Q1 2003 10Q Exhibit 10.3





EXHIBIT 10.3

Change of Control Retention and Severance Agreement

This Change of Control Retention and Severance Agreement
(the "Agreement") is made and entered into as of March
4, 2003 (the "Effective Date"), by and between Cepheid
and Kurt Petersen (the "Executive").  Capitalized terms
used in this Agreement shall have the meanings set forth in Section 3 below.

1.Purpose.  The purpose of this Agreement is to
encourage Executive to remain in the employ of the Company and to continue to
devote Executive's full attention to the success of the Company in the event of
a Change of Control, as such term is defined in Section 3 of this Agreement.

2.Termination Upon Change of Control.  In the
event of Executive's Termination Upon a Change of Control, Executive shall
receive the following payments and benefits: 

2.1Accrued Salary and Vacation, and Benefits.
Executive shall receive all salary and accrued vacation (less applicable
withholding) earned through Executive's termination date, and the benefits, if
any, under Company benefit plans to which Executive may be entitled pursuant to
the terms of such plans.

2.2Stock Award Acceleration.Provided that
Executive complies with Section 5 below, all outstanding stock options granted
and restricted stock issued by the Company to Executive prior to the Change of
Control shall become fully vested and exercisable immediately prior to the
effective date of the Termination Upon a Change of Control; provided,
that the stock option granted to Executive pursuant to that certain Incentive
Stock Option Agreement dated as of September 27, 2000 between Executive and the
Company (the "September 2000 Option Agreement"), and the
shares of Common Stock issuable upon exercise of such stock option, shall not be
subject to the provisions of this Agreement, and the vesting acceleration
provisions in the event of a change of control set forth in Exhibit 7 to the
September 2000 Option Agreement shall continue to apply to the shares of Common
Stock issuable upon exercise of such option according to its terms.  

2.3Cash Severance Payment.  Provided that
Executive complies with Section 5 below, Executive shall receive a lump sum cash
payment in an amount equal to eighteen (18) months of Executive's the effective
base salary (less applicable withholding), paid within ten (10) business days of
the effective date of the Termination Upon a Change of Control.

3.Definitions.  Capitalized terms used in
this Agreement shall have the meanings set forth in this Section 3.

3.1"Cause" means Executive's (a) failure
to perform any reasonable and lawful duty of Executive's position or failure to
follow the lawful written directions of the Chief Executive Officer; (b)
commission of an act that constitutes misconduct and is injurious to the Company
or any subsidiary; (c) conviction of, or pleading "guilty" or "no
contest" to, a felony under the laws of the United States or any state
thereof; (d) committing an act of fraud against, or the misappropriation of
property belonging to, the Company or any subsidiary; (e) commission of an act
of dishonesty in connection with Executive's responsibilities as an employee and
affecting the business or affairs of the Company; (f) breach of any
confidentiality, proprietary information or other agreement between Executive
and the Company or any subsidiary; or (g) failure or refusal to carry out the
reasonable directives of the Company.

3.2"Change of Control" means (a) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding securities
of the Company under an employee benefit plan of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company representing
50% or more of (A) the outstanding shares of common stock of the Company or
(B) the combined voting power of the Company's then outstanding securities;
(b) the Company is party to a merger or consolidation which results in the
voting securities of the Company outstanding immediately prior thereto failing
to continue to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or another entity) at least fifty (50%)
percent of the combined voting power of the voting securities of the Company or
such surviving or other entity outstanding immediately after such merger or
consolidation; (c) the sale or disposition of all or substantially all of the
Company's assets (or consummation of any transaction having similar effect); or
(d) the dissolution or liquidation of the Company.  

3.3"Company" means Cepheid and any
successor or assign to substantially all the business and/or assets of
Cepheid.

3.4"Diminution of Responsibilities"
means the occurrence of any of the following conditions, without Executive's
consent: (a) a significant diminution in the nature or scope of Executive's
authority, title, function or duties from Executive's authority, title, function
or duties in effect immediately preceding any Change of Control; (b) a ten
percent (10%) reduction in Executive's base salary or a twenty-five percent
(25%) reduction in Executive's target bonus opportunity, if any, in effect
immediately preceding any Change of Control (in either case, unless such
reduction is part of a Company officer-wide program to reduce expenses); (c) the
Company's requiring Executive to be based at any office or location more than 50
miles from the office where Executive was employed immediately preceding the
Change of Control; (d) any material breach of the terms of  this Agreement by
the Company; or (e) failure of any successor or assignee to the Company to
assume this Agreement.
3.5"Termination Upon Change of Control"
means:



(a)any involuntary termination of the employment of
Executive by the Company without Cause within twelve (12) months following a
Change of Control; or

(b)any resignation by Executive based on a Diminution of
Responsibilities where (i) such Diminution of Responsibilities occurs within
twelve (12) months following the Change of Control, and (ii) such resignation
occurs within ninety (90) days following such Diminution of Responsibilities.


4.Federal Excise Tax.  If the payments and
benefits provided for in this Agreement constitute "parachute
payments" within the meaning of the Internal Revenue Code of 1986, as
amended (the "Code"), but for this Section 4, would be
subject to the excise tax imposed by Section 4999 of the Code, then the payments
and benefits under this Agreement will be payable, at Executive's election,
either in full or in such lesser amount as would result, after taking into
account the applicable federal, state and local income taxes and excise tax
imposed by Section 4999 of the Code, in Executive's receipt on an after-tax
basis of the greatest amount of benefits.  

5.Release of Claims.  The Company may condition
the payments and benefits set forth in Sections 2.2 and 2.3 of this Agreement
upon the delivery by Executive of a signed release of claims in a form
satisfactory to the Company.

6.Agreement Not to Solicit.  If Company performs
its obligations to deliver the severance compensation set forth in Sections 2.2
and 2.3 of this Agreement, then for a period of one (1) year after Executive's
termination of employment, Executive will not solicit any employee of the
Company to discontinue that person's employment relationship with
the Company.

7.Arbitration.  Any claim, dispute or
controversy arising out of this Agreement, the interpretation, validity or
enforceability of this Agreement or the alleged breach thereof shall be
submitted by the parties to binding arbitration by the American Arbitration
Association.  The site of the arbitration proceeding shall be in Santa Clara
County, California, or another location mutually agreed to by the parties. 

8.Conflict in Benefits; Effect of Agreement.  This
Agreement shall supersede all prior arrangements, whether written or oral, and
understandings regarding severance compensation following a Change of Control,
and shall be the exclusive agreement for the determination of any severance
compensation due upon Executive's termination of employment upon a Change of
Control, except as set forth in Section 2.2 above.
9.Miscellaneous.



9.1Successors of the Company.  The Company will
require any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, expressly, absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession or
assignment had taken place.  

9.2No Employment Agreement.  This Agreement does
not alter Executive's at-will employment status or obligate the Company to
continue to employ Executive for any specific period of time, or in any specific
role or geographic location.

9.3Modification of Agreement.This Agreement
may be modified, amended or superceded only by a written agreement signed by
Executive and the Chief Executive Officer.


[Remainder of Page Intentionally Left Blank]



9.4 Governing Law.  This Agreement shall be
interpreted in accordance with and governed by the laws of the State of
California.



	
EXECUTIVE
	
CEPHEID

	
____________________________
	
By: _____________________

	
Kurt Petersen
	
Name: Thomas L. Gutshall

	 	
Title:  Chairman of the Board




[Signature Page to Change of Control Retention and
Severance Agreement]