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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-45942
2,300,000 Shares
Caliper Technologies Corp.Logo
Common Stock
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The selling stockholders identified in this prospectus are selling
2,300,000 shares of common stock. We are not selling any shares of our common
stock under this prospectus and we will not receive any of the proceeds from the
shares of common stock sold by the selling stockholders.
Our common stock is listed on The Nasdaq Stock Market's National Market
under the symbol "CALP." On September 26, 2000, the last reported sale price for
our common stock was $53.41 per share.
The selling stockholders may sell the shares of common stock described in
this prospectus in a number of different ways and at varying prices. We provide
more information about how the selling stockholders may sell their shares in the
section entitled "Plan of Distribution" on page 60.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is September 26, 2000.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 7
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 14
USE OF PROCEEDS....................... 15
DIVIDEND POLICY....................... 15
PRICE RANGE OF COMMON STOCK........... 15
SELECTED FINANCIAL DATA............... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 18
BUSINESS.............................. 24
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MANAGEMENT............................ 42
TRANSACTIONS WITH EXECUTIVE OFFICERS,
DIRECTORS AND FIVE PERCENT
STOCKHOLDERS........................ 53
PRINCIPAL AND SELLING
STOCKHOLDERS........................ 55
DESCRIPTION OF CAPITAL STOCK.......... 58
PLAN OF DISTRIBUTION.................. 60
LEGAL MATTERS......................... 61
EXPERTS............................... 61
WHERE YOU CAN FIND MORE INFORMATION... 61
INDEX TO FINANCIAL STATEMENTS......... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all the information you should consider before
buying shares in the offering. You should read the entire prospectus carefully.
CALIPER
We are a leader in lab-on-a-chip technologies, which enable experiments
that ordinarily require laboratories full of equipment and people to be
conducted on a chip small enough to fit in the palm of a child's hand. Each chip
contains a network of microscopic channels through which fluids and chemicals
are manipulated in order to perform experiments. We believe our LabChip systems
have the potential to revolutionize experimentation in a wide range of
industries by enabling individuals and organizations to perform laboratory
experiments at a speed, cost and scale previously unattainable.
We believe that we are the first company to sell and deliver lab-on-a-chip
products to customers. During 1999, we introduced our first two LabChip systems:
- Personal Laboratory System. In collaboration with Hewlett-Packard, we
launched the Agilent 2100 Bioanalyzer system, our first personal
laboratory system for use by individual laboratory researchers.
Hewlett-Packard transferred our collaboration to its subsidiary, Agilent
Technologies.
- High Throughput System. High throughput systems rapidly conduct
experiments using different chemicals in each experiment. Under our
technology access program, we have sold and delivered initial versions of
our high throughput systems for drug screening to Amgen, Hoffmann-La
Roche, Eli Lilly and Millennium Pharmaceuticals.
We develop, manufacture and sell our proprietary LabChip systems to
pharmaceutical and other companies. The pharmaceutical, agriculture, clinical
diagnostics and chemical industries rely on laboratory experimentation to obtain
important information that can be used to discover and develop new products.
These companies, however, still rely on manual, multi-step experiments that use
tools such as test tubes, beakers and large pieces of equipment that utilize
decades-old technology. These tools and processes are expensive and
labor-intensive, rendering them inadequate to handle these companies'
accelerating needs for greater research and development productivity.
We believe that our LabChip systems represent a revolutionary advance in
laboratory experimentation. Our LabChip systems have the potential to expand the
capabilities and improve the productivity of individual researchers and, on an
institutional level, enable pharmaceutical companies to perform the massive
scale experimentation they need to advance the drug discovery process. As a
result, our LabChip technology has the potential to reduce the time it takes to
discover and commercialize new drugs.
Our LabChip systems miniaturize, integrate and automate experimentation to
an unprecedented degree. Because we have great flexibility in channel design and
can exert split-second computer control over fluid flow, we have the ability to
create chips for a multitude of experiments, or applications. We believe the key
benefits of our LabChip systems are:
- High Speed. Our LabChip systems accelerate experiments as much as 10-fold
or more, depending on the application.
- Reduced Reagent and Labor Cost. Our LabChip systems use only a small
fraction of the normal amount of expensive reagents, as little as
1/100,000th in some cases, and also reduce labor involved in each
experiment.
- Expanded Individual Researcher Capability. Because our LabChip systems
can collapse a multi-step, complex experiment into one step, individual
researchers can perform experiments previously outside their areas of
expertise.
- Improved Data Accuracy. Our LabChip systems generally produce more
accurate and consistent data by reducing human error and the variability
caused by the use of multiple instruments.
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- Improved Enterprise-Wide Productivity. We believe our LabChip systems can
improve data quality to the point where researchers can rely on data
generated outside their laboratory or organization, thereby improving
enterprise-wide productivity.
Our objective is to be the leading lab-on-a-chip company. Key elements of
our strategy to achieve this objective are as follows:
- Focus on the pharmaceutical industry first
- Rapidly build our installed customer base
- Leverage our installed customer base by expanding the menu of chip
applications
- Generate recurring revenue from high-value chips
- Build a substantial intellectual property estate
- Maintain leadership in chip technology and manufacturing
- Opportunistically penetrate new industries
LabChip is a registered trademark of Caliper. We have applied for
registration of the following trademarks: Caliper, the Caliper logo, the LabChip
logo, LibraryCard and Sipper. This prospectus also includes trademarks of
companies other than Caliper.
Caliper was incorporated in Delaware on July 26, 1995. Our principal
offices and manufacturing facilities are located at 605 Fairchild Drive,
Mountain View, California 94043-2234, and our telephone number is (650)
623-0700. Our website is located at http://www.calipertech.com. Information
contained on our website or links contained on our website is not a part of this
prospectus.
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THE OFFERING
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Common stock offered by selling stockholders............ 2,300,000 shares
Common stock outstanding................................ 23,537,704 shares
Use of proceeds......................................... We will not receive any proceeds from the
sale of common stock by the selling
stockholders
Nasdaq National Market symbol........................... CALP
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The number of shares outstanding is based on the number of shares
outstanding on August 31, 2000 and excludes:
- 3,025,530 shares that may be issued upon exercise of options outstanding
as of August 31, 2000 at a weighted average exercise price of $17.30 per
share
- 2,012,107 additional shares that we could issue under our stock option
plans
- 383,461 shares that we could issue under our employee stock purchase plan
- 38,460 shares that may be issued upon exercise of warrants outstanding as
of August 31, 2000 at a weighted average exercise price of $1.22 per
share
ASSUMPTIONS USED IN THIS PROSPECTUS
We entered into a collaboration agreement with Hewlett-Packard in May 1998
under which Hewlett-Packard agreed to manufacture, market and distribute some of
our products, as we further describe in this prospectus. In November 1999,
Hewlett-Packard transferred our collaboration to its subsidiary, Agilent
Technologies. Where we refer to Agilent in this prospectus, we are referring to
Hewlett-Packard prior to the transfer of this collaboration and Agilent
following the transfer of this collaboration.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PERIOD FROM
INCEPTION
(JULY 26, 1995) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
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(UNAUDITED) (UNAUDITED)
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STATEMENTS OF OPERATIONS
DATA:
Revenue................... $ -- $ 132 $ 2,266 $ 8,155 $ 12,087 $ 5,445 $ 8,069
Costs and expenses........ 534 4,952 9,678 12,516 27,612 10,590 21,975
Operating loss............ (534) (4,820) (7,412) (4,361) (15,525) (5,145) (13,906)
Loss before change in
accounting principle.... (536) (4,710) (6,281) (2,975) (14,373) (4,556) (11,248)
Cumulative effect of a
change in accounting
principle............... -- -- -- -- -- -- (2,294)
Net loss.................. (536) (4,710) (6,281) (2,975) (14,373) (4,556) (13,542)
Accretion on redeemable
convertible preferred
stock................... -- (262) (1,470) (2,174) (2,328) (1,214) --
Net loss attributable to
common stockholders..... $ (536) $(4,972) $(7,751) $(5,149) $(16,701) $(5,770) $(13,542)
Net loss per common share,
basic and diluted....... $(1.71) $ (3.90) $ (4.38) $ (2.39) $ (4.56) $ (2.21) $ (0.65)
Shares used in computing
net loss per common
share, basic and
diluted................. 313 1,274 1,768 2,157 3,663 20,933
Pro forma net loss per
share, basic and
diluted................. $ (0.92) $ (0.65)
Shares used in computing
pro forma net loss per
share, basic and
diluted................. 15,578 20,933
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JUNE 30, 2000
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ACTUAL PRO FORMA
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 90,079 $194,459
Working capital............................................. 61,655 166,035
Total assets................................................ 100,820 205,200
Long-term obligations, less current portion................. 4,722 4,722
Total stockholders' equity.................................. 88,002 192,382
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Accretion on redeemable convertible preferred stock ceased upon conversion
of all of the outstanding preferred stock to common stock at the closing of our
initial public offering in December 1999.
See Note 1 of notes to our financial statements for an explanation of the
determination of the number of shares used in computing per share data.
See Note 1 of notes to our financial statements for an explanation of the
cumulative effect of a change in accounting principle related to revenue
recognition.
The pro forma balance sheet data reflects the receipt and application of
the net proceeds from the 2,300,000 shares of common stock sold by us to the
selling stockholders at a purchase price of $48.00 per share after deducting
commissions and estimated expenses.
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. If any of the
following risks actually occurs, we may not be able to conduct our business as
currently planned and our financial condition and operating results could be
seriously harmed. In addition, the trading price of our common stock could
decline due to the occurrence of any of these risks, and you may lose all or
part of your investment. See "Special Note Regarding Forward-Looking
Statements."
RISKS RELATED TO OUR BUSINESS
OUR LABCHIP SYSTEMS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD CAUSE OUR
REVENUE TO DECLINE.
Our technologies are still in the early stages of development, and our
LabChip systems incorporating these technologies have only recently been made
commercially available. If our LabChip systems do not gain market acceptance, we
will be unable to generate sales and our revenue will decline. The commercial
success of our LabChip systems will depend upon market acceptance of the merits
of our LabChip systems by pharmaceutical and biotechnology companies, academic
research centers and other companies that rely upon laboratory experimentation.
We have not yet demonstrated these benefits. Market acceptance will depend on
many factors, including:
- our ability to demonstrate the advantages and potential economic value of
our LabChip systems over alternative well-established technologies and
products
- the extent of Agilent's efforts to market the Agilent 2100 Bioanalyzer
- our ability to market our high throughput systems through our technology
access program
Because the products comprising our LabChip systems have been in operation
for a limited period of time, their accuracy, reliability, ease of use and
commercial value have not been fully established. If the initial Agilent 2100
Bioanalyzer customers or our initial technology access program customers do not
approve of our initial LabChip systems because these systems fail to generate
the quantities and quality of data they expect, are too difficult or costly to
use, or are otherwise deficient, market acceptance of these LabChip systems
would suffer and further sales may be limited. We cannot assure you that these
customers' efforts to put our LabChip systems into use will continue or will be
expeditious or effective. Potential customers for our high throughput systems
may also wait for indications from our four initial technology access program
customers that our high throughput systems work effectively and generate
substantial benefits. Further, non-acceptance by the market of our initial
LabChip systems could undermine not only those systems but subsequent LabChip
systems as well.
WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY.
We have experienced significant operating losses each year since our
inception and expect to incur substantial additional operating losses for at
least the next two years, primarily as a result of expected increases in
expenses for manufacturing capabilities, research and product development costs
and general and administrative costs. We may not achieve profitability. For
example, we experienced net losses of approximately $6.3 million in 1997, $3.0
million in 1998, $14.4 million in 1999 and $13.5 million for the six months
ended June 30, 2000. As of June 30, 2000, we had an accumulated deficit of
approximately $48.7 million. Our losses have resulted principally from costs
incurred in research and development and from general and administrative costs
associated with our operations. These costs have exceeded our revenue and
interest income which, to date, have been generated principally from
collaborative research and development agreements, technology access fees, cash
and investment balances and, to a lesser extent, product sales and government
grants.
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OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND ANY FAILURE TO MEET FINANCIAL
EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A
DECLINE IN OUR STOCK PRICE.
Our quarterly operating results have fluctuated significantly in the past
and we expect they will fluctuate in the future as a result of many factors,
some of which are outside of our control. For example, our revenues have varied
dramatically as a result of new customers joining our technology access program
and product shipments. It is possible that in some future quarter or quarters,
our operating results will be below the expectations of securities analysts or
investors. In this event, the market price of our common stock may fall abruptly
and significantly. Because our revenue and operating results are difficult to
predict, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance.
If revenue declines in a quarter, whether due to a delay in recognizing
expected revenue or otherwise, our earnings will decline because many of our
expenses are relatively fixed. In particular, research and development and
general and administrative expenses and amortization of deferred stock
compensation are not affected directly by variations in revenue.
WE ARE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION WITH ACLARA BIOSCIENCES THAT
MAY HURT OUR COMPETITIVE POSITION, MAY BE COSTLY TO US AND MAY PREVENT US FROM
SELLING OUR PRODUCTS.
Our suits against Aclara are costly to litigate and if we are not
successful then we will not recover these costs. We have filed a suit against
Aclara Biosciences, Inc. alleging that they misappropriated our trade secrets.
We also filed suit against Aclara in January 2000 alleging Aclara is infringing
certain patent rights licensed to us. Aclara has counterclaimed for a
declaratory judgment that the patents in this suit are invalid, unenforceable
and are not infringed by Aclara. We may not be successful in our lawsuits
against them, in which case we will have incurred substantial litigation costs
that we will not recover and our patents may be invalidated or interpreted
narrowly.
If we lose Aclara's suit against us it will hurt our competitive position,
may be costly to us and may prevent us from selling our products. In addition,
subsequent to the filing of our first suit, Aclara sued us claiming we are
infringing one of its patents with our LabChip systems that use electrical
charges to move fluids and chemicals through the channels of the chip. We have
counterclaimed for a declaratory judgment of noninfringement, invalidity and
unenforceability of all claims of the Aclara patent. On July 19, 2000, the
federal judge in this action issued an order invalidating certain patent claims
and interpreting the remaining asserted claims. If we lose this case, we will
need to obtain from Aclara a license to this technology in order to continue to
market our products that have been found to infringe Aclara's patent, which may
include all products currently marketed by Agilent. This license could be
expensive, or could require us to license to Aclara some of our technology which
would result in a partial loss of our competitive advantage in the marketplace,
each of which could seriously harm our ability to conduct our business, and hurt
our financial condition and results of operations. We believe that we have
meritorious defenses in this action. However, litigation is unpredictable and we
may not prevail with any of these defenses. If Aclara is successful in its suit
against us and is unwilling to grant us a license, we will be required to stop
selling our products that are found to infringe Aclara's patent unless we can
redesign them so they do not infringe Aclara's patent, which we may be unable to
do. In addition, if we lose the patent suit, we could be required to pay Aclara
damages, including treble damages, which could be substantial and seriously harm
our financial position.
This litigation will be expensive to us, may be protracted and our
confidential information may be compromised. Whether or not we are successful in
these lawsuits, we expect this litigation to consume substantial amounts of our
financial and managerial resources. At any time Aclara may file additional
claims against Caliper, or we may file additional claims against Aclara, which
could increase the risk, expense and duration of the litigation. Either we or
Aclara may appeal rulings in the current cases, extending the litigation.
Further, because of the substantial amount of discovery required in connection
with this type of litigation, there is a risk that some of our confidential
information could be compromised by disclosure. For more information on our
litigation with Aclara, see "Business -- Legal Proceedings."
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PUBLIC ANNOUNCEMENTS OF LITIGATION EVENTS WITH ACLARA BIOSCIENCES MAY HURT OUR
STOCK PRICE.
During the course of our lawsuits with Aclara there may be public
announcements of the results of hearings, motions, and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
these results to be negative, it could have a substantial negative effect on the
trading price of our stock.
IF AGILENT DETERMINES THAT WE MAY BE VIOLATING A THIRD-PARTY PATENT, IT MAY
TERMINATE SALES OF THE AGILENT 2100 BIOANALYZER, WHICH WILL DECREASE OUR
REVENUE.
Under our collaboration agreement with Agilent, Agilent may elect at any
time to stop developing, manufacturing or distributing any product that it
reasonably determines, on the advice of counsel, poses a substantial risk of
infringing a third-party patent. For example, if we lose the Aclara litigation,
or if any adverse developments occur during the course of this litigation, or if
any other third-party claims that we are violating their patent, then Agilent
may terminate marketing and selling of the Agilent 2100 Bioanalyzer system,
which Agilent began marketing in September 1999, which will decrease our future
revenue.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD
ALSO CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR
PRODUCTS.
Third parties may assert infringement or other intellectual property claims
against us, such as in the Aclara litigation described above and under
"Business -- Legal Proceedings." We may have to pay substantial damages,
including treble damages, for past infringement if it is ultimately determined
that our products infringe a third party's proprietary rights. Further, we may
be prohibited from selling our products before we obtain a license, which, if
available at all, may require us to pay substantial royalties. Even if these
claims are without merit, defending a lawsuit takes significant time, may be
expensive and may divert management attention from other business concerns. We
are aware of third-party patents that may relate to our technology or potential
products. We have also been notified that third parties have attempted to
provoke an interference with one issued U.S. patent that we have exclusively
licensed to determine the priority of inventions. Any public announcements
related to litigation or interference proceedings initiated or threatened
against us could cause our stock price to decline.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH WOULD
BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME OF OUR INTELLECTUAL
PROPERTY RIGHTS, WHICH WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
We rely on patents to protect a large part of our intellectual property and
our competitive position. In order to protect or enforce our patent rights, we
may initiate patent litigation against third parties, such as our patent
infringement suit against Aclara described above and under "Business -- Legal
Proceedings." These lawsuits could be expensive, take significant time, and
could divert management's attention from other business concerns. They would put
our patents at risk of being invalidated or interpreted narrowly and our patent
applications at risk of not issuing. We may also provoke these third parties to
assert claims against us. Patent law relating to the scope of claims in the
technology fields in which we operate is still evolving and, consequently,
patent positions in our industry are generally uncertain. We cannot assure you
that we will prevail in any of these suits or that the damages or other remedies
awarded, if any, will be commercially valuable. During the course of these
suits, there may be public announcements of the results of hearings, motions and
other interim proceedings or developments in the litigation. If securities
analysts or investors perceive any of these results to be negative, it could
cause our stock to decline.
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THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
In addition to patents, we rely on a combination of trade secrets,
copyright and trademark laws, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
Nevertheless, these measures may not be adequate to safeguard the technology
underlying our products. If they do not protect our rights, third parties could
use our technology, and our ability to compete in the market would be reduced.
In addition, employees, consultants and others who participate in the
development of our products may breach their agreements with us regarding our
intellectual property, and we may not have adequate remedies for the breach. We
also may not be able to effectively protect our intellectual property rights in
some foreign countries. For a variety of reasons, we may decide not to file for
patent, copyright or trademark protection outside of the United States. We also
realize that our trade secrets may become known through other means not
currently foreseen by us. Notwithstanding our efforts to protect our
intellectual property, our competitors may independently develop similar or
alternative technologies or products that are equal or superior to our
technology and products without infringing on any of our intellectual property
rights or design around our proprietary technologies. For further information on
our intellectual property and the difficulties in protecting it, see
"Business -- Intellectual Property."
IF WE DO NOT SUCCESSFULLY INTRODUCE NEW PRODUCTS AND EXPAND THE RANGE OF
APPLICATIONS FOR OUR LABCHIP SYSTEMS, WE MAY EXPERIENCE A DECLINE IN REVENUE OR
SLOW REVENUE GROWTH AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We intend to develop LabChip systems with increasingly high throughput
capabilities and develop a broad range of applications for our LabChip
technology. If we are unable to do so, our LabChip systems may not become widely
used and we may experience a decline in revenue or slow revenue growth and may
not achieve or maintain profitability.
In order for our high throughput systems to achieve the levels of
throughput necessary to meet customers' demands, we need to develop and
manufacture Sipper chips with more than four capillaries. Our current high
throughput systems operate with Sipper chips with one and four capillaries,
small glass tubes used to draw compounds into the chip. In order to achieve the
levels of throughput that our customers desire, we may need to develop a LabChip
system accommodating more than four capillaries, which we may not be able to do.
If we cannot cost-effectively deliver chips with more than four capillaries, we
may not be able to attract new customers to purchase our high throughput
systems, which would seriously harm our future prospects. Further, our existing
technology access program customers may decide not to renew their annual access
subscriptions, which would seriously reduce our revenue.
We must develop new applications for existing LabChip instruments, which we
may not be able to do. The Agilent 2100 Bioanalyzer uses LabChip kits that we
specifically design for each application. We currently have LabChip kits
commercially available for only five applications relating to DNA, RNA and
protein sizing and quantification. DNA and RNA are commonly used acronyms for
chemicals that contain, or transmit, genetic information in living things. We
currently are developing LabChip kits for other applications. If we are unable
to develop LabChip kits for specific applications required by potential
customers, those customers may not purchase the Agilent 2100 Bioanalyzer.
We must also continue to develop applications for our high throughput
systems. If we are not able to complete the development of these applications,
or if we experience difficulties or delays, we may lose our current technology
access program customers and may not be able to obtain new customers.
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WE RELY HEAVILY ON AGILENT TO MANUFACTURE, MARKET AND DISTRIBUTE THE AGILENT
2100 BIOANALYZER. IF AGILENT FAILS TO PERFORM UNDER OUR AGREEMENT OR
SUCCESSFULLY COMMERCIALIZE OUR COLLABORATIVE PRODUCTS, OUR REVENUE FROM THE
AGILENT 2100 BIOANALYZER MAY NOT BE MATERIAL AND WE MAY LOSE THE DEVELOPMENT
FUNDING WE CURRENTLY RECEIVE FROM AGILENT.
Agilent manufactures, markets and distributes the Agilent 2100 Bioanalyzer
under an agreement we entered into in May 1998. We also rely on Agilent for
significant financial and technical contributions in the development of products
covered by the agreement. Our ability to develop, manufacture and market these
products successfully depends significantly on Agilent's performance under this
agreement. Sales of new and innovative instrumentation such as the Agilent 2100
Bioanalyzer involve a long sales cycle, requiring customer training and
demonstration periods. As a result, to date Agilent has sold a modest number of
Agilent 2100 Bioanalyzers, but it is too early for us to predict peak market
acceptance of this technology. If Agilent experiences manufacturing or
distribution difficulties, does not actively market the Agilent 2100
Bioanalyzer, or does not otherwise perform under this agreement, our revenue
from the Agilent 2100 Bioanalyzer may not be material. In addition, Agilent may
terminate the agreement at their discretion at any time after May 2001. If
Agilent terminates this agreement, we would need to obtain development funding
from other sources, and we may be required to find one or more other
collaborators for the development and commercialization of our products. Our
inability to enter into agreements with commercialization partners or develop
our own marketing, sales, and distribution capabilities would increase costs and
impede the commercialization of our products.
AGILENT MAY COMPETE WITH US IF OUR COLLABORATION TERMINATES AFTER MAY 2003,
WHICH COULD REDUCE THE POTENTIAL REVENUE FROM OUR INDEPENDENT PRODUCT SALES.
Under the terms of our agreement with Agilent, if they, or we, terminate
our agreement after May 2003, we will grant to Agilent a non-exclusive license
to our LabChip technologies as then developed for use in the research products
field. Consequently, there is the possibility that we may experience competition
from Agilent after May 2003, which would reduce our ability to sell products
independently or through other commercial partners. See
"Business -- Commercialization -- Strategic Alliance with Agilent" for a further
description of the terms of our collaboration with Agilent.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND MAY ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS, WHICH COULD RESULT IN LOST REVENUE.
Although Agilent manufactures the Agilent 2100 Bioanalyzer, we manufacture
the chips used in this instrument and also currently manufacture instruments and
Sipper chips for our high throughput systems. We currently have limited
manufacturing capacity for our LabChip system products and experience
variability in manufacturing yields for chips. If we fail to deliver chips and
high throughput screening products in a timely manner, our relationships with
our customers could be seriously harmed, and revenue would decline. We currently
have one manufacturing location in Mountain View, California. The actual number
of chips we are able to sell or use depends in part upon the manufacturing
yields for these chips. We have only recently begun to manufacture significant
numbers of Sipper chips and are continuing to develop our manufacturing
procedures for these chips. In order to offer Sipper chips with more than four
capillaries for high throughput applications, we will need to continue to
achieve consistently high yields in this process. We cannot assure you that
manufacturing or quality problems will not arise as we attempt to scale-up our
production of chips or that we can scale-up manufacturing in a timely manner or
at commercially reasonable costs. If we are unable to consistently manufacture
Sipper chips or chips for the Agilent 2100 Bioanalyzer on a timely basis because
of these or other factors, our product sales will decline. We are currently
manufacturing high throughput instruments in-house and in limited volumes. If
demand for our high throughput instruments increases, we will either need to
expand our in-house manufacturing capabilities or outsource to Agilent or other
manufacturers.
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<PAGE> 12
IF A NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITY WE WOULD BE UNABLE TO
MANUFACTURE OUR PRODUCTS FOR A SUBSTANTIAL AMOUNT OF TIME AND WE WOULD
EXPERIENCE LOST REVENUE.
We rely on a single manufacturing location to produce our chips and high
throughput systems, and have no alternative facilities. The facility and some
pieces of manufacturing equipment are difficult to replace and could require
substantial replacement lead-time. Our manufacturing facility may be affected by
natural disasters such as earthquakes and floods. Earthquakes are of particular
significance since the manufacturing facility is located in Mountain View,
California, an earthquake-prone area. In the event our existing manufacturing
facility or equipment is affected by man-made or natural disasters, we would be
unable to manufacture products for sale, meet customer demands or sales
projections. If our manufacturing operations were curtailed or ceased, it would
seriously harm our business.
BECAUSE A SMALL NUMBER OF CUSTOMERS AND AGILENT HAVE ACCOUNTED FOR, AND ARE
LIKELY TO CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF OUR REVENUE, OUR
REVENUE COULD DECLINE DUE TO THE LOSS OF ONE OF THESE CUSTOMERS OR THE
TERMINATION OF OUR AGREEMENT WITH AGILENT.
Historically we have had very few customers and one commercial partner,
Agilent, from which we have derived the majority of our revenue and, if we were
to lose any one of these, our revenue would decrease substantially. Agilent and
four customers accounted for 93% of total revenue for the three months ended
June 30, 2000. Agilent and three customers accounted for 87% of total revenue
for the six months ended June 30, 2000. Agilent and two customers accounted for
88% of total revenue in 1999, and two customers and Agilent accounted for 97% of
total revenue in 1998. We and Agilent introduced the Agilent 2100 Bioanalyzer
system in September 1999 and have not yet derived significant revenue from the
sale of this product on a commercial scale. Although we anticipate that the
introduction of the Agilent 2100 Bioanalyzer system will expand our revenue
base, we expect that we will continue to rely on our large customers and on
Agilent for the majority of our revenue.
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE OUR
ABILITY TO COMPETE AND RESULT IN LOWER REVENUE.
We anticipate that our existing capital resources will enable us to
maintain currently planned operations at least into the year 2002. However, we
premise this expectation on our current operating plan, which may change as a
result of many factors. Consequently, we may need additional funding sooner than
anticipated. Our inability to raise capital would seriously harm our business
and product development efforts. In addition, we may choose to raise additional
capital due to market conditions or strategic considerations even if we believe
we have sufficient funds for our current or future operating plans. To the
extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of these securities could result in
dilution to our stockholders.
We currently have no credit facility or committed sources of capital other
than an equipment lease line with $4.8 million unused and available as of June
30, 2000. To the extent operating and capital resources are insufficient to meet
future requirements, we will have to raise additional funds to continue the
development and commercialization of our technologies. These funds may not be
available on favorable terms, or at all. If adequate funds are not available on
attractive terms, we may be required to curtail operations significantly or to
obtain funds by entering into financing, supply or collaboration agreements on
unattractive terms.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO
COMPETE.
We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these persons could seriously
harm our product development and commercialization efforts. In addition,
research, product development and commercialization will require additional
skilled personnel in areas such as chemistry and biology, software engineering
and electronic engineering. Our business is located in Silicon Valley,
California, where demand for personnel with these skills is extremely high and
is likely to remain high. As a result, competition for and retention of
personnel, particularly for
12
<PAGE> 13
employees with technical expertise, is intense and the turnover rate for these
people is high. If we are unable to hire, train and retain a sufficient number
of qualified employees, our ability to conduct and expand our business could be
seriously reduced. The inability to retain and hire qualified personnel could
also hinder the planned expansion of our business.
POTENTIAL ACQUISITIONS MAY HAVE UNEXPECTED CONSEQUENCES OR IMPOSE ADDITIONAL
COSTS ON US.
Our business is dependent upon growth in the market for microfluidic
products and our ability to enhance our existing products and introduce new
products on a timely basis. One of the ways we may address the need to develop
new products is through acquisitions of complementary businesses and
technologies. From time to time, we may consider and evaluate potential
acquisitions or business combinations, which may include a possible merger or
consolidation of our business with another entity. We may engage in discussions
relating to these types of transactions in the future. Acquisitions involve
numerous risks, including the following:
- difficulties in integration of the operations, technologies, and products
of the acquired companies
- the risk of diverting management's attention from normal daily operations
of the business
- accounting consequences, including charges for in-process research and
development expenses, resulting in variability in our quarterly earnings
- potential difficulties in completing projects associated with purchased
in-process research and development
- risks of entering markets in which we have no or limited direct prior
experience and where competitors in such markets have stronger market
positions
- the potential loss of key employees of the acquired company
- the assumption of unforeseen liabilities of the acquired company
We cannot assure you that future acquisitions or business combinations in
which we are involved, if any, will be successful and will not adversely affect
our financial condition or results of operations. Failure to manage growth
effectively and successfully integrate acquisitions we make could harm our
business and operating results.
RISKS RELATED TO OWNING OUR COMMON STOCK
OUR STOCK PRICE IS EXTREMELY VOLATILE, AND YOU COULD LOSE A SUBSTANTIAL PORTION
OF YOUR INVESTMENT.
Our stock has been trading on the Nasdaq National Market only since
mid-December 1999. We initially offered our common stock to the public at $16.00
per share. Since then our stock price has been extremely volatile and has
ranged, through September 26, 2000, from a high of approximately $202.00 per
share to a low of $22.50 per share. Our stock price may drop substantially
following an investment in our common stock. We expect that our stock price will
remain volatile as a result of a number of factors, including:
- announcements by analysts regarding their assessment of Caliper and its
prospects
- announcements of events regarding our litigation with Aclara
- announcements of our financial results, particularly if they differ from
investors' expectations
- general market volatility for technology stocks
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.
As of August 31, 2000, our directors, entities affiliated with our
directors, our executive officers and principal stockholders beneficially own,
in the aggregate approximately 23.5% of our outstanding common
13
<PAGE> 14
stock. These stockholders as a group are able to substantially influence the
management and affairs of Caliper and, if acting together, would be able to
influence most matters requiring the approval by our stockholders, including the
election of directors, any merger, consolidation or sale of all or substantially
all of our assets and any other significant corporate transaction. The
concentration of ownership may also delay or prevent a change of control of
Caliper at a premium price if these stockholders oppose it. See "Principal and
Selling Stockholders" for details on our stock ownership.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER,
WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR
OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing an acquisition, merger in which we are not the
surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of the outstanding voting
stock, from consummating a merger or combination including us. These provisions
could limit the price that investors might be willing to pay in the future for
our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. We have attempted
to identify forward-looking statements by terminology including "anticipates,"
"believes," "can," "continue," "could," "estimates," "expects," "intends,"
"may," "plans," "potential," "predicts," "should" or "will" or the negative of
these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors," that may cause our
or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are not under any duty to update any
of the forward-looking statements after the date of this prospectus to conform
these statements to actual results, unless required by law.
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<PAGE> 15
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling stockholders.
DIVIDEND POLICY
We have never paid any cash dividends on our capital stock. We currently
anticipate that we will retain earnings to support operations and to finance the
growth and development of our business and do not anticipate paying cash
dividends for the foreseeable future.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"CALP." Public trading of our common stock commenced on December 15, 1999. The
following table shows, for the periods indicated, the high and low per share
sales prices of our common stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------- ------
<S> <C> <C>
December 31, 1999........................................... $ 73.00 $27.81
March 31, 2000.............................................. $202.00 $47.00
June 30, 2000............................................... $ 79.69 $22.50
September 30, 2000 (through September 26, 2000)............. $ 68.50 $40.00
</TABLE>
On September 26, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $53.41 per share. As of August 31, 2000, there
were approximately 216 stockholders of record of our common stock.
15
<PAGE> 16
SELECTED FINANCIAL DATA
The statements of operations data for each of the years ended December 31,
1997, 1998 and 1999, and the balance sheet data as of December 31, 1998 and
1999, have been derived from our audited financial statements included elsewhere
in this prospectus which have been audited by Ernst & Young LLP, independent
auditors. The statements of operations data for the year ended December 31, 1996
and the balance sheet data as of December 31, 1996 and 1997 have been derived
from our audited financial statements not included in this prospectus. The
statement of operations data for the six months ended June 30, 1999 and 2000,
and the balance sheet data as of June 30, 2000 have been derived from our
unaudited financial statements included elsewhere in this prospectus. The
statements of operations data for the period from inception (July 26, 1995)
through December 31, 1995 and the balance sheet data at December 31, 1995 have
been derived from our unaudited financial statements not included in this
prospectus. Our historical results are not necessarily indicative of results to
be expected for any future period. The data presented below have been derived
from financial statements that have been prepared in accordance with generally
accepted accounting principles and should be read with our financial statements,
including the notes, and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 26, 1995) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
--------------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue........................................ $ -- $ 132 $ 2,266 $ 8,155 $ 12,087 $ 5,445 $ 8,069
Costs and expenses:
Research and development..................... 406 2,734 7,200 9,584 18,415 7,442 14,496
General and administrative................... 128 1,240 2,478 2,932 5,312 2,087 4,836
Amortization of deferred stock
compensation(1)............................ -- -- -- -- 3,885 1,061 2,643
Acquired in-process research and
development................................ -- 978 -- -- -- -- --
------ ------- ------- ------- -------- ------- --------
Total costs and expenses....................... 534 4,952 9,678 12,516 27,612 10,590 21,975
------ ------- ------- ------- -------- ------- --------
Operating loss................................. (534) (4,820) (7,412) (4,361) (15,525) (5,145) (13,906)
Interest income (expense), net................. (2) 110 1,131 1,386 1,152 589 2,658
------ ------- ------- ------- -------- ------- --------
Loss before change in accounting principle..... (536) (4,710) (6,281) (2,975) (14,373) (4,556) (11,248)
Cumulative effect of a change in accounting
principle.................................... -- -- -- -- -- -- (2,294)
------ ------- ------- ------- -------- ------- --------
Net loss....................................... (536) (4,710) (6,281) (2,975) (14,373) (4,556) (13,542)
Accretion on redeemable convertible preferred
stock........................................ -- (262) (1,470) (2,174) (2,328) (1,214) --
------ ------- ------- ------- -------- ------- --------
Net loss attributable to common stockholders... $ (536) $(4,972) $(7,751) $(5,149) $(16,701) $(5,770) $(13,542)
====== ======= ======= ======= ======== ======= ========
Net loss per common share, basic and diluted... $(1.71) $ (3.90) $ (4.38) $ (2.39) $ (4.56) $ (2.21) $ (0.65)
====== ======= ======= ======= ======== ======= ========
Shares used in computing net loss per common
share, basic and diluted..................... 313 1,274 1,768 2,157 3,663 20,933
Pro forma net loss per share, basic and
diluted...................................... $ (0.92) $ (0.65)
======== ========
Shares used in computing pro forma net loss per
share, basic and diluted..................... 15,578 20,933
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
----------- ------- -------- -------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities...................................... $ 40 $12,450 $ 26,549 $ 31,052 $100,216 $90,079
Working capital................................... 74 11,783 24,679 21,604 68,310 61,655
Total assets...................................... 83 13,112 29,107 35,730 108,847 100,820
Long-term obligations, less current portion....... -- 417 1,430 2,008 3,906 4,722
Redeemable convertible preferred stock............ -- 16,913 38,283 48,716 -- --
Total stockholders' equity (deficit).............. (536) (4,986) (12,665) (17,654) 97,863 88,002
</TABLE>
Accretion on redeemable convertible preferred stock ceased upon conversion
of all of the outstanding preferred stock to common stock at the close of our
initial public offering in December 1999.
The financial data as of December 31, 1996 and for the year then ended
reflects the acquisition of ChemCore Corporation in February 1996. This
acquisition was accounted for as a purchase.
See Note 1 of notes to our financial statements for an explanation of the
determination of the number of shares used in computing per share data.
See Note 1 of notes to our financial statements for an explanation of the
cumulative effect of a change in accounting principle related to revenue
recognition.
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<PAGE> 17
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------
1999 1999 2000
------------ ------ ------
<S> <C> <C> <C>
(1) Amortization of deferred stock compensation related to
the following:
Research and development............................... $1,094 $ 185 $ 936
General and administrative............................. 2,791 876 1,707
------ ------ ------
Total.................................................. $3,885 $1,061 $2,643
====== ====== ======
</TABLE>
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read with "Selected
Financial Data" and our financial statements and notes included elsewhere in
this prospectus. The discussion in this prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary statements made
in this prospectus should be read as applying to all related forward-looking
statements wherever they appear in this prospectus. Our actual results could
differ materially from those discussed here. Factors that could cause or
contribute to these differences include those discussed in "Risk Factors," as
well as those discussed elsewhere. See "Risk Factors" and "Special Note
Regarding Forward-Looking Statements."
OVERVIEW
We are a leader in lab-on-a-chip technologies that miniaturize, integrate
and automate many laboratory processes. We develop, manufacture and sell our
proprietary LabChip systems to pharmaceutical and other companies. We believe
our LabChip systems have the potential to assemble the power and reduce the
scale of entire laboratories full of equipment and people. From inception in
July 1995 through June 2000, our operating activities were primarily devoted to
research, development and commercialization of technologies involving the
manipulation of very small amounts of fluid, which are referred to as
"microfluidic technologies," and first-generation products such as the Agilent
2100 Bioanalyzer, LabChip kits and our high throughput system, recruiting
personnel, business development, raising capital and acquiring assets. In 1999,
we recognized revenue from our first product sales when we sold initial versions
of our high throughput system for drug screening to our three technology access
program customers. In addition, in September 1999, Agilent, our commercial
partner, introduced our first LabChip system for use by individual researchers.
In March 2000, we recognized revenue from our first multi-capillary Sipper chip
system and Millennium Pharmaceuticals joined our technology access program,
becoming our fourth technology access program customer. In May 2000, we
introduced the DNA 500 LabChip kit for the automated analysis of DNA fragments
to determine their size and concentration. In August 2000, we introduced the
Protein 200 LabChip kit for the automated sizing and analysis of protein
samples.
Since our inception, we have incurred significant losses and, as of June
30, 2000, we had an accumulated deficit of $48.7 million. Our losses have
resulted principally from costs incurred in research and development,
manufacturing scale-up, and from general and administrative costs associated
with our operations. We expect to continue to incur substantial research and
development, manufacturing scale-up, and general and administrative costs. As a
result, we will need to generate significantly higher revenue to achieve
profitability.
Our revenue has been derived principally from contract revenue earned under
our collaboration agreement with Agilent and from our technology access program
customers. To a lesser extent, we have derived revenue from the sale of products
and government grants. Although we are developing and plan to introduce future
products, we cannot assure you that we will be successful in these efforts. To
date, we have generated a substantial portion of our revenue from a limited
number of sources. Four of our technology access program partners, Amgen, Eli
Lilly, Millennium, and Roche and our commercial partner, Agilent, each accounted
for in excess of 10% of our revenue in the three months ended June 30, 2000.
Agilent alone accounted for 40% of our revenue in this period, and the four
technology access program customers collectively accounted for 53% of our
revenue in this period. During the quarter ended June 30, 1999, Agilent
accounted for 52% of our revenue and a technology access program customer
accounted for 32% of our revenue.
Under our agreement, Agilent funds our research and development
expenditures related to the collaboration, reimburses us for our costs of
supplying chips and reagents to Agilent and pays us a share of the gross margin
earned on all components of LabChip systems they sell. Revenue from development
and support activities under our collaboration agreement is recorded in the
period in which the costs are incurred. Direct costs associated with this
contract are reported as research and development expense.
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<PAGE> 19
Revenue related to the reimbursement of costs for the supply of chips and
reagents to Agilent is recognized upon shipment. Our share of gross margin on
components of the LabChip system sold by Agilent is recognized as revenue upon
shipment to the end user. Agilent only began in late 1999 the marketing and
sales efforts for the Agilent 2100 Bioanalyzer. Sales of new and innovative
instrumentation such as the Agilent 2100 Bioanalyzer involve a long sales cycle,
requiring customer training and demonstration periods. As a result, to date
Agilent has sold a modest number of Agilent 2100 Bioanalyzers, and it is too
early for us to predict market acceptance of this technology.
Under our technology access program agreements, we recognize as revenue
non-refundable license subscription fees over the term of the subscription,
product sales upon the transfer of title to the customer, and development and
support fees in the period in which the costs are incurred. Subscription fees
and development and support fees may be received annually or quarterly in
advance depending upon the terms of the agreement. Payments received in advance
under all of these agreements are recorded as deferred revenue until earned. We
have evaluated the applicability of SAB 101 to our existing technology access
program agreements. We have concluded that the approach described in SAB 101 is
preferable and have changed our method of accounting effective January 1, 2000
to recognize such fees over the term of the related agreement. The cumulative
effect of this change in accounting principle is approximately $2.3 million as
of January 1, 2000 and has been recognized as a charge in the quarter ended
March 31, 2000. The cumulative effect is recorded as deferred revenue and will
be recognized as revenue over the remaining contractual terms of the technology
access program agreements. As of June 30, 2000, a total of $3.2 million of
revenue was deferred. We expect to recognize this deferred revenue through the
third quarter of year 2002.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2000 and 1999
Revenue. Revenue was $8.1 million for the six months ended June 30, 2000,
compared to $5.4 million for the six months ended June 30, 1999. The increase of
$2.7 million during the six months ended June 30, 2000 compared to the same
period in 1999 resulted from increased revenue generated under our technology
access program, including $900,000 attributed to up-front fees received in prior
years which were ratably recorded as revenue during the six months ended June
30, 2000, as prescribed by SAB 101.
Research and Development Expenses. Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for chip development, material costs
for prototype and test units, legal expenses resulting from intellectual
property prosecution and litigation, and other expenses related to the design,
development, testing, and enhancement of our products. We expense our research
and development costs as they are incurred. Research and development expenses
were $14.5 million for the six months ended June 30, 2000, compared to $7.4
million for the six months ended June 30, 1999. The increase of $7.1 million
during the six months ended June 30, 2000 compared to the same period in 1999
resulted from $3.1 million related to growth in personnel and services to
support our technology access program, partner collaboration and product
launches, $2.6 million for costs related to intellectual property matters and
the remainder for supplies required to assemble, build and test prototype
LabChip systems along with expansion in our operating activities. We expect
research and development spending to continue to rise and increase in proportion
to our revenue growth over the next several years as we expand our research and
product development efforts.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related expenses for executive, finance and
other administrative personnel, recruiting expenses, professional fees, and
other corporate expenses including business development and general legal
activities. General and administrative expenses were $4.8 million for the six
months ended June 30, 2000, compared to $2.1 million for the six months ended
June 30, 1999. The increase of $2.7 million during the six months ended June 30,
2000 compared to the same period in 1999 resulted from $1.8 million related to
employment costs for general and administrative personnel, $655,000 related to
costs associated with being a public company and the remaining balance due to
overall expansion in our operations. We expect general
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<PAGE> 20
and administrative expenses to continue to increase over the next several years
to support our growing business activities, the commercialization of our
products, and costs associated with operating a public company.
Amortization of Deferred Stock Compensation. Deferred stock compensation
represents the difference between the deemed fair value of our common stock for
accounting purposes and the exercise price of stock options at the date of
grant. During 1998 and 1999, we recorded deferred stock compensation totaling
$13.2 million. This amount is being amortized over the respective vesting
periods of the individual stock options using the graded vesting method. We
recorded amortization of deferred compensation of $2.6 million for the six
months ended June 30, 2000. We expect to record amortization expense for
deferred compensation as follows: $1.9 million for the remainder of 2000, $2.5
million during 2001, $1.4 million during 2002, $670,000 during 2003 and $122,000
during 2004. The amount of deferred compensation expense to be recorded in
future periods may decrease if unvested options for which deferred compensation
has been recorded are subsequently canceled.
Interest Income, Net. Net interest income consists of income from our cash
and investments offset by expenses related to our financing obligations. Net
interest income was $2.7 million for the six months ended June 30, 2000,
compared to $589,000 for the six months ended June 30, 1999. This increase was
due to higher cash and investment balances as a result of $75.9 million net
proceeds raised in our December 1999 initial public offering, partially offset
by increased interest charges from higher financing obligation balances.
Years Ended December 31, 1999 and 1998
Revenue. Revenue increased to $12.1 million in 1999 from $8.2 million in
1998. Of the $3.9 million increase, $2.8 million was derived from our
collaboration with Agilent, which began in May 1998, and $709,000 was derived
from our grant from the Advanced Technology Program of the National Institute of
Standards and Technology, which began in January 1999. This grant is for $2
million in aggregate and will continue until December 2001. The remaining
increase was derived from our technology access program customers.
Research and Development Expenses. Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for chip development, material costs
for prototype and test units, legal expenses resulting from intellectual
property prosecution and litigation, and other expenses related to the design,
development, testing, and enhancement of our products. We expense our research
and development costs as they are incurred. Research and development expenses
increased to $18.4 million during 1999 from $9.6 million in 1998. The increase
of $8.8 million was attributable to continued growth of research and development
activities, including $3.7 million related to increased personnel and services
to support our technology access program and initial product launches, $1.9
million for costs related to intellectual property protection, $1.8 million
related to higher operating expenses as a result of our move to a larger
facility in January 1999, $1.0 million for supplies required to assemble, build
and test prototype LabChip systems and the remainder due to expansion in
operating activities. We expect research and development spending to increase
significantly over the next several years as we expand our research and product
development efforts.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related expenses for executive, finance and
other administrative personnel, recruiting expenses, professional fees, and
other corporate expenses including business development and general legal
activities. General and administrative expenses increased to $5.3 million during
1999 from $2.9 million in 1998. The increase of $2.4 million was due to $1.7
million related to compensation for general and administrative personnel,
$425,000 related to higher operating expenses as a result of our move to a
larger facility in January 1999, and $349,000 related to recruiting and
relocation of key personnel. We expect general and administrative expenses to
continue to increase over the next several years to support our growing business
activities, the commercialization of our products, and due to the costs
associated with operating a public company.
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<PAGE> 21
Amortization of Deferred Stock Compensation. Deferred stock compensation
represents the difference between the deemed fair value of our common stock for
accounting purposes and the exercise price of options at the date of grant.
During 1998 and 1999, we recorded deferred stock compensation totaling $13.2
million. This amount is being amortized over the respective vesting periods of
the individual stock options using the graded vesting method. We recorded
amortization of deferred compensation of $3.9 million for 1999. We expect to
record amortization expense for deferred compensation as follows: $4.6 million
during 2000, $2.5 million during 2001, $1.4 million during 2002, $670,000 during
2003 and $122,000 during 2004. The amount of deferred compensation expense to be
recorded in future periods may decrease if unvested options for which deferred
compensation has been recorded are subsequently canceled.
Interest Income (Expense), Net. Net interest income consists of income
from our cash and investments offset by expenses related to our financing
obligations. Net interest income decreased to $1.2 million in 1999 from net
interest income of $1.4 million in 1998. This decrease resulted from higher
financing obligation balances.
Income Taxes. As of December 31, 1999, we had federal and California net
operating loss carryforwards of approximately $20.2 million and $1.4 million. We
also had federal and California research and other development tax credit
carryforwards of approximately $900,000 and $500,000. The net operating loss and
credit carryforwards will expire at various dates beginning on 2000 through
2019, if not utilized. Utilization of the net operating losses and credits may
be substantially limited due to the change in ownership provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
As of December 31, 1999 and 1998, we had deferred tax assets of
approximately $10.5 million and $6.3 million. The net deferred tax asset has
been fully offset by a valuation allowance. The net valuation allowance
increased by $4.2 million during the year ended December 31, 1999. Deferred tax
assets relate primarily to net operating loss carryforwards, research credit
carryforwards, and capitalized research and development costs.
Years Ended December 31, 1998 and 1997
Revenue. Revenue increased to $8.2 million in 1998 from $2.3 million in
1997. Of the $5.9 million increase, $3.2 million was due to revenue received
through the collaboration agreement with Agilent entered into in May 1998, and
$2.6 million was due to revenue received through technology access program
agreements with Hoffmann-La Roche and Amgen, which we entered into at the end of
1998.
Research and Development Expenses. Our research and development expenses
increased to $9.6 million in 1998 from $7.2 million in 1997. The increase of
$2.4 million was due to $1.4 million related to compensation for additional
scientific personnel, $503,000 due to supplies required to assemble, build and
test prototypes of LabChip systems, $357,000 for costs related to intellectual
property protection and the remaining balance due to expansion in our operating
activities.
General and Administrative Expenses. General and administrative expenses
increased to $2.9 million in 1998 from $2.5 million in 1997. The increase was
due to hiring of additional personnel to support our growing business
activities.
Interest Income (Expense), Net. Net interest income increased to $1.4
million in 1998 from $1.1 million in 1997. This increase was due to increases in
cash and investment balances as a result of our equity financing in May 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through equity
sales, contract and milestone payments to us under our collaboration and
technology access program agreements, and equipment financing arrangements. As
of June 30, 2000, we had received net proceeds of $120.4 million from issuances
of common and preferred stock which includes $75.9 million raised from our
initial public offering in December 1999. In addition, from inception through
June 30, 2000 we had received
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<PAGE> 22
$30.4 million from collaborations, technology access program customers and
government grants and had financed equipment purchases and leasehold
improvements totaling approximately $8.3 million. We have used leases and loans
to finance capital expenditures. As of June 30, 2000, we had $5.4 million in
capitalized lease obligations. These obligations are secured by the equipment
financed, bear interest at a weighted-average fixed rate of approximately 10.9%,
and are due in monthly installments through June 2004. Under the terms of one
equipment financing agreement, the financed equipment may be purchased by us at
a fair value at the end of the financing term. Other equipment financing
agreements require a balloon payment at the end of each loan term.
As of June 30, 2000, cash, cash equivalents and marketable securities were
$90.1 million compared to $100.2 million at December 31, 1999. We used $10.1
million for operations for the six months ended June 30, 2000 as compared to
$2.9 for the comparable period in 1999. This consisted of the net loss of $13.5
million and working capital changes of $2.9 million offset by non-cash charges
of $6.3 million related to a change in accounting principle, amortization of
deferred stock compensation, stock options issued to non-employees and
depreciation and amortization expense. In August 2000, we raised approximately
$104.9 million from the sale of 2,300,000 shares of common stock in a private
placement.
Net cash used in investing activities was $10.1 million for the six months
ended June 30, 2000 as compared to $791,000 for the comparable period in 1999.
Net cash used in investing consists primarily of purchases of available-for-sale
investments offset by proceeds from sales and maturities of available-for-sale
investments, as well as capital expenditures.
We received $988,000 from financing activities for the six months ended
June 30, 2000 as compared to $1.7 million for the comparable period in 1999. Net
proceeds from financing activities consisted principally of $1.1 million from
equipment financing and $720,000 from common stock issuances primarily from the
employee stock purchase plan offset in part by repayments of equipment financing
arrangements of $805,000.
In May 2000 we entered into a $5.0 million financing arrangement for the
purchase of property and equipment. As of May 2000, we drew down the remaining
$855,000 balance of equipment financing credit line which existed as of December
31, 1999 at a weighted-average interest rate of 12.9% and financed an additional
$217,000 of property and equipment purchases under the new line at a
weighted-average interest rate of 13.3%. As of June 30, 2000, we had $5.4
million in capitalized lease obligations outstanding compared to $5.1 million at
December 31, 1999. See Note 6 of notes to our financial statements.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, and other factors. We expect to devote substantial capital
resources to continue our research and development efforts, to expand our
support and product development activities, and for other general corporate
activities. We believe that our current cash balances, together with the net
proceeds of this offering and revenue to be derived from our collaboration with
Agilent and our technology access program agreements will be sufficient to fund
our operations at least through the year 2001. During or after this period, if
cash generated by operations is insufficient to satisfy our liquidity
requirements, we may need to sell additional equity or debt securities or obtain
additional credit arrangements. Additional financing may not be available on
terms acceptable to us or at all. The sale of additional equity or convertible
debt securities may result in additional dilution to our stockholders.
IMPACT OF INFLATION
The effect of inflation and changing prices on our operations was not
significant during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 -- Revenue Recognition in Financial Statements, or
SAB 101, which, among other things, describes the SEC
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<PAGE> 23
Staff's position on the recognition of certain nonrefundable upfront fees
received in connection with research collaborations. Effective January 1, 2000,
we changed our method of accounting for non-refundable license fees to recognize
such fees ratably over the term of the committed related technology access
program agreement. We believe the change in accounting principle is preferable
based on guidance provided by SAB 101. The $2.3 million cumulative effect of the
change in accounting principle was reported as a charge in the period ended June
30, 2000. The cumulative effect was initially recorded as deferred revenue and
is being recognized as revenue over the remaining contractual terms of the
technology access program agreements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as
amended, establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities. We
are required to adopt SFAS No. 133 effective January 1, 2001. Because we do not
currently hold any derivative instruments and do not engage in hedging
activities, we do not currently believe that the adoption of SFAS No. 133, as
amended, will have a significant impact on our financial position, results of
operations or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. Declines of interest rates over
time will reduce our interest income from our investments. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities.
The table below presents our investment portfolio by expected maturity and
related weighted average interest rates at June 30, 2000 (in thousands):
<TABLE>
<CAPTION>
FAIR
2000 2001 2002 TOTAL VALUE
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Money market fund......................... $25,492 -- -- $25,492 $25,492
Average interest rate..................... 6.49% -- -- 6.49%
Available for sale marketable
securities.............................. $14,512 $48,696 $1,585 $64,793 $64,587
Average interest rate..................... 6.25% 6.57% 7.60% 6.53%
Total securities.......................... $40,004 $48,696 $1,585 $90,285 $90,079
Average interest rate..................... 6.41% 6.57% 7.60% 6.52%
</TABLE>
Our equipment financings, amounting to $5.4 million as of June 30, 2000,
are all at fixed rates and therefore, have minimal exposure to changes in
interest rates.
We have operated primarily in the United States and all sales to date have
been made in U.S. dollars. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.
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<PAGE> 24
BUSINESS
OVERVIEW
We are a leader in lab-on-a-chip technologies. We believe our LabChip
systems can assemble the power and reduce the size of entire laboratories full
of equipment and people. Our LabChip systems miniaturize, integrate and automate
many laboratory processes, and put them on a chip that can fit in the palm of a
child's hand. Each chip contains a network of microscopic channels through which
fluids and chemicals are moved, using electricity or pressure, in order to
perform experiments. The chips are the key components of our LabChip systems,
which also include reagents as well as instruments and software that together
control and read the chips. We believe our LabChip systems have the potential to
revolutionize experimentation in a wide range of industries by enabling
individuals and organizations to perform laboratory experiments at a speed, cost
and scale previously unattainable. Our initial commercialization focus is the
pharmaceutical industry, where there is an urgent need to improve the efficiency
and reduce the cost of drug discovery and development. Future target industries
potentially include agriculture, clinical diagnostics, chemicals and consumer
products. We believe that we are the first company to sell and deliver
lab-on-a-chip products to customers. During 1999 we introduced our first two
LabChip systems, a personal laboratory system and a high throughput system.
INDUSTRY BACKGROUND
Laboratory Technology
The pharmaceutical, agriculture, clinical diagnostics and chemical
industries rely on laboratory experimentation to obtain important information
that can be used to discover and develop new products. Despite the critical
value of laboratory results to these industries, improvements to the basic
processes and tools used in laboratory experiments have only been incremental
and have not kept pace with technological advances in other industries,
including electronics and computing. Laboratory work still relies on manual
steps and tools, such as test tubes and beakers, and large pieces of equipment
that utilize technology that is decades old. These tools and processes are
expensive, labor-intensive and often imprecise, presenting significant
productivity and efficiency challenges for these industries.
New processes and tools are needed to enable individual researchers and
organizations to work more productively and efficiently. This need has been
recognized and some improvements have been made. In an attempt to increase speed
and reduce costs in many laboratory experiments, researchers have replaced test
tubes with plastic plates having 96 small reservoirs, or "wells," to facilitate
parallel experimentation. Further attempts to reduce costs have led researchers
to replace the 96-well plate with 384- and 1536-well plates in which reactions
can be performed in volumes that are 10 to 100-fold smaller. To enhance
efficiency, some suppliers have integrated multiple pieces of equipment into one
large piece of equipment. Organizations that perform high value, high volume
experimentation have attempted to automate processes by using liquid-handling
robotics to improve the quality and quantity of data achieved in centralized
testing. While these and other advances have helped researchers to work faster
and more efficiently, they still represent only incremental, not revolutionary,
improvements because they continue to rely on time-consuming, imprecise and
labor-intensive processes that can create bottlenecks throughout the entire
experimental process.
A Need for Better Laboratory Technology in the Pharmaceutical Industry
Pharmaceutical companies have realized that to stay competitive and meet
their goals for growth they will have to increase significantly the number of
new drugs they introduce each year. To achieve this, pharmaceutical companies
have found that they will have to engage in experimentation on a massive scale.
Pharmaceutical companies' investments in the comprehensive study of genetic
material, or "genomics," and novel methods of producing large numbers of new
chemical compounds, or "combinatorial chemistry," are examples of this decision.
These activities are generating a wealth of potential targets and new compounds
to be tested and offer the opportunity to discover many new drugs. However, they
also create a
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<PAGE> 25
technological quandary: how to perform significantly more experiments, in less
time, without unacceptable increases in research and development spending. We
believe that recent incremental advances in laboratory technology are not enough
to enable pharmaceutical companies to achieve their growth targets. New
technologies are needed to improve the volume and quality of information
generated in each stage of the drug discovery process, while simultaneously
reducing the cost of experimentation.
THE STAGES OF PHARMACEUTICAL DISCOVERY
Target identification involves acquiring knowledge about the role a particular
molecule, usually a protein, plays in the body in order to determine whether it
might be a good target for further investigation. Today, this activity is most
often initiated with genomics studies, in particular by DNA sequencing, RNA
analysis and genetic mapping.
Target validation is the demonstration that affecting the function of a
particular target has a positive effect on the course of a disease. Target
validation employs a variety of methods including RNA analysis, protein analysis
and cell biology.
Primary screening involves the large-scale testing of collections of chemical
compounds, or libraries, against validated targets. The goal is to find "hits,"
or individual members of the compound library that bind to, inhibit, or activate
a particular target. These libraries are tested in high throughput experiments.
The major pharmaceutical companies are moving towards screening up to 100
targets annually with libraries of up to one million compounds.
Lead optimization is a term that describes the process of sorting through the
compounds that emerge from the primary screen and conducting successive rounds
of chemical alterations and biological tests to find compounds likely to have
appropriate drug properties. Like target validation, lead optimization involves
a variety of methods, including protein analysis, cell biology, chemical
synthesis, as well as high throughput experiments. This stage also involves the
testing of compounds for therapeutic activity in animal models of disease.
Preclinical development involves testing of compounds to assure that they are
safe, have appropriate distribution throughout the body and are appropriately
metabolized. Formulation tests to ensure convenient delivery to patients are
performed, as are tests to ensure that the compounds can be manufactured with
consistent quality.
Clinical development is the testing of pharmaceutical compounds in humans to
demonstrate their safety and efficacy. Because clinical trials are the most
expensive part of drug development, pharmaceutical companies are trying to
improve the outcomes of clinical trials by using the methods of
"pharmacogenetics," the scientific discipline focused on how genetic differences
determine or predict responsiveness or adverse reactions to particular drugs. In
order to use pharmacogenetics in a clinical trial, each patient in the trial
will need his genetic make-up analyzed. This could entail analysis of
approximately 100,000 different sites in a patient's DNA. For a 1,000 patient
trial, this would require generating approximately 100 million data points.
The drug discovery process can be summarized by the six stages described
above. In each of these stages, researchers face many productivity bottlenecks
due to the limitations of current laboratory technologies. Individual
researchers conducting even the simplest, most common experiments must often
perform labor-intensive, time-consuming, multi-step processes on multiple pieces
of equipment. For example, to analyze DNA, researchers must first extract the
DNA and treat it with reagents. Then they pour gels and mount them in equipment
to separate the DNA. After loading the samples into the gels, they activate the
gels for a precise period of time. The gels must then be processed to reveal the
location of the DNA and scanned to see the results. The whole process takes
approximately half a day and produces only a few dozen data points of genetic
information. Thousands of pharmaceutical company researchers perform this
experiment on a routine basis.
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<PAGE> 26
Even "automated" experiments, such as high throughput screening, are still
laborious and time-consuming. For example, to perform one high throughput
screen, researchers typically need to remove thousands of compounds from storage
and transfer small amounts of these compounds to hundreds of new plates. Then
they add fluid to dilute them and transfer a portion of the diluted compound to
another set of plates. After adding more reagents, they move the plates to an
incubation station and incubate the mixture for a precise period of time. They
then transfer the plates to a detection instrument and scan the plates to see
the results. Finally, they discard all the plates. The whole process can take a
team of researchers weeks or months to complete, and has to be repeated to test
the same compounds against the next pharmaceutical target.
As currently performed, these processes are not well suited to the massive
scale-up we believe pharmaceutical companies are seeking. The number of people
and pieces of equipment required would be unmanageable. More importantly, data
quality has often suffered as companies have tried to implement higher
throughput versions of existing procedures, such as 384-well plates in place of
96-well plates. Pharmaceutical companies need a breakthrough in tools for
experimentation to free scientists from the limitations of current technology.
A Broad Need Across Industries for New Laboratory Technology
Other industries dependent upon biological and chemical information face
technology challenges similar to those facing the pharmaceutical industry. The
agricultural-biotechnology industry, for example, is adopting many of the same
research strategies used by the pharmaceutical industry, including genomics,
screening and combinatorial chemistry. In addition, the multi-billion dollar
clinical diagnostics industry continues to search for miniaturized and automated
equipment solutions that will facilitate patient point-of-care testing, as well
as high throughput, automated analysis platforms for use in centralized
reference laboratories. In these and other industries, technology for laboratory
experimentation is limiting the ability to access information about chemicals
and biochemicals, and therefore is limiting companies' ability to transform that
information into novel and commercially valuable products.
CALIPER SOLUTIONS
We believe that our LabChip technology represents a revolutionary advance
in laboratory experimentation needed by the pharmaceutical and other industries
today. The chips are the key components of our LabChip systems that also include
a particular LabChip instrument together with experiment-specific reagents and
software. Our chips contain a network of microscopic channels through which
fluids and chemicals are moved to perform experiments. A single type of chip
used with particular reagents and software to perform a particular experiment
make up one LabChip application. Depending on the chip format, reagents are
introduced either automatically or by the user. The chip is placed in the
instrument, which uses software to control the movement of fluids with pressure
or electricity. The instrument also has an optical system for detecting the
results. Because we have great flexibility in channel design and can exert
split-second computer control over fluid flow, we have the ability to create
chips for a multitude of experiments. Our LabChip systems miniaturize, integrate
and automate experiments providing, we believe, the benefits of high speed,
reduced cost, expanded individual researcher capability, improved data accuracy
and improved enterprise-wide productivity.
Features of LabChip Systems
- Miniaturization. Conventional laboratory equipment typically uses about a
drop of fluid, or 50 to 100 microliters, to perform each experiment. In
some LabChip applications, this volume is reduced to 1 nanoliter, or one
billionth of a liter, an improvement of up to 100,000-fold over
conventional systems.
- Integration. Integration is the compression of multiple processes into a
single process. Today most laboratory systems perform only one or two
steps of an experimental protocol. Our LabChip systems can integrate
complete experiments involving half a dozen or more steps into one
continuous process performed on a single chip.
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<PAGE> 27
- Automation. Today most laboratory experiments are performed using
multiple instruments in combination with multiple manual steps. With our
LabChip systems, entire experiments can be automated and performed inside
a chip using one instrument. The same instrument is used with different
chips to perform other automated experiments.
MINIATURIZATION, INTEGRATION AND AUTOMATION ON A SIPPER CHIP
LOGO
[This illustration is an actual schematic of a current Sipper chip that can be
used to prepare drug samples for analysis and to determine their potency, all on
the same high throughput chip. The specific functions that are part of this
experiment, and where they take place on the chip, are described in the
caption.]
Above is a diagram of a Sipper chip that can be used to prepare drug samples for
analysis and to determine their potency at high throughput. This is an example
of one of the many types of complicated experiments that our chips can perform,
which would normally be performed in a laboratory full of people and equipment.
Potency studies are done by diluting a drug into different concentrations and
testing each one for its effect on a pharmaceutical target. Higher potency drugs
will reduce target activity even at low concentrations. Potency provides
critical information for determining the quality of a drug candidate.
A one nanoliter drug sample, 1/50,000th of a drop, is drawn into the chip
through a small glass tube, or a capillary, attached at point (a). In assembly
line fashion, a different drug enters the chip every 30 seconds, and multiple
experiments are processed on the chip simultaneously. Each nanoliter is divided
sequentially into four portions (b), each of which contains ten times less than
the previous portion. Each portion is then diluted with an appropriate solution
to restore the original volume of sample and achieve four different
concentrations (c). Each of the four diluted drug samples is then mixed with the
target (d), and later, another reagent (e), and incubated for precisely the same
amount of time (f), to enable direct comparison of the results which are
detected on all reactions simultaneously (g).
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Key Benefits of LabChip Systems
- High Speed. We believe our LabChip systems accelerate experiments as much
as 10-fold or more, depending on the application. For example, molecular
separations such as electrophoresis normally take one hour or more using
conventional equipment. On a chip, we can perform these separations in
less than one minute. Another example is that chemical reactions are
usually incubated for 30 minutes or more before the results are
determined. Often, these long incubation periods are necessary only to
provide enough time for manual steps to be performed on large numbers of
samples. By integrating sample processing and detection, we can perform
reactions in one minute or less and achieve comparable results. We
believe our customers can take advantage of this acceleration to increase
throughput or to complete experiments faster, depending on their needs.
- Reduced Reagent and Labor Cost. Our LabChip systems use only a small
fraction of the normal amount of expensive reagents used in experiments
performed in test tubes or 96-well plates, sometimes as little as
1/100,000th, and also reduce labor involved in each experiment. We
believe that saving on reagent cost and labor can enable pharmaceutical
companies to expand the scale of experimentation in ways that would
otherwise not be feasible.
- Expanded Individual Researcher Capability. Because our LabChip systems
can collapse a multi-step, complex experiment into one step, we believe
that individual researchers can perform experiments previously outside
their areas of expertise. By comparison, with conventional, non-
integrated equipment researchers need to acquire the equipment and master
the complexities of performing each individual step.
- Improved Data Accuracy. We believe our LabChip systems generally produce
more accurate and consistent data by reducing human error and the
variability caused by the use of multiple instruments. With higher
quality data, our customers can make better decisions. For example,
biochemical determinations typically require accurate liquid measurements
and precise incubation times. When these are manually performed
significant variations can occur in liquid dispensing and in the duration
of reaction times.
- Improved Enterprise-Wide Productivity. We believe our LabChip systems can
improve data quality to the point where researchers can rely on data
generated outside their laboratory or organization. We believe this would
improve enterprise-wide productivity by supporting data sharing and
reducing the need to repeat experiments. When different research groups
use different assortments of conventional equipment to perform
experiments, they often produce data that is not strictly comparable.
We believe that our LabChip systems have the potential to expand the
capabilities and improve the productivity of individual researchers and, on an
institutional level, to streamline and bring greater efficiency and speed to the
drug discovery and development process. Not all laboratory processes, however,
are ideally suited to be performed with our LabChip systems. For example,
detecting clinically important materials that appear in low concentrations in a
sample, such as the virus that causes AIDS or some hormones, is not always
practical with our LabChip systems. This is because there is a risk that these
materials will not be found in the very small volume employed by our chips. As a
result, without pre-processing the sample to increase the concentration our
LabChip system may fail to detect the material. Furthermore, if the analysis of
a sample must involve even one process that cannot currently be performed in the
LabChip system, then use of the LabChip system for the parts it can perform is
often impractical. This is because the very small scale of the chip experiment
does not generally produce enough material to be analyzed by conventional
laboratory equipment.
The faster pharmaceutical companies can identify and validate targets,
screen massive numbers of compounds, optimize leads and identify promising
compounds to take into clinical development, the greater their chances of seeing
a return on investment for their research and development dollars. LabChip
technology has the potential to reduce the time it takes to discover and
commercialize new drugs. In the future, we believe we can bring similar benefits
to other industries.
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STRATEGY
Our objective is to be the leading lab-on-a-chip company. Key elements of
our strategy to achieve this objective include:
Focus on the Pharmaceutical Industry First. We are focusing on developing
our LabChip systems for the pharmaceutical industry, where the investment in
research and development is large and growing and the need for new technologies
to improve research and development efficiency is urgent. We are addressing the
need for enhanced productivity for individual pharmaceutical researchers with
our first LabChip personal laboratory system, featuring the Agilent 2100
Bioanalyzer, developed in collaboration with Agilent. We also have developed
high throughput systems for use by pharmaceutical companies for drug screening
and other applications. We are developing ultra high throughput systems and new
chip applications to bring greater efficiency to the drug discovery process.
Rapidly Build Our Installed Customer Base. We intend to take advantage of
our first-to-market position to rapidly build our installed customer base. Our
goal is to increase customer familiarity with lab-on-a-chip technology and to
establish our LabChip systems as the platform of choice. Our strategy is to
offer products for applications that are practiced widely and to bring LabChip
technology to market through the combination of a major commercialization
partnership and direct selling. Our first commercial collaborator, Agilent, is
an established leader in analytical instrumentation and has initiated a
multi-faceted sales and marketing campaign designed to achieve wide penetration.
Our direct selling strategy is focused on large pharmaceutical and biotechnology
companies and is designed to encourage early adoption of our LabChip systems
through our technology access program and other commercialization programs.
Leverage Our Installed Customer Base by Expanding the Menu of Chip
Applications. A significant portion of our internal research and development
efforts is dedicated to new chip applications development. We intend to expand
our menu of chip applications and sell them to customers that have already
purchased LabChip instruments. For example, we are developing LabChip
applications for genomics to bring significant advances in functionality to this
technology-hungry area. We also intend to expand current markets by implementing
a LabChip instrumentation "operating system" strategy that encourages other
companies, such as reagent manufacturers, to develop compatible products that
can operate with our chips.
Generate Recurring Revenue From High-Value Chips. We expect to generate
recurring revenue from the sale of single-use chips for the Agilent 2100
Bioanalyzer. In addition, we intend to value price the chips for our high
throughput systems to reflect the cost savings and other benefits that our
customers may achieve, possibly by charging customers for the amount of data
they generate. While we are focused on generating revenues from the sale and use
of our chips, we also will receive revenue from the sale of the Agilent 2100
Bioanalyzer, software and reagents. We also intend to generate recurring revenue
from our technology access program through license fees and ongoing subscription
fees as well as through the sale of instruments.
Build a Substantial Intellectual Property Estate. We pursue an
intellectual property strategy of licensing important patents and pursuing
patent protection for our own inventions. As of August 31, 2000, we owned, or
held licenses to, 61 issued U.S. patents and 155 pending U.S. patent
applications. These patents and applications are directed to various
technological areas that we believe are valuable to our business. We believe
that maintaining a deep and broad intellectual property estate will be an
important competitive advantage.
Maintain Leadership in Chip Technology and Manufacturing. We believe that
our long-term success will derive from maintaining leadership in lab-on-a-chip
technology and chip manufacturing. We focus on improving the power and
capabilities of our chips to increase their value. We are also working to
enhance manufacturing processes to reduce our production costs.
Opportunistically Penetrate New Industries. We believe that LabChip
technology has the potential to transform the way that laboratory
experimentation is performed across multiple industries. We expect to
selectively pursue these other industries, leveraging our pharmaceutical
industry experience and products. We may pursue these opportunities alone or
with collaborators.
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PRODUCTS AND SERVICES
We have developed two types of LabChip systems, personal laboratory systems
and high throughput systems, based on distinct chip formats. Our personal
laboratory systems use chips with reservoirs for the various chemical reagents,
which the user introduces manually. Our high throughput systems use our Sipper
chip systems that have a short glass tube, or capillary, that draws nanoliter
volumes of reagents into the chip.
Personal Laboratory Systems
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION STATUS
<S> <C> <C>
----------------------------------------------------------------------------------------------
Agilent 2100 Bioanalyzer Desktop LabChip instrument and Marketed by Agilent
software
----------------------------------------------------------------------------------------------
DNA 12000 LabChip Kit Chips and reagents for Marketed by Agilent
analyzing large DNA fragments
----------------------------------------------------------------------------------------------
DNA 7500 LabChip Kit Chips and reagents for Marketed by Agilent
analyzing small DNA fragments
----------------------------------------------------------------------------------------------
DNA 500 LabChip Kit Chips and reagents for Marketed by Agilent
analyzing small DNA fragments
----------------------------------------------------------------------------------------------
Protein 200 LabChip Kit Chips and reagents for Agilent introducing for sale
analyzing protein samples
----------------------------------------------------------------------------------------------
RNA 6000 LabChip Kit Chips and reagents for Marketed by Agilent
analyzing RNA samples
----------------------------------------------------------------------------------------------
New LabChip Kits A series of kits containing In development
chips and reagents for
applications in molecular and
cell biology
----------------------------------------------------------------------------------------------
</TABLE>
Agilent 2100 Bioanalyzer System. Our first personal laboratory system is
based on the Agilent 2100 Bioanalyzer, a desktop instrument designed to perform
a wide range of everyday scientific applications using a menu of different
LabChip kits. Each kit contains a chip and reagents designed specifically for
the application. This LabChip system brings the benefits of miniaturized,
integrated and automated experimentation to the researcher's desktop. Agilent
launched this product in September 1999.
Agilent is selling the Agilent 2100 Bioanalyzer with a menu of three
LabChip kits for DNA sizing and concentration analysis, one for RNA sizing and
concentration analysis, and one for protein sample sizing and concentration
analysis. For these applications, we believe the system's principal advantages
are that it:
- reduces analysis time from hours to minutes
- integrates several experimentation steps into one
- significantly reduces consumption of costly reagents
- produces higher quality data than conventional methods
Because these applications are among the most common experiments performed
in genetic research, the potential customer base for these applications includes
most pharmaceutical and biotechnology companies, as well as human genome
research centers and other academic laboratories.
We are developing additional applications, for example, to analyze cells,
as well as additional applications involving DNA, RNA and protein analysis. We
believe that the protein and cell applications on the Agilent 2100 Bioanalyzer
may be particularly attractive to researchers in those disciplines because their
existing tools are generally less advanced than those available to genetic
researchers.
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High Throughput Systems
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION STATUS
<S> <C> <C>
----------------------------------------------------------------------------------------------
Caliper 220 Sipper System Ultra high throughput LabChip 4-sipper chip is being sold to
instrument and software for customers. Other multi-sipper
multiple capillary chips chips are in development
----------------------------------------------------------------------------------------------
Caliper 110 Sipper System High throughput LabChip Direct sales to customers
instrument and software for
single capillary Sipper chips
----------------------------------------------------------------------------------------------
Caliper 100, Single Sipper Instrument system and software Direct sales to customers
Assay Development Station for developing LabChip
experimental methods
----------------------------------------------------------------------------------------------
Automated Microfluidics Instrument system and software Prototype Stage
System 90 for running automated nucleic
acid separations and
quantitations
----------------------------------------------------------------------------------------------
Assay Development Chips Chips for use with the assay Direct sales to customers
development station
----------------------------------------------------------------------------------------------
Fluorogenic Assay Chip Chip for screening several Direct sales to customers
types of enzyme and protein
receptor targets
----------------------------------------------------------------------------------------------
Mobility Shift Assay Chip Chip for screening other types Direct sales to customers
of enzyme and protein receptor
targets
----------------------------------------------------------------------------------------------
Cell-based Assay Chips Chips for screening cell In development
receptor targets
----------------------------------------------------------------------------------------------
Dilutor Chip Chip that does sample In development
preparation and screening on
the same chips
----------------------------------------------------------------------------------------------
Automated Separations Chips Chips, reagents and supplies In development
for nucleic acid fragment
analysis
----------------------------------------------------------------------------------------------
</TABLE>
Our high throughput systems are being designed to perform thousands or tens
of thousands of pharmaceutical experiments per day on each chip.
Caliper 110 Sipper System. Our first high throughput system is based on the
Caliper 110, which uses chips with a single capillary. Like the Agilent 2100
Bioanalyzer, the Caliper 110 is designed to perform a wide range of experiments
using a menu of different chips. We currently offer two types of chips used for
performing drug screening experiments for several classes of enzymes. High
throughput enzyme experiments are among the most common assays used in primary
drug screening. Some of the reagents used in these experiments are expensive and
it can take months to produce them in the quantities required for conventional
screening systems. We believe the principal advantages of the Caliper 110 are
that it:
- reduces costly reagent consumption up to 100,000-fold
- integrates multiple experimental functions
- reduces the need for user intervention
- produces higher data quality than conventional methods
We expect to add several more types of chips, enabling our technology
access program customers to use the Caliper 110 for a significant percentage of
the types of experiments they run. Another important advantage of the Caliper
110 is that it can be used not only for primary screening but also for lead
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optimization. Furthermore, the Caliper 110 is compact and could be placed in
locations outside the centralized screening group, allowing for more efficient
drug development efforts.
Caliper 220 Ultra High Throughput System. We increase throughput by
increasing the number of channels and capillaries on each chip. We have
introduced systems with four sippers that run on the Caliper 220 and that are
designed to perform approximately 40,000 experiments per day, per chip. We
intend to introduce chips with eight or more capillaries per chip and to enable
customers to effectively utilize multiple instruments by providing integrated
plate handling capabilities. We have delivered a Caliper 220 ultra high
throughput instrument to one of the customers in our technology access program
and plan to deliver systems to other customers later this year. Our goal is to
offer systems that can perform more than 100,000 experiments per day.
We are also working to integrate compound storage and sample preparation
into our screening systems. These activities represent major expenses for
pharmaceutical companies. We believe that our LabChip systems can offer dramatic
cost reductions in these areas. We intend to offer a Sipper chip which can
dilute compounds in assay buffer on the chip prior to performing the screening
assay. We expect that this will reduce the amount of expensive compounds used by
approximately 1,000-fold and eliminate the major expense of diluting thousands
of compounds in wells. The next integration step will be to enable researchers
to place entire compound libraries onto our proprietary LibraryCard reagent
array, and then dilute and access compounds using the capillary of the
multi-sipper chip.
We sell our current high throughput systems to technology access program
customers and provide training and support. We also develop initial assays for
them and offer some level of customization in order to integrate our systems
most effectively into each customer's production processes.
We sell assay development systems that run on our Caliper 100 instrument to
our technology access program customers so that they can modify experimental
conditions used with our standard assay chips to be suitable for each new
pharmaceutical target. This process is comparable to the assay development they
already carry out with existing screening systems, which typically takes several
weeks to a few months. In fact, we believe that the process likely will be
accelerated and improved using chip-based systems.
Through a newly-created Applications Development Program (ADP), we plan to
sell assay development systems to companies that want to develop their own novel
assays using our LabChip platform technology, and that may not be participating
in our technology access program. Customers that participate in the ADP may
purchase instruments, chips and Caliper know-how to develop new microfluidic
applications. We believe that this new initiative will help to create new
applications and new markets for our LabChip technology.
We are also planning to introduce new applications for automating high
volume nucleic acid and protein separations and data analysis. The Automated
Microfluidic System 90 is designed to meet the needs of micro array acid cloning
laboratories. We expect the initial application will perform DNA fragment
sizing, separation and quantitation analyses. We plan to introduce this system
in the third quarter of 2000.
Services
<TABLE>
-----------------------------------------------------------------------------------------------
SERVICE DESCRIPTION STATUS
<S> <C> <C>
-----------------------------------------------------------------------------------------------
Value Added Assay development, compound leasing and Direct sales to customers
Screening screening services for customers'
Collaborations pharmaceutical targets
-----------------------------------------------------------------------------------------------
</TABLE>
We are using our high throughput systems internally to offer screening
services to pharmaceutical and biotechnology customers that prefer to outsource
this activity. Under our value added screening collaboration program, we develop
LabChip assays for targets selected by a customer. We then screen the targets
against the customer's compound library, our own library, or both, and provide
the data to the customer.
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We believe that our screening services also add substantial value to our
product businesses. We deploy our most advanced high throughput screening
systems in our internal screening services operation. By making intensive use of
those systems in this business, we can provide critical feedback to our product
development groups. This accelerates development and enables us to deliver
better systems to our technology access program customers. We also intend to use
our screening services capability to demonstrate to potential technology access
program customers how our LabChip systems can streamline screening operations
and enhance productivity.
COMMERCIALIZATION
We currently are commercializing our first personal laboratory system, the
Agilent 2100 Bioanalyzer system, through our collaboration with Agilent. We are
also directly selling our high throughput systems through our technology access
program and other commercial programs, and are providing high throughput
screening services through our value added screening collaboration program.
Strategic Alliance with Agilent
We have established a broad relationship with Agilent to create a line of
commercial research products based on our LabChip technologies. This
relationship provides us with the scale and expertise of a leading analytical
instrumentation company to bring these novel products to market. When this
relationship was established in May 1998, Agilent and Caliper publicly stated
their intention to invest over $100 million collectively to create and
commercialize this line of products over the ensuing five years. In September
1999, Agilent introduced the Agilent 2100 Bioanalyzer with three different
LabChip kits, our first LabChip products under this agreement. In May 2000, we
introduced the DNA 500 LabChip kit for the automated analysis of DNA fragments
to determine their size and concentration. In August 2000, we introduced the
Protein 200 LabChip kit for the automated sizing and analysis of protein
samples.
In this collaboration, Caliper primarily focuses on developing core
technology and LabChip applications. We also manufacture the chips and supply
the chips and reagents to Agilent. If we elect, however, not to manufacture
chips for a LabChip application or we are unable to meet minimum supply
commitments to be mutually established in the future, Agilent would have the
right to manufacture those chips. Agilent primarily focuses on developing
instruments and software, manufacturing instruments, and marketing, selling and
supporting complete systems. Agilent has the contractual right to develop the
marketing plan under the collaboration, although to date we and Agilent have
made these decisions in a collaborative manner.
Agilent funds our product development efforts under the collaboration,
reimburses our costs of supplying chips and reagents, and pays us a share of the
gross margin on all components of LabChip systems. The gross margin share varies
depending on the type of collaboration product, whether we or Agilent
manufacture the collaboration product, and whether the collaboration product is
sold during the collaboration or after the collaboration has terminated. These
financial arrangements allow us to offset a portion of the substantial risks
inherent in introducing novel technologies. At the same time, they enable us to
support a broad product development program and to retain a substantial
financial interest in the products we create.
Our agreement with Agilent is mutually exclusive in the field of
lab-on-a-chip technologies for the research products market. It requires our
consent before Agilent may offer products exceeding established sample
throughput limits, and it requires Agilent's consent before we may offer these
products outside the collaboration in excess of established volume limitations.
The term of the Agilent agreement is eight years, beginning in May 1998.
After three years, Agilent may elect not to meet annual funding requirements, in
which case either party may terminate the agreement. In any event either party
may terminate the agreement after five years. If the agreement terminates after
three years, we will continue to offer the collaboration's products through
Agilent but Agilent will have no rights to our technologies for the development
of new products. If either party terminates the agreement after five years, we
will grant Agilent a non-exclusive license to use the lab-on-a-
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<PAGE> 34
chip technologies that we have developed up to that time in order to develop new
products in substantially the same field that applied during the collaboration.
We will also transfer chip manufacturing know-how and receive royalties on
Agilent's sales of systems that employ our patented technologies. Regardless of
whether the collaboration terminates after three or five years, both Caliper and
Agilent will have the right to sell collaboration products, with reciprocal
supply arrangements.
Technology Access Program
Our technology access program is initially focused on high throughput
systems for drug screening. In this program, we work directly with
pharmaceutical company customers during the product development process to
create successive generations of products. We provide technology access program
customers with early access to new products, and offer technical training,
support and customization services. By working closely with these customers, we
focus our technology and product development efforts where we believe they can
have maximum impact for the pharmaceutical marketplace.
Our technology access program customers have non-exclusive access to all of
the high throughput screening products we offer during the term of the
agreement. These agreements generally provide for customers to pay an up-front
license fee and annual subscription fees, and to reimburse us for our costs of
providing development and support services. Instruments and chips are generally
sold separately on a product-by-product basis, although some agreements
establish prices for critical instruments or estimates of the price we will
charge them for Sipper chips based on the amount of data they generate. Our
technology access program customers can terminate their participation in the
program and still have the right to purchase those products that we offered to
them during their participation in the program.
We currently have four technology access program customers for our high
throughput screening systems: Millennium Pharmaceuticals, Eli Lilly, Amgen and
Hoffmann-La Roche. Our agreements with these customers generally contain the
terms described above. Key terms unique to each agreement are described below.
Millennium Pharmaceuticals. We announced the formation of a broad
technology access and application development collaboration with Millennium
Pharmaceuticals in March 2000 based on our LabChip microfluidic high throughout
technology platform. The collaboration provides for Millennium to subscribe to
our technology access program as well as for joint investment in and development
of novel LabChip applications focused on genomics and other areas of mutual
interest. The term is two years with an option to renew in the third year.
Millennium, a leading drug discovery and development company, employs
large-scale genetics, genomics, high throughput screening and informatics in an
integrated science and technology platform. This collaboration has the potential
to lead to the development of new LabChip applications in genomics and other
areas that can be of high value to Millennium and, at the same time, enable us
to make these applications available to other customers of our high throughput
systems.
Eli Lilly. We signed our most recent technology access agreement with Eli
Lilly in August 1999. The term is three years, although Eli Lilly may
temporarily suspend its technology access program participation and later
reinitiate participation, during which time our support and assistance
obligations will also be suspended. Under this agreement our obligations include
support for assay development for targets, training for Eli Lilly personnel, and
support for custom development projects. Eli Lilly may terminate the agreement
on any anniversary.
Amgen. We entered into a technology access agreement with Amgen in
December 1998. The term of this agreement is three years, although Amgen may
terminate the agreement on any anniversary or if we fail to deliver the ultra
high throughput screening system in a timely manner.
Hoffmann-La Roche. We entered into a technology access agreement with
Hoffmann-La Roche in November 1998, which expired in July 2000. This agreement
may be extended by mutual consent and discussions are currently underway
concerning an extension of the agreement. This agreement superseded an earlier
agreement under which Roche funded early development of the high throughput
screening technology in exchange for exclusive rights to an ultra high
throughput screening system. Under this
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<PAGE> 35
agreement Roche had non-exclusive rights similar to other technology access
program customers. We did not receive an up-front license fee or annual
subscription fee from Hoffmann-La Roche.
Value Added Screening Collaboration Program
In our value added screening collaboration program we offer high throughput
screening services using our LabChip systems. This can enable companies that may
not choose to participate in our technology access program to take advantage of
our high throughput systems. Our first value added screening collaboration
agreement was established with Neurocrine Biosciences in December 1998. We
receive screening fees based on the amount of data generated, preclinical
milestones and royalties on Neurocrine products emerging from the collaboration.
This agreement has a three-year term, but may be terminated by either party
under limited circumstances after the first year. In August 2000, we announced
that SUGEN, a wholly-owned subsidiary of Pharmacia and leader in transduction
research, became our second screening customer. Using SUGEN's compound library
and target, we completed a screen and identified which of the compounds have
potential for development as drug candidates.
TECHNOLOGY
We believe that we have established a leading position in three areas of
lab-on-a-chip technology.
Microfabrication
We create lab-on-a-chip devices using the same manufacturing methods that
are used to make microchips in the computer industry called "microfabrication."
Microfabrication makes it possible to create intricate designs of interconnected
channels that are extremely small. Each pattern is designed to produce the
series of fluid manipulation steps that will execute an experiment. We use the
principles of fluid dynamics, chemical and electrical engineering and biophysics
to create initial designs using computer-aided design tools. Because we have
designed, manufactured and tested hundreds of different chips, we have developed
proprietary design rules that make each round of chip creation more predictable
and likely to succeed. We design our chips to be disposable and relatively
inexpensive to manufacture. We place the more expensive electronic controls and
sensing capability in a separate instrument.
Once a design pattern is completed, we use microchip manufacturing methods
to recreate the design as channels in a sheet of quartz, glass or plastic. This
process creates highly precise channels with dimensions that can be varied by
width and depth. A typical channel is roughly 50 microns wide and 10 microns
deep, approximately the size of a strand of hair.
In the next step, a second sheet of quartz, glass or plastic with a precise
pattern of holes is fused to the first sheet using a proprietary process. This
covers the channels and converts them to closed microfluidic conduits. The end
of each channel connects to an open reservoir through which fluids are
introduced. The sheets are then cut into individual chips, which can be less
than one inch to a few inches on a side. The individual chips are then packaged
into plastic holders that make them easier for the user to handle.
We currently make two basic chip formats. In our planar chips, such as
those used in the Agilent 2100 Bioanalyzer, the user introduces all of the
chemical reagents into the reservoirs, including the various samples to be
tested, using pipets. In our Sipper chip devices, such as those used in the
Caliper 110 and Caliper 220, a small glass tube, or capillary, inserted into the
chip draws a few nanoliters of each sample into the channel network. In this
way, minute quantities of a large number of samples can be tested in a single
chip. The samples are introduced into the capillary one after the other, spaced
by buffer solution. They proceed through the channel network in a continuous
flow, assembly-line fashion to perform a complete experiment. We have an issued
U.S. patent claiming this assay technique.
Microfluidics
In our LabChip systems the movement of minute quantities of fluids, or
"microfluidics," is actively controlled by computer programs. We use two
different methods of generating fluid motion in microchannels: electrokinetics
and pressure.
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Electrokinetic flow is generated when electrodes attached to
computer-driven power supplies are placed in the reservoirs at each end of a
channel and activated to generate electrical current through the channel. Under
these conditions, fluids of the appropriate type will move by a process known as
"electro-osmosis." Typical flow rates within the channel are about a millimeter
per second and the flow rate can be controlled with a high degree of precision.
Programs can then be written to generate highly specific and complex networks of
flow. One key to designing complex systems is controlling and directing the flow
at intersections. Fundamental techniques for accomplishing this were invented by
Dr. J. Michael Ramsey, one of our co-founders and a member of our Scientific
Advisory Board, and are covered by a series of issued and pending U.S. patent
applications. We hold an exclusive license to these patents for most
applications and a non-exclusive license for remaining applications.
Another electrokinetic phenomenon known as "electrophoresis" occurs in the
channels. This is the movement of charged molecules or particles in an electric
field. Electrophoresis is often used in conventional laboratories for analyzing
molecules since they move differently according to their physical make-up.
Electrophoresis can be used to move molecules in solution, or to separate
molecules with very subtle differences. Electrophoresis and electro-osmosis
generally occur at the same time in channels. However, we have developed
proprietary techniques for minimizing either force while maintaining the other,
as appropriate, for a given application.
Pressure can also be used to move fluid in the channels. On the
microfluidic scale, small amounts of pressure produce highly predictable and
reproducible fluid flow. We use both computer-controlled pressure and
electrokinetic forces to gain precise control over fluid flow in the
microfluidic channel network. It is possible to use electrokinetic forces alone,
pressure forces alone, or a combination of the two methods.
Lab-on-a-Chip Applications Development
We have developed a large amount of expertise at discovering new functions
that microfluidic chips can perform. We have generated proprietary computer
models of how an experiment can be carried out. We store these functional
designs and we can incorporate them into new designs that simulate complete
experiment pathways. In this way, we believe the value of new microfluidic
inventions can be rapidly expanded across many application development projects.
We have also developed expertise at making experiments work in our chips.
Currently, all of our systems use fluorescent chemical reagents and optical
detection instruments to read experimental results. We often need to explore
chemical strategies for labeling relevant reagents that can reveal how different
molecular interactions take place. Another area of investigation addresses the
fact that in these small dimensions, the amount of channel surface material
relative to the amount of liquid is many times higher than in a test tube or
microwell plate. Because of this, the surface material can exert a chemical
influence on the biochemical reactions taking place. We have created strategies
to avoid the problems this can cause, or benefit from it if possible. We have
developed Sipper chips that perform and analyze enzyme reactions using part of
the channel design as a tiny, continuously operating electrophoresis machine.
Thus, reactions with one sample are going on in one area of the chip while
electrophoretic separation of the products of another sample is taking place in
a different part of the chip. We have also found that, in many cases,
fluorescence polarization spectroscopy, an optical detection method that can
determine the proportion of a fluorescent molecule that is attached to a larger
molecule or is unbound in solution, can be used to read reaction results without
needing to electrophoretically separate the biochemicals. We have built this
optical detection capability into our high throughput systems. In general, our
experience is that microfabrication and microfluidics provide a rich tool set
with which to create innovative new applications.
RESEARCH AND DEVELOPMENT
We have made substantial investments in lab-on-a-chip research and product
development since our inception. We explored fundamental issues of lab-on-a-chip
technology as early as possible in order to find solutions to important
technical challenges and seek patent protection for our solutions. Today we are
supplementing these core technology research efforts with applied product
development efforts in several areas.
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Technology Research
Our technology research activities fall into several classes.
Chemical Engineering. We are increasing our understanding of the design
rules guiding the development of new chips. Using the principles of chemical
engineering we create patterns of interconnected channels that permit execution
of the various common steps of experimentation. Designs from one chip can be
used for other chips needing similar fluidic functions for a different
application. Mathematics and computer models also help minimize the number of
iterations necessary to achieve new functional chip designs.
Chip Manufacturing. We continue to seek ways to improve the yield and
decrease the cost of manufacturing our chips. We are exploring novel fabrication
techniques and the use of new materials that offer functional advantages, such
as manufacturing in quartz to take advantage of its superior optical features.
We have development programs in manufacturing technology for chips made of
plastic. Plastic devices potentially offer cost advantages and can offer
favorable surface chemical features for some applications. A major area of
development is micromachining technology for precisely attaching capillaries to
our Sipper chips to access reagents. In high throughput experimentation, the
number of capillaries and channels determines the level of throughput.
Accordingly we are developing high yield fabrication methods to enable us to
cost-effectively manufacture chips with many capillaries to perform ultra high
throughput experimentation.
Engineering and Software. We use the skills of electrical engineers,
optical engineers, mechanical engineers, product designers and software
engineers to create new instrumentation to run our chips. These instruments
control fluid movement inside the chip, present the reagents to the chip from
conventional fluid sources, and detect the results of biochemical or cell-based
experiments with optical methods. Software engineers write computer programs
that control the sources of fluid motion, communicate between different
instrument components and interpret signals from the detection system. Currently
we develop the software for our high throughput systems. We collaborate with
Agilent to develop software for our personal laboratory systems.
Product Development
Our product development efforts are currently focused on new applications
and capabilities for
our existing instruments, our LibraryCard system, and high throughput genomic
systems.
Extensions of Existing Product Lines. For each of our first generation
instruments, we are expanding the menu of applications to address other stages
of the pharmaceutical development process. For the Agilent 2100 Bioanalyzer, we
intend to introduce new applications that address everyday productivity needs in
many areas of genomics, protein chemistry and cell biology. We are broadening
the application menu for high throughput systems as well to include assays that
measure many important activities of cells and proteins.
LibraryCard System. We are developing a new format for storing and
accessing reagents, which we call the LibraryCard reagent array. We have learned
how to reconstitute very small quantities of dried reagents stored at high
density on a planar surface. We can conveniently access reagents stored in this
way using our Sipper chips. The LibraryCard reagent array could produce a
fundamental change in the way large libraries of reagents are used. Today, these
libraries are only accessible in centralized reference-style laboratories that
can conveniently work with automated warehouses of reagents. When libraries can
be reduced to the size of a postcard, high throughput experimentation involving
massive data acquisition can be decentralized. We believe that this will
increase the size of the market for applications that run on this type of
system. We believe this type of system could significantly impact several stages
of the pharmaceutical development process, particularly primary screening and
pharmacogenetic studies.
Genomics. Genomics is the high throughput analysis of DNA and RNA.
Genomics applications include sequencing DNA and DNA genotyping. Genotyping is
the determination of the DNA sequence variation present at a particular site in
an individual's DNA. One type of these variations, called single
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nucleotide polymorphisms or "SNPs," are believed to be important determinants of
disease. Like all experimentation processes, these applications are a
combination of various fluid manipulations, biochemical reactions, molecular
separations and detection. We believe they can be performed on the same basic
high throughput platform we have built for other applications. In early 1999, we
began a project, funded in part by the Advanced Technology Program of the
National Institute of Standards and Technology, to adapt the platform and
develop chips to run high throughput nucleic acids analyses. While the specific
aim of the program is to develop a diagnostics system, the first commercial
products to emerge from the technology could be genomics products, such as a
system for high throughput SNP genotyping. Our goal is to apply lab-on-a-chip
technology to some of the most important areas of biology today and emerging
areas such as genetic analysis for pharmacogenetics.
Our research and development expenses for the six months ended June 30,
2000 were $14.5 million and for the years ended 1999, 1998 and 1997 were
approximately $18.4 million, $9.6 million and $7.2 million, respectively. We
intend to increase our research and development budget and staffing levels
during the remainder of 2000. As of August 31, 2000, we had 101 employees
engaged in research and development, including 66 with advanced degrees.
MANUFACTURING
We manufacture our chips in-house and are currently manufacturing high
throughput instruments in limited volumes. We rely upon Agilent to manufacture
the Agilent 2100 Bioanalyzer. Our high throughput instruments are generally
integrated with plate stacking and handling units offered commercially by other
companies. We contract with third parties to supply most reagents for the
research products business. We currently depend on suppliers to supply prepared
materials for use in the manufacture of chips. We intend to continue and may
extend the subcontracting of portions of our manufacturing processes to
subcontractors where we feel it best leverages the supplier's manufacturing
experience, costs, and/or improves our ability to meet customer demands. For a
discussion of the methods we use to manufacture our chips see "-- Technology"
and "-- Research and Development."
COMPETITION
Although we believe that we are currently the only company selling and
delivering lab-on-a-chip products to customers, we expect to encounter intense
competition from a number of companies that offer products for laboratory
experimentation. We anticipate that our competitors will come primarily from the
following two sectors:
- companies providing conventional products based on established
technologies
- companies developing their own microfluidics or lab-on-a-chip
technologies
In order to compete against vendors of conventional products, we will need
to demonstrate the advantages of our LabChip products over alternative
well-established technologies and products. We will also need to demonstrate the
potential economic value of our LabChip products relative to these conventional
technologies and products. Some of the companies that provide these products
include PE Corp., Agilent, Beckman-Coulter, Amersham Pharmacia Biotech, Bio-Rad
Laboratories, Molecular Devices, and LJL BioSystems.
We will also need to compete effectively with companies developing their
own microfluidics or lab-on-a-chip technologies and products, such as Aclara
Biosciences and Orchid Biosciences. Other companies known to have initiated
microfluidic programs include Motorola, 3M, PE Corp. and Cepheid. Microfluidic
technologies have undergone and are expected to continue to undergo rapid and
significant change. Our future success will depend in large part on our ability
to establish and maintain a competitive position in these and future
technologies which we may not be able to do. Rapid technological development may
result in our products or technologies becoming obsolete. Products offered by us
could be made obsolete either by less expensive or more effective products based
on similar or other technologies.
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In addition, there is the possibility that we may experience competition
from Agilent if they, or we, terminate our agreement after May 2003. Under the
terms of our agreement, upon termination we will grant to Agilent a
non-exclusive license to our LabChip technologies as then developed for use in
the research products field.
In many instances, our competitors have or will have substantially greater
financial, technical, research, and other resources and larger, more established
marketing, sales, distribution, and service organizations than we do. Moreover,
competitors may have greater name recognition than we do, and may offer
discounts as a competitive tactic. We cannot assure you that our competitors
will not succeed in developing or marketing technologies or products that are
more effective or commercially attractive than our products, or that would
render our technologies and products obsolete. Also, we may not have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. Our success will depend in
large part on our ability to maintain a competitive position with our
technologies.
INTELLECTUAL PROPERTY
We seek patent protection on our lab-on-a-chip technologies. As of August
31, 2000, we owned or held licenses to 61 issued U.S. patents and 155 pending
U.S. patent applications, some of which derive from a common parent application.
The issued U.S. patents expire between 2012 and 2018. Foreign counterparts of
many of these patents and applications have been filed and/or issued in one or
more other countries, resulting in a total of more than 452 issued patents and
pending patent applications in the United States and foreign countries. Our
issued patents expire between 2012 and 2019. These patents and applications are
directed to various technological areas which we believe are valuable to our
business, including:
- control of movement of fluid and other material through interconnected
microchannels
- continuous flow high throughput screening assay methods and systems
- analytical and control instrumentation
- analytical system architecture
- chip-based assay chemistries and methods
- chip compatible sample accession
- software for control of microfluidic based systems and data analysis
- chip manufacturing processes
We also rely upon copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain our
competitive position. Our success will depend in part on our ability to obtain
patent protection for our products and processes, to preserve our copyrights and
trade secrets, to operate without infringing the proprietary rights of third
parties and to acquire licenses related to enabling technology or products used
with our lab-on-a-chip technology.
We are party to various exclusive and non-exclusive license agreements with
third parties which give us rights to use certain technologies. For example, we
have an exclusive license in the fields we are currently operating in from
Lockheed Martin Energy Research Corporation, relating to patents covering
inventions by Dr. J. Michael Ramsey. A failure to maintain some or all of the
rights to these technologies could seriously harm our business.
EMPLOYEES
As of August 31, 2000, we had a total of 163 employees, including 101 in
research and development, 34 in manufacturing and 28 in administration and
finance. None of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.
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FACILITIES
Our principal research and development, manufacturing and administrative
facilities are currently located in approximately 53,000 square feet of leased
space in Mountain View, California. The lease for this space will expire in
December 2008. On June 26, 2000 we leased an additional 28,800 square feet of
space adjacent to our current Mountain View facilities. The lease for this
additional space will expire in June 2008 and be utilized principally for
manufacturing, research and development. We believe that our current facilities
are adequate for our needs through the first quarter of 2002, and we are
currently assessing the need for additional facilities to meet our future needs.
If we are unable to locate additional facilities, we will be required to delay
our planned expansion. Any facilities that we are able to locate and lease may
be on terms that are expensive to us, especially since we are located in the
Silicon Valley in California where such facilities are in short supply and lease
rates are high.
LEGAL PROCEEDINGS
On March 22, 1999, we filed a lawsuit in California Superior Court for the
County of Santa Clara (Case No. CV 780743), against Aclara Biosciences Inc., a
patent attorney named Bertram Rowland and the law firm of Flehr, Hohbach, Test,
Albritton and Herbert LLP, alleging that all three defendants misappropriated
our trade secrets relating to our business plans, patents and intellectual
property strategy. The suit also alleges that Dr. Rowland and Flehr Hohbach
committed a breach of the duties they owed to us as our former attorneys. The
suit seeks damages and equitable remedies to prevent Aclara, Dr. Rowland and
Flehr Hohbach from benefiting from the alleged misappropriation and breach of
duties. On January 12, 2000, we filed a lawsuit in the United States District
Court for the Northern District of California against Aclara (Case No.
C-00-0145CRB(JCS)) alleging that Aclara is infringing four U.S. patents that
have been licensed to us by Lockheed Martin Energy Research Corporation, which
operates the Department of Energy's Oak Ridge National Laboratory where the
inventions were made. These patents cover technology for controlling the flow of
materials in microfluidic chips, as well as devices, systems and applications
that make use of this technology. We subsequently amended this complaint to
allege that Aclara is infringing another patent we have licensed covering
technology for controlling the flow of materials in microfluidic chips. Aclara
has counterclaimed for a declaratory judgment that the patents in this suit are
invalid, unenforceable and are not infringed by Aclara. On September 14, 2000,
we reached a settlement agreement with Dr. Rowland and Flehr Hohbach. The
settlement provides Caliper with a $12 million cash payment by Dr. Rowland and
Flehr Hohbach, as well as other terms. All claims against Aclara in this case
remain unaffected by this settlement agreement and continue to be pending in the
California Superior Court. This settlement also has no effect on Caliper's
lawsuits with Aclara that are pending in Federal District Court. While we
believe that our complaints against Aclara are meritorious, we cannot assure you
that we will prevail in our actions against Aclara and Aclara's counterclaims
against us, or that if we prevail, the damages or equitable remedies awarded, if
any, will be commercially valuable. Furthermore, we have incurred and are likely
to continue to incur substantial costs and expend substantial personnel time in
pursuing our claims against Aclara.
On April 23, 1999, Aclara Biosciences filed a lawsuit in United States
District Court for the Northern District of California (Case No. C-99-1968BZ)
alleging that we are making, using, selling or offering for sale microfluidic
devices that infringe United States Patent Number 5,750,015 in willful disregard
of Aclara's patent rights. This patent concerns methods and devices for moving
molecules by the application of electrical fields. The Aclara action seeks
damages for past and future reduced sales or lost profits based upon our alleged
fabrication, use, sale or offer for sale of allegedly infringing products and
processes, and seeks to enjoin our continued activities relating to these
products. We have counterclaimed for a declaratory judgment of noninfringement,
invalidity and unenforceability of all claims of the Aclara patent. On July 19,
2000, the federal judge in this action issued an order finding that eight of the
eleven claims asserted against us are invalid, and interpreting the remaining
asserted claims. This action subjects us to potential liability for damages,
including treble damages, and could require us to cease making, using or selling
the affected products, or to obtain a license in order to continue to
manufacture, use or sell the affected products. While we believe we have
meritorious defenses and counterclaims to this action, we
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<PAGE> 41
cannot assure you that we will prevail in this action nor can we assure you that
any license required would be made available on commercially acceptable terms,
if at all. Even if we prevail in the current action, there can be no assurance
that we will prevail again if Aclara appeals the case to a higher court.
Furthermore, we have incurred and are likely to continue to incur substantial
costs and expend substantial personnel time in defending against the claims
filed by Aclara. Failure to successfully defend ourselves against the Aclara
action could have a material adverse effect on our business, financial condition
and operating results. For further information on the risks associated with this
litigation see "Risk Factors -- Risks Related to Our Business -- We are involved
in intellectual property litigation with Aclara Biosciences that may hurt our
competitive position, may be costly to us and may prevent us from selling our
products."
SCIENTIFIC ADVISORY BOARD
We have assembled a group of scientific advisors who are leaders in fields
related to microfluidics technology and systems. These advisors assist us in
formulating our research, development and commercialization strategy and
include:
George Whitesides, Ph.D., Chair, Mallinckrodt Professor of Chemistry at Harvard
University and Member of the National Academy of Sciences. Dr. Whitesides is the
Chairman of our Scientific Advisory Board.
J. Michael Ramsey, Ph.D., a co-founder of Caliper and Corporate Research Fellow
and Head of the Laser Spectroscopy and Microinstrumentation Group in the
Chemical and Analytical Sciences Division at Oak Ridge National Laboratory.
Robert H. Austin, Ph.D., Professor of Physics at Princeton University.
Charles P. Cantor, Ph.D., Professor of Biomedical Engineering and Biophysics at
Boston University, and Member of the National Academy of Sciences.
George Church, Ph.D., Senior Investigator at the Howard Hughes Medical Institute
at Harvard Medical School.
Jed Harrison, Ph.D., Professor of Analytical Chemistry at the University of
Alberta.
Richard Haugland, Ph.D., President and Corporate Research Director of Molecular
Probes, Inc.
James W. Jorgenson, Ph.D., Francis P. Venable Professor of Chemistry at the
University of North Carolina.
Barry Karger, Ph.D., James L. Waters Chair in Analytical Chemistry and Director
of the Barnett Institute of Chemical Analysis and Materials Science at
Northeastern University, Boston, Massachusetts.
Butrus T. Khuri-Yakub, Ph.D., Professor of Electrical Engineering at the E.L.
Ginzton Laboratory of Stanford University.
Andreas Manz, Ph.D., SmithKline Beecham Chair of Analytical Chemistry at the
Imperial College of Science, London.
Stephen D. Senturia, Ph.D., Barton L. Weller Professor of Electrical Engineering
at the Massachusetts Institute of Technology.
Christopher T. Walsh, Ph.D., Hamilton Kuhn Professor of Biological Chemistry and
Molecular Pharmacology at Harvard Medical School and Member of the National
Academy of Sciences.
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<PAGE> 42
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND FOUNDERS
The following presents information about our directors, executive officers
and co-founders as of August 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Daniel L. Kisner, M.D. ................... 53 President, Chief Executive Officer and Director
Calvin Y. H. Chow......................... 45 Chief Operating Officer and Co-founder
James L. Knighton......................... 46 Chief Financial Officer
Michael R. Knapp, Ph.D. .................. 48 Vice President of Science and Technology and
Co-founder
J. Wallace Parce, Ph.D. .................. 50 Vice President of Research and Co-founder
E. William Radany, Ph.D. ................. 47 Vice President of Drug Discovery Programs
William M. Wright III..................... 52 Vice President of Operations
Anthony T. Hendrickson.................... 47 Corporate Controller and Principal Accounting
Officer
David V. Milligan, Ph.D.(1)............... 59 Chairman of the Board of Directors
Anthony B. Evnin, Ph.D.(1)................ 59 Director
Charles M. Hartman(2)..................... 58 Director
Regis P. McKenna(2)....................... 60 Director
Robert T. Nelsen(2)....................... 37 Director
Michael Steinmetz, Ph.D.(1)............... 53 Director
Lawrence A. Bock.......................... 40 Co-founder
J. Michael Ramsey, Ph.D. ................. 48 Co-founder
</TABLE>
---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DANIEL L. KISNER, M.D., has served as our President and Chief Executive
Officer since February 1999 and as a Director since March 1999. From May 1994 to
January 1999, Dr. Kisner served as President and Chief Operating Officer of Isis
Pharmaceuticals, Inc., a biotechnology company. From February 1993 to May 1994,
Dr. Kisner served as Executive Vice President and Chief Operating Officer of
Isis Pharmaceuticals, Inc. From March 1991 to February 1993, he served as
Executive Vice President of Isis Pharmaceuticals, Inc. and was responsible for
business and product development, and manufacturing. From December 1988 to March
1991, Dr. Kisner served as Division Vice President of Pharmaceutical Development
for Abbott Laboratories. Dr. Kisner has held a tenured position in the Division
of Oncology at the University of Texas, San Antonio School of Medicine and is
certified by the American Board of Internal Medicine and certified in Medical
Oncology. Dr. Kisner holds a B.A. from Rutgers University and an M.D. from
Georgetown University.
CALVIN Y. H. CHOW, co-founded Caliper and has served as our Chief Operating
Officer since February 1998. Mr. Chow also served as our Vice President of
Development from September 1995 to February 1998. From October 1985 to September
1995, Mr. Chow served as Vice President of Engineering and Operations of
Molecular Devices Corporation, a bioanalytical instrumentation company, where he
was responsible for product development and company-wide manufacturing. Mr. Chow
holds a B.S. in Electrical Engineering from Illinois Institute of Technology and
an M.S. in Electrical Engineering from Stanford University.
JAMES L. KNIGHTON, has served as our Chief Financial Officer since
September 1999. From October 1998 to September 1999, Mr. Knighton served as
Senior Vice President and Chief Financial Officer of SUGEN, Inc., a
biotechnology company. From July 1997 to October 1998, Mr. Knighton served as
Vice President of Investor Relations and Corporate Communications at Chiron
Corporation, a biotechnology
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<PAGE> 43
company. From 1985 to 1994, Mr. Knighton served in various operations, planning
and R&D functions at E. I. DuPont de Nemours Inc., a global, diversified
chemical and life science company. Mr. Knighton holds a B.S. in Biology from the
University of Notre Dame, an M.S. in Genetics from the University of
Pennsylvania and an M.B.A. from the Wharton School at the University of
Pennsylvania.
MICHAEL R. KNAPP, PH.D., co-founded Caliper and has served as our Vice
President of Science and Technology since September 1995. From November 1994
through August 1995, Dr. Knapp was engaged in activities related to forming
Caliper, including securing our core technology license and procuring financing.
From October 1988 to October 1994, Dr. Knapp served as President and Scientific
Director at Molecular Tool, Inc., a genetics technology company he co-founded in
1988. Previously, Dr. Knapp was on the staff of the Center for Neurobiology and
Behavior at Columbia University and was a Scientific Director of Genetica SARL,
an affiliate of Rhone Poulenc SA in Paris, France. Dr. Knapp holds a B.S. in
Biology from Trinity College (Hartford) and a Ph.D. in Medical Microbiology from
Stanford University.
J. WALLACE PARCE, PH.D., co-founded Caliper and has served as our Vice
President of Research since October 1995. Prior to joining Caliper, Dr. Parce
spent 12 years with Molecular Devices Corporation as a founder, consultant,
Director of Research and Vice President of Research. From 1980 until 1984 he was
an Assistant Professor in the Department of Biochemistry at Wake Forest
University, from 1982 until 1987 an associate in the Department of Microbiology
and Immunology, and from 1984 until 1987, an Associate Professor of
Biochemistry. Dr. Parce received his B.A. in Chemistry from Western Maryland
College in 1972 and his Ph.D. in Biochemistry from Wake Forest University in
1976. From 1976 until 1980 Dr. Parce was a Post Doctoral Fellow in Chemistry at
Stanford University.
E. WILLIAM RADANY, PH.D., has served as our Vice President of Drug
Discovery Programs since December 1999. From June 1997 to December 1999, Dr.
Radany was Vice President, General Manager of the Discovery Systems Business for
Stratagene, a biotechnology company responsible for research and development,
tactical and strategic marketing and business development. From August 1996 to
February 1997, Dr. Radany was President of the North American Subsidiary of
Biacore A.B., a biotechnology company responsible for microfluidic
instrumentation. From January 1993 to August 1996, Dr. Radany held various
positions at Pharmacia Biosensor, most recently as Vice President of Sales and
Marketing for Region I. Dr. Radany holds a B.S. in Cell Biology from Colorado
State University and a Ph.D. in Biochemistry and Physiology from the University
of Wyoming.
WILLIAM M. WRIGHT III, has served as our Vice President of Operations since
September 1998. From November 1995 to May 1998, Mr. Wright served as Vice
President of Operations of Biocircuits Corporation, a medical diagnostic
company, where he was responsible for instrument and immunoassay cartridge
manufacturing. From 1984 to 1995, Mr. Wright was Vice President of Site
Operations with Dade International Inc., formerly a division of Baxter
International, Inc., a medical products manufacturing company, where he assisted
in the start-up and launch of the Baxter International Paramax Analytical
Clinical Chemistry Business. Mr. Wright holds a B.S. in Industrial Technology
from California State University at Long Beach.
ANTHONY T. HENDRICKSON, has served as our Corporate Controller since April
2000. From April 1997 to April 2000, Mr. Hendrickson was the Corporate
Controller and Chief Accounting Officer for Sequus Pharmaceuticals, Inc., a
biotechnology company. From April 1995 to March 1997, Mr. Hendrickson was the
Director of Finance and Administration of a U.S. operating division of Lanier
Worldwide, Inc. that specialized in electronic imaging. From 1993 to April 1995,
Mr. Hendrickson was a Senior Manager for KPMG, a public accounting firm. Mr.
Hendrickson is a Certified Public Accountant and holds a B.A. in Accounting and
Finance from the University of Cincinnati and an M.B.A. from The Ohio State
University.
DAVID V. MILLIGAN, PH.D., has been a Director since October 1996 and the
Chairman of the Board since April 1997. He has been a Vice President and Special
Limited Partner of Bay City Capital, Merchant Bank since 1997. From 1979 to
1996, Dr. Milligan served in a variety of management positions at Abbott
Laboratories, a healthcare products company. During his career at Abbott
Laboratories he led both the diagnostic products and pharmaceutical products
research and development organizations and was
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<PAGE> 44
Senior Vice President and Chief Scientific Officer when he retired at the end of
1996. He is also a director of ICOS Corporation and Diametrics Medical, Inc. He
is a member of the chemistry department advisory boards of the University of
California at Berkeley and Princeton University. Dr. Milligan holds an A.B. in
Chemistry from Princeton University and an M.S. and a Ph.D. in Organic Chemistry
from the University of Illinois.
ANTHONY B. EVNIN, PH.D., has been a Director since June 1996. He has been a
General Partner of Venrock Associates, a venture capital partnership since 1975.
He is also a director of Ribozyme Pharmaceuticals, Inc. and Triangle
Pharmaceuticals, Inc. Dr. Evnin holds an A.B. from Princeton University and a
Ph.D. in Chemistry from Massachusetts Institute of Technology.
CHARLES M. HARTMAN, has been a Director since June 1996. He has been a
General Partner of CW Group, a manager of medical venture capital funds since
April 1983. From 1966 to 1983, Mr. Hartman served in various positions at
Johnson & Johnson where he was responsible for identification, evaluation and
negotiation situations ranging from single product opportunities to company
acquisitions, both domestically and internationally. Mr. Hartman is a director
of The Hastings Center, a non-profit organization devoted to the study of
bioethical issues in medicine and the life sciences. Mr. Hartman holds a B.S. in
Chemistry from the University of Notre Dame and an M.B.A. from the University of
Chicago.
REGIS P. MCKENNA, has been a Director since September 1998. Mr. McKenna has
been Chairman of The McKenna Group, an international consulting firm
specializing in the application of information and telecommunications
technologies to business strategies since 1973. Mr. McKenna is on the board of
The Economic Strategies Institute and the Competitiveness Council. He is
Chairman of the Board of the Santa Clara University Center for Science,
Technology and Society and was a founding board member of Smart Valley. He is a
trustee at Santa Clara University and President of the Board of Trustees for The
New Children's Shelter of Santa Clara County. Mr. McKenna is on the board of
directors of a number of high technology start-up companies. Mr. McKenna holds a
B.A. from Duquesne University.
ROBERT T. NELSEN, has been a Director since September 1995. Since July
1994, Mr. Nelsen has served as a senior principal of various venture capital
funds associated with ARCH Venture Partners, including ARCH Venture Fund II,
L.P., ARCH Venture Fund III, L.P. and ARCH Venture Fund IV, L.P. From April 1987
to July 1994, Mr. Nelsen was Senior Manager at ARCH Development Corporation, a
company affiliated with the University of Chicago, where he was responsible for
new company formation. Mr. Nelsen is also a director of Illumina, Inc. He holds
a B.S. in Biology and Economics from the University of Puget Sound and an M.B.A.
from the University of Chicago.
MICHAEL STEINMETZ, PH.D., has been a Director since July 1997. He has been
a partner of MPM Asset Management LLC in Cambridge, MA, a venture capital firm
focusing on investments in private biotechnology companies in the U.S. and
Europe, since 1997. From 1997 to 1998, Dr. Steinmetz was also a partner of the
Bellevue Group in Zurich, Switzerland. From 1986 to 1997, Dr. Steinmetz worked
at Hoffmann-La Roche Inc. He headed the Biology Department in Basel and its
worldwide biotechnology research activities. He also was Vice President of
Preclinical Research and Preclinical Research and Development in Nutley, New
Jersey. Dr. Steinmetz was a member of the Board of Directors at Roche USA and
Millennium Pharmaceuticals. Dr. Steinmetz holds a Ph.D. in Natural Sciences from
the University of Munich, has lectured at the University of Basel and is Adjunct
Professor at Rutgers University.
LAWRENCE A. BOCK, co-founded Caliper and served as a director of Caliper
and acting Chief Executive Officer from inception until April 1997 and since
then has been an advisor to Caliper. He has been a General Partner of CW Group,
a medical venture capital fund since June 1998. From 1988 to 1998, Mr. Bock was
General Partner of Avalon Ventures, a seed stage venture capital firm, where he
founded Vertex Pharmaceuticals, Athena Neurosciences, Pharmacopeia, Neurocrine
Biosciences and Argonaut Technologies. He is a founder and director of Illumina,
Inc. and FastTrack Systems, Inc. Mr. Bock holds a B.S. in Biochemistry from
Bowdoin College and an M.B.A. from the University of California, Los Angeles.
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<PAGE> 45
J. MICHAEL RAMSEY, PH.D., co-founded Caliper and has served on our
Scientific Advisory Board since September 1995. Since February 1979 Dr. Ramsey
has served on the research staff at Oak Ridge National Laboratory where he is
presently a Corporate Research Fellow and Head of the Laser Spectroscopy and
Microinstrumentation Group. Dr. Ramsey holds a B.S. degree in Chemistry from
Bowling Green State University and a Ph.D. in Chemistry from Indiana University.
BOARD COMPOSITION
We currently have seven directors. The terms of office of the board of
directors are divided into three classes. As a result, a portion of our board of
directors will be elected each year. The division of the three classes, the
current directors and their respective election dates are as follows:
- the class I directors are Anthony B. Evnin, Ph.D. and Robert T. Nelsen
and their term will expire at the annual meeting of stockholders to be
held in 2003
- the class II directors are Charles M. Hartman, David V. Milligan, Ph.D.
and Michael Steinmetz, Ph.D. and their term will expire at the annual
meeting of stockholders to be held in 2001
- the class III directors are Daniel L. Kisner, M.D. and Regis P. McKenna
and their term will expire at the annual meeting of stockholders to be
held in 2002
At each annual meeting of stockholders, the successors to directors whose terms
will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. In addition,
the authorized number of directors may be changed only by resolution of the
board of directors. Any additional directorships resulting from an increase in
the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of Caliper.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Messrs. Hartman and Nelsen and Dr. Milligan served as members
of the compensation committee of our board of directors. None of the members of
our compensation committee was at any time during 1999 an officer or employee of
Caliper, except that Dr. Milligan is our Chairman of the Board. No member of the
compensation committee serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
BOARD COMMITTEES
Audit Committee. Our audit committee reviews our internal accounting
procedures and consults with, and reviews the services provided by, our
independent auditors. Current members of our audit committee are Drs. Evnin,
Milligan and Steinmetz.
Compensation Committee. Our compensation committee reviews and recommends
to the board of directors the compensation and benefits of all our officers and
reviews general policy relating to compensation and benefits of our employees.
The compensation committee also administers the issuance of stock options and
other awards under our stock plans. Current members of the compensation
committee are Messrs. Hartman, McKenna and Nelsen.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings. Directors may
be reimbursed for expenses in connection with attendance at board of directors
and committee meetings.
In September of 1996, we granted Dr. Milligan, in connection with his
attendance at our board and committee meetings, the right to purchase 19,230
shares of common stock at $0.11 per share. Our right to
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<PAGE> 46
repurchase these shares lapses in 60 equal monthly installments. In November
1997, we granted Dr. Milligan an additional stock option to purchase 6,410
shares of common stock at an exercise price of $0.62 per share. This option
fully vested in September 1998. In April 1999, we granted Dr. Milligan an
additional stock option to purchase 6,410 shares of common stock at an exercise
price of $0.97 per share. This option fully vested in September 1999. In October
1999, we granted Dr. Milligan an additional stock option to purchase 6,410
shares of common stock at an exercise price of $3.12. This option will fully
vest in September 2000. In September 1998, we granted Mr. McKenna, in connection
with his attendance at our board meetings, a stock option to purchase 19,230
shares of common stock at an exercise price of $0.97 per share. This option
vests in 60 equal monthly installments. In October 1999, we granted Mr. McKenna
an additional stock option to purchase 3,205 shares of common stock at an
exercise price of $3.12 per share. This option fully vests in September 2000. We
have also entered into consulting agreements with each of Dr. Milligan and Mr.
McKenna. See "Transactions with Executive Officers, Directors and Five Percent
Stockholders" for a description of these agreements.
In October 1999, we adopted the 1999 Non-Employee Directors' Stock Option
Plan to provide for the automatic grant of options to purchase shares of common
stock to our non-employee directors who are not employees of Caliper or of any
affiliate of Caliper. Any non-employee director elected for the first time will
receive an initial option to purchase 20,000 shares of common stock. Starting at
the annual stockholder meeting held in June 2000, all non-employee directors
received an annual option to purchase 3,200 shares of common stock and the
chairman of the board received an annual option to purchase 6,400 shares of
common stock. See "-- Employee Benefit Plans -- 1999 Non-Employee Directors'
Stock Option Plan" for a more detailed explanation of the terms of these stock
options.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by Delaware law. We are also empowered under our bylaws
to enter into indemnification contracts with our directors and officers and to
purchase insurance on behalf of any person we are required or permitted to
indemnify. Pursuant to this provision, we have entered into indemnification
agreements with each of our directors and executive officers.
We have obtained officer and director liability insurance to cover
liabilities our officers and directors may incur in connection with their
services to Caliper, including matters arising under the Securities Act. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty of care to us and our stockholders.
This provision in the certificate of incorporation does not eliminate the duty
of care, and in appropriate circumstances, equitable remedies including an
injunction or other forms of non-monetary relief would remain available under
Delaware law. Under current Delaware law, a director's liability to us or our
stockholders may not be limited:
- to any breach of the director's duty of loyalty to us or our stockholders
- for acts or omissions not in good faith or involving intentional
misconduct
- for knowing violations of law
- for any transaction from which the director derived an improper personal
benefit
- for improper transactions between the director and us
- and for improper distributions to stockholders and loans to directors and
officers
This provision also does not affect a director's responsibilities under any
other laws including the federal securities laws or state or federal
environmental laws.
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There is no pending litigation or proceeding involving a director or
officer of Caliper as to which indemnification is being sought, nor are we aware
of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
EXECUTIVE COMPENSATION
The following table presents summary information for the fiscal year ended
December 31, 1999, regarding the compensation of our Chief Executive Officer and
each of our four other most highly compensated executive officers whose salary
and bonus for 1999 were in excess of $100,000. We did not have a Chief Executive
Officer or Chief Financial Officer during 1998. Dr. Daniel L. Kisner joined
Caliper in February 1999 as our President and Chief Executive Officer, and Mr.
James L. Knighton joined Caliper in September 1999 as our Chief Financial
Officer. See "-- Employment Agreements" below for a description of Dr. Kisner's
and Mr. Knighton's employment arrangements.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Daniel L. Kisner, M.D. .............. 1999 $293,013 $175,000 641,025 $418,270
President and Chief Executive
Officer
Calvin Y. H. Chow.................... 1999 235,816 45,198 96,153 --
Chief Operating Officer 1998 194,775 38,000 64,102 --
Michael R. Knapp, Ph.D. ............. 1999 203,952 29,475 57,692 --
Vice President of Science 1998 165,746 22,000 32,051 --
and Technology
J. Wallace Parce, Ph.D. ............. 1999 203,952 29,475 57,692 --
Vice President of Research 1998 186,200 22,000 32,051 --
William M. Wright III................ 1999 166,077 19,201 19,230 --
Vice President of Operations 1998 43,695 -- 51,282 --
</TABLE>
Dr. Kisner's all other compensation amount consists of $246,370 paid by us
for relocation assistance and related taxes, $98,228 related to forgiveness of a
portion of Dr. Kisner's housing loan and $73,672 paid by us for income taxes
payable on the loan forgiveness. Mr. Chow's 1998 bonus figure includes $19,000
received in cash and 19,644 shares of common stock received in lieu of cash. Dr.
Knapp's 1998 bonus figure includes $14,740 received in cash and 7,506 shares of
common stock received in lieu of cash. Dr. Parce's 1998 bonus figure includes
$14,740 received in cash and 7,506 shares of common stock received in lieu of
cash.
OPTION GRANTS IN FISCAL YEAR 1999
The following table presents each grant of stock options during the fiscal
year ended December 31, 1999, to each of the individuals listed in the Summary
Compensation Table.
The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant.
The exercise price may be paid in cash, promissory notes, in shares of our
common stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased shares.
The option granted to Dr. Kisner vests as to 1/60th of the shares each month.
The options granted to Messrs. Chow and Wright, and Drs. Knapp and Parce vest as
to 20% one year from the date of grant and 1/60th per month thereafter. Each of
the options has a ten-year term, subject to earlier termination if the
optionee's service with us ceases. Under certain circumstances following a
change of control, the vesting of such option grants may accelerate and become
immediately exercisable.
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See the section entitled "-- Employment Agreements" for a description of our
agreements with Dr. Kisner concerning stock options that have been granted to
him.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by:
- multiplying the number of shares of common stock under the option by the
price of our common stock in our initial public offering of $16.00 per
share
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options
- subtracting from that result the aggregate option exercise price
Percentages shown under "Percentage of Total Options Granted in 1999" are
based on an aggregate of 1,728,454 options granted to employees, consultants and
directors of Caliper under our stock option plans during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING PERCENTAGE OF TOTAL EXERCISE OPTION TERM
OPTIONS OPTIONS PRICE PER EXPIRATION -------------------------
NAME GRANTED GRANTED IN 1999 SHARE DATE 5% 10%
---- ---------- ------------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Kisner, M.D. .... 641,025 37.09% $0.97 02/28/09 $16,084,800 $25,980,666
Calvin Y. H. Chow.......... 96,153 5.56 3.12 10/01/09 $ 2,205,973 $ 3,690,341
Michael R. Knapp, Ph.D. ... 57,692 3.34 3.12 10/01/09 $ 1,323,588 $ 2,214,212
J. Wallace Parce, Ph.D. ... 57,692 3.34 3.12 10/01/09 $ 1,323,588 $ 2,214,212
William M. Wright III...... 19,230 1.11 3.12 10/01/09 $ 441,181 $ 738,045
</TABLE>
AGGREGATE OPTION EXERCISES IN 1999 AND OPTION VALUES AT DECEMBER 31, 1999
The following table presents the aggregate option exercises during 1999,
and the number and value of securities underlying unexercised options that are
held as of December 31, 1999, by each of the individuals listed in the Summary
Compensation Table.
Amounts shown under the column "Value Realized" are based on the fair
market value of our common stock as determined by our board of directors on the
date of exercise less the exercise price, and amounts shown under the column
"Value of Unexercised In-the-Money Options at December 31, 1999" are based on
$66.75 per share, which was the last reported sale price of our stock on
December 31, 1999, in each case without taking into account any taxes that may
be payable in connection with the transaction, multiplied by the number of
shares underlying the option, less the exercise price paid or payable for these
shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Kisner, M.D. ............ 64,101 $ -- 42,736 534,188 $2,811,294 $35,140,382
Calvin Y. H. Chow.................. 44,689 21,554 7,521 173,429 496,567 11,213,418
Michael R. Knapp, Ph.D. ........... 39,297 20,327 12,328 110,930 812,785 7,184,858
J. Wallace Parce, Ph.D. ........... 31,869 13,954 11,793 111,465 777,324 7,220,319
William M. Wright III.............. 10,256 6,080 2,564 57,692 168,667 3,753,743
</TABLE>
48
<PAGE> 49
EMPLOYMENT AGREEMENTS
In January 1999, we entered into an employment agreement with Daniel L.
Kisner, M.D. to serve as our President and Chief Executive Officer at a base
salary of $350,000 a year starting on February 28, 1999, with an annual
discretionary bonus of up to 50% of his base salary based upon specific
objectives to be agreed upon by Dr. Kisner and the board. Pursuant to the
employment agreement, Dr. Kisner received an option to purchase 641,025 shares
of our common stock at an exercise price of $0.97 per share. This option vests
over a period of five years in 60 equal monthly installments. In addition, Dr.
Kisner is entitled to a housing loan of up to $500,000 which may be forgiven
over time, and monthly mortgage assistance to support a $500,000 mortgage, plus
additional payments to compensate for the tax payable on these portions of his
compensation. In July 1999, we loaned Dr. Kisner $425,000 with an annual
interest rate of 5.96%. In connection with Dr. Kisner's 1999 performance review,
a total of $98,228 of his housing loan and associated interest was forgiven. In
addition, Dr. Kisner was reimbursed $73,672 for the income tax payable on the
loan forgiveness. The employment agreement is at-will and contains a
non-solicitation agreement. This agreement also provides that if Dr. Kisner is
terminated without cause or Dr. Kisner voluntarily terminates his employment
after a constructive termination, he will be paid his then current salary for 12
months in monthly installments or until he becomes employed, whichever is
earlier, and a portion of his options will be partially accelerated.
In September 1999, we entered into an employment agreement with James L.
Knighton to serve as our Chief Financial Officer at a base salary of $245,000 a
year starting in September, 1999, with a sign-on bonus of $50,000 and an annual
discretionary bonus set by the board based upon specific objectives to be
determined, with a minimum bonus of 30% of his base salary guaranteed during the
first 12 months of employment. In addition, pursuant to the employment
agreement, Mr. Knighton received a stock bonus equal to 6,250 shares in June
2000 when our common stock traded at or above $20.00 per share for six
consecutive months. Pursuant to the employment agreement, Mr. Knighton received
an option to purchase 269,230 shares of our common stock at an exercise price of
$3.12 per share, plus a bonus payable at the time of exercise in the amount of
$1.56 per share of stock exercised, plus an additional amount to cover taxes on
the bonus. Mr. Knighton's stock option was approved by our board in October
1999. In addition, Mr. Knighton is entitled to a housing loan of up to $500,000.
The employment agreement is at-will, and provides that if Mr. Knighton is
terminated without cause or Mr. Knighton voluntarily terminates his employment
after a constructive termination, he will be paid his base salary for 12 months
in monthly installments or until he becomes employed, whichever is earlier, and
a portion of his options will be partially accelerated.
EMPLOYEE BENEFIT PLANS
1999 Equity Incentive Plan
We adopted our 1999 equity incentive plan in October 1999. The incentive
plan is an amendment and restatement of our 1996 stock incentive plan and will
terminate in 2009 unless the board terminates it sooner.
Share Reserve. We have reserved a total of 5,439,198 shares of our common
stock for issuance under the 1999 equity incentive plan. This number includes
1,439,198 shares which were added to the reserve in June 2000 pursuant to the
automatic annual increase discussed below. As of August 31, 2000, under the 1999
equity incentive plan (a) options to purchase 2,926,765 shares of common stock
were outstanding, (b) options to purchase 741,170 shares had been exercised, and
(c) a stock bonus of 6,250 had been awarded. If the recipient of a stock award
does not purchase the shares under the stock award before the stock award
expires or otherwise terminates, the shares that are not purchased again become
available for issuance under the incentive plan.
49
<PAGE> 50
On the day after each annual meeting of our stockholders for 10 years,
beginning in 2000, the number of shares in the reserve automatically will be
increased by the greater of:
- 5% of our outstanding shares on a fully-diluted basis; or
- that number of shares that could be issued under awards granted under the
incentive plan during the prior 12-month period.
The automatic share reserve increase in the aggregate may not exceed 12,820,000
shares over the 10-year period.
Effect on Options of a Merger. If we dissolve or liquidate, then
outstanding stock awards will terminate immediately prior to the event. If we
sell, lease or dispose of all, or substantially all, of our assets, or are
acquired pursuant to a merger or consolidation then, the surviving entity will
either assume or substitute all outstanding awards under the incentive plan. If
it declines to do so, then generally the vesting and exercisability of the stock
awards will accelerate.
1996 Equity Incentive Plan
Our 1996 equity incentive plan was adopted by the board of directors in
January 1996 and approved by the stockholders in August 1996. The board
authorized and reserved an aggregate of 705,128 shares of Caliper common stock
for issuance under the 1996 equity incentive plan. The 1996 equity incentive
plan provides for the grant of incentive stock options to employees and
nonstatutory stock options to employees, directors and consultants of Caliper
and its affiliates. The 1996 equity incentive plan provides that it will be
administered by the board, or a committee appointed by the board, which
determines recipients and types of options to be granted, including number of
shares under the option and the exercisability of the shares.
As of August 31, 2000, under the 1996 equity incentive plan (a) options to
purchase 76,365 shares of common stock were outstanding and (b) options to
purchase 127,933 shares had been exercised. In July 1996, the board voted that
no additional grants would be made under the 1996 equity incentive plan.
Effect on Options of a Merger. If we dissolve or liquidate, then
outstanding stock awards will terminate immediately prior to the event. If we
sell, lease or dispose of all, or substantially all, of our assets, or are
acquired pursuant to a merger or consolidation then, the surviving entity will
either assume or substitute all outstanding awards under the incentive plan. If
it declines to do so, then generally the vesting and exercisability of the stock
awards will accelerate.
1999 Non-Employee Directors' Stock Option Plan
We adopted the 1999 non-employee directors' stock option plan in October
1999. The directors' plan provides for the automatic grant to our non-employee
directors of options to purchase shares of our common stock. The directors' plan
will terminate in 2009 unless the board terminates it sooner.
Share Reserve. We have reserved a total of 269,496 shares of our common
stock for issuance under the directors' plan. The number includes 69,496 shares
which were added to the reserve in June 2000 pursuant to the automatic annual
increase discussed below. As of June 30, 2000, under the 1999 non-employee
directors' stock option plan (a) options to purchase 22,400 shares of common
stock were outstanding and (b) no options had been exercised. On the day after
each annual meeting of our stockholders, for 10 years, starting in 2000, the
share reserve will automatically be increased by a number of shares equal to the
greater of:
- 0.3% of our outstanding shares on a fully-diluted basis, or
- that number of shares that could be issued under options granted under
the directors' plan during the prior 12-month period.
50
<PAGE> 51
If an optionholder does not purchase the shares under the option before the
option expires or otherwise terminates, the shares that are not purchased again
become available for issuance under the directors' plan.
Eligibility and Option Terms. Each person who is first elected or appointed
as a non-employee director after December 1999 will automatically receive an
option for 20,000 shares. The initial grant will be fully exercisable upon date
of grant and will vest monthly over 5 years.
In addition, on the day after each of our annual meetings of the
stockholders, starting with the annual meeting in 2000, each non-employee
director will automatically receive another option if the recipient has been a
non-employee director for at least the prior six months. The annual grant will
cover 6,400 shares for the chairman of the board and 3,200 shares otherwise,
will be fully exercisable upon date of grant and will vest in 12 months. Options
have an exercise price equal to 100% of the fair market value of our common
stock on the grant date. The option term is 10 years.
Effect on Options of a Merger. If we dissolve or liquidate, then
outstanding options will terminate immediately prior to the event. If we sell,
lease or dispose of all, or substantially all, of our assets, or are acquired
pursuant to a merger or consolidation then, the surviving entity will either
assume or replace all outstanding options under the directors' plan. If it
declines to do so, then generally the vesting and exercisability of the options
will accelerate. However, if an option is assumed or replaced but the
optionholder is not elected to the board of directors of the acquiring or
surviving corporation at the first meeting of the board after the event, then
the vesting of that option will accelerate by 18 months.
1999 Employee Stock Purchase Plan
We adopted the 1999 employee stock purchase plan in October 1999. The
purchase plan has no set termination date. It will terminate when all of the
shares reserved under it have been issued unless the board terminates it
earlier.
Share Reserve. We authorized the issuance of 415,827 shares of our common
stock pursuant to purchase rights granted to eligible employees under the
purchase plan. This number includes 115,827 shares which were added to the
reserve in June 2000 pursuant to the automatic annual increase discussed below.
As of August 31, 2000, under the 1999 employee stock purchase plan, 32,366
shares had been purchased. On the day after each annual meeting of our
stockholders for 10 years, beginning in 2000, the number of shares in the
reserve automatically will be increased by the greater of:
- 0.5% of our outstanding shares on a fully-diluted basis, or
- that number of shares that have been issued under the purchase plan
during the prior 12-month period.
The automatic share reserve increase in the aggregate may not exceed
3,000,000 shares over the 10-year period.
Eligibility. We intend to qualify the purchase plan as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our
full-time employees and full-time employees of our affiliates incorporated in
the United States who have been employed for at least 10 days may participate in
offerings under the purchase plan. However, no employee may participate in the
purchase plan if immediately after we grant the employee a purchase right, the
employee has voting power over 5% or more of our outstanding capital stock.
51
<PAGE> 52
Offerings. Under the purchase plan, the board may specify offerings of up
to 27 months. Unless the board otherwise determines, common stock is purchased
for accounts of participating employees at a price per share equal to the lower
of:
- 85% of the fair market value of a share on the first day of the offering,
or
- 85% of the fair market value of a share on the purchase date.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan, or
- 85% of the fair market value of a share on the purchase date.
Participating employees may authorize payroll deductions of up to 10% of
their compensation for the purchase of stock under the purchase plan. Employees
may end their participation in the offering at any time up to 10 days before a
purchase period ends. Their participation ends automatically on termination of
their employment.
Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.
If we sell, lease or dispose of all, or substantially all, of our assets,
or are acquired pursuant to a merger or acquisition then, the board may provide
that the successor corporation will assume or substitute for outstanding
purchase rights. Alternatively, the board may shorten the offering period and
provide that our stock will be purchased for the participants immediately before
the event.
401(k) Plan and Deferred Compensation Plan
We maintain a retirement and deferred savings plan for our employees that
is intended to qualify as a tax-qualified plan under the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to a statutory
limit, which is $10,500 in calendar year 2000. We have also established a
deferred compensation plan, which is an unfunded plan established primarily for
the purpose of providing deferred compensation for our executive officers and
highly compensated employees. Under the terms of the plan, participants in the
plan are permitted to defer receipt and therefore income taxation on a portion
or all of their taxable wages from Caliper until they terminate their employment
with Caliper.
52
<PAGE> 53
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND
FIVE PERCENT STOCKHOLDERS
The following executive officers, directors or holders of more than five
percent of our voting securities purchased since September 1, 1997 securities in
the amounts as of the dates shown below. Upon the completion of our initial
public offering in December 1999, each share of our preferred stock converted
into one share of common stock.
<TABLE>
<CAPTION>
SERIES E
COMMON PREFERRED
STOCK STOCK
----------------- ---------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Daniel L. Kisner, M.D....................................... 79,101 --
Calvin Y. H. Chow........................................... 65,385 --
James L. Knighton........................................... 7,304 --
Michael R. Knapp, Ph.D...................................... 86,140 --
J. Wallace Parce, Ph.D...................................... 39,374 --
E. William Radany, Ph.D. ................................... 695 --
William M. Wright III....................................... 14,460 --
David V. Milligan, Ph.D..................................... 76,922 --
Regis P. McKenna............................................ 19,230 --
5% STOCKHOLDERS
Lombard Odier & Cie......................................... 224,359
Price Per Share............................................. $0.1092 to $37.94 $9.36
Date(s) of Purchase......................................... 9/97 to 9/00 5/98
</TABLE>
We have entered into the following agreements with our executive officers,
directors and holders of more than five percent of our voting securities.
Amended and Restated Investors' Rights Agreement. Caliper and its former
preferred stockholders entered into an agreement pursuant to which some of these
stockholders possess registration rights with respect to their shares of common
stock.
MPM Capital Advisors LLC Agreement. On July 24, 1997, we entered into an
agreement with MPM Capital Advisors LLC. Under the terms of this agreement, MPM
agreed to develop a strategic overview and business plan for Caliper. In
consideration for these services we paid MPM $125,000 and issued 39,262 shares
of our common stock. This agreement was terminated on April 23, 1998. Michael
Steinmetz, Ph.D., one of our directors, is a partner of MPM Asset Management
LLC.
David V. Milligan, Ph.D. Consulting Agreement. As part of our ongoing
program of research and development, we entered into a twelve-month consulting
agreement with Dr. David V. Milligan, our Chairman of the Board, effective April
30, 1997. The term of this agreement may be renewed annually for up to five
years. Under the terms of this agreement, Dr. Milligan has agreed to provide
consultation and advice concerning our core competitive strengths and the
development of optimal growth strategies. In exchange, we have agreed to pay Dr.
Milligan $80,000 per year and granted Dr. Milligan a stock option to purchase
64,102 shares of our common stock at $0.47 per share. This option vests monthly
over a period of five years. This agreement has been renewed and remains in
effect. We have also granted Dr. Milligan stock options in connection with his
services as one of our directors. See "Management -- Director Compensation."
Regis P. McKenna Consulting Agreement. We entered into a twelve-month
consulting agreement with Regis P. McKenna, one of our directors, on April 30,
1997. Under the terms of this agreement, Mr. McKenna agreed to provide
assistance in developing our technology and business strategies. In exchange,
Mr. McKenna was allowed to purchase 19,230 shares of common stock at $0.62 per
share. In July 1998, Mr. McKenna was granted a stock option for 19,230 shares of
common stock at $0.97 per share. In August 1999, Mr. McKenna was granted a stock
option for 19,230 shares of common stock at $0.97 per share. In June 2000, Mr.
McKenna was granted a stock option for 19,230 shares of common
53
<PAGE> 54
stock at $58.0625 per share. This option vests in twelve equal monthly
installments beginning in May 2000. This agreement has been renewed and remains
in effect. We have also granted Mr. McKenna stock options in connection with his
services as one of our directors. See "Management -- Director Compensation."
Executive Employment Agreements. We have entered into employment contracts
with Daniel L. Kisner, M.D. our President and Chief Executive Officer, and James
L. Knighton, our Chief Financial Officer. See "Management -- Employment
Agreements."
Indebtedness of Management. In March 1997, we loaned Michael R. Knapp, our
Vice President of Science and Technology, $200,000 in connection with the
purchase of a residence. The interest on this loan is 6.61% per year and begins
to accrue on January 1, 2002. The principal and accrued interest is to be repaid
in five equal annual installments beginning June 30, 2002. The promissory note
will accelerate and become due and payable should Dr. Knapp's employment with us
be terminated for any reason. The promissory note is full recourse and is
secured by a deed of trust on the residence. In September 1999, we loaned Daniel
L. Kisner, M.D. our President and Chief Executive Officer, $425,000 in
connection with the purchase of a residence. The loan has a maximum term of six
years with an annual interest rate of 5.96%. The loan may be forgiven by our
board based upon Dr. Kisner's performance over five years. In connection with
Dr. Kisner's 1999 performance review, a total of $98,228 of his housing loan and
associated interest was forgiven. In July 2000, Dr. Kisner drew down the
remaining $75,000 available on the housing loan with us under the same terms as
the September 1999 loan.
Warrants. In August 1995, we entered into an agreement, as amended, with
Michael R. Knapp, Ph.D., our Vice President of Science and Technology, under
which we agreed to issue to Dr. Knapp two warrants, each for 19,230 shares of
our common stock at $1.22 per share, upon the achievement of performance
milestones. In October 1996, we issued to Dr. Knapp the first of the two
warrants. In February 2000, we issued to Dr. Knapp the second of these two
warrants. Dr. Knapp exercised these two warrants in July 2000.
Stock Options. In October 1996, in connection with his services as a
consultant to us, we granted to Charles M. Hartman, one of our directors, a
stock option to purchase 7,692 shares of common stock at an exercise price $0.47
per share. In June 2000, we granted each of our non-employee directors an option
to purchase 3,200 shares of common stock at an exercise price of $58.50 per
share and Dr. Milligan, our Chairman of the Board, was granted an option to
purchase 6,400 shares of common stock at an exercise price of $58.50 per share.
We believe that all of the transactions described above were made on terms
no less favorable to Caliper than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between Caliper and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will continue to be on terms no
less favorable to Caliper than could be obtained from unaffiliated third
parties.
Indemnification Agreements. We have entered into indemnification
agreements with our directors and officers for the indemnification of these
persons to the full extent permitted by law. We also intend to execute these
agreements with our future directors and officers.
54
<PAGE> 55
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables present information regarding the beneficial ownership
of our common stock as of August 31, 2000 by:
- each of the individuals listed in the "Summary Compensation Table" above
- each of our directors
- all current directors and executive officers as a group
- each person, or group of affiliated persons, who is known by us to own
beneficially five percent or more of our common stock
- each selling stockholder
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock under options held by that person that are currently
exercisable or exercisable within 60 days of August 31, 2000 are considered
outstanding. These shares, however, are not considered outstanding when
computing the percentage ownership of each other person.
Except as indicated in the footnotes to these tables and pursuant to state
community property laws, each stockholder named in the tables has sole voting
and investment power for the shares shown as beneficially owned by them.
Percentage of ownership is based on 23,537,704 shares of common stock
outstanding on August 31, 2000. None of our directors, executive officers or 5%
stockholders is offering any shares of common stock pursuant to this prospectus.
Unless otherwise indicated in the footnotes, the address of each of the
individuals and entities named below is: c/o Caliper Technologies Corp., 605
Fairchild Drive, Mountain View, California 94043.
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
SHARES ISSUABLE
PURSUANT TO
OPTIONS AND SHARES
WARRANTS CALIPER MAY PERCENTAGE
EXERCISABLE REPURCHASE BENEFICIALLY
WITHIN WITHIN OWNED
NUMBER OF 60 DAYS OF 60 DAYS OF --------------
SHARES BENEFICIALLY AUGUST 31, AUGUST 31, BEFORE AND
NAME OF BENEFICIAL OWNER OWNED 2000 2000 AFTER OFFERING
------------------------ ------------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Daniel L. Kisner, M.D.(1)........................... 198,674 134,573 -- *
Calvin Y. H. Chow(2)................................ 238,735 49,826 -- 1.0%
Michael R. Knapp, Ph.D.............................. 275,377 40,958 -- 1.2%
J. Wallace Parce, Ph.D.(3).......................... 223,644 40,424 -- 1.0
William M. Wright III............................... 22,727 11,777 -- *
David V. Milligan, Ph.D.(4)......................... 102,562 6,410 22,757 *
Anthony B. Evnin, Ph.D.(5).......................... 1,417,571 -- -- 6.0%
Charles M. Hartman(6)............................... 853,692 -- -- 3.6%
Regis P. McKenna(7)................................. 108,970 57,689 -- *
Robert T. Nelsen(8)................................. 62,650 -- -- *
Michael Steinmetz, Ph.D.(9)......................... 310,444 -- -- 1.3%
All directors and executive officers as a group (14
persons)(11)...................................... 3,881,377 399,989 22,757 16.2%
5% STOCKHOLDERS
Venrock Associates(5)............................... 1,389,322 -- -- 5.9%
Lombard Odier & Cie(10)............................. 1,755,748 -- -- 7.5%
</TABLE>
55
<PAGE> 56
---------------
* Represents beneficial ownership of less than 1 percent.
(1) Includes 38,461 shares held by The Kisner Revocable Trust u/a/d 9/23/99, of
which Dr. Kisner is a trustee, 12,820 shares held by The Jordan Renee
Kisner Exempt Irrevocable Trust u/a/d 9/23/99, of which Dr. Kisner is a
trustee and 12,820 shares held by The Griffin Daniel Kisner Exempt
Irrevocable Trust u/a/d 9/23/99, of which Dr. Kisner is a trustee.
(2) Includes 25,872 shares that are held by Tiffany Chow, 12,820 shares held by
Harrison Chow and 12,820 shares held by Stephanie Chow, the children of Mr.
Chow.
(3) Includes 12,820 shares held by Charles Andrew Parce and 12,820 shares held
by Laura Marie Parce, the children of Dr. Parce.
(4) Includes of 96,152 shares held by The David V. Milligan Trust, of which Dr.
Milligan is a trustee.
(5) Includes of 827,618 shares held by Venrock Associates, and 561,704 shares
held by Venrock Associates II, L.P. Venrock Associates is located at 30
Rockefeller Plaza, Suite 5508, New York, NY 10112. Dr. Evnin, David R.
Hathaway, Patrick F. Latterell, Ted H. McCourtney, Ray A. Rothrock,
Kimberley A. Rummelsburg, Anthony Sun and Michael F. Tyrell are general
partners of Venrock Associates and disclaim beneficial ownership of these
shares except to the extent of each of their proportionate partnership
interest in these shares.
(6) Includes 755,737 shares held by CW Ventures II, L.P. CW Group is located at
1041 Third Avenue, 2nd Floor, New York, NY 10021. Mr. Hartman, Barry
Weinberg and Walter Channing are general partners of CW Ventures and
disclaim beneficial ownership of these shares except to the extent of each
of their proportionate partnership interest in these shares.
(7) Includes 51,281 shares held by The Regis P. and Dianne T. McKenna Trust, of
which Mr. McKenna is a trustee.
(8) Includes 36,990 shares held by ARCH Venture Fund II, L.P., a limited
partnership managed by ARCH Management Partners II, L.P. ARCH Venture
Partners, L.P. is the general partner of ARCH Management Partners II, L.P.
Mr. Nelsen, is the Managing Director of ARCH Venture Corporation, which is
the general partner of ARCH Venture Partners, L.P. Messrs. Steven Lazarus
and Keith Crandell are each a Managing Director of ARCH Venture Partners,
L.P. ARCH Venture Fund II, L.P. is located at 8725 W. Higgins Road, Suite
290, Chicago, Illinois 60631. Messrs. Nelsen, Lazarus and Crandell each
disclaim beneficial ownership of these shares except to the extent of each
of their pecuniary interest in these shares.
(9) Includes 300,660 shares held by BB BioVentures, L.P. BB BioVentures, L.P.
is located at One Cambridge Center, 9th Floor, Cambridge, MA 02142. Dr.
Steinmetz is a partner of MPM Asset Management LLC, the management advisor
of BB BioVentures, L.P. Dr. Steinmetz disclaims beneficial ownership of
these shares. Also includes 9,784 shares held by MPM Capital Advisors LLC,
a wholly owned subsidiary of MPM Capital L.P. MPM Capital L.P. also owns
51% of MPM Asset Management LLC. Dr. Steinmetz disclaims beneficial
ownership of these shares except to the extent of his proportional
partnership interest in these shares. Ansbert Gadicke is the managing
director of BAB BioVentures, N.V., the general partner of BAB BioVentures
L.P., which is the general partner of BB BioVentures, L.P. Mr. Gadicke
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in these shares.
(10) Lombard Odier & Cie is located at 11, Rue de la Corraterie, 1204 Geneva,
Switzerland. Lombard Odier & Cie is a private Swiss banking institution.
Approximately 88% of the shares held by Lombard Odier & Cie are held for
Lombard Odier Immunology Fund, with the remaining being held for private
banking clients. There is no one single person at Lombard Odier & Cie that
exercises voting control over the shares held by Lombard Odier & Cie.
Voting of the shares is conducted by an internal mechanism at Lombard Odier
& Cie which requires, prior to any vote, that two of more than two hundred
designated employees sign on behalf of Lombard Odier & Cie. In addition,
any one of eight managing partners could sign on behalf of Lombard Odier &
Cie without a separate concurring signature.
(11) Total number of shares includes 2,492,493 shares of common stock held by
entities affiliated with directors and executive officers. See footnotes 1
through 9 above.
56
<PAGE> 57
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED SUBSEQUENT TO
OFFERING SHARES OFFERED THE OFFERING
-------------------- BY THIS --------------------
NAME OF SELLING STOCKHOLDER SHARES PERCENT PROSPECTUS SHARES PERCENT
--------------------------- --------- ------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
Caduceus Capital Trust....................... 135,000 * 35,000 100,000 *
Caduceus Capital II, L.P..................... 93,500 * 48,500 45,000 *
PW Eucalyptus Fund, LLC...................... 225,000 * 75,000 150,000 *
PW Eucalyptus Fund, Ltd...................... 12,500 * 5,000 7,500 *
Finsbury Worldwide Pharmaceutical Trust...... 100,000 * 36,500 63,500 *
Eaton Vance Worldwide Health Sciences
Portfolio.................................. 500,000 2.1% 200,000 300,000 1.3%
DWS Investment............................... 350,000 1.5 250,000 100,000 *
Alliance Select Investors
Series -- Biotechnology Portfolio.......... 200,000 * 200,000 -- *
Berger Small Company Growth Fund............. 150,000 * 150,000 -- *
Berger IPT -- Small Company Growth Fund...... 500 * 500 -- *
Berger New Generation Fund................... 154,400 * 37,250 117,150 *
Berger IPT -- New Generation Fund............ 660 * 250 410 *
Berger Mid Cap Growth Fund................... 12,000 * 12,000 -- *
SMALLCAP World Fund, Inc..................... 460,000 2.0 200,000 260,000 1.1
The Kaufmann Fund............................ 200,000 * 200,000 -- *
Lone Balsam, L.P. ........................... 15,800 * 15,800 -- *
Lone Sequoia, L.P. .......................... 13,200 * 13,200 -- *
Lone Spruce, L.P. ........................... 7,200 * 7,200 -- *
Lone Cypress, Ltd. .......................... 163,800 * 163,800 -- *
Baystar International, LTD................... 37,500 * 37,500 -- *
Baystar Capital, L.P. ....................... 87,500 * 87,500 -- *
UBS O'Connor LLC f/b/o UBS Global Equity
Arbitrage Master Limited................... 180,000 * 100,000 80,000 *
Galleon Healthcare Offshore, Ltd. ........... 42,500 * 42,500 -- *
Galleon Healthcare Partners, L.P. ........... 42,500 * 42,500 -- *
Phoenix -- Engemann Small & Mid-Cap Growth
Fund....................................... 85,780 * 45,780 40,000 *
Phoenix -- Engemann Small Cap Fund........... 70,000 * 39,000 31,000 *
The Phoenix Edge Series Fund:
Phoenix -- Engemann Small & Mid-Cap Growth
Series................................... 220 * 220 -- *
S.A.C. Capital Associates, LLC............... 45,000 * 45,000 -- *
S.A.C. Healthco Fund, LLC.................... 30,000 * 30,000 -- *
Clariden Bank as Custodian for the Clariden
Biotechnology Equity Fund.................. 40,000 * 40,000 -- *
3i Bioscience Investment Trust PLC........... 30,000 * 30,000 -- *
United Capital Management, Inc. ............. 30,000 * 30,000 -- *
Investment 10 LLC............................ 1,600 * 1,600 -- *
Biotechnology Value Fund II, L.P. ........... 8,000 * 8,000 -- *
Biotechnology Value Fund, L.P. .............. 10,400 * 10,400 -- *
KBC Bank..................................... 20,665 * 20,000 665 *
Narragansett I, LP........................... 8,600 * 8,600 -- *
Narragansett Offshore Ltd. .................. 11,400 * 11,400 -- *
The Aries Master Fund II..................... 44,362 * 11,673 32,689 *
Aries Domestic Fund, L.P. ................... 23,762 * 6,347 17,415 *
Aries Domestic Fund II, L.P. ................ 6,876 * 1,980 4,896 *
--------- --------- ---------
Total............................... 3,650,225 15.5% 2,300,000 1,350,225 5.7%
</TABLE>
57
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 70,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001
par value.
COMMON STOCK
As of August 31, 2000, there were 23,537,704 shares of common stock
outstanding held of record by approximately 216 stockholders. The holders of
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. The holders of common stock are
entitled to receive ratably any dividends as may be declared by the board of
directors out of legally available funds, after the superior rights of the
holders of preferred stock have been satisfied. See "Dividend Policy." Upon a
liquidation, dissolution or winding up of Caliper, holders of the common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and amounts due to the holders of preferred stock as described
below. Holders of common stock have no preemptive rights and no right to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions that apply to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and non-assessable.
PREFERRED STOCK
The board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon the preferred stock,
including dividend rights, conversion rights, terms of redemption, liquidation
preference, sinking fund terms and the number of shares constituting any series
or the designation of a series, without any further vote or action by the
stockholders. The board of directors, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of common stock. The issuance of preferred stock
could have the effect of delaying, deferring or preventing a change in control
of Caliper. We have no present plan to issue any shares of preferred stock.
WARRANTS
As of August 31, 2000, two warrants to purchase a total of 38,460 shares of
common stock were outstanding at an exercise price of $1.22 per share. One of
these warrants expires on January 17, 2006 and the other expires on October 11,
2006. Each warrant contains provisions for the adjustment of the exercise price
and the aggregate number of shares that may be issued upon the exercise of the
warrants if a stock dividend, stock split, reorganization, reclassification or
consolidation occurs.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
Delaware Law
In general, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years following the date
that the stockholder became an interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held under the plan will be tendered in a tender or
exchange offer; or
58
<PAGE> 59
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- in general, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested
stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Charter Provisions
Our certificate of incorporation and bylaws include a number of provisions
that may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of Caliper. First, our certificate
of incorporation provides that all stockholder actions upon completion of this
offering must be effected at a duly called meeting of holders and not by a
consent in writing. Second, our bylaws provide that special meetings of the
holders may be called only by the chairman of the board of directors, the chief
executive officer, or our board of directors pursuant to a resolution adopted by
a majority of the total number of authorized directors. Third, our certificate
of incorporation provides that our board of directors can issue up to 5,000,000
shares of preferred stock, as described under "-- Preferred Stock" above.
Fourth, our certificate of incorporation and the bylaws provide for a classified
board of directors, in which approximately one-third of the directors would be
elected each year. Consequently, any potential acquiror would need to
successfully complete two proxy contests in order to take control of the board
of directors. Finally, our bylaws establish procedures, including advance notice
procedures with regard to the nomination of candidates for election as directors
and stockholder proposals. These provisions of our certificate of incorporation
and bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control or management of Caliper.
TRANSFER AGENT AND REGISTRAR
Wells Fargo Bank Minnesota, N.A. is the transfer agent and registrar for
our common stock.
NATIONAL MARKET LISTING
Our common stock is listed on the Nasdaq Stock Market's National Market
under the symbol "CALP."
59
<PAGE> 60
PLAN OF DISTRIBUTION
The shares of common stock offered by the selling stockholders may be sold
from time to time to purchasers directly by any of the selling stockholders
acting as principal for its own account in one or more transactions at a fixed
price, which may be changed, or at varying prices determined at the time of sale
or at negotiated prices. Alternatively, any of the selling stockholders may from
time to time offer the common stock through underwriters, dealers or agents who
may receive compensation in the form of underwriting discounts, commissions or
concessions from the selling stockholders and/or the purchasers of shares for
whom they may act as agent. Sales may be made on the Nasdaq National Market or
in private transactions. In addition to sales of common stock pursuant to the
registration statement of which this prospectus is a part, the selling
stockholders may sell such common stock in compliance with Rule 144 promulgated
under the Securities Act of 1933.
We are registering the shares of common stock on behalf of the selling
stockholders. From time to time one or more of the selling stockholders may
transfer, pledge, donate or assign such selling stockholders' shares of common
stock to lenders or others and each of such persons will be deemed to be a
"selling stockholder" for purposes of this prospectus. The number of selling
stockholders' shares of common stock beneficially owned by those selling
stockholders who so transfer, pledge, donate or assign shares of common stock
will decrease as and when they take such actions. The plan of distribution for
selling stockholders' shares of common stock sold hereunder will otherwise
remain unchanged, except that the transferees, pledgees, donees or other
successors will be selling stockholders under this prospectus.
The selling stockholders and any agents, broker-dealers or underwriters
that participate in the distribution of the common stock offered hereby may be
deemed to be underwriters within the meaning of the Securities Act of 1933, and
any discounts, commissions or concessions received by them and any profit on the
resale of the common stock purchased by them might be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
Under the Securities Exchange Act of 1934, any person engaged in a
distribution of the common stock may not simultaneously engage in market-making
activities with respect to the common stock for five business days prior to the
start of the distribution. In addition, each selling stockholder and any other
person participating in a distribution will be subject to the Securities
Exchange Act of 1934 which may limit the timing of purchases and sales of common
stock by the selling stockholders or any such other person. These factors may
affect the marketability of the common stock and the ability of brokers or
dealers to engage in market-making activities.
We will pay substantially all of the expenses incident to the offering and
sale of the common stock to the public, other than commissions, concessions and
discounts of underwriters, dealers or agents. Such expenses, excluding such
commissions and discounts, are estimated to be $200,000. The stock purchase
agreement that the selling stockholders have entered into with us provide for
cross-indemnification of the selling stockholders the extent permitted by law,
for losses, claims, damages, liabilities and expenses arising, under certain
circumstances, out of any registration of the common stock.
60
<PAGE> 61
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, partners and associates of Cooley Godward LLP own an aggregate of
approximately 92 shares of common stock through an investment partnership and
attorneys own approximately 2,334 shares of common stock directly.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 regarding the shares of
common stock offered by us. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information contained in the
registration statement, some items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information on Caliper and the common stock offered,
reference is made to the registration statement, including the exhibits, and the
financial statements and notes filed as a part of the registration statement. A
copy of the registration statement, including the exhibits and the financial
statements and notes filed as a part of it, may be inspected without charge at
the public reference facilities maintained by the Securities and Exchange
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the registration statement may be obtained from the
Securities and Exchange Commission upon the payment of fees prescribed by it.
The Securities and Exchange Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with it.
61
<PAGE> 62
CALIPER TECHNOLOGIES CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)............................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Caliper Technologies Corp.
We have audited the accompanying balance sheets of Caliper Technologies Corp. as
of December 31, 1998 and 1999, and the related statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit), and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan 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 and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Caliper Technologies Corp. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 25, 2000
F-2
<PAGE> 64
CALIPER TECHNOLOGIES CORP.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,158 $ 44,772 $ 25,492
Marketable securities..................................... 17,424 28,520 40,119
Accounts receivable....................................... 1,082 1,055 1,238
Inventories............................................... -- 287 1,799
Prepaid expenses and other current assets................. 600 754 1,103
-------- -------- --------
Total current assets........................................ 24,264 75,388 69,751
Marketable securities....................................... 8,470 26,924 24,468
Property and equipment, net................................. 2,796 5,346 5,372
Notes receivable from officers.............................. 200 625 540
Other assets, net........................................... -- 564 689
-------- -------- --------
Total assets................................................ $ 35,730 $108,847 $100,820
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 228 $ 1,321 $ 1,304
Accrued compensation...................................... 432 1,082 1,212
Other accrued liabilities................................. 493 1,011 1,298
Deferred revenue.......................................... 626 2,210 2,644
Current portion of equipment financing.................... 881 1,454 1,638
-------- -------- --------
Total current liabilities................................... 2,660 7,078 8,096
Noncurrent portion of equipment financing................... 2,008 3,671 3,755
Deferred revenue............................................ -- -- 594
Deferred rent............................................... -- 235 373
Commitments
Redeemable convertible preferred stock, $0.001 par value,
issuable in series; 19,579,039 shares authorized in 1998
and no shares authorized in 1999 and at June 30, 2000;
11,703,692 shares issued and outstanding in 1998 and no
shares issued and outstanding in 1999 and at June 30,
2000; aggregate liquidation preference of $44,810 at
December 31, 1998 and $0 at December 31, 1999 and June 30,
2000...................................................... 48,716 -- --
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; 1,420,961
shares authorized in 1998, 1999 and at June 30, 2000,
respectively; 829,142 shares issued and outstanding in
1998 and no shares issued and outstanding in 1999 and at
June 30, 2000; aggregate liquidation preference of
$1,009 at December 31, 1998 and $0 at December 31, 1999
and at June 30, 2000.................................... 1 -- --
Preferred stock, $0.001 par value; 5,000,000 shares
authorized in 1999; no shares issued and outstanding in
1999 and at June 30, 2000............................... -- -- --
Common stock, $0.001 par value; 32,000,000 shares
authorized in 1998 and 70,000,000 shares authorized in
1999 and at June 30, 2000; 2,772,343, 21,002,095, and
21,141,192 shares issued and outstanding in 1998, 1999,
and at June 30, 2000 respectively....................... 3 21 21
Additional paid-in capital................................ 1,250 142,401 143,512
Deferred stock compensation............................... (500) (9,317) (6,674)
Accumulated deficit....................................... (18,408) (35,109) (48,651)
Accumulated other comprehensive loss...................... -- (133) (206)
-------- -------- --------
Total stockholders' equity (deficit)........................ (17,654) 97,863 88,002
-------- -------- --------
$ 35,730 $108,847 $100,820
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 65
CALIPER TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................................ $ 2,266 $ 8,155 $ 12,087 $ 5,445 $ 8,069
Costs and expenses:
Research and development............. 7,200 9,584 18,415 7,442 14,496
General and administrative........... 2,478 2,932 5,312 2,087 4,836
Amortization of deferred stock
compensation(1)................... -- -- 3,885 1,061 2,643
------- ------- -------- ------- --------
Total costs and expenses............... 9,678 12,516 27,612 10,590 21,975
------- ------- -------- ------- --------
Operating loss......................... (7,412) (4,361) (15,525) (5,145) (13,906)
Interest income........................ 1,191 1,581 1,564 740 2,964
Interest expense....................... (60) (195) (412) (151) (306)
------- ------- -------- ------- --------
Loss before change in accounting
principle............................ (6,281) (2,975) (14,373) (4,556) (11,248)
Cumulative effect of a change in
accounting principle................. -- -- -- -- (2,294)
------- ------- -------- ------- --------
Net loss............................... (6,281) (2,975) (14,373) (4,556) (13,542)
Accretion on redeemable convertible
preferred stock...................... (1,470) (2,174) (2,328) (1,214) --
------- ------- -------- ------- --------
Net loss attributable to common
stockholders......................... $(7,751) $(5,149) $(16,701) $(5,770) $(13,542)
======= ======= ======== ======= ========
Net loss per common share, basic and
diluted:
Loss before change in accounting
principle......................... $ (4.38) $ (2.39) $ (4.56) $ (2.21) $ (0.54)
Cumulative effect of a change in
accounting principle.............. -- -- -- -- (0.11)
------- ------- -------- ------- --------
Net loss............................. $ (4.38) $ (2.39) $ (4.56) $ (2.21) $ (0.65)
======= ======= ======== ======= ========
Shares used in computing net loss per
common share, basic and diluted...... 1,768 2,157 3,663 2,612 20,933
Pro forma net loss per share, basic and
diluted.............................. $ (0.92) $ (0.65)
======== ========
Shares used in computing pro forma net
loss per share, basic and diluted.... 15,578 20,933
</TABLE>
<TABLE>
<S> <C> <C> <C>
---------------
(1) Amortization of deferred stock compensation related to
the following:
Research and development............................... $1,094 $ 185 $ 936
General and administrative............................. 2,791 876 1,707
------ ------- --------
Total.................................................. $3,885 $ 1,061 $ 2,643
====== ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 66
CALIPER TECHNOLOGIES CORP.
STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
STOCKHOLDERS EQUITY (DEFICIT)
REDEEMABLE ------------------------------------------------------
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- -------- -------- -------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996...... 7,585,206 $ 16,913 829,142 $ 1 2,303,683 $ 3 $ 518
Issuance of Series D redeemable
convertible preferred stock for
cash.............................. 3,089,744 19,280 -- -- -- -- --
Issuance of Series D redeemable
convertible preferred stock for
services.......................... 99,359 620 -- -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- -- 155,798 -- 60
Issuance of common stock for
cash.............................. -- -- -- -- 19,230 -- 12
Accretion on redeemable convertible
preferred stock................... -- 1,470 -- -- -- -- --
Net loss and comprehensive loss.... -- -- -- -- -- -- --
----------- -------- -------- -------- ---------- --- --------
Balances at December 31, 1997...... 10,774,309 38,283 829,142 1 2,478,711 3 590
Issuance of Series D redeemable
convertible preferred stock for
services.......................... 141,026 880 -- -- -- -- --
Issuance of Series E redeemable
convertible preferred stock for
cash.............................. 788,357 7,379 -- -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- -- 191,831 -- 84
Issuance of common stock for
services.......................... -- -- -- -- 101,801 -- 76
Accretion on redeemable convertible
preferred stock................... -- 2,174 -- -- -- -- --
Deferred stock compensation........ -- -- -- -- -- -- 500
Net loss and comprehensive loss.... -- -- -- -- -- -- --
----------- -------- -------- -------- ---------- --- --------
Balances at December 31, 1998...... 11,703,692 48,716 829,142 1 2,772,343 3 1,250
Net loss........................... -- -- -- -- -- -- --
Accretion on redeemable convertible
preferred stock................... -- 2,328 -- -- -- -- --
Change in unrealized loss on
available-for-sale securities..... -- -- -- -- -- -- --
Comprehensive loss................. -- -- -- -- -- -- --
Issuance of shares of common stock
in the initial public offering,
net of offering costs of
$6,896............................ -- -- -- -- 5,175,000 5 75,899
Conversion of redeemable
convertible preferred stock into
common stock, in connection with
the initial public offering....... (11,703,692) (51,044) -- -- 11,703,692 12 51,032
Conversion of convertible preferred
stock into common stock, in
connection with the initial public
offering.......................... -- -- (829,142) (1) 829,142 1 --
Issuance of common stock upon
exercise of stock options......... -- -- -- -- 512,624 -- 274
Issuance of common stock for
services.......................... -- -- -- -- 9,294 -- 83
Deferred stock compensation........ -- -- -- -- -- -- 12,702
Amortization of deferred stock
compensation...................... -- -- -- -- -- -- --
Warrants issuable in connection
with milestone achievement........ -- -- -- -- -- -- 568
Stock options issued to
non-employees..................... -- -- -- -- -- -- 593
----------- -------- -------- -------- ---------- --- --------
Balances at December 31, 1999...... -- -- -- -- 21,002,095 21 142,401
Net loss (unaudited)............... -- -- -- -- -- -- --
Change in unrealized loss on
available-for-sale securities
(unaudited)....................... -- -- -- -- -- -- --
Comprehensive loss (unaudited)..... -- -- -- -- -- -- --
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan (unaudited)......... -- -- -- -- 104,041 -- 720
Issuance of common stock upon
exercise of warrants
(unaudited)....................... -- -- -- -- 35,056 -- --
Amortization of deferred stock
compensation (unaudited).......... -- -- -- -- -- -- --
Stock options issued to
non-employees (unaudited)......... -- -- -- -- -- -- 391
----------- -------- -------- -------- ---------- --- --------
Balances at June 30, 2000
(unaudited)....................... -- $ -- -- $ -- 21,141,192 $21 $143,512
=========== ======== ======== ======== ========== === ========
<CAPTION>
STOCKHOLDERS EQUITY (DEFICIT)
------------------------------------------------------------
ACCUMULATED TOTAL
OTHER STOCKHOLDERS'
DEFERRED STOCK ACCUMULATED COMPREHENSIVE EQUITY
COMPENSATION DEFICIT LOSS (DEFICIT)
-------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996...... $ -- $ (5,508) $ -- $ (4,986)
Issuance of Series D redeemable
convertible preferred stock for
cash.............................. -- -- -- --
Issuance of Series D redeemable
convertible preferred stock for
services.......................... -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- 60
Issuance of common stock for
cash.............................. -- -- -- 12
Accretion on redeemable convertible
preferred stock................... -- (1,470) -- (1,470)
Net loss and comprehensive loss.... -- (6,281) -- (6,281)
-------- -------- ----- --------
Balances at December 31, 1997...... -- (13,259) -- (12,665)
Issuance of Series D redeemable
convertible preferred stock for
services.......................... -- -- -- --
Issuance of Series E redeemable
convertible preferred stock for
cash.............................. -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- 84
Issuance of common stock for
services.......................... -- -- -- 76
Accretion on redeemable convertible
preferred stock................... -- (2,174) -- (2,174)
Deferred stock compensation........ (500) -- -- --
Net loss and comprehensive loss.... -- (2,975) -- (2,975)
-------- -------- ----- --------
Balances at December 31, 1998...... (500) (18,408) -- (17,654)
Net loss........................... -- (14,373) -- (14,373)
Accretion on redeemable convertible
preferred stock................... -- (2,328) -- (2,328)
Change in unrealized loss on
available-for-sale securities..... -- -- (133) (133)
--------
Comprehensive loss................. -- -- -- (16,834)
Issuance of shares of common stock
in the initial public offering,
net of offering costs of
$6,896............................ -- -- -- 75,904
Conversion of redeemable
convertible preferred stock into
common stock, in connection with
the initial public offering....... -- -- -- 51,044
Conversion of convertible preferred
stock into common stock, in
connection with the initial public
offering.......................... -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- 274
Issuance of common stock for
services.......................... -- -- -- 83
Deferred stock compensation........ (12,702) -- -- --
Amortization of deferred stock
compensation...................... 3,885 -- -- 3,885
Warrants issuable in connection
with milestone achievement........ -- -- -- 568
Stock options issued to
non-employees..................... -- -- -- 593
-------- -------- ----- --------
Balances at December 31, 1999...... (9,317) (35,109) (133) 97,863
Net loss (unaudited)............... -- (13,542) -- (13,542)
Change in unrealized loss on
available-for-sale securities
(unaudited)....................... -- -- (73) (73)
--------
Comprehensive loss (unaudited)..... -- -- -- (13,615)
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan (unaudited)......... -- -- -- 720
Issuance of common stock upon
exercise of warrants
(unaudited)....................... -- -- -- --
Amortization of deferred stock
compensation (unaudited).......... 2,643 -- -- 2,643
Stock options issued to
non-employees (unaudited)......... -- -- -- 391
-------- -------- ----- --------
Balances at June 30, 2000
(unaudited)....................... $ (6,674) $(48,651) $(206) $ 88,002
======== ======== ===== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 67
CALIPER TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $ (6,281) $ (2,975) $(14,373) $ (4,556) $(13,542)
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of a change in accounting
principle........................................ -- -- -- -- 2,294
Depreciation and amortization....................... 356 921 1,325 604 941
Amortization of deferred stock compensation......... -- -- 3,885 1,061 2,643
Issuance of common and preferred stock for
services......................................... 620 956 83 -- --
Stock options issued to non-employees............... -- -- 593 -- 391
Changes in operating assets and liabilities:
Accounts receivable.............................. -- (1,082) 27 (196) (183)
Notes receivable from officers................... (200) -- (425) -- 85
Inventories...................................... -- -- (287) (179) (1,512)
Prepaid expenses and other assets................ (88) (411) (154) (16) (349)
Other noncurrent assets.......................... (119) 119 -- -- (182)
Accounts payable and other accrued liabilities... 1,022 (569) 1,611 595 270
Accrued compensation............................. 208 149 650 120 130
Deferred revenue................................. (275) 626 1,584 (452) (1,266)
Deferred rent.................................... -- -- 235 128 138
-------- -------- -------- -------- --------
Net cash used in operating activities................. (4,757) (2,266) (5,246) (2,891) (10,142)
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Purchases of available-for-sale securities............ (51,448) (39,996) (52,380) (11,583) (51,983)
Proceeds from sales of available-for-sale
securities.......................................... -- 6,233 9,199 3,309 12,012
Proceeds from maturities of available-for-sale
securities.......................................... 30,114 34,106 13,498 10,040 30,755
Capital expenditures.................................. (1,845) (1,667) (3,871) (2,557) (910)
-------- -------- -------- -------- --------
Net cash used in investing activities................. (23,179) (1,324) (33,554) (791) (10,126)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from equipment financing..................... 1,574 1,586 3,419 2,157 1,073
Payments of obligations under equipment financing..... (225) (613) (1,183) (499) (805)
Proceeds from issuance of common and preferred
stock............................................... 19,352 7,463 76,178 89 720
-------- -------- -------- -------- --------
Net cash provided by financing activities............. 20,701 8,436 78,414 1,747 988
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents......................................... (7,235) 4,846 39,614 (1,935) (19,280)
Cash and cash equivalents at beginning of period...... 7,547 312 5,158 5,158 44,772
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period............ $ 312 $ 5,158 $ 44,772 $ 3,223 $ 25,492
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid......................................... $ 60 $ 195 $ 412 $ 151 $ 306
======== ======== ======== ======== ========
SCHEDULE OF NONCASH TRANSACTIONS
Warrants issuable in connection with milestone
achievement......................................... $ -- $ -- $ 568 $ -- $ --
======== ======== ======== ======== ========
Deferred stock compensation........................... $ -- $ 500 $ 12,702 $ 6,313 $ --
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 68
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Caliper Technologies Corp. ("Caliper") was incorporated in the state of
Delaware on July 26, 1995. Caliper develops lab-on-a-chip technologies and
manufactures LabChip systems. These systems perform laboratory experiments for
use in the pharmaceutical industry and other industries.
INTERIM FINANCIAL INFORMATION
The financial information at June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited but, in the opinion of management, has been
prepared on the same basis as the annual financial statements and includes all
adjustments (consisting only of normal recurring adjustments) that Caliper
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for such periods. Results for the
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for any subsequent period.
INITIAL PUBLIC OFFERING
In December 1999, Caliper completed an initial public offering of 4,500,000
shares of its common stock to the public, at a per share price of $16.00. In
conjunction with the initial public offering, Caliper's underwriters exercised
an option to purchase an additional 675,000 shares of common stock at a price of
$16.00 per share to cover over-allotments. Caliper received net proceeds from
the offerings of approximately $75.9 million. Upon the closing of the initial
public offering, each of the outstanding 11,703,692 redeemable convertible
preferred stock and 829,142 convertible preferred stock was automatically
converted into one share of common stock.
STOCK SPLIT
In October 1999, Caliper's board of directors approved a 1-for-1.56 reverse
stock split. The reverse stock split became effective in December 1999. The
accompanying financial statements have been adjusted retroactively to reflect
the reverse split of all outstanding common and convertible preferred stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
Caliper considers all highly liquid investments with maturities of three
months or less from the date of purchase to be cash equivalents. Management
determines the appropriate classification of its cash equivalents and investment
securities at the time of purchase and reevaluates such determination as of each
balance sheet date. Management has classified Caliper's cash equivalents and
marketable securities as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported in a separate component of
stockholders' equity. Realized gains and losses are included in interest income.
The cost of securities sold is based on the specific identification method.
F-7
<PAGE> 69
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Caliper invests its excess cash in U.S. government and agency securities,
debt instruments of financial institutions and corporations, and money market
funds with strong credit ratings. Caliper has established guidelines regarding
diversification of its investments and their maturities which should maintain
safety and liquidity.
INVENTORIES
Inventories are stated at the lower of standard cost (which approximates
actual cost) or market.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1998 1999 2000
------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw material.............................. $-- $253 $1,171
Work in process........................... -- 13 605
Finished goods............................ -- 21 23
-- ---- ------
Total........................... $-- $287 $1,799
== ==== ======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, generally
five years. Furniture and equipment acquired under equipment financing is
amortized over the shorter of the useful lives or the financing period.
Leasehold improvements are amortized over the shorter of the estimated useful
life of the assets or lease term.
REVENUE RECOGNITION
Revenues are earned from services performed pursuant to Caliper's
collaboration agreement, technology access program agreements and government
grants.
Collaboration Agreement
Revenue from development activities under Caliper's collaboration agreement
is recorded in the period in which the costs are incurred. Direct costs
associated with this contract are reported as research and development expense.
Revenue related to the reimbursement of costs for the supply of chips and
reagents to Caliper's collaboration partner is recognized upon shipment.
Caliper's share of gross margin on components of the LabChip system sold by the
collaboration partner is recognized as revenue upon shipment by the
collaboration partner to the end user.
Technology Access Program Agreements
Caliper has entered into a number of multi-year technology access program
agreements consisting of four basic elements: (1) access to existing technology;
(2) a multi-year subscription for technology developed during the subscription
period; (3) development and support services; and (4) access to prototype
LabChip systems developed during the subscription period. Caliper allocates the
total arrangement fees to each element based on fair value.
Prior to January 1, 2000, Caliper recognized non-refundable license fees
under its technology access programs as revenues upon transfer of the license to
third parties and when no further performance obligations existed. Effective
January 1, 2000, Caliper changed its method of accounting for non-refundable
license fees to recognize such fees ratably over the term of the committed
related technology
F-8
<PAGE> 70
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
access program agreement. Caliper believes the change in accounting principle is
preferable based on guidance provided in SEC Staff Accounting Bulletin No.
101 -- Revenue Recognition in Financial Statements. The $2.3 million cumulative
effect of the change in accounting principle was reported as a charge in the
period ended June 30, 2000. The cumulative effect was initially recorded as
deferred revenue and is being recognized as revenue over the remaining
contractual terms of the technology access program agreements. During the six
months ended June 30, 2000, the impact of the change in accounting was to
increase net loss by $1.4 million, or $0.07 per share, comprised of the $2.3
million cumulative effect of the change as described above ($0.11 per share),
net of $900,000 of the related deferred revenue which was recognized as revenue
during the six months ended June 30, 2000 ($0.04 per share). The remainder of
the related deferred revenue is expected to be recognized as revenue
approximately as follows: $400,000 over the remainder of 2000, $800,000 in 2001
and $194,000 in 2002. Had the change in accounting been adopted as of January 1,
1999, revenue for the six months ended June 30, 1999 would have increased by
$233,000 or decreased pro forma net loss by $0.02 per share.
Subscription fees are recognized ratably over the subscription period. When
payment of the subscription fee is contingent upon reaching a milestone, revenue
is deferred until the milestone is met. Support and development services revenue
is recognized in the periods the costs are incurred. Product revenue is
recognized upon transfer of title to the customer.
Government Grants
Caliper's grant from the National Institute of Standards and Technology
provides for the reimbursement of qualified expenses for research and
development as defined under the terms of the grant agreement. Revenue under
grant agreements is recognized when the related research expenses are incurred.
RESEARCH AND DEVELOPMENT
Caliper expenses research and development costs as incurred.
DEFERRED COMPENSATION ARRANGEMENTS
Caliper maintains certain trading assets to generate returns that offset
changes in certain liabilities related to deferred compensation arrangements.
The trading assets consist of marketable equity securities and are stated at
fair value. Both realized and unrealized gains and losses generally offset the
change in the deferred compensation liability and to date have not been
material.
STOCK-BASED COMPENSATION
Caliper accounts for its stock options and equity awards in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and has elected to follow the "disclosure only"
alternative prescribed by Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Caliper accounts for stock options issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force 96-18. For the six months ended June 30, 2000, compensation
expense related to stock options issued to non-employees was $391,000.
SEGMENT REPORTING
Effective in January 1998, Caliper adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131
F-9
<PAGE> 71
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas,
and major customers. Caliper has determined that it operates in only one
segment. Accordingly, the adoption of SFAS 131 had no impact on Caliper's
financial statements.
NET LOSS PER SHARE
Basic earnings per share is calculated based on the weighted-average number
of common shares outstanding during the period. Diluted earnings per share would
give effect to the dilutive effect of common stock equivalents consisting of
stock options and warrants (calculated using the treasury stock method).
Potentially dilutive securities have been excluded from the diluted earnings per
share computations as they have an antidilutive effect due to Caliper's net
loss.
Proforma net loss per share has been computed to give effect to the
automatic conversion of preferred stock into common stock which occurred at the
completion of Caliper's initial public offering in December 1999 (using the
as-if converted method) from the original date of issuance.
A reconciliation of shares used in the calculations is as follows (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ --------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic and diluted:
Net loss...................................... $(6,281) $(2,975) $(14,373) $ (4,556) $(13,542)
Accretion on redeemable convertible preferred
stock....................................... (1,470) (2,174) (2,328) (1,214) --
------- ------- -------- -------- --------
Net loss attributable to common stockholders.... $(7,751) $(5,149) $(16,701) $ (5,770) $(13,542)
======= ======= ======== ======== ========
Weighted-average shares of common stock
outstanding................................... 2,365 2,596 3,909 2,907 21,044
Less: weighted-average shares subject to
repurchase.................................... (597) (439) (246) (295) (111)
------- ------- -------- -------- --------
Weighted-average shares used in basic and
diluted net loss per share.................... 1,768 2,157 3,663 2,612 20,933
======= ======= ======== ======== ========
Pro forma basic and diluted:
Net loss...................................... $(14,373) $(13,542)
======== ========
Shares used above............................... 3,663 20,933
Adjustment to reflect weighted-average effect of
assumed conversion of preferred stock......... 11,915 --
-------- --------
Weighted-average shares used in pro forma basic
and diluted net loss per share................ 15,578 20,933
======== ========
</TABLE>
The following outstanding options and warrants (prior to the application of
the treasury stock method), and convertible preferred stock (on an as-converted
basis) were excluded from the computation of diluted net loss per share as they
had an antidilutive effect (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ----- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Options and warrants...................................... 1,359 1,263 2,497 1,926 3,039
Convertible preferred stock............................... 11,603 12,533 -- 12,533 --
</TABLE>
F-10
<PAGE> 72
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT CONCENTRATIONS
Financial instruments that potentially subject Caliper to concentrations of
credit risk primarily consist of cash equivalents and marketable securities (see
Note 3).
In 1997, Hoffmann-La Roche represented 94% of total revenues. In 1998,
Hoffmann-La Roche, Agilent Technologies and Amgen represented 40%, 40%, and 17%
of total revenues, respectively. In 1999, Agilent Technologies represented 50%
of total revenues and two of Caliper's technology access program customers
accounted for 21% and 17% of total revenues. For the six months ended June 30,
2000, Agilent Technologies accounted for 39% of total revenues and three of
Caliper's technology access program customers accounted for 19%, 17% and 12% of
total revenues.
Caliper relies on several companies as the sole source of various materials
in its manufacturing process. Any extended interruption in the supply of these
materials could result in the failure to meet customer demand.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133, as
amended, establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
Caliper is required to adopt FAS No. 133 effective January 1, 2001. Because
Caliper does not currently hold any derivative instruments and does not engage
in hedging activities, Caliper does not currently believe that the adoption of
FAS No. 133, as amended, will have a significant impact on its financial
position, results of operations or cash flows.
2. CONTRACTS AND GRANTS
Strategic Alliance with Agilent
In May 1998, Caliper executed a collaboration agreement with
Hewlett-Packard Company ("Hewlett-Packard") to create a line of commercial
research products based on LabChip technologies. In November 1999,
Hewlett-Packard transferred this collaboration to its subsidiary, Agilent
Technologies, Inc. ("Agilent"). In this collaboration, Caliper primarily focuses
on developing core technology and LabChip applications. Caliper also
manufactures the chips and supplies the chips and reagents to Agilent. If
Caliper elects, however, not to manufacture chips for a LabChip application or
is unable to meet minimum supply commitments to be mutually established in the
future, Agilent would have the right to manufacture those chips. Agilent
primarily focuses on developing instruments and software, manufacturing
instruments, and marketing, selling and supporting complete systems.
Agilent funds Caliper's product development efforts under the
collaboration, reimburses Caliper's costs of supplying chips and reagents, and
pays Caliper a share of the gross margin on all components of LabChip systems.
The gross margin share varies depending on the type of collaboration product,
whether Caliper or Agilent manufacture the collaboration product, and whether
such collaboration product is sold during the collaboration or after the
collaboration has terminated. Under this agreement, Hewlett-Packard purchased
534,188 shares of Caliper's redeemable convertible preferred stock Series E with
an aggregate cost of $5.0 million.
The term of the Agilent agreement is eight years, beginning in May 1998.
After three years, Agilent may elect not to meet certain annual funding
requirements, in which case either party may terminate the agreement. In any
event either party may terminate the agreement after five years.
F-11
<PAGE> 73
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CONTRACTS AND GRANTS (CONTINUED)
Technology Access Program
Caliper maintains a technology access program which provides customers with
early access to new products, and offers technical training, support and
customization services. Technology access program customers have non-exclusive
access to all of the high throughput screening products Caliper offers during
the term of the agreement. These agreements generally provide for customers to
pay an up-front license fee and annual subscription fees, and to reimburse
Caliper for its costs of providing development and support services. Instruments
and chips are generally sold separately on a product-by-product basis, although
some agreements establish prices for initial instruments or estimates of per
data point charges for Sipper chips.
Caliper currently has four technology access program customers for its high
throughput screening systems: Millennium Pharmaceuticals, Inc. ("Millennium"),
Eli Lilly and Company ("Eli Lilly"), Amgen, Inc. ("Amgen") and Hoffmann-La Roche
Inc. ("Roche").
Millennium. Caliper signed a broad technology access and application
development collaboration with Millennium in March 2000. The term is two years
with an option to renew in the third year.
Eli Lilly. Caliper signed a technology access agreement with Eli Lilly in
August 1999. The term is three years, although Eli Lilly may temporarily suspend
its technology access program participation and later reinitiate participation,
during which time Caliper's support and assistance obligations will also be
suspended. Eli Lilly may terminate the agreement on any anniversary.
Amgen. Caliper entered into a technology access agreement with Amgen in
December 1998. Under this agreement, Amgen may delay payment of its second
annual subscription fee until Caliper has delivered an initial ultra high
throughput system. The term of this agreement is three years, although Amgen may
terminate the agreement on any anniversary or if Caliper fails to deliver the
ultra high throughput screening system in a timely manner.
Hoffmann-La Roche. Caliper entered into a technology access agreement with
Hoffmann-La Roche in November 1998, which expired in July 2000. This agreement
supersedes an earlier agreement under which Roche funded early development of
the high throughput screening technology in exchange for certain exclusive
rights to an ultra high throughput screening system. Under this earlier
agreement, Roche purchased 854,701 shares of Caliper's redeemable convertible
preferred stock Series C with an aggregate cost of $4.0 million. Roche now has
non-exclusive rights similar to other technology access program customers.
Caliper did not receive an up-front license fee or annual subscription fee from
Hoffmann-La Roche.
Value Added Screening Collaboration Program
Caliper's value added screening collaboration program offers high
throughput screening services using Caliper's LabChip systems. Caliper's first
value added screening collaboration agreement was established with Neurocrine
Biosciences in December 1998. Caliper receives screening fees on a per data
point basis, preclinical milestones and royalties on Neurocrine products
emerging from the collaboration. This agreement has a three-year term, but may
be terminated by either party under certain circumstances after the first year.
Caliper recognized approximately $2.1 million, $7.9 million, $11.2 million
and $7.6 million under the above agreements in 1997, 1998, 1999 and for the six
months ended June 30, 2000 respectively. Revenue earned from reimbursement of
development and support activities approximated actual costs incurred.
F-12
<PAGE> 74
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CONTRACTS AND GRANTS (CONTINUED)
In September 1998, Caliper received a grant from the Advanced Technology
Program of the National Institute of Standards and Technology ("NIST") to
develop a Reference Laboratory DNA Diagnostics System based on Caliper's
"lab-on-a-chip" technology of approximately $2 million over three years. The
grant period began in January 1999.
3. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of available-for-sale securities as of December
31, 1999:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST LOSSES GAINS FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Money market fund............................... $ 44,772 $ -- $-- $ 44,772
Bonds of the U.S. Government and its agencies... 6,255 (17) -- 6,238
Commercial paper................................ 49,322 (161) 45 49,206
-------- ----- --- --------
$100,349 $(178) $45 $100,216
======== ===== === ========
Reported as:
Cash equivalents................................ $ 44,772 $ -- $-- $ 44,772
Short term marketable securities................ 28,512 (36) 45 28,520
Long term marketable securities................. 27,065 (142) -- 26,924
-------- ----- --- --------
$100,349 $(178) $45 $100,216
======== ===== === ========
</TABLE>
At December 31, 1999, net unrealized loss on marketable securities has been
included in the Company's Statement of Redeemable Convertible Preferred Stock
and Stockholders' Equity (Deficit).
The following is a summary of the cost and estimated fair value of
available-for-sale securities at December 31, 1999, by contractual maturity:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Mature in one year or less............................. $ 73,284 $ 73,292
Mature after one year through two years................ 27,065 26,924
-------- --------
Total.................................................. $100,349 $100,216
======== ========
</TABLE>
The following is a summary of available-for-sale securities as of December
31, 1998:
<TABLE>
<CAPTION>
ESTIMATED
FAIR VALUE
--------------
(IN THOUSANDS)
<S> <C>
Money market fund........................................... $ 1,381
Bonds of the U.S. Government and its agencies............... 12,217
Commercial paper............................................ 17,454
-------
$31,052
=======
Reported as:
Cash equivalents............................................ $ 5,158
Short term marketable securities............................ 17,424
Long term marketable securities............................. 8,470
-------
$31,052
=======
</TABLE>
F-13
<PAGE> 75
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CASH EQUIVALENTS AND MARKETABLE SECURITIES (CONTINUED)
At December 31, 1998, the fair value of available-for-sale securities
approximated amortized cost.
As of December 31, 1998 and 1999, there were no material gross realized
gains or losses from sales of securities.
4. NOTES RECEIVABLE
At December 31, 1998, Caliper held a note receivable of $200,000 from an
officer of Caliper. This note, which bears interest at 6.61% per year from
January 2002, is collateralized by certain personal assets of the officer and
has certain amortization schedules for periodic payments with the final payment
to be made at the end of 2006.
At December 31, 1999, in addition to the $200,000 note receivable, Caliper
held an unsecured promissory note of $425,000 in connection with a loan to a
second officer of Caliper. The note bears interest at 5.96% per year and is
repayable upon the earlier of July 29, 2005 or the voluntary termination of his
employment with Caliper. In February 2000 in connection with his performance
review, $85,000 of this loan was forgiven.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment, and furniture...................... $ 3,775 $ 6,599
Leasehold improvements................................... 385 1,033
------- -------
4,160 7,632
Accumulated depreciation and amortization................ (1,364) (2,286)
------- -------
Property and equipment, net.............................. $ 2,796 $ 5,346
======= =======
</TABLE>
As of December 31, 1998 and 1999 property and equipment includes assets
acquired under capital leases of approximately $3.8 million and $6.8 million.
Accumulated depreciation related to leased assets was approximately $1.4 million
and $2.3 million at December 31, 1998 and 1999.
6. EQUIPMENT FINANCING AND RENTAL COMMITMENTS
As of June 30, 2000, Caliper had $8.2 million of property and equipment
financed through long-term obligations and approximately $4.8 million unused and
available under an equipment financing credit line. The obligations under the
equipment financings are secured by the equipment financed, bear interest at a
weighted-average fixed rate of approximately 10.9%, and are due in monthly
installments through June 2004. Under the terms of one equipment financing
agreement, ownership of the financed equipment may be purchased by Caliper at
fair value at the end of the financing term. Other equipment financing
agreements require a balloon payment at the end of each loan term.
F-14
<PAGE> 76
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. EQUIPMENT FINANCING AND RENTAL COMMITMENTS (CONTINUED)
As of December 31, 1999, future minimum lease payments under operating and
capital leases and principal payments on equipment loans are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
OPERATING AND
LEASES EQUIPMENT LOANS
--------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Years ending December 31:
2000............................................. $ 1,774 $ 1,522
2001............................................. 1,798 1,345
2002............................................. 1,839 1,037
2003............................................. 1,872 1,067
2004............................................. 1,922 239
Thereafter....................................... 8,061 --
------- -------
Total minimum lease and principal
payments............................... $17,266 5,210
=======
Amount representing interest....................... (85)
-------
Present value of future payments................... 5,125
Current portion of equipment financing............. (1,454)
-------
Noncurrent portion of equipment financing.......... $ 3,671
=======
</TABLE>
Rent expense relating to operating leases was approximately $525,000 in
1997, $695,000 in 1998 $1.8 million in 1999 and $863,000 for the six months
ended June 30, 2000.
In December 1998, Caliper entered into a 10-year facility operating lease
agreement. Caliper also entered into a sublease agreement pursuant to which it
received a monthly amount of $18,000 from December 1998 through November 1999
and a monthly amount of $24,000 in December 1999 and January 2000. The
appropriate amount has been offset against the operating lease commitment for
2000, as shown above.
In connection with the facility lease, Caliper has a $1 million standby
letter-of-credit arrangement with a bank expiring on October 20, 2008. Caliper
has pledged a certificate of deposit of $1 million as collateral to this letter
of credit.
In May 2000, Caliper entered into a $5.0 million financing agreement with a
financial institution for the purchase of property and equipment which bears
interest commensurate to the U.S. Treasury yield to maturity for a note with a
forty-eight month maturity plus a loan margin. The drawdown period under the
equipment financing credit line expires on June 30, 2001. As of May 2000,
Caliper drew down the remaining $855,000 balance of the equipment financing
credit line which existed as of December 31, 1999 at a weighted-average interest
rate of 12.9% and financed an additional $217,000 of property and equipment
purchases under the new line at a weighted-average interest rate of 13.3%. These
obligations will be repaid in monthly installments through June 2004.
In June, 2000, Caliper entered into an 8-year facility operating lease
agreement. In connection with the facility lease, Caliper has a $2.0 million
standby letter of credit arrangement with a bank expiring on June 26, 2008.
Caliper has pledged a certificate of deposit of $2.0 million as collateral to
this letter of credit.
F-15
<PAGE> 77
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock outstanding as of December 31, 1998 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------
REDEMPTION/
ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING VALUE
---------- ----------- -----------
<S> <C> <C> <C>
Convertible preferred stock:
Series A............................................ 1,293,462 829,142 $ 1,008,900
Undesignated Preferred stock........................ 127,499 -- --
---------- ---------- -----------
1,420,961 829,142 1,008,900
---------- ---------- -----------
Redeemable convertible preferred stock:
Series B............................................ 8,550,706 5,448,454 7,515,862
Series C............................................ 3,333,333 2,136,752 11,130,907
Series D............................................ 5,195,000 3,330,129 22,460,607
Series E............................................ 2,500,000 788,357 7,608,461
---------- ---------- -----------
19,579,039 11,703,692 48,715,837
---------- ---------- -----------
Total....................................... 21,000,000 12,532,834 $49,724,737
========== ========== ===========
</TABLE>
During 1998 and 1999, Caliper recorded $2.2 million and $2.3 million,
respectively, for accretions up to the date of initial public offering. Upon the
closing of the initial public offering, each of the outstanding 11,703,692
redeemable convertible preferred stock and 829,142 convertible preferred stock
was automatically converted into one share of common stock.
WARRANTS
In January 1996, in connection with an equipment financing agreement,
Caliper issued a warrant that entitles the holder to purchase 3,276 shares of
common stock at an exercise price of $1.22 per share. In June 2000, a net
exercise was done; thus 3,194 shares of common stock were issued.
In May 1996, in connection with a capital lease agreement, Caliper granted
a warrant that entitles the holder to purchase 32,767 shares of Series B
preferred stock at an exercise price of $1.22 per share. In June 2000, a net
exercise was done; thus 31,862 shares of common stock were issued.
In October 1996, in connection with certain agreements, Caliper issued two
warrants that entitle the holders to purchase a total of 38,460 shares of common
stock at an exercise price of $1.22 per share. One of these warrants is
exercisable through October 11, 2006. In July 2000, a net exercise was done for
one of these warrants; thus, 18,729 shares of common stock were issued.
No amounts have been recorded by Caliper for the above warrant issuances,
as the amounts were determined to be immaterial at the time of issuance.
In August 1995, Caliper executed an agreement which called for the issue of
two warrants, upon achievement of a certain patent milestone, to purchase a
total of 38,460 shares of common stock at an exercise price of $1.22 per share.
This patent milestone was met in December 1999, and the two warrants were issued
in February 2000. These warrants will expire in January 2006. The fair value of
the warrants was capitalized in 1999 and is being amortized over 5 years. One of
these warrants is exercisable through January 17, 2006. In July 2000, a net
exercise was done for one of these warrants; thus, 18,729 shares of common stock
were issued.
F-16
<PAGE> 78
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK SUBJECT TO REPURCHASE
Common stock issued to founders of Caliper vest generally over five years
at 20% one year from the date of grant and on a monthly, pro rata basis
thereafter. From inception through June 30, 2000, the founders of Caliper have
purchased 1,708,234 shares of common stock, of which 68,910 shares are unvested
and remain subject to repurchase at the original issuance price in the event of
termination of employment or services to Caliper. Caliper has not repurchased
any shares in accordance with these rights.
STOCK OPTION PLANS
In October 1999, Caliper's board of directors and stockholders adopted the
1999 Equity Incentive Plan ("1999 Equity Plan"). The 1999 Equity Plan amended
and restated the 1996 Stock Incentive Plan and increased the shares reserved for
issuance to 4 million. In addition, the 1999 Equity Plan provides for an
automatic increase in the shares reserved for issuance by the greater of 5% of
outstanding shares on a fully-diluted basis or the number of shares that have
been made subject to awards granted under the 1999 Equity Plan during the prior
12-month period. The automatic share reserve increase may not exceed 12,820,000
shares in aggregate over the 10-year period. In June 2000, an additional
1,439,198 shares of common stock became issuable under this plan.
In October 1999, Caliper's board of directors and stockholders adopted the
1999 Non-Employee Directors' Stock Option Plan ("1999 Directors' Plan") which
provides for the automatic grant of options to non-employee directors. A total
of 200,000 shares of common stock has been reserved for issuance under this
plan. The number of shares reserved for issuance will automatically increase by
the greater of 0.3% of outstanding shares on a fully-diluted basis or the number
of shares subject to options granted under the 1999 Directors' Plan during the
prior 12-month period. As of December 31, 1999, the Company has not granted any
options under the 1999 Directors' Plan. In June 2000, an additional 69,496
shares of common stock became issuable under this plan.
On August 31, 1996, Caliper's board of directors and stockholders adopted
the 1996 Stock Incentive Plan (the "1996 Stock Plan"). This Plan supersedes the
1996 Equity Incentive Plan and provides for the issuance of common stock and the
granting of options to purchase common stock to employees, officers, directors,
and consultants of Caliper. Caliper granted shares of common stock for issuance
under the 1996 Stock Plan at no less than the fair value of the stock (no less
than 85% of fair value for nonqualified options). Options granted under the 1996
Stock Plan generally vest over 5 years at a rate of 20% one year from the grant
date and 1/60 monthly thereafter. Options canceled under the 1996 Equity
Incentive Plan are not available for future grants.
A summary of activity under the Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING WEIGHTED-
----------------------------- AVERAGE
OPTIONS NUMBER OF EXERCISE EXERCISE
AVAILABLE OPTIONS PRICE PRICE
---------- --------- ---------------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996............ 255,726 417,993 $ 0.06 - $ 0.47 $ 0.25
Authorized............................ 961,538 -- -- --
Granted............................... (890,051) 890,051 $ 0.47 - $ 0.62 $ 0.51
Exercised............................. -- (155,798) $ 0.06 - $ 0.62 $ 0.38
Canceled.............................. 962 (962) $0.47 $ 0.47
---------- ---------
</TABLE>
F-17
<PAGE> 79
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING WEIGHTED-
----------------------------- AVERAGE
OPTIONS NUMBER OF EXERCISE EXERCISE
AVAILABLE OPTIONS PRICE PRICE
---------- --------- ---------------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1997............ 328,175 1,151,284 $ 0.06 - $ 0.62 $ 0.43
Authorized............................ 1,282,038 -- -- --
Granted............................... (423,253) 423,253 $ 0.62 - $ 0.97 $ 0.86
Exercised............................. -- (181,881) $ 0.06 - $ 0.62 $ 0.45
Canceled.............................. 318,088 (326,649) $ 0.06 - $ 0.62 $ 0.45
---------- ---------
Balance at December 31, 1998............ 1,505,048 1,066,007 $ 0.06 - $ 0.97 $ 0.59
Authorized............................ 1,474,109 -- -- --
Granted............................... (1,728,454) 1,728,454 $ 0.97 - $ 14.00 $ 2.88
Exercised............................. -- (389,638) $ 0.06 - $ 0.97 $ 0.59
Canceled.............................. 20,839 (20,839) $ 0.62 - $ 0.97 $ 0.70
---------- ---------
Balance at December 31, 1999............ 1,271,542 2,383,984 $ 0.06 - $ 14.00 $ 2.25
Authorized (unaudited)................ 1,508,694 -- -- --
Awards (unaudited).................... (6,250) -- -- --
Granted (unaudited)................... (655,081) 655,081 $24.13 - $162.00 $61.57
Exercised (unaudited)................. -- (65,425) $ 0.06 - $ 3.12 $ 0.68
Canceled (unaudited).................. 7,704 (11,251) $ 0.06 - $ 13.00 $ 2.01
---------- ---------
Balance at June 30, 2000 (unaudited).... 2,126,609 2,962,389 $ 0.06 - $162.00 $15.41
========== =========
</TABLE>
The weighted-average fair value of options granted during 1997, 1998, 1999
and the six months ended June 30, 2000 was $0.13, $0.22, $0.73 and $32.07
respectively.
Caliper granted nonqualified options of 458,010, 79,484, 303,845 and
287,777 for the years ended December 31, 1997, 1998, 1999 and for the six months
ended June 30, 2000, respectively.
The following table summarizes information with respect to stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE OF AVERAGE EXERCISE
EXERCISE PRICE OF SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES PRICE
-------------- --------- ---------------- -------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.06 - $ 0.47 280,602 6.84 $ 0.33 89,797 $ 0.27
$0.62 202,051 7.89 $ 0.62 31,852 $ 0.62
$0.97 1,161,262 9.13 $ 0.97 135,675 $ 0.96
$3.12 579,288 9.75 $ 3.12 3,205 $ 3.12
$12.99 - $14.00 160,781 9.92 $13.80 -- --
--------- -------
$ 0.06 - $14.00 2,383,984 8.96 $ 2.25 260,529 $ 0.71
========= =======
</TABLE>
F-18
<PAGE> 80
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information with respect to stock options
outstanding at June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE OF AVERAGE EXERCISE
EXERCISE PRICE OF SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES PRICE
-------------- --------- ---------------- -------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.06 - $ 0.62 430,432 6.8 $ 0.45 161,845 $ 0.37
$0.97 1,139,807 8.6 $ 0.97 258,093 $ 0.97
$3.12 577,783 9.3 $ 3.12 1,700 $ 3.12
$12.99 - $ 52.69 423,537 9.7 $27.00 -- --
$58.06 - $162.00 390,830 9.7 $79.57 24,002 $58.47
--------- -------
$ 0.06 - $162.00 2,962,389 8.8 $15.41 445,640 $ 3.86
========= =======
</TABLE>
In February 1996, Caliper completed the acquisition of ChemCore Corporation
("ChemCore"), an early stage research and development entity. As part of the
ChemCore merger, Caliper exchanged, at the ratio of 0.552762 to 1, outstanding
options to purchase 240,499 shares of ChemCore common stock at an exercise price
of $0.20 for options to purchase 132,936 shares of Caliper's common stock at an
exercise price $0.36 per share. These options were initially granted at the fair
value of ChemCore's common stock and generally vest over five years at a rate of
20% per year.
A summary of activity of options assumed as part of the ChemCore merger is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Balance at December 31, 1996 and 1997................... 132,936 $0.36
Exercised............................................... (9,950) $0.36
--------
Balance at December 31, 1998............................ 122,986 $0.36
Exercised............................................... (122,986) $0.36
--------
Balance at December 31, 1999............................ --
========
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In October 1999, the board of directors and stockholders adopted the 1999
Employee Stock Purchase Plan ("1999 Purchase Plan"). A total of 300,000 shares
of common stock has been reserved for issuance under the 1999 Purchase Plan. The
number of shares reserved automatically increases by the greater of 0.5% of
outstanding shares on a fully-diluted basis or the number of shares issued under
the 1999 Purchase Plan during the prior 12-month period. The automatic share
reserve increase may not exceed 3 million shares in aggregate over the 10-year
period. The 1999 Purchase Plan permits eligible employees to acquire shares of
Caliper's common stock through payroll deductions of up to 10% of their base
compensation. No employee may participate in the 1999 Purchase Plan if
immediately after the grant the employee has voting power over 5% or more of the
outstanding capital stock. Under the 1999 Purchase Plan, the board may specify
offerings of up to 27 months. Unless the board determines otherwise, common
stock may be purchased at the lower of 85% of the fair market value of Caliper's
common stock on the first day of the offering or 85% of the fair market value of
Caliper's common stock on the purchase date. The initial offering period began
on the effective date of the initial public offering. In May 2000, 32,366 shares
were
F-19
<PAGE> 81
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
purchased by employees at $13.60 per share. In June 2000, an additional 115,827
shares of common stock became issuable under the plan; thus, 383,461 shares are
available for future issuance.
STOCK BASED COMPENSATION
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if Caliper had accounted for its stock
plans under the fair-value method of that Statement. The fair value of options
was estimated at the date of grant using the Black-Scholes method and the
following assumptions for 1997, 1998 and 1999: volatility of 0.01, risk-free
interest rate of 6%, an expected life of five years, and no dividends. The
following assumptions were used to value options granted during the first six
months of 2000: volatility of 120%, risk-free interest rate with an average of
6.32%, an expected life of four years, and no dividends. The following
assumptions were used to value employees' purchase rights under the 1999
Purchase Plan during the first six months of 2000: volatility of 120%, risk-free
interest rate of 6.32%, an expected life of six months, and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using the
graded vesting method. Caliper's pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------------ ENDED
1997 1998 1999 JUNE 30, 2000
------- ------- -------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders:
As reported.......................... $(7,751) $(5,149) $(16,701) $(13,542)
Pro forma............................ $(7,810) $(5,223) $(17,319) $(17,403)
Basic and diluted net loss per share:
As reported.......................... $ (4.39) $ (2.39) $ (4.56) $ (0.65)
Pro forma............................ $ (4.42) $ (2.42) $ (4.73) $ (0.82)
</TABLE>
The effects of applying SFAS 123 for pro forma disclosures are not likely
to be representative of the effects on reported net loss for future years.
Caliper has recorded deferred stock compensation of approximately $500,000
for the year ended December 31, 1998 and $12.7 million for the year ended
December 31, 1999, representing the difference between the exercise price of the
options granted and the deemed fair value of the common stock. These amounts are
being amortized by charges to operations over the vesting periods of the
individual stock options using the graded vesting method. Such amortization
expense amounted to approximately $3.9 million for the year ended December 31,
1999 and $2.6 million for the six months ended June 30, 2000.
F-20
<PAGE> 82
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
RESERVED STOCK
As of December 31, 1999, Caliper had reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Stock options..................................... 3,455,526
Warrants.......................................... 112,963
1999 Purchase Plan................................ 300,000
1999 Directors' Plan.............................. 200,000
Stock agreement................................... 7,692
---------
4,076,181
=========
</TABLE>
8. INCOME TAXES
Caliper has no provision for U.S. federal or state income taxes for any
period as it has incurred operating losses.
As of December 31, 1999, Caliper had federal and California net operating
loss carryforwards of approximately $20.2 million and $1.4 million. Caliper also
had federal research and development tax credit carryforwards of approximately
$900,000 and $500,000. The federal net operating loss and credit carryforwards
will expire at various dates beginning in the year 2000 through 2019, if not
utilized. The state of California net operating losses will begin to expire in
year 2004, if not utilized.
Utilization of the federal and state net operating losses and credits may
be subject to a substantial limitation due to the change in ownership provisions
of the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting purposes and the
amounts used for income tax purposes. Significant components of Caliper's
deferred tax assets for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards........................ $ 3,600 $ 7,000
Research credit carryforwards........................... 1,000 1,400
Capitalized research and development.................... 1,600 1,500
Other, net.............................................. 100 600
------- --------
Net deferred tax assets................................. 6,300 10,500
Valuation allowance..................................... (6,300) (10,500)
------- --------
Total......................................... $ -- $ --
======= ========
</TABLE>
Because of Caliper's lack of earnings history, the deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$1.0 million and $4.2 million during the years ended December 31, 1998 and 1999.
9. LITIGATION
On March 22, 1999, Caliper filed a lawsuit in California Superior Court for
the County of Santa Clara against Aclara Biosciences, Inc. and Caliper's former
patent counsel, alleging that all the defendants
F-21
<PAGE> 83
CALIPER TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LITIGATION (CONTINUED)
misappropriated certain of Caliper's trade secrets relating to Caliper business
plans, patents and intellectual property strategy. The suit also alleges that
Caliper's former patent counsel committed a breach of the duties they owed to
Caliper as its former attorneys. The suit seeks damages and equitable remedies
to prevent Aclara and Caliper's former patent counsel from benefiting from the
alleged misappropriation and breach of duties. On January 12, 2000, Caliper
filed a lawsuit in United States District Court for the Northern District of
California alleging that Aclara is infringing four U.S. patents licensed to
Caliper by Lockheed Martin Energy Research Corporation. These patents cover
technology for controlling the flow of materials in microfluidic chips, as well
as devices, systems and applications that make use of this technology. Caliper
subsequently amended this complaint to allege that Aclara is infringing another
of its patents covering technology for controlling the flow of materials in
microfluidic chips. Aclara has counterclaimed for a declaratory judgment that
the patents in this suit are invalid, unenforceable and are not infringed by
Aclara. While Caliper believes that its complaints are meritorious, there can be
no assurance that Caliper will prevail in its actions against any or all of the
defendants, or that if Caliper prevails, the damages or equitable remedies
awarded, if any, will be commercially valuable. Furthermore, Caliper has
incurred and is likely to continue to incur substantial costs and expend
substantial personnel time in pursuing its claims against Aclara and Caliper's
former patent counsel.
On April 23, 1999, Aclara Biosciences filed a lawsuit in United States
District Court for the Northern District of California alleging that Caliper is
making, using, selling or offering for sale microfluidic devices that infringe
United States Patent Number 5,750,015 in willful disregard of Aclara's patent
rights. This patent concerns methods and devices for moving molecules by the
application of electrical fields. The Aclara action seeks damages for past and
future reduced sales or lost profits based upon Caliper's alleged fabrication,
use, sale or offer for sale of allegedly infringing products and processes, and
seeks to enjoin Caliper's continued activities relating to these products.
Caliper has counterclaimed for a declaratory judgment of noninfringement,
invalidity and unenforceability of all claims of the Aclara patent. This action
subjects Caliper to potential liability for damages, including treble damages,
and could require Caliper to cease making, using or selling the affected
products, or to obtain a license in order to continue to manufacture, use or
sell the affected products. While Caliper believes that it has meritorious
defenses in this action, there can be no assurance that Caliper will prevail or
that any license required would be made available on commercially acceptable
terms, if at all. Even if Caliper prevails in the current action, there can be
no assurance that we will prevail again if Aclara appeals the case to a higher
court. Furthermore, Caliper has incurred and is likely to continue to incur
substantial costs and expend substantial personnel time in defending against the
claims filed by Aclara. Caliper's failure to successfully defend itself against
the Aclara action could have a material adverse effect on Caliper's business,
financial condition and operating results.
10. SUBSEQUENT EVENTS
On July 19, 2000, the federal judge in Aclara's lawsuit against Caliper
issued an order finding that eight of the eleven claims asserted against Caliper
are invalid, and interpreting the remaining asserted claims.
On August 30, 2000, Caliper completed a private placement of 2,300,000
shares of its common stock to selected institutional and private investors,
raising an aggregate of $110.4 million before payment of placement agent fees
and other expenses.
On September 14, 2000, Caliper reached a settlement agreement with Bertram
Rowland, an attorney working for Aclara, and Flehr, Hohbach, Albritton, Test and
Herbert, a law firm, in the breach of fiduciary duty and trade secret
misappropriation case brought by Caliper against those parties and Aclara on
March 22, 1999. The settlement provides Caliper with a $12 million cash payment
by Dr. Rowland and Flehr, Hohbach, Albritton, Test and Herbert, as well as other
terms. All claims against Aclara in this case remain unaffected by this
settlement agreement and continue to be pending in the California Superior
Court. This settlement also has no effect on Caliper's lawsuits with Aclara that
are pending in Federal District Court.
F-22
<PAGE> 84
[Caliper Technologies Corp. Logo]
