, with Solar Capital Partners (as successor-in-interest to GeneralElectric Capital Corporation), and certain other financial institutions party thereto, as lenders, pursuant to which the Company obtained (a) up to $35,000,000 in aseries of term loans and (b) a revolving loan in the maximum amount of $5,000,000 . Under the terms of the LSA, the Company may, subject to certain conditions,borrow:• $10,000,000 on or before March 31, 2015, or Term Loan A;• an additional $10,000,000 , or Term Loan B, subject to the Company’s satisfaction of regulatory requirements necessary to CE Mark its ePlexsystem in Europe by a specified date; and• an additional $15,000,000 , or Term Loan C, and together with Term Loan A and Term Loan B, the Term Loans, subject to the Company’ssatisfaction of FDA 510(k) market clearance for the sale of the Company’s ePlex system in the United States by a specified date.The Company borrowed $10,000,000 on each of March 27, 2015 and June 10, 2016 pursuant to Term Loan A and Term Loan B, respectively. The TermLoans will accrue interest at a rate equal to ( a) the greater of 1.00% or the 3-year treasury rate in effect at the time of funding, plus (b) an applicable marginbetween 4.95% and 5.90% per annum. The Company is only required to make interest payments on amounts borrowed pursuant to the Term Loans from theapplicable funding date until March 1, 2017 , or the Interest Only Period. Following the Interest Only Period, monthly installments of principal and interest underthe Term Loans will be due until the original principal amount and applicable interest is fully repaid by January 12, 2019 , or the Maturity Date. Interest expenserecognized on the Term Loans for the years ended December 31, 2016 and 2015 totaled $1,184,000 and $611,000 , respectively, for the stated interest and final feeaccrual.In July 2016, the Company entered into an amendment to the LSA pursuant to which the lenders reallocated certain funding commitments under the LSAbetween the lenders, and the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied.Under the LSA, the Company is required to comply with certain affirmative and negative covenants, including, without limitation, delivering reports andnotices relating to the Company’s financial condition and certain regulatory events and intellectual property matters, as well as limiting the creation of liens, theincurrence of indebtedness, and the making of certain investments, payments and acquisitions, other than as specifically permitted by the LSA. As of December 31,2016 , the Company was in compliance with all covenants under the LSA.Revolving LoanPursuant to the LSA, the Company may borrow up to $5,000,000 under the revolving loan facility. Borrowings under the revolving loan will accrue interestat a rate equal to (a) the greater of 1.25% per annum or a base rate as determined by a three-month LIBOR-based formula, plus (b) an applicable margin between2.95% and 3.95% based on certain criteria as set forth in the LSA. All principal and interest outstanding under the revolving loan is due and payable on theMaturity Date. Following the funding of Term Loan A, the Company is required to pay a commitment fee equal to 0.75% per annum of the amounts madeavailable but unborrowed under the revolving loan. As of December 31, 2016 , the Company had not borrowed any amounts pursuant the revolving loan facility.Interest expense recognized for the unused revolving loan facility fee for the years ended December 31, 2016 and 2015 was $42,000 and $34,000 , respectively.56Table of ContentsDebt Issuance CostsAs of December 31, 2016 and December 31, 2015, the Company had $585,000 and $883,000 , respectively, of unamortized debt issuance discount, which isoffset against borrowings in long-term and short-term debt.For the twelve months ended December 31, 2016 and 2015 , amortization of debt issuance costs was $298,000 and $208,000 , respectively, which wasincluded in interest expense in the Company's unaudited condensed consolidated statements of comprehensive loss for the periods presented.Letter of CreditIn September 2012, the Company provided a $758,000 letter of credit issued by Banc of California to the landlord of its executive office facility in Carlsbad,California. This letter of credit was secured with $758,000 of restricted cash as of December 31, 2016 .11. Employee benefit plan The Company has a 401(k) tax-deferred savings plan, whereby eligible employees may contribute a percentage of their eligible compensation. The Companymay make matching contributions under the 401(k) plan; however, the Company has not made any such contributions to date. 12. Other current liabilitiesOther current liabilities as of December 31, 2016 and 2015 consisted of the following (in thousands): December 31, 2016 2015Accrued royalties$949 $1,608Accrued warranties219 118Accrued tenant improvements789 —Deferred revenue658 267Other accrued liabilities1,518 732Total$4,133 $2,72513. Fair value of financial instruments The following table presents the financial instruments measured at fair value on a recurring basis on the financial statements of the Company and thevaluation approach applied to each class of financial instruments at December 31, 2016 and 2015 , respectively, (in thousands):57Table of Contents December 31, 2016 Quotes Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs (Level 3) TotalMoney market funds (cash equivalents)$556 $— $— $556Corporate notes and bonds— 18,821 — 18,821U.S. government and agency securities— 3,503 — 3,503Commercial paper— 3,283 — 3,283 $556 $25,607 $— $26,163 December 31, 2015 Quotes Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs (Level 3) TotalMoney market funds (cash equivalents)$22,128 $— $— $22,128Corporate notes and bonds— 8,483 — 8,483U.S. government and agency securities— 799 — 799Commercial paper— 798 — 798 $22,128 $10,080 $— $32,208 At December 31, 2016 , the carrying value of the financial instruments measured and classified within Level 1 was based on quoted prices and marked tomarket. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that areobservable for the asset or liability. 14. InvestmentsThe following table summarizes the Company’s available-for-sale investments at December 31, 2016 (in thousands): Amortized Cost Gross Unrealized Gains Gross UnrealizedLosses Estimated Fair ValueCorporate notes and bonds$18,846 $— $(25) $18,821U.S. government and agency securities3,506 — (3) 3,503Commercial Paper3,283 — — 3,283Total$25,635 $— $(28) $25,607During 2013, the Company sold its preferred stock investment in ALL in connection with ALL's acquisition by Illumina, Inc., resulting in a $1,392,000realized gain. Additionally, in 2016 and 2015 the Company received an additional $9,000 and $223,000 , respectively, related to the release of escrowed proceeds.The following table summarizes the maturities of the Company’s available-for-sale securities at December 31, 2016 (in thousands): Amortized Cost Estimated Fair ValueDue in one year or less$25,635 $25,607Due after one year through two years— —Total$25,635 $25,60758Table of Contents15. Quarterly financial data (unaudited) Year Ended December 31, 2016 (In thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth QuarterTotal revenue$11,064 $12,512 $10,813 $14,885Gross profit$6,689 $7,792 $6,451 $8,642Loss from operations$(12,708) $(12,588) $(11,627) $(12,058)Net loss$(12,958) $(12,907) $(12,058) $(12,678)Per share data: Net loss per common share—basic and diluted$(0.30) $(0.30) $(0.27) $(0.27) Year Ended December 31, 2015 (In thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth QuarterTotal revenue$10,107 $7,646 $8,472 $13,186Gross profit$6,116 $4,360 $5,120 $8,498Loss from operations$(10,027) $(11,930) $(11,117) $(8,461)Net loss$(9,869) $(12,152) $(11,394) $(8,782)Per share data: Net loss per common share—basic and diluted$(0.24) $(0.29) $(0.27) $(0.21)16. Subsequent eventsThe Company has completed an evaluation of all subsequent events through the issuance date of these consolidated financial statements and the followingrepresents subsequent events for disclosure.On February 27, 2017 the Company entered into a second amendment to the LSA with Solar Capital Partners and certain other financial institutions partythereto, as lenders, pursuant to which the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied. Inaddition, the parties agreed to extend the Interest-Only Period in respect of amounts already borrowed under Term Loan A and Term Loan B, and the amount, ifany, borrowed pursuant to Term Loan C, until June 1, 2017 . The parties also agreed that the Company has the option to further extend the Interest-Only Perioduntil August 1, 2017 , and subsequently to March 1, 2018 , subject in each case to the satisfaction of certain conditions. Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports we file underthe Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the specified time periods andaccumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can beno assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because ofchanges in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected. 59Table of ContentsAs of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our management, with the participation of our Chief Executive Officer and ChiefFinancial Officer, concluded that, as of December 31, 2016 , our disclosure controls and procedures were effective. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting that occurred in the quarter ended December 31, 2016 that materially affected, or isreasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of theExchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes thosepolicies and procedures that: •pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management anddirectors; and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on the financial statements.Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance withpolicies or procedures may deteriorate.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted anevaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework in Internal Control — IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on our evaluation under thisframework, our management concluded that our internal control over financial reporting was effective as of December 31, 2016 . Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by Ernst & YoungLLP, an independent registered public accounting firm, as stated in their report which is included herein.60Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders of GenMark Diagnostics, Inc.We have audited GenMark Diagnostics, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). GenMarkDiagnostics, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.In our opinion, GenMark Diagnostics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, basedon the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2016 consolidated financialstatements of GenMark Diagnostics, Inc. and our report dated February 28, 2017 expressed an unqualified opinion thereon./s/ Ernst & Young LLP San Diego, CaliforniaFebruary 28, 201761Table of ContentsItem 9B.OTHER INFORMATION On February 27, 2017, we entered into a second amendment to the LSA with Solar Capital Partners and certain other financial institutions party thereto,as lenders, pursuant to which the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied. In addition, theparties agreed to extend the interest-only period in respect of amounts already borrowed under Term Loan A and Term Loan B, and the amount, if any, borrowedpursuant to Term Loan C (the “Interest-Only Period”), until June 1, 2017. The parties also agreed that we have the option to further extend the Interest-Only Perioduntil August 1, 2017, and subsequently to March 1, 2018, subject in each case to the satisfaction of certain conditions.PART III. Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item is incorporated in this Annual Report by reference from the information under the captions “Board of DirectorsInformation,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” contained in the Proxy Statement to be filed in connectionwith our 2017 Annual Meeting of Stockholders, or the Proxy Statement. Code of Business Conduct and Ethics We have adopted a code of business conduct and ethics for our directors, officers and employees, which is available on our website at www.genmarkdx.comin the Investor Relations section under “Corporate Governance.” If we make any substantive amendments to the code of business conduct and ethics or grant anywaiver from a provision of the code of business conduct and ethics to any executive officer or director, we will promptly disclose the nature of the amendment orwaiver on our website. The information on, or that can be accessed from, our website is not incorporated by reference into this Annual Report. Item 11.EXECUTIVE COMPENSATION The information required by this Item is incorporated in this Annual Report by reference from the information under the captions “ExecutiveCompensation,” “Compensation Committee Interlocks and Insider Participation” and “Report of the Compensation Committee” contained in the Proxy Statement. Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS The information required by this Item is incorporated in this Annual Report by reference from the information under the captions “Security Ownership ofCertain Beneficial Owners and Management” and “Equity Compensation Plan Information” contained in the Proxy Statement. Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated in this Annual Report by reference from the information under the captions “Certain Relationships andRelated Transactions,” and “Board of Directors Information” contained in the Proxy Statement. Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item is incorporated in this Annual Report by reference from the information under the captions “Principal Accountant Feesand Services” and “Report of the Audit Committee” contained in the Proxy Statement.62Table of ContentsItem 15.EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES (a)Documents filed as part of this Annual Report.1.The following financial statements of GenMark Diagnostics, Inc. and Report of Independent Registered Public Accounting Firm, are included in thisreport: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2016 and 2015 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016 , 2015 and 2014 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016 , 2015 and 2014 Consolidated Statements of Cash Flows for the years ended December 31, 2016 , 2015 and 2014 Notes to Consolidated Financial Statements2.List of financial statement schedules. All schedules are omitted because they are not applicable or the required information is shown in the financialstatements or notes thereto.3. 4.List of Exhibits required by Item 601 of Regulation S-K. See Item 15(b) below. (b)Exhibits.The exhibits listed in the accompanying “Exhibit Index” are filed, furnished or incorporated by reference as part of this Annual Report, as indicated.Item 16.FORM 10-K Summary None.63Table of ContentsSIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to besigned on its behalf by the undersigned, thereunto duly authorized, on February 28, 2017 . GENMARK DIAGNOSTICS, INC. By: /s/ H ANY M ASSARANY Name: Hany Massarany Title: Chief Executive Officer, President and Director(principal executive officer) February 28, 2017 By: /s/ SCOTT MENDEL Name: Scott Mendel Title: Chief Financial Officer(principal financial and accounting officer) February 28, 2017 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Hany Massarany and ScottMendel, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to thisReport on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission,hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons onbehalf of the registrant in the capacities and on the dates indicated. SignatureTitleDate / S / H ANY M ASSARANY President, Chief Executive Officer and Director (principal executive officer)2/28/2017Hany Massarany /S/ SCOTT MENDEL Chief Financial Officer (principal financial and accounting officer)2/28/2017Scott Mendel / S / J AMES F OX Chairman of the Board2/28/2017James Fox / S / D ARYL J. F AULKNER Director2/28/2017Daryl J. Faulkner / S / K EVIN C. O’B OYLE Director2/28/2017Kevin C. O’Boyle / S / MICHAEL S. KAGNOFF Director2/28/2017Michael S. Kagnoff /s/ LISA M. GILESDirector2/28/2017Lisa M. Giles 64Table of ContentsEXHIBIT INDEXExhibitDescription 3.1Certificate of Incorporation (incorporated by reference to our Registration Statement on Form S-1 (File No. 333-165562) filed with theCommission on March 19, 2010). 3.2Amended and Restated By-Laws (incorporated by reference to our Current Report on 8-K filed on October 31, 2014). 10.1Lease between The Campus Carlsbad, LLC and Clinical Micro Sensors, Inc. dba Osmetech Molecular Diagnostics, dated February 8, 2010(incorporated by reference to our Registration Statement on Form S-1 (File No. 333-165562) filed with the Commission on March 19, 2010). 10.2Settlement and Release Agreement and First Amendment to Lease between The Campus Carlsbad, LLC and Clinical Micro Sensors, Inc.,dated July 1, 2010 (incorporated by reference herein form our Form 10-K as filed with the SEC on March 14, 2013). 10.3Settlement and Release Agreement and Second Amendment to Lease, dated January 19, 2012, by and between the Campus Carlsbad, LLCand Clinical Micro Sensors, Inc. d.b.a. GenMark Diagnostics, Inc. (incorporated by reference to our Annual Report on Form 10-K filed withthe Commission on March 21, 2012). 10.4Third Amendment to Lease agreement dated August 28, 2012, by and between The Campus Carlsbad, LLC and Clinical Micro Sensors, Inc.dba GenMark Diagnostics, Inc. (incorporated by reference herein from our Form 10-Q as filed with the SEC on November 8, 2012). 10.5Second Amendment to License Agreement dated June 20, 2000 by and between California Institute of Technology and Clinical MicroSensors, Inc. (incorporated by reference herein form our Form 10-K/A as filed with the SEC on April 18, 2013). † 10.6Amended and Restated Chemically Modified Enzymes Kit Patent License Agreement by and between Roche Molecular Systems, Inc., F.Hoffman-La Roche Ltd., and Clinical Micro Sensors, Inc. dba Osmetech Molecular Diagnostics, dated February 27, 2008 (incorporated byreference to our Registration Statement on Form S-1 (File No. 333-165562) filed with the Commission on May 21, 2010). † 10.7Non-Exclusive License Agreement by and between Clinical Micro Sensors, Inc. d.b.a. GenMark Diagnostics, Inc. and Caliper Life SciencesInc. dated effective as of March 27, 2012 (incorporated by reference herein from our Form 10-Q as filed with the SEC on May 10, 2012). † 10.8Development Collaboration and License Agreement, dated July 26, 2012, by and between Advanced Liquid Logic, Inc. and Clinical MicroSensors, Inc. dba GenMark Diagnostics, Inc. (incorporated by reference herein from our Form 10-Q/A as filed with the SEC on March 22,2013). † 10.9Amendment Number One to Development Collaboration and License Agreement, effective as of January 18, 2016, by and among ClinicalMicro Sensors, Inc. d.b.a. GenMark Diagnostics, Inc., Advanced Liquid Logic, Inc., and Illumina, Inc. (incorporated by reference hereinfrom our Form 10-Q as filed with the SEC on May 3, 2016).† 10.10Loan and Security Agreement dated as of January 12, 2015 by and among GenMark Diagnostics, Inc., as borrower, its domestic subsidiaries,as guarantors, General Electric Capital Corporation, and certain other financial institutions as lenders (incorporated by reference herein to ourForm 10-Q filed with the SEC on May 5, 2015). † 10.11Amendment to Loan and Security Agreement dated September 30, 2015 by and among GenMark Diagnostics, Inc., as borrower, GeneralElectric Capital Corporation, as agent and lender, and the lenders signatory thereto (incorporated by reference herein to our Form 10-Q filedwith the SEC on October 27, 2015). † 10.12Letter agreement dated March 17, 2016 by and among GenMark Diagnostics, Inc., as borrower, Healthcare Financial Solutions, LLC, asagent and lender, and the lenders signatory thereto (incorporated by reference herein from our Form 10-Q as filed with the SEC on May 3,2016).† 10.13First Amendment to Loan and Security Agreement dated July 27, 2016 by and among GenMark Diagnostics, Inc., as borrower, its domesticsubsidiaries, as guarantors, Solar Senior Capital Ltd., as administrative and collateral agent, and certain other financial institutions as lenders(incorporated by reference herein from our Form 10-Q as filed with the SEC on November 3, 2016).† 10.14XT-8 Instrument Supply Agreement, dated August 3, 2012, by and between Leica Biosystems Melbourne Pty Ltd and Clinical MicroSensors, Inc. dba GenMark Diagnostics, Inc. (incorporated by reference herein from our Form 10-Q/A as filed with the SEC on March 22,2013).†65Table of ContentsExhibitDescription 10.15Manufacturing and Supply Agreement, dated December 15, 2015, by and between Plexus Corp. and Clinical Micro Sensors, Inc. d.b.aGenMark Diagnostics, Inc. + ü 10.16Form of Market Stock Units Grant Notice and Award Agreement (incorporated by reference herein from our Form 10-Q filed with the SECon May 5, 2015)* 10.17The GenMark Diagnostics, Inc. 2015 Bonus Plan (incorporated by reference herein to our Form 8-K as filed with the SEC on February 25,2015).* 10.18The GenMark Diagnostics, Inc. 2016 Bonus Plan (incorporated by reference herein to our Form 8-K as filed with the SEC on February 24,2016).* 10.19GenMark Diagnostics, Inc. 2010 Equity Incentive Plan, as amended (incorporated by reference to our Definitive Proxy Statement onSchedule 14A filed with the SEC on April 17, 2014).* 10.20Form of Stock Option Agreement (incorporated by reference to our Registration Statement on Form S-1 (File No. 333-165562) filed with theCommission on April 20, 2010).* 10.21Form of Restricted Stock Agreement (incorporated by reference herein to our Form 10-Q as filed with the SEC on November 9, 2010).* 10.22Form of Restricted Stock Units Grant Notice and Agreement (incorporated by reference herein to our Form 8-K as filed with the SEC onMarch 12, 2013).* 10.23Form of Amendment of Restricted Stock, Restricted Stock Unit and/or Stock Option Agreement(s). * ü 10.24GenMark Diagnostics, Inc. 2013 Employee Stock Purchase Plan (incorporated by reference to our Definitive Proxy Statement on Schedule14A filed with the Commission on April 5, 2013).* 10.25Form of Director and Officer Indemnification Agreement (incorporated by reference to our Registration Statement on Form S-1 (File No.333-165562) filed with the Commission on March 19, 2010).* 10.26Executive Employment Agreement, dated as of April 5, 2011, by and between GenMark Diagnostics, Inc. and Hany Massarany(incorporated by reference herein from our Form 10-Q as filed with the SEC on May 13, 2011).* 10.27Employment Offer Letter effective May 7, 2014 by and between GenMark Diagnostics, Inc. and Scott Mendel (incorporated by reference toour Current Report on Form 8-K filed with the SEC on May 12, 2014).* 10.28GenMark Diagnostics, Inc. Non-Plan Stock Option Agreement with Scott Mendel (incorporated by reference to our Registration Statementon Form S-8 (File No. 333-195924) filed with the SEC on May 13, 2014).* 10.29GenMark Diagnostics, Inc. Non-Plan Restricted Stock Units Agreement with Scott Mendel (incorporated by reference to our RegistrationStatement on Form S-8 (File No. 333-195924) filed with the SEC on May 13, 2014).* 10.30Executive Employment Agreement dated April 13, 2010 by and between Osmetech Molecular Diagnostics and Jennifer Williams(incorporated by reference herein from our Form 10-K as filed with the SEC on March 14, 2013).* 10.31Executive Employment Agreement dated October 12, 2012 by and between GenMark Diagnostics, Inc. and Eric Stier. * ü 10.32Equity Distribution Agreement dated June 14, 2016 by and between GenMark Diagnostics, Inc. and Canaccord Genuity Inc. (incorporated byreference herein from our Form 10-Q as filed with the SEC on July 28, 2016). 21.1List of Subsidiaries (incorporated by reference to our Form 10-K as filed with the SEC on February 24, 2015). 23.1Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm ü66Table of ContentsExhibitDescription 24.1Power of Attorney (included on the signature page hereto). ü 31.1Certification of principal executive officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. ü 31.2Certification of principal financial officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. ü 32.1Certification of the principal executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18U.S.C. section 1350. ü 32.2Certification of the principal financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C.section 1350. ü 101XBRL Instance Document 101XBRL Taxonomy Extension Schema Document 101XBRL Taxonomy Calculation Document 101XBRL Taxonomy Definition Linkbase Document101XBRL Taxonomy Label Linkbase Document 101XBRL Taxonomy Presentation Linkbase Document _____________________*Indicates a management contract or compensatory plan or arrangement in which any director or named executive officer participates.üIncluded in this filing.†Confidential treatment has been granted with respect to certain portions of this exhibit.+GenMark has requested confidential treatment with respect to certain portions of this exhibit.67Exhibit 10.15MANUFACTURING AND SUPPLY AGREEMENTThis Manufacturing and Supply Agreement (this “ Agreement ”) is effective as of December 15, 2015 (the “ Effective Date ”) and is made by andbetween Clinical Micro Sensors, Inc. d.b.a. GenMark Diagnostics, Inc. (“ GenMark ”), a Delaware corporation with its principal place of business at 5964 LaPlace Court, Carlsbad, California 92008, and Plexus Corp. (“ Plexus ”), a Wisconsin corporation with its principal place of business at One Plexus Way, Neenah,Wisconsin 54956.RECITALSWHEREAS , GenMark is engaged in the business of designing, developing and marketing molecular diagnostic instruments, consumables assays, andother products;WHEREAS , Plexus has expertise in the design, development and manufacture of complex diagnostic instruments; andWHEREAS , GenMark has requested that Plexus manufacture and supply the Products (as hereinafter defined) on the terms and the conditions set forthherein.AGREEMENTNOW, THEREFORE , in consideration of the mutual promises, covenants and agreements herein set forth, and for other good and valuableconsideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:ARTICLE IDEFINITIONS Capitalized terms used in this Agreement and not otherwise defined herein shall have the meaning set forth below.1.1 “ Affiliate ” means, with respect to a party, any Person that directly or indirectly through one or more intermediaries, controls, is controlled by or isunder common control with a party. For this purpose, control of a Person that is a corporation or other business entity shall mean direct or indirect beneficialownership of fifty percent (50%) or more of the voting interest in, or a fifty percent (50%) or greater interest in the equity of, such corporation or other businessentity.1.2 “ Applicable Standards ” means, collectively, (a) the applicable requirements as described in the Manufacturing Documents, (b) all applicable lawsand regulations, including, but not limited to, the Federal Food, Drug and Cosmetics Act, as amended, cGMP, and the European Medical Device Directive93/42/EEC, (c) all applicable environmental, health, and safety laws; and (d) ISO 13485 and 9001.1.3 “ Base ” means a computer and display unit to which between one (1) and four (4) Towers may be attached to operate GenMark’s integrated, fully-automated molecular diagnostics ePlex™ instrument system, as more fully described in the Specifications.1.4 “ Base System ” means an integrated, fully-automated molecular diagnostics ePlex™ instrument system comprising one (1) Base, two (2) Towers,and twelve (12) Bays, as more fully described in the Specifications.1.5 “ Bay ” means each of six (6) removable, autonomous processing units which can accept a consumable cartridge that contains the reagents andinstructions for a diagnostic test, as more fully described in the Specifications.1.6 “ Bill of Materials ” means the list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts and the quantities of eachneeded to manufacture the Products, in each case as set forth in the Specifications.1.7 “ cGMP ” means current good manufacturing practices, including, without limitation, the FDA’s Quality System Regulations, pursuant to Title 21of the United States Code of Federal Regulations, Part 820, as applicable to the manufacture of a medical device.1.8 “ Change Control ” means a set of secure processes and procedures that are used to track and document versions of Product documentation thatsatisfies all requirements of the Applicable Standards for the manufacture of Products by Plexus1under this Agreement, which processes and procedures shall include a requirement for prior written approval by GenMark of all changes or improvements to theProduct.1.9 “ FCA ” means “Free Carrier (named place of destination)”, as that expression is defined in Incoterms 2010, ICC Publishing S.A.1.10 “ Facility ” means Plexus’ manufacturing facility located at 2400 Millbrook Dr., Buffalo Grove, Illinois 60089, which shall be used to manufactureand produce Products for GenMark hereunder, or such other facility at which Products are manufactured as the parties may mutually agree in writing from time totime during the term of this Agreement.1.11 Reserved.1.12 “ FDA ” means the United States Food and Drug Administration or any successor agency thereof.1.13 Reserved.1.14 “ GenMark Equipment ” means the equipment, test fixtures, molds, devices, tools and other apparatuses located at the Facility and used tomanufacture and/or test Products hereunder which are owned by GenMark, as further described in Section 4.1 hereto.1.15 “ GenMark Intellectual Property Rights ” means all Intellectual Property Rights owned or controlled by GenMark as of the Effective Date orduring the term of this Agreement.1.16 “ Governmental Authority ” means any country, including any political subdivision, court, instrumentality, or agency thereof, and any otherfederal, state, or public authority, domestic or foreign, exercising governmental powers and having jurisdiction, and all statutes, laws, ordinances, regulations,orders, decrees, permits, writs, processes and rules issued thereby which may be applicable to the parties’ performance under this Agreement.1.17 An “ Insolvency Event shall be deemed to have occurred with respect to a party if such party: (a) is unable to pay its debts as such debts becomedue; (b) makes a general assignment for the benefit of creditors; (c) has a petition in bankruptcy or a suit seeking reorganization, liquidation, dissolution, or similarrelief filed against it; (d) files or permits the filing of any petition or answer seeking to adjudicate itself bankrupt or insolvent, or seeking for itself any liquidation,winding up, reorganization, arrangement, adjustment, protection, relief, or composition of such party or its debts under any law relating to bankruptcy, insolvency,or reorganization or relief of debtors, or seeking or consenting to the appointment of a trustee, custodian, receiver, liquidator or other similar official for itself or forany substantial part of its property; or (e) takes any corporate action to authorize any of the foregoing actions.1.18 “ Intellectual Property Rights ” means, collectively, all of the following intangible legal rights, whether or not filed, perfected, registered orrecorded and whether now or hereafter existing, filed, issued or acquired: (a) inventions, patents, patent disclosures, patent rights, including any and allcontinuations, continuations-in-part, divisionals, reissues, reexaminations, utility models, industrial designs and design patents or any extensions thereof; (b) rightsassociated with works of authorship, including, without limitation, copyrights, copyright applications and copyright registrations; (c) rights in trademarks,trademark registrations and applications therefor, trade names, service marks, service names, logos, or trade dress; (d) rights relating to the protection of formulae,trade secrets, know-how and Confidential Information; and (e) all other intellectual or proprietary rights.1.19 “Manufacturing Documents ” means, collectively, the Specifications, the Bill of Materials, the Testing Criteria, the Quality Agreement, andsuch other manufacturing and quality assurance documentation setting forth the requirements in respect of the manufacture, storage, shipping, labelling, testing,supply, release and acceptance of Products hereunder.1.20 “ Manufacturing Instructions " means the manufacturing instructions prepared by the parties on behalf of GenMark, for the manufacture of theProducts, as the same may be amended from time to time by written agreement of the parties during the term of this Agreement.1.21 “Material ” means, collectively, all raw materials, items on the Bill of Materials, packaging materials, labeling materials and other materialsrequired to manufacture and supply the Products to GenMark in accordance with the Manufacturing Documents.1.22 “ Person ” means any natural person, corporation, firm, business trust, joint venture, association, organization, company, limited liability company,partnership or other business entity, or any Governmental Authority.21.23 “ Products ” means the beta units designated by GenMark in writing as saleable for commercial use and the production versions (including futureversions thereof) of GenMark’s integrated, fully-automated molecular diagnostics ePlex™ instrument system, comprising Bases, Bays, and Towers, to bemanufactured and supplied by Plexus in accordance with this Agreement and the Manufacturing Documents.1.24 “ Program Material ” shall mean the Technical Design History File (DHF) and Device Master Record (DMR) for the Products prepared andmaintained in accordance with the Applicable Standards, the Manufacturing Instructions, and all other quality, compliance, manufacturing, engineering andtechnical documentation, instructions and information, product declarations, certifications, and reports (including design verification and test reports) related to themanufacture of the Products hereunder or that are sufficient or reasonably required to allow GenMark to manufacture the Products. 1.25 “ Quality Agreement ” means that certain Quality Assurance Agreement attached hereto as Exhibit A.1.26 Reserved.1.27 “ Safety Stock ” has the meaning set forth in Section 2.6 hereof.1.28 “ Spare Parts ” means the spare parts for the Products to be identified and developed by the parties pursuant to Section 2.2 below, which shall bemanufactured and/or supplied by Plexus pursuant to the terms of this Agreement.1.29 “ Supply Failure ” means a failure by Plexus to supply Products or Spare Parts ordered pursuant to this Agreement on the Delivery Date or up tothree (3) days prior to the Delivery Date for any reason other than Force Majeure (as defined in Section 11.6).1.30 “ Specifications ” means GenMark’s written specifications for the Products, manufacturing requirements, instructions, shipping,storage andlabelling requirements, and quality control specifications and documentation, which are identified on Exhibit B or otherwise communicated by GenMark andaccepted by Plexus in writing.1.31 “ Testing Criteria ” means the quality control, inspection, release, and testing procedures to be performed by Plexus and related criteria to beachieved in testing for final Product release, the current version of which are set forth in the Specifications, as the same may be amended from time to time bymutual written agreement of the parties.1.32 “ Tower ” means a tower which contains six (6) Bays and attaches to a Base, as more fully described in the Specifications.ARTICLE IIPURCHASE OF PRODUCTS AND TERMS OF SALE2.1 General . During the term of this Agreement, Plexus shall manufacture and sell to GenMark, and deliver to GenMark or its designees, the Productsordered by GenMark pursuant to the terms of this Agreement. Plexus shall not sell, transfer or deliver any Products to any party other than GenMark or itsdesignee, except with GenMark’s prior written consent. During the term of this Agreement and thereafter, GenMark shall have the exclusive right throughout theworld to market, sell, place, lease or otherwise transfer Products to third parties and provide or have provided related repair and service support to its customers,including the provision of Spare Parts.2.2 Spare Parts . Plexus shall supply Spare Parts for the Products as required by GenMark during the term of this Agreement. Not later than three (3)months following initial delivery of commercial Products, the parties will agree on the type and quantity of Spare Parts that are advisable to maintain in stock, andon a reasonable Spare Parts use and repair implementation plan, in each case to establish and maintain technical support of the Products for GenMark’s customers,which the parties agree shall include certain field service and repair activities that may be performed by GenMark or its authorized third party representatives (“GenMark Field Service ”). An initial Spare Parts list established by the parties and related prices therefor, as well as the GenMark Field Service mutually agreedby the parties, in each case as of the Effective Date, are set forth on Exhibit C hereto. The parties expect to further augment and/or modify the list of Spare Parts setforth on Exhibit C hereto and, in connection therewith, the parties shall negotiate in good faith to conclusion GenMark’s related price for any additional Spare Partsnot reflected on Exhibit C hereto as of the Effective Date, which shall not exceed the cost of such Material as set forth on the Bill of Materials plus *** for eachsuch part and Spare Parts made by Plexus as per the applicable quote plus *** . Plexus shall only discontinue the supply of a Spare Part as a result of unavailabilityof such Spare Part from the manufacturer or because a better Spare Part becomes available, and in such event, Plexus shall provide GenMark with the opportunityto make final orders for any discontinued Spare Parts in accordance with Section 2.5.3.5 and shall cooperate with GenMark in connection with any warranty claimsrelated to3*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Spare Parts. Plexus shall pass through any and all warranties from the applicable manufacturers of Spare Parts to GenMark. If requested by either party during theterm of this Agreement, the parties agree to develop a specific return and repair process for Spare Parts as an amendment to this Agreement.2.3 Purchase Forecasts . Each month throughout the Term, GenMark shall provide Plexus with a non-binding, rolling forecast specifying the estimatedquantity of Products and Spare Parts required by GenMark for the next 12 months on a monthly basis (the “ Supply Forecast ”). Plexus shall accept or reject theSupply Forecast in writing within *** of receipt of the Supply Forecast and in the event that no written rejection is received by GenMark within the said *** theSupply Forecast shall be treated as accepted by Plexus. In the event that the Supply Forecast is properly rejected, the parties shall work together in good faith toagree upon a Supply Forecast that is mutually acceptable within *** from Plexus’ rejection.2.4 Product Orders . Orders shall be placed by written purchase order at least *** prior to the requested Delivery Date and submitted by electronicmail or by other means agreed upon by the parties. Plexus shall accept or reject all orders within *** following receipt of same and shall deliver all orders that areaccepted to the designated location on the date (a) committed to by Plexus in its order acknowledgment, and (b) which shall be no later than *** days followingGenMark’s requested delivery date pursuant to this Section 2.4 (unless a different date is mutually agreed by the parties with respect to volumes in excess of thosereflected in Sections 2.5.1(a)-(c)) (the “ Delivery Date ”). GenMark shall have the right to cancel, without Plexus’ recourse or incurring any costs, expenses orliabilities except for Materials as set forth in Section 2.5.3, any purchase order for which Plexus cannot propose a delivery date within *** days following the dateany order is received, notwithstanding any action taken by Plexus under the applicable purchase order. It is understood that Plexus shall be required to acceptorders that are for a quantity of Products and Spare Parts that are reflected in the *** of each Supply Forecast, and once accepted, such orders are binding and maynot be changed by GenMark. If Plexus notifies GenMark of a problem or a potential Supply Failure, GenMark may direct expedited delivery and any increasedcosts due to expedited delivery shall be paid by and be the liability of Plexus. Any standard printed terms of purchase/sale provided by either party to the other inconnection with such purchase and sale shall be disregarded, and the provisions of this Agreement shall govern such purchase and sale and shall supersede andcontrol any additional, conflicting or inconsistent terms or conditions in any such forms.2.5 Obligation to Supply . 2.5.1 General . Plexus shall accept and fill orders for Products and Spare Parts up to and including (a) *** of the quantities of Products andSpare Parts set forth in the *** of each Supply Forecast, (b) *** of the quantities of Products and Spare Parts set forth in the *** of each Supply Forecast, and (c)*** of the quantities of Products and Spare Parts set forth in the *** of each Supply Forecast. Plexus shall use all commercially reasonable efforts to accept and fillorders for Products and Spare Parts in excess thereof. GenMark acknowledges that repeated requests for upside Product orders beyond any Safety Stock agreed toby the parties may drain the supply chain unless the Forecast is updated in a reasonably timely manner. GenMark acknowledges and agrees that the ability to fulfillquantities in excess of the requirements set forth in this Section 2.5.1 may require Plexus to expedite Materials and GenMark agrees to pay such reasonableexpediting fees. Plexus shall fill each purchase order for Products and Spare Parts in whole or in part by using the Safety Stock first (if and to the extent establishedin writing pursuant to Section 2.6 ). Any additional Products or Spare Parts required to complete GenMark’s order shall be filled with newly manufacturedProducts and newly procured Spare Parts.2.5.2 Alternative Manufacturing Location . Not later than three (3) months following initial delivery of commercial Products hereunder, theparties will work together to identify and develop an actionable plan with respect to a geographically remote Plexus facility as a second source of supply andmanufacture for the Products and Spare Parts and to prepare a plan for implementation of production thereof at such second source of supply within a reasonable,agreed period of time (which shall take into account GenMark’s supply needs). In connection with the establishment of such second source of supply, GenMarkshall have the right to inspect and qualify such alternative second source and review planning of the new production facility processes and installations and processmachinery that would be necessary in the event the plan or certain steps in the plan are executed. Plexus shall in good faith comply with such measures asreasonably requested by GenMark.2.5.3 Materials . Unless otherwise agreed by GenMark, Plexus shall be responsible for obtaining and shall own and procure directly from theapplicable vendors all Materials necessary for the manufacture of the Products. GenMark acknowledges that Plexus may be required by suppliers of Materials or itmay be in the parties’ mutual best interests for Plexus to procure Materials in minimum or economic order quantities (“MOQs”) and those quantities may exceedGenMark’s demand for Products as set forth in the Supply Forecasts. In addition, GenMark acknowledges that Plexus may be required by suppliers of Materials toprocure the Materials at lead times greater than *** (“Long Lead Time Materials”). Plexus shall set forth MOQs for Materials on the Bill of Materials andGenMark’s written acceptance of the Bill of Materials constitutes approval of MOQs. GenMark hereby authorizes Plexus to procure Materials necessary to meetthe demand for Products set forth in the *** of the Supply Forecasts and GenMark’s purchase orders, including Materials solely as necessary to support anyincreases in quantities4*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. of Product in excess of the Supply Forecasts as set forth in Section 2.5.1(a)-(c) , plus directly associated MOQs and Long Lead Time Materials solely as necessaryin support thereof, and agrees to be liable for such Materials in accordance with this Section 2.5.3 . 2.5.3.1 Material Inventory Reporting . On a quarterly basis or upon GenMark’s request, Plexus will provide GenMark with aninventory report describing in detail the Materials maintained in inventory by Plexus (the “ Inventory Report ”). GenMark will respond to Plexus in writingwithin *** of receipt of the Inventory Report with any good faith disagreement to it, detailing with reasonable particularity the nature of any such disagreement.GenMark’s failure to respond within such period will represent its acceptance of the Inventory Report. In the event GenMark disagrees with the Inventory Report,GenMark and Plexus will work in good faith to promptly resolve the disagreement, escalating such disagreement to executive management at the request of eitherparty. Any undisputed portion of the Inventory Report shall be resolved pursuant to Sections 2.5.3.2 and 2.5.3.3 .2.5.3.2 Aged Material Inventory Resolution . “ Aged Material ” means any Material procured by Plexus in accordance with Section2.5.3 that remains in Plexus’ inventory for *** or longer for reasons other than Plexus’ failure to manufacture and deliver Products in accordance with GenMark’spurchase orders issued in accordance with this Agreement and the Supply Forecast (and then only to the extent such Material is directly related to the failure tomanufacture or deliver), unless such failure to manufacture and deliver is due solely to GenMark’s request to delay timely delivery. For all Aged Materials,GenMark shall, upon Plexus’ demand, elect one of the following options: (a) provide Plexus with a purchase order for Products that will consume such AgedMaterial within *** , (b) pay Plexus a cash deposit in the amount of the cost of such Material as set forth on the Bill of Materials, plus an amount equal to theApplicable Materials Overhead Percentage multiplied by such cost, such deposits to be reconciled quarterly, or (c) pay to Plexus a monthly inventory managementfee in an amount equal to *** of the cost of such Material as set forth on the Bill of Materials, plus an amount equal to the Applicable Materials OverheadPercentage multiplied by such cost. In addition, for Aged Materials held by Plexus for more than *** , GenMark shall purchase such Aged Materials from Plexusupon written demand at a price equal to the cost of such Material as set forth on the Bill of Materials, plus an amount equal to the Applicable Materials OverheadPercentage multiplied by such cost. For purposes of this Agreement, the “ Applicable Materials Overhead Percentage ” shall equal the materials overheadpercentage set forth in the current Product pricing for the applicable pricing tier based on the pricing tiers in effect as of the date of determination.2.5.3.3 Obsolete Material Inventory Resolution . “ Obsolete Material ” means any Material procured by Plexus in accordance withSection 2.5.3 that is removed by GenMark from the Bill of Materials or remains on the Bill of Materials but has no demand for consumption of the Material withinthe next *** . For all Obsolete Materials, GenMark shall provide instructions to Plexus to either ship or scrap the Obsolete Materials and issue a purchase order forsuch Obsolete Materials to Plexus within *** after receiving written notice from Plexus, upon which Plexus shall invoice GenMark for the cost of such Material asset forth on the Bill of Materials, plus an amount equal to the Applicable Materials Overhead Percentage multiplied by such cost. GenMark shall be responsible forany reasonable direct out-of-pocket costs or expenses associated with the scrapping of Materials under this Section 2.5.3.3 .2.5.3.4 Material Inventory Mitigation . Plexus shall use all commercially reasonable efforts to minimize and mitigate Materialliability for Aged Materials and Obsolete Materials, which shall include returning Materials to, or restocking Materials with, suppliers of Materials, cancelingorders with suppliers of Materials, or using such Materials to satisfy the current demand of Plexus’ other customers. GenMark agrees to assist Plexus in suchefforts if appropriate and requested by Plexus. GenMark acknowledges that Plexus’ mitigation efforts, even if successful, may result in cancellation, restocking,and similar charges imposed by suppliers of Materials. Plexus shall obtain GenMark’s written approval prior to incurring such charges. If so approved byGenMark, GenMark shall pay Plexus for the charges imposed in accordance with Section 2.9 .2.5.3.5 Material and Spare Part Last Time Buys . Plexus shall notify GenMark as soon as practicable after receiving notice frommanufacturers that a Material or Spare Part is going end-of-life. At GenMark’s request, Plexus shall coordinate a last time buy of end-of-life Materials or SpareParts and hold such Materials or Spare Parts in Plexus’ inventory for use in manufacturing Products or for Spare Part sales hereunder. Immediately upon receiptinto Plexus’ inventory, last time buy purchases of Materials or Spare Parts that are not covered by the *** of GenMark’s most recent Supply Forecast shall beconsidered Aged Inventory and GenMark shall issue a cash deposit to Plexus or pay an inventory management fee in respect of such Material or Spare Parts toPlexus in accordance with Section 2.5.3.2 .2.5.3.6 Material Invoicing . Invoices under this Section 2.5.3 shall be paid in accordance with Section 2.9 .2.5.4 Vendor Arrangements . Plexus shall establish appropriate contracts with suppliers of raw or key Materials and shall exercisecommercially reasonable efforts to ensure stability of, and long-term pricing for, Material supply.5*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Plexus shall implement and, as necessary, update inventory management processes and procedures reasonably designed to ensure that Plexus has on hand, whennecessary, sufficient Materials to manufacture, supply and deliver Products hereunder. Plexus shall use vendors for Materials used in the manufacture of theProducts as directed or agreed to by GenMark, and shall not use any Materials or Material suppliers not approved by GenMark for the manufacture of the Products.2.5.5 Supply Failure . Plexus shall communicate regularly with GenMark during the term of this Agreement regarding Plexus’ ability to meetGenMark’s Supply Forecast requirements and will promptly advise GenMark in writing of any anticipated Supply Failure event explaining the nature, impact andestimated duration of the Supply Failure event. Plexus shall use all commercially reasonable efforts to remedy the Supply Failure within a reasonable time at noadditional cost to GenMark. If Plexus is unable to remedy the Supply Failure within *** after the start of the Supply Failure event, then Plexus shall consult withGenMark and the parties shall work together to remedy the Supply Failure, which the parties acknowledge may include formally commencing Productmanufacturing activities at the alternative manufacturing location identified pursuant to Section 2.5.2 . Plexus hereby agrees to allow GenMark to provide suchreasonable assistance to Plexus as the parties may deem necessary to avert or minimize any Supply Failure, including, without limitation, to sourcing ormanufacturing with third parties’ parts or raw materials that are in short supply; provided, however, that Plexus will not unreasonably refuse such offers ofassistance by GenMark and GenMark will have no obligation or duty to offer such assistance. If Plexus is unable to remedy the Supply Failure, after an aggregateperiod of *** (or longer as agreed in writing by the parties), commencing with the date upon which such Supply Failure event began, then GenMark may at itsoption immediately terminate this Agreement upon written notice to Plexus.2.6 Safety Stock . The Parties commit to diligently work together to develop the most appropriate supply chain model for the supply of Products andSpare Parts hereunder to support GenMark’s Product supply and stocking needs. In the event safety stock of finished goods Products or of Materials held by Plexusis part of the agreed upon supply chain model, the consent to which shall not be unreasonably withheld by Plexus, the parties will agree to a quantity of safetystock to be held by Plexus and any associated costs in respect thereof prior to GenMark’s first commercial sale of a Product (the “Safety Stock”). This Safety Stockshall remain separate and distinct from inventory held at the Facility and shall be stored by Plexus. Plexus will use Safety Stock to supply Products ordered byGenMark hereunder, and will maintain the appropriate level of Safety Stock by promptly replenishing that quantity of Products used in such supply. Plexus willmanage Safety Stock on a “first in, first out” basis to fulfill GenMark’s purchase orders on a routine basis. Plexus shall use all commercially reasonable efforts toreplenish its Safety Stock within *** of use. GenMark shall purchase any Products remaining in Safety Stock for *** or longer upon written demand from Plexus.Plexus shall within *** of the end of the Replenishment Period notify GenMark in writing of its inability to replenish the Safety Stock as required herein.2.7 Use of Subcontractors . Plexus shall not subcontract or otherwise use any third party for the performance of its obligations hereunder withoutGenMark’s prior written consent. If GenMark consents to any subcontract or third party involvement hereunder, (a) the subcontractor or third party shall berequired to enter into an agreement containing (i) confidentiality terms that are at least as restrictive as those in Article VII hereof and (ii) provisions for theassignment of inventions and intellectual property rights arising from the subcontracted work necessary and appropriate to effect the provisions of Article VI , and(b) Plexus shall supervise the work of any such subcontractor or other third party to ensure that the subcontractor’s or other third party’s work is in full compliancewith all requirements of the Manufacturing Documents, the terms of this Agreement, and the Applicable Standards. Plexus shall remain responsible for anyactivities performed hereunder by any permitted subcontractor as if such activities were performed by Plexus.2.8 Product Price . 2.8.1 Initial Pricing . The (a) price for beta versions of the Products, and (b) the pricing criteria which the parties shall use to establish initialproduction Product pricing at particular annual volumes of manufacture and Spare Parts (the “Pricing Criteria”), in each case is identified on Exhibit C . The initialprices for production Products shall be established and agreed to in writing by the parties in accordance with the Pricing Criteria prior to any purchase ofproduction Products hereunder. Production Product pricing shall be reviewed regularly and adjusted as provided for herein.2.8.2 *** Pricing Determination . Pricing for the Product Material line item only shall be re-quoted based on pricing tiers and mutually agreed*** ; provided that any and all other line items comprising Product pricing then in effect shall remain unchanged on a per-tier basis (which, to the extent such lineitems are calculated as a percentage of other Product pricing line items or a percentage of the aggregate Product cost, shall not exceed the percentages then in effectwith respect to such tier). Prices applicable to individual purchase orders shall be initially determined based on the total quantity of Products forecast by GenMarkon the Effective Date for Product purchases occurring between the Effective Date and December 31, 2015, and thereafter shall be based on GenMark’s Productpurchase estimates for *** during the term of this Agreement (each such *** forecast, *** “ *** Supply Forecast ”). GenMark shall provide the *** SupplyForecast to Plexus no later than *** of each *** during the term and Plexus shall respond with a pricing quotation for Products no later than *** after6*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. receipt of the *** Supply Forecast.2.8.3 *** Pricing Tier Review . No later than *** during the term, the Parties will conduct a *** pricing review and adjust pricing for theremainder of the calendar year if *** Volume calculated as of *** means a different price tier applies. “ *** Volume ” means the sum of (a) Product shipmentsoccurring between *** and *** (which shall include any shipments not made during such period as a result of Force Majeure or Plexus’ failure to fulfill Productorders submitted in accordance with this Agreement by the applicable Delivery Date), (b) the volume of Products in transit, if any, (c) the volume of Products inthe current Forecast for the remainder of *** , and (d) the volume of Products in open purchase orders if such quantities are not reflected in such Forecast or arealready in transit.2.8.4 Pricing Adjustment Events . The parties shall review and agree to new pricing at the request of either party in the event the party makingsuch request can reasonably demonstrate (a) changes to Products, Specifications, Testing Criteria, or additional GenMark requirements have directly impactedProduct manufacturing or Material costs, or (b) market-driven Material cost fluctuations exceeding *** of the aggregate Materials cost line item of the currentprice have persisted for at least *** despite Plexus’ commercially reasonable efforts to reduce or eliminate such price fluctuations (each, a “ Pricing AdjustmentEvent ”). Upon any such request by Plexus, Plexus shall promptly deliver to GenMark such documentation as reasonably requested by GenMark, consistent withpast practice, to verify any purported cost increase related to the particular Pricing Adjustment Event. Within *** of such request and the parties’ receipt ofreasonably sufficient verification demonstrating an actual associated price increase has been incurred in respect of the particular Pricing Adjustment Event, theparties shall in good faith review the impact of such unforeseen circumstances and, if appropriate, agree on updated pricing solely to reflect the allocation of anyagreed upon price increases resulting directly from the particular Pricing Adjustment Event, which shall be implemented on the date agreed by the parties. On theday any new pricing is implemented, Plexus will also write-down or write-up, as applicable, existing Materials on hand or on order held by Plexus to reflect thenew agreed pricing and invoice or credit GenMark for such adjustment, as applicable. The parties agree to close any financial claims within *** of the effectivedate of any pricing adjustment implemented pursuant to this Section 2.8.4 .2.8.5 Continuous Process Improvements . The parties acknowledge and agree that they will work together to identify, design and implementcontinuous Product and process improvements (“ CPIs ”) that aim to reduce Material costs and Plexus’ own internal costs to achieve cost savings, which theparties agree shall include the detailed assessment of potential lower cost alternative manufacturing locations. Every *** during the term of this Agreement,Plexus shall prepare and deliver to GenMark a written report describing (a) proposed CPI projects and plans and related expected cost savings to be achievedupon implementation of such measures, and (b) the labor and Material cost savings (including labor cost reductions due to decreased labor for inspection andinstrument manning requirements) achieved by Plexus due to the implementation of CPIs (“ CPI Cost Savings ”). CPI Cost Savings shall target at least a ***cost reduction each year over the pricing then in effect. Plexus shall in good faith consult with GenMark in establishing its CPI plans hereunder and shallimplement all reasonable CPI Cost Savings opportunities reasonably requested by GenMark. The parties will agree on a process for reviewing CPI plans, theappropriate tool set for managing CPI initiatives as they are implemented, and any relevant communication plans or reporting, including an appropriate processfor tracking, validating, and demonstrating the nature and amount of CPI Cost Savings. The benefit of any CPI Cost Savings shall (i) first, be immediatelyallocated to the party incurring the out-of-pocket expenses, if any, to implement the CPI Cost Savings, until such party is reimbursed for such expenses, (ii)second, provided that such CPI Cost Savings opportunity was first identified by Plexus, the parties shall thereafter immediately split such savings *** for ***after the reimbursement of expenses pursuant to subsection (i), and (iii) thereafter (or if GenMark first identifies such CPI Cost Savings opportunity), one hundredpercent (100%) of the CPI Cost Savings shall be passed on to GenMark immediately.2.8.6 Meetings . Representatives of both parties shall meet at least once each calendar quarter during the term of this Agreement and shallmeet at such other times as deemed appropriate by either party. Representatives of each party attending such meetings must be appropriate for the tasks then beingundertaken, in terms of their seniority, availability, and function in their respective organizations, training and experience. The purpose of such meetings is toserve as a venue for the parties to provide timely notice of their respective expectations for the next twelve (12) months, review CPI Costs Savings plans,execution, and realized savings (including in respect of Product manufacturing yield and its related impact on labor rates), as well as trends and developmentsthey foresee in order to reduce the likelihood of surprises with respect to GenMark’s demand for Products or Plexus’ pricing for Products. Such representativesmay meet in person or via teleconference, video conference or the like, provided that at least one (1) meeting every six (6) months shall be held in person. Ifmeetings are held in person they shall be held at either the headquarters of Plexus or the headquarters of GenMark on an alternating basis, unless the partiesmutually agree to hold such meeting in an alternative venue. Each party shall bear the expense of its respective representatives’ participation in such meetings.The parties shall review and approve on a timely basis the expected forecasts for Products and the proposed pricing for Products for the next contract year. In theevent that Plexus does not approve GenMark’s expected forecast for Products or GenMark does not approve Plexus’ proposed pricing for any Product(s) aspresented at the meeting, then such party shall provide the other party with a detailed statement describing the basis of its concerns and the parties shall in goodfaith seek to resolve7*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. such matter prior to the commencement of the next calendar year in accordance with the provisions of this Agreement.2.9 Invoicing . Plexus shall submit invoices to GenMark for all shipments of Products hereunder upon shipment of such Products. The invoices shallreference GenMark’s purchase order number and shall contain such other information as GenMark may reasonably request. GenMark shall pay any undisputedinvoices for Products by electronic funds transfer within *** after the date of receipt of Plexus’ invoice. All payments shall be stated and paid in United StatesDollars. GenMark shall report any believed discrepancies in Plexus' invoices no later than *** after receipt of invoice. Undisputed invoices not paid within *** oftheir due date will be subject to an interest charge equal to the lesser of *** or the highest rate allowed by law.2.10 Payment Disputes . In the event GenMark desires to dispute any item(s) under any invoice, GenMark will provide Plexus within *** after deliveryof the invoice with written notice setting forth the details of the disputed item(s) and the amount in question. GenMark will timely pay to Plexus all undisputedamounts on any such invoice. The parties will work together, in good faith, to resolve such dispute within *** after such notice of dispute is sent. If the parties areunable to resolve a dispute within such *** period, the parties shall escalate such dispute for resolution pursuant to the provisions of Section 10.1 hereof. Despiteany such escalation, Plexus shall not cease, postpone or terminate performance of its activities hereunder while such dispute is being resolved. GenMark’s failureto pay the portion(s) of an invoice that it disputes in good faith using the procedure specified in this Section 2.10 shall not constitute a material breach under thisAgreement.2.11 Payment of Taxes . In addition to the prices quoted or invoiced, GenMark agrees to pay any taxes, duties or fees properly assessed on theProducts, excluding any taxes on Plexus’ income. In the event Plexus is required to pay such tax, duty or fee, GenMark shall reimburse Plexus within *** ofwritten demand. If the transaction between Plexus and GenMark is exempt from all such taxes, duties and/or fees, GenMark shall provide Plexus with a taxexemption certificate or other document acceptable to the applicable authorities at the time the Purchase Order is placed.2.12 Shipping . Products ordered by GenMark shall be shipped by Plexus FCA Plexus’ manufacturing site for all shipments. Title to Products shallpass to GenMark when the Products are placed in the hands of the carrier at the shipping point.2.13 Labelling . Plexus will supply Products to the locations designated by GenMark in finished and final packaged format for end user sale (includingall trade dress, labeling and warning and handling instructions), as documented in the applicable Specifications for each Product. GenMark is solely responsible forspecifying and validating finished device packaging and other packaging requirements, including any unique device identifier requirements, and for determiningthe content of any labeling, warning or handling instructions. Plexus shall label all Products in accordance with the Specifications and shall affix on each Productall regulatory compliance symbols that GenMark directs Plexus to affix on the Products or as otherwise set forth in the Specifications, including, but not limited to,the CE mark, and UL and/or CSA, RoHS and WEE symbols. GenMark is solely responsible for obtaining and maintaining the right to affix such regulatorycompliance symbols on GenMark’s Products. GenMark shall provide Plexus with Product labeling artwork or graphics as necessary for Plexus to comply with thisSection 2.13 .2.14 Acceptance and Rejection . 2.14.1 General . Each Product shipment shall contain such quality control certificates as are necessary to demonstrate that the Product is inconformity with the Specifications and Testing Criteria, including a Certificate of Conformance ( “COC” ) in the form agreed to by the parties. GenMark shallnotify Plexus within *** of delivery of a shipment of the Product of any apparent non-conformity of the Product to the Specifications. If GenMark fails to so notifyPlexus, it will be deemed to have accepted the Product; provided that the warranties contained in Section 5.2 and Plexus’ obligations under Section 8.1 shallsurvive acceptance of the Product by GenMark.2.14.2 Release Testing . Plexus shall perform all in-process and finished Product tests or checks required by the Testing Criteria. For purposesof this Agreement, such tests are included in the price of the Products. All tests and test results shall be performed, documented and summarized by Plexus inaccordance with the Testing Criteria and the Applicable Standards. Plexus shall immediately notify GenMark in writing of any significant out of specificationtesting results for either in process or finished Product test results.2.14.3 Rejection . Plexus shall at its expense and at no further cost to GenMark repair or replace any Products that do not conform to theSpecifications due to a failure of the Products to conform to the warranties provided by Plexus in Section 5.2 . All defective units of the Product shall be returnedto Plexus at Plexus’ cost. In the event that GenMark notifies Plexus in writing of its rejection of Product under this Section 2.14 , GenMark shall request a ReturnMaterial Authorization ( “RMA” ) number which shall be provided by Plexus as soon as reasonably practicable (but in any event within *** ) and GenMark shallwithin *** of receipt of such RMA number return such rejected Product to Plexus at Plexus’ expense. Plexus shall use all8*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. reasonable commercial endeavors to test the rejected Product promptly and in any event shall do so within *** of receipt of such rejected Product. In the eventPlexus determines in good faith that the Product was properly rejected by GenMark, Plexus shall, at Plexus’ election, repair or replace such defective Productwithin fifteen (15) business days of such determination or, *** . In the event that any rejected Product is determined by Plexus in good faith to not be properlyrejected, and GenMark accepts such determination, such acceptance not to be unreasonably withheld, GenMark shall reimburse Plexus for all costs and expensesrelated to the return of such Product to GenMark. If there is disagreement between the parties as to whether any Product was properly rejected, the parties shallhave such Product tested by a mutually agreed upon third party and such third party’s determination as to whether such Product was properly rejected shall bebinding on the parties. The expense for such testing shall be borne by Plexus unless it is determined that the Product in question was not properly rejected, in whichcase the expense shall be borne by GenMark.2.14.3.1 Within Warranty Repair . Plexus will be responsible for (a) the shipping, delivery and insurance costs associated with thereturn and/or replacement of any Product which does not satisfy the warranties set forth in Section 5.2 of this Agreement (each, a “ Warranty Non-CompliantProduct ”); (b) all costs and expenses incurred by or on behalf of Plexus or its Affiliates in connection with the repair, replacement or service of any WarrantyNon-Compliant Product; *** .2.14.3.2 No Fault Found Returns . Where a Product is returned to Plexus as being Warranty Non-Compliant but Plexus demonstrates(with supporting documents) to GenMark’s reasonable satisfaction that the Product complies with the warranties set forth in Section 5.2 (each, a “ WarrantyCompliant Product ”), then Plexus’ investigation and Product (re)qualification costs will be charged to GenMark at Plexus quoted cost, which shall be reasonableand consistent with past practice, plus markup not to exceed *** , subject to generating and providing GenMark with a quotation for such costs, and the Productwill be returned to GenMark, with GenMark covering return shipping, delivery and insurance costs.2.14.4 Shortages . GenMark shall notify Plexus in writing of any shortage in quantity of any shipment of Product within *** of receipt ofsuch Product. In the event of such shortage, Plexus shall use its reasonable efforts to make up and ship the shortage as promptly as possible, but with the substituteshipment occurring no later than *** after notice, at no additional cost to GenMark other than the price of the Products.2.15 Intentionally Omitted.2.16 Service and Repair . All service and repair activities (whether covered or not by the warranty given by Plexus pursuant to Section 5.2 ) requestedof Plexus by GenMark will be performed by Plexus at the Facility (or such other location as approved in writing by GenMark) under an RMA number, and shall becompleted promptly and without delay but in no event later than *** after Plexus receives the Product at issue, unless some other time period is set forth in astatement of work or proposal for service or repair activities. Serviced or repaired Products shall be warranted by Plexus until the date that is the later of: (a) theend of the original warranty period under Section 5.2 for the Product at issue; or (b) *** after the date the repaired Product is delivered by Plexus to GenMark.Plexus will send a quotation to GenMark and shall get GenMark’s written consent to the quotation before starting any service or repair on any Warranty CompliantProduct. With respect to any particular service or repair of a Warranty Compliant Product for which GenMark provides its written consent as provided above inthis Section, Plexus will promptly proceed with such service or repair. GenMark will not be responsible for any such cost for service or repair of Warranty Non-Compliant Products. Plexus will provide a quality release document with each returned serviced and repaired Product. At GenMark’s option and upon GenMark’srequest, Plexus will make available to GenMark, at GenMark’s expense, the necessary documents, programs and Product-specific tools (or other tools to the extentnot maintained by Plexus as trade secrets under applicable law) to allow GenMark to perform service and repair on Products at GenMark’s premises and/or atcustomers' sites. Within sixty (60) days of the Effective Date, the parties agree to develop a comprehensive Product and Spare Parts service, repair and technicalsupport program, which shall include GenMark Field Service as agreed by the parties in good faith.ARTICLE IIIREGULATORY AND QUALITY ARRANGEMENTS3.1 Regulatory Approvals . GenMark shall perform and be responsible at its sole cost and expense for any clinical trials and regulatory activities thatmay be required to commercialize the Products ( collectively , the “ Regulatory Approvals ”). GenMark shall have the exclusive right to determine in its solediscretion the strategy for Regulatory Approvals, including where and how to gain Regulatory Approvals. GenMark shall be the sole and exclusive owner of allright, title and interest in and to all Regulatory Approvals.3.2 Cooperation . Plexus shall cooperate with GenMark in obtaining and maintaining such Regulatory Approvals as requested by GenMark, includingthrough the furnishing of information required for Regulatory Approvals and submitting, if required, to regulatory audits and inspections by GovernmentalAuthorities at the Facility. Plexus shall provide any Confidential Information that is required by a Governmental Authority in support of Regulatory Approvalsand/or Product compliance either9*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. to GenMark or directly to the requesting Governmental Authority.3.3 Regulatory Compliance . Plexus shall manufacture and produce Products hereunder, and maintain all necessary documentation and information inrespect of such activities, including any Manufacturing Documents to be maintained by Plexus as agreed to by the parties, in each case in accordance with theApplicable Standards.3.4 Rights of Monitoring, Inspection and Audit . Upon at least seven (7) days advanced notice and at a mutually agreeable time during normal businesshours, GenMark shall have the right to have its representatives onsite at the Facility as part of its regular monitoring of the manufacturing activities to be conductedhereunder and/or to visit the Facility to conduct evaluations of Plexus’ performance under this Agreement and its compliance herewith, in each case at GenMark’sdiscretion. Plexus shall require that all approved agents or subcontractors hereunder shall grant GenMark reasonable access to their facilities and records to conductevaluations of their performance under this Agreement and its compliance herewith. Plexus agrees to provide GenMark with access to such records and personnelas reasonably requested by GenMark for such purposes, including Plexus’ quality control, testing, manufacturing, design records and other records and informationreasonably related to the performance of its manufacture of the Products.3.5 Regulatory Inspections . Plexus agrees to inform GenMark within twenty-four (24) hours of notification of any regulatory inquiry, communicationor inspection, which reasonably relates to the manufacture of the Products or could impact Plexus’s ability to manufacture or supply the Products. GenMark, at itsoption, shall have the right to have its representatives present at any such inspection by a Governmental Authority. In the event there are written observations (orany other written communication) by a Governmental Authority that involves any Product or could impact Plexus’ ability to manufacture or supply any Product, orany proposed written response by Plexus to any such inspection or inquiry, Plexus will use reasonable efforts to provide GenMark with copies of all documentationprior to submission to the applicable Governmental Authority and shall have the opportunity to review and comment on the proposed response. If GenMark electsto provide input to the response, such input shall be provided by GenMark as promptly as possible and Plexus shall in good faith consider such input. Nothingherein shall limit GenMark’s right to respond directly to any Governmental Authority if any questions are directed to GenMark.3.6 Incidents or Accidents . Plexus shall immediately notify GenMark in writing of any incident or accident experienced by Plexus that may affect thequality of the Products or its ability to timely perform its obligations hereunder. Such incident or accident shall be immediately investigated by Plexus, and Plexusshall provide a written report within *** business days of the results of the investigation of such incidence or accident to GenMark.3.7 Quality Assurance . The parties shall comply with the terms of the Quality Agreement in the performance of their activities hereunder. Prior toshipping any Product, Plexus will carry out the Product tests specified in the Testing Criteria. If any Product fails to meet such requirements, such non-conformance shall be handled in accordance with the Manufacturing Documents or as otherwise directed by GenMark. No Product will be shipped to GenMark orits designee without passing all tests specified in the Manufacturing Documents, except with GenMark’s prior written approval. Plexus will maintainmanufacturing quality documentation, including records of its Product tests, in accordance with the Applicable Standards.3.8 Product Changes . Plexus shall not make any change to any Product’s design, manufacturing process, Materials, Material suppliers or componentswithout GenMark’s prior written approval. If any such changes to the Products are authorized in writing by GenMark, such changes must comply with the terms ofthe Quality Agreement. Upon GenMark’s request, Plexus agrees that it will facilitate all changes to the Specifications that are necessary or appropriate underapplicable laws, as determined by GenMark, or GenMark’s performance requirements and GenMark shall update the Specifications accordingly and communicatethe changes in writing to Plexus. Plexus shall exercise all commercially reasonable efforts to implement any changes to the Products approved by GenMarkhereunder as soon as reasonably practicable, but in any event within *** from the date of GenMark’s written approval thereof. “ Engineering Change ” meansmodifications to the Specifications by GenMark that (1) affect the form, fit, function, delivery schedule, performance, reliability, appearance, dimensions,tolerance, safety or purchase price of such Products or (2) require additional or modified Testing Criteria. GenMark agrees to submit all Engineering Changes toPlexus in writing. Plexus will use commercially reasonable efforts to respond to GenMark within *** with a written evaluation of the Engineering Changeincluding: (a) the administrative cost to implement the Engineering Change; (b) the cost to modify GenMark Equipment or related non-recurring expenses; (c) thequantity of Materials that will become Obsolete Materials due to the Engineering Change; (d) the cost to rework work-in-progress Products; (e) any Product priceadjustment resulting from the Engineering Change; (f) the expected effect on the delivery schedule; and (g) the manner in which the Engineering Change will beimplemented.3.9 Reserved.3.10 Change Control . Plexus shall establish and maintain an effective and compliant Change Control for changes to10*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. the design of the Products in accordance with the Manufacturing Documents and GenMark’s instructions.3.11 Vigilance . Plexus shall promptly notify GenMark if it becomes aware of any information about the Products indicating that it may not conformto the Specifications or otherwise perform as intended. The parties will promptly confer to discuss such circumstances and to consider appropriate courses ofaction. In the event that (a) an event, incident, or circumstance may result in the need for a removal of any Product or any lot or lots thereof from the market or anyregulatory reportable event occurs which is attributable to the Product, (b) any Governmental Authority threatens to prohibit the use of any Product as a result of adefect of the Product, or (c) any Governmental Authority requires distribution of a “Dear Doctor” letter or its equivalent regarding the use of any Product, in eachcase the parties shall promptly advise each other in writing, and shall provide each other with copies of all relevant correspondence, notices and the like.Notwithstanding anything to the contrary herein, GenMark shall have final authority to make all decisions relating to corrective and/or preventive action withrespect to Products. Internal investigation of any such event will take place promptly after the parties become aware of the reportable event and the root cause andappropriate remedial measures will be determined and documented to the best of the parties’ capabilities. GenMark or its designee will make all contacts with anyGovernmental Authorities in respect of any event described in this Section 3.11 and will be responsible for coordinating all of the necessary activities in connectionwith such action. Plexus will cooperate with GenMark in the conduct of any such activities. Notwithstanding anything to the contrary herein, GenMark is solelyresponsible for all complaint handling, including, without limitation, maintenance of complaint files, investigation and resolution of complaints, trend analysis ofcomplaints, and maintenance of complaint-related records. GenMark is solely responsible for FDA medical device reporting obligations under 21 CFR Part 803and similar reporting regulations in jurisdictions outside the United States. GenMark shall promptly provide to Plexus copies of all written complaints of anyGovernmental Authority received by GenMark that relate to any Product. Plexus shall provide to GenMark information regarding any complaints Plexus receivesabout the Products.3.12 Reliability Requirements . During the term hereof, the parties agree to cooperate in good faith with each other and provide such data andinformation, including service and reliability data, statistics and analyses relating to failure rates, failure mechanisms and repair times to one another on a quarterlybasis or as otherwise reasonably requested by either party as necessary or appropriate to determine whether and to what extent the Products satisfy GenMark’sreasonable reliability requirements (which shall be consistent with industry standards). All such information shall be subject to the confidentiality provisions ofArticle VII hereof. If one or more Product(s) fails to achieve such reliability requirements during the term hereof, the parties agree to mutually perform an analysisto determine the root cause(s) for such failure(s).3.13 Program Material . Within *** of a written request received from GenMark, Plexus shall provide GenMark with complete and current copies of allProgram Material requested by GenMark.3.14 Decontamination Prior to Return of Products . GenMark shall ensure that all Products are decontaminated in accordance with a mutually agreed-upon decontamination process prior to shipment to Plexus for repair or other services and that all appropriate documentation and/or certification of suchdecontamination accompanies the Products.3.15 Material Traceability . GenMark is responsible for identifying critical Materials that require component level traceability. GenMark shall select theappropriate component level or device level traceability grade, in order to meet any applicable regulations or requirements of Governmental Authorities.3.16 Software Validation . GenMark is responsible for the validation of any software embedded in the Products and the validation of all GenMark-supplied: (1) test equipment or software; (2) production equipment or software; and (3) firmware. Plexus is responsible for the validation of any Plexus softwareused in production or as part of the Plexus quality system.ARTICLE IVEQUIPMENT4.1 GenMark Equipment . GenMark and Plexus shall maintain accurate books and records of all GenMark Equipment. A preliminary list of theGenMark Equipment is set forth on Exhibit D hereto. The parties shall maintain an updated list of GenMark Equipment to be used at the Facility throughout theterm of the Agreement. GenMark shall at all times hold exclusive title to the GenMark Equipment and may assign, transfer, pledge or sell its interest in theGenMark Equipment without notice to or approval from Plexus. Plexus shall exercise due care and hold, store and protect the GenMark Equipment at the Facilityas a bailee during the term of this Agreement, subject to the terms and conditions contained herein. All GenMark Equipment shall be physically segregated at theFacility from all other inventory, products, material, equipment or other personal property of Plexus or any third party and shall be clearly labeled at the Facilityand within Plexus’ books and records as the “ Property of GenMark Diagnostics, Inc. ” Plexus shall not use the GenMark Equipment for its own benefit or forthe benefit of any third party, nor shall Plexus use the GenMark Equipment for any other purpose other than manufacturing Products hereunder. GenMark shallhave the right at any time to inspect the GenMark Equipment to ensure Plexus’ compliance hereunder. In the event Plexus procures equipment11*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. on GenMark’s behalf, title to the equipment shall pass to GenMark when Plexus receives payment in full for the equipment, at which time, such equipment shallbecome GenMark Equipment. Plexus shall provide general/routine maintenance of GenMark Equipment at no charge during the term of this Agreement. UponGenMark’s request or per GenMark Equipment maintenance instructions, Plexus shall provide specific maintenance, repair, calibration, or upgrade services atGenMark’s expense on a time and materials basis. Plexus shall notify GenMark in advance and obtain the written agreement of GenMark with respect to any suchspecific maintenance, repair or calibration prior to taking such action. Replacement parts for GenMark Equipment will be charged at Plexus’s cost plus quotedmarkup not to exceed *** .4.2 Protection of GenMark Equipment . Plexus shall not make available or purport to sell, lease or convey to any third party or permit any third party toassert or attach any liens on or against the GenMark Equipment, nor shall Plexus, by agreement or otherwise, use the GenMark Equipment as collateral in anysecured transaction or perfect any security interest in the same or otherwise encumber the GenMark Equipment. Plexus shall execute such other instruments andother assurances as GenMark may request in order to confirm and protect GenMark’s exclusive ownership of the GenMark Equipment. Plexus agrees that if anythird party attempts to claim ownership of the GenMark Equipment by asserting a claim against Plexus or through Plexus, Plexus will take all actions necessary oruseful to permit GenMark to protect its title to the GenMark Equipment, including, without limitation, executing any documents or powers-of-attorney asreasonably necessary to accomplish the same.4.3 Unconditional Right to Remove GenMark Equipment . GenMark shall have the unconditional right to remove and reclaim the GenMark Equipmentfrom the Facility at any time and for any reason whatsoever upon written notice to Plexus, and Plexus shall provide all assistance necessary or useful to permitGenMark to remove the GenMark Equipment from the Facility. If GenMark’s request for the return of GenMark Equipment materially adversely impacts Plexus’sability to perform its obligations under this Agreement, Plexus shall be relieved from all obligations under this Agreement which require access to and use of suchGenMark Equipment.ARTICLE VREPRESENTATIONS AND WARRANTIES5.1 Mutual Representations and Warranties . Each of GenMark and Plexus hereby represents and warrants as of the Effective Date (except asspecifically otherwise indicated below) as follows:5.1.1 Corporate Existence and Power . Such party: (a) is a corporation duly organized, validly existing and in good standing under the laws ofthe state in which it is incorporated; (b) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the propertyand assets it operates under lease, and to carry on its business as it is now being conducted; and (c) is in compliance with all requirements of applicable law, exceptto the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of such party and would notmaterially adversely affect such party’s ability to perform its obligations under this Agreement.5.1.2 Authorization and Enforcement of Obligations . Such party: (a) has the corporate power and authority and the legal right to enter intothis Agreement and to perform its obligations hereunder; and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of thisAgreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal,valid and binding obligation, enforceable against such party in accordance with its terms.5.1.3 Consents . All necessary consents, approvals and authorizations of all Persons required to be obtained by such party in connection withthe execution of this Agreement have been obtained on or before the Effective Date.5.1.4 No Conflict . The execution and delivery of this Agreement and the performance of such party’s obligations hereunder (a) do notconflict with or violate any requirement of applicable laws or regulations, and (b) do not conflict with, or constitute a default under, any material contractualobligation of such party.5.2 Plexus’ Manufacturing Warranties .5.2.1 General . Plexus warrants to GenMark that for a warranty period of *** after the date of delivery (a) all Products shall be manufactured,processed, labeled, packaged, stored and tested in accordance with the Manufacturing Documents, and the terms of this Agreement, (b) that all Products suppliedhereunder shall be manufactured in conformance with the Specifications, (c) that it will convey good title to each Product shipped under this Agreement, (d) eachProduct will be delivered free from any security interest, lien or encumbrance, and (e) the Products shall be free of any defects in workmanship. Plexus shallexercise its *** to obtain warranty rights from suppliers of Material consistent with the warranties provided by Plexus herein, and pass through or assign toGenMark such warranty rights, to the extent that such rights are able to be passed through or assigned.12*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. In the event of a non-conformance in Materials, Plexus shall coordinate with and be the point of contact for resolution of the problem through the applicablesupplier and, upon becoming aware of the problem, will notify the supplier and will use all reasonable efforts to cause the supplier to promptly repair or replace thenonconforming Material in accordance with the supplier’s warranty. Provided the defective Material should have been detected by following the Testing Criteria(but such defective Material was not detected due to Plexus improperly executing the Testing Criteria prior to release to GenMark), any rework or service to repaira Product due to a Material defect within fifteen (15) months of GenMark’s purchase hereunder shall be performed by Plexus and GenMark shall pay *** ofPlexus’ *** (not including the actual cost to replace the defective Materials, which will be fully borne by GenMark unless otherwise covered by such Materialsupplier’s warranty) to perform such rework and repair such Product to become a Warranty Compliant Product.5.2.2 Remedy . In the event any Product fails to conform to the warranties set forth in Section 5.2.1 , Plexus shall, at Plexus’ election, repairor replace the Products *** . GenMark shall request a Return Materials Authorization (RMA) number from Plexus and return any Products not conforming to thewarranties set forth in Section 5.2.1 bearing such RMA number. Plexus’ warranty for replaced or repaired Products shall be the longer of (1) the duration of thewarranty remaining on the original Product returned under warranty, or (2) *** from the date of shipment of the replaced or repaired Product.5.2.3 Limitations . The warranties provided in Section 5.2 do not apply to (1) malfunctions, defects, or failures resulting from (a) misuse, (b)abuse, (c) accident, (d) neglect, (e) improper installation, operation, maintenance or repairs, (f) acts of God, (g) power failures or surges or (h) alterations,modifications, or repairs (“ Repairs ”) by any party other than Plexus, except for GenMark Field Service, provided GenMark Field Service does not make anyRepairs outside the scope of Repairs the Parties agree in writing are acceptable for GenMark Field Service to perform; (2) any defect not made known by GenMarkduring the warranty period; and (3) Products shipped by Plexus and not tested according to the Testing Criteria at the direction of GenMark5.2.4 Disclaimer. THE REMEDIES PROVIDED IN THIS SECTION 5.2 CONSTITUTE GENMARK’S SOLE AND EXCLUSIVEREMEDIES AGAINST PLEXUS FOR BREACH OF WARRANTY CLAIMS. EXCEPT AS PROVIDED IN SECTIONS 5.1 AND 5.2 , PLEXUS MAKES NOWARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCTS OR ITS SERVICES HEREUNDER, EXPRESS OR IMPLIED, INCLUDING ANYIMPLIED WARRANTIES RESPECTING NONINFRINGEMENT, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANYIMPLIED WARRANTIES ARISING FROM A COURSE OF PERFORMANCE, A COURSE OF DEALING, OR TRADE USAGE.ARTICLE VIPROPRIETARY RIGHTS6.1 Definitions . “ Plexus Background IP ” means Intellectual Property Rights (i) existing as of the Effective Date, (ii) developed independently fromthis Agreement, or (iii) developed without the use of GenMark’s Confidential Information.6.2 Product Intellectual Property . Plexus hereby acknowledges and agrees that, except for Plexus Background IP, as between the parties, any and allIntellectual Property Rights necessary for or otherwise embodied in the Products and its design are and shall be and remain solely and exclusively owned byGenMark. The parties agree that the *** .6.3 Limited License to GenMark Intellectual Property Rights . During the term of this Agreement, GenMark grants Plexus a non-exclusive, non-transferable, limited right and license, without right to sublicense, to the GenMark Intellectual Property Rights solely to the extent necessary to manufacture andtest Products for GenMark pursuant to the terms of this Agreement. No other rights, expressed or implied, to the GenMark Intellectual Property Rights are grantedto Plexus hereunder.6.4 Manufacturing Instructions . Except as set forth in this Section 6.4 , all right, title and interest to the Manufacturing Instructions shall be *** .Plexus hereby grants to GenMark a *** license to use the *** as necessary or helpful to manufacture or have manufactured the Products or any other products ofGenMark or its Affiliates. In addition, the parties acknowledge and agree that Plexus will ensure that the Manufacturing Instructions are set forth in writing andwill promptly, and in any event with *** , provide a complete set of the same to GenMark from time to time upon GenMark’s request. All rights and licensesgranted to GenMark under or pursuant to this Section 6.4 are, and shall otherwise be deemed to be, for purposes of Paragraph 365(n) of the U.S. Bankruptcy Code,licenses of rights to “intellectual property” as defined under Paragraph 101(35A) of the U.S. Bankruptcy Code. The parties agree that GenMark, as licensee of suchrights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code.6.5 Inventions . GenMark shall solely and exclusively own the right to any and all Intellectual Property Rights that are conceived or reduced to practiceby Plexus in its performance of this Agreement, except for Plexus Background IP13*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. (“Inventions”). Plexus hereby irrevocably assigns and conveys to GenMark all right, title and interest worldwide in and to any and all Inventions as described inthis Section 6.5 and agrees to execute any and all legal instruments and provide such other cooperation to GenMark as reasonably requested by GenMark, atGenMark’s expense, to effect, acknowledge or perfect such assignment and conveyance and maintain and prosecute such rights. Plexus represents and warrantsthat it has entered into or will enter into written agreements with all employees or other approved agents or representatives of Plexus performing activitieshereunder necessary and appropriate to perfect GenMark’s ownership in all Inventions. Plexus retains no rights to use any Inventions and agrees not to challengethe validity of GenMark’s ownership of the Inventions. Plexus shall make a complete and prompt written disclosure to GenMark specifically detailing the featuresand concepts of any and all Inventions that are conceived or reduced to practice by Plexus and/or persons working under its direction in the manufacture ofProducts under this Agreement.6.6 Enforcement . GenMark shall have the sole power, authority and discretion to enforce and exploit the GenMark Intellectual Property Rights andInventions against third parties. Plexus shall cooperate and assist GenMark as requested by GenMark in any legal action to enforce such rights. All costs of anysuch legal action, including any costs and expenses actually incurred by Plexus to support GenMark’s requests for assistance, shall be borne by GenMark, and anymonetary relief granted as a result of such legal action shall accrue solely to GenMark. Plexus agrees to provide GenMark with prompt notice to the extent it hasactual knowledge of, or reasonably suspects, any third party usage or infringement of the GenMark Intellectual Property Rights or Inventions.ARTICLE VIICONFIDENTIALITY7.1 Confidentiality Obligations . During the term of this Agreement and thereafter, each party: (a) shall treat as confidential all ConfidentialInformation provided to the receiving party by the disclosing party, (b) shall not use such Confidential Information except as expressly permitted under the termsof this Agreement or otherwise authorized in writing by the disclosing party, (c) shall implement reasonable procedures to prohibit the disclosure, unauthorizedduplication, misuse or removal of such Confidential Information, and (d) shall not disclose such Confidential Information to any third party unless it is necessary tofulfill one or more obligations expressly required by this Agreement, and provided that such third party agrees in writing to be bound by terms of confidentiality atleast equivalent to those set forth in this Article VII . Without limiting the foregoing, each of the parties shall use at least the same procedures and degree of care toprevent the disclosure of Confidential Information as its uses to prevent the disclosure of its own confidential information of like importance, and shall in any eventuse no less than reasonable procedures and a reasonable degree of care. For purposes of this Article VII , “ Confidential Information ” means any and allnon‑public and proprietary information that is designated as such and that is disclosed by either party to the other (including, without limitation, the GenMarkIntellectual Property Rights and Plexus Background IP) in any form in connection with this Agreement and that, if orally disclosed, shall be identified in writingwithin thirty (30) days of such disclosure. A receiving party shall notify the disclosing party promptly upon discovery of any unauthorized use or disclosure of thedisclosing party’s Confidential Information. Upon the expiration or earlier termination of this Agreement, each party shall return to the other party all tangibleitems regarding the Confidential Information of the other party and all copies thereof; provided, however , that a receiving party shall have the right to retain one(1) copy for its legal files for the sole purpose of determining its obligations hereunder.7.2 Permitted Disclosure . The obligations set forth in Section 7.1 shall not apply to any information to the extent it can be established by the receivingparty that such information:(a) was generally known and available to the public at the time it was disclosed, or becomes generally known and available to the public throughno fault of the receiving party;(b) was known to the receiving party at the time of disclosure as shown by written records in existence at the time of disclosure, or wasindependently developed by the receiving party or its Affiliates without the benefit of Confidential Information;(c) is disclosed with the prior written approval of the disclosing party;(d) becomes known to the receiving party from a third party without breach of this Agreement by the receiving party and in a manner that isotherwise not in violation of the disclosing party’s rights; or(e) is disclosed by the receiving party pursuant to the order or requirement of a court, administrative agency or other governmental body;provided, however, that the receiving party shall provide reasonable advance notice to enable the disclosing party, with the cooperation of the receiving party, toseek a protective order, confidential treatment order, or otherwise prevent or restrict such disclosure.7.3 Agreement and Terms Confidential . Unless otherwise agreed to in writing or as necessary to comply with a valid legal order of a court of law oragency of competent jurisdiction, both the existence and terms of this Agreement shall be deemed Confidential Information. If either party is required by theUnited States Securities and Exchange Commission (or14other similar Governmental Authority) to disclose this Agreement or any of its terms, such party shall consult with the other party, and give due consideration tosuch party’s comments regarding which terms the disclosing party may make the subject of a confidential treatment request. For the period commencing on theEffective Date and ending on the expiration or earlier termination hereof, without the prior express written consent of the other party, neither party shall originateany initial disclosure to any third party of the existence or terms of this Agreement (unless pursuant to an appropriate confidentiality agreement), or originate anyinitial publicity, news release or any other public announcement (written or oral) relating to this Agreement, the existence of an arrangement between the parties, orotherwise utilizing the other party’s trademarks or trade names.ARTICLE VIIIINDEMNIFICATION AND INSURANCE8.1 Indemnification Obligations .8.1.1 Indemnification by Plexus . Plexus shall defend, indemnify and hold harmless GenMark and its Affiliates and their respective officers,directors, employees and agents (the “ GenMark Indemnified Parties ”) from and against any and all claims, suits or other actions made by a third party(collectively, “ Claims ”) and all related losses, expenses, damages, costs and liabilities (including reasonable attorneys’ fees) (collectively, “ Losses ”), arising outof or attributable to (a) the negligence or willful misconduct of Plexus, its Affiliates, or their respective officers, directors or employees in connection with theperformance of their obligations under this Agreement resulting in bodily injury, death, or damage to tangible property; or (b) *** provided, however , that theforegoing obligation shall not apply to the extent such Losses are Losses for which GenMark must indemnify Plexus under Section 8.1.2 .8.1.2 Indemnification by GenMark . GenMark shall defend, indemnify and hold harmless Plexus and its Affiliates and their respectiveofficers, directors, employees and agents (the “ Plexus Indemnified Parties ”) from and against any and all Claims and all related Losses, arising out of orattributable to (a) Plexus’ manufacture of the aspect(s) of the Products in accordance with the Specifications which give rise to such Claim, (b) the negligence orwillful misconduct of GenMark, its Affiliates, or their respective officers, directors or employees in connection with the performance of their obligations under thisAgreement resulting in bodily injury, death, or damage to tangible property, (c) the marketing, distribution and sale of Products, or (d) infringement ormisappropriation by the Products of any third-party Intellectual Property Right; provided, however , that the foregoing obligation shall not apply to the extent thatsuch Losses are Losses for which Plexus must indemnify GenMark under Section 8.1.1 .8.1.3 Indemnification Procedures . The parties shall promptly notify each other of any claims or suits with respect to which indemnification issought hereunder. The party requesting indemnification shall permit the indemnifying party to assume the defense at the indemnifying party’s sole expense, of suchclaims or suits giving rise to indemnification hereunder. The indemnified party shall provide reasonable cooperation to the indemnifying party at the indemnifyingparty’s expense. The indemnified party may participate in any such proceedings with counsel of its own choosing at the indemnified party’s expense. Nosettlement or compromise shall be binding on a party to this Agreement without such party’s prior written consent, which consent shall not be unreasonablywithheld.8.2 Limitation of Liability . neither party shall be liable TO THE OTHER for LOST PROFITS OR FOR ANY indirect, incidental, consequential,special, PUNITIVE or exemplary damages IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THISAGREEMENT, however caused, under any theory of liability INCLUDING CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, ANDNOTWITHSTANDING THAT SUCH DAMAGES MAY HAVE BEEN IN THE REASONABLE CONTEMPLATION OF THE PARTIES. the limitations ofliability set forth in this section 8.2 shall not apply to BREACH OF CONFIDENTIALITY OBLIGATIONS OR VIOLATIONS OF THE OTHER PARTY’SINTELLECTUAL PROPERTY RIGHTS HEREUNDER, OR TO A PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.8.3 Insurance . Each party shall, at its own expense, procure and maintain insurance with a financially sound insurance company having an A.M. BestRating of AX or better in the areas of worker’s compensation; employer’s liability for bodily injury suffered through accident or disease; commercial generalliability; and product liability with limits of no less than *** per occurrence for bodily injury and *** per occurrence for property damage and with limits forcomprehensive general liability and product liability that are consistent with normal business practices of prudent companies similarly situated at all times duringwhich any Product is being commercially distributed or sold by GenMark. Upon written request, a party shall furnish the other party with a certificate of insuranceevidencing the coverage required hereunder and shall provide thirty (30) days’ prior written notice to the other party in the event of cancellation or material adversechange in such coverage. It is understood that15*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. such insurance shall not be construed to create a limit of either party’s liability with respect to its indemnification obligations under Section 8.1 .ARTICLE IXTERM AND TERMINATION9.1 Term and Termination . The term of this Agreement shall commence on the Effective Date and, unless terminated earlier pursuant to this Section9.1 , shall continue until the fifth (5 th ) anniversary of the Effective Date, after which it shall renew automatically for successive two (2) year periods unless eitherparty provides the other party with written notice at least twelve (12) months in advance of a scheduled renewal date of its intent not to renew this Agreement.9.1.1 Termination for Insolvency . Either party may terminate this Agreement upon thirty (30) days prior written notice to the other party ifthe other party has experienced an Insolvency Event.9.1.2 Termination for Breach . Either party may terminate this Agreement after the material breach of this Agreement by the other party,unless the breaching party has cured a non-payment breach within *** days after written notice thereof from the non-breaching party or a payment breach within*** days after written notice thereof from the non-breaching party.9.1.3 Termination for Convenience . Either party shall have the right to terminate this Agreement for its convenience, with or without cause, atany time after *** of the Effective Date upon *** written notice to the other party. In the event Plexus exercises its right to terminate for convenience pursuant tothis Section 9.1.3 during the initial five (5) years of the term, Plexus shall (a) cooperate with GenMark in effecting the disclosure and transfer of all *** , Product-specific know-how and Product-specific quality control procedures as are necessary or useful to commence and continue the uninterrupted manufacture and supplyof Products and Spare Parts, (b) continue the uninterrupted supply of Products and Spare Parts pursuant to the terms of this Agreement until GenMark’s alternativesupply source has been validated but in no event longer than *** after the expiration of the *** notice period, (c) cover the reasonable costs and expensesassociated with shipping test fixtures and Materials to GenMark or its designee, and (d) at GenMark’s request, Plexus shall coordinate a last-time-buy of Materialsand/or Spare Parts.9.2 Effect of Termination .9.2.1 Survival . Notwithstanding anything contained in this Agreement to the contrary, termination of this Agreement shall not relieve theparties of their respective obligations or liability to the other accrued hereunder prior to the effective date of termination. The following provisions shall survive thetermination or expiration of this Agreement: Section 2.2 (Spare Parts); Section 4.3 (Unconditional Right to Remove GenMark Equipment); Section 5.2 (Plexus’Manufacturing Warranties); Article VI (Proprietary Rights); Article VII (Confidentiality); Section 8.1 (Indemnification Obligations); Section 8.2 (Limitation ofLiability); Section 9.2 (Effect of Termination); Section 9.3 (Return of Information and Cooperation); Article X (Arbitration); Section 11.1 (Interpretation); Section11.3 (Notices); Section 11.8 (Governing Law); Section 11.9 (Legal Counsel); Section 11.11 (Severability); Section 11.12 (Headings); and any other provisions ofthis Agreement which by their nature or context are intended or required to survive the expiration or termination of this Agreement.9.2.2 Non-Exclusive Remedy . Termination of this Agreement shall be in addition to, and shall not prejudice, the parties’ remedies at law or inequity, including, without limitation, the parties’ ability to receive legal damages and/or equitable relief with respect to any breach of this Agreement, regardless ofwhether or not such breach was the reason for the termination.9.2.3 Return of Information and Cooperation . In the event of termination of this Agreement, Plexus shall promptly return and provide toGenMark all Program Material and Confidential Information of GenMark. Upon any termination (including expiration) of this Agreement, the parties willcooperate to minimize disruption to GenMark’s customers and to provide for the continued manufacture of Products if so requested by GenMark. Except in theevent of termination arising from GenMark’s breach of this Agreement, Plexus will fill existing orders that Plexus has received and accepted.9.2.4 Inventory . Upon termination of this Agreement for any reason, all outstanding purchase orders may, at GenMark’s written election, becanceled. Otherwise, Plexus will perform under such purchase orders and the provisions of this Agreement will survive termination and apply to such performance.If this Agreement is terminated by GenMark pursuant to Section 9.1.3 or by Plexus pursuant to Section 9.1.2 , GenMark agrees to pay Plexus for (1) any finishedgoods Products; (2) any work-in-progress Products; and (3) provided that Plexus procured the Materials in accordance with this Agreement, any Materials, at thecost set forth on the Bill of Materials, plus an amount equal to the Applicable Materials Overhead Percentage multiplied by such cost, on hand, on order or forwhich Plexus is obligated to purchase as of the date of termination, subject to Plexus’ obligation16*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. to mitigate and limit all such amounts in accordance with Section 2.5.3.4 . In the event this Agreement is terminated by GenMark pursuant to Section 9.1.2 ,GenMark agrees to pay Plexus for (1) any finished goods Products; and (2) provided that Plexus procured the Materials in accordance with this Agreement, anyMaterials, at cost set forth on the Bill of Materials, on hand, or on order or for which Plexus is obligated to purchase as of the date of termination, subject toPlexus’ obligation to mitigate and limit all such amounts in accordance with Section 2.5.3.4 .ARTICLE XARBITRATION10.1 Disputes . Except as otherwise expressly provided in this Agreement, any controversy, claim or legal proceeding arising out of or relating to thisAgreement, or the breach, termination or invalidity thereof (“ Dispute ”) shall be first referred to GenMark’s Chief Executive Officer and Plexus’ Chief CustomerOfficer for resolution, prior to proceeding under the other provisions of this Article X . A Dispute shall be referred to such executives upon one party providing theother party with notice that such Dispute exists, and such executives (or their designees) shall attempt to resolve such Dispute through good faith discussions. Inthe event that such Dispute is not resolved within thirty (30) days of such other party’s receipt of such notice, subject to Section 10.3 , either party may initiate theDispute resolution provisions in Section 10.2 . The parties agree that any discussions between such executives (or their designees) regarding such Dispute do notconstitute settlement discussions, unless the parties agree otherwise in writing.10.2 Arbitration . Subject to Sections 10.1 and 10.3 , the parties agree to resolve any Dispute exclusively through binding arbitration conducted underthe auspices of the American Arbitration Association (the “ AAA ”) pursuant to AAA’s Commercial Arbitration Rules presently in effect. The parties shall appointan arbitrator with at least ten (10) years of experience as an attorney and experience in the medical diagnostics industry so as to better understand the legal,business and scientific issues addressed in the arbitration. Any arbitration hereunder shall be brought in San Diego, California. Unless agreed otherwise by theparties, the parties shall have thirty (30) days from the appointment of the arbitrator to present and/or submit their positions to the arbitrator, and the parties shallhave a hearing before the arbitrator within ten (10) business days of such submission. Each party agrees to use reasonable efforts to make all of its currentemployees available, if reasonably needed, and agrees that the arbitrator may deem any party as “necessary.” The arbitrator shall hear evidence by each party andresolve each of the issues identified by the parties. The arbitrator shall be instructed and required to render a written, binding, non-appealable resolution and awardon each issue which clearly states the basis upon which such resolution and award is made. The written resolution and award shall be delivered to the parties asexpeditiously as possible, but in no event more than thirty (30) days after conclusion of the hearing, unless otherwise agreed to by the parties. The parties shall useall reasonable efforts to keep arbitration costs to a minimum. Each party must bear its own attorneys’ fees and associated costs and expenses. Each party agreesthat, notwithstanding any provision of applicable law or of this Agreement, it will not request, and the arbitrators shall have no authority to award, punitive orexemplary damages against any party.10.3 Subject Matter Exclusions . Notwithstanding the foregoing, the provisions of Sections 10.1 and 10.2 shall not apply to any Dispute relating to: (a)the validity, infringement, enforceability or claim interpretation relating to a party’s patents, trademarks or copyrights, which, for patents that are issued in theUnited States, shall be subject to actions before the United States Patent and Trademark Office and/or submitted exclusively to the federal court located in thejurisdiction of the district where any of the defendants reside; or (b) any antitrust, antimonopoly or competition law or regulation, whether or not statutory.10.4 Equitable Relief . Nothing in this Agreement shall be deemed as preventing the parties from seeking injunctive relief (or other provisional remedy)from any court having jurisdiction over the parties and the subject matter of the dispute as necessary to protect either party’s interests.ARTICLE XIMISCELLANEOUS PROVISIONS11.1 Interpretation . In this Agreement, unless a clear contrary intention appears:(a) the singular number includes the plural number and vice versa ;(b) reference to any person or entity includes such person’s or entity’s successors and assigns;(c) reference to any law, rule, regulation, order, decree, requirement, policy, guideline, directive or interpretation means, unlessspecified otherwise, as amended, modified, codified, replaced or re-enacted, in whole or in part, and in effect on the determination date, including rules, regulationsand applicable guidance promulgated thereunder;17(d) “hereunder”, “hereof”, “hereto”, “herein” and words of similar import shall be deemed references to this Agreement as a whole and not toany particular Article, Section or other provision hereof; and “including” (and with correlative meaning “include”) means including without limiting the generalityof any description preceding such term.11.2 Independent Contractors . It is expressly agreed that GenMark and Plexus shall be independent contractors and that the relationship between theparties shall not constitute a partnership, joint venture or agency. Neither GenMark nor Plexus shall have the authority to make any statements, representations orcommitments of any kind, or to take any action, which shall be binding on the other, without the prior written consent of the party to do so.11.3 Notices . Any consent, notice or report required or permitted to be given or made under this Agreement by one party to the other shall be inwriting, addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor,and shall be effective: (a) if sent by registered or certified mail in the United States return receipt requested, upon receipt; (b) if sent by nationally recognizedovernight air courier (such as DHL or Federal Express), two (2) business days after mailing; and (c) if otherwise actually personally delivered, when delivered.If to GenMark: GenMark Diagnostics, Inc.5964 La Place CourtCarlsbad, California 92008Attention: Chief Executive OfficerCopy to: General CounselIf to Plexus: Plexus Corp.One Plexus WayNeenah, Wisconsin 54956Attention: Executive VP & Chief Customer OfficerCopy to: General Counsel11.4 Noninterference . Plexus represents and warrants that no provision of this Agreement is in any way in conflict with or impairs the performance ofany present contractual obligation to any third party and neither Plexus nor any persons employed by Plexus or who assist Plexus in this project will assume anyobligation or restriction which will conflict with or prevent them from performing any of the services contemplated by this Agreement.11.5 Assignments, Succession and Waivers . Neither this Agreement nor any part thereof shall be assignable by the other party without the expresswritten consent of the other party, and any attempted assignment shall be null and void, provided, however , that either party may assign this Agreement to anAffiliate of such party or to a Person that succeeds to all or substantially all of that party’s business or assets whether by sale, merger, operation of law orotherwise. This Agreement shall be binding upon and shall inure to the benefit of the parties, their successors and permitted assignees. No express waiver or anyprior breach of this Agreement shall constitute a waiver of any subsequent breach hereof and no waiver shall be implied.11.6 Force Majeure . If the performance of this Agreement or any obligations hereunder is prevented, restricted or interfered with by reason of fire orother casualty or accident, strikes or labor disputes, war or other violence, any law, order, proclamation, ordinance, demand or requirement of any governmentagency, or any other act or condition beyond the control of the parties hereto (“ Force Majeure ”), the party so affected, upon giving prompt notice to the otherparty shall be excused from such performance during such prevention, restriction or interference. If the Force Majeure continues for more than *** , then the otherparty may by written notice to the affected party terminate this Agreement.11.7 Integration . This Agreement (together with the Exhibits, Schedules and Appendices hereto), expresses the entire understanding between GenMarkand Plexus with respect to the subject matter hereof and merges all prior oral discussions or written correspondence between them, except that the rights andobligations contained in any confidentiality agreement(s) executed by the parties prior to the Effective Date shall not be deemed waived, amended, superseded orotherwise affected hereby. No notification, extension, amendment or waiver of this Agreement or any provision hereof shall be binding unless agreed to in writingby the parties.11.8 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York.11.9 Legal Counsel . Each party is a sophisticated business entity which has involved legal counsel of its own choosing in drafting, negotiating andconcluding this Agreement and any presumption in statutory or common law against the drafter of18*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. any particular provision herein, or against the drafter of this Agreement as a whole, shall be of no effect whatsoever and each party shall refrain from asserting orrelying upon any such presumption.11.10 Affiliate Performance . Either party may perform all or part of its obligations hereunder, and may exercise any of its rights hereunder, by orthrough any Affiliate of the party; provided that nothing herein shall relieve such party of its obligations hereunder unless expressly authorized by the other party inwriting.11.11 Severability . If any provision of this Agreement is held unenforceable or in conflict with applicable law, it is the intention of the parties that thevalidity and enforceability of the remaining provisions hereof shall not be affected thereby.11.12 Headings . All article and section captions or titles are intended only for reference purposes and are without contractual significance or effect.11.13 Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original, but all of whichtogether will constitute one and the same instrument; however, this Agreement shall have no force or effect until executed by both parties.[ Remainder of Page Left Intentionally Blank ] 19IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the Effective Date:CLINICAL MICRO SENSORS, INC. Plexus Corp.D.B.A GenMark DIAGNOSTICS, INC. By: /s/ Hany Massarany By: /s/ Steven J. FrischName: Hany Massarany Name: Steven J. FrishTitle: Chief Executive Officer Title: Executive VP & Chief Customer Officer 20Exhibit AQuality AgreementQuality Assurance AgreementBetween Plexus and GenMarkContentsNote: This quality assurance agreement was written so that Article I contains general information to the supplier. Article III states requirements applicable to everysupplier regardless of the product purchased by GENMARK. Then each of the following articles contains additional requirements depending on the productpurchased.Article I. Purpose (Informative)1. Introduction2. Quality system requirements in general3. Notes regarding regulations and standardsA. FDA regulations.B. In Vitro Diagnostic Directive.C. ISO standards.Article II. Scope1. Applicable products2. Additional requirements not stated in the QAA3. Exclusions to the QAAArticle III. Quality Assurance Requirements Applicable to All Suppliers1. Quality systemA. Establishment.B. GENMARK requirements.C. Deviations.D. Process control plan.E. Quality system procedures.F. GENMARK owned property.G. Complaints from GENMARK customers.H. Complaints from GENMARK.I. Management representative.J. Personnel training.K. Changes to quality system or product.2. Control of documents and recordsA. Control of documents.B. Confidentiality.C. Change control.D. Availability of documents.E. Control of records.F. Electronic documents and records.3. Purchasing controlsA. Approval of subtier suppliers.B. Specific GENMARK requirementsC. Quality control of 3 rd party productsD. Purchase information.E. Traceability4. Calibration of inspection, measurement and test equipmentA. Calibration requirements.B. Calibration procedures.C. Suitability of equipment.D. Calibration labeling.21E. Calibration records.F. Notification to GENMARK.G. Use of calibration lab.5. GENMARK right to inspect (Audit)A. Supplier’s executive management responsibility.B. GENMARK Audits.C. Third party audit.6. Corrective and preventive action (CAPA)A. Basic CAPA requirementsAnnex I. Specific Requirements for Manufacturing1. Receiving, receiving inspection, and storageA. Authorized receipts.B. Direct to stock receipts.C. Receiving inspection.D. Storage.2. Production and process controlsA. Engineering drawings.B. Inspections and tests.C. Standard operating procedures.D. Production controls.4. Calibration of inspection, measurement and test equipmentA. Calibration requirements.B. Calibration procedures.5. GENMARK right to inspect (Audit)A. Supplier’s executive management responsibility.B. GENMARK Audits.C. Third party audit.6. Corrective and preventive action (CAPA)A. Basic CAPA requirementsAnnex I. Specific Requirements for Manufacturing1. Receiving, receiving inspection, and storageA. Authorized receipts.B. Direct to stock receipts.C. Receiving inspection.D. Storage.2. Production and process controlsA. Engineering drawings.B. Inspections and tests.C. Standard operating procedures.D. Production controls.E. Automated test systems.F. Process validation.G. In-process rejects.H. Statistical applications.I. Environmental controls.J. Equipment maintenance.K. Final acceptance activities.L. Production history records.223. Storage, packaging and transport4. NonconformancesA. Control of nonconforming articles.B. Control of nonconforming product.C. Rework of nonconforming product.D. Product returns.E. Product salvaging.5. Processing product changes of manufactured productA. Processing product changes initiated by the supplier.B. Implementing product changes initiated by the supplier.C. Processing product changes initiated by GENMARK.D. Supplier implementing changes initiated by GENMARK.Annex II. Specific Requirements forWarehousing/Distributing Product for GENMARKA. Handling.B. Storage.C. Product packaging.D. Distribution.E. Distribution records.F. Product recall, field corrections, modifications, updates.G. Environmental controls.Annex III. How GENMARK Evaluates It’s SuppliersA. Introduction.B. Details of the GENMARK Evaluation System.23Article I. Purpose (Informative)1. IntroductionMedical device manufacturers, such as (GENMARK), are obligated to follow many regulations and standards relating to product quality which may include, butare not limited to, the following:•TITLE 21 Code of Federal Regulations Part 820 - Quality System Regulation•Directive 98/79/EC of the European Parliament and of the Council of 27 October 1998 on in vitro diagnostic medical devices (IVD Directive)•ISO 13485:2003 Medical Device Quality Management System•ISO 9001:2008 Quality Management SystemsIn general these regulations prescribe what medical device manufacturers must do during design, manufacturing, and post-manufacturing. While they do notdirectly apply to suppliers of medical device manufacturers, it is the responsibility of GENMARK and other medical device manufacturers to assure that onlyproduct conforming to specified requirements is used.These regulations explicitly require that the finished device manufacturer assess the capability of suppliers to provide quality products and services. Because of thecomplexity of the many parts used in GENMARK devices, their adequacy cannot always be assured through inspection and testing by GENMARK. Quality mustbe assured through the application of proper quality systems.As medical device and diagnostics products become more complex and as demand increases, the chance of errors and inconsistencies in manufacturing escalate.Only by implementing systematic processes and quality controls during the product life cycle (e.g.: design, manufacture, installation and service) canmanufacturers like GENMARK eliminate variability that can lead to regulatory actions, devastating product recalls, and lost market share. Therefore, GENMARKexpects that all of our suppliers will collaborate with GENMARK and support our effort in meeting our obligations for medical device manufacturers.2. Quality system requirements in generalGENMARK requires that our suppliers establish and maintain a quality management system that is appropriate for the specific product being manufactured or theservice performed that ensures the users of GENMARK products receive and operate safe, effective, and reliable medical equipment.GENMARK expects its suppliers to have processes that ensure that they meet the quality system requirements specified herein. It also recognized that somesuppliers are small businesses while others are large corporations. Exactly how a supplier establishes and maintains their quality system to meet GENMARK’requirements is dependent upon the supplier’s operation and is appropriate for the business size of the supplier provided that quality, reliability, maintainability andregulatory requirements are maintained at the highest level.In this document, a requirement means a specification or characteristic with which a product, process, service, or other activity being performed for GENMARKmust conform. Product means component, material, substance, piece, part, software, firmware, assembly, and finished device to be used in or with a finishedmedical device, or a service performed to design, develop, install, repair, or maintain a finished medical device and its accessories.These requirements have been established in order to assist GENMARK in meeting our obligations for safety, quality, and reliability.3. Notes regarding regulations and standardsA. FDA regulations. Manufacturers that are registered with FDA as a device manufacturer or as a contractor which manufactures and supplies GENMARK withaccessories that function with GENMARK equipment are expected to follow all applicable FDA regulations in addition to the requirements herein. Non-medicaldevice manufacturers that supply accessories that function with GENMARK equipment or other products are expected to follow all of the requirements herein, asappropriate.24B. IVD Directive (Directive 98/79/EC). All medical devices sold within the EU member states must meet certain essential safety and administrative requirements,defined in the IVD Directive, before they can be marked with the applicable CE mark by the manufacturer.C. ISO standards. GENMARK does not mandate that all of it suppliers be certified to an ISO standard. However, if an ISO certification does exist, the suppliershall meet the standard’s requirements. The requirements given herein will be used by GENMARK when evaluating the effectiveness of a supplier’s qualitymanagement system (QMS).Article II. ScopeThis quality assurance agreement (QAA) applies to the manufacture and delivery of products to GENMARK by the supplier. When this annex is blank or does notreference the Scope of Work, then this QAA applies to all products procured by GENMARK from the supplier.1. Applicable ProductsThis Quality Assurance Agreement (QAA) applies to the following product(s) delivered by the supplier to GENMARK. If nothing follows, then the QAA appliesto all products ordered by GENMARK.2. Additional Requirements Not Stated in the QAAThe following special requirements (barcoding, product labeling, testing, inspection, packaging, documentation, etc.) are in addition to the QAA. If nothingfollows, then there are no additional requirements not stated in the QAA.3. Exclusions to the QAAThe following are exclusions to the QAA as agreed to between GENMARK and the supplier. If nothing follows, then there are no exclusions to the QAA. ThisQAA is specific to the manufacturing of theArticle III. Quality Assurance Requirements Applicable to All Suppliers1. Quality systemA. Establishment. It is expected that the seller has established and is maintaining a quality management system that is commensurate with the product beingprovided to GENMARK or in support of GENMARK’ business. It is further expected that the supplier’s quality system has been established to ensure that allGENMARK requirements are understood and are being met.For the exchange of quality-relevant information between the parties via e-mail, appropriate software for electronic signature and encryption has to be used, whereappropriate.B. GENMARK requirements. The supplier is required to ensure that it has received and understands all requirements received from GENMARK in writing.C. Deviations. The supplier shall receive written authorization from a representative of GENMARK prior to making any changes to any GENMARK requirement,including the requirements herein. Failure to comply with this GENMARK requirement could have a serious impact resulting in the GENMARK medical devicebecoming adulterated within the meaning of U.S. Federal Regulations.D. Process control plan. The supplier shall: (a) define and document (i.e. in a process map, in a flow diagram, or etc.) the processes it uses, from order receipt toorder fulfillment, necessary to provide the product for GENMARK; (b) verify that these processes are effective in producing the desirable product for GENMARK,(c) establish the methods to appropriately monitor, measure and control these processes to ensure that product requirements are consistently meeting GENMARK’requirements; and (d) provide, when appropriate, for a means to analyze process trends and take prompt action to correct any unfavorable trend.E. Quality system procedures. The supplier shall have documented procedures and instructions to effectively implement the established quality system andsupport the process plan.25F. GENMARK owned property. The supplier is responsible for identifying, controlling, maintaining, storing, and, where appropriate, calibrating GENMARKowned property. The supplier is required to timely notify GENMARK in the event that any GENMARK property is lost or damaged, or that its continued use couldresult in nonconforming product.This includes, but not limited to, meters, gages, tools, fixtures, instruction manuals, installation aids, and software provided by GENMARK to the supplier toprovide product to GENMARK.The use of such property is limited to making/providing product for GENMARK and may not be used by the supplier for any other purpose without writtenapproval from an agent of GENMARK.GENMARK will reimburse Plexus for expenses associated with maintaining and as appropriate calibrating GENMARK owned property in accordance withsection 4.1 of the Agreement.GENMARK will provide Plexus with sufficient information to verify, calibrate, operate, test and maintain any GENMARK supplied property.G. Complaints from GENMARK customers. While it is reasonable to expect that the supplier will have some interaction with a customer of GENMARK, thesupplier is required to have a written procedure for forwarding to a representative of GENMARK, without undue delay, any written, electronic, or oralcommunication from a customer of GENMARK that alleges deficiencies related to the identity, quality, durability, reliability, safety, effectiveness, or performanceof any of GENMARK equipment.GENMARK is responsible for all complaint handling in accordance with section 3.11 of the Agreement.H. Complaints from GENMARK . The supplier is to establish a process for receiving a complaint from GENMARK alleging nonconformity of the supplier’sproduct and providing timely feedback to GENMARK reporting on the corrective action it has taken or rationale for not taking corrective action.The supplier shall have a written procedure describing the corrective action process. The procedure is to include:1.the department or staff responsible for receiving, reviewing, evaluating and coordinating complaints from GENMARK2.documenting oral complaints upon receipt,3.processing complaints in a timely and uniform manner,4.the investigation process to determine the root cause of the problem,5.evaluating the need for action to ensure that the problem does not recur,6.determining and implementing the action needed to provide a solution to the problem,7.action on product already delivered and/or other sites or systems that could be affected by the nonconformity,8.verification of activities to show that the actions taken were effective,9.management review and approval of the action taken, and10.maintaining records of corrective actions. Corrective action records are to be made available to GENMARK upon request.I. Management representative. The executive management is to appoint a member of management who, irrespective of other responsibilities, is the supplier’smanagement representative for quality. This manager shall have the overall responsibility and authority to ensure that the quality system is effectively establishedand being maintained. This individual must be available to be contacted by a representative of GENMARK whenever issues of product quality arise.J. Personnel training. The supplier is responsible for maintaining sufficient personnel with the necessary education, background, training, and experience toassure that the established quality system and process plan are correctly implemented. Personnel are to be adequately trained and qualified to perform theirassigned responsibilities according to an established training plan. Untrained, unqualified personnel are only to perform work while under the supervision ofqualified personnel so they do not damage or otherwise cause harm to the product. The supplier shall also ensure that its personnel receive up-to-date retraining, asappropriate, whenever processes, methods, technology or other changes reasonably suggest that retraining is necessary. Records of all training must be maintainedby the supplier to document that personnel have been trained in accordance with the requirements of the established training plan and these records are to be madeavailable to GENMARK upon request.1.Blood borne pathogens . Where it is reasonable to expect that personnel might come into contact with used medical devices of any kind, the supplier isresponsible for training their personnel in the OSHA regulations for blood borne pathogens. This includes returning component parts for failure investigationor complaint processing. (See www.osha.gov for further information)262.HIPAA . Where it is reasonable to expect that employees or agents of the supplier might have access to patient records, either by need or accidentally, thesupplier must comply with the Health Insurance Portability and Accountability Act (1996) to maintain the confidentiality and privacy of any such patientinformation. (See www.hhs.gov/ocr/hipaa for more information.)3.ESD. Where it is reasonable to expect that electro-static discharge (ESD) could affect the requirements of product, including product being returned toGENMARK for failure investigation, supplier shall ensure that their personnel are trained in ESD controls, including handling and packaging.K. Changes to quality system or product. The supplier’s executive management is responsible for notifying GENMARK of any change (prior toimplementation) to the product, including the process plan, when the change could affect product quality, so that GENMARK may determine whether the changeaffects the quality, reliability, safety, or efficacy of the finished medical device. The supplier shall have a documented process identifying how it will informGENMARK of any such quality system and product changes.2. Control of documents and recordsA. Control of documents. Documents required by the quality system are to be controlled according to a written procedure. These include, for example,procedures, drawings, instruction manuals, service manuals, test methods, inspection instructions, specifications, and product literature.B. Reserved.C. Change control. Changes (revisions) to documents are to be reviewed and approved by personnel who are as capable as the original reviewers and approvers.1.Changes to documents are to be timely communicated by the supplier to appropriate personnel.2.The supplier must establish and maintain a system to receive GENMARK document revisions and implement these revisions in a timely manner.3.Suppliers are not permitted to accept and act on verbal change requests from GENMARK and GENMARK is not permitted to provide verbal changerequests to Supplier.D. Availability of documents. Documents are to be readily available to the supplier’s personnel at their intended point-of-use.E. Control of records. Records are a special type of document. Records are typically completed forms, checklists or other evidence that demonstrate thatrequirements have been met and the effective operation of the quality system. Records are to remain legible. Records are to be controlled according to a writtenprocedure which shall include the controls needed for the identification, storage, protection and disposal. Records are to be retained for at a minimum of 10 years.A copy of a record(s) is to be made available to GENMARK within 2 business days of request. Additionally, the provisions for archiving device specificdocuments shall survive the termination of the QAA.Following expiration of the retention periods, the supplier shall offer to transfer device specific records to GENMARK free of charge.F. Electronic documents and records. Where electronic systems are used for the control of documents, the system must be validated to ensure that only approveddocuments are made available at the point-of-use, write protection is provided, and approval forgery is prevented. Where records are stored electronically, thesystem shall have appropriate controls to ensure that only true copies of records are stored and controls in place to preclude unauthorized changes and loss.3. Purchasing controlsA. Approval of subtier suppliers. The supplier is to evaluate their own suppliers to the extent necessary to ensure quality products are being provided. Approvalsof subtier suppliers are to be based on this evaluation. The supplier shall establish and maintain an approved supplier list. In the event that GENMARK hasprovided an approved supplier list to the supplier, any deviations must be approved by GENMARK prior to purchase of any product. Controls are to be in place toassure that purchases are only made from approved suppliers.B. Specific GENMARK requirements. When the GENMARK engineering drawings or other GENMARK document specifies the subtier supplier to be used, thesupplier is to ensure that these requirements are followed. GENMARK specified subtier suppliers are to be added to the supplier’s approved supplier list. Nosubstitutions or alternates to a specified subtier supplier are to be made without written consent from an authorized representative of GENMARK.27C. Quality control of 3 rd party productsThe supplier is responsible for assessing the quality system and for the quality of product received from all third-party suppliers it uses.If the supplier receives production or test equipment, software, services, materials or other supplies from third parties for the manufacture or quality assurance ofits products, the supplier shall ensure that these are in compliance with its quality management system, whether it be by contract with these parties or throughcarrying out such tests itself as are necessary to assure compliance with its quality management system.D. Purchase information. Purchase orders shall include adequate information, including quality requirements, so as to be precise and unambiguous as to what isbeing purchased.E. Traceability. GENMARK shall define any “critical” components requiring component level traceability. GENMARK shall also select the appropriatecomponent level or device level traceability grade, in order to meet any applicable FDA requirements or regulations. Plexus is responsible for implementing thedefined manufacturing-level traceability requirements and for ensuring that the appropriate manufacturing-level traceability records and associated records areretained for the duration of this Agreement.4. Calibration of inspection, measurement and test equipmentA. Calibration requirements. Any equipment used to establish product specifications during design and development, used to determine process parameters, orused to judge the acceptability of a product specification shall be maintained under a calibration program.B. Calibration procedures. Procedures shall be established and maintained to ensure that inspection, measuring, and test equipment (IM&TE) used to determinethe acceptance or rejection of process or product requirements during design, production, installation or service are calibrated, inspected, checked and maintainedin accordance with the manufacturer’s recommendations. Calibration procedures shall include specific directions and limits for accuracy and precision. Calibrationstandards used for IM&TE must be in conformity to national or international standards.C. Suitability of equipment. Suppliers shall ensure that all IM&TE, including mechanical, automatic, or electronic inspection and test equipment, are suitable fortheir intended use and capable of producing valid results. Controls shall be in place to ensure that IM&TE maintain their suitability while in-use, in transit, or instorage.D. Calibration labeling. A label is to be affixed on or, if appropriate, near the IM&TE. This is to inform the user of the IM&TE that the IM&TE is under thecalibration program. The label is to include: (a) date IM&TE was calibrated, (b) who performed the calibration, and (c) the due date of the next calibration.E. Calibration records. Supplier is responsible for maintaining records to provide objective evidence that IM&TE are being maintained and calibrated. Theserecords shall be made available to GENMARK upon request.F. Notification to GENMARK. The supplier shall notify GENMARK without undue delay when the supplier becomes aware of the use of any inappropriate orout-of-calibration inspection measurement and test equipment so that GENMARK can evaluate the effect of its use and any necessary corrective or other action, upto and including reworking at the supplier’s expense.G. Use of calibration lab. When the supplier uses the services of an outside calibration service, it is the responsibility of the supplier to ensure that the serviceprovider meets any and all requirements for the service provided.5. GENMARK right to inspect (Audit)A. Supplier’s executive management responsibility. To ensure the effectiveness of the supplier’s quality system to deliver conforming product, GENMARKmay require representatives of GENMARK to perform quality system audits at the supplier’s facility. The supplier’s executive management shall support suchaudits and ensure that prompt corrective actions are taken to address any discrepancies found.B. GENMARK Audits. The supplier shall at reasonable intervals allow GENMARK to check the compliance with this quality assurance agreement. The suppliershall therefore, after prior agreement of the parties on the date of such an inspection,28grant GENMARK reasonable access to its business premises and shall make available a duly qualified member of its staff for the duration of the inspection visit.GENMARK may be denied access to and inspection of classified manufacturing methods and other industrial secrets.This described right of GENMARK includes the right to inspect the existing documentation and to participate in quality checks carried out by the supplier. Thechecks may be carried out by way of quality audits (e.g. audits involving the systems, products or processes) and via inspections.C. Third party audit. An audit or regulatory inspection may also be required from time to time. This may involve the authority having jurisdiction overGENMARK according to the European IVDD 93/42/EEC or any other regulatory authority (e.g., US Food and Drug Administration) or authorized organization orby third parties commissioned by GENMARK.6. Corrective and preventive action (CAPA)A. Basic CAPA requirements. The suppliers shall establish procedures for implementing corrective and preventive action. The procedures shall includerequirements for:1.Analyzing processes, work operations, concessions, quality audit reports, quality records, service records, complaints, returned product, and other sources ofquality data to identify existing and potential causes of nonconforming product, or other quality problems. Appropriate statistical methodology shall beemployed, where necessary, to detect recurring quality problems;2.Investigating the cause of nonconformities relating to product, processes, and the quality system;3.Identifying the action(s) needed to correct and prevent recurrence of nonconforming product and other quality problems;4.Verifying or validating the corrective and preventive action to ensure that such action is effective and does not adversely affect the finished device;5.Implementing and recording changes in methods and procedures needed to correct and prevent identified quality problems;6.Ensuring that information related to quality problems or nonconforming product is disseminated to those directly responsible for assuring the quality of suchproduct or the prevention of such problems;7.Submitting relevant information on identified quality problems, as well as corrective and preventive actions, for management review; and8.Ensuring that all activities required under this section, and their results, are properly documented.Annex I. Specific Requirements for ManufacturingNOTE: This section applies to suppliers producing, assembling, fabricating or processing product for GENMARK.1. Receiving, receiving inspection, and storageA. Authorized receipts. The receiving function shall ensure that only deliveries from 3 rd party suppliers that are listed on the supplier’s approved supplier list areaccepted and processed. Articles leaving the receiving function must be clearly labeled or otherwise identified so as to preclude mix-ups and unintentional use.Nonconforming articles are to be clearly labeled and separated from all other articles.B. Direct to stock receipts. When received articles bypass receiving inspection and go directly to storage or to their point-of-use, controls must be in place toavoid mistakes and the unintentional acceptance of articles.1.The acceptance of these articles must have some form of prior documented approval, including the rationale, to bypass receiving inspection.2.The receiving function shall record the acceptance of the articles after verifying they meet predetermined requirements.C. Receiving inspection. Receiving inspection activities shall be established and maintained in a written procedure. These activities are to confirm or to otherwiseverify that incoming articles conform to specified requirements. When other than 100% inspection is performed, the sample size is to be determined based on therisk of accepting the lot when it should have been rejected. Only published sampling plans may be used (i.e., ANSI/ASQC Z-1.4). Receiving inspections are to berecorded and include (1) the inspection/tests performed, (2) date inspection/tests were performed, (3) results -acceptance or rejection, (4) the signature of theinspector, and (5) where appropriate, the test equipment used. Articles leaving the receiving function must be clearly labeled or otherwise identified so as topreclude mix ups and unintentional use. Nonconforming articles are to be clearly labeled and separated from all other articles.D. Storage. Stockrooms, where materials and parts are stored for later use in production, are to be kept orderly and well maintained. Only items that have beenaccepted for use are to be stored in the stockroom. All bins, cartons, or other containers holding the items in storage are to be labeled with the item’s part numberand be of such design as to preclude mix ups.29Controls are to be in place to prevent damage and deterioration while items are in storage. Controls for temperature sensitive and limited shelf life materials mustbe considered.2. Production and process controlsA. Engineering drawings. In cases where the supplier receives GENMARK engineering drawings and then imports them into the supplier’s engineering drawingformat for internal use, confidentiality of both sets of drawings is to be maintained. Both sets of drawings are to remain the property of GENMARK.B. Inspections and tests. Whether required by GENMARK or not, the supplier is responsible for conducting all appropriate inspections and tests that arenecessary to confirm that the product made for GENMARK meets all of its specified requirements and quality attributes.C. Standard operating procedures. Production operations are to be defined, conducted, controlled, and monitored to the extent necessary to ensure that theproduct made for GENMARK conforms to its specifications. This is to be documented in standard operating procedures (SOP’s).D. Production controls. A process control plan (or similar document) shall be established and maintained that outlines the various production operations and theprocess controls necessary to manufacture acceptable product for GENMARK, if not already detailed and included in the process plan. The following is a list ofitems that must be considered for inclusion in the process control plan, dependent upon, and where appropriate for, the complexity of the process(es) used tomanufacture product for GENMARK.1.The controls to assure only accepted process inputs are used. Inputs are the materials and parts needed to make the product.2.Clear identification (labeling) and separation of the materials and parts stored on the production floor in order to prevent mix ups and their unintended use.3.Controls to prevent the use of materials that have exceeded or are nearing their expiration date.4.The process to ensure the production line has been cleared of inputs from previous production runs for a different product (i.e., a “line clearance”).5.The assignment of a unique lot or batch number, or date code, to the production run for future reference and record keeping.6.The manufacturing steps required (i.e., the use of a route tag).7.The criteria for workmanship, including representative samples.8.The process characteristics (parameters) to be controlled during production.9.The means, such as SPC, for the continuous monitoring and control of critical-control-points in the production processes.10.The in-process product attributes that are critical to quality are monitored during production.11.The defined acceptance and rejection criteria of the process output to ensure that they are correctly inspected/tested by qualified individuals.12.Controls for the handling and reworking of in process nonconformances.13.The final inspection and test methods to be used for product release.14.Handling procedures to assure that personnel handling and moving both in-process and final product do not inadvertently cause nonconformances.15.The procedure for adequately packaging the product for shipment to GENMARK so that it is reasonable to expect that product quality will not be affectedduring transportation.16.The method for recording process data and inspection/test results either electronically or on paper forms.E. Automated test systems. Software controlled and/or automated test systems used to determine the acceptance or rejection of incoming product, in-processproduct or final product are to be validated or otherwise verified to assure that consistent and repeatable results are obtained and that the system is fit for itsintended use.F. Process validation. Where the results of a process cannot be fully verified by subsequent inspection and test, the process shall be validated. Processes thattypically require validation include, but are not limited to:Reflow & wave solderingInjection moldingPlatingBondingSterilizationGENMARK shall be responsible for the software validation (current and future revisions) of any embedded product software and the validation of all GENMARK-supplied: (1) test equipment or test software; (2) production equipment or software; and30(3) firmware. Plexus is responsible for the validation of any Plexus software used in production in, or as part of its quality system.G. In-process rejects. Supplier is to establish and maintain procedures to ensure that the causes of internal, in-process rejects are identified and corrected so as toprevent their recurrences. Where appropriate, supplier shall monitor (i.e., trend chart analysis) production operations to enable the early detection of problems andcorrect them in order to prevent rejects from occurring.H. Statistical applications. Valid statistical techniques shall be used, where appropriate, for the verification of the acceptability of incoming product, processcharacteristics, and product release.I. Environmental controls. Where environmental conditions (temperature, humidity, ESD, etc.) could reasonably be expected to have an adverse effect on quality,the supplier shall establish and maintain procedures to adequately control these environmental conditions. Maintenance schedules and activities must bedocumented.J. Equipment maintenance. Production equipment is to be maintained to ensure its continuing suitability and capability to manufacture acceptable output.K. Final acceptance activities. Product shall not be released for shipment until all requirements have been confirmed as being satisfactorily completed, unlessotherwise approved in writing by GENMARK. Records shall include the signature of the person(s) authorizing release of the product. Prior to shipment, thesupplier shall confirm and document that the product meets all of its requirements. This verification is to include the following items.1.The GENMARK part number and revision level to be shipped is what was ordered.2.The process control plan was followed. All in-process inspection and tests and final inspections and tests were completed and their results are acceptable.3.All required forms and other documents are available and correctly completed.4.Any necessary documents to be shipped with the product, such as a certificate-of-conformance, are complete and ready to go.L. Production history records. Records, including route tags, process forms, inspection forms, and test data forms, are be maintained to demonstrate that theproduct was produced according to the production control plan.3. Storage, packaging and transportThe supplier shall ensure that sufficient protection is given for storage on its own premises, in particular against damage and environmental influences.GENMARK is responsible for defining and validating the finished device packaging. GENMARK will provide Plexus with written certification that the packagingvalidation has been performed prior to the production of the devices.To the extent the parties do not have any other agreement relating thereto, the products shall be packaged and transported in a defined and reproducible manner atthe supplier’s responsibility. The supplier shall thereby ensure that the packaging units are clean, that there is sufficient protection in place against damage and thatthe transport security in place is capable of maintaining the quality requirements.As far as possible, the environmental impact of packaging and transportation of newly produced products by way of coordinated forwarding concepts with multipleand/or shuttle packaging, the reduction of the packaging volume and use of environmentally friendly packaging materials, as well as the costs of packaging anddisposal, are to be optimized.With regard to packaging repaired used products and spare parts, single shipment packages are to be used that can only be opened by way of a sealed closure, andwhich are suitable with regard to providing effective protection against transport-related changes in the case of worldwide shipment. The possibilities with regardto reducing the amount of packaging, and the use of environmentally friendly materials and reusable packaging, are to be utilized insofar as such course of action isalso possible within this framework.4. NonconformancesA. Control of nonconforming articles. Nonconforming articles (raw materials, parts, piece parts, in-process work, etc., used to produce product for GENMARKthat do not meet specified requirements) are to be rejected, labeled as such, and separated to preclude their accidental use. Nonconforming articles can only be usedto produce product for GENMARK after they have31been reworked to meet original specifications, or with written (e.g., deviation) authorization from GENMARK.B. Control of nonconforming product. Product made for GENMARK that failed to meet its specified requirements and quality attributes shall be rejected,labeled as such, and separated so as to prevent it from being shipped to GENMARK. Supplier shall not knowingly ship nonconforming product to GENMARKwithout first receiving written authorized approval from GENMARK.C. Rework of nonconforming product. Nonconforming product may be reworked provided these operations are carried out according to written procedures andare carried out by personnel having the necessary knowledge and skill sets to perform the rework. Reworked product must be re-inspected and re-tested, and passall originally specified requirements and quality attributes. The rework operations, including the reinspection and retests, are to be recorded.D. Product returns. Suppliers must have a procedure for receiving returned product from GENMARK in the event it is rejected. The supplier’s procedure shouldinclude verification of the nonconformance. If the nonconformance cannot be verified, for whatever reason, the supplier shall promptly notify GENMARK andwork toward a resolution. When the nonconformance is confirmed by the supplier, appropriate corrective action is to be taken to address and correct the problem.This action may include:1.Confirming that the correct process inputs were used.2.Confirming there was an adequate “line clearance” before making the product for GENMARK.3.Verifying personnel are adequately trained and have the necessary skill sets.4.Changing the process plan (i.e., increasing in-process and/or final inspections and tests, moving controls upstream in the process for earlier detection ofproblems, instituting new inspections or testing, etc.).5. Modifying the production control plan (i.e., increased in-process monitoring of process parameters).6. Reworked or returned product subsequently reshipped to GENMARK is to be clearly labeled or otherwise identified as being reworked or repaired, andpackaged in all new materials.E. Product salvaging. New products may only contain components drawn from used products if expressly approved by GENMARK.5. Processing product changes of manufactured productThe supplier shall document all product changes in accordance with its quality management system. This includes, but is not limited to, product changes that couldhave an effect on product function; design; acceptance; interfaces; transport and storage capabilities; handling; capabilities regarding processing, repairs ormaintenance; production processes; recycling or the disposal of products as well as all changes to documents that are distributed with the products (e.g. data sheets,operating manuals or maintenance instructions).A. Processing product changes initiated by the supplier. All product changes by the supplier are subject to written approval by GENMARK. For approval, thesupplier shall forward to GENMARK a written change inquiry, which shall address the following points:•Products and product characteristics affected•Exact description of required change•Consequences of product change from the supplier’s point of view (including risks)•Required start of product change (e.g. from serial number, batch number, order or date).•GENMARK shall assess the required product change and provide the supplier with written authorization, which may be subject to further requirements.B. Implementing product changes initiated by the supplier. The supplier shall only implement the changes following the receipt of the written authorization byGENMARK of the changes and the implementations of any further requirements contained therein, and provide notification of the conclusion of the implementedchanges in the form of a written confirmation to GENMARK.Following the successful validation of the change, at the supplier’s premises or, if necessary at GENMARK’ premises, the delivery of the changed products shallbe released in writing by GENMARK.The start of the delivery of changed products shall be agreed upon in writing.32C. Processing product changes initiated by GENMARK. If GENMARK requests a change in the product, GENMARK shall forward a written change inquiry tothe supplier, which shall address the following points:•Products and product characteristics affected•Exact description of required change•Consequences of product change from GENMARK point of view (including risks)•Required start of product change (e.g. from serial number, batch number, order or date).The supplier shall review the degree to which the requested changes can be realized and the consequences, and inform GENMARK of the outcome of such areview in the form of a written offer.Following the review of such an offer, GENMARK shall issue the supplier with a written change order, including the respective validation requirements. Withinsuch a change order the costs and the release regarding the manufacture of an initial batch or a prototype shall be agreed upon.D. Supplier implementing changes initiated by GENMARK. The supplier shall implement the product change following the receipt of the written change orderand the parameters specified therein by GENMARK, and provide notification of the conclusion of the implementation of the change in the form of a writtenchange confirmation. The supplier shall furthermore make available to GENMARK prototypes of the changed products against reimbursement of its costs if this isnecessary for further validation at GENMARK’ premises.Following the successful validation of the product change, at the supplier’s premises or, if necessary at GENMARK’ premises, the delivery of the changedproducts shall be released in writing by GENMARK.The start of the delivery of the changed products shall be agreed upon in writing.In the event of any conflict between this Section 5 of the QAA and the Supply Agreement, the Supply Agreement shall control.33Annex II. Specific Requirements forWarehousing/Distributing Product for GENMARKA. Handling. The supplier shall have controlled processes to ensure that only product authorized by GENMARK is received, stored and distributed. The process isto include a method that prevents mix-ups, damage, deterioration, contamination, or other adverse effects from occurring to product during handling. Records ofreceipts, including the date and name of person accepting the receipt, shall be maintained.B. Storage. The supplier shall have processes that ensure control of storage areas and stock rooms for product to prevent mix-ups, damage, deterioration,contamination, or other adverse effects pending use or distribution and to ensure that no obsolete, rejected, or deteriorated product is used or distributed. When thequality of product deteriorates over time, it shall be stored in a manner to facilitate proper stock rotation, and its condition shall be assessed as appropriate.C. Product packaging. The supplier is responsible for and shall ensure that device packaging and shipping containers are used to protect the device from alterationor damage during the customary conditions of processing, storage, handling, and distribution.D. Distribution. The supplier shall control the distribution of product to ensure that only product approved for release are distributed and that purchase orders arereviewed to ensure that ambiguities and errors are resolved before products are released for distribution. Where a product’s fitness for use or quality deterioratesover time, the controls shall ensure that expired products are not distributed.E. Distribution records. The supplier shall maintain distribution records and make them available to GENMARK upon request. Records are to include:1. The name and address of the initial consignee;2. The identification and quantity of devices shipped;3. The date shipped; and any control number(s) used.F. Reserved.G. Environmental controls. Where environmental conditions (temperature, humidity, ESD, etc.) could reasonably be expected to have an adverse effect onquality, the supplier shall establish and maintain procedures to adequately control these environmental conditions. Maintenance schedules and activities must bedocumented.34Annex III. How GENMARK Evaluates Its SuppliersA. Introduction. Those suppliers identified based on annual spend or those suppliers whose products and/or services are critical to the safety, efficacy, andreliability of the medical devices GENMARK manufactures, will be deemed “Class 1suppliers, and will be evaluated by GENMARK in accordance to GENMARKQuality Procedure QP0800.B. Details of the GENMARK Evaluation System.1.Purchasinga.Total Cost Performancei.Are supplier’s prices competitive?ii.Payment termsiii.Additional procurement costsb.Cost Reduction Effortsi.Cost reduction efforts within existing designsc.Fulfillment of Strategic Requirementsi.The market strategy of the supplierii.How is the supplier’s economic situation?iii.How is the conduct during contract negotiations?iv.Supplier is registered in Click4Suppliers (c4s)v.Does the supplier offer an Open Book Policy?d.Co-Operation, Service, & Supporti.Cooperation, Service, & Support2.Qualitya.Quality Performancei.Product Acceptance Quality Performance (includes Receiving, In Process, Service, Reporting and Documentation, Packing, etc.)ii.Field Quality Performance After Delivery (or similar measure; e.g. Open MPSR ratio)b.Quality Systemi.Does the supplier have a Quality Management System (QMS) which meets the requirements of GENMARK or the business unit?ii.Quality Management System, audit findingsiii.Number of corrective and preventative action (CAPA) or supplier development plansc.Quality Assurance Agreements (QAA)i.QAA in place or part of the frame contract, as appropriated.Co-Operation, Service, & Supporti.Cooperation, Service, & Support3.Logisticsa.Logistics Performancei.Does the supplier meet targeted delivery/milestone dates?ii.How good is the response time to delivery problemsiii.Delivery flexibilityb.Logistics Strategy and Systemi.Does the supplier offer logistics models which meet the needs and requirements of the business unitii.Interface connectionc.Environmental Aspectsi.Does the supplier have an EMS which systematically advances the improvement of environmental protection and keeps GENMARKinformed about current actions for environmental protection?ii.Does the supplier meet the requirements of the ecological product/service design, packing, and logistics?iii.Documentation of hazardous materialsd.Co-Operation, Service, & Supporti.Cooperation, Service, & Support4.Technologya.Current technology positio ni.Product technology (“Product” also means Service and Software)ii.Engineering capability and competenceiii.Engineering documentationiv.Technical equipment and facilities35b.Fulfillment of specific technical requirementsi.Prototypes and engineering samplesii.Supplier communication and support of changesc.Fit of technology roadmapsi.The supplier’s technology roadmap includes research, design, manufacturing processes, environmental health and safety characteristicsd.Co-Operation, Service, & Supporti.Cooperation, Service, & Supportii.Support of manufacturing and/or sustained engineering36IN WITNESS WHEREOF , the parties hereto have executed this Quality Agreement as of the Effective Date:CLINICAL MICRO SENSORS, INC. Plexus Corp.D.B.A GenMark DIAGNOSTICS, INC.By: /s/Tho Tran By: /s/ Andrew SteinhausName: Tho Tran Name: Andrew Steinhaus Title: Director Quality Assurance Title: Quality Engineer By: /s/ Al Maderazo By: /s/ Bruce SchulloName: Al Maderazo Name: Bruce SchulloTitle: VP QA and Regulatory Affairs Title: Mgr - Regulatory Compliance 37Exhibit BSpecificationsDocument No.Description *** *** *** *** *** *** *** *** *** *** *** *** *** ***38*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit CProducts and PricingEffective Date Beta Pricing *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***Production Product Pricing CriteriaThe parties agree that:Prior to manufacturing Product production units under this Agreement and consistent with past practice, Plexus will provide GenMark with *** .(collectively, the “ Pricing Criteria ”).39*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Spare Parts *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***40*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***41*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit DGenMark Equipment *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***42*** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit 10.23GENMARK DIAGNOSTICS, INC.AMENDMENT OF RESTRICTED STOCK, RESTRICTED STOCK UNIT AND/OR STOCK OPTION AGREEMENT(S)THIS AMENDMENT OF RESTRICTED STOCK, RESTRICTED STOCK UNIT AND/OR STOCK OPTION AGREEMENT(S) (this “ Amendment ”)is made by and between GenMark Diagnostics, Inc., a Delaware corporation (the “ Company ”), and _______________ (the “ Participant ”).RECITALSWHEREAS, the Company has previously granted the Participant certain equity awards as set forth on Attachment A hereto and may (but need not) grantadditional equity awards to the Participant following the Effective Date identified in Section 1 below (collectively, the “ Awards ”), which may consist ofRestricted Stock, Restricted Stock Units and/or Options granted pursuant to the Company’s 2010 Equity Incentive Plan (as amended, the “ Plan ”); andWHEREAS, the Company and the Participant wish to amend the applicable agreements governing such Awards (collectively, the “ Award Agreements ”)to provide for acceleration of vesting of such Awards pursuant to the terms and conditions set forth herein.AGREEMENTNOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the Company and the Participant agree as follows:1. Effective Date . This Amendment is effective as of May __, 2016 (the “ Effective Date ”).2. Definitions . Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the applicableAward Agreement and the Plan.3. Acceleration of Vesting of Restricted Stock Awards . With respect to the Restricted Stock Award(s), if any, indicated on AttachmentA, and with respect to any Restricted Stock Award(s) granted to the Participant by the Company’s Board of Directors or Compensation Committeethereof (as applicable, the “ Administrator ”) under the 2010 Plan after the Effective Date (if any), upon a Change in Control, one hundred percent(100%) of the shares subject to such Award(s) shall automatically become vested and non-forfeitable as of the date of the Change in Control.4. Acceleration of Vesting of Option and Restricted Stock Unit Awards . With respect to the Options and Restricted Stock Units, if any,indicated on Attachment A, and with respect to any Options and/or Restricted Stock Units granted to the Participant by the Administrator under the 2010Plan after the Effective Date (if any), upon a Change of Control, one hundred percent (100%) of the shares subject to such outstanding Award(s) whichwere not otherwise Vested Shares or Vested Units, as applicable, shall automatically become Vested Shares or Vested Units, as applicable, as of the dateof such Change of Control.5. Continuation of Other Terms . Except as set forth herein, all other terms and conditions of the Award Agreement(s) shall remain infull force and effect.6. Tax Consequences . The Participant acknowledges that the Company makes no representation or warranty regarding the taxconsequences of this Amendment. The Participant has been apprised that if the vesting of such Options were to be accelerated, the Options’ tax statusmay, to the extent any such Option was designated as an Incentive Stock Option, be converted in whole or in part into a Nonstatutory Stock Option. Inaddition, the effect of accelerating the vesting of the Restricted Stock Awards and/or Restricted Stock Units may also result in the accelerationof the year in which such shares would otherwise be taxable to the Participant. The Participant should consult with the Participant’s own tax, legaland financial advisors regarding the consequences of this Amendment.7. Applicable Law . This Amendment shall be governed by the laws of the State of California as such laws are applied to agreementsbetween California residents entered into and to be performed entirely within the State of California.GenMark Diagnostics, Inc.Date: ___________________, 2016 By: _______________________________ Hany Massarany President & Chief Executive Officer Participant: Date: ___________________, 2016 _______________________________[Name of Participant]Attachment ARESTRICTED STOCK AWARD(S)Date of GrantNumber of SharesOriginally Subject to Award(s) RESTRICTED STOCK UNIT(S) Date of GrantNumber of SharesOriginally Subject to Award(s)STOCK OPTION AWARD(S)Date of GrantNumber of SharesOriginally Subject to Award(s)Exercise Price Exhibit 10.31October 12, 2012Eric Stier[Address]Dear Eric:Clinical Micro Sensors, Inc. d.b.a. GenMark Diagnostics (“GenMark Dx”) is pleased to offer you employment in the position of VP, Legal Affairs reporting toGenMark’s Chief Financial Officer, with a start date of November 5, 2012 . Subject to your performance as well as Company requirements, you will be consideredfor the position of General Counsel & Corporate Secretary reporting to GenMark’s Chief Executive Officer within 18 months of your start date.Your annual gross salary will be $195,000 to be paid on a bi-weekly basis in keeping with GenMark Dx’s standard payroll practices and procedures. In addition,you will be eligible to participate in the GenMark Dx performance incentive bonus program with a potential variable earning opportunity of 30% of your basesalary .The Company will also provide you with a signing bonus of $30,000 payable as soon as practicable following your start date. In the event you terminatevoluntarily from the company within 1 year of employment, GenMark may seek prorated reimbursement of your signing bonus.We are also pleased to inform you that the Company will recommend for you to be granted the equivalent value of 30,000 GenMark Diagnostics, Inc. StockOptions - to be awarded via a combination of stock options and restricted common stock - subject to blackout windows and board approval at the next boardmeeting following your start date. The Company will also recommend for you to be granted the equivalent value of 15,000 GenMark Stock Options - to beawarded via a combination of stock options and restricted common stock - subject to blackout windows and board approval at the March, 2013 board meeting. Theshares will be granted at the closing price on the date of grant. The Stock Option vesting schedule would be a 25% cliff vest at the one year anniversary of the dateof grant and the remaining 75% in equal monthly installments for three years thereafter. The Restricted Common Stock vesting schedule would be a 25% cliff vestat the one year anniversary of the date of grant and the remaining 75% in equal quarterly installments for three years thereafter. You will also be eligible foraccelerated vesting upon a Change in Control, per GenMark Dx’s “Amendment of Stock Option Agreement.”Additionally, you will be provided a severance provision of six months’ base salary continuation, including health care and benefits coverage, in the event you areterminated by GenMark Dx for any reason other than Cause, within 18 months following your start date. The severance is contingent upon the usual and customaryrelease of claims.Stier OfferYou will also be entitled to participate in the benefit plans offered by GenMark Dx, subject to the eligibility requirements, terms and conditions of those plans. Thebenefits offered at this time include 15 vacation days pay, 10 sick days, holiday pay, life insurance, health insurance, disability insurance and a 401k plan, inaccordance with GenMark Dx policies and subject to the Company’s right to modify, add, and delete any benefit plan.You understand and agree that during your employment you are required to comply with GenMark Dx’s policies and procedures.In making you this offer, we relied on your representation that you are not bound by any non-compete or non-solicitation provision that would prevent or restrictyou from carrying out your job responsibilities for GenMark Dx. You also promise and represent that you will not bring with you to Genmark Dx, or use whileemployed by the Company, any confidential or trade secret information of a previous employer.In addition, as a condition of accepting this offer, you are also agreeing that you have reviewed and signed the enclosed Confidentiality and Non-DisclosureAgreement.Employment with GenMark Dx is “employment at will.” This means that your employment is not for a designated period of time and that either you or GenMarkDx can terminate the employment at any time, with or without cause. The at-will nature of this employment relationship cannot be changed except by an expresswritten agreement signed by the Chairman of GenMark Dx. The other terms of this offer of employment may not be amended without an express writtenagreement signed by both parties.This job offer is also contingent upon successful completion of a post offer, pre-employment background check and drug screen.Please sign the acceptance below and sign the enclosed Confidentiality and Non-Disclosure Agreement to formally accept this offer of employment. This offer willexpire on Sunday October 14, 2012 if not accepted beforehand.Congratulations and we look forward to welcoming you to the GenMark Dx team during this very exciting phase of our company’s transformation!Sincerely,/s/Jennifer WilliamsJennifer WilliamsSVP Global Operations & Human ResourcesBy accepting, I agree to all terms of this offer and the Confidentiality and Non-Disclosure Agreement./s/ Eric Stier 10/13/2012 Eric Stier DateExhibit 23.1CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements:(1) Registration Statement (Form S-3 No. 333-187371) of GenMark Diagnostics, Inc.,(2) Registration Statement (Form S-8 No. 333-189348) pertaining to the 2013 Employee Stock Purchase Plan of GenMark Diagnostics, Inc.,(3) Registration Statement (Form S-8 Nos. 333-194514, 333-187393, 333-182268, and 333-168892) pertaining to the 2010 Equity Incentive Plan ofGenMark Diagnostics, Inc., and(4) Registration Statement (Form S-8 No. 333-195924) pertaining to the GenMark Diagnostics, Inc. Non-Plan Stock Option Agreement with ScottMendel and GenMark Diagnostics, Inc. Non-Plan Restricted Stock Units Agreement with Scott Mendel;of our reports dated February 28, 2017 , with respect to the consolidated financial statements of GenMark Diagnostics, Inc. and the effectiveness of internal controlover financial reporting of GenMark Diagnostics, Inc. included in this Annual Report (Form 10-K) of GenMark Diagnostics, Inc. for the year ended December 31,2016 ./s/ Ernst & Young LLPSan Diego, CaliforniaFebruary 28, 2017Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Hany Massarany, certify that:1.I have reviewed this Annual Report on Form 10-K of GenMark Diagnostics, Inc.;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 thestatements 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 thefinancial 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 ExchangeAct 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 theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the 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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date:2/28/2017By:/s/ Hany Massarany Hany Massarany President and Chief Executive OfficerExhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Scott Mendel, certify that:1.I have reviewed this Annual Report on Form 10-K of GenMark Diagnostics, Inc.;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 thestatements 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 thefinancial 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 ExchangeAct 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 theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the 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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date:2/28/2017By:/s/ Scott Mendel Scott Mendel Chief Financial OfficerExhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of GenMark Diagnostics, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2016 (the “Report”),as filed with the Securities and Exchange Commission on or about the date hereof, I, Hany Massarany, President and Chief Executive Officer of the Company,certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:(i)the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date:2/28/2017By:/s/ Hany Massarany Hany Massarany President and Chief Executive OfficerThis certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporatedby reference into any filing of GenMark Diagnostics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended(whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of GenMark Diagnostics, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2016 (the “Report”),as filed with the Securities and Exchange Commission on or about the date hereof, I, Scott Mendel, Chief Financial Officer of the Company, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:(i)the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date:2/28/2017By:/s/ Scott Mendel Scott Mendel Chief Financial OfficerThis certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporatedby reference into any filing of GenMark Diagnostics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended(whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

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